f:\12000 essays\business & economics (632)\401k Plans.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 401(k) Plans There are many economic issues facing the nation today. While some are extremely important in determining how the economy is balanced, others are not. Although this is true, that does not necessarily make these lesser important issues obsolete. Take, for example, the recent issue of corporate leaders matching contributors to the 401(k) plan with company stock, instead of with cash. Though this is a relatively National issue, it still greatly affects a large number of people in foreign areas as well as you and me. Because of this effect on such a large number of people, it is necessary that this issue be discussed, as will happen within the next few paragraphs. In the way that a 401(k) stock matching plan is set up; timing is everything. In a basic 401(k) plan employees put forth a set amount of dollars (usually pre-determined personally by the employee) before taxes are withheld This portion of the employee's paycheck is put toward his or her retirement. What some companies prefer to do in order to make the 401(k) plan more attractive for employees, is to match each employee's investment in the plan by a certain percent. Here is where the problem comes in. Though some companies match contributors either with cash or with a direct credit to the plan, other companies match with corporate stock. According to Richard Sasanow, a former assistant of public communications at Ernst and Young, "many experts consider this to be one of the riskiest investments for a 401 (k)-but may be worth it if you think your company has a great future." (Sasanow, 45) A recent survey shows that 18 percent of all companies made their matching contributions this way. Now for small, fast-growing businesses this would not seem as much of a risk since these companies' stock are generally on the increase. But for some large corporations, this is a great risk for employees since a lot of their retirement money is now based on how well the company does. Some say that because contribution matching is now based on how well the company does, then employees will strive to do a more efficient job in order to increase the overall stock price of the company, which, in turn, will increase the amount of retirement they will receive. Now the problem of timing comes in again. Mr. Jim Davenport, a Staff Writer for The State Newspaper uses a good example: "An imaginary worker for an oil company was looking forward to retiring at the end of the week. His 401(k) is fat and has been getting fatter thanks to company stock. On Tuesday, an oil tanker has a major spill and the stock market trashes the company's stock. By Friday, retirement may look a lot less attractive." Because that employee had no role in the oil spill, it is safe to say that the idea of employees working harder to increase stock prices is unattainable because of outside forces that employees have no control over. Now this employee is hurt even though stock prices have been generally rising over the past few years. Sasanow agrees: "In the case of companies like PanAm, Eastern Airlines or Carter Hawley Hale, which all went bankrupt, employees with company stock got the double whammy because their pension funds went bust and so did their stock. Though it may seem that employees are virtually powerless against how their company might invest their money, this is not altogether true. There are rules set forth from the Internal Revenue Service and the U.S. Department of Labor that control how employers construct their 401(k) plans. These rules require companies that run their own retirement plans to act in the best interest of the employee. This seems like the employees have an advantage over the employers now. But what the rules don't say is how specific the company must be when acting in the best interest of the workers. There are obviously some specifics that must be compromised should a court case come about. There are many important economic issues that face the lives of each American each day. Some are large and some are small. No matter what the size, it is important to take into account that these issues affect a large number of people, no matter what the situation. The recent issue of corporate stock matches is one that has affected a lot of people both locally, nationally, and internationally. Based on the information gathered, it is safe to say something needs to be decided on how to handle company matches on 401(k) plans. The best decision would be to leave it up to the court to decide what is in the best interest of the people and have every company and employee abide by those precedents. It seems that is the only fair way. Bibliography Sasanow, Richard. The 401 (k) Book. New York: Henry Holt and Company, 1996. Davenport, Jim. The State. May, 1995 f:\12000 essays\business & economics (632)\A Role of Ethics and Social Responsibilities in Management 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A Role of Ethics and Social Responsibilities in Management. Ethics can be defined as a process of evaluating actions according to moral principal of values(A.Alhemoud). Throughout the centuries people were trying to choose between profit and moral. Perhaps, some of them obtain both, but every time it could have roused ethical issues. Those issues concern fairness, justice, rightness or wrongness; as a result it can only be resolved according to ethical standards. Setting the ethical standards for the way of doing business in corporation is primarily task of management. Corporations have to maintain the same standards as an individual person and, in addition, corporations, as organizational units, have their own social responsibilities toward customers, employees and society. However, any business should keep it's original purpose of functioning - making profit. Balancing the traditional standards of profitability and burden of social responsibilities is not an easy task. In recent years it has been a trend of setting standards of corporate ethics according to high degree of morale. To be able to keep the ethical standards management must follow the law. However, there are some complications in enforcing it. The law affects and is affected by social forces and prevailing ethical standards. "Although the law can codify societies ethical ________________________________________________________________________ Alhemoud, Ali " Management Ethics is Smart Business." values, ethical decision making transcends the law in that 1) the law deals with actions not with thoughts, and therefore it does not (and cannot) codify all ethical requirements; and 2) an individual or a group may perceive a given law as immoral, not as a guide to ethical behavior." ( A. Alhemoud). How, then, a company can ensure that its code of ethics is both followed and enforced ? " ...Defense firm such as General Dynamics and TRW, and an information company, Dun & Broadstreet, have appointed internal ethics officers or ombudsmen. Whether employees have faith in these safeguards against corporate retaliation is hard to tell, though it is one step forward (The Economist August 19 1995) The ethical codes of corporations that that get so important nowadays also did not come into being at once. They emerged from individual ethical standards and corporate consciousness. Moreover, the public demand for prosecution of any violations of corporate, professional and business ethics has been increased. Finally, mass media made possible for society reveal secrets that were kept from public before. So, the business conduct regulations were created to "draft guidelines for ethical conduct, develop a process for monitoring business practices and recommend ways to correct questionable activities." (J.Byrne) All these measures were taken to balance various social responsibilities with the high degree of moral and sense of attainment. Unfortunately, cooperation of unethical behavior of a manager with a journalist may lead to an undesirable results. "Early in December 1995 , Smart Money's editor-at-large James J. Cramer wrote an article for his monthly column; Unconventional Wisdom, ________________________________________________________________________ Alhemoud, Ali "Management Ethics is Smart Business." Recommending four $2 to $6 "oprahn" stocks. Trading records show that at the at the peak, Cramer's firm had paper profits of more than $2 million on the stocks. The gain occurred because he had adopted at least three of the "oprhan" sometimes before writing the article. Cramers article said that he was buying one of the stock but did not disclose that"(F.Lalli). Clearly, neither the management nor the editors had in any way cared of conducting the ethical behavior and as the result the innocent investors were hurt. On the other hand, being ethical can be clever marketing strategy. Increasingly, consumers are swayed by "non-commercial" factors, such as whether the product harms the environment . "Firms such as Ben & Jerry's, an ice cream maker and Body Shop international, a cosmetics retailer, have enforced their brands by publicizing their ethical standards...Calmins Engine , a maker of diesel engines , made the product greener while lobbing for stricter pollution laws. Dp Pont, a leading producer of ozone damaging CFCs, became an early member of anti-CFCs lobby partly because it knew it was well ahead of its rivals in developing alternative."( The Economist December 23 1996) But ethical self promotion can backfire. As in the case of Body Shop company that was publicly enforced to rephrase a statement that its product were not tasted on animals (Some other companies did that in the past). This accident made many consumers to question Body Shop ethical standards. Another interesting issue in corporate management is social responsibilities. Social ________________________________________________________________________ Frank Lalli "A Question of professional ethics" responsibilities can be defined as set of obligations an organization has to protect and enhance the society in which it functions.(Ricky W. Griffin. "Management"). There are a few main components of social responsibilities. Any business has responsibilities to its customers. The paramount duty in this respect is to provide customers with quality and safe products. Unfortunately, not all businesses follow this rule. The example of such deception is tobacco industry, which delibelatry manipulated with the level of nicotine in cigarettes. Despite of declaration of managers, scrutinize research made it clear that industry tried to maintain the addictive level of nicotine. The purpose of it was far from humanistic - addicted smokers kept buying cigarettes, making the industry prosperous and profitable. There has been a number of other different customers' abuses such as sale of fruits with overdosed chemicals, breast implants for women and etc. Though, the responsibilities to its customers is crucial point of management, the way managers treat employees is another parameter of evaluation of companies ethical well- being. Unfortunately, the most concern of managers is theirs own job rather than theirs employees. Another problem is equal employment opportunities for everyone. Although a lot was done to destroy the system that kept women and minorities away from the top management positions, many corporations still rely on white men's stereotypes and prejudice. Women are considered just as accessories for men and are not treated equally. In fact, firms attitude toward employees often determines the way employees feel about company. As a rule, corporate code of ethics contains the pattern of behavior, an employer expect from employee. Another responsibilities of the companies' management is to stockholders. This usually rises a so called "agent problem" (Dyckman, Intermediate Accounting). Managers are in control of the property stockholders. However, the interests of these two groups may not be the same. As manager is looking for more power and prestige, they can tend to less profitable operations. Also corporate officials may vote for high salaries and bonuses for themselves, decreasing the dividends of stockholders by that. There is no particular solution for all of these issues. There is only hope that ethical standards and social responsibilities would guide every manager throughout his/her career. "Professional conduct should be governed by a code of ethics that reflects positively on the practitioner and managerial profession. Simply stated, nothing should prevent a manager from maintaining high ethical standards and social responsibility in the quest for high performance and quality." f:\12000 essays\business & economics (632)\A Role of Ethics and Social Responsibilities in Management.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A Role of Ethics and Social Responsibilities in Management. Ethics can be defined as a process of evaluating actions according to moral principal of values(A.Alhemoud). Throughout the centuries people were trying to choose between profit and moral. Perhaps, some of them obtain both, but every time it could have roused ethical issues. Those issues concern fairness, justice, rightness or wrongness; as a result it can only be resolved according to ethical standards. Setting the ethical standards for the way of doing business in corporation is primarily task of management. Corporations have to maintain the same standards as an individual person and, in addition, corporations, as organizational units, have their own social responsibilities toward customers, employees and society. However, any business should keep it's original purpose of functioning - making profit. Balancing the traditional standards of profitability and burden of social responsibilities is not an easy task. In recent years it has been a trend of setting standards of corporate ethics according to high degree of morale. To be able to keep the ethical standards management must follow the law. However, there are some complications in enforcing it. The law affects and is affected by social forces and prevailing ethical standards. "Although the law can codify societies ethical ____________________________________________________ ____________________ Alhemoud, Ali " Management Ethics is Smart Business." values, ethical decision making transcends the law in that 1) the law deals with actions not with thoughts, and therefore it does not (and cannot) codify all ethical requirements; and 2) an individual or a group may perceive a given law as immoral, not as a guide to ethical behavior." ( A. Alhemoud). How, then, a company can ensure that its code of ethics is both followed and enforced ? " . ..Defense firm such as General Dynamics and TRW, and an information company, Dun & Broadstreet, have appointed internal ethics officers or ombudsmen. Whether employees have faith in these safeguards against corporate retaliation is hard to tell, though it is one step forward (The Economist August 19 1995) The ethical codes of corporations that that get so important nowadays also did not come into being at once. They emerged from individual ethical standards and corporate consciousness. Moreover, the public demand for prosecution of any violations of corporate, professional and business ethics has been increased. Finally, mass media made possible for society reveal secrets that were kept from public before. So, the business conduct regulations were created to "draft guidelines for ethical conduct, develop a process for monitoring business practices and recommend ways to correct questionable activities." (J.Byrne) All these measures were taken to balance various social responsibilities with the high degree of moral and sense of attainment. Unfortunately, cooperation of unethical behavior of a manager with a journalist may lead to an undesirable results. "Early in December 1995 , Smart Money's editor-at-large James J. Cramer wrote an article for his monthly column; Unconventional Wisdom, __________________________________________________________ ______________ Alhemoud, Ali "Management Ethics is Smart Business." Recommending four $2 to $6 "oprahn" stocks. Trading records show that at the at the peak, Cramer's firm had paper profits of more than $2 million on the stocks. The gain occurred because he had adopted at least three of the "oprhan" sometimes before writing the article. Cramers article said that he was buying one of the stock but did not disclose that"(F.Lalli). Clearly, neither the management nor the editors had in any way cared of conducting the ethical behavior and as the result the innocent investors were hurt. On the other hand, being ethical can be clever marketing strategy. Increasingly, consumers are swayed by "non-commercial" factors, such as whether the product harms the environment . "Firms such as Ben & Jerry's, an ice cream maker and Body Shop international, a cosmetics retailer, have enforced their brands by publicizing their ethical standards...Calmins Engine , a maker of diesel engines , made the product greener while lobbing for stricter pollution laws. Dp Pont, a leading producer of ozone damaging CFCs, became an early member of anti-CFCs lobby partly because it knew it was well ahead of its rivals in developing alternative."( The Economist December 23 1996) But ethical self promotion can backfire. As in the case of Body Shop company that was publicly enforced to rephrase a statement that its product were not tasted on animals (Some other companies did that in the past). This accident made many consumers to question Body Shop ethical standards. Another interesting issue in corporate management is social responsibilities. Social ________________________________________________________ ________________ Frank Lalli "A Question of professional ethics" responsibilities can be defined as set of obligations an organization has to protect and enhance the society in which it functions.(Ricky W. Griffin. "Management"). There are a few main components of social responsibilities. Any business has responsibilities to its customers. The paramount duty in this respect is to provide customers with quality and safe products. Unfortunately, not all businesses follow this rule. The example of such deception is tobacco industry, which delibelatry manipulated with the level of nicotine in cigarettes. Despite of declaration of managers, scrutinize research made it clear that industry tried to maintain the addictive level of nicotine. The purpose of it was far from humanistic - addicted smokers kept buying cigarettes, making the industry prosperous and profitable. There has been a number of other different customers' abuses such as sale of fruits with overdosed chemicals, breast implants for women and etc. Though, the responsibilities to its customers is crucial point of management, the way managers treat employees is another parameter of evaluation of companies ethical well- being. Unfortunately, the most concern of managers is theirs own job rather than theirs employees. Another problem is equal employment opportunities for everyone. Although a lot was done to destroy the system that kept women and minorities away from the top management positions, many corporations still rely on white men's stereotypes and prejudice. Women are considered just as accessories for men and are not treated equally. In fact, firms attitude toward employees often determines the way employees feel about company. As a rule, corporate code of ethics contains the pattern of behavior, an employer expect from employee. Another responsibilities of the companies' management is to stockholders. This usually rises a so called "agent problem" (Dyckman, Intermediate Accounting). Managers are in control of the property stockholders. However, the interests of these two groups may not be the same. As manager is looking for more power and prestige, they can tend to less profitable operations. Also corporate officials may vote for high salaries and bonuses for themselves, decreasing the dividends of stockholders by that. There is no particular solution for all of these issues. There is only hope that ethical standards and social responsibilities would guide every manager throughout his/her career. "Professional conduct should be governed by a code of ethics that reflects positively on the practitioner and managerial profession. Simply stated, nothing should prevent a manager from maintaining high ethical standards and social responsibility in the quest for high performance and quality." f:\12000 essays\business & economics (632)\A Senators Pain.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A Senator's Pain Tommie Porter English Com. 2 Sec. 19 Dr. Chichester 12/11/95 Paper 4 - Final Draft Most Californians know exactly what they were doing when the historical were read that acquitted the four LAPD officers, and sparked the civil unrest in Los Angeles. Anna Deavere Smith does an excellent job representing Los Angeles citizens in her theatrical piece entitled Twilight: Los Angeles 1992. Smith writes, "Every person I include in the book, and who I perform, has a presence that is much more important than the information they give" (Smith: xxiv). In this statement Smith tells the reader that the facts each character gives is not as important as his her presence, because anyone can give facts about an event. Smith wants the reader to pay close attention to the feelings expressed by each individual she interviewed, because feelings tell more about a person and an event than the facts. In Twilight: Los Angeles 1992 the monologue by Bill Bradley entitled "Application of the Law" contributes more to Smith's piece than does the monologue by Elaine Brown entitled "Ask Saddam Hussein," because when a Senator notices the reality of racism it seems authentic. Although both Bradley and Brown give similar information it is ironic that a white Senator showed more anger toward racism than the former Black Panther. When Senator Bradley begins telling his story his he points out how our society still has inequalities as he says, "I mean, you know, it's still... There are people who are, uh, who the law threats in different ways" (Smith: 214). The following statements Bradley makes during his interview shows his anger for racial differences. When Bradley informs the reader about an African- American Harvard Law School student who experienced unjust treatment by the police. Bradley's anger is expressed through his statement, as he says, "He pulls over. Police car pulls in front...behind...beside of him. Police jump out, guns, pull him out of the car, throw him to the floor, put a handcuff on him...All the while pointing a gun out at him" (Smith: 215). It is not fair that this African-American Law School student has to put up with racism just because his skin color and the "well-to-do" neighborhood he was driving through. Bradley's anger shows the reader that racism should not exist because our Constitution says, "all men are created equal." Bradley is an important character to Smith's theatrical piece because he is a white Senator who can help influence decision making. Bradley lets the reader know that he is doing all he can to make the "theory" of equality a reality for all races. Unlike Senator Bradley, Elain Brown's reality was growing up as a black woman in an "unequal" society. In Brown's interview she tries to convince young brothers to pick up the books instead of the guns. Brown a former Black Panther leader shows a personal sympathy for Jonathan Jackson, as she says, "I think that this idea of picking up the gun and going into the street without a plan and without any more rhyme or reason than rage is bizarre and so, uh...And it's foolish" (Smith: 228). Brown's contribution to Smith's theatrical piece is limited because she does not show the authentic anger like Senator Bradley. Even though both Senator Bill Bradley and former Black Panther leader Elaine Brown gave similar messages, their presence affects the reader in a different way. After reading Bradley's monologue, I felt elated and anger. When Bradley questioned the partner at the law firm as he ask, "What did the partner of the law firm do on Monday? Did the partner call the police commissioner?" (Smith: 216). When Bradley begins asking question he lets the reader know that he is also bother by racism. Yet in Brown's monologue racism is not the problem. Brown wants to convince the reader that guns are not worth his or her life. Brown tells the reader, "all one has to do is ask, to ask the Vietnamese or Saddam Hussein about the power...of the United States" and how they take down threats (Smith: 228). Brown wants young brothers to realizes how important their lives are to our society. In Twilight: Los Angeles 1992 when Anna Deavere Smith says, "Every person I include in the book, and who I perform, has a presence that is much more important than the information," Bill Bradley and Elaine Brown are just a few of the characters Smith is describing. Bill Bradley was a white Senator who people might have thought would have agreed with the actions of the LAPD but ironically he was angry. Senator Bradley's monologue contributes more to Smith's theatrical piece because of this irony. I wonder what our world would like if we had more Senator's like Bill Bradley? f:\12000 essays\business & economics (632)\Abouts On The Great Depression.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Abouts On The Great Depression To my amazement the Great Depression serves as a natural debating point that "justifies" or "refutes" various economic policies. The Great Depression and the New Deal are complex topics that are open to many interpretations. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. Seeing the order in which events actually occurred dispels many myths about the Great Depression. One of the greatest of these myths is that government intervention was responsible for its onset. Truly massive intervention began only under the presidency of Franklin Roosevelt in 1933, who was sworn in after the worst had already hit. Although his New Deal did not cure it, all the leading economic indicators improved during his tenure. To understand the Great Depression, it is important to know the theories of John Maynard Keynes. Keynes is known as the "father of modern economics" because he was the first to accurately describe some of the causes and cures for recessions and depressions. In a normal economy, Keynes said, there is a circular flow of money. My spending becomes part of your earnings, and your spending becomes part of my earnings. For various reasons, however, this circular flow can falter. People start hoarding money when times become tough; but times become tougher when everyone starts hoarding money. This breakdown results in a recession. To get the circular flow of money started again, Keynes suggested that the central bank, the Federal Reserve System, should expand the money supply. This would put more money in people's hands (through the multiplier effect), inspire consumer confidence, and compel them to start spending again. A depression, Keynes believed, is an especially severe recession in which people hoard money no matter how much the central bank tries to expand the money supply. In that case, he suggested that government should do what the people were not: start spending money. He called this "priming the pump" of the economy. I think that most economists believe that only massive U.S. defense spending in preparation for World War II cured the Great Depression. After the success of Keyne's economic beliefs were proven, almost all free governments around the world became Keynesian. These policies have dramatically reduced the severity of recessions since then, and appear to have completely eliminated the depression from those who follow such economic beliefs throughout the world. Events of the 1920s The Roaring Twenties were an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire ("leave it alone"), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form, and inequality of wealth and income reached record levels. The country was on the preferred gold standard, and the Federal Reserve was not allowed to significantly change the money supply. Many try to blame the worsening of the Depression on Hoover, for supposedly betraying the laissez- faire beliefs. As this time line will show, almost all of Hoover's government action occurred during his last year in office, long after the worst of the Depression had hit. In fact, he was voted out of office for doing "too little too late." The only notable exception to his earlier idleness was the Smoot-Hawley tariff of 1930. But much more important, the economy was clearly turning downward even before Hoover took office in 1929. Entire sectors of the economy were depressed throughout the decade, such as: agriculture, energy and mining. Even the two industries with the most spectacular growth - construction and automobile manufacturing - were contracting in the year before the stock market crash of 1929. About 600 banks a year were failing. Half the American people lived at or below the minimum subsistence level. By the time the stock market crashed, there was a excessive amount of goods on the market, and inventories were three times their normal size. The fact that all this occurred even before the first act of government intervention is a major refutation of laissez-faire ideology. TIMELINE OF GENERAL EVENTS 1920s •During World War I, federal spending grows three times larger than tax collections. When the government cuts back spending to balance the budget in 1920, a severe recession results. However, the war economy invested heavily in the manufacturing sector, and the next decade will see an explosion of productivity... although only for certain sectors of the economy. •An average of 600 banks fail each year. •Agricultural, energy and coal mining sectors are continually depressed. Textiles, shoes, shipbuilding and railroads continually decline. •The value of farmland falls 30 to 40 percent between 1920 and 1929. •Organized labor declines throughout the decade. The United Mine Workers Union will see its membership fall from 500,000 in 1920 to 75,000 in 1928. The American Federation of Labor would fall from 5.1 million in 1920 to 3.4 million in 1929. •"Structural unemployment" enters the nation's vocabulary; as many as 200,000 workers a year are replaced by automatic or semi-automatic machinery. •Over the decade, about 1,200 mergers will swallow up more than 6,000 previously independent companies; by 1929, only 200 corporations will control over half of all American industry. •By the end of the decade, the bottom 80 percent of all income-earners will be removed from the tax rolls completely. Taxes on the rich will fall throughout the decade. •By 1929, the richest 1 percent will own 40 percent of the nation's wealth. The bottom 93 percent will have experienced a 4 percent drop in real disposable per- capita income between 1923 and 1929. •The middle class comprises only 15 to 20 percent of all Americans. •Individual worker productivity rises an astonishing 43 percent from 1919 to 1929. But the rewards are being funneled to the top: the number of people reporting half-million dollar incomes grows from 156 to 1,489 between 1920 and 1929, a phenomenal rise compared to other decades. But it is still less than 1 percent of all income-earners. 1922 •The conservative Supreme Court strikes down federal child labor legislation. 1923 •President Warren Harding dies in office; his administration seemed to me, to be one of the most corrupt in American history. Calvin Coolidge, who is squeaky clean by comparison, becomes president. Coolidge is no less committed to laissez-faire and a non-interventionist government. He announces to the American people: "The business of America is business." •Supreme Court nullifies minimum wage for women in District of Columbia. 1924 •The Ku Klux Klan reaches the height of its influence in America: by the end of the year it will claim 9 million members. It will decline drastically in 1925, however, after financial and moral scandals rock its leadership. •The stock market begins its spectacular rise. Bears little relation to the rest of the economy. 1925 •The top tax rate is lowered to 25 percent - the lowest top rate in the eight decades since World War I. •Supreme Court rules that trade organizations do not violate anti-trust laws as long as some competition survives. 1928 •The construction boom is over. •Farmers' share of the national income has dropped from 15 to 9 percent since 1920. •Between May 1928 and September 1929, the average prices of stocks will rise 40 percent. Trading will mushroom from 2-3 million shares per day to over 5 million. The boom is largely artificial. 1929 •Herbert Hoover becomes President. Hoover is not as committed to laissez-faire ideology as Coolidge. •More than half of all Americans are living below a minimum subsistence level. •Annual per-capita income is $750; for farm people, it is only $273. •Backlog of business inventories grows three times larger than the year before. Public consumption seems to be markedly down. •Freight carloads and manufacturing fall. •Automobile sales decline by a third in the nine months before the crash. •Construction down $2 billion since 1926. •Recession begins in August, two months before the stock market crash. During this two month period, production will decline at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent. •Stock market crash begins October 24. Investors call October 29 "Black Tuesday." Losses for the month will total $16 billion, an astronomical sum in those days. •Congress passes Agricultural Marketing Act to support farmers until they can get back on their feet. 1930 •By February, the Federal Reserve has cut the prime interest rate from 6 to 4 percent. Expands the money supply with a major purchase of U.S. securities. However, for the next year and a half, the Fed will add very little money to the shrinking economy. (At no time does it actually pull money out of the system.) Treasury Secretary Andrew Mellon announces that the Fed will stand by as the market works itself out: "Liquidate labor, liquidate stocks, liquidate real estate... values will be adjusted, and enterprising people will pick up the wreck from less-competent people." •The Smoot-Hawley Tariff passes on June 17. •The first bank panic occurs later this year; a public run on banks results in a wave of bankruptcies. Bank failures and deposit losses are responsible for the contracting money supply. •Supreme Court rules that the monopoly U.S. Steel does not violate anti-trust laws as long as competition exists, no matter how negligible. •Democrats gain in Congressional elections, but still do not have a majority. •The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent. 1931 •No major legislation is passed yet addressing the Depression. •A second banking panic occurs in the spring. •The GNP falls another 8.5 percent; unemployment rises to 15.9 percent. 1932 •This and the next year are the worst years of the Great Depression. For 1932, GNP falls a record 13.4 percent; unemployment rises to 23.6 percent. •Industrial stocks have lost 80 percent of their value since 1930. •10,000 banks have failed since 1929, or 40 percent of the 1929 total. •About $2 billion in deposits have been lost since 1929. •Money supply has contracted 31 percent since 1929. •GNP has also fallen 31 percent since 1929. •Over f:\12000 essays\business & economics (632)\Accounting Ethics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1249 paper will discuss the public perception of CPAs in today's society, pitfalls that they may encounter, methods to prevent some of these negative behaviors and consequences they may face should they fall short. Most "Who Do You Trust?" surveys rank politicians, lawyers and used car salesmen at the bottom and certified public accountants at the top. That is because the CPA profession has a squeaky clean image--anal-retentive little wimps who wear thick glasses and cannot get a date. CPAs are known and respected for their honesty. The profession that goes out of its way to project that image, and there is a certain amount of truth to it. Not all accountants are anal-retentive little wimps who cannot get a date. Many of them are quite articulate. Some are quite lovely, in some schools, more than half of the accounting majors are women. Also, not all CPAs are squeaky clean and respected for their honesty. Some are quite dishonest and are putting a black mark on the image of the entire profession. There is one area where the CPA profession has fallen short of protecting the public interest. The general duty that accountants owe to their clients and the other persons who are affected by their actions is to "exercise the skill and care of the ordinarily prudent accountant" in the same circumstances. Two elements compose the general duty of performance: skill and care. Another element and responsibility is owed to clients and other persons, that is that accountants should observe a standard of ethical or social responsibility. One set of difficulties concerns ethics education's ability to instill the chosen values and to make them stick after the educational process is completed. Instruction in accounting ethics is directed at people whose character-or lack there-of-has largely been formed by the time the instruction occurs. Although such instruction should increase the moral awareness of those who are already predisposed to listen, its effect on the basically self-interested, indifferent, or unethical is questionable. Even those who are positively influenced by ethics instruction, moreover, may still behave irresponsibly if their careers or their livelihoods require them to act in their client's financial interest. Recent pressure to include more ethics instruction in the accounting classroom has placed an emphasis on individuals who have a sense of moral responsibility. In accounting ethics education literature the benefits of teaching ethics have been greatly influenced by the following set of goals presented by Loeb (1988): 1. Relate accounting education to moral issues. 2. Recognize issues in accounting that have ethical implications. 3. Develop "a sense of moral obligation" or responsibility. 4. Develop the abilities needed to deal with ethical conflicts or dilemmas. 5. Learn to deal with uncertainties of the accounting profession. 6. "Set the stage for" a change in ethical behavior. 7. Appreciate and understand the history and composition of all aspects of accounting ethics and their relationship to the general field of ethics. An emphasis on codes of conduct may result in students' failure to "develop discretion and judgment . . .which are more than simply a matter of what acts are forbidden, which are required, and which are permissible" (Whitbeck, 1992, 128). Emphasis on rules may quickly become training in how to get around the rules while remaining technically legal. While students must be acquainted with professional codes of conduct as part of their preparation for a career, most researchers on ethics do not consider such material to be sufficient grounding in ethical training (Fulmer and Cargile 1993:Adams et al.1995). A few years ago the American Institute of Certified Public Accounts (AICPA), the largest CPA membership organization in the world, decided that starting in the year 2000, new members would have to have 150 semester hour of college credits (5 Years) instead of the present four years to become a member (McGee). On the surface that does not appear to any big deal. No one has to become an AICPA member to practice public accounting or to be a CPA. But, there are several problems with this. The most obvious is that the major group harmed is the students (or parents), who must cough up another $10,000 or $20,000 for a fifth year of education. Then there is the added cost of not having a job for the extra year it will take to complete the fifth year, so there is another $25,000 - $30,000. But that is not all. The segment to the student population most harmed by this insane policy is the segment least likely to be able to pay for a fifth year - blacks, Hispanics, low-income students of whatever persuasion. Poor people and minorities, along with rest of us, will have to face an even higher barrier to entry into the accounting profession. (Metzger 1061) As mentioned earlier is additional education only going to make accountants more proficient at learning techniques to get around laws, perhaps using unethical behaviors? And at the same time force extra barriers on many disadvantaged people hoping to make an honest living? This may be only speculation of the could and could nots of what may happen, but serious food for thought. What are the consequences of these unethical behaviors? Accountants can be held liable for damages to clients and to third parties, he may also be found criminally liable for violation of securities, tax, and other laws. For criminal violations, he may be fined and imprisoned. Wrongful conduct may also result in the issuance of an injunction, which bars him from doing the same acts in the future. In addition, his wrongful conduct may be the subject of administrative proceedings by the Securities and Exchange commission and state licensing boards. An administrative proceeding may result in the revocation of an accountant's license to practice or the suspension from practice. Finally disciplinary proceedings may be brought against an accountant by professional societies such as the AICPA. Most states have statues imposing criminal penalties on accountants who willfully falsify financial statements or other reports in fillings under the state securities laws and who willfully violate the state securities laws or aid and abet criminal violations of these laws by others. Accountants have great responsibilities to their clients and to society. As an accounting major, doing research for this paper has helped to open my eyes to the many aspects of my intended profession. I have realized that it is a very trustworthy profession, held in the highest esteem by the public at large. I know that I must take my job and the trust instilled in me very seriously. I hope that this paper has enlightened you to the pitfalls many certified public accountants face today, both with ethical standards and with impending educational requirements. Reference Page Fulmer, W.E. and B.R. Cargile: 1987, "Ethical Perceptions of Accounting Students: Does Exposure to a Code of Professional Ethics Help?" Issues in Accounting Education 2, 207-219. Loeb, S.E.: 1988, "Teaching Students Accounting Ethics: Some Crucial Issues', Issues in Accounting Education 3, 316-329. Metzger, J.D.: 1992. "Business Law and the Regulatory Environment: Consepts and Cases 8th Edition. 1061. McGee, Robert W., "CPAs vs. the Public Interest". Dumont Institute, Ethic Information Center. 1. Whiteck, C: 1992, 'The Trouble with Dilemmas: Rethinking Applied Ethic', Professional Ethics 1, 119-142. er, J.D.: 1992. "Business Law and the Regulatory Environment: Consepts and Cases 8th Edition. 1061. McGee, Robert W., "CPAs vs. the Public Interest". Dumont Institute, Ethic Information Center. 1. Whiteck, C: 1992, 'The Trouble with Dilemmas: Rethinking Applied Ethic', Professional Ethics 1, 119-142. f:\12000 essays\business & economics (632)\Accounting System Controls.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Accounting System Controls In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal and external controls for the system. The internal controls are the checks that are placed in the system my the company's own management and directors. Today more and more companies are moving from the manual accounting systems to computerized accounting information systems. The advantages of a computerized system are increases in the speed and accuracy of processing accounting information. However, as systems become computerized, the internal controls for that system has to be adapted accordingly. This is because computerized systems bring with them certain unique problems that can only be removed or minimized by adapting the present controls and adding new controls. These problems are · In a manual system there is a paper trail for the internal auditor to follow. All records and transactions are kept on paper and so an auditor has clear and documented proof of what has transpired. Computerized systems rarely have a clear paper trail to follow. Since computers do all of the sorting of the information the company rarely sorts the source documents. Also the computer does most of the calculations and processing so there would not be the amount of documentation that there would be in a manual system. · Another problem of computer systems is the fact that there can be difficulty in determining who entered the data. In a manual system the identity of the person entering the data can be identified possibly by the person's handwriting. This cannot be done in a computerized system. This makes it very difficult to determine who is responsible for errors or fraud. · Since the computers do all calculations and processing errors can occur due to bad design of the program. This can be difficult to detect especially if the error does not occur frequently and only does so under particular conditions. · Computer systems also offer new opportunities for fraud. If a computerized system is not set up properly and certain checks not put in then the computer system can be used to defraud the company. The fact that it is difficult to trace who enters the data only adds to the magnitude of this. In order to minimize the risks of errors or fraud occurring in the computer system certain controls have to be put into place. These controls can be broken up into three different categories. They are 1. Administrative Controls 2. Systems Development Controls 3. Procedural Controls Administrative Controls Administrative controls are those controls are those controls that are placed on the system to ensure the proper organization and processing of data. These administrative controls are Division of duties. Duties are assigned to different individuals in the organization. This is done in such a way that no one person can have full control over a transaction. This ensures that an individual cannot have full control over the creation and operating of the system. One reason for this division is having one person controlling the system can result in fraud if that person is not completely trustworthy. Another reason for the division of duties is to prevent the organization from becoming totally dependent on the person controlling the computer system. If this person were to leave then the organization would have no one to run the system. The division of duties ensures that employees can leave without having any major effect on the system. Operation Controls Operation controls are necessary controls since they since they determine what the computer systems and the employees using the system have been doing. These controls can come in the form of · rotation of shifts · duty logs · a manual of operating instructions · attendance controls · computer logs These controls can allow an auditor to track the exact actions of the computer systems and employees. This documentation allows the to easily spot any errors or improper actions that have occurred. Files Controls These controls are put in place to minimize the number of errors and omission that occur in the file system. Good file controls are · Availability of a skilled technician · Proper procedures for issuing and returning files · proper labeling and indexing of files · protection of storage media from dust, humidity, fire etc. · Procedures for returning files for certain minimum periods · Facilities for recovering files that have been damaged or corrupted. · Facilities for creating backup copies of files. The placement of these controls have very serious implications. These controls that information that is vital to the organization is safe. The data in these files must be protected from errors or tampering whether intentional or accidental. Hardware Security The computer hardware is not only important to the processing of the information but is also a valuable fixed asset for the company. Therefore controls for the protection of the hardware must be put into place. Computer hardware must be placed in a secure area where the access to it is limited only to those who need to use it. Certain levels of security must me maintained e.g. only the systems administrator can have access to the CPU and storage systems. The computer system must also be placed in a control environment to protect it from environmental hazards e.g. dust and humidity. Arrangements should be made to protect the computer against fires and power fluctuations. There should also be some controls in place to recover the system in case the hardware fails. These controls would ensure that the breakdown of the hardware would not have a serious effect on the company. Systems Development controls These are the controls that are put over the design and implementation of the system. These controls ensure that the system is developed with a minimum number of errors. Standardization One important control is standardization. These consist of various standards that are laid down by management for the design and development of the system. These standards include the complete documentation of the development of the system. These standards would not only benefit in the correcting of problems and updating of the system, the documentation would allow the auditor to get a better idea of how the system works. This would help the auditor in spotting possible problems in the system. Involvement of Management The involvement of the organizations management in the development of the system is an important control. With these controls, management must have documentation such as feasibility studies, budgets and performance evaluations. These documents would allow management to decide if the system being developed would be viable and cost effective. Without such controls, expensive projects can be started and never finished, costing the organization a great deal in time and money. These managerial controls force the development team to do a thorough job since they are accountable to management.. Testing Testing and trials are important controls and require that systems are thoroughly tested before they become operational. The extensive testing of programs will minimize or even eliminate the errors in the computer system. The tests will show exactly what type of problems occur in the system in the processing of certain data and would also indicate any problems in the response time of the systems. Also, the benchmarks that are calculated in testing can be compared with benchmarks taken later on to see if the program has been tampered with. Training The training of the data processing staff is a very important control. Proper training of staff would reduce the number of errors that would occur in the system due to inadequate knowledge of the system. The trained staff would be less likely to make mistakes. Concurrent Running of old and new systems. Running the old and new systems concurrently is also an important control. This control would allow the organization to compare the results of the two systems when they do different tasks. These results would allow them to find any problems in the new system by validating the results of the new system with the results of the old one Procedural Controls. Procedural controls are one of the most important set of controls as they are the ones that are placed on the day to day running of the system. Procedural controls are particularly effective in detecting whether a system has been tampered with and so are effective in detecting fraud. Procedural controls are divided into those controls placed on input, output, processing and storage. Input Controls These are procedural controls that are placed on the input of data into the system. These controls are · Serial numbering of documents · Validation checks on documents · Batching documents and checking of batch totals · authorization procedures These controls are carried out by the user department. The Data processing depart also then gets the data and put carry out their own controls. These are · Vetting of batches to ensure that they are correct · checks on data conversion methods These checks are made so that the data that is entered is as accurate and as error free as possible. Processing Controls Once that data has been entered into the system and is being processed, the processing controls are used to ensure that the data is processed properly. Processing controls are divided into two categories. These are 1. Validation tests 2. File checks The validation checks are made on the data when it is being processed. These checks ensure that the data is processed correctly. Validation checks include · Check digit verification · Checks in the size of file and records · check on mode of the file · Check on consistency of fields in files · Range tests on numbers and values · Hash totals · Control record checks · Sequence checks to ensure that records are entered in the right order · Error logs which contain a record of all errors that have occurred during the processing of the data. · Transaction logs which contain a record of each transaction that has been made. This provides an audit trail for the auditor. The transaction log would contain where a particular transaction originated and who initiated it. File checks are the controls to ensure that the integrity of the files that hold the data for the organization remain intact during processing. Some file checks are · Use of header tables to identify files · Use of trailer labels to ensure that the record is completely read. · Arithmetic proof of the validation of certain fields by checking them with other fields in the record Output controls The outputting of processed data also has certain controls. These output controls are used to ensure the completeness, accuracy and timeliness of the output on screen, printed form as well as on storage media. Some output control procedures are · Initial screening of the output to detect obvious errors · Output should only be distributed by authorized persons to authorized persons. · Controls totals on the output should be checked against the control totals of the input to ensure the consistency of data. · All the documents produced should be numbered and accounted for · Highly sensitive materials should not be seen by the general data processing staff but should be outputted to a secure location. · A feedback system must be developed between the users and the data processing department so that any errors that occur would be reported and subsequently corrected. Storage Controls When data is stored additional controls must be put into place to ensure that the data is stored properly and that the data is to tampered with in any way. These controls ensure that no unauthorized persons would be able to tamper with or destroy the data whether it be intentionally or deliberately. Some of these controls are · Authorization controls to ensure that only authorized personnel is allowed to make amendments and deletions to the files. · Controls to ensure that amendments and deletions are to be thoroughly documented so that the person who made the amendments can be made accountable for the changes they made. · Controls to ensure that there are proper facilities for the backup of files. These include ensuring that files are backed up regularly, multiple backup files are kept and that these files are kept at a secure location and are easily retrievable in case of an emergency. · Controls that would ensure that the data can be recovered in case of disaster. This includes transaction logs of complete system dumps which will make periodic backups of all the transactions that occur within the system. Computerized accounting systems bring with then a set of new and unique problems. The internal controls that have been put into place for a manual system to help the internal auditor cannot fully prevent or minimize the possibility of errors or fraud that come with the computerized systems. Therefore the old controls must be modified for the new system and new controls must be put in. Only then can the internal auditor ensure that the number of errors that occur within the system be minimized or even eliminated.. Bibliography Basset P.H. (1993) Computerised accounts, 3rd Edition, Manchester : NCC Blackwell. 1-85554-205-6. Grudinsku G., Burch J., (1989), Information Systems Theory and Practice, 5th Edition, John Wiley and Sons, Inc. 0-471-61293-6. f:\12000 essays\business & economics (632)\Accounting Types.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 533 Intro Thesis- An accountant has many choices as to what particular field of accounting to specialize in depending on the financial information the accountant wants to analyze and how the information is put to use. Meth - Financial accountant, tax accountants and internal auditors are all accountants in general but require different training and work methods. I. Financial Accountants A. For managers, stockholders B. Record and report data using GAAP C. Private IV. Tax Accountants E. For individuals F. Prepare returns G. Public (CPA) VIII. Internal Auditors I. For own firm J. Review accounting and operating procedures K. Private (CIA) Conc. Summary, Author's Comment The Accounting Equation Thesis: An accountant has many choices to what particular field of accounting to specialize in depending on the financial information she wants to analyze and how it is done. Class: Accountants Special Interest: Analyzing Financial Information Subclasses: Financial accountants Tax accountants Internal auditors A college student decides she wants to become an accountant. General accounting and bookkeeping classes can be taken in high school. In college, the student needs to decide on a more specific field of accounting. An accountant has many choices as to what particular field of accounting to specialize in depending on the financial information she wants to analyze and how it is done. Financial accountants, tax accountants and internal auditors are all accountants in general, but require different training and work methods. A financial accountant records economic data and periodically prepares reports that show profit and other financial information of a company using the generally accepted accounting principles. The reports prepared by the accountant are useful for managers, and also for owners, creditors and the public. Based on information in the reports the public can use the reports to choose a company to invest in. Because a financial accountant is employed by an individual company, she is considered a private accountant. Another type of accountant is a tax accountant. A tax accountant prepares yearly tax returns for individual clients. The accountants have to use constant data such as rates of pay and other information to determine the proper amount of taxes to be paid. These accountants have to take a class once a year to catch up on yearly changes in tax laws and regulations. If a tax accountant has met state experience requirements, she may want to take exams to become a Certified Public Accountant (CPA). A third type of accountant is an internal auditor. Auditors are sponsored by the Institute of Internal Auditors and work within an individual firm. The auditor reviews accounting and operating procedures used by a firm to make sure everything is being run properly. If things aren't being run properly, it is the auditor's job to find the problem and to try to rectify it. An auditor is considered a private accountant because he is employed by a firm, yet if he specializes in auditing, he may want to get a Certified Internal Auditor (CIA) certificate. So, an accountant has career choices to make based on more specialized interests in a field, and as with other careers, a different specialization will have different educational requirements. Different classes will need to be taken in order to gain enough knowledge in the general field and several classes on a similar topic when the accountant decides what to specialize in. Accounting may not seem like a popular profession, or a very interesting one, but once one looks deep into the separate activities and training of each specialization, on can see that accounting may appeal to many different types of people for many different reasons. f:\12000 essays\business & economics (632)\Accounting.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2681 Justin Denman Accounting and Auditing Processes March 4, 2000 Writing Assignment #1 Revenue Recognition Policies The purpose of this paper is to compare the revenue recognition policies of two companies in the search, detection, navigation, guidance, and aeronautical systems industry. The two companies I have selected are Aerosonic Corporation, and Esco Electronics Company. Esco Electronics Company is engaged in the design, manufacture, sale and support of engineered products. These products are used principally in filteration/fluid flow applications, electromagnetic compatibility (EMC) testing, and electric utility communications and control systems. The filtration/fluid flow and EMC testing products are supplied to a broad base of industrial and commercial customers worldwide. At the present time, electric utility communications systems are marketed primarily to customers in North America. The four primary industry segments of Esco are Filtration/Fluid Flow, Test, Communications, and other. In order for Esco to conform with generally accepted accounting principles, management must make careful estimates in preparing the financial statements. These estimates are for anticipated contract costs and revenues earned during the life of the contract. These amounts affect the reported amounts of assets and liabilities on the company's financial statements. Actual results could differ from these numbers. Revenues are recognized on commercial sales when products are shipped or when services are performed. Revenue on production contracts are recorded when specific contract terms are fulfilled. These amounts are determined either by the units of production or delivery methods. Revenues from cost reimbursement contracts are recorded as costs are incurred, plus fees earned. Revenue under long-term contracts in which the previous two methods are inappropriate, the percentage-of-completion method is used. Revenue under engineering contracts are generally recognized as certain "milestones" are attained. The percentage-of-completion method recognizes a portion of the estimated gross profit for each period based on progress to date. Progress to date is based on three factors. These three factors are the costs incurred to date, the most recent estimate of the project's total cost, and the most recent gross profit percentage. Progress to date is assumed to be the proportion of the project's costs incurred to date divided by total estimated costs. This fraction is known as the estimated percentage of completion, and is the estimated percentage of completion. However, he biggest flaw with this method is that it only deals with costs. This means that there may not be strong correlation between physical progress and costs incurred. Conceptually, one would want to match revenues when the earnings process is judged to be complete. Since costs don't necessarily mean physical completion, the revenues may not represent actual completion. However, this method does match all revenues with appropriate expenses. The audit risks associated with this method is that cost incurrence could be accelerated to increase the estimate of the percentage completed. Let's say Esco is performing a three-year contract. For simplicity, let's say the contract price is $1000. The first year of the contract, actual costs incurred to date is $200, and the estimated remaining costs is $400. This would call for a projected $400 gross profit on the entire project ($1000-$600). To figure out the gross profit for the first year, you would take the actual costs to date ($200) and divide that by the estimated total cost ($600). This equals the estimated percentage of completion (33%). You would then take this number and multiply it by the total project gross profit (33%*$400), and that would be the gross profit earned to date. In subsequent years, you would take the profit earned to date and subtract from it the gross profit recognized in previous years. The next company I'd like to talk about is Aerosonic Corporation, who is in the same industry as Esco. The primary business of Aerosonic Corporation is to manufacture and sell aircraft instruments to government and commercial users from its plants in Florida, Virginia, and Kansas. Prior to 1996, the company also sold non-munitions components for artillery projectiles to the U.S. government and automotive and truck parts to commercial customers. The company's customers are worldwide. Aerosonic generally recognizes revenue from sales of its products on the accrual basis on the date such products are shipped. In certain circumstances, the U.S. government accepts title of products, even though the products are on the Company's premises. When the U.S. government accepts title in writing, and assumes all risks associated with those products, then the Company records these items as sales. Like Esco, Aerosonic follows the percentage-of completion method to account for long-term engineering contracts. Revisions in costs and revenue estimates are reflected in the periods in which the revisions are made. Provisions for estimated losses are determined without regard to the percentage-of-completion. Like Esco, Aerosonic's financial statements are based heavily on management's estimates. To auditors, this raises a red flag. Auditors must be careful when conducting the audits of these particular companies. It is rather easy, and conceivable for management to manipulate earnings to meet projected totals. Another important area is that a company like Aerosonic has one major customer, and that is U.S. government. Another important factor is that Aerosonic recognizes revenue when title transfers to the government. Since the two parties are closely related in a business sense, Aerosonic may have the incentive to push titles of products to the government to meet target revenues. Auditors should take care in determining whether or not the financial statements conform generally accepted accounting principles. f:\12000 essays\business & economics (632)\Actions of The Fed at Full Employment in Long Run Equilibrium.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The United States economy is currently producing at a level of full employment in long-run equilibrium. The government then decides to increase taxes and to reduce government spending in an effort to balance the budget. The results of the actions taken by the government is the decrease of real GDP. When taxes are increased that the amount of disposable income that is available to consumers is lowered. This lowered level of disposable income leads to a decrease in consumption spending as well as a decrease in savings. This decrease in consumer and government spending causes the total spending to decrease by a multiplied amount, As a result of the decrease in total spending the aggregate demand decreases and the aggregate demand curve shifts to the left. This decrease in consumer and government spending also causes businesses to have a surplus of inventories. At this point the output is greater than spending and as a result prices begin to fall. Because of the surplus of goods and falling prices consumption becomes more desirable to consumers and the level of consumer spending rises. The fall in prices causes business to become less profitable and producers decrease the level of production. This results in the decrease of the aggregate quantity supplied to decrease. This continues until aggregate quantity demanded equal the aggregate quantity supplied and a period of short-run equilibrium is established. The real GDP and the price level have both decreased from the original long-run equilibrium level and the economy is operating under the full employment level. At this point the U.S. economy is at a recessionary gap and a monetary policy must be used to pull the economy from the current recession. There are three options that the Federal Reserve has to try and end the current recession. The federal funds rate could be lowered, the discount to banks could be lowered, or open market operations could be used. The most effective of these three options is the use of expansionary monetary policy through open market operations. The first step in this option is for the Federal Reserve to start to purchase bonds from consumers. As the Federal Reserve begins to buy these bonds back the bond prices are increased to make the selling of these bonds more attractive to consumers. When the Federal Reserve purchases a bond from a consumer a check is issued to the seller for the agreed price. This higher bond prices also lowers interest rates. The seller then deposits this check into his/her bank. This action increases deposits in the bank, which in turn raises the banks reserves to increase. The required reserves are increased by the amount of the check times the required reserve ratio, and excess reserves increase by the difference between the check and the amount of the required reserves. Because the excess reserves of the bank have increased, the bank is now able to loan out more money. The bank will continue to make new loans until it is loaned out. The lower interest rates that are caused by the higher bond prices encourages more consumers to borrow money. This increase in the amount of loans causes a raise in the money supply by a multiplied effect. Because of the increased desire to loan money by banks and the increased desire to borrow money by consumers companies receive more loans which is used for investment. This rise in loans that are used for investment increases investment spending. This increase in investment spending causes the total spending to increase by a multiplied effect. This increase in total spending then causes an increase in aggregate demand which causes the aggregate demand cure to shift to the right. Spending is now greater than output. As a result of spending being greater than output many suppliers and manufacturers expand production of their goods. Prices will also increase because production costs rise as well. The increase in production causes a increase in the level of aggregate quantity demand supplied to consumers is increased. The increase of prices makes the value of money and wealth decrease. Because of this decrease consumption becomes less desirable by consumers and the aggregate quantity demand decreases. Another result of this increase in prices is the decrease of exports because the higher prices make U.S. products less desirable. Consumption and net exports are now decreasing. The level of aggregate quantity supplied continues to rise and the level of aggregate quantity demanded continues to fall until aggregate quantity demanded and aggregate quantity supplied are equal. This causes the U.S. economy to enter a state of long-run equilibrium at full employment. This new level of equilibrium should be very similar to the original long-run equilibrium. The total real GDP has not been affected. Government spending and consumption have both decreased. Investment spending has risen because of the new lower interest rates. Because of this real GDP is not effected in the long run. f:\12000 essays\business & economics (632)\Actions of the Government and The Increase in Prices.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Actions of the Government and The Increase in Prices The United States economy is currently producing at a level of full employment in long-run equilibrium. The government then decides to increase taxes and to reduce government spending in an effort to balance the budget. The results of the actions taken by the government is the decrease of real GDP. When taxes are increased that the amount of disposable income that is available to consumers is lowered. This lowered level of disposable income leads to a decrease in consumption spending as well as a decrease in savings. This decrease in consumer and government spending causes the total spending to decrease by a multiplied amount, As a result of the decrease in total spending the aggregate demand decreases and the aggregate demand curve shifts to the left. This decrease in consumer and government spending also causes businesses to have a surplus of inventories. At this point the output is greater than spending and as a result prices begin to fall. Because of the surplus of goods and falling prices consumption becomes more desirable to consumers and the level of consumer spending rises. The fall in prices causes business to become less profitable and producers decrease the level of production. This results in the decrease of the aggregate quantity supplied to decrease. This continues until aggregate quantity demanded equal the aggregate quantity supplied and a period of short- run equilibrium is established. The real GDP and the price level have both decreased from the original long-run equilibrium level and the economy is operating under the full employment level. At this point the U.S. economy is at a recessionary gap and a monetary policy must be used to pull the economy from the current recession. There are three options that the Federal Reserve has to try and end the current recession. The federal funds rate could be lowered, the discount to banks could be lowered, or open market operations could be used. The most effective of these three options is the use of expansionary monetary policy through open market operations. The first step in this option is for the Federal Reserve to start to purchase bonds from consumers. As the Federal Reserve begins to buy these bonds back the bond prices are increased to make the selling of these bonds more attractive to consumers. When the Federal Reserve purchases a bond from a consumer a check is issued to the seller for the agreed price. This higher bond prices also lowers interest rates. The seller then deposits this check into his/her bank. This action increases deposits in the bank, which in turn raises the banks reserves to increase. The required reserves are increased by the amount of the check times the required reserve ratio, and excess reserves increase by the difference between the check and the amount of the required reserves. Because the excess reserves of the bank have increased, the bank is now able to loan out more money. The bank will continue to make new loans until it is loaned out. The lower interest rates that are caused by the higher bond prices encourages more consumers to borrow money. This increase in the amount of loans causes a raise in the money supply by a multiplied effect. Because of the increased desire to loan money by banks and the increased desire to borrow money by consumers companies receive more loans which is used for investment. This rise in loans that are used for investment increases investment spending. This increase in investment spending causes the total spending to increase by a multiplied effect. This increase in total spending then causes an increase in aggregate demand which causes the aggregate demand cure to shift to the right. Spending is now greater than output. As a result of spending being greater than output many suppliers and manufacturers expand production of their goods. Prices will also increase because production costs rise as well. The increase in production causes a increase in the level of aggregate quantity demand supplied to consumers is increased. The increase of prices makes the value of money and wealth decrease. Because of this decrease consumption becomes less desirable by consumers and the aggregate quantity demand decreases. Another result of this increase in prices is the decrease of exports because the higher prices make U.S. products less desirable. Consumption and net exports are now decreasing. The level of aggregate quantity supplied continues to rise and the level of aggregate quantity demanded continues to fall until aggregate quantity demanded and aggregate quantity supplied are equal. This causes the U.S. economy to enter a state of long-run equilibrium at full employment. This new level of equilibrium should be very similar to the original long-run equilibrium. The total real GDP has not been affected. Government spending and consumption have both decreased. Investment spending has risen because of the new lower interest rates. Because of this real GDP is not effected in the long run. f:\12000 essays\business & economics (632)\Adam Smith 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Adam Smith Adam Smith, a brilliant eighteenth-century Scottish political economist, had the advantage of judging the significance ol colonies by a rigorous examination based on the colonial experience of 300 years. His overview has a built-in bias: he strongly disapproved of excessive regulation of colonial trade by parent countries. But his analysis is rich with insight and remarkably dispassionate in its argument. Adam Smith recognized that the discovery of the New World not only brought wealth and prosperity to the Old World, but that it also marked a divide in the history of mankind. The passage that follows is the work of this economic theorist who discusses problems in a language readily understandable by everyone. Adam Smith had retired from a professorship at Glasgow University and Was living in France in 1764-5 when he began his great work, The Wealth of Nations. The book was being written all during the years of strife between Britain and her colonies, but it was not published until 1776. In the passages which follow, Smith points to the impossibility of monopolizing the benefits of colonies, and pessimistically calculates the cost of empire, but the book appeared too late to have any effect upon British policy. Because the Declaration of Independence and The Wealth of Nations, the political and economic reliations of empire and mercantilism, appeared in the same year, historians have often designated 1776 as one of the turning points in modern history. The text On the cost of Empire, the eloquent exhortation to the rulers of Britain to awaken from their grandiose dreams of empire, is the closing passage of Smith's book. Adam Smith was a Scottish political economist and philosopher. He has become famous by his influential book The Wealth of Nations (1776). Smith was the son of the comptroller of the customs at Kirkcaldy, Fife, Scotland. The exact date of his birth is unknown. However, he was baptized at Kirkcaldy on June 5, 1723, his father having died some six months previously. At the age of about fifteen, Smith proceeded to Glasgow university, studying moral philosophy under "the never-to-be-forgotten" Francis Hutcheson (as Smith called him). In 1740 he entered Balliol college, Oxford, but as William Robert Scott has said, "the Oxford of his time gave little if any help towards what was to be his lifework," and he relinquished his exhibition in 1746. In 1748 he began delivering public lectures in Edinburgh under the patronage of Lord Kames. Some of these dealt with rhetoric and belles-lettres, but later he took up the subject of "the progress of opulence," and it was then, in his middle or late 20s, that he first expounded the economic philosophy of "the obvious and simple system of natural liberty" which he was later to proclaim to the world in his Inquiry into the Nature and Causes of the Wealth of Nations. About 1750 he met David Hume, who became one of the closest of his many friends. In 1751 Smith was appointed professor of logic at Glasgow university, transferring in 1752 to the chair of moral philosophy. His lectures covered the field of ethics, rhetoric, jurisprudence and political economy, or "police and revenue." In 1759 he published his Theory of Moral Sentiments, embodying some of his Glasgow lectures. This work, which established Smith's reputation in his own day, is concerned with the explanation of moral approval and disapproval. His capacity for fluent, persuasive, if rather rhetorical argument is much in evidence. He bases his explanation, not as the third Lord Shaftesbury and Hutcheson had done, on a special "moral sense,"nor, like Hume, to any decisive extent on utility,but on sympathy. There has been considerable controversy as how far there is contradiction or contrast between Smith's emphasis in the Moral Sentiments on sympathy as a fundamental human motive, and, on the other hand, the key role of self-interest in the The Wealth of Nations. In the former he seems to put more emphasis on the general harmony of human motives and activities under a beneficent Providence, while in the latter, in spite of the general theme of "the invisible hand" promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives. Smith now began to give more attention to jurisprudence and political economy in his lecture and less to his theories of morals. An impression can be obtained as to the development of his ideas on political economy from the notes of his lectures taken down by a student in about 1763 which were later edited by E. Cannan (Lectures on Justice, Police, Revenue and Arms,1896), and from what Scott, its discoverer and publisher, describes as "An Early Draft of Part of The Wealth of Nations, which he dates about 1763. At the end of 1763 Smith obtained a lucrative post as tutor to the young duke of Buccleuch and resigned his professorship. From 1764-66 he traveled with his pupil, mostly in France, where he came to know such intellectual leaders as Turgot, D'Alembert, AndréMorellet, Helvétius and, in particular, Francois Quesnay, the head of the Physiocratic school whose work he much respected. On returning home to Kirkcaldy he devoted much of the next ten years to his magnum opus, which appeared in 1776. In 1778 he was appointed to a comfortable post as commissioner of customs in Scotland and went to live with his mother in Edinburgh. He died there on July 17, 1790, after a painfull illness. He had apparently devoted a considerable part of his income to numerous secret acts of charity. Shortly before his death Smith had nearly all his manuscripts destroyed. In his last years he seems to have been planning two major treatises, one on the theory and history of law and one on the sciences and arts. The posthumously published Essays on Philosophical Subjects (1795) probably contain parts of what would have been the latter treatise. The Wealth of Nations has become so influential since it did so much to create the subject of political economy and develop it into an autonomous systematic discipline. In the western world, it is the most influential book on the subject ever published. When the book, which has become a classic manifesto against mercantalism, appeared in 1776, there was a strong sentiment for free trade in both Britain and America. This new feeling had been born out of the economic hardships and poverty caused by the war. However, at the time of publication, not everybody was convinced of the advantages of free trade right away: the British public and Parliament still clung to mercantilism for many years to come (Tindall and Shi). However, controversial views have been expressed as to the extent of Smith's originality in The Wealth of Nations. Smith has been blamed for relying too much on the ideas of great thinkers such as David Hume and Montesquieu. Nevertheless, The Wealth of Nations was the first and remains the most important book on the subject of political ecomomy until this present day. It has never, I think, been the good fortune of any founder of a scientific system to think out to the very end even the more important ideas that constitute his system. The strength and lifetime of no single man are sufficient for that. It is enough if some few of the ideas which have to play the chief part in the system are put on a perfectly safe foundation, and analysed in all their ramifications and complexities. It is a great deal if, over and above that, an equal carefulness falls to the lot of a few other favoured members of the system. But in all cases the most ambitious spirit must be content to build up a great deal that is insecure, and to fit into his system, on cursory examination, ideas which it was not permitted him to work out. We must keep these considerations before us if we would rightly appreciate Adam Smith's attitude towards our problem. Adam Smith has not overlooked the problem of interest; neither has he worked it out. He deals with it as a great thinker may deal with an important subject which he often comes across, but has not time or opportunity to go very deeply into. He has adopted a certain proximate but still vague explanation. The more indefinite this explanation is, the less does it bind him to strict conclusions; and a many-sided mind like Adam Smith's, seeing all the many different ways in which the problem can be put, but lacking the control which the possession of a distinct theory gives, could scarcely fail to fall into all sorts of wavering and contradictory expressions. Thus we have the peculiar phenomenon that, while Adam Smith has not laid down any distinct theory of interest, the germs of almost all the later and conflicting theories are to be found, with more or less distinctness, in his scattered observations. We find the same phenomenon in Adam Smith as regards many other questions. The line of thought which seems to commend itself principally to him as explaining natural interest occurs in very similar language in the sixth and eighth chapters of book i of the Wealth of Nations. It amounts to this, that there must be a profit from capital, because otherwise the capitalist would have no interest in spending his capital in the productive employment of labourers.(1*) General expressions like these have of course no claim to stand for a complete theory.(2*) There is no reasoned attempt in them to show what we are to represent as the actual connecting links between the psychological motive of the capitalist's self-interest and the final fixing of market prices which leave a difference between costs and proceeds that we call interest. But yet, if we take those expressions in connection with a later passage,(3*) where Smith sharply opposes the "future profit" that rewards the resolution of the capitalist to the "present enjoyment" of immediate consumption, we may recognise the first germs of that theory which Senior worked out later on under the name of the Abstinence theory. In the same way as Adam Smith asserts the necessity of interest, and leaves it without going any deeper in the way of proof, so does he avoid making any systematic investigation of the important question of the source of undertaker's profit. He contents himself with making a few passing observations on the subject. Indeed in different places he gives two contradictory accounts of this profit. According to one account, the profit of capital arises from the circumstance, that, to meet the capitalist's claim to profit, buyers have to submit to pay something more for their goods than the value which these goods would get from the labour expended on them. according to this explanation, the source of interest is an increased value given to the product over that value which labour creates; but no explanation of this increase in value is given. According to the second account, interest is a deduction which the capitalist makes in his own favour from the return to labour, so that the workers do not receive the full value created by them, but are obliged to share it with the capitalist. According to this account, profit is a part of the value created by labour and kept back by capital. Both accounts are to be found in a great number of passages; and these passages, oddly enough, sometimes stand quite close to each other, as, e.g. in the sixth chapter of the first book. Adam Smith has been speaking in that chapter of a past time, -- of course a mythical time, -- when the land was not yet appropriated, and when an accumulation of capital had not yet begun, and has made the remark that, at that time, the quantity of labour required for the production of goods would be the sole determinant of their price. He continues: "As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in this adventure." This sentence, when taken with the opposite remark of the previous paragraph (that, in primitive conditions, labour is the sole determinant of price), very clearly expresses the opinion that the capitalist's claim of interest causes a rise in the price of the product, and is met from this raised price. But Adam Smith immediately goes on to say: "The value which the workman adds to the material, therefore, resolves itself in this case into two parts, of which the one pays the wages, the other the profits of the employer upon the whole stock of materials and wages which he advanced." Here again the price of the product is looked upon as exclusively determined by the quantity of labour expended, and the claim of interest is said to be met by a part of the return which the worker has produced. We meet the same contradiction, put even more strikingly, a page farther on. "In this state of things," says Adam Smith, "the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him." This is an evident paraphrase of the second account. But immediately after that come the words: "Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour." He could scarcely have said more plainly that the effect of a claim of interest is to raise prices without curtailing the wages of labour. Later on he says alternately: "As in a civilised community there are but few commodities of which the exchangeable value arises from labour only, rent and profit contributing largely to that of the far greater part of them, so the annual produce of its labour will always be sufficient to purchase or command a much greater quantity of labour than was employed in raising, preparing, and bringing that produce to market" (first account, chap. vi.) "The produce of almost all other labour is liable to the like deduction of profit. In all arts and manufactures the greater part of the workmen stand in need of a master to advance them the materials of their work, and their wages and maintenance till it be completed. He shares in the produce of their labour, or in the value which it adds to the materials upon which it is bestowed; and in this consists his profit" (second account, chap. viii.) "High or low wages and profit are the causes of high or low price; high or low rent is the effect of it" (first account, chap. xi.) Contradictions like these on the part of such an eminent thinker admit, I think, of only one explanation; -- that Adam Smith had not thoroughly thought out the interest problem; and -- as is usual with those who have only imperfectly mastered a subject -- was not very particular in his choice of expressions, but allowed himself to be swayed very much by the changing impressions which the subject may have made on him from time to time. Adam Smith, then, has no perfected theory of interest.(4*) But the suggestions he threw out were all destined to fall on fruitful soil. His casual remark on the necessity of interest was developed later into the Abstinence theory. In the same way the two accounts he gave of the source of interest were taken up by his followers, logically carried out, and raised into principles of independent theories. With the first account -- that interest is paid out of an additional value which the employment of capital calls into existence -- are connected the later Productivity theories. With the second account -- that interest is paid out of the return to labour -- are connected the Socialist theories of interest. Thus the most important of later theories trace their pedigree back to Adam Smith. The position taken by Adam Smith towards the question may be called that of a complete neutrality. He is neutral in his theoretical exposition, for he takes the germs of distinct theories and puts them beside each other, without giving any one of them a distinct prominence over the others. And he is neutral in his practical judgment, for he maintains the same reserve, or rather the same contradictory hesitancy, both in praise and blame of interest. Sometimes he commends the capitalists as benefactors of the human race, and as authors of enduring blessing;(5*) sometimes he represents them as a class who live on deductions from the produce of other people's labour, and compares them significantly with people "who love to reap where they never sowed."(6*) In Adam Smith's time the relations of theory and practice still permitted such a neutrality, but it was not long allowed to his followers. Changed circumstances compelled them to show their colours on the interest question, and the compulsion was certainly not to the disadvantage of the science. The special requirements of economic theory could not any longer put up with uncertain makeshifts. Adam Smith had spent his life in laying down the foundations of his system. His followers, finding the foundations laid, had now time to take up those questions that had been passed over. The development now reached by the related problems of land-rent and wages gave a strong inducement to pursue the interest problem. There was a very complete theory of land-rent; there was a theory of wages scarcely less complete. Nothing was more natural than that systematic thinkers should now begin to ask in earnest about the third great branch of income the whence and wherefore of the income that comes from the possession of capital. But in the end practical life also began to put this question. Capital had gradually become a power. Machinery had appeared on the scene and won its great triumphs; and machinery everywhere helped to extend business on a great scale, and to give production more and more of a capitalist character. But this very introduction of machinery had begun to reveal an opposition which was forced on economic life with the development of capital, and daily grew in importance,the opposition between capital and labour. In the old handicrafts undertaker and wage-earner, master and apprentice, belonged not so much to different social classes as simply to different generations. What the one was the other might be, and would be. If their interests for a time did diverge, yet in the long run the feeling prevailed that they belonged to one station of life. It is quite different in great capitalist industry. The undertaker who contributes the capital has seldom or never been a workman; the workman who contributes his thews and sinews will seldom or never become an undertaker. They work at one trade like master and apprentice; but not only are they of two different ranks, they are even of different species. They belong to classes whose interests diverge as widely as their persons. Now machinery had shown how sharp could be the collision of interest between capital and labour. Those machines which bore golden fruit to the capitalist undertaker had, on their introduction, deprived thousands of workers of their bread. Even now that the first hardships are over there remains antagonism enough and to spare. It is true that capitalist and labourer share in the productiveness of capitalist undertaking, but they share in this way, that the worker usually receives little -- indeed very little -- while the undertaker receives much. The worker's discontent with his small share is not lessened, as it used to be in the case of the handicraft assistant, by the expectation of himself in time enjoying the lion's share; for, under large production, the worker has no such expectation. On the contrary, his discontent is aggravated by the knowledge that to him, for his scanty wage, falls the harder work; while to the undertaker, for his ample share in the product, falls the lighter exertion-often enough no personal exertion whatever. Looking at all these contrasts of destiny and of interest, if there ever came the thought that, at bottom, it is the workers who bring into existence the products from which the undertaker draws his profit -- and Adam Smith had come wonderfully near to such a thought in many passages of his widely read book -- it was inevitable that some pleader for the fourth estate should begin to put the same question with regard to natural interest as had been put many centuries earlier, by the friends of the debtor, with regard to Loan interest, Is interest on capital just? Is it just that the capitalist-undertaker, even if he never moves a finger, should receive, under the name of profit, a considerable share of what the workers have produced by their exertions? Should not the entire product rather fall to the workers? The question has been before the world since the first quarter of our century, at first put modestly, then with increasing assertiveness; and it is this fact that the interest theory has to thank for its unusual and lasting vitality. So long as the problem interested theorists alone, and was of importance only for purposes of theory, it might have slumbered on undisturbed. But it was now elevated to the rank of a great social problem which the science neither could nor would overlook. Thus the inquiries into the nature of Natural interest were as numerous and solicitous after Adam Smith's day as they had been scanty and inadequate before it. It must be admitted that they were as averse as they were numerous. Up till Adam Smith the scientific opinion of the time had been represented by one single theory. After him opinion was divided into a number of theories conflicting with each other, and remaining so with rare persistence up till our own day. It is usually the case that new theories put themselves in the place of the old, and the old gradually yield the position. But in the present case each new theory of interest only succeeded in placing itself by the side of the old, while the old managed to hold their place with the utmost stubbornness. In these circumstances the course of development since Adam Smith's time presents not so much the picture of a progressive reform as that of a schismatic accumulation of theories. The work we have now before us is clearly marked out by the nature of the subject. It will consist in following the development of all the diverging systems from their origin down to the present time, and in trying to form a critical opinion on the value, or want of value, of each individual system. As the development from Adam Smith onwards simultaneously pursues different lines, I think it best to abandon the chronological order of statement which I have hitherto observed, and to group together our material according to theories. To this end I shall try first of all to make a methodical survey of the whole mass of literature which will occupy our attention. This will be most easily done by putting the characteristic and central question of the problem in the foreground. We shall then see at a glance how the theory differentiates itself on that central question like light on the prism. What we have to explain is the fact that, when capital is productively employed, there regularly remains over in the hinds of the undertaker a surplus proportional to the amount of this capital. This surplus owes its existence to the circumstance that the value of the goods produced by the assistance of capital is regularly greater than the value of the goods consumed in their production. The question accordingly is, Why is there this constant surplus value? To this question Turgot had answered, There must be a surplus, because otherwise the capitalists would employ their capital in the purchase of land. Adam Smith had answered, There must be a surplus, because otherwise the capitalist would have no interest in spending his capital productively. Both answers we have already pronounced insufficient. What then are the answers given by later writers? At the outset they appear to me to follow five different lines. One party is content with the answers given by Turgot and Smith, and stands by them. This line of explanation was still a favourite one at the beginning of our century, but has been gradually abandoned since then. I shall group these answers together under the name of the Colourless theories. A second party says, Capital produces the surplus. This school, amply represented in economic literature, may be conveniently called that of the Productivity theories. I may here note that in their later development we shall find the productivity theories splitting up into many varieties; into Productivity theories in the narrower sense, that assume a direct production of surplus on the part of capital; and into Use theories, which explain the origin of interest in the roundabout way of making the productive use of capital a peculiar element in cost, which, like every other element of cost, demands compensation. A third party answers, Surplus value is the equivalent of a cost which enters as a constituent into the price, viz. abstinence. For in devoting his capital to production the capitalist must give up the present enjoyment of it. This postponement of enjoyment, this "abstinence," is a sacrifice, and as such is a constituent element in the costs of production which demands compensation. I shall call this the Abstinence theory. A fourth party sees in surplus value the wage for work contributed by the capitalist. For this doctrine, which also is amply represented, I shall use the name Labour theory. Finally, a fifth party -- for the most part belonging to the socialist side -- answers, Surplus value does not correspond to any natural surplus whatever, but has its origin simply in the curtailment of the just wage of the workers. I shall call this the Exploitation theory. These are the principal lines of explanation. They are certainly numerous enough, yet they are far from exhibiting all the many forms which the interest theory has taken. We shall see rather that many of the principal lines branch off again into a multitude of essentially different types; that in many cases elements of sever theories are bound up in a new and peculiar combination; and that, finally, within one and the same theoretical type, the different ways in which common fundamental thoughts are formulated, are often so strongly contrasted and so characteristic that there would be some justification in recognising individual shades of difference as separate theories. That our prominent economic writers have exerted themselves in so many different ways for the discovery of the truth is an eloquent witness of its discovery being no less important than it is hard. We begin with a survey of the Colourless theories. NOTES: 1. "In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in the adventure.... He could have no interest to employ them unless he expected from the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one unless his profits were to bear some proportion to the extent of his stock" (M'Culloch's edition of 1863, p. 22). The second passage runs: "And who would have no interest to employ him unless he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit" (p. 30). 2. See also Pierstorff, Lehre vom Unternehmerggwinn, Berlin, 1875, p. 6; and Platter, "Der Kapitalgewinn bei Adam Smith" (Hildebrand's Jahrbücher, vol. xxv. p. 317, etc.) 3. Book ii. chap. i. p. 123, in M'Culloch's edition. 4. When Plater in the essay above mentioned (p. 71) comes to the conclusion that, "if Smith's system be taken strictly, profit on capital appears unjustifiable," it could only be by laying all the weight on the one half of Smith's expressions, and leaving the other out of account as contradictory to his other principles. 5. Book ii. chap. iii. 6. Book i. chap. vi. The sentence was written primarily about landowners, but in the whole chapter interest on capital and rent of land are treated as parallel as against wages of labour. •The Invisible Hand Adam Smith first described this principle. Since that time it has become the basis of the concept of the free market. Self Regulating prices Consider glove manufacturers. If a glove manufacturer were to raise his prices on his gloves way above his costs, a competitor with lower prices on gloves would receive all of the orders for gloves. If all of the glove manufacturers were to raise their prices way above their costs, someone else would begin to manufacture gloves and sell them at a price closer to the manufacturing costs. This competiti f:\12000 essays\business & economics (632)\Adam Smith.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Adam Smith Adam Smith, a brilliant eighteenth-century Scottish political economist, had the advantage of judging the significance ol colonies by a rigorous examination based on the colonial experience of 300 years. His overview has a built-in bias: he strongly disapproved of excessive regulation of colonial trade by parent countries. But his analysis is rich with insight and remarkably dispassionate in its argument. Adam Smith recognized that the discovery of the New World not only brought wealth and prosperity to the Old World, but that it also marked a divide in the history of mankind. The passage that follows is the work of this economic theorist who discusses problems in a language readily understandable by everyone. Adam Smith had retired from a professorship at Glasgow University and Was living in France in 1764-5 when he began his great work, The Wealth of Nations. The book was being written all during the years of strife between Britain and her colonies, but it was not published until 1776. In the passages which follow, Smith points to the impossibility of monopolizing the benefits of colonies, and pessimistically calculates the cost of empire, but the book appeared too late to have any effect upon British policy. Because the Declaration of Independence and The Wealth of Nations, the political and economic reliations of empire and mercantilism, appeared in the same year, historians have often designated 1776 as one of the turning points in modern history. The text On the cost of Empire, the eloquent exhortation to the rulers of Britain to awaken from their grandiose dreams of empire, is the closing passage of Smith's book. Adam Smith was a Scottish political economist and philosopher. He has become famous by his influential book The Wealth of Nations (1776). Smith was the son of the comptroller of the customs at Kirkcaldy, Fife, Scotland. The exact date of his birth is unknown. However, he was baptized at Kirkcaldy on June 5, 1723, his father having died some six months previously. At the age of about fifteen, Smith proceeded to Glasgow university, studying moral philosophy under "the never-to-be-forgotten" Francis Hutcheson (as Smith called him). In 1740 he entered Balliol college, Oxford, but as William Robert Scott has said, "the Oxford of his time gave little if any help towards what was to be his lifework," and he relinquished his exhibition in 1746. In 1748 he began delivering public lectures in Edinburgh under the patronage of Lord Kames. Some of these dealt with rhetoric and belles-lettres, but later he took up the subject of "the progress of opulence," and it was then, in his middle or late 20s, that he first expounded the economic philosophy of "the obvious and simple system of natural liberty" which he was later to proclaim to the world in his Inquiry into the Nature and Causes of the Wealth of Nations. About 1750 he met David Hume, who became one of the closest of his many friends. In 1751 Smith was appointed professor of logic at Glasgow university, transferring in 1752 to the chair of moral philosophy. His lectures covered the field of ethics, rhetoric, jurisprudence and political economy, or "police and revenue." In 1759 he published his Theory of Moral Sentiments, embodying some of his Glasgow lectures. This work, which established Smith's reputation in his own day, is concerned with the explanation of moral approval and disapproval. His capacity for fluent, persuasive, if rather rhetorical argument is much in evidence. He bases his explanation, not as the third Lord Shaftesbury and Hutcheson had done, on a special "moral sense,"nor, like Hume, to any decisive extent on utility,but on sympathy. There has been considerable controversy as how far there is contradiction or contrast between Smith's emphasis in the Moral Sentiments on sympathy as a fundamental human motive, and, on the other hand, the key role of self-interest in the The Wealth of Nations. In the former he seems to put more emphasis on the general harmony of human motives and activities under a beneficent Providence, while in the latter, in spite of the general theme of "the invisible hand" promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives. Smith now began to give more attention to jurisprudence and political economy in his lecture and less to his theories of morals. An impression can be obtained as to the development of his ideas on political economy from the notes of his lectures taken down by a student in about 1763 which were later edited by E. Cannan (Lectures on Justice, Police, Revenue and Arms,1896), and from what Scott, its discoverer and publisher, describes as "An Early Draft of Part of The Wealth of Nations, which he dates about 1763. At the end of 1763 Smith obtained a lucrative post as tutor to the young duke of Buccleuch and resigned his professorship. From 1764-66 he traveled with his pupil, mostly in France, where he came to know such intellectual leaders as Turgot, D'Alembert, AndréMorellet, Helvétius and, in particular, Francois Quesnay, the head of the Physiocratic school whose work he much respected. On returning home to Kirkcaldy he devoted much of the next ten years to his magnum opus, which appeared in 1776. In 1778 he was appointed to a comfortable post as commissioner of customs in Scotland and went to live with his mother in Edinburgh. He died there on July 17, 1790, after a painfull illness. He had apparently devoted a considerable part of his income to numerous secret acts of charity. Shortly before his death Smith had nearly all his manuscripts destroyed. In his last years he seems to have been planning two major treatises, one on the theory and history of law and one on the sciences and arts. The posthumously published Essays on Philosophical Subjects (1795) probably contain parts of what would have been the latter treatise. The Wealth of Nations has become so influential since it did so much to create the subject of political economy and develop it into an autonomous systematic discipline. In the western world, it is the most influential book on the subject ever published. When the book, which has become a classic manifesto against mercantalism, appeared in 1776, there was a strong sentiment for free trade in both Britain and America. This new feeling had been born out of the economic hardships and poverty caused by the war. However, at the time of publication, not everybody was convinced of the advantages of free trade right away: the British public and Parliament still clung to mercantilism for many years to come (Tindall and Shi). However, controversial views have been expressed as to the extent of Smith's originality in The Wealth of Nations. Smith has been blamed for relying too much on the ideas of great thinkers such as David Hume and Montesquieu. Nevertheless, The Wealth of Nations was the first and remains the most important book on the subject of political ecomomy until this present day. It has never, I think, been the good fortune of any founder of a scientific system to think out to the very end even the more important ideas that constitute his system. The strength and lifetime of no single man are sufficient for that. It is enough if some few of the ideas which have to play the chief part in the system are put on a perfectly safe foundation, and analysed in all their ramifications and complexities. It is a great deal if, over and above that, an equal carefulness falls to the lot of a few other favoured members of the system. But in all cases the most ambitious spirit must be content to build up a great deal that is insecure, and to fit into his system, on cursory examination, ideas which it was not permitted him to work out. We must keep these considerations before us if we would rightly appreciate Adam Smith's attitude towards our problem. Adam Smith has not overlooked the problem of interest; neither has he worked it out. He deals with it as a great thinker may deal with an important subject which he often comes across, but has not time or opportunity to go very deeply into. He has adopted a certain proximate but still vague explanation. The more indefinite this explanation is, the less does it bind him to strict conclusions; and a many-sided mind like Adam Smith's, seeing all the many different ways in which the problem can be put, but lacking the control which the possession of a distinct theory gives, could scarcely fail to fall into all sorts of wavering and contradictory expressions. Thus we have the peculiar phenomenon that, while Adam Smith has not laid down any distinct theory of interest, the germs of almost all the later and conflicting theories are to be found, with more or less distinctness, in his scattered observations. We find the same phenomenon in Adam Smith as regards many other questions. The line of thought which seems to commend itself principally to him as explaining natural interest occurs in very similar language in the sixth and eighth chapters of book i of the Wealth of Nations. It amounts to this, that there must be a profit from capital, because otherwise the capitalist would have no interest in spending his capital in the productive employment of labourers.(1*) General expressions like these have of course no claim to stand for a complete theory.(2*) There is no reasoned attempt in them to show what we are to represent as the actual connecting links between the psychological motive of the capitalist's self-interest and the final fixing of market prices which leave a difference between costs and proceeds that we call interest. But yet, if we take those expressions in connection with a later passage,(3*) where Smith sharply opposes the "future profit" that rewards the resolution of the capitalist to the "present enjoyment" of immediate consumption, we may recognise the first germs of that theory which Senior worked out later on under the name of the Abstinence theory. In the same way as Adam Smith asserts the necessity of interest, and leaves it without going any deeper in the way of proof, so does he avoid making any systematic investigation of the important question of the source of undertaker's profit. He contents himself with making a few passing observations on the subject. Indeed in different places he gives two contradictory accounts of this profit. According to one account, the profit of capital arises from the circumstance, that, to meet the capitalist's claim to profit, buyers have to submit to pay something more for their goods than the value which these goods would get from the labour expended on them. according to this explanation, the source of interest is an increased value given to the product over that value which labour creates; but no explanation of this increase in value is given. According to the second account, interest is a deduction which the capitalist makes in his own favour from the return to labour, so that the workers do not receive the full value created by them, but are obliged to share it with the capitalist. According to this account, profit is a part of the value created by labour and kept back by capital. Both accounts are to be found in a great number of passages; and these passages, oddly enough, sometimes stand quite close to each other, as, e.g. in the sixth chapter of the first book. Adam Smith has been speaking in that chapter of a past time, -- of course a mythical time, -- when the land was not yet appropriated, and when an accumulation of capital had not yet begun, and has made the remark that, at that time, the quantity of labour required for the production of goods would be the sole determinant of their price. He continues: "As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in this adventure." This sentence, when taken with the opposite remark of the previous paragraph (that, in primitive conditions, labour is the sole determinant of price), very clearly expresses the opinion that the capitalist's claim of interest causes a rise in the price of the product, and is met from this raised price. But Adam Smith immediately goes on to say: "The value which the workman adds to the material, therefore, resolves itself in this case into two parts, of which the one pays the wages, the other the profits of the employer upon the whole stock of materials and wages which he advanced." Here again the price of the product is looked upon as exclusively determined by the quantity of labour expended, and the claim of interest is said to be met by a part of the return which the worker has produced. We meet the same contradiction, put even more strikingly, a page farther on. "In this state of things," says Adam Smith, "the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him." This is an evident paraphrase of the second account. But immediately after that come the words: "Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour." He could scarcely have said more plainly that the effect of a claim of interest is to raise prices without curtailing the wages of labour. Later on he says alternately: "As in a civilised community there are but few commodities of which the exchangeable value arises from labour only, rent and profit contributing largely to that of the far greater part of them, so the annual produce of its labour will always be sufficient to purchase or command a much greater quantity of labour than was employed in raising, preparing, and bringing that produce to market" (first account, chap. vi.) "The produce of almost all other labour is liable to the like deduction of profit. In all arts and manufactures the greater part of the workmen stand in need of a master to advance them the materials of their work, and their wages and maintenance till it be completed. He shares in the produce of their labour, or in the value which it adds to the materials upon which it is bestowed; and in this consists his profit" (second account, chap. viii.) "High or low wages and profit are the causes of high or low price; high or low rent is the effect of it" (first account, chap. xi.) Contradictions like these on the part of such an eminent thinker admit, I think, of only one explanation; -- that Adam Smith had not thoroughly thought out the interest problem; and -- as is usual with those who have only imperfectly mastered a subject -- was not very particular in his choice of expressions, but allowed himself to be swayed very much by the changing impressions which the subject may have made on him from time to time. Adam Smith, then, has no perfected theory of interest.(4*) But the suggestions he threw out were all destined to fall on fruitful soil. His casual remark on the necessity of interest was developed later into the Abstinence theory. In the same way the two accounts he gave of the source of interest were taken up by his followers, logically carried out, and raised into principles of independent theories. With the first account -- that interest is paid out of an additional value which the employment of capital calls into existence -- are connected the later Productivity theories. With the second account -- that interest is paid out of the return to labour -- are connected the Socialist theories of interest. Thus the most important of later theories trace their pedigree back to Adam Smith. The position taken by Adam Smith towards the question may be called that of a complete neutrality. He is neutral in his theoretical exposition, for he takes the germs of distinct theories and puts them beside each other, without giving any one of them a distinct prominence over the others. And he is neutral in his practical judgment, for he maintains the same reserve, or rather the same contradictory hesitancy, both in praise and blame of interest. Sometimes he commends the capitalists as benefactors of the human race, and as authors of enduring blessing;(5*) sometimes he represents them as a class who live on deductions from the produce of other people's labour, and compares them significantly with people "who love to reap where they never sowed."(6*) In Adam Smith's time the relations of theory and practice still permitted such a neutrality, but it was not long allowed to his followers. Changed circumstances compelled them to show their colours on the interest question, and the compulsion was certainly not to the disadvantage of the science. The special requirements of economic theory could not any longer put up with uncertain makeshifts. Adam Smith had spent his life in laying down the foundations of his system. His followers, finding the foundations laid, had now time to take up those questions that had been passed over. The development now reached by the related problems of land-rent and wages gave a strong inducement to pursue the interest problem. There was a very complete theory of land-rent; there was a theory of wages scarcely less complete. Nothing was more natural than that systematic thinkers should now begin to ask in earnest about the third great branch of income the whence and wherefore of the income that comes from the possession of capital. But in the end practical life also began to put this question. Capital had gradually become a power. Machinery had appeared on the scene and won its great triumphs; and machinery everywhere helped to extend business on a great scale, and to give production more and more of a capitalist character. But this very introduction of machinery had begun to reveal an opposition which was forced on economic life with the development of capital, and daily grew in importance,the opposition between capital and labour. In the old handicrafts undertaker and wage-earner, master and apprentice, belonged not so much to different social classes as simply to different generations. What the one was the other might be, and would be. If their interests for a time did diverge, yet in the long run the feeling prevailed that they belonged to one station of life. It is quite different in great capitalist industry. The undertaker who contributes the capital has seldom or never been a workman; the workman who contributes his thews and sinews will seldom or never become an undertaker. They work at one trade like master and apprentice; but not only are they of two different ranks, they are even of different species. They belong to classes whose interests diverge as widely as their persons. Now machinery had shown how sharp could be the collision of interest between capital and labour. Those machines which bore golden fruit to the capitalist undertaker had, on their introduction, deprived thousands of workers of their bread. Even now that the first hardships are over there remains antagonism enough and to spare. It is true that capitalist and labourer share in the productiveness of capitalist undertaking, but they share in this way, that the worker usually receives little -- indeed very little -- while the undertaker receives much. The worker's discontent with his small share is not lessened, as it used to be in the case of the handicraft assistant, by the expectation of himself in time enjoying the lion's share; for, under large production, the worker has no such expectation. On the contrary, his discontent is aggravated by the knowledge that to him, for his scanty wage, falls the harder work; while to the undertaker, for his ample share in the product, falls the lighter exertion-often enough no personal exertion whatever. Looking at all these contrasts of destiny and of interest, if there ever came the thought that, at bottom, it is the workers who bring into existence the products from which the undertaker draws his profit -- and Adam Smith had come wonderfully near to such a thought in many passages of his widely read book -- it was inevitable that some pleader for the fourth estate should begin to put the same question with regard to natural interest as had been put many centuries earlier, by the friends of the debtor, with regard to Loan interest, Is interest on capital just? Is it just that the capitalist- undertaker, even if he never moves a finger, should receive, under the name of profit, a considerable share of what the workers have produced by their exertions? Should not the entire product rather fall to the workers? The question has been before the world since the first quarter of our century, at first put modestly, then with increasing assertiveness; and it is this fact that the interest theory has to thank for its unusual and lasting vitality. So long as the problem interested theorists alone, and was of importance only for purposes of theory, it might have slumbered on undisturbed. But it was now elevated to the rank of a great social problem which the science neither could nor would overlook. Thus the inquiries into the nature of Natural interest were as numerous and solicitous after Adam Smith's day as they had been scanty and inadequate before it. It must be admitted that they were as averse as they were numerous. Up till Adam Smith the scientific opinion of the time had been represented by one single theory. After him opinion was divided into a number of theories conflicting with each other, and remaining so with rare persistence up till our own day. It is usually the case that new theories put themselves in the place of the old, and the old gradually yield the position. But in the present case each new theory of interest only succeeded in placing itself by the side of the old, while the old managed to hold their place with the utmost stubbornness. In these circumstances the course of development since Adam Smith's time presents not so much the picture of a progressive reform as that of a schismatic accumulation of theories. The work we have now before us is clearly marked out by the nature of the subject. It will consist in following the development of all the diverging systems from their origin down to the present time, and in trying to form a critical opinion on the value, or want of value, of each individual system. As the development from Adam Smith onwards simultaneously pursues different lines, I think it best to abandon the chronological order of statement which I have hitherto observed, and to group together our material according to theories. To this end I shall try first of all to make a methodical survey of the whole mass of literature which will occupy our attention. This will be most easily done by putting the characteristic and central question of the problem in the foreground. We shall then see at a glance how the theory differentiates itself on that central question like light on the prism. What we have to explain is the fact that, when capital is productively employed, there regularly remains over in the hinds of the undertaker a surplus proportional to the amount of this capital. This surplus owes its existence to the circumstance that the value of the goods produced by the assistance of capital is regularly greater than the value of the goods consumed in their production. The question accordingly is, Why is there this constant surplus value? To this question Turgot had answered, There must be a surplus, because otherwise the capitalists would employ their capital in the purchase of land. Adam Smith had answered, There must be a surplus, because otherwise the capitalist would have no interest in spending his capital productively. Both answers we have already pronounced insufficient. What then are the answers given by later writers? At the outset they appear to me to follow five different lines. One party is content with the answers given by Turgot and Smith, and stands by them. This line of explanation was still a favourite one at the beginning of our century, but has been gradually abandoned since then. I shall group these answers together under the name of the Colourless theories. A second party says, Capital produces the surplus. This school, amply represented in economic literature, may be conveniently called that of the Productivity theories. I may here note that in their later development we shall find the productivity theories splitting up into many varieties; into Productivity theories in the narrower sense, that assume a direct production of surplus on the part of capital; and into Use theories, which explain the origin of interest in the roundabout way of making the productive use of capital a peculiar element in cost, which, like every other element of cost, demands compensation. A third party answers, Surplus value is the equivalent of a cost which enters as a constituent into the price, viz. abstinence. For in devoting his capital to production the capitalist must give up the present enjoyment of it. This postponement of enjoyment, this "abstinence," is a sacrifice, and as such is a constituent element in the costs of production which demands compensation. I shall call this the Abstinence theory. A fourth party sees in surplus value the wage for work contributed by the capitalist. For this doctrine, which also is amply represented, I shall use the name Labour theory. Finally, a fifth party -- for the most part belonging to the socialist side -- answers, Surplus value does not correspond to any natural surplus whatever, but has its origin simply in the curtailment of the just wage of the workers. I shall call this the Exploitation theory. These are the principal lines of explanation. They are certainly numerous enough, yet they are far from exhibiting all the many forms which the interest theory has taken. We shall see rather that many of the principal lines branch off again into a multitude of essentially different types; that in many cases elements of sever theories are bound up in a new and peculiar combination; and that, finally, within one and the same theoretical type, the different ways in which common fundamental thoughts are formulated, are often so strongly contrasted and so characteristic that there would be some justification in recognising individual shades of difference as separate theories. That our prominent economic writers have exerted themselves in so many different ways for the discovery of the truth is an eloquent witness of its discovery being no less important than it is hard. We begin with a survey of the Colourless theories. NOTES: 1. "In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials and the wages of the workmen, something must be given for the profits of the undertaker of the work, who hazards his stock in the adventure.... He could have no interest to employ them unless he expected from the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one unless his profits were to bear some proportion to the extent of his stock" (M'Culloch's edition of 1863, p. 22). The second passage runs: "And who would have no interest to employ him unless he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit" (p. 30). 2. See also Pierstorff, Lehre vom Unternehmerggwinn, Berlin, 1875, p. 6; and Platter, "Der Kapitalgewinn bei Adam Smith" (Hildebrand's Jahrbücher, vol. xxv. p. 317, etc.) 3. Book ii. chap. i. p. 123, in M'Culloch's edition. 4. When Plater in the essay above mentioned (p. 71) comes to the conclusion that, "if Smith's system be taken strictly, profit on capital appears unjustifiable," it could only be by laying all the weight on the one half of Smith's expressions, and leaving the other out of account as contradictory to his other principles. 5. Book ii. chap. iii. 6. Book i. chap. vi. The sentence was written primarily about landowners, but in the whole chapter interest on capital and rent of land are treated as parallel as against wages of labour. "The Invisible Hand" Adam Smith first described this principle. Since that time it has become the basis of the concept of the free market. Self Regulating prices Consider glove manufacturers. If a glove manufacturer were to raise his prices on his gloves way above his costs, a competitor with lower prices on gloves would receive all of the orders for gloves. If all of the glove manufacturers were to raise their prices way above their costs, someone else would begin to manufacture gloves and sell them at a price closer to the manufacturing costs. This competiti f:\12000 essays\business & economics (632)\Advanced Export Marketing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Advanced Export Marketing ADVANCED EXPORT MARKETING MAJOR ASSIGNMENT There are already many federal programs that assist exporters in various ways including Progam for Export Market Development (P.E.M.D.), Canadian International Development Association (C.I.D.A.) and Canadian Commercial Corporations (C.C.C.). These programs help exporters secure and enhance access for Canadian goods and services in world markets. They also strengthen Canada's international marketing effectiveness and help promote awareness of export markets and opportunities. These exporting programs also promote Canada's economic, political, security and other interests, both bilaterally and through international institutions. They advise the government on international developments and on the international implications on the domestic policies. There is alot of help out there for exporters but new programs should be introduced and old programs should be updated. I will introduce a new program where anybody can apply for help in exporting which will be called " A FOOT AHEAD "(A.F.A.). A.F.A. will be fully examined and explained in the following report and Iwill also show some very interesting improvements to the existing government exporting program called P.E.M.D. A FOOT AHEAD (A.F.A) There are many problems facing Canadian companies in gaining export competiveness. A.F.A. wants to reduce these problems and make it much easier for the exporters to crack the foreign markets. These problems consist of: 1) Lack of market analysis 2) Lack of market strategy 3) Pricing problems - Labour - Transportation cost - Economics of scale - Outdated manufacturing facilities 4) Distance from market (serviceability aspects) 5) Lack of management initiative (no long range plans - lack of know how) 6) Subsidiary relations (affects marketing and research and development) 7) Risk takers - lack of - (companies and banks) A.F.A. knows these problems exist and wants to take care of them for the exporter who may be to confused and/or unsure of themself to become involved in foreign investment. A.F.A. consists of 7 graduates from the Sir Sanford Fleming College International Trade Program. Each of its staff are fully capable of helping any exporter in the above problems. With the quality of education learned from the profs at Fleming no solution is unatainable. For each of the above problems, people will be assigned to fully understand the exporters situation and apply there capabilities in helping them out. The first employee, we will refer to him as Das Fut, will be responsible for finding business's that look as though they are capable of creating a profit from exporting there service or good that don't already do so. So instead of companies coming to us, we will go looking for them to export. Das Fut will obtain documents (balnce sheets and company profiles) and statistics on domestic markets and if they look promissing he will then suggest back to headquarters that these companies should export. Advantages of export include: 1) Increased sales 2) Higher profits 3) Lower unit costs of production 4) Greater utilization of plant capacity 5) Offset cycllical downturn. (economical and seasonal) 6) Market dependence avoidance 7) Extended life of your products 8) New knowledge and experience Our people at A.F.A. will assess the information given to us about the company in question. If we all agree that the business will be successful in exporting, the next step will be taken. Someone will be sent to foreign well populated markets where people have money to spend to find out if there product or service will sell. But before this step is taken the company will be contacted. We will explain to them why we think there company will be successful and how we can help them in exporting. Since many powerful people know how successful S.S.F.C. International Trade graduates usually become, we have had no problems in finding investors in A.F.A. Our expensives may be a little out of hand but the return will be tremendous. Our people will scour the world looking to find places to sell these business's products. They will complete preliminary surveys and find out the potential markets. Our people are aware of all foreiegn cultures and communicate in a number of languages. Success is a given. Once our field placement consultants send us the information necessary for A.F.A. on the most successful country to export to we will continue to our next step. Footing the bill. This is where the big bucks are made for A.F.A. and the companies. A.F.A. tends to look at the business's that have great domestic shares of the market but cannot penetrate foreign markets because of capital problems. These business's may or may not know that they could be successful in other markets but don't bother with it because they don't have enough cash or are afraid to get a bank loan. A.F.A. will support the investment needed to export to other countries. This is not a loan but more like a partnership. A.F.A. is so confident in its employees that they are willing to foot all of the exporting costs with no risk to the company. This is when negotiations will take place with the companies and A.F.A. to come to an understanding on how profits will be divided. Both will benefit but A.F.A. will stop investing money when the company is able to do there own marketing, administration and shipping. But in the negotiations there will always be a clause saying that A.F.A. will receive a percentage of monies after our help is no longer needed. This is why A.F.A. will always be finacially stable. A.F.A. is willing to do all the work in finding a company that should be exporting but can't, doing the preliminary surveys, finding the potential markets and investing all the money in the project. In return there will be huge capital gains for both the business's and for that ingenious program " A Foot Ahead " IMPROVEMENTS TO P.E.M.D. It is understood that P.E.M.D. is to increase Canadian prosperity and competiveness in the international marketplace but not all business's are able to apply for it. I believe some moderate changes should be made to the program so that it will be easier for more companies to enjoy their benefits. Canada has hundreds of thousands of companies out there and all should be aware of the P.E.M.D. program. P.E.M.D. has helped 25,000 Canadian businesses in marketing their products and services abroad and has supported activities that exceeds 11.5 billion dollars but there is always room for improvement. P.E.M.D. annual contribution per application is a minimum of five thousand dollars and a maximum of fifty thousand dollars which I agree with but the company elgibility is what I disagree with. It says in P.E.M.D. that elgible companies that have sales annually greater than 250,000 dollars and less than 10 million dollars, and or less than 100 employees for a firm in the manufacturing sector and 50 in the service industry will be given preference. I believe that annual sales of 50 thousand dollars should be able to get P.E.M.D. assistance. These smaller companies deserve the same treatment as the rest. If say a company of annual sales of 50,000 dollars can't export because of inaccess of funds for a new venture they could be losing money. They may know that their product or service will sell abroad but are unable to take a shot. With the help from P.E.M.D. this smaller company may one day turn into a multinational enterprise. One other way I believe P.E.M.D. could change to help out exporters even more so is to advertise. Of all the businesses in Canada that we have I'm sure only a minimal amount of them know P.E.M.D. exists. The Canadian government should either send out pamplets, or create a web site, or advertise on television; some how they have to let every Canadian company know about this beneficial program. The Canadian government has only so many resources to work with and money really isn't one of them. The financial assistant programs for exporters do truly help. I believe that we as the Canadian public should stand behind these programs because the return will be beneficial to us and the rest of the world. We help out Canadians trying to sell their products or service to different parts of the world. In return different countries are able to buy and use and enjoy our products and services for thier benefits. Therefore money spent on our products in foreign countries brings money into our country creating higher employment and more life satisfation. f:\12000 essays\business & economics (632)\Advances in Technology and Economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Advances in Technology and Economics The microeconomic picture of the U.S. has changed immensely since 1973, and the trends are proving to be consistently downward for the nation's high school graduates and high school drop-outs. "Of all the reasons given for the wage squeeze - international competition, technology, deregulation, the decline of unions and defense cuts - technology is probably the most critical. It has favored the educated and the skilled," says M. B. Zuckerman, editor-in-chief of U.S. News & World Report (7/31/95). Since 1973, wages adjusted for inflation have declined by about a quarter for high school dropouts, by a sixth for high school graduates, and by about 7% for those with some college education. Only the wages of college graduates are up. Of the fastest growing technical jobs, software engineering tops the list. Carnegie Mellon University reports, "recruitment of it's software engineering students is up this year by over 20%." All engineering jobs are paying well, proving that highly skilled labor is what employers want! "There is clear evidence that the supply of workers in the [unskilled labor] categories already exceeds the demand for their services," says L. Mishel, Research Director of Welfare Reform Network. In view of these facts, I wonder if these trends are good or bad for society. " The danger of the information age is that while in the short run it may be cheaper to replace workers with technology, in the long run it is potentially self-destructive because there will not be enough purchasing power to grow the economy," M. B. Zuckerman. My feeling is that the trend from unskilled labor to highly technical, skilled labor is a good one! But, political action must be taken to ensure that this societal evolution is beneficial to all of us. "Back in 1970, a high school diploma could still be a ticket to the middle income bracket, a nice car in the driveway and a house in the suburbs. Today all it gets is a clunker parked on the street, and a dingy apartment in a low rent building," says Time Magazine (Jan 30, 1995 issue). However, in 1970, our government provided our children with a free education, allowing the vast majority of our population to earn a high school diploma. This means that anyone, regardless of family income, could be educated to a level that would allow them a comfortable place in the middle class. Even restrictions upon child labor hours kept children in school, since they are not allowed to work full time while under the age of 18. This government policy was conducive to our economic markets, and allowed our country to prosper from 1950 through 1970. Now, our own prosperity has moved us into a highly technical world, that requires highly skilled labor. The natural answer to this problem, is that the U.S. Government's education policy must keep pace with the demands of the highly technical job market. If a middle class income of 1970 required a high school diploma, and the middle class income of 1990 requires a college diploma, then it should be as easy for the children of the 90's to get a college diploma, as it was for the children of the 70's to get a high school diploma. This brings me to the issue of our country's political process, in a technologically advanced world. Voting & Poisoned Political Process in The U.S. The advance of mass communication is natural in a technologically advanced society. In our country's short history, we have seen the development of the printing press, the radio, the television, and now the Internet; all of these, able to reach millions of people. Equally natural, is the poisoning and corruption of these medias, to benefit a few. From the 1950's until today, television has been the preferred media. Because it captures the minds of most Americans, it is the preferred method of persuasion by political figures, multinational corporate advertising, and the upper 2% of the elite, who have an interest in controlling public opinion. Newspapers and radio experienced this same history, but are now somewhat obsolete in the science of changing public opinion. Though I do not suspect television to become completely obsolete within the next 20 years, I do see the Internet being used by the same political figures, multinational corporations, and upper 2% elite, for the same purposes. At this time, in the Internet's young history, it is largely unregulated, and can be accessed and changed by any person with a computer and a modem; no license required, and no need for millions of dollars of equipment. But, in reviewing our history, we find that newspaper, radio and television were once unregulated too. It is easy to see why government has such an interest in regulating the Internet these days. Though public opinion supports regulating sexual material on the Internet, it is just the first step in total regulation, as experienced by every other popular mass media in our history. This is why it is imperative to educate people about the Internet, and make it be known that any regulation of it is destructive to us, not constructive! I have been a daily user of the Internet for 5 years (and a daily user of BBS communications for 9 years), which makes me a senior among us. I have seen the moves to regulate this type of communication, and have always openly opposed it. My feelings about technology, the Internet, and political process are simple. In light of the history of mass communication, there is nothing we can do to protect any media from the "sound byte" or any other form of commercial poisoning. But, our country's public opinion doesn't have to fall into a nose- dive of lies and corruption, because of it! The first experience I had in a course on Critical Thinking came when I entered college. As many good things as I have learned in college, I found this course to be most valuable to my basic education. I was angry that I hadn't had access to the power of critical thought over my twelve years of basic education. Simple forms of critical thinking can be taught as early as kindergarten. It isn't hard to teach a young person to understand the patterns of persuasion, and be able to defend themselves against them. Television doesn't have to be a weapon against us, used to sway our opinions to conform to people who care about their own prosperity, not ours. With the power of a critical thinking education, we can stop being motivated by the sound byte and, instead we can laugh at it as a cheap attempt to persuade us. In conclusion, I feel that the advance of technology is a good trend for our society; however, it must be in conjunction with advance in education so that society is able to master and understand technology. We can be the masters of technology, and not let it be the masters of us. Bibliography Where have the good jobs gone?, By: Mortimer B. Zuckerman U.S. News & World Report, volume 119, pg 68 (July 31, 1995) Wealth: Static Wages, Except for the Rich, By: John Rothchild Time Magazine, volume 145, pg 60 (January 30, 1995) Welfare Reform, By: Lawrence Mishel http://epn.org/epi/epwelf.html (Feb 22, 1994) 20 Hot Job Tracks, By: K.T. Beddingfield, R. M. Bennefield, J. Chetwynd, T. M. Ito, K. Pollack & A. R. Wright U.S. News & World Report, volume 119, pg 98 (Oct 30, 1995) f:\12000 essays\business & economics (632)\Advantages of Technology in Internation Trade.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Advantages of Technology in Internation Trade Technology plays a major role in international trade. Databases, overnight delivery and faxes have opened the world market to not only larger companies but small ones too. To add to this globalization, companies and even competitors are combining and forming alliances to cut cost and increase the profit margin. Chrysler, General Motors and Ford have formed an alliance in research and development to avoid duplication. These alliances are not only with domestic companies but they also go over national lines. Companies are pushing for integration of the world economy in hope for increased profits and governments are beginning to listen. Since 1986 (GATT) General Agreement on Tariffs and Trade have taken the incitive to move towards the liberalization of international trade. GATT members agreed to reduce tariff and non-tariff trade barriers. From 1986 to the present due to GATT's lead many markets have been open to the United States increasing exports and increasing efficiency through competition. One of the most aggressive liberalization groups to follow GATT's lead is APEC (Asian Pacific Economic Community). APEC consist of 18 countries that account for 1/2 of the worlds output. The three largest economies Japan, China and the United States are members. APEC leaders are committed to achieving free and open trade for the region by 2010. APEC is moving towards this goal through many means including accelerating initial Japanese tariff cuts by 50%. China will also cut a number of tariffs by 30%. Indonesia and other APEC members are also reducing tariffs sharply. What sets APEX at the head of the pack leading liberalization is it wiliness to extend benefits of membership to everyone. APEX is willing to extend the benefits of cuts in tariff and non-tariff barriers to all countries willing to make comparable cuts. This is a major incentive for all countries because the Pacific Rim is the fastest growing market in the world and large profits are to be made there. To put these cut in trade barriers in perspective lets look at the company Chrysler. Chrysler is introducing a right handed drive version of the neon subcompact to the Japanese consumer. Chrysler plans to sell 4,000 units at their 200 show rooms. They are hoping for even more success with the right handed versions of the Voyager and Wrangler which they plan to introduce next year. With Japanese subsidizes on exports which lead to a high price on Japanese domestic goods, Chrysler should be very competitive. Liberalism in trade, though progressive vary a lot with area. The European Union consisting of the countries of western Europe have established a free trade zone between themselves but those areas outside the union deal with the same old trade barriers. Tariffs on sensitive goods still remain. Sensitive goods range from agriculture and raw materials to footwear and furniture. These practices may seem unfair but the union is beginning to open up trade with Eastern Europe, the Mediterranean and hopefully they will take the APEX incentive to open thier market. If not we have policies that we can follow to force free trade. The United States is in a unique position in the world economy being the largest consumer nation and also a major exporter. The U.S. can use the threat of trade sanctions to open up closed markets and even change countries policies. An example of this is the U.S. threat to use trade sanctions towards China. China has a booming industry pirating U.S. films and music. This industry cost the U.S. billions. The threat of trade sanctions forced China to crack down on these pirating industries. The world is moving towards the liberalization of international trade. Large economic communities are being formed to make trade more profitable for everyone involved. The APEC initiative takes this even farther with plans to incorporate the whole world into a free trade area, thus making the entire world more efficient and goods less costly. f:\12000 essays\business & economics (632)\Advantages of technology in the international market.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Technology plays a major role in international trade. Databases, overnight delivery and faxes have opened the world market to not only larger companies but small ones too. To add to this globalization, companies and even competitors are combining and forming alliances to cut cost and increase the profit margin. Chrysler, General Motors and Ford have formed an alliance in research and development to avoid duplication. These alliances are not only with domestic companies but they also go over national lines. Companies are pushing for integration of the world economy in hope for increased profits and governments are beginning to listen. Since 1986 (GATT) General Agreement on Tariffs and Trade have taken the incitive to move towards the liberalization of international trade. GATT members agreed to reduce tariff and non-tariff trade barriers. From 1986 to the present due to GATT's lead many markets have been open to the United States increasing exports and increasing efficiency through competition. One of the most aggressive liberalization groups to follow GATT's lead is APEC (Asian Pacific Economic Community). APEC consist of 18 countries that account for 1/2 of the worlds output. The three largest economies Japan, China and the United States are members. APEC leaders are committed to achieving free and open trade for the region by 2010. APEC is moving towards this goal through many means including accelerating initial Japanese tariff cuts by 50%. China will also cut a number of tariffs by 30%. Indonesia and other APEC members are also reducing tariffs sharply. What sets APEX at the head of the pack leading liberalization is it wiliness to extend benefits of membership to everyone. APEX is willing to extend the benefits of cuts in tariff and non-tariff barriers to all countries willing to make comparable cuts. This is a major incentive for all countries because the Pacific Rim is the fastest growing market in the world and large profits are to be made there. To put these cut in trade barriers in perspective lets look at the company Chrysler. Chrysler is introducing a right handed drive version of the neon subcompact to the Japanese consumer. Chrysler plans to sell 4,000 units at their 200 show rooms. They are hoping for even more success with the right handed versions of the Voyager and Wrangler which they plan to introduce next year. With Japanese subsidizes on exports which lead to a high price on Japanese domestic goods, Chrysler should be very competitive. Liberalism in trade, though progressive vary a lot with area. The European Union consisting of the countries of western Europe have established a free trade zone between themselves but those areas outside the union deal with the same old trade barriers. Tariffs on sensitive goods still remain. Sensitive goods range from agriculture and raw materials to footwear and furniture. These practices may seem unfair but the union is beginning to open up trade with Eastern Europe, the Mediterranean and hopefully they will take the APEX incentive to open thier market. If not we have policies that we can follow to force free trade. The United States is in a unique position in the world economy being the largest consumer nation and also a major exporter. The U.S. can use the threat of trade sanctions to open up closed markets and even change countries policies. An example of this is the U.S. threat to use trade sanctions towards China. China has a booming industry pirating U.S. films and music. This industry cost the U.S. billions. The threat of trade sanctions forced China to crack down on these pirating industries. The world is moving towards the liberalization of international trade. Large economic communities are being formed to make trade more profitable for everyone involved. The APEC initiative takes this even farther with plans to incorporate the whole world into a free trade area, thus making the entire world more efficient and goods less costly. f:\12000 essays\business & economics (632)\Advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Advertising Mass Communication Process Thesis Paper Advertising (Chapter 11) Advertising is a necessary market force that is responsible for the success of most, and involved in all, forms of Multimedia. It is also responsible for some of our most powerful and long-living icons that dominate the American landscape. Advertising, like it or not, is everywhere. It is on buses, billboards and hot-air balloons. It invades our living rooms, our classrooms and almost every aspect of human life. The average American is exposed to 115 advertisements during their morning commute. With this much exposure to the consumer market, one wonders weather or not this is good or bad for the population at large. Not surprisingly, professionals have disputed advertising's effect across the globe. In this paper I do not want to look at the effects of advertising as much as the techniques in which the advertisers choose to convey their message. I intend to argue and support that the several techniques used by advertisers are underhanded and, in some cases, downright unethical. Advertisers use several different techniques for selling products. One can analyze these as persuasive techniques. This first point summarizes the oldest and most conventional persuasive techniques Most are considered perfectly ethical at first glance, but when you examine them further, things are not always as they appear. Two of these techniques include the plain-folks pitch, and snob appeal. These two techniques are used quite often. Both hope to attract your attention by getting you to establish a need for the products. In the Plain-folks pitch, advertisers try to make things appear much simpler than they are. An example of a typical Plain-folks pitch is Toyota's current pitch, "Everyday"; as in everyday people drive Toyota cars. The Snob approach, on the other hand tries to make you believe that upon the purchase of their product you will be accepted into the elitist society in which you always aspired to be a part of. These advertisements are used when advertising most luxury items. Another approach is the Bandwagon effect. This approach preys on the "keeping up with the Jones" fear that most people possess. It also relates to the feeling that if it is good enough for the majority of my peers, it must be good enough for me. Finally, and perhaps the most unethical technique is the hidden fear approach. This technique preys on people's fear to sell a product. It is most abused by the low involvement products. Deodorant, toothpaste, shampoo and other products that are easily substituted for by their competitors are extremely guilty for this type of advertising. A Deodorant commercial even went far enough to say if you did not use their product, you would be banished by society and forced to live the remainder of your life as a hermit. These hidden approaches are considered to be unethical by most experts in the field. These techniques incite irrational fears in people. The hidden fear approach still it remains as one of the most successful advertising techniques used. Another way in which one can examine advertising techniques is through the Association Principle. The Association Principle is summarized by Campbell as the association of a product with some cultural value or image that has a positive connotation but may have very little connection to the actual product. (Campbell 361) This is also a reason that people are distrustful toward advertisers. Using this principal in advertising is just another way in which people are tricked into believing that a product is something that it is not. Cigarettes, when sold in Newport advertisements, are associated with people who have bright white smiles, who are thin, and who are having the most amazing time. When in reality, smokers have a forty percent better chance of being depressed, ninety-five percent of smokers are over weight, and everybody knows that a smoking turns teeth yellow. This is just a small example of the association principle, but you can clearly see how it works. In another example demonstrated in Campbell, The Gallo Wine Company advertised an entire line of wines featuring two older entrepreneurs as the owners of the Bartley & Jaymes Company. This company was a total fabrication that the Gallo Company felt would relate to more of America's younger generation of wine drinkers. (Campbell 361) Yet another way to analyze ads as deceptive selling tools is to analyze them through the Myth Analysis Technique. Campbell defines this Technique in saying that ads are constructed as an extremely short narrative that involves some conflict in which the conflict is solved with incredible ease by the product being advertised. (Campbell 363) A recognizable example of this is in one of the Miller Lite commercials. In this situation, a male is shown alone at his house watching a game. Once he opens a Miller Lite, the room fills with friends, beautiful girls, and the best time that a popular guy would ever want to have. This commercial, in essence, states that if you are lonely (Conflict), all that you need to become the popular, party guy is a case of Miller Lite (Resolution) and your prayers will be answered. This is totally untrue since a beer will not make you more popular, and in extreme cases may turn you into an alcoholic. The example given by Campbell is of the Marlboro Man. He is a representation of the individual rugged spirit that is sought after by much of the population in our culture and in cultures around the world. "A conflict is generated by the audiences implicit understanding of what is not in the ad---a fast paced, technology-driven urban world where most smoking actually takes place. This implied conflict between the natural world and thee manufactured world is apparently resolved by invoking the image of Marlboro." (Campbell 363) Through Myth Analysis, Marlboro will transport any smoker from the technological world in which we live to a world in which you ride horses and rustle cattle. Advertising is extremely important to the economy of the world. It drives the market and pays for most of the entertainment that so many of us Americans Enjoy. It is also the only way that we are furnished information about new and innovative products. As I hope was demonstrated in this paper, advertising does come with a price. As targets of advertising campaigns, we need to be more objective of the messages that are being fed to us by the corporations of America. If we are not careful, one could be lead by the media gods down a path of destruction from which there is no return. As stated in the thesis, advertisers use many underhanded techniques to sell us their products, and only the consumer can make a change. f:\12000 essays\business & economics (632)\Affirmative Action 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Affirmative Action The term affirmative action is applied to the use of racial, ethnic, or gendr prefrences set apart a variety of social benefits. The groups receiving such benifits, such as blacks, indians, and women are assumed to havee been victims of descrimination in the past. Thus, a program most definatly benifiting white males as a group would not be an example of affirmative action for most people. This would be as unconstitutional as discrimination against non-whites or women. I feel that the need for affirmative action is varied form case tto case because sometimes people of diffrent races are hired to meet a quota required by state or federal law. I feel that affirmative action is a quoata system because it is forcing you to hire people possibly not qualified just because of their race. I feel the only way to slove this problem is to force people to hire for quality not quanity. A more qualified applicant should not be turned down for race or gender. f:\12000 essays\business & economics (632)\Affirmative Action.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Affirmative Action The term affirmative action is applied to the use of racial, ethnic, or gendr prefrences set apart a variety of social benefits. The groups receiving such benifits, such as blacks, indians, and women are assumed to havee been victims of descrimination in the past. Thus, a program most definatly benifiting white males as a group would not be an example of affirmative action for most people. This would be as unconstitutional as discrimination against non-whites or women. I feel that the need for affirmative action is varied form case tto case because sometimes people of diffrent races are hired to meet a quota required by state or federal law. I feel that affirmative action is a quoata system because it is forcing you to hire people possibly not qualified just because of their race. I feel the only way to slove this problem is to force people to hire for quality not quanity. A more qualified applicant should not be turned down for race or gender. f:\12000 essays\business & economics (632)\Agrarian Discontent In The Late 1800s.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1535 "Why the Farmers Were Wrong" The period between 1880 and 1900 was a boom time for American politics. The country was for once free of the threat of war, and many of its citizens were living comfortably. However, as these two decades went by, the American farmer found it harder and harder to live comfortably. Crops such as cotton and wheat, once the bulwark of agriculture, were selling at prices so low that it was nearly impossible for farmers to make a profit off them. Furthermore, improvement in transportation allowed foreign competition to materialize, making it harder for American farmers to dispose of surplus crop. Finally, years of drought in the midwest and the downward spiral of business in the 1890's devastated many of the nation's farmers. As a result of the agricultural depression, many farm groups, most notably the Populist Party, arose to fight what farmers saw as the reasons for the decline in agriculture. During the last twenty years of the nineteenth century, many farmers in the United States saw monopolies and trusts, railroads, and money shortages and the demonetization of silver as threats to their way of life, though in many cases their complaints were not valid. The growth of the railroad was one of the most significant elements in American economic growth. However, in many ways, the railroads hurt small shippers and farmers. Extreme competition between rail companies necessitated some way to win business. To do this, many railroads offered rebates and drawbacks to larger shippers who used their rails. However, this practice hurt smaller shippers, including farmers, for often times railroad companies would charge more to ship products short distances than they would for long trips. The rail companies justified this practice by asserting that if they did not rebate, they would not make enough profit to stay in business. In his testimony to the Senate Cullom Committee, George W. Parker stated, "...the operating expense of this road...requires a certain volume of business to meet these fixed expenses....in some seasons of the year, the local business of the road...is not sufficient to make the earnings...when we make up a train of ten of fifteen cars of local freight...we can attach fifteen or twenty cars...of strictly through business. We can take the latter at a very low rate than go without it." Later, when asked the consequences of charging local traffic the same rate as through freight, Mr. Parker responded, "Bankruptcy, inevitably and speedy...". While the railroads felt that they must use this practice to make a profit, the farmers were justified in complaining, for they were seriously injured by it. A perfect example of this fact can be found in The Octopus by Frank Norris. A farmer named Dyke discovers that the railroad has increased their freight charges from two to five cents a pound. This new rate, "...ate up every cent of his gains. He stood there ruined." (Doc. H). The railroads regularly used rebates and drawbacks to help win the business of large shippers, and made up this loss in profit by increasing the cost to smaller shippers such as farmers. As a result, many farmers, already hurt by the downslide in agriculture, were ruined. Thus, the farmers of the late nineteenth century had a valid complaint against railroad shippers, for these farmers were hurt by the unfair practices of the railroads. Near the end of the nineteenth century, business began to centralize, leading to the rise of monopolies and trusts. Falling prices, along with the need for better efficiency in industry, led to the rise of such companies as Carnegie Steel and Standard Oil, which controlled a majority of the nation's supply of raw steel and oil respectively. The rise of these monopolies and trusts concerned many farmers, for they felt that the disappearance of competition would lead to erratic and unreasonable price rises that would hurt consumers. James B. Weaver, the Populist party's presidential candidate in the 1892 election, summed up the feelings of many Americans of the period in his work, A Call to Action: An Interpretation of the Great Uprising. He wrote, "It is clear that trusts are...in conflict with the Common law. They are monopolies organized to destroy competition and restrain trade.... Once they secure control of a given line, they are master of the situation... They can limit the price of the raw material so as to impoverish the producer, drive him to a single market, reduce the price of every class of labor connected with the trade, throw out of employment large numbers persons...and finally...they increase the price to the consumer.... The main weapons of the trust are threats, intimidation, bribery, fraud, wreck, and pillage." However, the facts refute many of Weaver's charges against the monopolies. While it is true that many used questionable means to achieve their monopoly, many were not out to crush competitors. To the contrary, John D. Rockefeller, head of Standard Oil, competed ruthlessly not to crush other refiners but to persuade them to join Standard Oil and share the business so all could profit. Furthermore, the fear that the monopolies would raise prices unreasonably was never realized. Prices tended to fall during the latter part of the 1800's creating what some have called a "consumer's millennium". Thus, the agrarian complaints against monopolies were not incredibly valid, for the monopolies did very little harm to farmers of the time. Finally, deflation and falling prices during the late 1800's led to the most heated complaint of farmers and the Populist party that grew out of agricultural discontent. Deflation had been running rampant during the latter half of the 1800's, as evidenced by the drastic fall in the value of wheat and cotton. To fight the deflationary trend, the Populists demanded a reversal of the Coinage Act of 1873, which demonetized silver. The Populist platform for the 1892 election called for unlimited coinage of silver and an increase in the money supply "to no less than $50 per capita.. Here again, the farmers are wrong in the assessment of their problems. It is true that the countrys money supply was not adequate. United States government data from 1961 shows that though the countrys population between 1865 and 1875 increased by nearly four million, the countrys money supply actually decreased. However, many farmers used the money supply to explain problems that indeed had very little to do with the money supply at all. This fact is best summed up in a quote from J. Laurence Laughlins article, Causes of Agricultural Unrest. He says, Feeling the coils of some mysterious power about them, the farmers... have attributed their misfortunes to the constriction in prices, caused, as they think, not by an increased production of wheat throughout the world, but by the scarcity of gold.. Furthermore, history has shown that battle between gold and silver had little real meaning. The real battle was not between gold or silver, but instead what would be done to check deflation. William McKinley, in his 1896 acceptance speech, said, Free silver would not mean that silver dollars were to be freely had without cost or labor... It would not make labor easier, the hours shorter, or the pay better. It would not make the farming less laborious or more profitable.... Many farmers saw silver as a cure-all for their problems, failing to see that changes in the world were to blame. Finally, the discovery of gold in Alaska and improved methods of extracting gold from low-grade ore did much to increase the nations money supply. These facts prove that the farmers view of silver was not sound, thus invalidating their complaints about the nations financial system. The farmers of the late 1800s had many reasons for being dissatisfied with their situation. Unfair railroad practices, such as rebates and drawbacks, hurt them severely. However, in some cases, these farmers complaints were not justified. Many of the fears that farmers had about monopolies, such as the idea of unfair and unreasonable price increases, happened in very few occasions; in fact, prices went down in the latter part of the nineteenth century. Finally, history has proven that their view of silver as a way to end deflation and the decrease in crop values was inaccurate. The farmers of the period, though, used these issues to change the shape of American politics and bring it face to face with the problems the country was facing. f:\12000 essays\business & economics (632)\Airborne Express.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1759 In a highly competitive industry the structure of a firm is very important to its success. Today firms are moving away from the centralized structure of the past, and adopting a more decentralized structure (Management Challenges in the 21st Century p 315). The air express industry is no exception. FedEx, the leader in the air express industry since the late eighties, is also leading U.P.S. in the race to become decentralized. Airborne Express is not even in the race. In order to compete in today's changing environment, Airborne Express needs to move away from its old fashioned centralized structure and form a more decentralized structure. The old fashioned structure is not the only variable that makes Airborne the follower in the air express industry. The Internet and information systems are transforming the air express market into an electronic commerce market, and Airborne needs to transform it's operations to meet this growing market. This report describes the strengths and weakness of the organizational structure of Airborne Express. Furthermore, it also gives recommendations for future changes in Airborne Express. The first section of this report addresses how the organization of the firm evolved, and what changes are taking place structurally in its industry. The second section discusses labor issues in the air express industry and how they affect Airborne Express. The third section addresses the growing electronic commerce market and how it's affecting the industry and Airborne Express. 1) Structure of Airborne Express During the eighties many air express companies were formed and many were destroyed. However, three companies came out of this highly competitive period on top. They were FedEx, U.P.S. and Airborne Express. Airborne survived this highly competitive period by adapting to the external forces affecting the industry. One of the external forces affecting Airborne was the size of the competition. U.P.S. and FedEx were just swallowing up competitors. So Airborne decided the best way to compete was to be the low-cost provider of air express service. Robert Cline, CEO of Airborne explains their strategy "When you are up against UPS and Federal Express, those guys are so big and so well capitalized that you have to have a tool to fight with them. It wasn't going to be size; it wasn't going to be how well-known we were. So, we decided to be the low-cost operator."(Washington CEO P 33). However, to become the low cost operator Airborne had to make many structural changes. One of those structural changes was that Airborne centralized its organization as much as possible. After all, why pay middle management high salaries when upper management can make all the decisions. Furthermore, what CEO would trust middle management to make decisions during the unstable period of the company's history? Another major change Airborne underwent in the eighties, was to differentiate its service. Unlike its two major competitors, FedEx and UPS, Airborne changed its strategy to concentrate on providing services for large corporations (Airborne Express's 10-K form p5). This strategic change not only gave Airborne product differentiation and market specialization, but also benefited by taking away the need for advertising. Therefore, it could save the $35 to $40 million it was spending a year on advertising, and use it to help become the low-cost operator (Washington CEO p 36). Airborne made important structural and strategic changes in the eighties, which contributed to its success. However, in the nineties, Airborne is reluctant to change with the environment. As mentioned earlier, many firms are moving towards a more decentralized structure. Airborne seems to be using the same structure that got it through the eighties. Consequently, its decision making is still coming from top management, and no responsibility is being delegated to lower management. FedEx however, has experienced growing success by using a decentralized structure. "Delegation, as demonstrated by FedEx, can lead to a more empowered work force and resulting heightened productivity and quality, reduced costs, more innovation, improved customer service, and greater commitment from employees" (Management Challenges in the 21st Century p 285). Airborne's centralized structure is also one the reasons its been experiencing labor problems. 2) Labor Issues The last few years have plagued the air express industry with labor problems that have kept CEO's of major companies like UPS, FedEx, and Airborne Express on their toes (The New York Times Nov 1998). Since the UPS strike of 1997, air express companies are fighting to keep good relations with their workers. The Teamsters' strike with UPS over part-time and full-time help taught small business not to rely on one express company. UPS is not the only company having labor problems. With the use of lengthy negotiations and hefty salary promises FedEx has settled a labor dispute with its pilots, and are entering the year 2000 without labor problems (Institute for Technology and Enterprise P 12). Airborne Express, however, is experiencing major labor disputes with its pilots. Although under contract, Airborne pilots are not happy with management. A representative for Airborne claims "Airborne management has failed to implement key provisions in the contract". This failure plus the firing of an Airborne pilot has the pilots angry (Traffic World P 1). Since the pilots are under contract, they can not strike, but they can stop flying volunteer overtime, which makes up 15 percent of Airborne's flights. In November of 1998 the pilots voted to stop flying overtime (Traffic World P 3). Airborne needs to smooth over relations with its pilots soon, because the contract expires May of 2001. Therefore, unless Airborne settles this dispute, it will be facing an imminent strike. Another labor issue affecting Airborne is the Teamsters Union. Airborne signed a five-year contract with the Teamsters Union in 1998. There are three major provisions in this contract (Associated Press online p 2). 1. Provides improved working conditions for Airborne employees. 2. A Bonus for employees the first year, followed by a yearly wage increase for the last four years of the contract. 3. At least 50 percent of the current part-time work force will be changed to full-time by 1999, with the remaining 50 percent offered full-time positions by 2000. The last provision is could have consequences for Airborne Express. Using part-time help is a way for express companies to cut expenses by not having to pay full-time benefits. How will Airborne be able to keep up its strategy of being the low-cost operator if they lose the efficiency of a part-time workforce? Airborne Express needs to operate as efficiently as possible if they want to have the capital to compete in the growing electronic commerce market. 3) Electronic Commerce Market Today the air express industry is faced with a technology that will force express companies to change organizational structure and basic operations. This technology is electronic commerce, or better known as the Internet. Presently, Internet sales make up 15 percent of the retail market, and are expected to make up 55 percent of the market by 2005 (Institute for Technology and Enterprise p 1). In order to compete in this growing market, many retail companies are changing their operations and selling products over the Internet. Because of this, there is a need for air express companies that can cater to the needs of online retailers. Express companies need to supply services such as just-in-time inventory or virtual inventory. In order to best describe the importance of this new market to Airborne Express's future, I'm going to address the way FedEx is changing their structure to compete in this new market. One way FedEx is dealing with this new market is by providing just-in-time inventory services for companies. FedEx provides this service by connecting to an online retailer's web site, and when a sale is achieved over the Internet, the order is placed directly with FedEx. Once FedEx receives the order, it picks up the product from the supplier and delivers it to the customer. This all takes place without the online retailer touching the product (Institute for Technology and Enterprise p 4). FedEx supplies this service for a percentage of the online retailer's sales. There are three air express companies competing for control of this electronic market and Airborne is not one of them. The three companies are FedEx, UPS, and DHL. If the express industry is affected as much as predicted, Airborne could lose its ranking as third in the express industry to DHL. Airborne Express might be gambling on the hope that there will be companies who will fight this move to electronic commerce, and will give Airborne enough old fashioned express business for them to succeed. This is a major gamble. "Concepts like just-in-time manufacturing and mass customization were no longer just theory; a number of firms had carved out distinct niches in the market place by focusing on developing these capabilities in manufacturing and production. Tight supply chain integration was no longer perceived as a competitive advantage. It was being seen as a competitive imperative" (The Economic Benefits of Air Transport, 1997 p 23). Airborne needs to connect to the electronic commerce market before it loses the opportunity. In conclusion, Airborne made some wise changes to its structure in the eighties. These changes differentiated Airborne from its competitors, and allowed it to be the low-cost operator. However, in the last few years with Airborne's failure to change with the environment and with labor disputes in its near future, the future for Airborne Express looks bleak. Unless Airborne wants to go back to transporting flowers it needs to rethink its strategy. Works Cited Airborne Express's 10-K Form. P 29. Edgar Files IRS# 910837469 12 Feb. 1999 Airports Council International. The Economic Benefits of Air Transport. P 22.May. 1998 Associated Press Online. Airborne Express, Union Reach Pact. P 2. Dec. 1998 Online. Internet 16 Feb. 1999 www.associatedpress.com Institute for Technology and Enterprise. The FDX Group Building the Electronic Commerce Backbone for the Future. P 12. April 1998 Online. Internet 3 Mar. 1999 www.ite.poly.edu.com Management Challenges in the 21st Century. P 315. St. Paul Minnesota: West Publishing Company. 1995 The New York Times. UPS Walkout: For Small Businesses, Big Problems. Sec. C-6. Aug. 1997 Traffic World. Pilots Airborne Sue. P 1 1998 Online. Internet 16 Feb. 1999 www.northernlight.com Washington CEO Network. The Underdogs Deliver. P 36. 1997 Online. Internet 16 Feb. 1999 www.waceo.com f:\12000 essays\business & economics (632)\Airline Deregulation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1038 On October 24, 1978, President Carter signed into law the Airline Deregulation Act. The purpose of the law was to effectively get the federal government out of the airline business. By allowing the airlines to compete for their customers' travel dollars, was the thinking, that fares would drop and an increased number of routes would spring up. Expected Results The results of airline deregulation speak for themselves. Since the government got out of the airline business, not only has there been a drop in prices and an increase in routes, there has also been a remarkable increase in airline service and safety. Airline deregulation should be seen as the crowning jewel of a federal de-regulatory emphasis. Prices are down: Airline ticket prices have fallen 40% since 1978. Flights are up: The number of annual departures is up from 5 million in 1978 to 8.2 million in 1997. Flights are safer: Before deregulation, there was one fatal accident per 830,000 flights, now the rate is one per 1.4 million flights. So what's the problem? Misplaced Priorities It appears that the Clinton administration and some in Congress will cut off their nose to spite their face. By almost all measurable ways, airline deregulation has been a success. But in response to a few small start-up airlines complaining to the Department of Transportation about "predatory pricing," Washington legislators and regulators are poised to act. "Predatory Pricing" is code for: "fares are too cheap for some airlines to compete in that market 'cause they will lose money". In response, the Department of Transportation recently proposed guidelines to limit the maximum number of seats an airline can offer on particular routes and which forbid them from dropping prices below certain levels, all in the name of "fair" competition. In other words, " we can't have prices get too cheap because then the Value-Jets of the world won't be able to jump into the market place." Of course then you would be paying $400 to fly from New York to Boston just for the chance to have a thrill-a-minute ride across New England. But as long as a guy with a pair of Ray-Bans and a crop duster can "compete" with Delta and American, then the D. of T. is happy. Flying High, What Are They Smoking? Where is the common sense in the Clinton Administration's airline policy? The administration claims to desire full competition, but shudders at the one result of competition that truly benefits the consumer - low fares. A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies. The Best of Both Worlds The U.S. airline market admittedly operates in an oligarchal fashion. But is this not the best policy for air travel? The success of the large carriers has enabled a drop in fares, and while entry into the market is difficult, it is not impossible. Upstarts such as Southwest Airlines are able to find a market niche and exploit it into profitability. Maybe benevolent oligarchy should be the term... Turn the Market Loose! Those in the de-regulation camp see an opportunity to expand on the Deregulation Act. When the act was written, the government was taken out of the business of setting fares and routes. But various municipalities still retain ownership over airports. Given the massive improvements in the airlines since dergulation, why not apply this same thinking to airport ownership? The results should only be more of the same: better service, cheaper prices, and more market freedom. But the legislation winding its way through the legislative maze that is Congress does anything but move towards increased privatization. S. 1331, sponsored by Senator John McCain (R-AZ), would make it more difficult for large carriers to offer low fares. The justification for this action it to make entry into the market easier, and therefore increase competitiveness within the industry. But while this may enable small airlines to enter markets, it essentially creates an affirmative-action program for corporations that are inefficient by reserving runway space for these airlines. The only good language in the Senate bill is that which would eliminate perimeter restrictions on Washington's Ronald Reagan Airport. This would kill the rule that prevents flights to and from National from more than 1250 miles away. While this may just be a measure so that Congressmen won't have to drive to the out-of-town Dulles Airport in Virginia, it is a good precedent to set for other airports and the elimination of market restrictions. The House has a companion bill, H.R. 2748, which does not go as far as the Senate bill in its regulatory language. But Speaker Newt Gingrich (R-GA) has predicted that Congress will pass some airline bill this term. A senior aide for a Republican on the House Transportation and Infrastructure Committee said, "I don't know if the two sides will come together this year." So the legislative status of the re-regulatory fever is still in doubt. But with a Republican Congress which seems to advocate that position, an airline bill could still pass which takes the aviation industry in the wrong direction. "Problems" in the airline industry have not risen due to too much competition within the industry. To the contrary, Washington regulators should turn the industry loose in any more ways that it can. Lowering restrictions to enter the market place, emphasizing private ownership of aviation matters, and encouraging open and free competition within the scope of anti-trust law should be the goals of the Clinton Administration. Instead of heading towards re-regulation, Washington should get out of the airline business for good. f:\12000 essays\business & economics (632)\Alan Greenspan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 468 Alan Greenspan, chairman of the Federal Reserve Board: President Clinton appointed Alan Greenspan, a well-known chairman of the Federal Reserve Board, to his fourth term as the chairman of the nation's central bank. Alan Greenspan accepted the chance to lead the Federal Reserve Board for another four-year term beginning June of 2000. President Clinton praised Greenspan for starting a "New Era", an era with high technologies and productivity to advance. He is expected to push the level of prosperity to a higher stage. Alan Greenspan is known as a man of his profession to realize the power and impact of new technologies for the 21st century. The Fed's job of stabilizing output in the short run and promoting price stability in the long run is made more difficut by two main factors: the long and variable lags in policy, and the uncertain influences of factors other than monetary policy on the economy. This raised an important question, what problems are caused by other influences on the economy? Output, employment, and inflation are influenced not only by monetary policy, but also by such factors as our government's taxing and spending policies, and the introduction of new technologies etc. As we step into the 21st century, the wide spreads of computer industries and advance technologies have enhanced the productivity. When workers and capitals are more productive, the economy can expand more rapidly without creating inflationary pressure. U.S. today has experienced a capability surge brought on by the utilization of computer and hi-tech developments. The issue of monetary policy maker is how much faster productivity is increasing and whether those increase are temporary or permanent. With all these uncertainties, the board has to know how and when Fed.'s policies will affect the economy? Fed looks at a wide range of indicators of the future course of employment, output and inflation. Indicators induces the measure of money supply, unemployment rate, real interest rate, nominal and real GDP growth, etc... With so much variation of possibilities, policymakers basically have to rely on their own judgement about the directionality of these indictors. They based on these foreshadowing to formulate strategies to maintain the economy at its top condition. In order to have a desire effect on the economy, the Fed must take into account of the influence of these indication, either offset them or reinforce them as needed. This require difficult decision making, because these development occurs unexpectedly, the size and timing of their effects are difficult to estimate. According to our today's economic indicators, investors do expect Fed.'s Policymakers to raise rate again at least once more early this year. The Fed funds future contract for February is currently yielding 5.76%, more than a quarter-point above the current 5.5% rate. The Fed.'s first policy meeting of the new millennium will be held on February 2, 2000. f:\12000 essays\business & economics (632)\America Online To Unveil Flat Fee For Internet Access.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ America Online To Unveil Flat Fee For Internet Access The Internet is becoming more popular and more widely used, and the Market for internet access is growing rapidly. To stay competitive in this fast-moving industry, America Online has announced that they will switch their price plan for internet access.to a flat-fee rate of $19.95 per month. After the changed in price (decrease), the Supply curve "S" will shift to "S1". An increase in Supply curve will increase (Quantity) people using America Online and decrease Price. America Online has announced a change to their price plan for internet access. before they charged a rate of $19.95 for only 20 hours of internet access. One of the many reasons is that it could help the service against Internet competitors, by doing this "Keith Benjamin says there may be some short-term negative impact on margins." Negative impact on margins means that there will be decrease in earnings. Another reason for this pricing move is part of a broader effort to add new features to the service and make it more compelling than rivals. Since America Online's price is lower people will tend to use America Online more. This is a competitive market as America Online lowers their price, other competitors will lower their price too. This will happen until they reach the Equilibrium. By staying in this fast-moving industry, America Online has unveiled a set of features that include enhancements to listening to audio on-line, better methods for viewing video on-line, and tools for media companies to spruce up their on-line fare. In Addition to that America Online also expected to unveil another initiative whereby Internet-service providers could offer their subscribers easy access to America Online in return for ad revenue. f:\12000 essays\business & economics (632)\American GovernmentEconomics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ American Government-Economics Mid-term Paper Most of the problems of the United states are related to the economy. One of the major issues facing the country today is social security. The United States was one of the last major industrialized nations to establish a social security system. In 1911, Wisconsin passed the first state workers compensation law to be held constitutional. At that time, most Americans believed the government should not have to care for the aged, disabled or needy. But such attitudes changed during the Great Depression in the 1930's. In 1935, Congress passed the Social Security Act. This law became the basis of the U.S. social insurance system. It provided cash benefits to only retired workers in commerce or industry. In 1939, Congress amended the act to benefit and dependent children of retired workers and widows and children of deceased workers . In 1950, the act began to cover many farm and domestic workers, non professional self employed workers, and many state and municipal employees. Coverage became nearly universal in 1956, when lawyers and other professional workers came under the system. Social security is a government program that helps workers and retired workers and their families achieve a degree of economic security. Social security also called social insurance (Robertson p. 33), provides cash payments to help replace income lost as a result of retirement, unemployment, disability, or death. The program also helps pay the cost of medical care for people age 65 or older and for some disabled workers. About one-sixth of the people in the United States receive social security benefits. People become eligible to receive benefits by working in a certain period in a job covered by social security. Employers and workers finance the program through payroll taxes. Participation in the social security system is required for about 95 percent of all U.S. workers. Social security differs from public assistance. Social security pays benefits to individuals, and their families, largely on the basis of work histories. Public assistance, or welfare, aids the needy, regardless of their work records. All industrialized countries as well as many developing nations have a social security system. The social security program in the United states has three main parts. They are (1) old-aged, survivors, disability, and hospital insurance (OASDHI), (2) unemployment insurance; and (3) workers' compensation. THE SOCIAL SECURITY PAYROLL TAX This tax was to be taken from the payrolls of the nation's employers and employees. The government felt that, like unemployment benefits, the social security should be financed by those who got the greatest benefit, those who worked, and were liable to need those benefits in the future. A plan that would affect those only who had paid such a tax for a number of years would have done those who were currently suffering under the Depression no good at all. As a result, the social security plan began paying out benefits almost immediately to those who had been retired, or elderly and out of work, and who were unable, primarily because of the depressed economic conditions, to retire comfortably. In this way, the government was able to accomplish two objectives: first, it helped the economy pull out of the depression, by providing a means by which old people could support themselves and, by buying goods and services, support others in the community ; and second, it showed the younger workers of that time that they no longer had to fear living out their retirement years in fear of poverty. Therefore, the social security payroll tax has been used to provide benefits to those who otherwise would have little means of support, and as of this writing, there has never been a year when Social Security benefits were not paid due to lack of Social Security income. (Boskin p.122) PAYING OUT BENEFITS Social Security benefits increased 142% in the period between 1950-1972. not only the elderly, but many of the survivers, the widows and children, of those who paid into the Social Security system, have received social security checks. These checks have paid for the food shelters, and in many instances the college education of the recipients. Unlike private insurance firms, the United States Government does not have to worry about financial failure. Government bonds are considered the safest investment money can buy-so safe, they are considered "risk free" by many financial scholars. (Stein p. 198) The ability of the United States Government to raise money to meet the requirements of the social security should be no more in doubt than the governments ability to finance the national defense, the housing programs, the State Department, or any of the other activities that the federal government gets involved in. By paying out benefits equally to all participate in Social Security- that is by not relying so heavily on total payments in making the decision to pay out benefits, the system is able to pay benefits to people who otherwise may not be able to afford an insurance program that would provide them with as much protection. One of the main reasons for the government's involvement in this program, is its ability and its desire to provide insurance benefits for the poor and widowed, who under the private market, might not be able to acquire the insurance to continue on a financially steady course. The government, then, is in a totally unique position to pay out benefits that would be out of the reach of many American families. Another great advantage of this system, is the ability of the government to adjust the benefits for the effects of inflation(Robertson p.134) INFLATION AND SOCIAL SECURITY Private insurance plans are totally unable to adjust for the effects of inflation with complete accuracy. In order for an insurance company to make this adjustment, they would have to be able to see forty-five years into the future, with twenty-twenty vision. When a private pension plan currently insures the twenty-year-old worker, it can only guarantee a fixed income when the worker reaches sixty- five and a fixed income is a prime victim of inflation (Robertson p.332) In order to adjust for that inflation, the private insurance firm would have to be able to predict what the inflation rate will be from the moment the worker is insured until the day he dies, and then make the complex adjustments necessary to reflect this in the pension plan. An inflation estimate that is too small will result in the erosion of the workers retirement benefits. Because the government, unlike the private insurance firm, can guarantee that it will exist well into the future, and will have the continued income of the Social Security tax to draw upon, it can make on-the-spot adjustments for changes in the inflation rate. Some adjustments, in fact, have been automatic in the recent years, therefore relieving the pensioners of the periodic worry of whether this years benefits would be adjusted, or whether the level of payments would remain stable, thereby, relative to the cost of living, making them poorer that ever before(Stein p.28). In the face of the government's ability to make those necessary adjustments and to continually finance the Social Security program, many opponents of the system argue that the government programs are driving out the private insurance industry. The statistics remain otherwise. SOCIAL SECURITY FINANCING The social security tax is one of the fewest taxes in the United States, and the only federal tax in the country, that is given for a specific purpose. All other taxes are put into another fund, so that welfare programs, defense, space projects, and the other categories of government spending are all financed from one giant, uncategorized bowl of tax revenues(boskin p.62). When the Social Security system was first established, it was felt that a direct payroll tax, based on the pay of the worker and paid both by employer and employee, would be the fairest way for the people that were currently working to pay benefits to those who weren't working, as well as to provide for some future requirements and disabilities. Therefore, a specially constructed payroll tax was used to fund the program. By measuring the amount taken in by the tax to the amount, not only that is taken out, but to the amount that will be taken out in future years, opponents of the Social Security system make the case that the system will be unable to keep itself in such a manner indefinitely. And, if Social Security were a private insurance program, it wouldn't. But the fact is that Social Security is not a private program. it is funded by the government. Further, the government is in a unique position to change the laws of commerce and contract to adjust the system, making it more responsive to the needs of the retired, which, in turn, would reduce their need for the Social Security benefits. For example, the United states Government should raise the mandatory retirement age. By raising the age to sixty-eight, the Social Security System could delay paying out benefits for several years to thousands of people, saving the system a significant amount of money in benefits. For these reasons, the government is in a position which cannot be compared to private industry. In this sense, looking at social security as an insurance program and comparing it to other insurance programs in the private system could easily give the impression that the system is gong bankrupt, when in the reality it isn't. THE FUTURE OF SOCIAL SECURITY The thing to keep in mind about the Social Security system, then, is this: the system itself is in no fundamental danger of collapse. There is only temporary, cash flow situation that must be carefully looked at. The federal government pays out 4.5 billion more in Social Security benefits as it collects in taxes every year. In fact, $4.5 billion is a small price, compared to the other programs the federal government now finances from general revenue. Besides tapping the general revenue fund and raising the retirement limit to 68 or even 70,the government has the option of raising the Social Security tax or even reducing the benefits slightly. The government has so many options with regard to financing the benefits that the question becomes of the cash management, not quite as significant as the huge deficits that the Social Security has been accused of having. The government is already under way to help alleviate this cash flow problem. Public officials have debated which of the various ways would help best serve the public interest, and legislative action has been taken that would ultimately result of the Social Security system to a positive cash base. This shift would provide the workers of America with the same benefits they have been guaranteed since 1935- and have been paid, and expanded ever since. The social security system has withstood forty years of changing economic conditions and greater concern of public welfare. What would replace the system, if the critics had their way? SOCIAL SECURITY PERSPECTIVES The social security system has saved an untold number of people from disaster throughout many years. Many of the nations old people- some as young as sixty-two, a few over a hundred, live from Social Security paycheck to Social security paycheck, with this government program as their livelihood. There can be no doubt that social security has made a tremendous effort to alleviate a lot of suffering that has occurred, even in recent times. The Social Security act was one of the cornerstones of Roosevelt's new deal program, and it is one of who's necessity has been proven, and whose usefulness has allowed it to live. Like all the other new deal projects, Social Security was never meant to show a financial profit, It was meant to show a profit only in the amount of human suffering, It was able to lift. The social security program cannot be measured in the same manner that a private program can be evaluated in, because it is a governmental welfare program. which doesn't mean that it acts in competition with private programs, that was never its intent. The social security administration has written: "Today the American economic system has produced relatively full employment, widespread ownership property, and a rapidly increasing standard of living for the majority of Americans. It has developed a threefold structure to prevent economic insecurity: a public social objectives, mutual protection through private employee-benefit plans to bring the added strength of voluntary of group action: and private savings and other individual action to achieve the greatest range of choice". One only has to look at the number of people, and the amount of money, that those who are recipients of Social security effect, and the advantages of Social Security become obvious: it has taken a group of people who have traditionally been a financial burden on society, and provided a program that they have contributed a little to their own financial well being. the amount of dignity and self respect these people have gained cannot be measured in dollars. f:\12000 essays\business & economics (632)\American Home Products A Pharmaceutical Empire.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2398 History of American Home Products American Home Products Corporation (AHP) was founded in 1926 and has a history of continuous acquisitions of smaller companies that made proprietary medicines. In 1931, AHP purchased John Wyeth & Brother, Inc. from Harvard University. Another important acquisition was that of Canada's Ayerst Laboratories in 1943. Ayerst was a large pharmaceutical company that had introduced Premarin, the world's first conjugated estrogen product, and now the most widely prescribed product in the United States (ahp.com). In March of 1982, Sherwood Medical was acquired, enabling AHP to capture a share of the developing medical devices market. In 1984, Whitehall, an original member of AHP, started to market ibuprofen in the United States that was sold under the trademark Advil. Lawyer John Stafford became CEO in 1986 and soon after he supervised the acquisition of Bristol-Meyer's animal health division and assimilated the new business into Fort Dodge, now Fort Dodge Animal Health. In 1989, AHP bought A.H. Robins along with its popular consumer products, including Chap Stick, Dimetapp, and Robitussin. AHP and American Cyanamid merged in 1994 in a deal valued at $9.6 billion. AHP introduced many new products in 1996, including Redux and Pondimin (Phen-Phen), two weight-reduction drugs. These drugs were later pulled from the market because of links to serious health problems and lawsuits soon followed. When 1998 mega-merger plans with SmithKline Beecham and Monsanto collapsed, AHP settled for the acquisition of New Jersey based Solgar Vitamin and Herb Company for $425 million. It's clear to see that AHP's history is comprised of acquisitions in the desire to be the ultimate leader of the pharmaceutical industry. Marketing American Home Products has a suprisingly vast array of products. From women's health care products to agricultural goods to animal health care products, AHP covers a variety of pharmaceutical needs. Wyeth-Ayerst's research, products, and educational initiatives benefit millions of women. Premarin, the most widely prescribed medication in the United States, is a post-menopausal product that gained AHP notoriety when it was introduced in 1996. Wyeth-Ayerst also introduced Alesse in 1997, a low-dose oral contraceptive formulation that has become very popular in the birth control field. Wyeth-Ayerst also focused its research on cardiovascular therapies and mental health products. Its cardiovascular research concentrates on medication for diseases such as arrhythmia and hypertension. Their anti-arrhythmia franchise leads the U.S. market, reflecting Wyeth-Ayerst's and AHP's recognition of life-threatening ventricular arrhythmia (Tardiff 114). Mental health products offered by Wyeth-Ayerst include anti-anxiety medications and the fast growing anti-depressant, Effexor, introduced in 1997. AHP's family of companies also produces vaccines, cancer treatments, and pain and inflammation medications. Their vaccines prevent childhood and adult diseases such as whooping cough, diphtheria, poliomyelitis, meningitis, pneumonia, and influenza. Orimune, the only oral polio vaccine sold in the United States, is a familiar product of Wyeth-Ayerst. AHP is also known for their anti-cancer agents used by oncologists throughout the world. AHP's oncology and hematology franchises were strengthened in 1997 by the introduction of two new products; Neumega, the first approved platelet growth factor, and BeneFix, the only recombinant clotting factor treatment for Hemophilia B. Wyeth-Ayerst also holds a solid position in the pain and inflammatory category. With the introduction of Duract and Synvisc in 1997, AHP gained notable recognition in the pain reduction medication area. AHP's range of products doesn't stop there. They also produce items in areas such as anti-invectives, nutritionals, consumer health care, agricultural products, and animal health care. Their antibiotic products are used globally to treat infectious diseases. The Wyeth-Ayerst nutritional product line is among the leaders in the international marketplace. Probably the most well known AHP products come from their consumer health care line. This line markets leading brands such as Advil, Centrum, Dimetapp, and Robitussin. Cyanamid, another member of the AHP family, is a leader in the global agricultural products marketplace with products like herbicides, insecticides, and fungicides. An additional member of the AHP family, Fort Dodge, has become the world's third largest provider of animal health care products. Management/Human Resources American Home Products Corporation has a relatively large team of managers. AHP employs more than 52,000 citizens, a substantial decrease from 1994's statistic of 74,000. AHP's principal corporate officers consist of twenty-two vice-principals, one treasurer, and one secretary. AHP's management team also consists of 12 subsidiary officers from AHP's principal divisions; Cyanamid, Wyeth-Ayerst, Whitehall-Robins, Immunex, Specialty Pharmaceuticals, and Quinton Instrument Company. Another segment of AHP's management team is composed of an executive committee, an audit committee, a compensation and benefits committee, a corporate issues committee, and a nominating committee. AHP's management structure is hierarchical in style, using the "top-down" approach to management. Though, AHP may seem domineering in management style, they are more than generous when it comes to benefits. American Home Products sponsors various retirement plans for most full-time employees. Total pension expense for 1998, 1997, and 1996 was $112,209,000, $146,403,000, and $120,621,000, respectively. AHP also supports defined benefit and defined contribution plans for most domestic and certain foreign locations. Benefits under the defined benefit plan are based primarily on participants' compensation and years of credited service. On the other hand, defined contribution plans are based on a percentage of employees' compensation. Expenses for defined contribution plans totaled $64,006,000 in 1998, $65,645,000 in 1997, and $66,674,000 in 1996. AHP's benefits don't stop there. They also sponsor postretirement healthcare and life insurance benefits for retired employees of most domestic locations and Canada. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. American Home Products has not gone unnoticed in their loyalty to employees. AHP was recently selected as one of Working Mother magazine's "100 Best Companies for Working Mothers." The October, 1999 issue states that AHP excels at all six of the criteria used to grade the 100 companies: leave for new parents, flexible work arrangements, child care, work/life balance such as counseling and support groups for employees, opportunities for women to advance, and pay. John R. Stafford, President, Chairman, and CEO states, "We are pleased to be named as one of the best companies for working mothers for the second year. Our work/life programs and policies help ensure that the Company is acting as a partner in assisting employees with balancing work and family responsibilities. One initiative we are particularly proud of is AHP's dependent care subsidy as a matching contribution to an employees Dependent Care Spending Account. This benefit provides financial support to meet the dependent care needs of our employees and their families." In addition to offering employees dependent financial assistance, AHP offers adoption assistance benefits and an Employee Assistance Program (EAP) designed to help people resolve a wide variety of personal and dependent care issues, including elder care. AHP also provides on-site child care facilities in two locations and they offer an annual opportunity to choose their daily work schedules to give them greater flexibility in meeting both work and personal responsibilities. Nearly half of AHP's workforce are women and increasing numbers of women are fulfilling leadership roles in the company. Finance AHP's fiscal standing speaks through their financial ratios. For instance, their gross profit margin ratio is 78.20% compared to an industry average of 71.26% and a market average of 46.00%. The gross profit margin is a key decision making tool and one of the most carefully watched measures of profitability. AHP's ratio of 78.20% means that each dollar of sales generates 78.20 cents of gross profit. Another ratio commonly used in measuring a company's performance is the current ratio. This ratio measures a company's ability to pay current liabilities with current assets. A high current ratio means that the company has plenty of current assets to pay current liabilities. AHP's current ratio is 1.59 compared to an industry average of 1.49 and a market average of 1.37. Inventory turnover, though different for each industry, is a valuable measure of how rapidly inventory is sold. AHP has an inventory turnover of 3.0 compared to an industry average of 1.3. One last ratio to recognize is AHP's P/E ratio of 29.89 compared to and industry average of 34.55 and a market average of 35.17. Investors use this ratio frequently because the higher a stock's P/E ratio, the higher its downside risk, or the risk that the stock's market price will fall. While sales in early 1999 started out slowly, they are projected to accelerate as the year progresses, driven by the new products AHP had introduced in 1998 and by new product launches expected in late 1999. Sales in 2000 are expected to grow at a faster rate as the benefits of these new products are realized. Considering AHP's steady increase in profits and revenues, there is no sign of slowing down for this pharmaceutical empire. "Their growth strategies are directed in large part at achieving several principal objectives: Accelerated earnings-per-share growth and increased market share in our categories; the development of innovative products that become market leaders by contributing to the well-being of people worldwide; and the strengthening of our company in ways that continue to be reflected in shareholder value" (Haschak 28). AHP is estimated to grow at an average of 13% over the next 5 years. The expansion of AHP's agricultural sector will boost future EPS growth and broaden their P/E ratio. All in all, AHP's profit outlook is favorable, as are most of the pharmaceutical industry's outlooks. As analyst David Saks states, "they've (pharmaceutical stocks) passed the bottom and their back on their way to new highs." Also, Dan Ascani, President of Global Market Strategists, states, "we have got certain sectors, namely health care and retail, that are leading the market." Distribution American Home Products has a number of distributors under the AHP name and reputation. One of those is Wyeth-Ayerst Laboratories. Wyeth-Ayerst concentrates its efforts on the distribution and sale of pharmaceutical and vaccine products and the distribution of Whitehall-Robins consumer products in the United States. Wyeth-Ayerst provides more prescription products to Americans than any other pharmaceutical company and offers one of the broadest and most diverse product lines in the industry (Tardiff 112). Wyeth-Ayerst is also among the largest manufacturers of generic oral and injectable products in the United States and is a leading supplier of injectables to hospitals (ahp.com). Headquartered in Philadelphia, Pennsylvania, Wyeth-Ayerst employs more than 40,000 people worldwide, who bring to the company a full range of talent in research, marketing, sales, and manufacturing. Another of AHP's leading distributors is Whitehall-Robins, a dominator in the research and development, manufacturing, and marketing of a broad range of consumer health care products. They are one of the largest over-the-counter health care companies in the United States and are headquartered in the hometown of AHP; Madison, New Jersey. Whitehall-Robins manufacturers top selling products such as Advil, Robitussin, and Centrum. Twelve of the their products are number one or number two in their respective categories, showing that they are a huge benefit to the AHP family. Fort Dodge is another distributor and member of the AHP family. They are a leading manufacturer and distributor of prescription and over-the-counter animal health care products for the livestock, companion animal, and swine and poultry industries in North America and international markets (ahp.com). The partnership of Fort Dodge with AHP creates a more diverse company and, therefore, a broader product range. One last AHP distributor is Cyanamid Agricultural Products Group, the eighth-largest crop protection chemical company in the world and the third-largest crop protection company in the U.S. Cyanamid's Crop Protection Department manufactures and markets herbicides, insecticides, and fungicides to help protect the world's crop and food supply. Cyanamid also adds an edge of diversity to the AHP family by introducing agricultural products to their production line. Information Systems American Home Products has the ability to respond quickly to shifting market conditions and changes in the pharmaceutical industry. AHP's large family of companies allows for the quick development and marketing of new products. They are positioned to deliver new, advanced therapies quickly through its research and development skills. AHP's productivity efforts have allowed them to double the number of Investigational New Drug applications filed compared with five years ago. Attractiveness of the Industry From potential for great growth to ample benefits to high pay, the pharmaceutical industry is an industry with a promising standpoint. Because people will always need medicine for some sort of ailment, the pharmaceutical industry will always be in business. Pharmaceuticals will be the world's answer to life-threatening diseases such as cancer, AIDS, and heart disease. As long as baby's are being born and grandparents are aging, there will be a need for pharmaceuticals. Works Cited American Home Products Corporation. October 10, 1999. American Home Products Corporation. October 8, 1999. Fisher, Ken. "Going Native." Forbes. 9 Oct. 1999. Haschak, Paul G. Corporate Statements. North Carolina: McFarland & Company, Inc., 1998. Juedes, Sarah A. "American Home Products: A Legal Battle." New Jersey Daily Record. 18 Sep. 1999. Kepos, Paula, ed. International Directory of Company Histories. Detroit: St. James Press, 1995. Lawrence, Glenn R. "Wyeth-Ayerst Drug Advances." Wall Street Journal. 16 Sep. 1999. Salisbury, Laney. U.S. "Drugmakers Seen Posting Solid Third-Quarter Gains." Reuters. 13 Oct. 1999. Standard & Poor's. Standard & Poor's Corporation Records Vol. A. New York: McGraw-Hill, 1999. Standard & Poor's. Register of Corporations Vol. 1. North Carolina: McGraw-Hill, 1999. Standard & Poor's. Standard & Poor's Industry Surveys. New York: McGraw-Hill, 1998. Standard & Poor's. Standard & Poor's Stock Reports. New York: McGraw-Hill, 1999. Tardiff, Joseph C., ed. U.S. Industry Profiles 2nd Edition. Detroit: Gale, 1998. The Value Line Investment Survey (AHP). (Part 3 - Ratings and Reports). New York: Value Line, Inc., 1999. Ward's Business Directory. Ward's Business Directory of U.S. Private and Public Companies Vol. 1. Detroit: Gale, 1999. American Home Products, a Pharmaceutical Empire Emily Holbrook 10-14-99 GEB3031 Sec. f:\12000 essays\business & economics (632)\American online.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ America Online To Unveil Flat Fee For Internet Access The Internet is becoming more popular and more widely used, and the Market for internet access is growing rapidly. To stay competitive in this fast-moving industry, America Online has announced that they will switch their price plan for internet access.to a flat-fee rate of $19.95 per month. After the changed in price (decrease), the Supply curve "S" will shift to "S1". An increase in Supply curve will increase (Quantity) people using America Online and decrease Price. America Online has announced a change to their price plan for internet access. before they charged a rate of $19.95 for only 20 hours of internet access. One of the many reasons is that it could help the service against Internet competitors, by doing this "Keith Benjamin says there may be some short-term negative impact on margins." Negative impact on margins means that there will be decrease in earnings. Another reason for this pricing move is part of a broader effort to add new features to the service and make it more compelling than rivals. Since America Online's price is lower people will tend to use America Online more. This is a competitive market as America Online lowers their price, other competitors will lower their price too. This will happen until they reach the Equilibrium. By staying in this fast-moving industry, America Online has unveiled a set of features that include enhancements to listening to audio on-line, better methods for viewing video on-line, and tools for media companies to spruce up their on-line fare. In Addition to that America Online also expected to unveil another initiative whereby Internet-service providers could offer their subscribers easy access to America Online in return for ad revenue. f:\12000 essays\business & economics (632)\An Analysis Of The Energizer Bunny Commercial Sequence.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1295 Energizer batteries have been equated with long-lasting energy in your Walkman or other battery-operated appliance. "That damned Energizer bunny" is the cause; he's so aggravating. It seems like that pink bunny rabbit is running across the television screen every other second, it's so annoying. The advertising campaign has been so effective that not only did the company (finally) surpass Duracell in sales, but the advertising company was awarded an Obie (the advertising equivalent of the "Oscar") as best commercial of the year. This essay shall attempt to analyze the series of "Energizer bunny" advertisements. There is a current trend in modern television advertising for a series of commercials for the same product. An excellent example is the ad sequence for "Taster's Choice" coffee brand, where a man and a woman share (cups of) coffee amid alluring looks and sexual innuendos. But I digress. The Energizer camp decided to run a series, but the ingenuity in the Energizer series is that in every commercial in the series, not one begins or ends with suggestions or hints that there was, or will be, another ad before or after it. A brief explanation of the plots of these advertisements is warranted. The first in the sequence shows two toy bunnies, waddling back and forth across the television screen, and all beating bass drums. The one not running on Energizer batteries dies out, and the one on Energizer batteries continues. The next ad showed the same thing, but with a different ending: the Energizer bunny waddled off the television screen, out of camera range, and towards the doors of the studio. The last camera shot is that of the bunny, headed for the doors amid wires and lights and such, and a voice over the intercom says, in an authoritarian voice (probably the director of the commercial), "Stop the bunny." The humor from this scene stems from the unexpectedness of the bunny's actions; it has a life of its own. The voice of the director adds to this because his words and tone of voice suggest that he, too, was unaware of this happening. We don't know what happened to the bunny at this point in time, until they show the other ads. The other ads can be grouped into two categories: commercials which advertise other "fake" products until the bunny comes barging in with that damned bass drum, and views of vast, wide-open spaces (which sometimes include landmarks around the world, like Notre Dame in France, an island in the Bermuda Triangle, et cetera) with the sounds which naturally occur at these sites, then having one's ears assailed with those @%!#$ drums! It is now that the viewer subconsciously realizes that yes, the bunny has truly "escaped" from the jail called the television studio, and is now free to roam the world and do as it pleases (which is simply just to follow the beat of his own drummer [being himself {this is getting WAY too parenthetical}]). A similar correlation can be made from this thought and another scene involving toys and freedom/incarceration: in the movie "Toys" with Robin Williams (which I truly hated, sans the Magritte style it used), a war is declared within the toy factory. To help Robin's side towards freedom from the maze the other side created, toys of the company became "accessorized", if you will, with various military tools. Robin exclaims, "F.A.O. Schwartzkopf!" However, a note must be made. Initially, the advertising campaign did poorly, and the ad company did not know why, until they realized that the public was not looking for Energizer batteries, but "the bunny batteries." It was at this time that the ad campaign persuaded the company to put the bunny on the packaging. It worked. People bought the batteries simply because of one thought that ran through their collective head: "That @%!#$ bunny won't ever stop, so I'll buy batteries that won't ever stop! I need batteries that will last as long as possible!" Furthermore, the ads were the first ads in a long time that actually made us sit up and take notice. Most couch potatoes sit through commercials subconsciously, not even aware that they exist in the first place. The Energizer ads put a stop to this in two ways: it placed a continuous (therefore, annoying) bass drum beat throughout the commercials, and ran ads which interrupted a "fake" commercial. These commercials essentially parody other commercials, which is why we sit up and take notice. American television commercials are so popular and so well-loved, that some of us can recite ad jingles or plots on command. To quote H. Ross Perot, "this is sad." We don't have anything better or more constructive to do with our lives except to be couch potatoes and junk-food junkies and screen-staring sillies and wastes of space. Wake up, America. If this truly is popular culture, then I don't want to be cultured in this population. f:\12000 essays\business & economics (632)\An Essay On Poverty And Welfare.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Essay on Poverty and Welfare Today it seems as if everyone has a theory about fighting poverty, now it is not necessary to be moving in the theoretical plane. Our country has had successful anti-poverty programs that were effective back a century ago, effective because they were based on these seven points: affiliation, bonding, categorization, discernment, employment, freedom, and God. But a key element in all of them is personal involvement and challenge, both material and spiritual. If folks a hundred years ago could help others to move out of poverty, and then turn their attention to the next group of immigrants and impoverished, why can't we? Did they have more time than we do? No, even though we feel stressed, their work days on the average were longer. Did they have more money? No, we are far more affluent as a society now. Did they have more space in their homes, so they could take in another person and we cannot? No, on the average our houses are far larger. Did they have less of a drug and alcohol problem? Probably not. They did have fewer single-parenting situations - there was less illegitimacy and divorce then - but life expectancy was lower, so there were lots of orphans and half-orphans. We're more spread out now, but our travel time is not any greater. What I learned leads me to wonder: Why can't we do the same? Were Americans then a different people than we are today? Have we become so corrupted that we don't care about others? Have we become so lazy that we are unwilling to suffer with? I think not. I hope not. But we have become used to having someone else do it for us - even though we know that a professional social worker, with a case load of 200 or so, can't do much more than shuffle paper. Bad charity drives out good. My conclusion is that when we complain about a spendthrift modern welfare state, we're right about the costs but we're actually stating the problem backwards. The major flaw of the modern welfare state is not that it is extravagant, but that it is too stingy. It gives the needy bread and tells them to be content with that alone. It gives the rest of us the opportunity to be stingy also: We can soothe our consciences as we scrimp on what many of the destitute need most - love, time, and challenge. We need to recapture the optimism that a look at history can provide. We need to recapture the understanding that a true definition of compassion suggests. f:\12000 essays\business & economics (632)\An explanation of Main Bank relationship in Japan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ An explanation of Main Bank relationship in Japan. This paper investigates whether there has been risk-sharing between banks and borrowing companies through the main bank relationship in Japan. The paper will discuss, if the main bank relationship is based upon a mechanism of risk-sharing, changes in the relationship ought to be systematically related to changes in the risk that borrowing companies face. And also, it will discuss the importance of the main bank relationship as a means of risk-sharing by comparing the correlation between financial expenses and the operating profits of specific companies with the degree of their dependence on main banks. First, it is necessary to define what a Japanese "main bank" is. The "main bank" is defined as the "financial group" ("kinyu keiretsu" in japanese) in the paper. "Financial group" is defined in principle by the amount of financing that a bank supplies to a particular borrowing company. When a given company has taken out the largest amount of loans from a particular bank for the past three or more years consecutively, the company is viewed as belonging to that bank's "financial group." Nearly all the companies listed in the first section of Tokyo Stock Exchange have a main bank. However, these companies borrow not just from their main bank, but from a large number of other banks and financial institution as well. While the main bank is an important lender, the company must also rely on loans from the main bank's competitors which in sum far exceed those from the main bank itself. Although the generally accepted notion among researchers in that the main bank relationship in Japan is extremely stable, this evidence suggests that the Japanese main bank is one of much more fluidity than has been generally believed. Now, the paper presents some factors that might account for the actual changing patterns of main bank affiliations. These factors are (a) the uncertainty of companies' operating performance, assuming the main bank relationship serves an important function of risk-sharing between companies and banks, it can be derived that an increase in the uncertainty of the business environment for a specific industry should decrease the proportion of companies that change their main bank, thus, changes in main bank affiliation will be systematically related to changes in the uncertainty of the performance of corporate borrowers; (b) the history of the main bank relationship, as the accumulated value of the main bank relationship is assumed to be positively correlated with the duration of the relationship, the longer a company has continued to maintain a main bank relationship with a specific bank, ceteris paribus, the less likely the company is to break that relationship off; this proposition concerning the changeableness of the main bank relationship is also a testable one; (c) the growth of the borrowing companies, it can be regarded as related to main bank changes in 2 ways: first, the growth of a company raise its reputation and credibility in financial market so that the lenders don't need to spend much information cost to confirm its credit, if the main bank relationship means economizing on information costs, we can expect those companies have achieved relatively rapid growth to show more tendencies to leave main bank relationships that those that have been stagnant; second, rapidly growing companies will tend to switch their main bank relationships to large banks as it's easy to accommodate their customer's expanding demands for diversified financial services.and (d) the "leading bank" factor, since the leading banks have capability of supplying a larger variety of services, including financial services overseas, they tend to increase their shares in main bank relationships. There is a type of contingency claim between banks and the borrowing companies which are in their financial groups. Namely, the lending rate remains relatively low when the market rate rises, and the rate stays relatively high when the market rate fails. Through this sort of contract, the borrowers are able to some extent to avoid the risk of movements in the market interest rate. There is another study supports the hypothesis that in the Japanese bank loan market, banks and firms share risks through loan contract arrangement. They even say that some part of the loan interest rate rigidity in Japan can be explained by the implicit contracts between banks and borrowing companies. However, the stabilization of interest expenses does not necessarily imply the stabilization of the borrowing companies' operating performance. This becomes clearer if we consider the next set of accounting equations for the Japanese company: (operating profits)+(non-operating revenues)-(non-operating expenses)=(ordinary profits); (ordinary profits)+(extraordinary profit and loss + special retained funds)-(corporation taxes)= profits for the period. In Japan, more than 80%of non-operating expenses is occupied by financial expenses, and almost all of these financial expenses are composed of interest payments and discounting fees. And so, if the corporate objective were really to maintain the stability of ordinary or net profits, then financial expenses such as interest payments should move in a manner which to some extent offsets movements in operating profits. Only in this manner, rather than through the stabilization of interest payments, would changes in operating profits be less likely to destabilize net profits. In fact, it is possible to imagine cases in which the stabilization of interest expenses, far from stabilizing net profits, actually increase their volatility. In this sense, if the main bank relationship actually serves to diversify risk, we should observe financial expenses of client companies being adjusted to offet shifts in their operating profits. In the periods when the operating profits of companies are relatively low, we should observe manifestation of an implicit contract that lowers their financial expenses, so that a large-scale drop in the net profits that the company can claim is averted. The effective borrowing rate of interest for the company is not the contracted face value rate of interest, but the "effective" rate of interest that takes into account the interest rate of the compensatory balances. If financial expenses are adjusted according to the above-hypothesized implicit contract mechanism, the interest revenues the borrowing company gains from its deposits must also be part of this mechanism. But, these interest revenues are included in the category of non-operating revenues. Among such non-operating revenues are included the capital gains realized from the sales of securities owed by the borrowing company. Companies whose operating profits have drastically fallen often sell the securities they own as a method of restraining the fall of business profits; this device itself have no direct connection with whether risk-sharing exists through the main bank mechanism. The point of the paper was to investigate whether or not the main bank relationship in Japan actually performs a risk-sharing function. It investigated this issue from two angles. The first was to examine the relationship between changes in main bank affiliations and changes in the uncertainty that borrowing companies were confronted with. The second was to examine whether the main bank relationship actually contributed to offsetting movements in the operating performance of individual companies. Both of these examinations suggest negative conclusion; in general, no systematic relationships can be observed which would indicate the existence of risk-sharing between main banks and their major customers. f:\12000 essays\business & economics (632)\An Investigation of Japanese Corporate Culture.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ An Investigation of Japanese Corporate Culture, Its Trends And Changes Japanese Business & Culture bus 258.1 Table of Contents1.0 Introduction 2.0 Procedure 3.0 Findings 3.1 Changing social culture. 3.2 Business Culture in Japan 3.3 Why change is needed 3.4 What is Japan and her corporations doing to develop and change 4.0 Conclusion 5.0 Bibliography Japanese Business & CultureAn investigation Japanese corporate culture, its trends and changes.1.0 IntroductionThis report is based around the following quote: "Japan's corporate culture is the product of uniquely Japanese social and historical influences, so deeply rooted as to easily repel outside influences. Bur Japanese corporations need to change their basic goals...." This report will discuss nature of corporate culture in Japan, and why change is needed. The maximum length is 2,000 words 2.0 Procedure The report was produced using library based research because of the time scale and cost. The sources used include text books, journals and newspapers.. The references have been made 'Harvard Style' and can be found in the Bibliography. 3.0 Findings The Japanese business culture has been described by Beedham as a culture that acts like a clan, in that there is a large amount of authority given to the man at the top, and in the commitment that is shown by the people around him, Beedham points out that this can be evident in the way that their car factories, investment banks and government ministries are ran. This clan-like-behaviour has the effect of making decision making painfully slow, with compromises having to be met in all directions, but this is starting to change, as the people of Japan are starting to change and have different priorities. These changes can be put down to several factors that are changing in Japanese society as a whole. 3.1 Changing social culture. The increasing and speeding up of urbanisation is one way in which corporate culture is being changed. Because of this urbanisation there is less commitment to groups as people become more individual and have their own priority in life. Marriage and family ties are also starting to loosen. Links between children, parents and grandparents are not the same as they were ten years ago. The greatest impact on peoples commitment to their work is money. As the Japanese become richer, they are starting to see that there is a lot more to just working every hour possible. With this extra money they have been given the opportunity to make friends out of the workplace and focus on other activities such as clubbing, music, football etc. and they are seeing spare time differently. But this is only taking place on the outside edge of Japanese society and the core of Japan which includes the big businesses, are still operating in the traditional way of life and it has been estimated that it will take a further fifty years before a new way of living and lifestyle becomes the norm. (Beedham) 3.2 Business Culture in Japan Business Culture is said to be the product of the mind and is often described as: "how we do things round here". (source unknown) Before describing the corporate culture within Japan it is useful to understand the corporate culture in the West as a comparison. In the West, business is simply about profit seeking. Its Managers and workers are there to increase profit for the owners of a corporation. The employees are evaluated by how much of a contribution they make towards the generating of this profit. The Western corporation is designed like a profit machine and operated like a profit machine. Within the Japanese business world, the corporation is not seen as been there for just profit. Profit is important, but it is not the only reason for the company's existence, but involves people and their future. The community factor is as important, and sometimes more important than, short term profitability. The Japanese business people see their company as a community, this community has within in it people who happen to live together by working together. The company is a living society which needs profit as sustenance for growth. Western Europe and China, has seen many revolutions throughout their history in areas such as their religions, politics, industry and culture. When these revolutions occur new system of thinking replaced the old, sometimes these changes are forced upon the population. It was not so in Japan, where new system of thought, whether made internally or introduced from abroad, was added to or mixed with what was the current ideal. Because of this accumulation and mixing of ideas, the Japanese mind has became more complex than the so called "enlightened" cosmopolitan Western mind, and retains the archaic, medieval, modern and post-modern views. An example of the almost schizophrenic thinking of a typical business man from Japan could be, an English speaking business manager of an internationally operating company may behave like a rice growing villager in his board room discussions, then the same person behaves like a Samurai clansman in the competitive market, and like a devoted Buddhist in social functions and like a scientist when he is in search of a solution for his business problems. At the core of the Japanese mind there is a basic notion of ANIMISM, this is the belief that everything has a spirit which is the nature-worshipping religion of Shintoism. Confucianism, Taoism and other schools of thought which came from China are added on top of Shintoism, which is still a powerful element of the Japanese culture and determines many aspects of the social and organisational behaviours. Chinese and Korean scholars and immigrants brought in other types of thinking into Japan and those new ideas were mixed with the indigenous ideals which has resulted in a hybrid strain of philosophy, religion and social ethics Then Buddhism which was refined in China was a further addition to the Japanese character. The final layer added the Japanese character was added through globalisation, and occurred in the middle of the nineteenth century and again in 1945. After the American occupation in 1945, to think like Europeans was strongly encouraged. This was accepted but at the same time they retained the "Japanese spirit". (source: unknown, Internet) 3.3 Why change is needed Because of the complex way in which the Japanese thought process works and the way that the corporate culture works is not seen as the easiest country to do business with. Japan protects its markets and its ideals. With the economic bubble bursting and the emergence of the China as a economic force change is needed to get the economy running at the levels it once enjoyed. As well as China there are the other Tiger economies in the Pacific that are emerging and becoming big players. There are calls for the country to go through further economic deregulation. Shoichiro Toyoda is one of the people calling for this and states: 'We have to reform and cut our high costs if we are to compete in the future.' He also says that Japanese companies should become more global, and that it is necessary for companies both to compete and co-operate in international markets and to become more outward looking, (FT 96 Dec 05 page 6) Japan needs to change from a manufacturing-led to consumer-driven economy; from an over-regulated bureaucracy to a more open market; and from a culture of corporate rigidity to one of entrepreneurial freedom. Change has to occur but as long as each section of society continues to benefit from the current situation, there will continue to be no foreseeable movement for change, this lack of development will bring about the end of Japan as a economic power or at least take away the influence it has on the world. However this change cannot just be a gradual change because if it is not quicker in the next 10 years than it was in the previous five, it is highly likely that it will not be able to get back its old position and instead will go into decline. (FT 96 Dec 02 page 20) 3.4 What is Japan and her corporations doing to develop and change At the moment there is a definite change in policy and a deliberate attempt at change within the corporations and this is helped by political changes too. An example of this is seen in the appointment of Taizo Nishimuro as the president of Toshiba. There are three reasons why this appointment was seen as against the norm. The first was that he had spent 14 years overseas. This is seen as a long time and not the norm for a future corporate, because in Japan, head office jobs are seen as the quickest and best way to get to the top echelons . Secondly Mr Nishimuro was not next in line to the job as typically happens within Japanese corporations. There were another nine executives ahead of him, this was another big change in a corporate culture where seniority matters. And finally Nishimuro was not from Toshiba's heavy engineering division but is an electronics expert, which is a big change for this particular corporation and is another indication of how much they want to change . (FT 96 Dec 05 page 6) Another corporation that is changing the way it is ran forever is Canon, who supply computer printer, copier and camera's. There internal changes have been in action for a longer period than most Japanese corporations. Their changes have been taken place over the last decade. It has given more management control to its foreign based subsidiaries, hired a greater proportion of foreign staff and management, and increased research and development abroad, and this a massive move from what is seen as the 'norm' in Japan. This change to Canon's culture and operations became even more radical during the summer of '96. During this period, world responsibility for a series of key R&D projects was switched away from its headquarters in Tokyo to the US, France and Britain. Since this there have been more Japanese corporation follow this lead. (FT 96 Nov 18 page 14) It is generally accepted that because of the structure and culture within Japanese corporations that their R&D is not as effective as it could be, as everything is from the grass roots up. The people at the bottom of the chain are asked and checked and so on. This is the reason behind these changes. The Prime Minister of Japan, Ryutaro Hashimoto, has said that he wants to put in place far-reaching financial reforms. A great surprise to all was the idea that the Ministry of Finance, which is the very heart of Japan's bureaucratic oligarchy, should be broken up. With the policy ideas of Ryutaro Hashimoto concerning deregulation, there has seen a mobile phone boom, a lowering in air fares and the establishment of Japan's first proper supermarkets In the corporate sector, cross-shareholdings are to be slowly dissolved, and a big change is in the perception that corporation have on profit. Companies are now starting to set targets for their financial returns. (FT 96 Dec 02 page 20) 4.0 Conclusion The Japanese business culture is very different from that in western countries and China and this is a consequences of their history. Japan has never been invaded but different ideologies, religions and ways of thinking have be interwoven into the Japanese character. There is however change occurring within the Japanese social structure. This is mainly down to the speeding up of urbanisation and this has the knock on effect of changing the corporate culture slightly Japanese corporations are not seen as been there for just profit. Profit is important, but it is not the only reason for the company's existence, but involves people and their future. This is however changing with corporations starting to set financial targets for themselves and cut costs. Ways in which the Japanese corporate culture is starting to change can be found in the way that promotions are decided. In the past seniority meant everything and no some positions are given on merit. Also, management positions are starting to be taken up by foreigners, as well as R&D relocation outside Japan. Japanese politics are also helping in the change of culture. Deregulation and liberalisation promote a more dynamic organisation culture and structure but these developments need backing up with further proposals to deregulate and promote entrepreneurship 5.0 Bibliography Brian Beedham, Tomorrow's Japan, The Economist, July 13th 1996 Various Internet article with no title or author. FT 96 Dec 05 page 6/ Survey - Japanese Industry: Routes to the top FT 96 Dec 02 page 20/ Lex Column: Japan FT 96 Nov 18 page 14/ Management: Time to pull back the screen f:\12000 essays\business & economics (632)\Asian Crisis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 324 Asian Crisis The crisis began in Thailand in July 1997 and spread to Indonesia, the Philippines and Malaysia, then to Hong Kong, Korea and Japan. Financial systems in Thailand, Korea and Japan all came under intense strain, but nowhere as destructively as in Indonesia, which by early 1998 had become the worst-affected victim. The 1997 Asian financial meltdown began in Thailand on July 2 after the collapse in late June of 16 finance companies alerted investors to the strains on the financial system. After surging ahead in the mid 90s Thai exports had shrunk in 1996. The government was shaky, economic growth was slowing, and there had already been two speculative attacks on the currency. By July 1997 money market traders believed the government could be forced to abandon its pledge to link the Thai baht to the US dollar. Malaysia was not as badly hit by the currency crisis as Thailand, Indonesia or South Korea. Mahathir's complaints helped bolster his political support at home but undermined his nation's credibility with the outside world. Hong Kong remained almost untouched by the Asian turmoil until a massive selloff of its sharemarket in the week of 20 October, a trauma that brought home to the world that the crisis would not be isolated to Southeast Asia. The dive in the market was driven by fears of a downturn in the Hong Kong economy and the prospect it would abandon the peg between the Hong Kong and US dollars. In the background was a deeper concern, that financial strife in Hong Kong could have profound effects on China. China had been the darling of Western investors for several years, and huge projects will be under threat if the Chinese economy strikes trouble. China is partially insulated from the turmoil because its own financial markets are rigidly controlled. But its banks are similarly overburdened with debt and its exports at risk from a worldwide slowdown in demand. f:\12000 essays\business & economics (632)\ATT 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 376 In 1994 AT&T decided to bring the work to the worker, not the worker to the work. They created an alternative workplace (AW). Around 32,000 of their employees worked at home. AT&T was trying to see how far a company of their size and stature could go. AT&T was not the only place to try this. Some 30 million to 40 million employees in the United States work at home or are telecommuters. There are many reasons why companies change to an AW. First it reduces cost by a lot. AT&T for example has freed up some $550 million, which is a 30% improvement, by freeing up office space, and by reducing overhead costs. Another reason is that it causes a great potential for productivity. Employees that work in the AW tend to concentrate on the customers needs instead of their usual office routine. It is proven that productivity goes up by using an AW. AW programs by establishing home offices are helping to create and receive more government incentives and avoid having to pay expensive government sanctions. There is a vast assortment of AW being used in the workplace. One is the shared desk arrangement where many people share a desk. This arrangement creates more space. Another option would be changing from a traditional office space into a openplan space. In this design team rooms and other workstations are put in the open areas. Hoteling is a designed workplace that is furnished, equipped, and set up with all the office needs. These places are reserved by the hour, or by day, or by week, instead of one having the workplace for all of the time. Satellite offices are another innovative form of alternative workplace. These offices are broken up from large centralized places to smaller work zones that is located close to the customers of the employees. These alternative workplaces are a great opportunity for a company and its employees. Giving employees these kind of working opportunities helps them produce and concentrate. The work place is changing everyday. The alternative workplace is just one of many changes. f:\12000 essays\business & economics (632)\ATT.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ AT&T The AT+T Corporation, formerly known as The American Telephone and Telegraph Company, was incorporated on March 3, 1885 in New York as a wholly owned subsidiary of The American Bell Telephone Company. Its original purpose was to manage and expand the burgeoning toll (long distance) business of American Bell and its licensees. It continued as the long distance company until December 30, 1899 when it assumed the business and property of American Bell and became the parent company of the Bell System. For most of its history, the company functioned as a legally sanctioned, regulated monopoly. No competition was apparent until the 1970's. Since the break up in 1984, AT+T has become the largest telecommunications company in the United States, and a world wide leader in communications services. Its main businesses include long distance services, AT+T Wireless Services, AT+T World Net services, AT+T Solutions consulting services and the AT+T Universal Card. AT+T has a very strong global presence tha t dates back to 1882 when it opened a plant in Antwerp ,Belgium. AT+T has approximately 51,000 employees based outside of the United States.In 1994, International revenues alone were 25 percent. You can see why AT+T has a presence in nearly 100 countries around the world, and does business in about 200 countries. In the last fifteen months AT+T has split into three separate companies. They are AT+T, a global communications company; Lucent Technologies, a technological company; NCR Corporation, a computer company. The new AT+T is committed to making the most of its leadership position in the dynamic global market for communications and information services. With 2.3 million share owners, AT+T is the most widely held stock in the United States. AT+T has an Environmental Responsibility and they follow through on it. They take precautions and do not want to mess up the environment any more than it has already been. AT+T's strong commitment to have good environmental performance has to start with environmental goals that call for phaseout of CFC emissions from manufacturing operations. Also, they would like to eliminate reportable toxic air emissions. They have already increased recycling of waste paper and in the use of paper. Their progress is a key to their responsibility. The figures I found are as follows. The factories have virtually eliminated all CFC emissions. They have reduced reportable toxic air emissions by 92 percent. Also, they have reduced manufacturing waste by 49 percent. The company is recycling 63 percent of its wastepaper that computes to forty-eight billion pounds annually and has increased its use of recycled paper significantly. It has been reducing paper consumption by 25 percent since 1990. AT+T is also responsible for their employees' conditions in the workplace. In reviewing information about the company, I feel they do an excellent job. They provide something called E,H&S. This is an Environment, Health & Safety organization dedicated to creating a safe and healthy workplace for the employees of AT+T. This is supporting the business, protecting the environment and maintaining AT+T's strong reputation as one of the top corporate environmental champions. E,H&S is currently working to provide guidance regarding compliance with regulatory policies world wide. Also they commit resources to legislative and regulatory analysis activities and performance monitoring which is how they evaluate the persons overall work presense,attitude, self ateem and overall performance. Finally they implement an environmental management system based on ISO 14001 principles that are the global environmental management systems standards. One other interesting area of AT+T is their Social Responsibility. They are mediocre with this. I feel they lay off too many people. They think profit before they think about what the effect will be on their employees. When AT+T announced in January of this year that it would be laying-off 40,000 workers or 13 percent of its workforce, people began to say that AT+T was another example of Corporational Greed. This is a failure of the social responsibility by the corporation. The flip side to the down sizing is that the new competitors have job openings for the people who have been layed-off. AT+T has also offered packages such as one years salary if they would leave so that they were protecting their employees for at least a year. This compensation package depended upon your seniority. What I do feel is right is that they want to be involved with the community. They have the AT&T Foundation that supports projects in education, health, social action and the arts. They also care about the employees. They have work and family programs that they fund. These include child care and elder care that both have been commended by the United States Department of Labor. One last program is the Total Life Concept Program which addresses employee health, nutrition and stress management. AT+T is committed to the development and growth of its employees. That is why they want to build their employees capabilities so they can connect with the future. Environmental and social responsibilities are traditions that have been embedded to the company since the very first day. AT+T wants to keep up on the modernizing and look toward the future. If they continue to keep on making the advances that they are, they will be by far the strongest company in America. Their downfall will be there downsizing. To gain respect of their employees and their customers, they will need to remain as is. f:\12000 essays\business & economics (632)\Australia A Country Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ INTRODUCTION Australia, island continent located southeast of Asia and forming, with the nearby island of Tasmania, the commenwealth of Australia, a self governing member of the Commenwealth of Nations. The commenwealth of Australia is made up of six states--News south Wales, Queensland, South Australia, Tasmania, Victoria, and Wester n Australia--and two territories--the Australian Capital Territory and the Northern Territory. Australia, including Tasmania but excluding external territories, covers a land area of 7,682,300 sq. km, extending from Cape York (100 41' S) in the north some 3,680 km to Tasmania (430 39' S), and from Cape Byron (1530 39' E) in the east some 4,000 km west to Western Australia (1130 9' E). Basic Data Population (estimates), July 1995, 18,322,231, with the age structure under 15 (female 1,929,366; male 2,032,238), 15-64 (female 6,017,362; male 6,181,887), 65 and over(female 1,227,004; male 934,374). Population growth rate is estimated at 1.31% (1995 est.). Literacy rate age 15 and over can read and write (1980 est.). English is the official language, with modern Australian English a conglomerate of British, American, and their own phraseology and spelling. Because Australia is one of the most multicultural nations in the world it is possible to find vibrant ethnic communities using almost every other world language.Australian school children have the highest rate of learning Asian languages, particularly Japanese and Chinese, of any industrialized western nation - in recognition of their future as a member of the Asia-Pacific region. Labor force is 8.63 million(september 1991) by occupation of finance and service 33.8%, public and community services 22.3%, wholesale and reatail trade 20.1%, manufacturing and industry 16.2%, agriculture 6.1%(1987). Political System Australia has a federal system of government, and a long history as a multiparty parliamentary democracy. There is no written Bill of Rights, but fundamental rights are ensured by law and respected in practice. The Commonwealth (federal) government and the six state governments operate under written constitutions that draw on the British tradition of a Cabinet Government, led by a Prime Minister, which is responsible to a majority in Parliament's lower house. The Federal Constitution, however, also contains some elements that resemble American practice (e.g., a Senate, in which each state has equal representation). The Head of State is Queen Elizabeth II, the reigning British monarch, but she exercises her functions through personal representatives who live in Australia (i.e., Australian citizens who serve as the Governor-General of Australia, and the Governors of the six states). Australians are debating whether their country should become a republic, give up ties with the Queen, revise the constitution, and adopt a new flag. Members of the Federal House of Representatives are elected for three years, and national elections were last held in March, 1993. Lower-house elections, thus, are due no later than mid-1996, but earlier scheduling is a matter of discretion. (The Prime Minister may recommend that the House be dissolved at any time, and the Governor-General traditionally follows such advice.) Current political commentary focuses on two likely "windows" for national elections: August-October, 1995, and March-May, 1996. Members of the Senate are elected for six years. June 30, 1996 is the next date on which Senators' terms expire, and a regular election for half the members of the Senate is due before that time, but no earlier than July, 1995. Under complex conditions specified in the federal Constitution -- in essence, extended deadlock between the House and Senate -- both houses may be dissolved simultaneously, so that ensuing national elections would involve all seats in Parliament. This "double dissolution" is unusual, and has occurred only six times since the Constitution entered into effect (1901). All major parties support the U.S.-Australia alliance and stress the importance of close relations between Australia and the United States. Thus, this longstanding and stable pattern is essentially unaffected by the outcome of national elections. The ruling Australian Labor Party (ALP) maintains close ties to the trade union movement and has held office since 1983. During that period, the government has carried out major restructuring of the economy (e.g., floating the Australian dollar, cutting tariffs by substantial amounts, reducing and simplifying regulations that affect business). Liberalizing trade and enhancing economic integration with Asia-Pacific countries are major tenets of the ALP and, in particular, of the incumbent Prime Minister, Paul Keating. The opposition Liberal-National Coalition is often described to Americans as the more "conservative" party. It upholds traditional social values and stresses the importance of a free market, entrepreneurial approach to economic growth (i.e., it promotes an updated version of the classical liberalism originated by Adam Smith). The Liberal Party is the senior partner, holding 79 of the Coalition's 101 seats in the current Parliament. The National Party is identified closely with the interests of farmers, and its supporters reside mainly in rural areas. Two minor parties, the Australian Democrats and the Western Australia "Greens", are represented only in the Senate but have political and media effects that are disproportionate to their numbers. They take highly visible stands on various economic, political, environmental, and social issues, challenging the major parties to respond in ways that meet their concerns. KEY ECONOMIC DATA Australia has a prosperous Western-style capitalist economy, with a percapita GDP comparable to levels in industrialized West European countries. Rich in natural resources, Australia is a major exporter of agricultural products, minerals, metals, and fossil fuels. Primary products account for more than 60% of the value of total exports, so that, as in 1983-84, a downturn in world commodity prices can have a big impact on the economy. The government is pushing for increased exports of manufactured goods, but competition in international markets continues to be severe. Australia has suffered from the low growth and high unemployment characterizing the OECD countries in the early 1990s. In 1992-93 the economy recovered slowly from the prolonged recession of 1990-91, a major restraining factor being weak world demand for Australia's exports. Growth picked up so strongly in 1994 that the government felt the need for fiscal and monetary tightening by year end. Australia's GDP grew 6.4% in 1994, largely due to increases in industrial output and business investment. A severe drought in 1994 is expected to reduce the value of Australia's net farm production by $825 million in the twelve months through June 1995, but rising world commodity prices are likely to boost rural exports by 7.7% to $14.5 billion in 1995/96, according to government statistics. DOMESTIC ECONOMY STATISTICS (all figures in millions of U.S. dollars*) Calendar Year 1994 1995 1996 (e) (p) 1. Gross Domestic Product 298,613 309,038 337,700 (89-90 prices) 2. GDP Growth Rate (%)** 5.1 4.2 3.6 3. GDP per Capita 16,682 17,074 18,449 4. Government Spending 26.7 25.1 25.0 (% of GDP) 5. Inflation (%) 2.5 3.5 4.2 6. Unemployment Rate (%) 9.7 8.5 8.0 7. Foreign Exchange Reserves 10,130 12,400 13,500 (year end) 8. Avg. Exchange Rate 1.36 1.37 1.30 (US$=1.00) 9. Net Foreign Debt (year end) 119,291 118,300 123,200 10. Debt Service Ratio (%) 11.4 12.1 12.4 11. U.S. Economic/Military NA NA NA Assistance * Exchange rate fluctuations must be considered when analyzing data. ** Percent changes are calculated in Australian dollars. (e) Estimate (p) Projection 1. General Policy Framework Australia's gross domestic product (GDP) in 1994 was estimated to be US $317.6 billion. Real GDP is estimated to have grown by 4.3 percent, a substantial improvement from 1993's 3.2 percent. Nevertheless, the impact of the recession which began during the third quarter of 1989 and ended in 1991 continued to be felt; unemployment hovered between 9.5 and 10 percent during 1994. U.S. economic interests in Australia are substantial, including direct investment worth approximately US $16 billion and a bilateral trade surplus of approximately US $6 billion (up by approximately US $600 million from 1993). Although in area Australia is the size of the contiguous United States, its domestic market is limited by a small population (17.7 million people). The production of agricultural commodities and primary products is an important component of the economy; Australia leads the world in wool production, is a significant supplier of wheat, barley, dairy produce, meat, sugar, and fruit, and a leading exporter of coal, minerals and metals, particularly iron ore, gold, alumina, and aluminum. Export earnings are not well diversified; in 1993, primary products accounted for 60 percent of the total value of goods and services exports. The drought which Australia suffered in 1994 affected the agricultural sector severely. The wheat crop, for example, was cut by an estimated 51 percent from the previous year, reducing export earnings and necessitating the importation of wheat, corn, and sorghum. Some commentators believe that the drought may reduce otherwise-attainable real GDP growth (as shown in the data table above) by approximately 0.5 percent. To increase Australia's international competitiveness, the government has continued its longstanding effort to reduce protective trade barriers and deregulate large segments of the economy. Privatization of government services at both the federal (airlines, banks, telecommunications) and state level (water treatment, transportation, electricity, banks) is being pursued. The government intends to sell the remaining 75 percent of Qantas to the public in 1995. Trade reforms begun in June 1988 resulted in an end to import quotas on all but textiles, clothing, and footwear, and lower tariffs on most imports. Although the 20 percent preference given by the federal government to Australian and New Zealand firms bidding on government contracts was abolished November 1, 1989, and civil offsets in December 1992, some state and territory governments continue to apply preferences in their contracts. The Australian Government continued to provide substantial fiscal stimulus to the domestic economy in 1994. The budget deficit reached US $9.6 billion (3.4 percent of GDP). Public sector borrowing more than funded the deficit, and took the form of treasury notes (US $427 million), treasury bonds (US $10.1 billion), and cash drawdowns (US $4.9 billion). As part of its Australian Fiscal Year (AFY) 1994-95 budget, the government announced its intention to cut the deficit to 1 percent of GDP by AFY 1996-97. The money supply is controlled through an open-market trading system of nine dealers who act as a conduit between the Reserve Bank and the financial system. Transactions may involve purchases, sales, or trade in repurchase agreements of short-term treasury securities. Depending on liquidity conditions, the Reserve Bank may bypass dealers and buy or sell short-term treasury notes directly with banks on a cash basis. Banks do not normally hold liquid deposits of any size with the Reserve Bank. Instead, they hold call-funds with the authorized dealers. If a bank needs cash on a given day, it either borrows from other banks or withdraws funds it has on deposit with the dealers. Under the above money supply control system, foreign exchange flows and government deficits and credits have only limited impact on the money supply. The government also uses interest rate changes to influence the money supply. In 1994, official government interest rates were increased twice, by 75 basis points in August, and a full percentage point in October, to reach 6.5 percent. A strong supporter of the Uruguay Round negotiations liberalizing international trade, the Australian government moved rapidly to ratify the Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. Australia also advocates liberalizing trade within the Asia-Pacific region; it is a leading member of the Asia Pacific Economic Cooperation (APEC) forum, and strongly supported the November 1994 Bogor Declaration, in which APEC leaders set the goal of free trade in the region by the year 2020. The challenge the government will face in 1995 is to maintain moderately high real growth and reduce unemployment without causing a revival of inflation and a massive increase in the current account deficit (by virtue of the impact growth has on the demand for imports). Many economists believe that the desired gains in growth and employment will come, but are worried that unless the government cuts the budget deficit faster than currently planned, both of the feared side effects could be produced by an overheating economy. 2. Exchange Rate Policies Australian Dollar (A$) exchange rates are determined by international currency markets. Official policy is not to defend any particular exchange rate level. In practice, however, the Reserve Bank has a comfort range in mind when looking at exchange rate movements. It is active in "smoothing and testing" foreign exchange rates in order to provide a generally stable environment for fundamental economic adjustment policies, and intervenes occasionally to combat speculative attacks on the Australian dollar. Australia does not have major foreign exchange controls beyond requiring Reserve Bank approval if more than A$5,000 (US $3,650) in cash is to be taken out of Australia at one time, or A$50,000 (US $36,500) in any form in one year. The purpose is to control tax evasion and money laundering. If the Reserve Bank is satisfied that there are no liens against the money, authorization to take large sums out of the country is automatic. The regulation does not affect U.S. trade. 3. Structural Policies Pursuing a goal of a globally competitive economy, the Australian government is continuing a program of economic reform begun in the 1980s that includes an accelerated timetable for the reduction of protection and micro-economic reform. Initially broad in scope, the Australian government's program is now focusing on industry-by-industry, micro-economic changes designed to compel businesses to become more competitive. The strategy has three principal premises: protection must be reduced; the pace of reform needs to be accelerated; and industry must learn to do without high levels of protection. Towards these ends, a phased program to cut tariffs by an average of about 70 percent was begun July 1, 1988, to be completed on June 30, 1996. Specifically, in approximately equal phases, except for textiles, clothing, footwear and motor vehicles, all tariffs will be reduced to 5 percent. Along with these measures, some of the few manufactured products still receiving bounties (production subsidies) will have those benefits reduced each year until the bounties expire. The Uruguay Round agreements will force faster-than-planned tariff reductions in only a small number of cases. As noted in Section five (below), local content requirements on television advertising and programming and certain government procurement practices may have adverse effects on U.S. exporters and service industries. 4. Debt Management Policies Australia's gross external public debt now exceeds US $67.7 billion, or 23.5 percent of GDP. That figure represents 46 percent of Australia's gross external debt; the remaining 54 percent is owed by the private sector. Gross interest payments on public debt totaled US $4.0 billion in AFY 1993/94, representing 6.7 percent of exports of goods and services. Private sector debt service totaled US $4.0 billion, an amount equal to another 6.7 percent of export earnings. On an overall basis, therefore, Australia's debt service ratio was 13.4 percent, down substantially from AFY 1992/93's 14.9 percent. Falling international interest rates caused the drop in the debt service ratio. Standard and Poor's general credit rating for Australia remained AA during 1994. INTERNATIONAL TRADE In the past 10 years, the intensity of Australia's trade has increased, and the composition and direction have changed noticeably. Part of the shift in the pattern of trade, especially since the late 1980s, has reflected cyclical influences such as subdued demand domestically and among Australia's OECD trading partners. But much of the shift is structural and has been underpinned by policy measures which have opened Australia to more international competition. The structural shift in the pattern of trade can be expected to continue and accelerate. Australia has long been of lower middle rank in export intensity, but its exports-to-output ratio has risen appreciably in the past 10 years. The constant-price ratio has risen by about seven percentage points, reflecting sturdy growth in export volumes. The current price ratio has recorded a more modest rise, largely reflecting recent depressed commodity prices. Composition of Trade Australia's resource endowments and efficient farming, pastoral and mining practices have given it a clear competitive advantage in primary production. A major share of export revenue depends on sales of primary products and will continue to do so. But commodity prices fluctuate widely and have shown a falling trend relative to manufacturing and services. Thus, the Federal Government sees benefit in diversifying Australia's composition of exports, and in particular increasing its exports of services and high-value-added manufactures. Australia still runs a significant deficit on its trade in services. But in the past 10 years, its services exports have grown more strongly than merchandise exports. By 1992-93, services exports had risen to about 3.3 times their 1982-83 value, whereas merchandise exports had risen to about 2.9 times their 1982-83 value. If these trends continue, the services deficit will be eliminated in a few years . The broad balances in Australia's merchandise trade reflect the traditional pattern - large surpluses on trade in primary products and large deficits on trade in manufactures. But in the past 10 years, exports of manufactures (especially Elaborately Transformed Manufactures or ETMs) have grown strongly. In 1982-83, manufactures accounted for a little over 20 percent of merchandise exports; by 1992-93 their share had risen to a little over 29 per cent - the corresponding share for ETM exports had risen from 12 per cent to almost 20 per cent during the same period. Australia's performance in increasing its ETM exports compares favourably with that of other developed countries. Traditionally, Australia's exports have been dominated by large enterprises or by marketing bodies that pool the output of primary producers. In recent years, however, small and medium-sized enterprises have achieved significant exports of manufactures, and it appears likely that such enterprises will be a major source of export growth through the late 1990s and beyond. Inflation After recording an annual average inflation rate of 8.25 per cent throughout the 1980s, the annual rate fell to 0.3 per cent in the December quarter of 1992. At 1.9 per cent in the September quarter of 1995, the underlying inflation rate was below that of most of Australia's major trading partners. Continued wage restraint, improved productivity, increased competitive pressures and a broadly based decline in inflationary expectations have been important influences, and have provided a significant stimulus to Australia's international competitiveness. Balance of payments Australia has long maintained a position as a net capital importer, drawing on foreign savings to allow faster development of domestic resources. As a consequence, Australia has typically recorded a deficit in the current account. The current account deficit in 1994-95 was $27 billion: six per cent of Gross Domestic Product (GDP). The current account deficit improved in the early 1990s, largely reflecting an improvement in the balance of merchandise trade, a lower net services deficit and lower net income payments overseas. The current account deficit has widened as imports, particularly of capital goods, have increased in response to the strengthening domestic economic activity. The current account deficit, forecast to fall as a proportion of GDP, remained broadly unchanged in dollar terms during 1995-96. Current stability in dollar terms reflects a rise in the net income deficit offset by an improvement in net export volumes and terms of trade. Australia-US Bilateral Trade The trading relationship between Australia and the United States traces its origins to early last century when American whaling and sealing vessels first put into Australian ports during their Pacific voyages. The first American vessel to dock in Sydney Harbor, the Philadelphia in 1792, brought a cargo of beef, pitch, tobacco and rum that was welcomed by the early settlers. Over the years, trade between the two countries has flourished, but the balance of trade has always favored the United States. The balance of trade has been running at a ratio of two to one in favor of the US since the mid-1960s, but is fast approaching the three to one mark. In fiscal year 1993-94 (July 1-June 30), the trade deficit was $A8,942 million, up from $A8,063 million in 1992-93 and $A6,522 million in 1991-92. Imports from the United States to Australia grew 7.2 percent from 1992-93 to 1993-94. In 1993-94 the US exported a total value of $A14,016 to Australia. Exports from Australia to the US increased 2.6 percent from 1992-93 to 1993-94. In 1993-94 Australia sent $A5,074 million worth of exports to the US. From the US to Australia The US is Australia's largest source of imports representing over 20 percent of the total Australian market. Manufactured goods make up the majority of US exports to Australia, growing from 84.8 percent in 1988-89 to 90.4 percent in 1992-93. Principal imports from the US to Australia in 1993-94 included: Computers ($A1,060 million) Aircraft and equipment ($A891 million) Parts and accessories for computers and office equipment ($A739 million) Measuring, checking and controlling equipment ($A527 million) Internal combustion engines ($A421 million) From Australia to the US Australia has always been reliant on trade. In the past ten years, the intensity of its trade has increased, and the composition and direction have changed noticeably. Traditionally, Australia's exports have been sold in the US, Japan and the industrialised nations of Europe. In recent years, however, trade to the industrialised countries has grown modestly relative to trade directed at the industrialising countries of Asia. Between 1988 and 1992 Australian exports to Asian markets grew from $US17.7 billion to $US25.7 billion, an increase of 45 per cent in five years. Along with the change in the direction of trade has been a transformation in the composition of trade which is evident in exports to the US. The largest area of Australian export growth to the US is no longer in the traditional area of primary products, such as foods, minerals and fuels, but is now in manufactured goods. While total exports to the US fell slightly between 1989-90 and 1993-94, manufactured exports rose strongly, particularly Elaborately Transformed Manufactured goods which increased at an average annual rate of 11 percent. Exports of electrical machinery and appliances to the US increased from $A37.2 million in 1989-90 to $A115.2 million in 1993-94. Over the same five year period, exports of parts and accessories for office equipment and computers grew from $A87.6 million to $A306.1 million. Principal exports to the US from Australia in 1993-94 included: Meat of bovine animals ($A1,004 million) Passenger motor vehicles ($A151 million) Aircraft and associated equipment, spacecraft, satellites and parts ($A259 million) Parts and accessories for computers and office equipment ($A306 million) Wool and animal hair ($A167 million) Prospects for Future Trade Although fundamentally strong, the trading relationship between Australia and the United States is not always smooth. There are long-standing concerns over access to US markets, particularly for key Australian agricultural products. Since the US introduced quotas on sugar imports, Australian sugar exports to the US have dropped 15 percent. Access to the US market for Australian beef is at its lowest level since 1983 as a result of the Meat Import Law. Australia is also concerned over the impact of US agricultural export subsidies on Australian exports to third countries, particularly for wheat, barley, malt and dairy products. Removal of US trade barriers and trade-distorting practices is not only in the interest of Australian exporters, but also recent studies have identified substantial benefits to US industry and consumers from such action. A report by the United States International Trade Commission, released in November 1993, concluded that simultaneous US liberalization of significant US import restraints would result in a net economic gain of $US19 billion to the US economy. Consistent with the large trade and economic relationship between Australia and the US, both countries are in continual contact. The trade policies of both parties are well known to the other and contentious issues have usually been aired through Bilateral Agricultural Trade Consultations (held biannually) and the annual Ministerial level Trade and Investment Council which had its inaugural meeting in June 1993. Over the last decade, Australia has taken substantial steps to open the nation's economy through micro-economic reforms and significant tariff reductions. While some had worried that freer trade would hurt Australian business, in fact over the past ten years, while the effective rate of assistance to Australian manufacturing has fallen around 50 percent, Australian manufactured exports have increased by 23 percent. Australia has worked closely with the US in multilateral forums to address trade liberalisation and economic issues, notably the Uruguay Round of GATT trade negotiations and through the Asia Pacific Economic Cooperation (APEC) process. Trade plays a vital role in the economic well-being of both the US and Australia. While the nations' economies are very different in scale, both rely heavily on trade to fuel economic growth. Australia and the US are committed to liberalising trade and instituting the most efficient system of global trade rules. The United States is Australia's second largest trading partner. Total trade between the US and Australia grew by 4.2 percent from 1992 to 1993 to $A19.1 billion and prospects for continued growth are strong. With regard for each other's interests and recognition of the benefits of liberalised trade, there is scope for further significant trade expansion and still closer economic ties between the United States and Australia. Trade Highlights of 1993-94 Overall merchandise trade The growth in current dollar merchandise trade slowed during 1993-94 - exports increased by just over six per cent while imports grew by over eight per cent; In real terms, export growth outstripped the increase in imports - 8.4 per cent for exports and 8.0 per cent for imports; Australia recorded its fourth consecutive annual trade surplus - $A141 million; however, this was down by over $A1 billion on the 1992-93 level; The Asia Pacific Economic Co-operation (APEC) group remained Australia's major regional market, accounting for almost three-quarters of merchandise trade. Exports Japan was Australia's largest export market, taking almost a quarter of total merchandise exports; Exports to the Asian region overall grew by almost seven per cent to $A41 billion; Elaborately Transformed Manufactures (ETMs) exports grew 14 per cent to almost $A14 billion - they now account for 20 per cent of all merchandise exports; Despite a five per cent fall in export earnings, coal remained Australia's largest commodity export; Exports of computers and office machinery, parts and accessories increased in aggregate by 30 per cent to almost $A1 billion - assembled computer exports grew by over 60 per cent during the year; The value of wool exports held steady during 1993-94 - a five per cent increase in volume was offset by lower average prices (although prices recovered during the second half of the year); There were significant falls in exports of both crude and refined petroleum oil; The growth in wine exports typifies the increasing diversity of Australia's export base - they have increased over the last decade at an annual trend rate of over 40 per cent; The latest Australian Bureau of Statistics (ABS) Manufacturing Survey revealed that exporting manufacturers were performing significantly better than n f:\12000 essays\business & economics (632)\Australia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Australia INTRODUCTION Australia, island continent located southeast of Asia and forming, with the nearby island of Tasmania, the commenwealth of Australia, a self governing member of the Commenwealth of Nations. The commenwealth of Australia is made up of six states--News south Wales, Queensland, South Australia, Tasmania, Victoria, and Wester n Australia--and two territories--the Australian Capital Territory and the Northern Territory. Australia, including Tasmania but excluding external territories, covers a land area of 7,682,300 sq. km, extending from Cape York (100 41' S) in the north some 3,680 km to Tasmania (430 39' S), and from Cape Byron (1530 39' E) in the east some 4,000 km west to Western Australia (1130 9' E). Basic Data Population (estimates), July 1995, 18,322,231, with the age structure under 15 (female 1,929,366; male 2,032,238), 15-64 (female 6,017,362; male 6,181,887), 65 and over(female 1,227,004; male 934,374). Population growth rate is estimated at 1.31% (1995 est.). Literacy rate age 15 and over can read and write (1980 est.). English is the official language, with modern Australian English a conglomerate of British, American, and their own phraseology and spelling. Because Australia is one of the most multicultural nations in the world it is possible to find vibrant ethnic communities using almost every other world language.Australian school children have the highest rate of learning Asian languages, particularly Japanese and Chinese, of any industrialized western nation - in recognition of their future as a member of the Asia-Pacific region. Labor force is 8.63 million(september 1991) by occupation of finance and service 33.8%, public and community services 22.3%, wholesale and reatail trade 20.1%, manufacturing and industry 16.2%, agriculture 6.1%(1987). Political System Australia has a federal system of government, and a long history as a multiparty parliamentary democracy. There is no written Bill of Rights, but fundamental rights are ensured by law and respected in practice. The Commonwealth (federal) government and the six state governments operate under written constitutions that draw on the British tradition of a Cabinet Government, led by a Prime Minister, which is responsible to a majority in Parliament's lower house. The Federal Constitution, however, also contains some elements that resemble American practice (e.g., a Senate, in which each state has equal representation). The Head of State is Queen Elizabeth II, the reigning British monarch, but she exercises her functions through personal representatives who live in Australia (i.e., Australian citizens who serve as the Governor-General of Australia, and the Governors of the six states). Australians are debating whether their country should become a republic, give up ties with the Queen, revise the constitution, and adopt a new flag. Members of the Federal House of Representatives are elected for three years, and national elections were last held in March, 1993. Lower-house elections, thus, are due no later than mid-1996, but earlier scheduling is a matter of discretion. (The Prime Minister may recommend that the House be dissolved at any time, and the Governor-General traditionally follows such advice.) Current political commentary focuses on two likely "windows" for national elections: August- October, 1995, and March-May, 1996. Members of the Senate are elected for six years. June 30, 1996 is the next date on which Senators' terms expire, and a regular election for half the members of the Senate is due before that time, but no earlier than July, 1995. Under complex conditions specified in the federal Constitution -- in essence, extended deadlock between the House and Senate -- both houses may be dissolved simultaneously, so that ensuing national elections would involve all seats in Parliament. This "double dissolution" is unusual, and has occurred only six times since the Constitution entered into effect (1901). All major parties support the U.S.-Australia alliance and stress the importance of close relations between Australia and the United States. Thus, this longstanding and stable pattern is essentially unaffected by the outcome of national elections. The ruling Australian Labor Party (ALP) maintains close ties to the trade union movement and has held office since 1983. During that period, the government has carried out major restructuring of the economy (e.g., floating the Australian dollar, cutting tariffs by substantial amounts, reducing and simplifying regulations that affect business). Liberalizing trade and enhancing economic integration with Asia-Pacific countries are major tenets of the ALP and, in particular, of the incumbent Prime Minister, Paul Keating. The opposition Liberal-National Coalition is often described to Americans as the more "conservative" party. It upholds traditional social values and stresses the importance of a free market, entrepreneurial approach to economic growth (i.e., it promotes an updated version of the classical liberalism originated by Adam Smith). The Liberal Party is the senior partner, holding 79 of the Coalition's 101 seats in the current Parliament. The National Party is identified closely with the interests of farmers, and its supporters reside mainly in rural areas. Two minor parties, the Australian Democrats and the Western Australia "Greens", are represented only in the Senate but have political and media effects that are disproportionate to their numbers. They take highly visible stands on various economic, political, environmental, and social issues, challenging the major parties to respond in ways that meet their concerns. KEY ECONOMIC DATA Australia has a prosperous Western-style capitalist economy, with a percapita GDP comparable to levels in industrialized West European countries. Rich in natural resources, Australia is a major exporter of agricultural products, minerals, metals, and fossil fuels. Primary products account for more than 60% of the value of total exports, so that, as in 1983-84, a downturn in world commodity prices can have a big impact on the economy. The government is pushing for increased exports of manufactured goods, but competition in international markets continues to be severe. Australia has suffered from the low growth and high unemployment characterizing the OECD countries in the early 1990s. In 1992- 93 the economy recovered slowly from the prolonged recession of 1990-91, a major restraining factor being weak world demand for Australia's exports. Growth picked up so strongly in 1994 that the government felt the need for fiscal and monetary tightening by year end. Australia's GDP grew 6.4% in 1994, largely due to increases in industrial output and business investment. A severe drought in 1994 is expected to reduce the value of Australia's net farm production by $825 million in the twelve months through June 1995, but rising world commodity prices are likely to boost rural exports by 7.7% to $14.5 billion in 1995/96, according to government statistics. DOMESTIC ECONOMY STATISTICS (all figures in millions of U.S. dollars*) Calendar Year 1994 1995 1996 (e) (p) 1. Gross Domestic Product 298,613 309,038 337,700 (89-90 prices) 2. GDP Growth Rate (%)** 5.1 4.2 3.6 3. GDP per Capita 16,682 17,074 18,449 4. Government Spending 26.7 25.1 25.0 (% of GDP) 5. Inflation (%) 2.5 3.5 4.2 6. Unemployment Rate (%) 9.7 8.5 8.0 7. Foreign Exchange Reserves 10,130 12,400 13,500 (year end) 8. Avg. Exchange Rate 1.36 1.37 1.30 (US$=1.00) 9. Net Foreign Debt (year end) 119,291 118,300 123,200 10. Debt Service Ratio (%) 11.4 12.1 12.4 11. U.S. Economic/Military NA NA NA Assistance * Exchange rate fluctuations must be considered when analyzing data. ** Percent changes are calculated in Australian dollars. (e) Estimate (p) Projection 1. General Policy Framework Australia's gross domestic product (GDP) in 1994 was estimated to be US $317.6 billion. Real GDP is estimated to have grown by 4.3 percent, a substantial improvement from 1993's 3.2 percent. Nevertheless, the impact of the recession which began during the third quarter of 1989 and ended in 1991 continued to be felt; unemployment hovered between 9.5 and 10 percent during 1994. U.S. economic interests in Australia are substantial, including direct investment worth approximately US $16 billion and a bilateral trade surplus of approximately US $6 billion (up by approximately US $600 million from 1993). Although in area Australia is the size of the contiguous United States, its domestic market is limited by a small population (17.7 million people). The production of agricultural commodities and primary products is an important component of the economy; Australia leads the world in wool production, is a significant supplier of wheat, barley, dairy produce, meat, sugar, and fruit, and a leading exporter of coal, minerals and metals, particularly iron ore, gold, alumina, and aluminum. Export earnings are not well diversified; in 1993, primary products accounted for 60 percent of the total value of goods and services exports. The drought which Australia suffered in 1994 affected the agricultural sector severely. The wheat crop, for example, was cut by an estimated 51 percent from the previous year, reducing export earnings and necessitating the importation of wheat, corn, and sorghum. Some commentators believe that the drought may reduce otherwise-attainable real GDP growth (as shown in the data table above) by approximately 0.5 percent. To increase Australia's international competitiveness, the government has continued its longstanding effort to reduce protective trade barriers and deregulate large segments of the economy. Privatization of government services at both the federal (airlines, banks, telecommunications) and state level (water treatment, transportation, electricity, banks) is being pursued. The government intends to sell the remaining 75 percent of Qantas to the public in 1995. Trade reforms begun in June 1988 resulted in an end to import quotas on all but textiles, clothing, and footwear, and lower tariffs on most imports. Although the 20 percent preference given by the federal government to Australian and New Zealand firms bidding on government contracts was abolished November 1, 1989, and civil offsets in December 1992, some state and territory governments continue to apply preferences in their contracts. The Australian Government continued to provide substantial fiscal stimulus to the domestic economy in 1994. The budget deficit reached US $9.6 billion (3.4 percent of GDP). Public sector borrowing more than funded the deficit, and took the form of treasury notes (US $427 million), treasury bonds (US $10.1 billion), and cash drawdowns (US $4.9 billion). As part of its Australian Fiscal Year (AFY) 1994-95 budget, the government announced its intention to cut the deficit to 1 percent of GDP by AFY 1996-97. The money supply is controlled through an open-market trading system of nine dealers who act as a conduit between the Reserve Bank and the financial system. Transactions may involve purchases, sales, or trade in repurchase agreements of short-term treasury securities. Depending on liquidity conditions, the Reserve Bank may bypass dealers and buy or sell short-term treasury notes directly with banks on a cash basis. Banks do not normally hold liquid deposits of any size with the Reserve Bank. Instead, they hold call-funds with the authorized dealers. If a bank needs cash on a given day, it either borrows from other banks or withdraws funds it has on deposit with the dealers. Under the above money supply control system, foreign exchange flows and government deficits and credits have only limited impact on the money supply. The government also uses interest rate changes to influence the money supply. In 1994, official government interest rates were increased twice, by 75 basis points in August, and a full percentage point in October, to reach 6.5 percent. A strong supporter of the Uruguay Round negotiations liberalizing international trade, the Australian government moved rapidly to ratify the Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. Australia also advocates liberalizing trade within the Asia- Pacific region; it is a leading member of the Asia Pacific Economic Cooperation (APEC) forum, and strongly supported the November 1994 Bogor Declaration, in which APEC leaders set the goal of free trade in the region by the year 2020. The challenge the government will face in 1995 is to maintain moderately high real growth and reduce unemployment without causing a revival of inflation and a massive increase in the current account deficit (by virtue of the impact growth has on the demand for imports). Many economists believe that the desired gains in growth and employment will come, but are worried that unless the government cuts the budget deficit faster than currently planned, both of the feared side effects could be produced by an overheating economy. 2. Exchange Rate Policies Australian Dollar (A$) exchange rates are determined by international currency markets. Official policy is not to defend any particular exchange rate level. In practice, however, the Reserve Bank has a comfort range in mind when looking at exchange rate movements. It is active in "smoothing and testing" foreign exchange rates in order to provide a generally stable environment for fundamental economic adjustment policies, and intervenes occasionally to combat speculative attacks on the Australian dollar. Australia does not have major foreign exchange controls beyond requiring Reserve Bank approval if more than A$5,000 (US $3,650) in cash is to be taken out of Australia at one time, or A$50,000 (US $36,500) in any form in one year. The purpose is to control tax evasion and money laundering. If the Reserve Bank is satisfied that there are no liens against the money, authorization to take large sums out of the country is automatic. The regulation does not affect U.S. trade. 3. Structural Policies Pursuing a goal of a globally competitive economy, the Australian government is continuing a program of economic reform begun in the 1980s that includes an accelerated timetable for the reduction of protection and micro-economic reform. Initially broad in scope, the Australian government's program is now focusing on industry-by-industry, micro-economic changes designed to compel businesses to become more competitive. The strategy has three principal premises: protection must be reduced; the pace of reform needs to be accelerated; and industry must learn to do without high levels of protection. Towards these ends, a phased program to cut tariffs by an average of about 70 percent was begun July 1, 1988, to be completed on June 30, 1996. Specifically, in approximately equal phases, except for textiles, clothing, footwear and motor vehicles, all tariffs will be reduced to 5 percent. Along with these measures, some of the few manufactured products still receiving bounties (production subsidies) will have those benefits reduced each year until the bounties expire. The Uruguay Round agreements will force faster-than-planned tariff reductions in only a small number of cases. As noted in Section five (below), local content requirements on television advertising and programming and certain government procurement practices may have adverse effects on U.S. exporters and service industries. 4. Debt Management Policies Australia's gross external public debt now exceeds US $67.7 billion, or 23.5 percent of GDP. That figure represents 46 percent of Australia's gross external debt; the remaining 54 percent is owed by the private sector. Gross interest payments on public debt totaled US $4.0 billion in AFY 1993/94, representing 6.7 percent of exports of goods and services. Private sector debt service totaled US $4.0 billion, an amount equal to another 6.7 percent of export earnings. On an overall basis, therefore, Australia's debt service ratio was 13.4 percent, down substantially from AFY 1992/93's 14.9 percent. Falling international interest rates caused the drop in the debt service ratio. Standard and Poor's general credit rating for Australia remained AA during 1994. INTERNATIONAL TRADE In the past 10 years, the intensity of Australia's trade has increased, and the composition and direction have changed noticeably. Part of the shift in the pattern of trade, especially since the late 1980s, has reflected cyclical influences such as subdued demand domestically and among Australia's OECD trading partners. But much of the shift is structural and has been underpinned by policy measures which have opened Australia to more international competition. The structural shift in the pattern of trade can be expected to continue and accelerate. Australia has long been of lower middle rank in export intensity, but its exports-to-output ratio has risen appreciably in the past 10 years. The constant-price ratio has risen by about seven percentage points, reflecting sturdy growth in export volumes. The current price ratio has recorded a more modest rise, largely reflecting recent depressed commodity prices. Composition of Trade Australia's resource endowments and efficient farming, pastoral and mining practices have given it a clear competitive advantage in primary production. A major share of export revenue depends on sales of primary products and will continue to do so. But commodity prices fluctuate widely and have shown a falling trend relative to manufacturing and services. Thus, the Federal Government sees benefit in diversifying Australia's composition of exports, and in particular increasing its exports of services and high-value-added manufactures. Australia still runs a significant deficit on its trade in services. But in the past 10 years, its services exports have grown more strongly than merchandise exports. By 1992-93, services exports had risen to about 3.3 times their 1982-83 value, whereas merchandise exports had risen to about 2.9 times their 1982-83 value. If these trends continue, the services deficit will be eliminated in a few years . The broad balances in Australia's merchandise trade reflect the traditional pattern - large surpluses on trade in primary products and large deficits on trade in manufactures. But in the past 10 years, exports of manufactures (especially Elaborately Transformed Manufactures or ETMs) have grown strongly. In 1982-83, manufactures accounted for a little over 20 percent of merchandise exports; by 1992-93 their share had risen to a little over 29 per cent - the corresponding share for ETM exports had risen from 12 per cent to almost 20 per cent during the same period. Australia's performance in increasing its ETM exports compares favourably with that of other developed countries. Traditionally, Australia's exports have been dominated by large enterprises or by marketing bodies that pool the output of primary producers. In recent years, however, small and medium-sized enterprises have achieved significant exports of manufactures, and it appears likely that such enterprises will be a major source of export growth through the late 1990s and beyond. Inflation After recording an annual average inflation rate of 8.25 per cent throughout the 1980s, the annual rate fell to 0.3 per cent in the December quarter of 1992. At 1.9 per cent in the September quarter of 1995, the underlying inflation rate was below that of most of Australia's major trading partners. Continued wage restraint, improved productivity, increased competitive pressures and a broadly based decline in inflationary expectations have been important influences, and have provided a significant stimulus to Australia's international competitiveness. Balance of payments Australia has long maintained a position as a net capital importer, drawing on foreign savings to allow faster development of domestic resources. As a consequence, Australia has typically recorded a deficit in the current account. The current account deficit in 1994-95 was $27 billion: six per cent of Gross Domestic Product (GDP). The current account deficit improved in the early 1990s, largely reflecting an improvement in the balance of merchandise trade, a lower net services deficit and lower net income payments overseas. The current account deficit has widened as imports, particularly of capital goods, have increased in response to the strengthening domestic economic activity. The current account deficit, forecast to fall as a proportion of GDP, remained broadly unchanged in dollar terms during 1995-96. Current stability in dollar terms reflects a rise in the net income deficit offset by an improvement in net export volumes and terms of trade. Australia-US Bilateral Trade The trading relationship between Australia and the United States traces its origins to early last century when American whaling and sealing vessels first put into Australian ports during their Pacific voyages. The first American vessel to dock in Sydney Harbor, the Philadelphia in 1792, brought a cargo of beef, pitch, tobacco and rum that was welcomed by the early settlers. Over the years, trade between the two countries has flourished, but the balance of trade has always favored the United States. The balance of trade has been running at a ratio of two to one in favor of the US since the mid-1960s, but is fast approaching the three to one mark. In fiscal year 1993-94 (July 1-June 30), the trade deficit was $A8,942 million, up from $A8,063 million in 1992-93 and $A6,522 million in 1991-92. Imports from the United States to Australia grew 7.2 percent from 1992-93 to 1993-94. In 1993-94 the US exported a total value of $A14,016 to Australia. Exports from Australia to the US increased 2.6 percent from 1992-93 to 1993-94. In 1993-94 Australia sent $A5,074 million worth of exports to the US. From the US to Australia The US is Australia's largest source of imports representing over 20 percent of the total Australian market. Manufactured goods make up the majority of US exports to Australia, growing from 84.8 percent in 1988-89 to 90.4 percent in 1992-93. Principal imports from the US to Australia in 1993-94 included: Computers ($A1,060 million) Aircraft and equipment ($A891 million) Parts and accessories for computers and office equipment ($A739 million) Measuring, checking and controlling equipment ($A527 million) Internal combustion engines ($A421 million) From Australia to the US Australia has always been reliant on trade. In the past ten years, the intensity of its trade has increased, and the composition and direction have changed noticeably. Traditionally, Australia's exports have been sold in the US, Japan and the industrialised nations of Europe. In recent years, however, trade to the industrialised countries has grown modestly relative to trade directed at the industrialising countries of Asia. Between 1988 and 1992 Australian exports to Asian markets grew from $US17.7 billion to $US25.7 billion, an increase of 45 per cent in five years. Along with the change in the direction of trade has been a transformation in the composition of trade which is evident in exports to the US. The largest area of Australian export growth to the US is no longer in the traditional area of primary products, such as foods, minerals and fuels, but is now in manufactured goods. While total exports to the US fell slightly between 1989-90 and 1993-94, manufactured exports rose strongly, particularly Elaborately Transformed Manufactured goods which increased at an average annual rate of 11 percent. Exports of electrical machinery and appliances to the US increased from $A37.2 million in 1989-90 to $A115.2 million in 1993-94. Over the same five year period, exports of parts and accessories for office equipment and computers grew from $A87.6 million to $A306.1 million. Principal exports to the US from Australia in 1993-94 included: Meat of bovine animals ($A1,004 million) Passenger motor vehicles ($A151 million) Aircraft and associated equipment, spacecraft, satellites and parts ($A259 million) Parts and accessories for computers and office equipment ($A306 million) Wool and animal hair ($A167 million) Prospects for Future Trade Although fundamentally strong, the trading relationship between Australia and the United States is not always smooth. There are long-standing concerns over access to US markets, particularly for key Australian agricultural products. Since the US introduced quotas on sugar imports, Australian sugar exports to the US have dropped 15 percent. Access to the US market for Australian beef is at its lowest level since 1983 as a result of the Meat Import Law. Australia is also concerned over the impact of US agricultural export subsidies on Australian exports to third countries, particularly for wheat, barley, malt and dairy products. Removal of US trade barriers and trade-distorting practices is not only in the interest of Australian exporters, but also recent studies have identified substantial benefits to US industry and consumers from such action. A report by the United States International Trade Commission, released in November 1993, concluded that simultaneous US liberalization of significant US import restraints would result in a net economic gain of $US19 billion to the US economy. Consistent with the large trade and economic relationship between Australia and the US, both countries are in continual contact. The trade policies of both parties are well known to the other and contentious issues have usually been aired through Bilateral Agricultural Trade Consultations (held biannually) and the annual Ministerial level Trade and Investment Council which had its inaugural meeting in June 1993. Over the last decade, Australia has taken substantial steps to open the nation's economy through micro-economic reforms and significant tariff reductions. While some had worried that freer trade would hurt Australian business, in fact over the past ten years, while the effective rate of assistance to Australian manufacturing has fallen around 50 percent, Australian manufactured exports have increased by 23 percent. Australia has worked closely with the US in multilateral forums to address trade liberalisation and economic issues, notably the Uruguay Round of GATT trade negotiations and through the Asia Pacific Economic Cooperation (APEC) process. Trade plays a vital role in the economic well-being of both the US and Australia. While the nations' economies are very different in scale, both rely heavily on trade to fuel economic growth. Australia and the US are committed to liberalising trade and instituting the most efficient system of global trade rules. The United States is Australia's second largest trading partner. Total trade between the US and Australia grew by 4.2 percent from 1992 to 1993 to $A19.1 billion and prospects for continued growth are strong. With regard for each other's interests and recognition of the benefits of liberalised trade, there is scope for further significant trade expansion and still closer economic ties between the United States and Australia. Trade Highlights of 1993-94 Overall merchandise trade The growth in current dollar merchandise trade slowed during 1993-94 - exports increased by just over six per cent while imports grew by over eight per cent; In real terms, export growth outstripped the increase in imports - 8.4 per cent for exports and 8.0 per cent for imports; Australia recorded its fourth consecutive annual trade surplus - $A141 million; however, this was down by over $A1 billion on the 1992-93 level; The Asia Pacific Economic Co-operation (APEC) group remained Australia's major regional market, accounting for almost three-quarters of merchandise trade. Exports Japan was Australia's largest export market, taking almost a quarter of total merchandise exports; Exports to the Asian region overall grew by almost seven per cent to $A41 billion; Elaborately Transformed Manufactures (ETMs) exports grew 14 per cent to almost $A14 billion - they now account for 20 per cent of all merchandise exports; Despite a five per cent fall in export earnings, coal remained Australia's largest commodity export; Exports of computers and office machinery, parts and accessories increased in aggregate by 30 per cent to almost $A1 billion - assembled computer exports grew by over 60 per cent during the year; The value of wool exports held steady during 1993-94 - a five per cent increase in volume was offset by lower average prices (although prices recovered during the second half of the year); There were significant falls in exports of both crude and refined petroleum oil; The growth in wine exports typifies the increasing diversity of Australia's export base - they have increased over the last decade at an annual trend rate of over 40 per cent; The latest Australian Bureau of Statistics (ABS) Manufacturing Survey revealed that exporting manufacturers were performing significantly better f:\12000 essays\business & economics (632)\Barnes and Noble buys Ingram Book Group.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Barnes and Noble buys Ingram Book Group The number-one bookseller today was born in 1971. Barnes and Noble's (B&N) founder and Chief Executive, Leonard Riggio, started out with a stagnant Manhattan book store. Today, it operates over 1,000 store-chains. The chain includes about 504 B&N superstores, 507 B. Dalton mall stores, and 300 university bookstores. The college bookstores are leased and they take a commission on the sales revenues. Regardless of the profits they make, they still have to pay the universities. One such university bookstore is located at (name of college). The students allege that the books are cheaper now that Barnes and Noble owns the college bookstore. Mr. Riggio attended New York University (NYU) as an engineering student. To help pay college tuition he worked at the NYU bookstore, and the job sparked an interest that led him to buy the bookstore on the NYU campus in 1965. He owned nine college bookstores by 1971. When a stagnant New York City bookstore was up for sale, Mr. Riggio seized the opportunity and bought the store. The bookstores are designed to give consumers a pleasant shopping experience. Mr. Riggio believes that shopping is a "social activity for consumers" because they do it to relax, meet other people, to see what is new, or to treat themselves with something new. Barnes and Noble is dedicated to their customers. The stores provide a relaxed and welcome environment. Barnes and Noble stores usually are located in high traffic, upscale suburbs, to attract wealthy clientele. After all, they are the ones with money to splurge. Last week, B&N opened its new (name of new superstore). The 25,000 square foot store employs 60 experienced booksellers. It has over 100,000 titles and access to more than a million books. When one walks in the store, you can smell the aroma of the baked goods and Starbuck's coffee brewing. It is a comfortable setting. People of all ages can settle in a big cushy chair or at a table to browse through piles of books. If books are not of interest, one can listen to a large selection of CDs and cassettes, chat with a friend over a cup of cappuccino, or attend one of the store's special events. The monthly schedules of events include poetry reading, singing, and special appearances by authors. Children can enjoy the children's department full of extraordinary characters of children's books. It has two event areas for children; including (name of children's area), story hour, puppet shows, and children's projects. It is a wonder that the news that Barnes and Noble is buying Ingram Book Group has agitated independent bookstores. In the article "Barnes and Noble buys Ingram for $600 Million", written by (name of reporter) for the (name of newspaper) on (date) states that the American Booksellers Association (ABA), is opposing the B&N's vertical merger with Ingram. The ABA cited that the "deal would make independent bookstores dependent upon the largest competitor." ABA is a nonprofit organization that represents independently owned bookstores. ABA asked the Justice Department and the Federal Trade Commission to look into the acquisition because it would give Barnes and Noble "major control over the book industry as Microsoft has over the computer business". ABA contends that if B&N has control over the book enterprise, "it might eventually drive out the little guy and stifle competition". The deal "threatens the viability of competition in the book industry, and limits the diversity and availability of books to customers." Ingram is America's largest single wholesale book distributor, and the sale would mean that the two of the biggest companies in the book industry are merging. The wholesaler distributes trade books, audio books, periodicals, textbooks, and multimedia to bookstores, libraries, and specialty retailers. It has 11 distribution centers in the nation. John Ingram, Chairman of Ingram Book Group, will continue to serve as Chairman of Ingram. He has been elected as Vice-Chairman for Barnes and Noble's Board of Directors. Independent bookstores claim that the acquisition is a "body-blow for the independent bookselling community" because there is room for B&N to gain an unfair advantage over bookstores. They fear that the chain will receive books, especially bestsellers, before or instead of them. For instance, if there are a few copies of a best seller on the shelf and every book store needs them, who will get the books first? It does not take a rocket scientist to figure out who is going to get the books. In the midst of all the negative criticism, B&N has promised that Ingram will continue to sell books to its competitors. The chain vows not to give B&N "preferential treatment or freeze out competitors, once the purchase is approved" by continuing to fill book orders at the time they are received. They are committed to continue business with Ingram's current customers, including independent bookstores, specialty stores and libraries, in the U.S. and overseas. Barnes and Noble knows that Ingram depends on the competition for profit earnings. Anti-trust laws do not permit a business to eliminate the competition by monopolizing a resource such as Ingram Book Group. It is doubtful, that after all the success of B&N, they will risk being sued if they try to monopolize the book industry. The sale will cost Barnes and Noble $400 million in stock and $200 million in cash. The $400 million in stock will make Ingram the second largest shareholder, with Mr. Riggio owning the majority of the company's stock. The news of the deal sent B&N's shares climbing from $30.87 to $34.25 on the New York Stock Exchange. Investors have confidence that the already successful company will increase its earnings, efficiency and clout within the book industry. On the other side, B&N's biggest competitor, Amazon, saw their stocks fall a total of $3.94. In conclusion, the purchase of Ingram Book Group by Barnes and Noble will allow the latter to gain profits from their rivals. Currently, Barnes and Noble is finalizing the acquisition of Ingram. Mr.Riggio is a prime example of an individual that is now a national icon after being just a small time businessman. His fulfilled dream of providing a prominent book supply to students and the general public, along with a comfortable social atmosphere, has made him a true success and personal role model. Word Count: 1043 f:\12000 essays\business & economics (632)\BECOA Report on Investing Currencies in the Far East.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ BECOA Report on Investing Currencies in the Far East Prepared by: Brad Saunders Introduction In the world today, the possibilities are endless for people who want to make money. These opportunities may exist in the form of a bond, currency, stock, or business venture, but the common tie between them is that it is possible to make money if you research the market and impose the proper strategic plans. In this report, the issue of investing money in the currency markets of the Far East will be my main area of interest. The Far East offers great potential for a currency trader who wishes to make money. I also have the option of investing in the European currency market as well, but I feel that the European market is somewhat too volatile for any significant gains to be made by pursuing any countries within. As is evident from classroom work in this course, the Far East has the greatest potential of any area in the world to be the next big area, in terms of economic expansion. With the many countries available to select for currency trade, it is very difficult for a student with limitedresources to accurately and to the best of his or her's ability to make any significant amount of money on the currency market. However, I believe that by my researching the countries trends in areas such as: Inflation, Capital Investments, Unemployment, Exports, Budget balances, and Real Growth rates, that this is the key to making money through currency exchange. In this report my selections for currency exchange will justified by using the above areas as well as currency trends and volatilities, that prove Japan, Hong Kong, Singapore, Thailand, and Taiwan were all good strategic investments. Japan The first country that I chose to buy currency in was Japan. Japan, as many people know is a country that has proven itself as having one of the world's most powerful and stable economies. When we examine the Real Growth Rate in Japan (Fig. 1, pg: 7), we can see that the Japanese economy is growing every year over the charts history. In the late 80's and early nineties the Japanese economy was peaking and still continues to grow, with recent reports that the Japanese economy could rise once again as seen in the chart with 1995's increase. The second factor for Japan that I took into affect was their low levels of inflation. In (Fig. 2, pg: 7), we can see that the inflation level in Japan is very low, which means that the cost of goods in Japan does not widely fluctuate from year to year. In the early 1990's it is evident that Japan had a healthy level of inflation which we have learned is between two to four percent. But as of late, the level of inflation is somewhat a cause for concern because it has fallen below one percent. However, the economy is still growing and the only cause for alarm would be if the inflation rate approached zero or actually became deflation. These first two choices, as is evident have a great bearing on the fluctuation and growth that the Japanese Yen has shown and will continue to show. Yet another area that is of great of importance that I looked at before investing in Japan, is the export market. When we refer to (Fig. 4, pg: 8), it is clear that the value of exports that have been leaving Japan has been on a steady rise for the last five years. This trend is partly due to the great demand that the world has put on the Japanese for their high quality and low priced electronic goods. Since Japan is among the technological elite of the world, exports have been growing which will drive the value of the Yen up, causing me to make money because I bought the Yen at a lower price. The large number of exports that Japan produces is in part due to another area of my research, unemployment. The Japanese have what I conceive as a great grasp on controlling unemployment while the principal of low inflation combats against it. The low levels of unemployment can be seen in (Fig.5, pg: 9), which show Japan has an extremely low unemployment rate. The low unemployment contributes to the production of more goods that can be exported and in turn increasing the value of the Japanese Yen and making money for investors. The final factor that I took into account when invest in Japan is the Capital Investment made there. When referring to (Fig. 6, pg: 9), it shows that there has been a steady if not prospective increase in Capital Investment in Japan. This factor encouraged my to invest because it shows that the confidence is growing for investors and business people to invest in Japan, so therefore limiting the risk involved by investing in Japan. After seeing all of the information provided it is clearly evident that the Japanese Yen is a good choice of a currency to make money. Hong Kong When research materials became available, I immediately saw that the country of Hong Kong had a great potential for an extremely good return on an investment. Even though Hong Kong is faced with the prospects of return to the rule of the Chinese government in 1997, it's economy and dollar still continue to grow. When we view (Fig.1, pg: 7), we can see that Hong Kong's Real Growth Rate has been increasing as of late. This constant growth of the Hong Kong economy is an exceptional example of why Hong Kong is such a good country to invest in the currency market. Although the Real Growth Rate is a good indicator of Hong Kong's investment return potential, I believe that Hong Kong's effort to maintain a balanced budget may be even better. If we refer to (Fig. 2, pg: 7), it is evident that Hong Kong has stayed on budget as well as saved money to help pay off their foreign debts. These figures show the government is committed to providing a stable dollar and economic environment, for both domestic and foreign business. This in turn will increase investment in Hong Kong and raise the value of their dollar. Another aspect in Hong Kong of interest, is their great export power. In (Fig. 4, pg: 8), the exports have grown by about $20 Billion a year for the last five consecutive years. This growth in exports is approximately a six percent increase in exports per annum. These figures show that Hong Kong has a strong and growing export market, which will put a greater demand on the Hong Kong Dollar, therefore driving it's price up. As is seen above, the impression is conveyed that the Hong Kong government is committed to providing a stable business environment. Hong Kong's strong business environment can also be seen through it's very health level of unemployment. (Fig.5, pg: 9) shows that in the last five years, Hong Kong's unemployment rate has been fluctuating around anywhere from two to three percent. As is seen in the output of the economy these levels are good examples of how a low unemployment rate can contribute and show the growth of a countries dollar. Many of the above examples found in Hong Kong are reasons that other business people invest their money in Hong Kong. In (Fig.6, pg: 9), Capital Investment in Hong Kong is shown. Like many of the other trends and statistics in Hong Kong, invest is growing with every coming year. The invest continues because the Hong Kong market offers a stability and potential that investors are looking for. However, in the coming year investors will have to wait and see what the Chinese plan to do with Hong Kong, then decide whether or not to continue to invest in Hong Kong. Singapore When choosing a country in which to invest, there are two things that I tend to take into account. The first point would be is the country emerging and a potential future power or is the country past it's prime years. Singapore is a country that fit my first criteria perfectly. Singapore is one of the world's fastest growing countries, economically and is predicted to be the next "Japan". Economists or market analyzers often place Singapore in a group of countries known as the 4 Mini-Dragons or Tigers. If we refer to (Fig.1, pg: 7), it is quite obvious that Singapore has experienced some major and substantial economic expansion in the past five years. The rate of increase is one of the big attractions to investors who feel Singapore can provide some major returns through their currency. The Singapore dollar is a currency that is very prone to following the way of the Japanese Yen. This means that if the Yen starts a slow decline, the Singapore dollar can be predicted to go down. This phenomenon can be explained be comparing Singapore and Japan to Canada and the United States. The reason for the ties between currencies is simply based on the fact that both countries are each others major trade partner. The Singapore government which is known for it's strict rules has also played a major part in the country's currency developing to the stable and profitable rate it is today. The government's role in the economic and currency raise, can be seen by looking at (Fig.2, pg: 7), (Fig.3, pg: 8), and (Fig.5, pg: 9). These three charts can be interlinked between some main reasons for investing in Singapore. Singapore's inflation rate can be dubbed health since it is presently hovering between two and four percent. The low inflation in the country, in turn creates the low levels of unemployment that is seen in Singapore. An unemployment rate of two to three percent can be expected here due to the movement between jobs. The government has very strict unemployment policies here and tends to help those without jobs find a new one within a few months. The unemployment creates a very productive and functional work force that helps boost the economy as well as provides more goods for export. If we also look at Singapore's exports (Fig.4, pg: 8), we can see that exports have grew, mostly due to the low levels of unemployment and high volume of money being invested into business. The growing exports will surely add value to the already strong Singapore dollar. This extra infusion of investment dollars can be seen in (Fig. 6, pg: 9). This added value to the Singaporean market provides other investors with a basis which to compare potential currency exchange within Singapore's growing market. Thailand and Taiwan Thailand and Taiwan are two countries that have great strategic importance to my Far East Currency Investment Plan. These two countries were are used in the same main reasons as all the others, but for one other distinct reason. That reason is extremely low volatility against the Canadian Dollar. This strategic reason may sound absurd by involving the Canadian dollar, but the actual principal behind this idea is simple. If the Thai Baht and Taiwan dollar remain with a negative or zero volatility against the Canadian dollar after the 26th of November when the exchange of currency was made, this would secure all earnings to that point as well as possibly adding to them. (refer to pg: 10). Another way to back up this point is to see that the Foreign Funds must be converted back into Canadian Funds at the end of the project, so if the money is in a currency with little or no fluctuation against the Canadian Dollar a better return will be produced. Both countries Real Growth Rate can be found by referring to (Fig.1, pg: 7). Growth in both of these countries is steady and shows that the currencies of these countries must be in demand. However, as of late the reports suggest that Thailand could continue to grow at a faster rate if political situations subside. The next reason for investment in Thailand and Taiwan would be their Balanced Government Budgets. These can be found in (Fig.2 ,pg: 7) where it is obvious that the Taiwan government is committed to a balanced budget to add stability to their economy, after a couple of years of showing a deficit. Another interest combination that occurs between these two countries is the relationship between Unemployment and Inflation. The fact is in both countries healthy levels of both exist and seem to be stable. These inflation and unemployment figures (Fig.3, pg: 8) & (Fig.5, pg: 9) show that it is possible to have a stable dollar with both low levels of inflation and unemployment. In turn these two elements can attract the attention of foreign buyers of goods or currency. The foreigners see an advantage to make money by either investment or trading, so therefore want to buy more business or currency. To prove this fact (Fig. 6, pg: 9) shows that capital investment in both countries is making a turn for the good. With the many business transactions that have been occurring in Thailand and Taiwan, the export business has growing rapidly and became quite profitable. This fact can be proved by refer to (Fig. 6, pg: 9), that shows exports have climbed rapidly especially in Taiwan where recent predictions for export values are expected to be in the neighborhood of $110 Billion Dollars. After the completion of this section it is conclusively apparent that countries like Taiwan and Thailand were needed for this project to be successful in obtaining a profit. Conclusion After the completion of this report the reasons for my investing in the currencies of the Far East are all proved and justified with solid facts. It is now obvious that investing in foreign currencies is an exceedingly tedious task and requires a strategy as well as being able to find out to date information everyday. That is why by looking at factors such as: growth, exports, inflation, investment, budget, and volatility, it is easier to determine the direction of a countries currency value and hopefully after completing this report the knowledge and ideas that have been presented are clear enough, that you can now see why the countries which I invested in were good choices. f:\12000 essays\business & economics (632)\Benefits of Incorporating a Company.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Feb. 10, Accounting 202 1997 The Advantages and Disadvantages of Incorporating a Business In order to mention all the advantages and disadvantages of incorporating a business, first I should try to explain what a corporation is. In 1819, Chief Justice Marshall of the United States Supreme court said: " A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law." In the Webster's College Dictionary corporation is defined as "an association of individuals, created by law and having an existence apart from that of its members as well as distinct and inherent powers and liabilities." A corporation is divided into many units called shares of stock. The owners of the stock are called stockholders or shareholders. One of the advantages of incorporating a business is that because a corporation has a legal existence, shares can be sold at any time without affecting the operations of the corporation. Also, shares can be bought at any time. Another big advantage of incorporating a business is that corporation have limited liabilities. This means that the corporation is responsible for its own acts and obligations under the law. This characteristic protects the stockholders of the corporation because the only financial loss that they may suffer is limited to the amount invested. Also, the creditors of the corporation can not go beyond the assets of the corporation to satisfy their claims. The stockholders or the shareholders are the ones who have control over the management of a corporation's operation and activities. They are the ones who elect the board of directors, and the board of directors are responsible to the stockholders. Also, the board of directors are responsible for the management of the day-to-day operation of the corporation. They also decide when and how much of their income to give to the stockholders or shareholders. Another characteristic that can be an advantage of incorporating a business is that corporations may be organized for nonprofit organizations such as colleges, hospitals, and others humanitarian purposes. However, most of the corporations are organized to earn a profit for stockholders. The biggest disadvantage of a corporation is that corporations are subject to taxes. Corporations are not like proprietorship and partnership forms of organization, they must pay federal income taxes. Also, stockholders must pay income taxes on any dividends distributed to them. So, all the corporations are being tax twice and it is what is call double taxation. There are many advantages of incorporating a business. Before any body decide to do that, they should study every case in a particular way and decide if it is worth it to incorporate a business. Most of the biggest business in the world have become corporations because it is easy to control and better way to get new capital. f:\12000 essays\business & economics (632)\BHP Revitalizes Its Global Management.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ BHP Revitalizes Its Global Management Summary of the article by David Forman "BHP REVITALISES ITS GLOBAL MANAGEMENT," Business Review Weekly, April 17 1995, page 24-26. BHP is setting up the required management to handle a rapid global expansion. They have done this by appointing a network of regional corporate representatives and a corporate general manager, international. Representing BHP across the world, these managers will facilitate new developments, and assist global expansion. This overseas focus of expansion requires new systems and processes, to take on projects in different countries around the world. BHP has taken advice from other companies, that have expanded outside their home countries, also background advice from consulting firms. BHP have taken this advice, and created a management model to suit their operations. By providing regional representatives to deal with governments, bureaucracies and coordinators of cross divisional activities, this model expects BHP to be able to find expansion opportunities. Particularly where opportunities exist that involve more than one divisional group. An example of this is BHP Power, which develops power stations using the most appropriate energy source for the circumstances. Power is an independent group, drawing on the skills of the Mining and Petroleum divisions where necessary. The company is looking at other possible new businesses, that are natural developments of the company's existing businesses, in the same way Power has evolved from Petroleum and Mining. One of these is Manufacturing, using the skills developed in the Steel division. In 15 years BHP has gone from being a domestic steel producer with small petroleum and mining operations, to having a significant international presence in the steel, oil and mining industries. (Forman, D. 1995, pp. 24-26) MANAGEMENT PRINCIPLES After a six month review of their business position into the next century BHP has developed a strategic plan.(Forman, D. 1995) The strategic management process uses nine steps to create a strategic plan. 1: Identify the organisations current mission, objectives and strategies. BHP operates steel, mining and petroleum businesses. 2: Analyse the environment. They have recognised that many areas that they operate in are suitable for expanding existing operations. 3: Identify opportunities and threats. The opportunities are to develop businesses that are not yet operating in a particular area. The threats are competitors who move in quicker, and a lack of understanding of the specific environment. 4: Analyse the organisation's resources. BHP have recognised that they have many skilled people within the steel, mining and petroleum operating divisions. 5: Identifying strengths and weaknesses. The strength of BHP is in its traditional steel, mining and petroleum operations. The weaknesses are the lack of a co-operative link between the divisions. 6: Reassessing the organisation's mission and objectives. Merging the organisations' resources with the opportunities in the environment shows the organisation's opportunities. FIGURE: 1. ORGANISATIONS OPPORTUNITIES (Robbins,S & Murkeji, D.1994 page 142) The opportunities are to develop new businesses using the skills of the steel, mining and petroleum people. The organisation's objectives were to operate these divisions as separate businesses. New objectives will be needed to direct the organisation into these opportunities. 7: Formulating strategies. Using the eight step decision making process, a strategic plan was formulated. The objective of this plan is worldwide growth, through diversification and direct expansion. 8: Implementing strategies. Once the strategic plan was decided, the process was implemented to develop an operational plan to achieve the objectives. 9: Evaluating results. The performance results of this plan, measured by the international growth of the organisation, will show whether the plan requires adjustments or not. (Robbins,S & Murkeji, D.1994. pp 141- 143) BHP has then used the eight steps of decision making to develop the operational plan. 1: Formulating a problem. The problem was to find a management model that will help achieve the goal of global expansion and diversification. 2: Identifying decision criteria. BHP wanted a stronger presence overseas, to be able to recognise and develop opportunities for new projects, with greater co-operation between the steel, petroleum and mining divisions. 3: Allocating weights to the criteria. Weighting these criteria, divisional co-operation would have scored highest, then the need to have people that can develop new opportunities, followed by the need for regional representatives. All of these criteria would have scored highly. 4: Developing alternatives. BHP studied other successful global companies, as well as seeking advice from consulting firms, looking for alternative management systems. 5: Analysing alternatives. Studying the management systems of other international companies, BHP could then select certain systems that would meet the criteria. 6: Selecting an alternative. Using the selected systems BHP developed a management model that is suitable for their own operations. 7: Implementing the alternative. An operational plan was then developed to implement this new management model. 8: Evaluation of decision effectiveness. The decision's effectiveness will be gauged by how well the company develops new international business. (Robbins,S & Murkeji, D.1994. pp 79-83) Part of BHP's operational plan, was to make changes to its organisational structure by appointing regional corporate representatives, these representatives are positioned alongside existing operating divisions. By adding 'geographic departmentalisation' to the original 'product departmentalisation', BHP is able to monitor regional environments more closely, by liaising with local governments, bureaucracies and BHP's divisional managers. (Robbins, S & Mukerji, D. 1994, page 208.) By understanding the 'specific environment' better BHP's managers can recognise opportunities within that environment for new projects and businesses. They can also make quicker, and more informed decisions when running operations in that environment as well as making the needs and timing for expansion clearer. All of these changes are designed to facilitate international growth, in an entrepreneurial way, without jeopardising the traditional operating divisions, or 'cash cows' as in the BCG matrix shown in figure 3. Using this matrix shows that if BHP converts its new businesses from 'question marks' to 'stars', without creating 'dogs', this will lead to rapid growth. To control profitability and cash flow, they must also keep maintaining and expanding their 'cash cows' which are the steel, mining and petroleum divisions, these are the backbone of the organisation. BHP is planning this by developing new businesses using the resources of the ' cash cows' and then adding value to the products that they produce, creating new customers for their own products. An example of this is that BHP Power is building power stations using the skills and resources of the mining and petroleum operations, and in turn these power stations use either coal, produced by the mining division, or gas, produced by the petroleum division. BIBLIOGRAPHY Forman, D. 1995, 'BHP revitalises its global management', Business review weekly, April 17, 1995, pp. 24-26. Robbins, S & Mukerji, D. 1994, Managing Organisations, 2nd edn, Prentice Hall, Englewood Cliffs, NJ. f:\12000 essays\business & economics (632)\Bill Clinton redefines DemocraticRepulican.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Bill Clinton - Redefines Democratic-Republican In the early 1800's, the United States was but a promising seedling in search of viable political direction. The initial parties were known as the federalists and the Democratic-Republicans, the first of which soon diminished and the later eventually bisected. The result is the two party Democrat and GOP system which the majority of politicians of current day subscribe. However, many political and economic analysts find themselves perplexed by an incredible new phenomenon radiating from the white house - the economic policies of President Bill Clinton. This dilemma has left many wondering, did we elect a democrat or a republican? Has Clinton unintentionally begun a campaign to reunite the two rivals? The telltale signs of Clinton's political ambiguity include reminiscently republican techniques of reducing the budget, creating jobs, lowered productivity, and shaping the tax code. During Clinton's 1992 campaign, balancing the budget was not among the countries main economic objectives (Miller 4). However, after close scrutiny, the economic woes of the approaching millennium were projected as "higher then we thought it would be" (Miller 4). In fact, "in the twelve years before Clinton took office, the deficit quadrupled in size" (deficit 1). As a result, Clinton must engage in creative cost cutting techniques to keep the budget under control. Money afforded to state and local governments for development programs, such as those which relieve "urban blight," will eventually be cut by two-thirds, a third more then Gingrich's last congress proposed (Rauch 2). In addition, cuts to transportation aid will prove fifty percent greater then republican propositions (Rauch 2). According to Clinton, all of these maneuvers will result in the lowering of the deficit by $600 billion, or almost one-third by the year 1998 (progress 1). Economists speculate that these reforms may produce the desired effect (Rauch 2). However, putting these measures into action may contradict one of Clinton's main election tenets - to preserve the status quo as it relates to government programs. The final budget will include one-seventh for interest on the national debt. A whopping two thirds will go toward entitlement, one sixth for defense programs and another one-sixth for "non-defense discretionary spending" (Rauch 2). Perhaps the most touted aspect of the initial Clinton administration was its ability to "create" jobs. According to the White House, almost six million jobs have been created in the past four years, and the unemployment rate in Texas has dropped from 7.5% to 5.8% (Progress 1). This is a level well below the 6% rate which many economists regard as full employment. However, there may be a great deal more then meets the eye when it comes to these "promising" statistics. The labor force had been predicted to grow at a rate of more than 1.3 percent per year, however, it has failed to grow by even one percent annually under Clinton (Reynolds 3). In other words, unemployment has "gone down," by way of understatement. The number of those counted as actual members of the labor force has lowered while the number of jobs has moderately increased. It is estimated that one million men between the ages of twenty-five and fifty-five have left the labor force as discouraged workers during the four-year span of 1992 to 1996 (Reynolds 3). Had these men remained in the force as possible applicants, the unemployment rate may actually read as high as 8%, as it was during the Reagan administration (Miller 3). It seems a case of playing with numbers in order to disguise the truth. Whatever one chooses to call it, Clinton's policies of job creation place discouraged middle class workers between a rock and a hard place. Conservative economist Alan Reynolds views it as a technique of "achieving low unemployment . . . by discouraging millions of people," and remarks that "it is nothing to brag about" (Reynolds 3). Productivity growth, "measured as the number of units of output per hour of work" has grown just 1 percent each year since 1973 (Miller 3). Under usual circumstances, gradual increases in productivity directly correlate to an increase in workers' wages. However, the Clinton Administration has seen a total productivity increase of 2.1% over a four year period, while wages have declined by .2% (Miller 3). In the next seven years, Clinton's team anticipates an annual productivity increase of 1.2% (Miller 5). Considering the vast majority of employment created under this administration is classified as "blue collar," it may be inferred that wages will continue to fall. Indeed, it seems Clinton has managed to contradict a fundamental premise of economics. And who benefits from this lower wage - higher productivity combo? In a word, industry. Economist Stephen Roach sees it as "a dramatic shift in the distribution of income away from the agents of productivity, workers, toward the owners of capital" (Miller 3). The outcome? An era eerily reminiscent of the Reagan era, where the rich only seem to get richer. Traditionally, aspiring presidents promise one (or several) things in regard to taxes during the election, yet deliver an entirely different bag of goods upon actual inhabitance of the white house. Clinton proved no exception by raising the marginal tax rates in 1993. At the current time, Clinton is considering a modified capital gains tax cut, despite the fact that this taxation has made sizable contributions to the lessening of the deficit (Miller 4). It is a move that could prove immensely beneficial to the upper percentages of income earners. Clinton has made moves such as this one in the past, in the form of "an earned income tax credit which increased the share of loot given to those with incomes well above the poverty level" (Reynolds 3). These policies, according to Wall Street Journal columnist Paul Gigot, "have done best by the same people Mr. Clinton accused Reaganomics of benefitting most - the wealthy." Thus, the question remains . . . will Clinton's ambiguous policies fair well when presented to a blatantly republican Congress? It is a fact which remains to be seen. Robert D. Rieschauer, former head of the congressional budget office, views Clinton's economic misidentity as a clear-cut case of Gingrich induced skitzopreniea, noting that "in the world of the campaign, Clinton was the anti-gingrich . . . in his actual budgets . . . he is Gingrich" (Reynolds 1). It leaves us, as voters, to the task of defining Clinton's party loyalties. f:\12000 essays\business & economics (632)\Bill Clinton.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Bill Clinton - Redefines Democratic-Republican In the early 1800's, the United States was but a promising seedling in search of viable political direction. The initial parties were known as the federalists and the Democratic-Republicans, the first of which soon diminished and the later eventually bisected. The result is the two party Democrat and GOP system which the majority of politicians of current day subscribe. However, many political and economic analysts find themselves perplexed by an incredible new phenomenon radiating from the white house - the economic policies of President Bill Clinton. This dilemma has left many wondering, did we elect a democrat or a republican? Has Clinton unintentionally begun a campaign to reunite the two rivals? The telltale signs of Clinton's political ambiguity include reminiscently republican techniques of reducing the budget, creating jobs, lowered productivity, and shaping the tax code. During Clinton's 1992 campaign, balancing the budget was not among the countries main economic objectives (Miller 4). However, after close scrutiny, the economic woes of the approaching millennium were projected as "higher then we thought it would be" (Miller 4). In fact, "in the twelve years before Clinton took office, the deficit quadrupled in size" (deficit 1). As a result, Clinton must engage in creative cost cutting techniques to keep the budget under control. Money afforded to state and local governments for development programs, such as those which relieve "urban blight," will eventually be cut by two-thirds, a third more then Gingrich's last congress proposed (Rauch 2). In addition, cuts to transportation aid will prove fifty percent greater then republican propositions (Rauch 2). According to Clinton, all of these maneuvers will result in the lowering of the deficit by $600 billion, or almost one-third by the year 1998 (progress 1). Economists speculate that these reforms may produce the desired effect (Rauch 2). However, putting these measures into action may contradict one of Clinton's main election tenets - to preserve the status quo as it relates to government programs. The final budget will include one-seventh for interest on the national debt. A whopping two thirds will go toward entitlement, one sixth for defense programs and another one-sixth for "non- defense discretionary spending" (Rauch 2). Perhaps the most touted aspect of the initial Clinton administration was its ability to "create" jobs. According to the White House, almost six million jobs have been created in the past four years, and the unemployment rate in Texas has dropped from 7.5% to 5.8% (Progress 1). This is a level well below the 6% rate which many economists regard as full employment. However, there may be a great deal more then meets the eye when it comes to these "promising" statistics. The labor force had been predicted to grow at a rate of more than 1.3 percent per year, however, it has failed to grow by even one percent annually under Clinton (Reynolds 3). In other words, unemployment has "gone down," by way of understatement. The number of those counted as actual members of the labor force has lowered while the number of jobs has moderately increased. It is estimated that one million men between the ages of twenty-five and fifty-five have left the labor force as discouraged workers during the four-year span of 1992to 1996 (Reynolds 3). Had these men remained in the force as possible applicants, the unemployment rate may actually read as high as 8%, as it was during the Reagan administration (Miller 3). It seems a case of playing with numbers in order to disguise the truth. Whatever one chooses to call it, Clinton's policies of job creation place discouraged middle class workers between a rock and a hard place. Conservative economist Alan Reynolds views it as a technique of "achieving low unemployment . . . by discouraging millions of people," and remarks that "it is nothing to brag about" (Reynolds 3). Productivity growth, "measured as the number of units of output per hour of work" has grown just 1 percent each year since 1973 (Miller 3). Under usual circumstances, gradual increases in productivity directly correlate to an increase in workers' wages. However, the Clinton Administration has seen a total productivity increase of 2.1% over a four year period, while wages have declined by .2% (Miller 3). In the next seven years, Clinton's team anticipates an annual productivity increase of 1.2% (Miller 5). Considering the vast majority of employment created under this administration is classified as "blue collar," it may be inferred that wages will continue to fall. Indeed, it seems Clinton has managed to contradict a fundamental premise of economics. And who benefits from this lower wage - higher productivity combo? In a word, industry. Economist Stephen Roach sees it as "a dramatic shift in the distribution of income away from the agents of productivity, workers, toward the owners of capital" (Miller 3). The outcome? An era eerily reminiscent of the Reagan era, where the rich only seem to get richer. Traditionally, aspiring presidents promise one (or several) things in regard to taxes during the election, yet deliver an entirely different bag of goods upon actual inhabitance of the white house. Clinton proved no exception by raising the marginal tax rates in 1993. At the current time, Clinton is considering a modified capital gains tax cut, despite the fact that this taxation has made sizable contributions to the lessening of the deficit (Miller 4). It is a move that could prove immensely beneficial to the upper percentages of income earners. Clinton has made moves such as this one in the past, in the form of "an earned income tax credit which increased the share of loot given to those with incomes well above the poverty level" (Reynolds 3). These policies, according to Wall Street Journal columnist Paul Gigot, "have done best by the same people Mr. Clinton accused Reaganomics of benefitting most - the wealthy." Thus, the question remains . . . will Clinton's ambiguous policies fair well when presented to a blatantly republican Congress? It is a fact which remains to be seen. Robert D. Rieschauer, former head of the congressional budget office, views Clinton's economic misidentity as a clear-cut case of Gingrich induced skitzopreniea, noting that "in the world of the campaign, Clinton was the anti-gingrich . . . in his actual budgets . . . he is Gingrich" (Reynolds 1). It leaves us, as voters, to the task of defining Clinton's party loyalties. f:\12000 essays\business & economics (632)\BK and advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Burger King is a reliable burger company which has had its ups and downs. In 1974, it came out with a slogan of "Have it your way" and at this time it also had a 4 % market share. Burger King's idea was to have the customer have their burger done their way rather than a standard burger. In the early 80's Burger King was trying to keep sales growing so they had to keep changing their advertising. In 1982 "Battle of the burgers" and "Aren't you hungry for a Burger king now?" were the slogans used. In 1983 "Broiling vs. frying" and 1985 "The big switch". All these ads throughout the years helped increase market shares from 7.6% to 8.3% from 1983 to 1985. "Search for herb" was a slogan used by BK about a person that has never tasted a whopper burger, this campaign was supposed to increase market share by 10% but in reality only increased it by 1% it was a disaster. In 1986-1987 "this is a burger king town" and "best food for fast times" brought a lot of attention to the company. In 1988 "We do it like you do it" was used often but a year later they came out with two new slogans which confused the customer. In 1989 "Sometimes you gotta break the rules" and "BK tee vee" with MTV and Dan Cortese with "I love this place". This was another huge setback for BK because people on the go and parents found this ad loud and irritating. BK at this time has failed to establish a solid image that would differentiate it from its competitors. Ads if anything only confused consumers as to what advantages BK offered. In 1993 it had a market share of 6.1% were McDonalds had 15.6% and BK's sales were growing slower than its rivals. Failed advertising campaigns weren't the only problem's, they also had internal problems. Management lacked focus and direction and has struggled with marketing mix decisions. Franchises became confused and angered, service was slow and food preparation wasn't consistent. Burger King lost its core product-flame broiled burgers, made the way the customer wanted them. Another thing that hurt them was the fact they didn't lower prices to keep competing with their competitors this led to a below average sales growth. Many in store promotion also failed. In 1993 a new CEO was introduced, this allowed for huge turnaround and in fact it did. He helped please the franchises and responded to their problems and listened to their recommendations. Then later he lowered prices and hired a new advertising agency. 1. In reading this case analysis I figured Burger King to advertise the Whopper, but throughout the past years they didn't do this. I figure the whopper or the flame broiled ads would have been more productive and probably would have resulted in greater sales margin. I also feel that the ads should have distinguished themselves from what other ads by letting the people know that burger king wasn't just another standardized burger. Throughout the years, BK tried to establish the market by becoming someone they weren't. I feel the ads used by BK should have been simple and to the point. This would have caused less confusion and more honesty with the customer, this is because you don't want to advertise a pizza or a taco if your selling burgers. Other objectives BK wanted was to target teens with the MTV approach. This also failed because people found it loud and annoying. Then they tried a sit in type of restaurant, which also failed because people want a fast food low price meal not a high priced, sit down meal. Advertising is any paid form of non personal presentation and promotion of ideas, goods or services by an identified sponsor. Advertising is a good way to inform and persuade the customer. Advertising objectives are based on past decisions about the target market, positioning and target mix. There are five steps to making a major advertising decision these steps are as follows: Objective setting, Budget decisions, Message decision or media decision, and campaign evaluation. Along with these steps BK should also remember to inform, persuade, and to remind. These three are a must that a company should aim at, for example: in informing BK used the ad "Broiling vs. frying" in 1983 letting the consumer know that their burgers were broiled and not fried. In persuading, I think BK over did it and that is why I feel that they didn't retain market share. They tried to be someone they weren't with slogans like "search for herb" in 85 and many others like "BK Tee Vee" trying to persuade the younger generation and "Sometimes you gotta break the rules". These slogans and more tried to persuade the consumer. In reminding their customers BK has done a good job. They've at least expanded nationally and internationally and always have commercials everywhere with a juicy whopper on the screen, reminding the viewer that BK is the only place a whopper is made. 2. BK's past advertising and corporate strategy failed because BK did the two biggest mistakes they could have done. First they didn't listen to the customer and second they didn't advertise their main product a maintain a target market. In not accomplishing any of these two strategies in the past it allowed their rivals to get a lead on them. In 1993 McDonalds, for example, had a market share of 15.6 percent compared to BK's 6.1 percent. This is because they established their market and didn't try to invent new strategies. Burger King started to lose market shares when it first came out with the search for herb, and then it declined again when it tried to target the teenage generation rather than staying loyal to the general customer. It tried targeting the younger generation through MTV. This became insulting and irritating to the old customers and to the quiet more relaxed people and even all the young children who prefer clowns than some man screaming on TV . BK did not listen to its customer, they tried to establish a restaurant type of business, rather than their fast food burgers. Fast food patrons really wanted low prices and quick but high quality food, not a higher priced, sit down meal. The corporate strategy and the past advertising wasn't the only problem and wasn't the only one at fault for BK's failure. They also had internal problems. Management has had troubles with the market mix decisions. Service was slow and food preparation was inconsistent and many stores needed remodeling. BK didn't focus on its burger ,instead they were trying to experiment with pizza's and ice cream. This caused confusion ,and confusion brings problems. To add to the problems BK was more expensive than McDonalds or Wendy's combos, which was also hurt sales for Burger King. 3. For the new advertising campaign I would personally target the young and the old generation. I would also be very health conscious and try to establish myself as an environment safe corporation. Burger King is huge, they have the ability to do what they please, but they better make sure the customer are happy. I would make new slogans, and put new ideas for kids and grown ups to enjoy. I remember when I was growing up I used to love going to Burger King for a burger and getting a little toy. Now, you get a toy but the prices are so high you really end up paying for it anyway. I wouldn't leave out the teenage to mid-twenty's crowd, but I feel they are less influence by ads and specials, they will buy what is probably better and cheaper. Besides if you target them when they are small growing up then when they already grow they look they like you anyway. That is why you have to target the young and make sure you are good to them. New slogans are hard to come by in specially into this society where you better watch what you say or you will get suit. I do not really believe in slogans, I personally rather buy quality than to hear how good it could be. For me seeing is believing and I do not believe everything I hear. 4. I recommend a couple of things for Burger King to do. One has already been accomplish, this was I would first change the CEO. In this case Jim Adamson stepped in July 1991, since then Burger King has made a turn around. He listened and responded to franchise problems and recommendations. He locked into a strategy of concentrating on BK's core products flame broiled, bigger burgers. He launched a new pricing structure which will compete with that of McDonald's. Burger King also needed to get some effective advertising, and I believe Mr. Adamson also accomplished this, seeing BK has grown since 1991. He went back to the basics which I think was the most important part of a Company's rebuilding, because this how you got to where you are and if all else fails, it's like starting again with experience. BK became known as "The voice of the people" opposed to McDonald's been known as the voice of the Corporation. I also feel BK advertising has improved. Now you see burgers on TV compare to Dan Cortese a couple of years ago. You also see people having a good time and eating a whopper. I feel Burger King is a company with many obstacles but it is also a company that if is stuck to its basic game plan, it could regain a great deal of the market share. If I was to give a recommendation it would probably be for BK to stay been loyal to your customers and to try to keep the market share. f:\12000 essays\business & economics (632)\BLACK MARKET OF CHINA.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Crime and the Black Market in Modern Day China With a population of approximately 1,203,097,268 people , China, who has the world's largest population, also has the world's fastest growing black market and crime problem. In China, crime rates have been climbing an estimated 10 percent a year since the early 1980s . China is a country that is currently experiencing both political and economic instability. Economic reforms that have been put in place by the government have only widened the income gap, creating a middle class with money and a lower class of newly poor. With an ever increasing size in this gap of income distribution and the relative ease of making money through black market sales, it is no wonder more and more Chinese are turning to a life of commonly accepted and profitable crime. Thomas Jefferson once said, "he who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." Unfortunately, Thomas Jefferson lived in a different time. He lived in a time when piracy was not as evident and intellectual property was not worth so much. In China, the largest crime which is currently occurring is intellectual piracy. Unlike the pirates of old who plundered the merchant vessels and ports of the South China Sea, modern day pirates are more interested in illegal replication of intellectual rights. From music compact discs to computer software to films to best selling novels, The Chinese black market is a virtual warehouse of "plundered goods". It is estimated that there are at least thirty illegal high tech factories in China that can churn out over 20,000 optical discs a day. America's Microsoft estimates that 98 out of every 100 of its software programs being used in China are illegal copies . Because of these statistics, and because this only amounts to a small amount of the estimated piracy which occurs in China, program manufacturers, worldwide, are lobbying the Chinese government to impose stricter standards and greater restrictions upon the distribution and sale of illegal intellectual rights. In July of 1996, investigators from Microsoft led Chinese officials to a plant near Guilin in Guanxi Province, where they found 5700 bootleg windows CDs. The plant had four production lines. Three of them were operated around the clock. It was estimated that this particular plant churned out 20,000 illegal copies of Microsoft programs a day. A trade report to Congress from the Trade office cites China as the worst violator of United States - copyrighted intellectual property. The report, which came days after the joint raid on the Guilin plant by Microsoft and Chinese investigators, blasted China for failing to honor a February 1995 agreement to police production at its replication plants and mark the software with a source identification code. In a statement, Microsoft characterized the raid as a matter of luck, not enforcement: "There were no copyright monitors stationed at the factory, nor were the source-identifier markings required under Chinese law in place." In June of 1996, the United States government planned to impose punitive tariffs against Chinese textiles and electronics imports. These tariffs were going to be imposed if the Chinese government didn't immediately comply with a US-Chinese piracy agreement. However, at press time, China stated that they would retaliate with duties on American agricultural and automotive products. China insisted that they were trying to rectify the situation, and the punitive tariffs never went through. The United States currently has a 34 billion dollar balance-of-trade deficit with China. If 2 billion dollars of illegally pirated U.S. goods are included in this amount, it counts for a lot. Even though the Chinese government states that they are trying to prevent this piracy, they still have restrictions in place that only encourage it. For example, China permits only 10 new foreign movies to be distributed within its borders each year. Although China says this is to protect its domestic film industry, American film makers estimate that they lose $150 million a year due to piracy of films that would be otherwise unavailable to the Chinese public. China may be the worst piracy offender, but it is not alone. Around the world, according to figures published on May 9th, 1996 by the International Federation of the Phonographic Industry (IFPI), one in five recordings of music is now a pirated copy. It is estimated that the music industry lost 5% of their revenues, or 2.1 billion dollars, because of this. What worries officials about China is that it is estimated that they produce 150 million bootleg copies of music CDs a year. However, it is estimated that China only consumes a total of 40 million CDs a year, bootlegged or legal. It is obvious from these numbers that over 100 million bootlegged CDs are being exported from China each year. Where as the United States only accounts for 13% of value of pirated CDs, other developing and economically or politically unstable countries, such as Russia or Mexico, are also consuming a large portion of China's illegal goods. Being China only produced 54 million bootlegged copies of music CDs in 1994, and it is estimated that they produce 150 million today, a new problem of exportation arises. What if China breaks into the U.S. market, which consumes 30% of all recorded music? If not put under control, the results could be crippling for the music industry, worldwide. An escalating black market problem in China, which is gaining an international spotlight due to its human rights injustices, is the kidnapping and selling of women and children. Late in 1988, a Chinese - language newspaper in Shanghai reported on rings of people who traded in women; the most expensive were slightly mentally retarded, because they worked hard but did what they were told without complaining or trying to run away. One man in Hebei province had been imprisoned for trading in women, but used his connections with authorities to secure an early release and simply reestablish his former trade . The sale of women was acknowledged as being among six types of very serious and widespread crimes targeted for suppression from the autumn of 1989. This suggests that, before then, the abuse of power in the form of deliberate laxity in the face of serious crime had become a major problem among police and other authorities. In a Beijing newspaper interview, Li Tieying, a CCP (Chinese Communist Party) Political Bureau member, stated that, "At present, party committees and governments at all levels must first of all be fully aware of the importance of cracking down on the criminal activities of kidnapping and selling of women and children as well as of prostitution and visiting whores. They must also be soberly aware that clamping down on this rampancy and the eradication of these vile social phenomena, is a significant struggle in protecting the personal interest of the masses, in maintaining social stability, and in straightening up current social practices. We must adopt a serious attitude and be responsible to the party, state, people, nationality, and history in this respect. We must carry out this task with a strong sense of responsibility and urgency." Li Tieying's statement expresses how the Chinese government sees this problem to be of timed importance. Another black market problem, which is growing in China, is that of illegal dogs. Among newly rich Chinese, cameras or refrigerators used to be the things to show you had arrived. Now, to be associated with the "yuppy" class, the thing to have and show off is a pedigree lap dog. Now, where this may sound crazy in most of the world, it is not in China. Dogs are illegal in a lot of China and are generally destroyed. This is because of the fact that they spread rabies, which is responsible for thousands of deaths a year in China. A pedigree dog could go for as much as $4500 on the black market in China, and it is becoming increasingly common to find "dog - pushers" in the back alleys and shady parts of Beijing. Li Wenrui, deputy chief of the public order department of Beijing's Dongcheng district, has dog squads established to help track down illegal dog owners and destroy their pets. In Dongcheng, one of Beijing's districts, Mr. Li stated that it is not uncommon to find and destroy approximately 500 dogs a week . State run newspapers rage against dog lovers who lavish food and money on their pets. On January 26th, 1994, the Legal Daily reported angrily that at one hospital doctors turned away a human patient because they were treating a dog at the time. He had paid his way and had a life too, the doctors said in their defense. The pampered pekinese, shihtzus, and shapeis with ribbons in their fur, whose doting owners buy them sprays for their halitosis and additives for their food to make their droppings smell sweet, are usually sheltered from the dangers of street life. Most are kept indoors, away from the prying eyes of those who might inform the dog squads. "You don't need to take your pet outside," says one owner. "It doesn't grow very big, so you can just keep it in a box." Even though in some areas of China, such as Xiamen and Shanghai, it is legal to own a dog, dogs may still wind up getting "cooked"; For it is becoming an increasingly popular delicacy in China to eat fried, stewed or baked dog. What used to be popular only among the Cantonese has found a liking with Chinese northerners, and dogs can increasingly be found on the menus of Beijing restaurants. A major cause of the ever increasing black market problem in China is corrupt politicians. Organized crime seems, for the most part, to be organized by the state . It is of general suspicion in China that the police and customs officials are involved heavily in smuggling and other illicit practices. For example, Fangcheng, a small port in Guangxi Province, suddenly became one of the most popular harbors in China. The reason was that the local customs officials were involved in small sideline broker companies that offered to handle all the paper work for importing goods. These broker companies set up offices along a street near the port, and the importer simply handed shipping documents to the company, which then filled out all the required customs forms, obtained the import licenses, and ushered the goods through customs. For this the officials took a fat commission, but the buyer wasn't affected at all. The customs officers never assessed the true substantial duties on goods handled by the sideline companies, so importers saved large sums on duties. Of the money saved, the brokers could skim nice percentages for themselves. The central government realized something was up when cargoes destined for all parts of China lined up to use the one small port in Guangxi. There were huge delays for ships to get into the port, and hardly any duty was being paid. After an investigation, the port at Guangxi was shut down by the central government in 1993. Although piracy and the black market are increasingly growing in China, the country may not entirely become sheathed in a cloak of crime. A visitor to the United states in the 19th century might have easily been overwhelmed at the great injustices which occurred here. Crime, crooked politicians, and even a basic anarchy were evident in many parts of our country. At that time, we were in a period of rapid economic growth. China is in a similar period of economic expansion, today. If any similarities can be drawn, China will pull through. Crime and the Black Market in Modern Day China With a population of approximately 1,203,097,268 people , China, who has the world's largest population, also has the world's fastest growing black market and crime problem. In China, crime rates have been climbing an estimated 10 percent a year since the early 1980s . China is a country that is currently experiencing both political and economic instability. Economic reforms that have been put in place by the government have only widened the income gap, creating a middle class with money and a lower class of newly poor. With an ever increasing size in this gap of income distribution and the relative ease of making money through black market sales, it is no wonder more and more Chinese are turning to a life of commonly accepted and profitable crime. Thomas Jefferson once said, "he who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." Unfortunately, Thomas Jefferson lived in a different time. He lived in a time when piracy was not as evident and intellectual property was not worth so much. In China, the largest crime which is currently occurring is intellectual piracy. Unlike the pirates of old who plundered the merchant vessels and ports of the South China Sea, modern day pirates are more interested in illegal replication of intellectual rights. From music compact discs to computer software to films to best selling novels, The Chinese black market is a virtual warehouse of "plundered goods". It is estimated that there are at least thirty illegal high tech factories in China that can churn out over 20,000 optical discs a day. America's Microsoft estimates that 98 out of every 100 of its software programs being used in China are illegal copies . Because of these statistics, and because this only amounts to a small amount of the estimated piracy which occurs in China, program manufacturers, worldwide, are lobbying the Chinese government to impose stricter standards and greater restrictions upon the distribution and sale of illegal intellectual rights. In July of 1996, investigators from Microsoft led Chinese officials to a plant near Guilin in Guanxi Province, where they found 5700 bootleg windows CDs. The plant had four production lines. Three of them were operated around the clock. It was estimated that this particular plant churned out 20,000 illegal copies of Microsoft programs a day. A trade report to Congress from the Trade office cites China as the worst violator of United States - copyrighted intellectual property. The report, which came days after the joint raid on the Guilin plant by Microsoft and Chinese investigators, blasted China for failing to honor a February 1995 agreement to police production at its replication plants and mark the software with a source identification code. In a statement, Microsoft characterized the raid as a matter of luck, not enforcement: "There were no copyright monitors stationed at the factory, nor were the source-identifier markings required under Chinese law in place." In June of 1996, the United States government planned to impose punitive tariffs against Chinese textiles and electronics imports. These tariffs were going to be imposed if the Chinese government didn't immediately comply with a US-Chinese piracy agreement. However, at press time, China stated that they would retaliate with duties on American agricultural and automotive products. China insisted that they were trying to rectify the situation, and the punitive tariffs never went through. The United States currently has a 34 billion dollar balance-of-trade deficit with China. If 2 billion dollars of illegally pirated U.S. goods are included in this amount, it counts for a lot. Even though the Chinese government states that they are trying to prevent this piracy, they still have restrictions in place that only encourage it. For example, China permits only 10 new foreign movies to be distributed within its borders each year. Although China says this is to protect its domestic film industry, American film makers estimate that they lose $150 million a year due to piracy of films that would be otherwise unavailable to the Chinese public. China may be the worst piracy offender, but it is not alone. Around the world, according to figures published on May 9th, 1996 by the International Federation of the Phonographic Industry (IFPI), one in five recordings of music is now a pirated copy. It is estimated that the music industry lost 5% of their revenues, or 2.1 billion dollars, because of this. What worries officials about China is that it is estimated that they produce 150 million bootleg copies of music CDs a year. However, it is estimated that China only consumes a total of 40 million CDs a year, bootlegged or legal. It is obvious from these numbers that over 100 million bootlegged CDs are being exported from China each year. Where as the United States only accounts for 13% of value of pirated CDs, other developing and economically or politically unstable countries, such as Russia or Mexico, are also consuming a large portion of China's illegal goods. Being China only produced 54 million bootlegged copies of music CDs in 1994, and it is estimated that they produce 150 million today, a new problem of exportation arises. What if China breaks into the U.S. market, which consumes 30% of all recorded music? If not put under control, the results could be crippling for the music industry, worldwide. An escalating black market problem in China, which is gaining an international spotlight due to its human rights injustices, is the kidnapping and selling of women and children. Late in 1988, a Chinese - language newspaper in Shanghai reported on rings of people who traded in women; the most expensive were slightly mentally retarded, because they worked hard but did what they were told without complaining or trying to run away. One man in Hebei province had been imprisoned for trading in women, but used his connections with authorities to secure an early release and simply reestablish his former trade . The sale of women was acknowledged as being among six types of very serious and widespread crimes targeted for suppression from the autumn of 1989. This suggests that, before then, the abuse of power in the form of deliberate laxity in the face of serious crime had become a major problem among police and other authorities. In a Beijing newspaper interview, Li Tieying, a CCP (Chinese Communist Party) Political Bureau member, stated that, "At present, party committees and governments at all levels must first of all be fully aware of the importance of cracking down on the criminal activities of kidnapping and selling of women and children as well as of prostitution and visiting whores. They must also be soberly aware that clamping down on this rampancy and the eradication of these vile social phenomena, is a significant struggle in protecting the personal interest of the masses, in maintaining social stability, and in straightening up current social practices. We must adopt a serious attitude and be responsible to the party, state, people, nationality, and history in this respect. We must carry out this task with a strong sense of responsibility and urgency." Li Tieying's statement expresses how the Chinese government sees this problem to be of timed importance. Another black market problem, which is growing in China, is that of illegal dogs. Among newly rich Chinese, cameras or refrigerators used to be the things to show you had arrived. Now, to be associated with the "yuppy" class, the thing to have and show off is a pedigree lap dog. Now, where this may sound crazy in most of the world, it is not in China. Dogs are illegal in a lot of China and are generally destroyed. This is because of the fact that they spread rabies, which is responsible for thousands of deaths a year in China. A pedigree dog could go for as much as $4500 on the black market in China, and it is becoming increasingly common to find "dog - pushers" in the back alleys and shady parts of Beijing. Li Wenrui, deputy chief of the public order department of Beijing's Dongcheng district, has dog squads established to help track down illegal dog owners and destroy their pets. In Dongcheng, one of Beijing's districts, Mr. Li stated that it is not uncommon to find and destroy approximately 500 dogs a week . State run newspapers rage against dog lovers who lavish food and money on their pets. On January 26th, 1994, the Legal Daily reported angrily that at one hospital doctors turned away a human patient because they were treating a dog at the time. He had paid his way and had a life too, the doctors said in their defense. The pampered pekinese, shihtzus, and shapeis with ribbons in their fur, whose doting owners buy them sprays for their halitosis and additives for their food to make their droppings smell sweet, are usually sheltered from the dangers of street life. Most are kept indoors, away from the prying eyes of those who might inform the dog squads. "You don't need to take your pet outside," says one owner. "It doesn't grow very big, so you can just keep it in a box." Even though in some areas of China, such as Xiamen and Shanghai, it is legal to own a dog, dogs may still wind up getting "cooked"; For it is becoming an increasingly popular delicacy in China to eat fried, stewed or baked dog. What used to be popular only among the Cantonese has found a liking with Chinese northerners, and dogs can increasingly be found on the menus of Beijing restaurants. A major cause of the ever increasing black market problem in China is corrupt politicians. Organized crime seems, for the most part, to be organized by the state . It is of general suspicion in China that the police and customs officials are involved heavily in smuggling and other illicit practices. For example, Fangcheng, a small port in Guangxi Province, suddenly became one of the most popular harbors in China. The reason was that the local customs officials were involved in small sideline broker companies that offered to handle all the paper work for importing goods. These broker companies set up offices along a street near the port, and the importer simply handed shipping documents to the company, which then filled out all the required customs forms, obtained the import licenses, and ushered the goods through customs. For this the officials took a fat commission, but the buyer wasn't affected at all. The customs officers never assessed the true substantial duties on goods handled by the sideline companies, so importers saved large sums on duties. Of the money saved, the brokers could skim nice percentages for themselves. The central government realized something was up when cargoes destined for all parts of China lined up to use the one small port in Guangxi. There were huge delays for ships to get into the port, and hardly any duty was being paid. After an investigation, the port at Guangxi was shut down by the central government in 1993. Although piracy and the black market are increasingly growing in China, the country may not entirely become sheathed in a cloak of crime. A visitor to the United states in the 19th century might have easily been overwhelmed at the great injustices which occurred here. Crime, crooked politicians, and even a basic anarchy were evident in many parts of our country. At that time, we were in a period of rapid economic growth. China is in a similar period of economic expansion, today. If any similarities can be drawn, China will pull through. Crime and the Black Market in Modern Day China With a population of approximately 1,203,097,268 people , China, who has the world's largest population, also has the world's fastest growing black market and crime problem. In China, crime rates have been climbing an estimated 10 percent a year since the early 1980s . China is a country that is currently experiencing both political and economic instability. Economic reforms that have been put in place by the government have only widened the income gap, creating a middle class with money and a lower class of newly poor. With an ever increasing size in this gap of income distribution and the relative ease of making money through black market sales, it is no wonder more and more Chinese are turning to a life of commonly accepted and profitable crime. Thomas Jefferson once said, "he who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." Unfortunately, Thomas Jefferson lived in a different time. He lived in a time when piracy was not as evident and intellectual property was not worth so much. In China, the largest crime which is currently occurring is intellectual piracy. Unlike the pirates of old who plundered the merchant vessels and ports of the South China Sea, modern day pirates are more interested in illegal replication of intellectual rights. From music compact discs to computer software to films to best selling novels, The Chinese black market is a virtual warehouse of "plundered goods". It is estimated that there are at least thirty illegal high tech factories in China that can churn out over 20,000 optical discs a day. America's Microsoft estimates that 98 out of every 100 of its software programs being used in China are illegal copies . Because of these statistics, and because this only amounts to a small amount of the estimated piracy which occurs in China, program manufacturers, worldwide, are lobbying the Chinese government to impose stricter standards and greater restrictions upon the distribution and sale of illegal intellectual rights. In July of 1996, investigators from Microsoft led Chinese officials to a plant near Guilin in Guanxi Province, where they found 5700 bootleg windows CDs. The plant had four production lines. Three of them were operated around the clock. It was estimated that this particular plant churned out 20,000 illegal copies of Microsoft programs a day. A trade report to Congress from the Trade office cites China as the worst violator of United States - copyrighted intellectual property. The report, which came days after the joint raid on the Guilin plant by Microsoft and Chinese investigators, blasted China for failing to honor a February 1995 agreement to police production at its replication plants and mark the software with a source identification code. In a statement, Microsoft characterized the raid as a matter of luck, not enforcement: "There were no copyright monitors stationed at the factory, nor were the source-identifier markings required under Chinese law in place." In June of 1996, the United States government planned to impose punitive tariffs against Chinese textiles and electronics imports. These tariffs were going to be imposed if the Chinese government didn't immediately comply with a US-Chinese piracy agreement. However, at press time, China stated that they would retaliate with duties on American agricultural and automotive products. China insisted that they were trying to rectify the situation, and the punitive tariffs never went through. The United States currently has a 34 billion dollar balance-of-trade deficit with China. If 2 billion dollars of illegally pirated U.S. goods are included in this amount, it counts for a lot. Even though the Chinese government states that they are trying to prevent this piracy, they still have restrictions in place that only encourage it. For example, China permits only 10 new foreign movies to be distributed within its borders each year. Although China says this is to protect its domestic film industry, American film makers estimate that they lose $150 million a year due to piracy of films that would be otherwise unavailable to the Chinese public. China may be the worst piracy offender, but it is not alone. Around the world, according to figures published on May 9th, 1996 by the International Federation of the Phonographic Industry (IFPI), one in five recordings of music is now a pirated copy. It is estimated that the music industry lost 5% of their revenues, or 2.1 billion dollars, because of this. What worries officials about China is that it is estimated that they produce 150 million bootleg copies of music CDs a year. However, it is estimated that China only consumes a total of 40 million CDs a year, bootlegged or legal. It is obvious from these numbers that over 100 million bootlegged CDs are being exported from China each year. Where as the United States only accounts for 13% of value of pirated CDs, other developing and economically or politically unstable countries, such as Russia or Mexico, are also consuming a large portion of China's illegal goods. Being China only produced 54 million bootlegged copies of music CDs in 1994, and it is estimated that they produce 150 million today, a new problem of exportation arises. What if China breaks into the U.S. market, which consumes 30% of all recorded music? If not put under control, the results could be crippling for the music industry, worldwide. An escalating black market problem in China, which is gaining an international spotlight due to its human rights injustices, is the kidnapping and selling of women and children. Late in 1988, a Chinese - language newspaper in Shanghai reported on rings of people who traded in women; the most expensive were slightly mentally retarded, because they worked hard but did what they were told without complaining or trying to run away. One man in Hebei province had been imprisoned for trading in women, but used his connections with authorities to secure an early release and simply reestablish his former trade . The sale of women was acknowledged as being among six types of very serious and widespread crimes targeted for suppression from the autumn of 1989. This suggests that, before then, th f:\12000 essays\business & economics (632)\Bombardier Report 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Bombardier Report Analysis of Bombardier: Bombardier took on its present form in 1976 when MLW-Worthington, a manufacturer of locomotives, acquired Bombardier Ltd., a manufacturer of snow tractors and snowmobiles. The company was renamed Bombardier Inc. in 1978. The company has been active ever since in the acquisitions of various aerospace and transportation companies around the world. Nature of the Business Bombardier conducts business in five main areas: transportation equipment, aerospace, defense, motorized consumer products, and in financial and real estate services. The total revenues increased by 20% from $5.9 billion to $7.1 billion over the last year. To be able to see the extent of Bombardier's operations it is best to look at each manufacturing group separately. Aerospace Aerospace is Bombardier's most important industry. It accounted for 47% of sales and 33% of profit in 1995 and makes Bombardier the fourth largest civilian airplane manufacturer in the world. Bombardier's customers are spread out over the globe. They range from government and private commercial airlines to wealthy individuals and corporations in need of private jets. The products that are driving the growth in this division are the RJ, the Global Express, and the Lear-45. De Havilland, which was recently purchased with help from the Ontario government, produces the Dash-8 series of airplanes. The Dash-8 has had its production rate increased to 48 planes a year with about 81 on order. Modified versions of the Dash-8 are in the works that could enable an even bigger increase in production. Bombardier has cut costs and increased the profit margin at de Havilland to improve profitability. Bombardier will likely exercise the option to buy the remaining 49% from the Ontario government. The outlook for the success of the RJ is very good, although most of its sales rely on a small number of companies, these companies are pleased with the RJ's performance to date. Bombardier's entrant into the long-range market is the Global Express that has "about 60 orders" on the table, but needs 100 to break even at a price of $34 million. It is experiencing strong competition from Gulfstream, which produces a plane that is targeted for the same market as the Global Express. Bombardier has been successful in turning around the troubled Learjet operations and now expects Learjet to expand its aircraft production with the introduction of the Lear-45, which already has 90 orders on hand. The Canadair 50 seat regional jets are continuing to be turned out at a rate of 60 per year. Overall the Aerospace industry has strong growth potential, provided that Bombardier sticks to its successful niche marketing strategy. Bombardier is competing with some of the biggest companies in the world. Boeing, McDonnell Douglas, Lockheed Martin, and Raytheon are all counted as the opposition. Transportation Equipment This industry is responsible for 22% of sales and 22% of profits for 1995. The nature of this group is cyclical. Bombardier manufactures subway cars, high speed trains, passenger cars, and a variety of other equipment, which is primarily sold in the North American and European markets. Bombardier has made many acquisitions in this industry that are usually acquired at a loss. These acquisitions along with the huge loss in the Eurotunnel contract has made it difficult for Bombardier to show it's real profitability in this industry. Revenues have increased by 20% since 1994. Bombardier has 28% and 12% of the North American and European markets respectfully. The outlook for expansion in the North American market is encouraging with the contract with Am-Trac to supply high-speed trains and equipment for use in the United States. Recent developments in Mexico has led to an increase in demand for railway cars in that country. As well, the acquisition of Waggonfabrik Talbot will give Bombardier a strong foothold in the European market that already accounts for 60% of sales. One area of concern is that Bombardier's competitors in this industry are becoming stronger. The merger between Asea Brown Boveri (ABB) and Damhler-Benz has created a strong competitor. The reemergence of Morrison Kundsen has also increases the competition in this area. The fact that more and more transportation authorities are being privatized and will need to adapt their fleets to meet consumer preferences creates a positive outlook. To accomplish these adaptations these companies will have to renew their 1000's of vehicles. Motorized Consumer Products. The biggest products in this group are the Sea-Doo and Ski-Doo recreation vehicles. This group accounted for 23% of sales and 38% of profit. High profit margins have helped Bombardier achieve success in this market. Sales in the Sea-Doo area have increased by 20% last summer making Sea-Doo the leader in the personal water craft market. The increase in Ski-Doo's sales has been about 8% per year over the last few years giving Bombardier the number two position in the market behind Polaris. Other competitors in this group are Arctic Cat and Brunswick. Bombardier has also recently expanded into electric vehicles marketed to closed gate communities in the southern US mainly occupied by seniors. The markets for personal recreation vehicles is cyclical, but the strong economy in North America right now is helping to buoy sales. A problem on the horizon for Bombardier is that the aging demographics of its market may mean a fall in purchases in the future. Defense Defense accounted for 6% of sales and -2% of profit. The major products in this group are the Starstreak missile, Shorts Missile Systems, and various support services. Customers are mainly governments in the UK, US, Middle East, France, and Canada. Bombardier has seen the demand for its products in this market shrink over the past few years. Efforts are being made to outsource production and carry over technology from defense to civilian uses. The major competitors in this market are the same as in the aerospace industry as well as Loral and Rockwell. Financial Services 2% of sales and 9% of profit was contributed to this group. Bombardier deals in three main areas. It gives loans and leases to dealers of its own products and other dealers, it provides leasing and financing to its customers, and it provides financing and support for Bombardiers other divisions. There are really no competitors because Bombardier knows it's own business better than anyone else. The major banks may provide some competition in areas of customer financing. The success of this division depends on the successes of the other groups. Management Quality Bombardier management has acquired a very good reputation for turning around failing businesses. Bombardier management has been able to see opportunities and take advantage of them. The ability to turn around businesses, strong stability, strategic vision and good returns to shareholders in the past have displayed that the Bombardier management is, at the least, of good quality. Ownership Control There are a total of 335,505,211 common shares. 88,756,982 of these shares are Class A, which have voting rights of 10 votes each. The other 246,748,229 shares are Class B with 1 vote each. The Class B shares can be converted to Class A shares under special situations. There are 1,236,900 cumulative, non-voting preferred shares totaling 30.9 million dollars. The dividends received from these shares are either 75% of prime or 1.875%, which ever is greater. Family members of the founder, J. Armand Bombardier, some of which are management own about 62% of the voting shares. Dividend Policy The payout ratio objective of the company is to achieve 30% of net income as dividends. Financial Analysis: Financial Strength (please refer to Appendix A and B for calculations) Bombardier has a total of $2,289,200,000 worth of debt and $30,900,000 worth of preferred stock. The values of significant ratios are: Debt to equity of 87.4%, Total debt to Total capital of 57%, and Share holder equity to Total capital of 41%. These indicate that Bombardier has a significant amount of debt and any situations where additional debt might be taken on should be scrutinized. The most current bond rating comes from the CBRS in 1995 and is A-1, meaning very good quality and should have good performance throughout the economic cycle. Value line gives Bombardier a timeliness rating of 2, which is an above average rating. An average rating of 3 for safety was also achieved. S&P gave the stock a rating of A-1, which is also an above average rating on the stocks past performance. These ratings show Bombardier to be a stable, dependable company without much risk associated with it. The total capital has increased to $4,007.5 million from $3,634.1 million in the year ending on January 31, 1995. Profitability Levels (for calculations please refer to Appendix C) Net Income would have been $308.0 Million in 1995 without the huge write off that was incurred in the contract with the Eurotunnel. This is a healthy gain from $241.9 in the previous year. The following numbers are buoyed up because of the Eurotunnel write off, that should not be accounted for as it was a special circumstance and does not help in determining the real value of the firm. The NPM was 4.335% and the ROTC was 16.1% in 1995. The ROE was a good 18.9%. All of these numbers are also in sink with the patterns of growth that Bombardier has experienced in past years. Growth Rates (for calculations please refer to Appendix D) The 5 year annual growth rate(from 1990 to 1995) are: 19.7% in sales, 25.3% in earnings, 17.3% in dividends, and 21.3% in EPS. The differences in earnings and EPS growth is due to the fact that the number of shares outstanding has increased over the past 5 years. These results are over an entire economic cycle, from the recession in 1990 to the strong growth in 1995. All of these numbers are respectful and attest to the quality of the Bombardier company. The forecasted EPS used an average NPM, skipping the poor years between 1990 and 1992, of 4.5% and a predicted sales of $8,359.13 million (using 5 year sales growth rate). The estimated EPS for the year ending Jan. 31, 1997 is $1.13. Profit Variability (for consistency Value Line figures have been used) Referring to the Variability graph the trend lines for ROE, NPM, and Sales growth can be seen. The ROE over the past ten years has been stable, except in the recession in the early 90's, but it has since returned to pre-recession levels. The NPM has remained stable at around 4.5% over the last ten years. The major concern is the wild variability in sales growth, which has varied wildly even in good times. Quarterly earnings per share have trended higher over the last four years, with some spikes occurring in the fourth quarter of each year and dropping in the first quarter of the next year. Based on the past trend the 4th quarter should bring an increase in earnings. Dividend Record (for calculations please refer to Appendix E) The estimated dividend is $.23, with a .959% yield, and a payout ratio of 21.7% for 1995. Considering the trend in quarterly earnings a spike in earnings for the 4th quarter should occur. If management tries to adhere to their payout objective an increase in dividends should occur in the 4th quarter to bring the total to 23 cents for the year from the 15 cents already paid out this year. Industry Comparisons The preceding charts are comparing Bombardier to its competitors using Value Line numbers but with a price as of November 28, 1996 and earnings annualized over the last four quarters. It can be seen that Bombardier has the lowest EPS, second highest P/E, second highest P/S, average NPM, average earnings growth, and second lowest size as measured by market capitalization. The TSE 300 has a P/E of 24.14. Bombardier's P/E comes in under the market value at 21.94 is bang on the market, but is higher than the average P/E for the industries where it operates: Aerospace/Defense (15.7), Electrical Equipment (14.6), Recreation (15.9). Stock Analysis: Risk Classification The inherent risk in Bombardier is low and the institutional rating services acknowledge this (CBRS, A-1; S&P, A-; Value Line Safety, 3). The huge size of Bombardier and the diversification also classify Bombardier as a conservative company. The appropriate market capitalization rate for Bombardier is 11% given this information, please refer to appendix F for breakdowns. Investor Preference A past annual sales growth over the past 5 years of 17.5% and Value Line's estimated future growth of 12% over the next 5 years; as well as past growth of 18% in earnings with estimated future growth of 18.5% are signs of a growth stock. This stock has remarkable growth rates and prospects for such a big company it is a good base for a growth stock and investors should view it as such. Stock Price Volatility Value Line gives Bombardier a beta of .85, which indicates a less sensitive reaction to market fluctuations. With the phenomenal growth that we are experiencing in the TSE right now, Bombardier's stock will not be going up as much (only 85% of the increases). Of course, beta is dead and is just a reflection of past performance with no bearing on the future. Price Momentum Bombardier's average stock price over the past ten years has been steady. The stock has been split 2 for 1 five times in ten years. If this price trend continues, a price of $25 is achievable in the next year. Even during the recession of the recession of the early 90's the price still grew, although at a lower rate than other years. In the long run the stock will not be able to sustain the appreciation and there will be a correction. Stock Price Sensitivity Bombardier's stock is affected by the level of interest rates. The financial services sector is more affected by the interest rate level than the rest of the company. Bombardier's business can be affected by interest rate levels in many ways. If interest rates are high then individuals, companies, and government's may postpone purchases to wait for lower interest rates. If interest rates are low, like we are now experiencing, then new customers and ones who postponed purchases because of high interest rates in the past are more willing to buy Bombardier's products. Valuation Ratios (for calculations please refer to Appendix G) All calculations use the price as of November 28, 1996 of $24.60 and the estimated EPS for the next year. The valuation ratios are as follows: P/E = 21.94 P/CF = 17.63 P/S = 1.078 P/BV = 4.98 CA/CL = 1.67 RPGM = $19.31 Expected Total Return = 15.9% The DDM could not be utilized because the growth rate (14.95%) is greater than the discount rate (10.5%). Opinion Using general preferences the following results have been obtained: 1) The P/E ratio is 21.94 which is greater than 20x the current EPS over the last 4 quarters of 20.4 (This is an upper limit for stock purchases). The P/E is greater then the industry P/E's of the areas it manufactures in, It is also higher than it's own P/E in the recent past. The market P/E is 24.14 and more than the P/E of Bombardier, but in an environment with low interest rate high P/E values are usually found, so all P/E are probably to high in these times of low interest rates. P/E's are usually preferred if they are under 15x. 2) The projected EPS of $1.12 times 25 is 28. This is greater than the current P/E, which does not point to an overvaluation. 3) The P/E is over the ROE of 18.9%. This points to an overvaluation. 4) The total return of 14.25% is greater than the discount rate of 11%. This is a sign of a good buy. 5) The ROE is just over the acceptable rate of 18%. 6) The SE/TC is .413 and is not preferred because it is under 70% 7) The P/BV of 4.98 is over the generally preferred multiple of 4x. 8) The P/CF of 17.63 is over the generally preferred multiple of 10x. The above facts give conflicting signs of whether the stock is overvalued or not. One fact that settle the disputing evidence is that the calculated FV from the RGPM is $19.31 and is well under the current market price of $24.60. There is no single factor that determines whether a stock is overvalued or not, but in this case I believe that there is more evidence to support the view that the stock is overvalued. A case could be made to hold the stock if it is already owned, if the shareholder feels confident in the stock, but otherwise a recommendation not to buy or to sell is given in the best interest of the investor for the long run. f:\12000 essays\business & economics (632)\Bombardier Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Bombardier Report Analysis of Bombardier: Bombardier took on its present form in 1976 when MLW-Worthington, a manufacturer of locomotives, acquired Bombardier Ltd., a manufacturer of snow tractors and snowmobiles. The company was renamed Bombardier Inc. in 1978. The company has been active ever since in the acquisitions of various aerospace and transportation companies around the world. Nature of the Business Bombardier conducts business in five main areas: transportation equipment, aerospace, defense, motorized consumer products, and in financial and real estate services. The total revenues increased by 20% from $5.9 billion to $7.1 billion over the last year. To be able to see the extent of Bombardier's operations it is best to look at each manufacturing group separately. Aerospace Aerospace is Bombardier's most important industry. It accounted for 47% of sales and 33% of profit in 1995 and makes Bombardier the fourth largest civilian airplane manufacturer in the world. Bombardier's customers are spread out over the globe. They range from government and private commercial airlines to wealthy individuals and corporations in need of private jets. The products that are driving the growth in this division are the RJ, the Global Express, and the Lear-45. De Havilland, which was recently purchased with help from the Ontario government, produces the Dash-8 series of airplanes. The Dash-8 has had its production rate increased to 48 planes a year with about 81 on order. Modified versions of the Dash-8 are in the works that could enable an even bigger increase in production. Bombardier has cut costs and increased the profit margin at de Havilland to improve profitability. Bombardier will likely exercise the option to buy the remaining 49% from the Ontario government. The outlook for the success of the RJ is very good, although most of its sales rely on a small number of companies, these companies are pleased with the RJ's performance to date. Bombardier's entrant into the long-range market is the Global Express that has "about 60 orders" on the table, but needs 100 to break even at a price of $34 million. It is experiencing strong competition from Gulfstream, which produces a plane that is targeted for the same market as the Global Express. Bombardier has been successful in turning around the troubled Learjet operations and now expects Learjet to expand its aircraft production with the introduction of the Lear-45, which already has 90 orders on hand. The Canadair 50 seat regional jets are continuing to be turned out at a rate of 60 per year. Overall the Aerospace industry has strong growth potential, provided that Bombardier sticks to its successful niche marketing strategy. Bombardier is competing with some of the biggest companies in the world. Boeing, McDonnell Douglas, Lockheed Martin, and Raytheon are all counted as the opposition. Transportation Equipment This industry is responsible for 22% of sales and 22% of profits for 1995. The nature of this group is cyclical. Bombardier manufactures subway cars, high speed trains, passenger cars, and a variety of other equipment, which is primarily sold in the North American and European markets. Bombardier has made many acquisitions in this industry that are usually acquired at a loss. These acquisitions along with the huge loss in the Eurotunnel contract has made it difficult for Bombardier to show it's real profitability in this industry. Revenues have increased by 20% since 1994. Bombardier has 28% and 12% of the North American and European markets respectfully. The outlook for expansion in the North American market is encouraging with the contract with Am-Trac to supply high-speed trains and equipment for use in the United States. Recent developments in Mexico has led to an increase in demand for railway cars in that country. As well, the acquisition of Waggonfabrik Talbot will give Bombardier a strong foothold in the European market that already accounts for 60% of sales. One area of concern is that Bombardier's competitors in this industry are becoming stronger. The merger between Asea Brown Boveri (ABB) and Damhler-Benz has created a strong competitor. The reemergence of Morrison Kundsen has also increases the competition in this area. The fact that more and more transportation authorities are being privatized and will need to adapt their fleets to meet consumer preferences creates a positive outlook. To accomplish these adaptations these companies will have to renew their 1000's of vehicles. Motorized Consumer Products. The biggest products in this group are the Sea-Doo and Ski-Doo recreation vehicles. This group accounted for 23% of sales and 38% of profit. High profit margins have helped Bombardier achieve success in this market. Sales in the Sea-Doo area have increased by 20% last summer making Sea-Doo the leader in the personal water craft market. The increase in Ski-Doo's sales has been about 8% per year over the last few years giving Bombardier the number two position in the market behind Polaris. Other competitors in this group are Arctic Cat and Brunswick. Bombardier has also recently expanded into electric vehicles marketed to closed gate communities in the southern US mainly occupied by seniors. The markets for personal recreation vehicles is cyclical, but the strong economy in North America right now is helping to buoy sales. A problem on the horizon for Bombardier is that the aging demographics of its market may mean a fall in purchases in the future. Defense Defense accounted for 6% of sales and -2% of profit. The major products in this group are the Starstreak missile, Shorts Missile Systems, and various support services. Customers are mainly governments in the UK, US, Middle East, France, and Canada. Bombardier has seen the demand for its products in this market shrink over the past few years. Efforts are being made to outsource production and carry over technology from defense to civilian uses. The major competitors in this market are the same as in the aerospace industry as well as Loral and Rockwell. Financial Services 2% of sales and 9% of profit was contributed to this group. Bombardier deals in three main areas. It gives loans and leases to dealers of its own products and other dealers, it provides leasing and financing to its customers, and it provides financing and support for Bombardiers other divisions. There are really no competitors because Bombardier knows it's own business better than anyone else. The major banks may provide some competition in areas of customer financing. The success of this division depends on the successes of the other groups. Management Quality Bombardier management has acquired a very good reputation for turning around failing businesses. Bombardier management has been able to see opportunities and take advantage of them. The ability to turn around businesses, strong stability, strategic vision and good returns to shareholders in the past have displayed that the Bombardier management is, at the least, of good quality. Ownership Control There are a total of 335,505,211 common shares. 88,756,982 of these shares are Class A, which have voting rights of 10 votes each. The other 246,748,229 shares are Class B with 1 vote each. The Class B shares can be converted to Class A shares under special situations. There are 1,236,900 cumulative, non-voting preferred shares totaling 30.9 million dollars. The dividends received from these shares are either 75% of prime or 1.875%, which ever is greater. Family members of the founder, J. Armand Bombardier, some of which are management own about 62% of the voting shares. Dividend Policy The payout ratio objective of the company is to achieve 30% of net income as dividends. Financial Analysis: Financial Strength (please refer to Appendix A and B for calculations) Bombardier has a total of $2,289,200,000 worth of debt and $30,900,000 worth of preferred stock. The values of significant ratios are: Debt to equity of 87.4%, Total debt to Total capital of 57%, and Share holder equity to Total capital of 41%. These indicate that Bombardier has a significant amount of debt and any situations where additional debt might be taken on should be scrutinized. The most current bond rating comes from the CBRS in 1995 and is A-1, meaning very good quality and should have good performance throughout the economic cycle. Value line gives Bombardier a timeliness rating of 2, which is an above average rating. An average rating of 3 for safety was also achieved. S&P gave the stock a rating of A-1, which is also an above average rating on the stocks past performance. These ratings show Bombardier to be a stable, dependable company without much risk associated with it. The total capital has increased to $4,007.5 million from $3,634.1 million in the year ending on January 31, 1995. Profitability Levels (for calculations please refer to Appendix C) Net Income would have been $308.0 Million in 1995 without the huge write off that was incurred in the contract with the Eurotunnel. This is a healthy gain from $241.9 in the previous year. The following numbers are buoyed up because of the Eurotunnel write off, that should not be accounted for as it was a special circumstance and does not help in determining the real value of the firm. The NPM was 4.335% and the ROTC was 16.1% in 1995. The ROE was a good 18.9%. All of these numbers are also in sink with the patterns of growth that Bombardier has experienced in past years. Growth Rates (for calculations please refer to Appendix D) The 5 year annual growth rate(from 1990 to 1995) are: 19.7% in sales, 25.3% in earnings, 17.3% in dividends, and 21.3% in EPS. The differences in earnings and EPS growth is due to the fact that the number of shares outstanding has increased over the past 5 years. These results are over an entire economic cycle, from the recession in 1990 to the strong growth in 1995. All of these numbers are respectful and attest to the quality of the Bombardier company. The forecasted EPS used an average NPM, skipping the poor years between 1990 and 1992, of 4.5% and a predicted sales of $8,359.13 million (using 5 year sales growth rate). The estimated EPS for the year ending Jan. 31, 1997 is $1.13. Profit Variability (for consistency Value Line figures have been used) Referring to the Variability graph the trend lines for ROE, NPM, and Sales growth can be seen. The ROE over the past ten years has been stable, except in the recession in the early 90's, but it has since returned to pre- recession levels. The NPM has remained stable at around 4.5% over the last ten years. The major concern is the wild variability in sales growth, which has varied wildly even in good times. Quarterly earnings per share have trended higher over the last four years, with some spikes occurring in the fourth quarter of each year and dropping in the first quarter of the next year. Based on the past trend the 4th quarter should bring an increase in earnings. Dividend Record (for calculations please refer to Appendix E) The estimated dividend is $.23, with a .959% yield, and a payout ratio of 21.7% for 1995. Considering the trend in quarterly earnings a spike in earnings for the 4th quarter should occur. If management tries to adhere to their payout objective an increase in dividends should occur in the 4th quarter to bring the total to 23 cents for the year from the 15 cents already paid out this year. Industry Comparisons The preceding charts are comparing Bombardier to its competitors using Value Line numbers but with a price as of November 28, 1996 and earnings annualized over the last four quarters. It can be seen that Bombardier has the lowest EPS, second highest P/E, second highest P/S, average NPM, average earnings growth, and second lowest size as measured by market capitalization. The TSE 300 has a P/E of 24.14. Bombardier's P/E comes in under the market value at 21.94 is bang on the market, but is higher than the average P/E for the industries where it operates: Aerospace/Defense (15.7), Electrical Equipment (14.6), Recreation (15.9). Stock Analysis: Risk Classification The inherent risk in Bombardier is low and the institutional rating services acknowledge this (CBRS, A-1; S&P, A-; Value Line Safety, 3). The huge size of Bombardier and the diversification also classify Bombardier as a conservative company. The appropriate market capitalization rate for Bombardier is 11% given this information, please refer to appendix F for breakdowns. Investor Preference A past annual sales growth over the past 5 years of 17.5% and Value Line's estimated future growth of 12% over the next 5 years; as well as past growth of 18% in earnings with estimated future growth of 18.5% are signs of a growth stock. This stock has remarkable growth rates and prospects for such a big company it is a good base for a growth stock and investors should view it as such. Stock Price Volatility Value Line gives Bombardier a beta of .85, which indicates a less sensitive reaction to market fluctuations. With the phenomenal growth that we are experiencing in the TSE right now, Bombardier's stock will not be going up as much (only 85% of the increases). Of course, beta is dead and is just a reflection of past performance with no bearing on the future. Price Momentum Bombardier's average stock price over the past ten years has been steady. The stock has been split 2 for 1 five times in ten years. If this price trend continues, a price of $25 is achievable in the next year. Even during the recession of the recession of the early 90's the price still grew, although at a lower rate than other years. In the long run the stock will not be able to sustain the appreciation and there will be a correction. Stock Price Sensitivity Bombardier's stock is affected by the level of interest rates. The financial services sector is more affected by the interest rate level than the rest of the company. Bombardier's business can be affected by interest rate levels in many ways. If interest rates are high then individuals, companies, and government's may postpone purchases to wait for lower interest rates. If interest rates are low, like we are now experiencing, then new customers and ones who postponed purchases because of high interest rates in the past are more willing to buy Bombardier's products. Valuation Ratios (for calculations please refer to Appendix G) All calculations use the price as of November 28, 1996 of $24.60 and the estimated EPS for the next year. The valuation ratios are as follows: P/E = 21.94 P/CF = 17.63 P/S = 1.078 P/BV = 4.98 CA/CL = 1.67 RPGM = $19.31 Expected Total Return = 15.9% The DDM could not be utilized because the growth rate (14.95%) is greater than the discount rate (10.5%). Opinion Using general preferences the following results have been obtained: 1) The P/E ratio is 21.94 which is greater than 20x the current EPS over the last 4 quarters of 20.4 (This is an upper limit for stock purchases). The P/E is greater then the industry P/E's of the areas it manufactures in, It is also higher than it's own P/E in the recent past. The market P/E is 24.14 and more than the P/E of Bombardier, but in an environment with low interest rate high P/E values are usually found, so all P/E are probably to high in these times of low interest rates. P/E's are usually preferred if they are under 15x. 2) The projected EPS of $1.12 times 25 is 28. This is greater than the current P/E, which does not point to an overvaluation. 3) The P/E is over the ROE of 18.9%. This points to an overvaluation. 4) The total return of 14.25% is greater than the discount rate of 11%. This is a sign of a good buy. 5) The ROE is just over the acceptable rate of 18%. 6) The SE/TC is .413 and is not preferred because it is under 70% 7) The P/BV of 4.98 is over the generally preferred multiple of 4x. 8) The P/CF of 17.63 is over the generally preferred multiple of 10x. The above facts give conflicting signs of whether the stock is overvalued or not. One fact that settle the disputing evidence is that the calculated FV from the RGPM is $19.31 and is well under the current market price of $24.60. There is no single factor that determines whether a stock is overvalued or not, but in this case I believe that there is more evidence to support the view that the stock is overvalued. A case could be made to hold the stock if it is already owned, if the shareholder feels confident in the stock, but otherwise a recommendation not to buy or to sell is given in the best interest of the investor for the long run. f:\12000 essays\business & economics (632)\Book Review of Business Policy and Strategy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Book Review of Business Policy and Strategy: An Action Guide Submitted in partial fulfillment of B.S. in Business Administration Century University, New Mexico Grade = 95% {A} Business Policy and Strategy: An Action Guide, by Robert Murdick, R. Carl Moor and Richard H. Eckhouse, attempts to tie together the broad policies and interrelationships that exist among the many functional areas which undergraduate students typically study. The authors intend the text to supplement the typical case book and/or computer simulations used in teaching business strategy (ix). Situational analysis is presented, as is a structure for developing strategy. Practicality and real world experience is combined with educational theory to provide as complete a picture as possible of strategy in business. The authors have divided the text into 15 chapters with no further subdivisions. It is possible, however, to group the chapters into specific areas of study. For example, the first chapter, "Business Failure -- Business Success," examines why businesses fail, and provides the reason for continuing with the remainder of the text. The next two chapters focus on the "field of action," including the business environment and the business system. The fourth and fifth chapters introduce strategic management (chapter 4) and the struggle not only to survive, but to prosper using strategic management (chapter 5). Chapters Six through Nine address specific functional areas (marketing, accounting/finance, production, and engineering/research and development). Chapters 10 and 11 introduce the reader to the problems of managing human resources (chapter 10) and data processing resources (chapter 11). The last four chapters discuss the issues involved with analyzing business situations. Multinational business analysis is the subject of chapter 12, while chapter 13 turns the reader's attention to how to conduct an industry study. Chapters 14 and 15 focus on how to analyze a case and illustrations of case analysis, respectively. The text concludes with an appendix of symbols used by those who evaluate reports and a general index to topics within the book. The authors make good and frequent use of charts, graphs, forms and other graphic techniques to illustrate their points. Each chapter concludes with a selected bibliography that the student may use for additional research. The book is printed entirely in black ink; the use of color for key concepts would have enhanced the book's value as a teaching text. Visually, the book is crowded without much white space for readers to make notes. Key concepts could also have been separated from supporting text in a more clear manner. While each chapter has a summary, they do not have an introduction or a listing of key words of concepts that the student should learn as a result of studying each chapter. Such aids would make the book more valuable and enhance the learning experience of readers. Chapter 1 examines why some businesses fail and why others succeed. The first sentence in the book states exactly where the authors stand on the issue: "Businesses fail because managers fail" (1). The authors present a chart that illustrates how businesses large and small can both have "relatively short successful life spans" (1) Reasons for the ultimate failure are presented in this chart, and the authors go into greater detail in the text. Fundamentally, the authors find that managers in business are unable to determine what action to take, or are unable to implement the necessary action once they have identified it. The reasons for these shortcomings are many, but the authors find that managers may be unable to differentiate between problems and symptoms. To help their readers overcome this problem and successfully manage one or more businesses, Murdick, Moor and Eckhouse identify five points that they address in the remaining 14 chapters. One, they present the field of action in which managers must operate. Two, they describe common major problems that must be identified and solved in order for firms to prosper. Three, they present a framework for determining a unified sense of direction. Four, they give a brief account of policies and problems in the major functional areas of business. Five, they give detailed case and analysis tools to enhance the reader's ability to identify complex business problems. Chapter 1 concludes with a list of business failures and their causes of 1987, helping the student to understand the importance of strategic management in the success or failure of a company (4). In Chapter 2, the authors move to consider the field of action, or the arena in which business executives and businesses operate. Chapters 2 and 3 focus on this field of action, with chapter 2 looking at the environment of the business system. Murdick, Moor and Eckhouse suggest that a business has seven groups of stakeholders, each of which provides some level of legitimacy to the organization: customers, shareholders, general public, suppliers, competitors, governments and special interest groups (5). It is important that the business act in a manner that is morally responsible toward these groups. However, any one of these groups may be powerful enough to force a business to close, or to support its operation even during general business downturns. Because this field of action is dynamic, it is up to the managers of individual organizations to determine the proper level of responsibility toward each of these groups of stakeholders. Murdick, Moor and Eckhouse also suggest that monitoring and forecasting the business environment is vital to the success of a business. The authors divide the environment into two distinct parts: remote and immediate. The remote environment consists of such aspects as: global economics, political factors, social and demographic features, technology and physical resources. The immediate environment comprises such areas as: customers and prospects, competitors, the labor pool, suppliers, creditors and government agencies (7). To those business managers who are of the opinion that they cannot forecast the future because they have problems in the present, the authors counter that by being mindful of what the future may hold, the managers can minimize their problems in the present. This chapter concludes with a discussion of opportunities and threats. Murdick, Moor and Eckhouse suggest that opportunities, like the environment itself, can be divided into immediate and long-term for the purpose of analysis. Immediate opportunities include new applications of existing products, new processes in manufacturing, and new and improved customer service (8). Threats that pose immediate problems may also pose extremely fragile environmental situations. Avoiding environmental threats requires long- term planning and anticipation of potential problems. Environmental threats may include competitors, changes in customer demand, legislation, inflation, recession and technological breakthroughs. In addition to opportunities and threats, which help managers attain long-term and short-term business success, managers must also be aware of constraints. Constraints may require careful and thoughtful analysis in order to realize their full implications. Legal constraints are often obvious, but political constraints may be nebulous. Some constraints to growth are identified by Murdick, Moor and Eckhouse as lack of natural resources, declining productivity and deteriorating transportation systems (13). In chapter 3, the authors turn their attention to the business system, which is the second field of action. Here, they suggest that the historically popular approach of studying functional areas separately without understanding their interrelationships proved short-sighted and the source of many business problems, and some spectacular failures. The discussion of the business system begins with the identification of general management. General managers are identified as individuals "responsible for a business system" (15). It is the general manager who is responsible for profit and loss and for long- term survival. It is up to the general manager to balance conflicting objectives of subsystems, differing value systems of internal and external influences, opposing views of priorities and emphasis and conflicting proposals for criteria in all areas. The general manager develops the concept of the enterprise, guides the development of a set of visions, goals, values and policies, and conducts the strategic management tasks of renewal and growth (16). Murdick, Moor and Eckhouse suggest that organization provides the structure of the business system. Some organizational aspects are dictated by law; sole proprietorships, partnerships, limited partnerships, corporations and joint-ventures are examples of these. While these are the legal forms of organization a business may have, the law does not dictate which form is appropriate for a given business. Determining the legal type of organization requires careful analysis. As businesses change and strategies are modified, managers must be willing to undertake changes in the legal organization, as well, in order to maintain the most competitive and advantageous organizational structure. Murdick, Moor and Eckhouse identify small firms as those that are guided by a single individual, or by two partners. Imposing the tight, formal structure of medium and large companies on small companies can be death for the smaller firm, according to the authors (18). Instead, small companies work best with loose organizational structures that allow for maximum creativity. While managers of small firms that are growing into medium-sized firms are well advised to avoid hiring managers from other medium-sized firms, and instead, seek to teach the individuals who are already associated with the company the skills they will need in the now-larger organization. In all cases, the goal is to keep the owner-manager occupied in the areas in which the company benefits the most from his expertise. This may mean delegating some responsibilities in order to allow the owner-manager time to focus on strategic planning. Turning their attention to medium-sized firms, Murdick, Moor and Eckhouse first acknowledge that there are no clear-cut rules for differentiating between medium and large companies, except through examining assets, sales, equity and number of employees. They suggest that medium-sized firms can be differentiated from some companies in that medium-sized companies require a functional manager for each functional area. Small companies may have one manager for several functional areas. Full-time specialists, such as lawyers or treasurer, may also be found in medium-sized firms, but not in small ones. Medium-sized companies are best served by "flat" organizational charts; that is, few hierarchical levels, with functional managers reporting directly to the president. Murdick, Moor and Eckhouse recommend a span of management of at least six people without crossover responsibilities (22-23). Large companies usually have complex organizational structures that may have any one of several hundred forms. Large companies are characterized by "staff" and "line" personnel, with staff personnel providing support services to line personnel, who are responsible for the company's products or services. There are increased layers of management in large companies when compared to medium and small firms, and there are often subdivisions or subsidiaries that are grouped under one large parent organization. Organizations may follow one of the six "pure" forms identified by the authors: people, product, geographic area, process, function or phase of activity (33). Large companies are likely to combine several of these forms. Organizational policies (as opposed to personnel and staffing policies), identify information such as the principles to be followed in organizing the parts of the company, relationships among major organizational components, guidelines for position titles, functional descriptions of components and spans of management. The authors end this chapter with a discussion of decision problems. Such problems are identified as situations that require action based on executive decision to pursue a given course of action (41) Chapter 4 formally introduces and explores a concept that has been central in the text so far, but which the authors have not defined until now: strategic management. Murdick, Moor and Eckhouse identify seven major tasks that form the strategic management process: formulation of the philosophy of management, corporate purpose and goals; environmental analysis and forecast, internal analysis of strengths and weaknesses; formulation of strategy; evaluation of strategy; implementation of strategy; and, strategic control (45). The philosophy of management is concerned with what the firm strives to achieve in the long-term, not with immediate objectives. Environmental analysis and forecast and internal analysis have already been discussed in previous chapters. Developing strategy is, along with implementing strategy, one of the most complex tasks a firm undertakes. The authors define strategy as 1) a statement of strategic objectives of the organization, 2) courses of action to be taken in moving the organization from its present position to a position defined by its principal strategic objectives, and 3) policies and standards of conduct pursued for one long-range cycle of the organization (46). When companies do not understand strategic management, there is a notable shift among various tactical strategies. Such companies lack procedures for developing strategies and plans, and may be carrying subsidiaries or products that are no longer money-makers. Companies lacking strategic management are likely to suffer a loss of market share and a deteriorating capital position. Top managers may strongly disagree about the direction the firm is taking, or should be taking. Finally, there is likely to be no long-term, written strategic plan for the organization, including strategic goals and the ways those goals will be reached (46-48). Murdick, Moor and Eckhouse identify a four-step process to help formulate strategic directions for business. One, top management must settle on the personality of the company through open and frank discussions. Two, analysis of the situation outside the company must be undertaken to see what opportunities and threats might be realized or overcome. Three, internal analysis is necessary to determine resource and capability. Four, the internal capabilities must be matched to the external opportunities (49). Murdick, Moor and Eckhouse also move to strategic planning and implementation, and suggest that planning is, in fact, the beginning of implementation. Strategic plans involve writing down what is to be done, when, how, and by whom. Such plans greatly enhance implementation by leaving few variables subject to chance. The authors end the chapter with a note of caution. They find that the best-made plans do no good unless they are implemented. Companies which may run efficiently may not be running according to their strategic plan. Total company control is necessary to long-term survival. They suggest that long-term plans include identification of Key Performance Areas (KPAS) and the monitoring system that will keep these areas on track with the strategic vision of top management (61). The authors include three appendices to this chapter, including key merger and acquisition terms, a discussion of value-based planning and a discussion of discounted cash flow valuation. In chapter 5, Murdick, Moor and Eckhouse take up the complex issue of survival and prosperity among firms. While they admit that new firms have the greatest risk of failure, they also point out that old, established firms (such as Packard Motors and Baldwin Locomotive) can also disappear from the business scene. In order to better understand why some firms survive while others fail, the authors look at small, medium and large firms. They also point out that there are many more causes for failure than can be covered in any one text, let alone any one chapter. Beginning with small firms, Murdick, Moor and Eckhouse suggest that the competitive edge that defines a company's survival be carefully analyzed. Small firms need to focus on facts rather than hunches and guesses. Owner-managers need to seek out qualified professional advice and take advantage of it. Growth for its own sake needs to be avoided, as does undercapitalization. Lack of cash planning and managerial problems also plague small companies. Medium and large companies are grouped together in the remainder of chapter 5 to examine why they succeed and fail. Here, the authors find that successful firms have written objectives and policies that cover all aspects of a company's operations, including its internal and external environment (92). Companies in this size category that fail almost always have no unified sense of direction (94). Failing companies may suffer inadequacy in one or more key functional areas, or have people problems that cannot be overcome. These companies may not have good controls, or may try to implement too many controls at one time. Finally, medium and large companies that fail to operate with an "international" mentality may well find themselves facing difficult times (100). Chapter 6 begins a four-part section on functional areas with a discussion of marketing. Here, Murdick, Moor and Eckhouse suggest that successful firms are characterized by everyone in the company being marketing-oriented (103). They also find that it is not enough for a company to understand the science of marketing; a company and its marketing staff must be able to understand the art, as well. Murdick, Moor and Eckhouse take a philosophical rather than mechanical approach to marketing in order to provide the reader with a better base of understanding that can be applied in the real world. The authors first present the idea of a "marketing concept," which they define as a philosophy that guides the attitude and behavior of each employee in the organization (104). Specific characteristics of the marketing concept include treating the customer as all- important, pinpointing a target market, gaining a competitive edge, and focusing on profits (105-106). Murdick, Moor and Eckhouse also attempt to identify the characteristics of good marketers. They find that good marketers are those who can identify the key factors associated with their business, foresee how those factors will behave in the future, and who can create outstanding strategies based on these factors. Good marketers satisfy a large number of customers at a high level of profit over a long period of time (at least ten years). Good marketers recognize that marketing is both an art and a science, and they make the best use of scientific information in order to enhance the art. When examining the marketing position of a company, it is necessary to analyze the marketing philosophy, policies, strategy and operations. Fundamentally, it is necessary to establish that a company is following its marketing concept. Broad marketing policies must be established. The marketing strategy of the company must be well defined within these broad policies. Finally, marketing operations must be carried out effectively and efficiently (109). Strategic marketing policies are developed by top managers working from top level marketing policies. Murdick, Moor and Eckhouse identify seven areas that may be covered by these strategic marketing policies: morality and public service, products, markets, profits, personal selling, customer relations and promotion (111) The authors then turn their attention to marketing policy and find that there are three policy options within marketing: expand sales into new classes of customers; increase penetration in existing market segments; avoid marketing innovations, but work to maintain present market share with product design and manufacturing innovations. Murdick, Moor and Eckhouse are also careful to discuss plans and tactics for keeping with the marketing concept and strategy. In suggesting ways to analyze the marketing of an organization, the authors suggest that companies strive to establish and maintain a competitive edge. Marketing research is of prime importance in order that the company base its direction on as much quantitative information as possible. Advertising and sales promotion policies must be considered in light of the company's customers, industry and other environmental factors. Personal selling must be taken into account. Distribution and pricing strategies must be reviewed and modified on a regular basis in order to keep the company operating at maximum efficiency. The authors conclude this chapter with a summary of the marketing mix as well as a summary of the pitfalls that may be symptomatic of companies experiencing marketing difficulty. Chapter 7, which focuses on the functional area of accounting and finance, is the longest chapter in the book; it is nearly twice as long as any other chapter. This illustrates the importance that the authors place on accounting and finance, and also the trepidation they believe most readers have when it comes to these subjects. The authors concentrate on the basic aspects of finance and accounting that can be learned quickly and that will bring the greatest benefit when taking a strategic approach to business. Three appendices provide review material for those readers who feel they are lacking in some area. The appendices cover business arithmetic, break-even analysis and definitions of accounting terms. Having recognized that there is hesitation and a general lack of comfort among business when confronted with accounting and finance, Murdick, Moor and Eckhouse discuss why it is important to understand financial analysis. Chief among these reasons is the idea that financial analysis is the most direct way to point out that a company may be experiencing difficulty. Financial analysis can be used to establish that there is a problem, though it may not always establish what the root cause of the problem is. Despite the fact that the authors consider financial analysis to be key in understanding companies, they are also careful to point out the limitations of this type of analysis. For example, there can be a tendency to use financial analysis to focus on the past, rather than anticipating what the historical figures may indicate about the future. There is also an inherent danger in expecting past trends to accurately predict future trends. Technological changes, changes in consumer demand and other environmental factors that are outside the realm of financial analysis can be overlooked if there is too much emphasis on historical financial performance. High technology companies or those in rapidly expanding industries may have financial figures that are too uneven to provide an accurate picture of how the company is actually performing. There is also the possibility that figures may not (whether intentionally or not), accurately reflect the true position of the company. Finally, the authors suggest that financial analysis is an art that is mastered by all too few people for it to be considered the ultimate analysis tool. Having presented this rather lengthy discussion of the limitations of financial analysis, the authors then counter with an equally lengthy discussion of the advantages of using financial analysis. Foremost among these is the idea that trends do exist and financial analysis is one of the most effective methods for spotting them. Financial analysis can also spotlight symptoms of problems (although not the underlying cause, necessarily). Companies seeking outside capital to infuse into the business find that potential investors consider financial analysis key to their decision-making process; inside managers would do well to keep a financial picture of the company in mind to prevent unpleasant surprises. Since financial analysis is quantitative, it can help point up where problems exist, rather than where managers may think they exist. Finally, and perhaps most importantly, the authors suggest that weighing different, exclusive courses of action quantitatively provides additional tools to managers to make strategic decisions. The authors then provide information on how readers can obtain financial information. General sources, such as Moody's and Standard & Poor's are discussed as are ratio reports. Ratios are of particular importance to the authors; they devote four pages of a chart to figuring ratios and a lengthy discussion of their proper use. Murdick, Moor and Eckhouse favor comparing performance across departments within a single organization, and across companies within a single industry in order to arrive at the most accurate comparison. They note that when performing industry comparisons, it is important to compare like industries, and like companies within the industries. Selecting the wrong category can render the value of the ratio comparison null. At this point, the authors shift their focus from finance to accounting, and discuss how accounting can help decision-makers. Murdick, Moor and Eckhouse suggest that financial accounting should answer five basic questions. One, how is the company doing overall? Two, when evaluating alternate plans, which is most attractive? Three, what is going wrong? Where? How can it be fixed? Four, how can activities be coordinated? Five, is the company operating as effectively as it can in its environment (144-145)? Anticipating that readers are curious as to how to begin their analysis, the authors suggest that they begin by taking financial information from the most recent ten years. Any trends that exist over this period are likely to persist, according to the authors, because trends generally do persist barring unforeseen circumstances. The authors suggest that the reader consider four questions when examining the profit and loss statement. One, what is the sales trend? Two, what is the trend of cost of goods sold as a percentage of sales? Three, what's the trend of operating expenses as a percentage of sales? Four, what is the trend in profits? If the trend in sales is up, but the trend in profits is down, the company is very likely already in serious trouble (147). Returning briefly to ratio analysis at this point, the authors identify four key areas to examine: profitability, liquidity, leverage and turnover. They also stress the importance of considering any other pertinent questions that must be considered for the specific company and industry. Murdick, Moor and Eckhouse consider break-even analysis to be important when: deciding whether to increase sales or advertising expenses to increase volume; weighing the relative merits of decreasing prices to increasing volume; determining the advisability of borrowing for capital improvements to increase capacity; and when evaluating office automation. The first step in break-even analysis, according to Murdick, Moor and Eckhouse, is dividing costs into fixed (constant) and variable. Murdick, Moor and Eckhouse give several examples of inventory valuation and the effect that changing valuation methods may have when considering a company's financial position. This discussion reminds the reader that the valuation method or changing valuation may result in a company overstating or understating its actual position. The reader is then introduced to the funds flow concept that establishes how many funds are needed for projects and the possible sources of those funds. The authors then discuss budgets, which they consider to be of prime importance when evaluating a company's managerial performance.. Budgets assist in planning, but also indicate how the firm has performed in the past. They indicate how well the company expects to do, and how well the company has predicted their past performance. They can also be used to spot difficulties and problem areas in the present, as well as areas that became problems in the past. Having presented a wealth of information to the reader on finance and accounting, the authors end the chapter with a lengthy chart designed to help the reader use his or her newly acquired skills. They also emphasize that it is through repeated and frequent analysis that the reader is likely to improve his or her financial analysis skills, and the tools presented in the three appendices to this chapter are designed to assist in that improvement. Chapter 8 is concerned with the functional area of production. The authors begin this chapter by stating that the concepts they are putting forth with regard to production apply equally to businesses that produce tangible goods as well as that provide service. Production, they suggest, is the "process of converting any design of product or service into the actual product or service," (177). f:\12000 essays\business & economics (632)\Boxers or Briefs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Steiner's Model Steiner's model on programming preferences and broadcasting choices tries to show how stations come to the conclusion of what programming to show. This model goes on the assumption that broadcasters will go after the largest audience possible. Going on the information given about this hypothetical situation, we can predict what each of the four stations in this market will show. There are three distinct audience preferences. The first groups of 1200 viewers has a first programming preference of sitcoms and a second choice of soaps. The second group numbers 900 viewers and would pick cops first and soaps second. The third group, 500 viewers, likes soaps first and sitcoms and their second choice. This model says that the audience will watch their first choice first and then the second choice, but only is their first choice is not available. Let's say that the Federal Communications Commission licenses station A in their market. Looking at the viewer preferences, station A would start to broadcast soaps. By show soaps, it would capture a market of 2600 viewers. All viewers would watch because soaps is their first choice or it is their second choice but their first is not available. The FCC then offers a license to station B. After examining the audience sizes, stations B also starts to show soaps. By programming to this audience, it splits the soaps market with station A and both of them have 1300 viewers. Station B does not pick another programming because no other choice can offer more than 1300 viewers. When the FCC offers a license to station C, things will definitely change in this market. Station C sees the biggest audience available is the sitcom market with 1200 viewers. But when station C takes that 1200 viewers from the soap audience which hold sitcoms as their first choice, station A and B will both drop to 700 viewers. They now have to make a decision. Both can find larger markets elsewhere. One station, and it does not matter which one, will switch to cop shows. For this hypothetical, station B would choose cops for 900 viewers. Station A, who still is showing soaps, now only has 500 viewers. It does not like that, so it starts to show sitcoms. Audience 3, with 500 viewers, now is watching sitcoms because there are no soaps out there. Station A and C are both showing sitcoms and are splitting a viewer audience of 1700 for 850 each. Now that the viewers are confused about what station is showing what, the FCC offers a fourth license to station D. After examination, station D decides to start broadcasting sitcoms in competition with stations A and C. All three stations have an audience share of 566. That is more than the 500 soap viewers or splitting the 900 cops viewers with station B. Although Steiner's model is not too far off what happens in today's television landscape, it does have a couple of drawbacks that keeps it from being a true model. Steiner does not take into consideration that some audiences are more valuable to advertisers than others. Because advertisers want certain viewers, stations might program to that audience to attract more advertising dollars. Steiner also assumes that as stations go into competition with another station, they will split the audience equally. That is not always the case. Viewers will watch the station they believe has the better quality, even if there are two or three stations showing the same thing. This model does offer some insights on how stations and networks make decisions. Just look at the TV Guide and see how many sitcoms there are on any given night. This also shows why some minority viewers never get programming directed at them. The stations are going to the majority audiences which have larger numbers. The minority viewer preferences, under these model, have to have another station before they get to see their shows, in this situation. First Copy COsts First copy costs in the newspaper industry are the fixed costs of owning a paper and printing the first one. First copy costs include the money spend on items that are necessary for the newspaper to be printed. These fixed costs do not vary as the number of papers increases or decreases. Because they do not vary, they are very important and must be covered by advertising and subscriptions. These fixed costs include the physical plant, the presses, the pressmen, reporters, photographers, other staff members and the delivery trucks. The interesting things about fixed costs is that you have to have them. You can not scrimp or just not buy them. To cut corners, a paper does not hire reporters, but how does it cover the local news? Whether or not you print a paper, you still must pay for that stuff. To figure the first copy costs of a newspaper, the fixed costs and the cost of the paper and ink of the first issue off the press are added together. For instance, let's say that the fixed costs of a newspaper is $1 million and the first issue costs $1 to print. The first copy costs $1,000,001. Looking at this, it sounds like newspapers would never make any money, but we have not figured in variable costs. These include the paper, ink and related costs of running the press. As the quantity of papers goes up, these prices usually go down. As the quantity continues to go up, the average cost comes down and each paper gets cheaper and cheaper. First copy costs keep many papers from owning their own presses. Large dailies must own their own presses in order to meet distribution deadlines and ensure that their paper gets printed on time. Smaller papers can not afford that first copy cost, so they have to contract with other to print their paper. First copy costs are a determining factor in how a paper is operated. Whether it owns it own presses or not, the size of its staff and how often it prints is all tied into these first copy costs. Economy of Scale with Cable TV By the nature of the beast, cable operators normally get exclusive franchises to supply a community with their cable service; so talking about competition in the cable industry sounds like an oxymoron. But there are signs that it might actually compete in a way. Less than 50 cities in the United States are overbuilt, or have more than one cable provider. Yet studies show that those overbuilt cities have lower basic cable subscription rates, $14.31 compared to $17.31. Can competition within the cable system be created? Probably not. The barriers against entry for new cable operators in a specific market are great. To begin with, the new operator must get a franchise agreement with that city. The incumbent franchise will not stand still for this. Those in the local government also will fear that the incumbent franchise might change benefits or disturb the local political situation. Economics of Scale would suggest that the incumbent would have lower average costs because they are already there and have a better distribution system. The second franchise would have high entry costs because they have to string their own cable and many times they have to bury the new cable. This additional work means high construction costs and community aggravation as they tear up roads and yards. The incumbent can employ delay tactics to make it very hard to start up new franchises. From political pressure to lawsuits to dropping price and keeping their customers happy, delays will make the new guy on the block discouraged and out. Within the cable operator networks, like TCI or CableVision, networks themselves own or have a financial interest in some of the channels they carry. Time-Warner owns TBS, CNN and a host of other channels started by the Turner Broadcast System. Although this sounds like a serious violation of the anti-trust laws, no contest has been put up against this practice. In fact, it has been shown that multi-system operators and overbuilt cities' operators are more likely to provide channels owned by other networks. Carrying their own channels allows networks to increase profits and helps keep subscription rates down. And, as a practical matter, cable systems need channels to put out there for people to watch. Owning or having financial interest in channels ensures that they have programming to carry. With all the things going against the competition of cable systems, the market demand for cable is elastic. The Crandall study, sponsored by TCI, showed that an elastic rate of 2.2 means that as subscription rates go up 1 percent, 2.2 percent of the subscribers will cancel their service. As the market show elasticity, the reality is that is normally does not work that way. To persuade subscribers to take their higher rates, cable operators offer new channels along with the rate hike. The number of channels has traditionally been a measure of quality and as "quality" goes up, so can the rates. Cable in the near future will see some competition from sectors outside of the cable industry. The Telecommunication Act of 1996 will make it easier for telephone and utility companies to go head to head with the cable operators. This might change the competition landscape of cable TV. programming to the minority audiences Because networks and broadcasters look to capture the largest audience possible, many times the minority tastes are ignored. These minorities now have more choices today than they did before as technology expands. Steiner's model described how broadcasters went after larger audiences and skip over minority tastes. As technology advances and more stations are introduced, Steiner's model would suggest that those minority tastes were met. In a situation where government regulates a small number of broadcast stations, minority taste audiences have little recourse. The only option that they have is to petition the government to force the stations to program to them. Such was the case with religious groups. They got the Federal Communications Commission to make stations allocate time for specific religions and their shows. In a government sponsored market with a limited number of channels, some programming for the minority tastes will appear. The government would sponsor a channel that showed minority taste programming. On the down side here, the other broadcasters will continue to ignore minority tastes because their needs are met somewhere else. Broadcasters will continue to aim for the majority markets. Today, with an unlimited number of channels available, minorities have programming provided to them. Those with minority tastes can now start their own channel to cater strictly to themselves. Whatever their tastes, they will have it. The benefit of unlimited channel supply is that the market audience keeps getting more and more programming. Once someone see a type of programming work and make money, they might go after the same market. Broadcasters who once avoid that type of programming can now start another channel and tap into that market without detracting from its majority audience programming. As the technology improves and allows more and more minority groups to get involved with broadcasting, we will start to see a sharp increase in specialty channels; more than what we currently see. f:\12000 essays\business & economics (632)\Breaching International Markets.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Measuring a potential business venture has many aspects which the international manager must be aware of in order to convey the correct information back to the decision makers. Being ignorant to any of the aspects can lead to a false representation of the project, and hence an uninformed decision being passed. In order for a business to survive it must grow. For growth to be optimal, management must first be able to identify the most attractive prospective leads. The country as a whole, specifically geography, government, and financial aspects must be looked at in order to yield the best possible picture of the market a company wishes to enter. Concentration should be placed on gathering reliable facts that are backed up by more than one source. It is to be hoped that after creating "a picture" of the market, management's analysis of the potential business venture and plan of action will be structured as to avoid losses and to find the most profitable scenarios. The success of the multinational corporation lies on the shoulders of it's management. International management and organization-design expert Henry Mintzenberg says every CEO has three essential duties: direct supervision, development of the organization's strategy, and management of the organization's boundary conditions. Top management's responsibility at and beyond the organization's boundaries is largely a communication responsibility; however, no commonly accepted model exists for decision, execution, and assessment of communication opportunities. Within even some of the largest and most venerable organizations, the process used is haphazard and inconsistent. The Wyatt Company's survey of communications professionals showed that just 58.1 percent agreed that their organization's communication objectives are linked to business objectives, and 83.3 percent reported that their organizations conduct no formal review of return on communications investment. CEOs must establish and reinforce an organization's image in public by viewing each target public as a client; by doing research, looking at trends, and talking to experts, a CEO focuses on selling what the client wants to buy.1 Finding a country to conduct business in can be a very easy task depending on if the organization's top management follows the advice of Mr. Mintzenberg. The way a company normally discovers where to conduct research is through leads on potential operations from outside sources. The selection of which leads to investigate becomes the difficult task. After sifting through the leads and finding the right ones to investigate management must formulate an international marketing plan. This further helps management in locating potential markets for their products. The first step is to use secondary research to find out what the sales potential is in a given market. Asking the questions of need, demand, and support gives one a starting point for research. If we were a company that sold pants we might want to ask the following questions. Is there a need for pants? Is it cold enough there to wear pants? Do people that demand the pants have money? These are the questions that one should ask of potential markets. Table 1-located at the end of the paper-shows the statistics that are needed for a general market picture. After gathering the information from the secondary research, the picture of a potential market becomes more evident. However, to make the picture clearer, one must conduct primary research. This research outlines the specifics of the potential market that directly pertain to the product. Robert Douglas' book, Penetrating the International Market, addresses the issue of locating potential markets in greater detail.2 [mg1] After finding a lead that contains profitable markets it is necessary to analyze the venture as a whole. The decisions of companies must be based on the facts of reliable sources on all investments. To gather the information needed for investment projects, management must organize a competent feasibility team. The members of this team should be comprised of employees of the company, this is so that the knowledge will stay within the company. If the resources are not available for an employee conducted study then outside consultants may be used, it may also be beneficial to use a combination of the two. The first step in conducting a study is to design it by using project objectives as the base. During the second step the team must be staffed with people that have the ability to solve problems in any situation. In the third step the team should be properly placed and instructed. In the fourth and final step the product of the feasibility study should be properly communicated to the decision-making management.3 Table 2-located at the end of the paper-shows a general timeline that a company follows through the progression of a feasibility study. The design of a feasibility study first assumes that a company possesses the skills and resources necessary to be competitive in the market under analysis. Management must know the limits of its operations abroad. The operating margin for the expense of establishing and starting operations abroad should be easily recoverable within a reasonable time period. The design should also include the management's goals, which comes down from the investors of the company. The goals of management should be to acquire specific knowledge of the partner, in a joint venture situation, as well as the financial aspects, and the business-environment. The currency of the host country along with the political situation, and the economy are finer points of detail that the study must cover when analyzing the business-environment.4 In a less formal sense the design of the study should cover relevant material so that when viewing the final report decision-makers will know with what they are becoming involved. Staffing a feasibility study is of major importance. Not only must the members be competent in communication and understanding, but the management selecting the team must be confident in the abilities of each individual. Communication in international affairs plays a great role for the fact that different languages spoken and unspoken are involved. The communication through a translator let alone person-to person communication can be vastly misconstrued.5 The individual's communication skills should be top-notch in order to be selected for the team. The members of the team should also be aware of the cultural factors that play a role in communication. Cultural interpretation and adaptation are a prerequisite to the comparative understanding of national and international management practices.6 For example, during contract negotiations with a Japanese company there are times of long pronounced silence on the part of the Japanese. They state that the negotiations, (will take a little longer,( and (this is quite difficult.( From the American perspective one would become frustrated at the slow pace of the negotiations. From the Japanese point of view the negotiations are proceeding quite well. Differences such as the one illustrated must be kept in mind at all times while communicating to any foreign counterpart.7 The placement of the team is dependent upon the profession of the individual. The accountants obviously speak and gather their information from the counterpart's accounting offices, and so on. Concerning placement, their daily schedule should allow time for team meetings. During the meetings, progress and the experiences of each member should be shared. This sharing of information can bring the team closer together and also allow the supervisor to measure progress and disseminate any changes in plans.8 As the importance of correct understanding of the translator and the foreign counterpart are during communication, the final communication of the study should be understood by the top decision-makers. When these four steps are taken while conducting a study the measure of feasibility will become more accurate. Understanding the importance of proper analyzation of ventures can be seen with the following example of the Patras Cement Company, SA.9 Yankee Cement Company Inc. of Denver Colorado needed to approve an expansion of it's subsidiary, Yankee International SA of Switzerland. The expansion was to build a 500,000-ton cement plant in conjunction with Titan Cement Co. SA of Athens. The plant would reach full production capacity within two years after the beginning of construction. Estimates by both Titan and Yankee showed that total capital needed for the Patras operation was US$15 million. The equipment manufacturer, F.L. Smidth of Copenhagen would finance 40 percent of capital expenditures, and another 20 percent would be financed through the National Investment Bank for Industrial Development, SA. The remaining 60 percent of Patras shares would be equity, of which 75 percent of shares would be owned by Yankee, and 25 percent of Patras shares would be owned by Titan. The international division manager of Yankee, Bob Walbecker, dealt with the Manourpoulos family, who were the owners of Titan. After establishing the connection with Titan, Mr. Walbecker continued to establish good rapport between his division and Titan. Ten days after preliminary negotiations between the two parties Mr. Walbecker was assembling a feasibility team in Denver, which was Yankees' domestic headquarters. The team consisted of a market analyst, an accountant, a geologist, a civil engineer, and Mr. Walbecker, who managed the study. For each American there was a Greek counterpart that translated and disclosed all information known to Titan. After four years from the start of the study Yankee expected that personnel within the subsidiary would be able to handle any further developments. Preparing for the in country phase of the study is perhaps more important than the actual time spent in the country conducting research. Before departing for Athens with his team, Mr. Walbecker prepared an outline for each day's activities for the entire study period. He also had the individuals make a contact list, which contained a bank, an accounting firm, a lawyer, an equipment supplier, the embassy, the ministry, as well as industry source phone and cable numbers. Another important point that was covered was that Mr. Walbecker made maps available to the team of the location, and showed documentary films discussing the political and economical situation of the country as well. Shots and medical supplies were also made available and taken with the team. Language was also a concern to the accuracy of the study. Based on this fact personnel were required to attend classes on the language even if they had some prior knowledge. After sufficiently preparing the personnel for the trip, Mr. Walbecker departed with the team for Athens. For the first four days the team was allowed to orient themselves to their surroundings. There are several reasons why the team was given this time to relax. First, they had to recover from the long flight. Physical and mental stamina were at a low-point when the team left the plane. Secondly, the change in surroundings has an effect on the emotions of a person. Third, it allows for the creation of a team from a group of individuals. A sense of camaraderie can be established during this free time. By the beginning of the week the team was eager and ready to start work on the study. Using the contact list and each individuals daily schedule the team was sent about to gather information. From each contact on the prepared list each member was expected to gain at least two additional contacts. While meeting with contacts the team was asked to differentiate between opinion and fact. This is because misinformation gathered by inexperienced people is very abundant. Fortunately for Walbecker the team he had assembled was able to distinguish between relevant and irrelevant material. During the study the team was also required to take notes every day. They were also encouraged to go outside of the metropolitan area in order to gain a better feeling of the country and it's people. Upon return of the team from Athens, Walbecker concluded the following: the rate of return would be 16 percent, the partners had good integrity and intentions, the political situation was not extremely stable, the ownership option was good for other projects if the Patras investment was slow, and there were no technical or market developments evident to slow down progress in construction. From these findings Walbecker had to persuade the Board to agree to the venture. He concentrated on the soundness of the venture, the reliability of the partners, and the advantages of Greece. Using market analyses and forecasts, an audit of Titan's financial affairs, the geological report, plant layout and consolidated capital estimates, and a business-environment report, which covered the political situation, the economy, partner evaluation, and an outlook on the country's currency-the Drachma-Mr. Walbecker was prepared to start finalizing the report. Concluding the report were the financial details on the US$4.5 million equity needed by Yankee. Before giving a formalized presentation to the Board and other important associates, Mr. Walbecker had informal discussions over breakfast with the three top executives at Yankee about the project. The reason for this was not only to give the executives a briefing about the information that was gathered, but also to get an idea as to result of the vote on the project. After the formal presentation, the Board was given one month to decide on accepting or rejecting the project. At the conclusion of one month's time from the formal presentation the Board's vote revealed the acceptance of the project. This example should have revealed the importance of the site selection, gathering, and transmission processes used in conducting a feasibility study. The main point of conducting a feasibility study is to find the intricate details which are necessary to make the right choice for expansion. The example presented above is just one particular situation. In trying to maintain brevity, the paper could not possibly include all of the suggested actions that management should take in every situation. Management must be able to adjust and plan a course of action to find the details of their particular situation that are essentials to making a viable decision. As an overall idea in dealing with foreign counterparts one should be objective in judgment and abundant in knowledge of the person's/people's backgrounds. Knowledge is a valuable resource when expanding operations. Conducting venture analysis is one way in which a company can perceive how the investment will contribute to future operations. Table 1: List of statistics that portray the market situation. Essential Market Statistics: 1. Population by language, religion, ethnic groups 2. Population by age, income, major occupations 3. Population by regions and centers-with growth rates 4. Number of households and rate of creation 5. Percentage of households with car, radio, refrigerator, TV set, washing machine, running water, electricity. 6. Per capita disposable income (per capita national income less taxes and savings) broken down by region 7. Personal and household consumption pattern; changes over ten years. 8. Government purchases of goods and services, broken down by product groupings and buying agency. 9. Type, number, and purchasing of state enterprises 10. Imports, and exports, by product and by origin or destination 11. Statistics on market for your product (internal production plus imports less exports) * Source: Penetrating the International Market, p.27-8. Table 2: Diagram showing the timing of project events over a 12 month period. Months Actions 0 Project received by outside party 1 2 3 Preliminary evaluation by company completed 4 5 Initial screening in country completed 6 Decisions to conduct study, employ intelligence service 7 Departure of study team for country 8 9 Completion of field work 10 11 Completion of Report 12 decision by Board on acceptable terms * Source: Multinational Management, Venture Analysis. p.58. 1 McGrath, John J. Sell Your CEO! Vital Speeches of the Day. vol. 61-14. May 1, 1995: 444-7. 2 Stuart, Robert Douglas. Penetrating the International Market. American Management Association. New York 1965: 25-39. 3 Haner, F.T. Multinational Management. Merrill. Columbus, Ohio 1973: 43-58. 4 Ewing, John S. and Meissner, Frank. International Business Management; Readings and Cases. Wadsworth. Belmont, California. 1964: 146-70. 5 Robinson, Richard D. International Management. Holt, Reinhart and Winston. New York. 1967: 71-85. 6 Morden, Tony. International Culture and Management. Management Decision. vol. 33-2. 1995:16-21. 7 Harris, Philip R. and Moran, Robert T. Managing Cultural Differences. Gulf. Houston, Texas. 1979: 12-24. 8 Fayerweather, John. International Business Management; A Conceptual Framework. McGraw-Hill. New York. 1969: 51-64. 9 Haner, F.T. Multinational Management. Merill. Columbus, Ohio. 1973: 60-64. [mg1] 1 M. Broich f:\12000 essays\business & economics (632)\Broadcasting and Programing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Broadcasting and Programing Steiner's Model Steiner's model on programming preferences and broadcasting choices tries to show how stations come to the conclusion of what programming to show. This model goes on the assumption that broadcasters will go after the largest audience possible. Going on the information given about this hypothetical situation, we can predict what each of the four stations in this market will show. There are three distinct audience preferences. The first groups of 1200 viewers has a first programming preference of sitcoms and a second choice of soaps. The second group numbers 900 viewers and would pick cops first and soaps second. The third group, 500 viewers, likes soaps first and sitcoms and their second choice. This model says that the audience will watch their first choice first and then the second choice, but only is their first choice is not available. Let's say that the Federal Communications Commission licenses station A in their market. Looking at the viewer preferences, station A would start to broadcast soaps. By show soaps, it would capture a market of 2600 viewers. All viewers would watch because soaps is their first choice or it is their second choice but their first is not available. The FCC then offers a license to station B. After examining the audience sizes, stations B also starts to show soaps. By programming to this audience, it splits the soaps market with station A and both of them have 1300 viewers. Station B does not pick another programming because no other choice can offer more than 1300 viewers. When the FCC offers a license to station C, things will definitely change in this market. Station C sees the biggest audience available is the sitcom market with 1200 viewers. But when station C takes that 1200 viewers from the soap audience which hold sitcoms as their first choice, station A and B will both drop to 700 viewers. They now have to make a decision. Both can find larger markets elsewhere. One station, and it does not matter which one, will switch to cop shows. For this hypothetical, station B would choose cops for 900 viewers. Station A, who still is showing soaps, now only has 500 viewers. It does not like that, so it starts to show sitcoms. Audience 3, with 500 viewers, now is watching sitcoms because there are no soaps out there. Station A and C are both showing sitcoms and are splitting a viewer audience of 1700 for 850 each. Now that the viewers are confused about what station is showing what, the FCC offers a fourth license to station D. After examination, station D decides to start broadcasting sitcoms in competition with stations A and C. All three stations have an audience share of 566. That is more than the 500 soap viewers or splitting the 900 cops viewers with station B. Although Steiner's model is not too far off what happens in today's television landscape, it does have a couple of drawbacks that keeps it from being a true model. Steiner does not take into consideration that some audiences are more valuable to advertisers than others. Because advertisers want certain viewers, stations might program to that audience to attract more advertising dollars. Steiner also assumes that as stations go into competition with another station, they will split the audience equally. That is not always the case. Viewers will watch the station they believe has the better quality, even if there are two or three stations showing the same thing. This model does offer some insights on how stations and networks make decisions. Just look at the TV Guide and see how many sitcoms there are on any given night. This also shows why some minority viewers never get programming directed at them. The stations are going to the majority audiences which have larger numbers. The minority viewer preferences, under these model, have to have another station before they get to see their shows, in this situation. First Copy Costs First copy costs in the newspaper industry are the fixed costs of owning a paper and printing the first one. First copy costs include the money spend on items that are necessary for the newspaper to be printed. These fixed costs do not vary as the number of papers increases or decreases. Because they do not vary, they are very important and must be covered by advertising and subscriptions. These fixed costs include the physical plant, the presses, the pressmen, reporters, photographers, other staff members and the delivery trucks. The interesting things about fixed costs is that you have to have them. You can not scrimp or just not buy them. To cut corners, a paper does not hire reporters, but how does it cover the local news? Whether or not you print a paper, you still must pay for that stuff. To figure the first copy costs of a newspaper, the fixed costs and the cost of the paper and ink of the first issue off the press are added together. For instance, let's say that the fixed costs of a newspaper is $1 million and the first issue costs $1 to print. The first copy costs $1,000,001. Looking at this, it sounds like newspapers would never make any money, but we have not figured in variable costs. These include the paper, ink and related costs of running the press. As the quantity of papers goes up, these prices usually go down. As the quantity continues to go up, the average cost comes down and each paper gets cheaper and cheaper. First copy costs keep many papers from owning their own presses. Large dailies must own their own presses in order to meet distribution deadlines and ensure that their paper gets printed on time. Smaller papers can not afford that first copy cost, so they have to contract with other to print their paper. First copy costs are a determining factor in how a paper is operated. Whether it owns it own presses or not, the size of its staff and how often it prints is all tied into these first copy costs. Economy of Scale with Cable TV By the nature of the beast, cable operators normally get exclusive franchises to supply a community with their cable service; so talking about competition in the cable industry sounds like an oxymoron. But there are signs that it might actually compete in a way. Less than 50 cities in the United States are overbuilt, or have more than one cable provider. Yet studies show that those overbuilt cities have lower basic cable subscription rates, $14.31 compared to $17.31. Can competition within the cable system be created? Probably not. The barriers against entry for new cable operators in a specific market are great. To begin with, the new operator must get a franchise agreement with that city. The incumbent franchise will not stand still for this. Those in the local government also will fear that the incumbent franchise might change benefits or disturb the local political situation. Economics of Scale would suggest that the incumbent would have lower average costs because they are already there and have a better distribution system. The second franchise would have high entry costs because they have to string their own cable and many times they have to bury the new cable. This additional work means high construction costs and community aggravation as they tear up roads and yards. The incumbent can employ delay tactics to make it very hard to start up new franchises. From political pressure to lawsuits to dropping price and keeping their customers happy, delays will make the new guy on the block discouraged and out. Within the cable operator networks, like TCI or CableVision, networks themselves own or have a financial interest in some of the channels they carry. Time-Warner owns TBS, CNN and a host of other channels started by the Turner Broadcast System. Although this sounds like a serious violation of the anti-trust laws, no contest has been put up against this practice. In fact, it has been shown that multi- system operators and overbuilt cities' operators are more likely to provide channels owned by other networks. Carrying their own channels allows networks to increase profits and helps keep subscription rates down. And, as a practical matter, cable systems need channels to put out there for people to watch. Owning or having financial interest in channels ensures that they have programming to carry. With all the things going against the competition of cable systems, the market demand for cable is elastic. The Crandall study, sponsored by TCI, showed that an elastic rate of 2.2 means that as subscription rates go up 1 percent, 2.2 percent of the subscribers will cancel their service. As the market show elasticity, the reality is that is normally does not work that way. To persuade subscribers to take their higher rates, cable operators offer new channels along with the rate hike. The number of channels has traditionally been a measure of quality and as "quality" goes up, so can the rates. Cable in the near future will see some competition from sectors outside of the cable industry. The Telecommunication Act of 1996 will make it easier for telephone and utility companies to go head to head with the cable operators. This might change the competition landscape of cable TV. Programming to the Minority Audiences Because networks and broadcasters look to capture the largest audience possible, many times the minority tastes are ignored. These minorities now have more choices today than they did before as technology expands. Steiner's model described how broadcasters went after larger audiences and skip over minority tastes. As technology advances and more stations are introduced, Steiner's model would suggest that those minority tastes were met. In a situation where government regulates a small number of broadcast stations, minority taste audiences have little recourse. The only option that they have is to petition the government to force the stations to program to them. Such was the case with religious groups. They got the Federal Communications Commission to make stations allocate time for specific religions and their shows. In a government sponsored market with a limited number of channels, some programming for the minority tastes will appear. The government would sponsor a channel that showed minority taste programming. On the down side here, the other broadcasters will continue to ignore minority tastes because their needs are met somewhere else. Broadcasters will continue to aim for the majority markets. Today, with an unlimited number of channels available, minorities have programming provided to them. Those with minority tastes can now start their own channel to cater strictly to themselves. Whatever their tastes, they will have it. The benefit of unlimited channel supply is that the market audience keeps getting more and more programming. Once someone see a type of programming work and make money, they might go after the same market. Broadcasters who once avoid that type of programming can now start another channel and tap into that market without detracting from its majority audience programming. As the technology improves and allows more and more minority groups to get involved with broadcasting, we will start to see a sharp increase in specialty channels; more than what we currently see. f:\12000 essays\business & economics (632)\Bubble economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve "zero defect program". But after the first and second oil crisis that occur from 1973 onward. The economy move downwards partially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called "Plaza Agreement" , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U.S. . Since then the yen value began to appreciate, Japan was going through a period of trade balance adjustment. While Japan is prepare to go through a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities. In this essay it will prove that land speculative activities had create many negative impacts to the Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse. The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will last for very long period of time. One of the reason that leads to massive investment in the risky activities is because of the success of the Japanese in the international market during 70*s - 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the enterprise. This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors. And during the period of speculative activities, borrowers increase the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the method of calculating mortgage size, another reason why the size of loan was so large is probably that both the bank and the investor were behind the land speculation activity (banking scandal). Investors were paying some key money (sort of a bribe) to financial institution in order to obtain a larger size loan. Therefore many financial institutions were over loan during this period. Another form of raising cash flow for the speculate market was by braking down a loan that obtain from a large financial institution to a specific enterprise, then lend a small piece of this loan to those who was not eligible to obtain a loan from the bank. These companies that act as the funnel will earn a certain amount of interest from these smaller companies (branch effect). Therefore all classes of companies and society can easily access in the speculate market. Other large corporate, construction company, organize crime group and even temple (religious) were also involve in land speculation. Another encouragement to the speculative market was because the government (liberal democratic party) had originally lower the capital gain tax in the early 80*s. Therefore the profit for owner to resale their land was large. Flaws in government policy also indirectly allow investor to get away of property tax expense. For example some land owner could just plant little crops over a large piece of expensive vacant land in urban city and declare them as agriculture land. As a result they will be tax very little. Therefore the incremental of land speculative activities were due to over size loan, high accessibility to the land speculative market and indirectly by the government flaws. During the peak of the land speculation there is a quite interesting study of land price in Japan. (1) "If you sell the entire property of Tokyo you can actually buy the entire United state and by just selling the surrounding land of the Imperial palace you can buy Canada." Although it might of been a little over exaggerate, but the point is that the land value in Japan compare to North America is much higher. Since there is no one side of a coin, Land speculation had create many social problems in Japan. Firstly, land speculation had rise the rent and housing cost tremendously. As a result many young couples and low income families were unable to form their own house hold. In average the cost of a house in Tokyo had raise to about 500 million yen. The younger group with low income cannot afford it and the mid age workers may also not able to afford it. Primary is because they would have to give up at least three-fifth of their income in loan repayment. Also if they have a relatively low amount of down payment, there working age may not be long to repay a mortgage. The longer the amortization period, the larger the amount of interest they bare. The white collar had become the slavery or sacrifice of the never ending mortgage payment and high cost of housing. In 1990 the births live in Japan was 1.2 million, in fact the number is the lowest since 1893. Many analysts believe that one of the reason that lead to this slow growth of population could be create by high house prices. So Japanese people have stopped having children and large family is rare. Therefore this is one of the causes of Japan is running our of Japanese. This is also a very big social issue of the modern Japanese society but the precedent of the slow growth of population has now move from high housing cost to other social problems. During this period, there were lots of cases regarding on the robbery and suicidal in the police force. (1) - Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 50 This was mainly because of the heavily debts that these police bare and they have no other choice than to attempt to go above the law. Due to the financing problems in the real estate market, it leads to the founding of what is program call "2 generations mortgage plan". The founding of this plan was propose to suit the majority of the white collar in the Japanese society. This plan was develop since 1983 but it became more useful from 1985 onwards and the qualification of this program must be father-son that plan or already living together. (son must be older than 20 and must repay the loan by the age at 70) The size of the mortgage is determined by the borrower, interest is flexible and the applicants must purchase an life insurance in order to protect the risk of un collectible due to death. (Pay by the bank) Husband and wife can also join this program . Banker said that the applicant may able to repay this loan in 40 yr. and this type of program also encourage a bonding relationship between father and son. On one side this program may allow a regular income worker to be a home owner but on the other side this person will bare a debt for the entire life and passes on to the next generation. Moreover it may limit on the consumption of the borrower on other composite good. The booms in land prices also discourage people's incentive to work. (2) "Because if any lucky individuals inherited or own a piece of land in metro Tokyo, they will suddenly gain a net worth of 250 to 300 million yen." This amount of money is equivalent to honest man*s life time income plus retire pension. Since may people get rich during this period, the number of middle class income in Japan had tremendously increase. Under these circumstances, many believe they have already achieved the good life therefore people lose the incentive to work hard and get ahead. Therefore it will distort the social structure in Japan and create many problems to the government (taxations). Since the sacrifice and cost of home ownership is so high therefore many Japanese had prefer to rent. Since the demand of rental market increase, it also attracted many investor and speculator. Therefore tenants also suffer from the incremental raise of land price. In Japan, young couples, low income group and the elderly participated as the major group of tenant in Japan. During this period, owners were looking to sell their property for high return and in order to force the tenant to move (after tenant moves landlord can chose higher quality tenant or resale the property for a larger profit) rent rises extremely high. Many elderly were unable to afford such high rent so (2) - Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 61 many were force to move. As a result many had become homeless. In some cases tenant refuses to move so some owner will hire organize gang group to force them out. Some of these unfortunate tenants will give up the hope in home ownership in the core and move further and further away from the center. Therefore many of them will spend over 2 to 3 hours to commute from their place to work. So either way, home owner ship and tenants suffer from the raise of housing price. The natural populations are not the only civilian of this incident. Many foreign students also suffer from the housing problem. (3) "In 1986, there was a statistic taken over a total number of 8116 foreign students. Apparently only 17% lives in an adequate resident facility." The primary reason was due to the cost of rent, high exchange rate and lastly it was because the local people do not wish to rent their property to foreign student. Student associate had propose to built new resident housing but due to the heat of land speculation (create an increase in the demand of land) and high construction cost, the new residential housing will be very costly. Therefore this new construction will probably raise the rent 2 to 3 times. While the housing problem continues for foreign students from 80 onward the Japanese government had still declare that they (4) "expect a total of 100,000 new foreign student will be coming in during the 21st century." This reflects that the government has pay very little awareness not only on the natural population but also foreign student. Beside foreign students and the natural population, another group that affects by the high land prices was foreign ambassador. As the price continued to rise (specially in Tokyo), the ambassadors of the lower wealth countries (such as Africa or Uganda ) were force to move their location away from Tokyo due to high rent. Although this problem was reflect to the Japanese government but it was remain un solve. Other side effects of the land speculation was the new residential construction during that era. In (thousand leaf city) many of the new construction area no longer have a large plain or play ground that similar to a traditional residential area. (3) - Cao Man Kit, "The Life of Foreign Student in Japan", Ming Chang, H.K. 1991, pg.160 (4) - Cao Man Kit, "The Life of Foreign Student in Japan", Ming Chang, H.K. 1991, pg. 167 In one of the Japanese newspaper there is an advertise article that describes their forecast on the living condition of the Japanese in the 21st century. (5) "The husband should not return home until weekend, during weekdays just live in worker*s resident near their workplace. This resident housing should be similar to hotel where it has an into desk that can wash your cloths, postal service and take your message. Their home should be in some rural or less urban area that 100 km away from work." This reflected that the rise of land value did not just only effect the affordability of the housing but also distort the lifestyle of the Japan workers as it had reflect in the earlier incident of the 2 generations mortgage. (6) "During the bubble economy period the zoning regulation in Tokyo has revise to allow builder to built more capital on the piece of land. So this indirectly rises the potential of building space in Tokyo. It will again raised the real estate value, property taxes and traffic congestion level of the area." According to the (7) "National Land Agency statistic, about half of firms surveyed in the mid to late 1980s responded that they had no development plans for the land that they acquired." They rarely built homes or apartments, but instead constructed office buildings that would bring in steady revenues. From the developer*s point of view, houses and apartment are the least profitable projects. So land would almost never allotted for housing". With land speculation and the shortage supply of new construction on housing the Japanese residents are very difficult to find an affordable place to live beside the houses that are very far from work place. In the current Japan election the percentage of participant voters in Japan has drop below 60% of the total population and the liberal democractic did not receive 50 % of the seat through election. This percentage was the lowest since WWII and mainly was because the populations in Japan no longer believe the liberal democratic party can bring them back from recession. Also they did not have a good control system during the bubble economy, failure of the recovery program after the bubble splash.(program such as expansion in public investment, lowering the interest rate and series of economic counter measure but the yen is still pretty high which discourage export) In more specific, during the bubble economy the government did not really propose (5) Cao Man Kit, "The Strategic of Japan Enterprise", Ming Chang, H.K. 1992, pg. 68 (6) Mc Millian Charles, "The Japan Industrial System", Berlin, New York, 1996 , pg. 56 (7) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 89 an effective tax law until 1990. (National Land Value Tax- prohibitive tax on profits from the sale or transfer of land national land law 1974) This revitalizes the local property tax and assessment ratio for the fixed asset tax. Another official policy was issue during 1990 was through the financial market in which the government regulates on the loan activity. This eventually slow down the loan activities largely in 1991. But still the government really lagged their response for those who already suffer for 5 years of high housing cost. More over during the period of bubble economy, many politics were either involve in land speculation or was bribe by organize gang group and large enterprise in order for these people to be more conveniently to have more benefits in the land market. One incident is involve by a business man Kyowa and a cabinet minister Fumio Abe, where Abe sold the details of where a new road construction in Hokkaido in return for 480 million yen. Political scandal was expose to the public not long after the bubble economy was splash. Lastly, most of the asset of the politicians are in the real estate market therefore neither the bank or the officials admit the fall in land prices. So when this incident was expose to the public, the prices of land fall sharply around 50 %. And mainly because of the period of cover up. So many big and small investors suddenly woke up from their happy dreams and face the horrible reality. With the above reasons the government has lost the trust of many Japanese. Therefore the land speculate activities had also effect the image of the strong liberal democratic. During the bubble splash period, many pre-graduates and graduated university students were unable to find jobs in the labor market due to the diet all companies therefore many students were frustrate about their future. Therefore the supply of the labor market is distorted by the bubble burst. Therefore you can see that the land speculation activities had create many social problems to the Japan society during the bubble period and after the bubble burst. During the bubble period the economy was strongly boost by the sudden rise of land value and stock market. On the other hand the after math of the bubble splash was a pain for the economy. In general we will look at the effects on the rise and fall of the Japan*s economy. In 1985 the trade balance in Japan need to have adjustment therefore the government declare that it needs some force to grow in order to prevent recession during this adjustment period. (8) "In 1989 the GNP has increased by 481,000,000,000,000 yen and this was mainly due to the speculate market." (People put their profit from land to stock market or vice versa) Many companies were mainly focus on the speculate market. (9) "The Tokyo Stock exchange soared to almost 40,000 points, the value of stock and land was far above the real value and value of property was not rise due to its demand but was due to speculation. Eventually when the bubble splash, the vacancy rate went rocket high due to lack of demand. Many companies had to go on a strict diet to survive, and they made deep cuts in expenditures for entertainment, advertising, communications and much else." And the above statement is the general picture of what happen during the bubble economy. During the golden period of land speculation, many investors know that the land market in Japan was limited (due to the potential and limited geographic area) so they began to purchase land over sea in Hawaii. (10) "The Non water front housing price in Hawaii during 1987 went up by 51 % and the water front housing price went up more than 100%." This resale land market in Hawaii was primarily between the Japanese; in 1987 the land prices was estimate has rise over 60.2% and many tenants have suddenly realize that the rent has tremendously increase and cannot afford it, so many people have no place to stay (especially the elder). There are several reasons that Japanese wants to invest in Hawaii such as; the waterfront view is similar to Japan so it will be a good place for vacation and retirement, the distance between Japan is relatively close ( 3 hours trip by plane) and massive left over of equity and advantages in the exchange rate that has tremendously increase the nominal value of their equity so it is an encouragement for investment. Therefore the wave of land speculation did not only distort the land market in Japan but also affected foreign country. (8) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 135 (9) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 135 (10) Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com Looking back at the Japanese economy (11) "in 1987, 77 out of the top 100 most heavily taxed people were involve in land speculation (either have resale their lands or have large land properties). This created a very unhealthy economy because most of the economy is depend on the land market and if any thing happen to the land market, it will distort the economy greatly. (12) "In 1989 the top 100 most heavily tax people 95 of them were involve in land speculation." Therefore the situation was worst in the later period this is mainly because of the profitability in the land market. Since many enterprises only focus on speculate market therefore the real growth of GNP of the country was only 4 to 6 %. The growth of the economy was mainly on the nominal sector. The increase in nominal GNP has created massive appreciate of yen, which had tremendously affect the export businesses and the manufacture industries. (the nominal price of the good has increase therefore foreigner has less interest on Japan goods but this mainly effect small and medium enterprise) While some export business was not doing too well, consequently the workers are not getting an appropriate rise in income. (13) "In 1986 (Nissan) several of the high executive had experience an income cut by 5 to 10% and many of them are very frustrated because most of these people were in their 40*s and have to pay for mortgages and children*s tuition. In later years Nissan had announced to cut 500 in order to balance out their lost." Therefore large manufacture as Nissan was not doing so well during this period. This was worst in the case of the small and medium enterprise. Many small and medium size export companies had contract or even close down during the mid 80*s and as the wave of income cuts continued, every level and class of the employees were involve. On the other hand the high exchange rate was really an advantage for importer (same value buy more) such as energy, petroleum and primary material. These companies were suddenly becoming so wealthy and the income of their employees were much higher compare to those working in the export enterprise. Therefore there was a large gap on the profit and income between the two distinct groups of company and it was very unhealthy for the white collar. (11) - Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 178 (12) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 178 (13) Cao Man Kit, "The Strategic of Japan Enterprise", Ming Chang, H.K. 1992, pg. 135 This period of high exchange rate continues until the bubble burst. The decline of the bubble economy occurs during the Gulf war period, the economy in Japan was very quite and at the same time the government had tighten their policy. (Both tax policy and restriction in loans) As a result, the land speculation market and land prices fall continuously. The real estate market is totally frozen. The National Land Agency measures that land price of Tokyo and Osaka has dropped 30 to 50 percent. (Total land wealth is near 2000 trillion yen which is really a lot) Many real estate properties were unable to be resale and at the time many companies were unable to pay such high interest payment therefore many of them went bankrupt. While the banks rarely make any loan, many companies cut back in their capital spending. In fact this had dampen the recovery of economy. Most of these companies that went bankrupt were either small or medium size enterprise which lack of its separate bank center. Large enterprises with separate bank center also suffer from non performing loans by the borrowers (small and medium size enterprise). Others large lending institution also suffer largely, since the major economic powers at the bubble period was on the land market therefore any decline in land values would strongly influence the balance sheets of Japan*s lending institution. As reported in June 18 1996 The News Times International News that the (14) "parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders. The vote clears the way for the establishment of an institution to liquidate the assets of the housing lender which collapsed under bad loans made to real estate speculators before Japanese land prices plummeted in the early 1990s. The seven companies are believed to have more than $65 billion in bad debts." This $.6.3 billion is only a piece of the big picture because (15) "the Finance Ministry said that Japan*s financial institutions held about $324 billion in bad loans as of March 31 1996. Analysts believe the total could be considerable higher. The government in recent days has been working to persuade banks and farm cooperative to agree to take on a bigger share of the bailout burden to reduce the cost to taxpayer". According to a current financial post in Tokyo: (16) "Most of the financial banks declare yesterday that with the experience of deficit in last year, this year (ended till September) they had turn deficit into net profit. (14) - Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com (15) - Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com (16) - Herman Li, "Sing Tao News", November 23 1996, Toronto, Section B 12 Banks had systematically write off many of the un collectible accounts. But their revenue is still not very high because of low interest rate and the incremental of bad debts. Therefore financial institution will still probably experience quite a long period of recession." Therefore residue effects of the land speculation spill over still continues. Land developers also suffer largely. Before the land market crash was expose to the public, there were nearly 1,200 golf course was either approve or under construction. Many pre-member ships were sold but unfortunately many of the construction are never finish because of banks were pulling back the loan. At peak, the total value of golf member ships market in Japan was near 200 billion for 1,700 golf courses. Therefore closing down 1,200 golf course construction was quite a lost for the economy. Another aftermath of the bubble burst is the high vacancy rate in the office buildings in Tokyo. During the late 1980*s, the new constructing rate (for the office buildings) was double compare with the tradition. After the bubble burst, the value of asset decreases and demand for space also decreases. Therefore many office buildings are unoccupied. As you can see, the after math of the bubble burst did not only affect the business enterprise, government but also the grass root people. (17) "In last year the economic growth rate was only around 1% or less and the government had introduce economic revitalization policies such as lowest ever interest rates and increased public investment but judging by the fact that consumer demand has cooled off and capital investment by the corporate sector is not making headway as expected therefore the outlook for economic recovery in Japan remain hazy". The bubble bursting has affected everyone in Japan. (18) "The country has clearly become a victim of the same wrenching process of debt deflation that had already been visible for several years in so many other economies. Japan faces the reality of outright deflation in terms of falling prices. With all that implies for companies inability to maintain their profit margins. Japan was facing by the autumn of 1993 an unpleasant combination of excess production capacity, falling demand and a rampantly high yen. By August 1993 wholesale prices were declining at an annualized rate of 4.2 percent." Once again you can see that many Japanese are not very optimistic about the future economy. (17) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 205 (18) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 206 Therefore you can see that the land speculation had create many negative impacts to the Japan economy not only during the bubble period but also after the bubble burst. f:\12000 essays\business & economics (632)\Budget 97 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Budget 97 Finance Minister Paul Martin unveiled the Liberal government's 1997 budget recently. As most economic and political experts predicted there were very few surprises, if any. This was a cautious and predicable budget that was every bit political as it was economical. With the Liberal government set to call an election in late May or early June the Party was very reluctant to rock the boat further. This is what they have done in the 1997 budget and the subsequent reactions to the new budget from both the business and political communities. In this no-surprises, pre-election budget, Martin said deficit cutting is coming to an end and that Canadians, particularly the unemployed, will soon reap the rewards of 40 months of strict financial management. With the Federal deficit dropping over the last few years, the Liberals feel that they can balance the budget in the next two years. This is important because it will allow the government to halt their foreign borrowing to finance the deficit. This greatly helps the credibility of Canada and puts the country's destiny back into domestic palms. With this said, Martin announced no new tax increases, although the raise in the Pension Plan could be considered a hidden tax increase. Martin announced no new spending cuts in this budget although cuts made in previous budgets are set to slash 3 billion more dollars this year. There was some extra spending sprinkled into various areas. For starters, a new tax benefit will be created in co-operation with the provinces, costing the Federal government $600 billion. This program is attempting to help the poor and this can be effective economically because poor people tend to spend everything they have, and they almost always spend it domestically. This program will be introduced in two the stages, the first of which will begin this July with a $195 million supplement. Instead of benefits being capped at $500 per family, the maximum working income supplement benefit will be increased to $605 for the first child, $405 for the second child and $330 for each additional child. Other expenditures will be include; tax credits for students, $300 million in new health care funding and tax credits for medical expenses of the disabled. Depending on how you look at it, Martin is either spending more or just cutting less. There have been many contrary viewpoints that economic and political leaders have thrown out and most are unsure. It appears that Martin has created a no-brainer budget that doesn't do anything to hurt but does not make Canadians feel better either. Martin was expected to put money into job creation in order to lower the unemployment rate and inject money into the economy. That didn't happen. Martin was expected to cut some taxes in order to take some of the boulders off of the already burdened shoulders of the average Canadian. That didn't happen. On the plus side there were no new cuts or tax raises planed and that could be used as leverage by the Liberals in the upcoming election. All in all this was a very political budget filled with lots of rhetoric instead of concrete answers about the future of Canada. From a political point of view this budget and the results from previous budgets puts the Liberals on pretty solid ground. The promises of balanced budgets and a flourishing economy will ring in every Canadians ear as the election approaches. The promises of large financial rewards will definitely give the Liberals an edge, and a much-deserved edge. The Liberal party has begun to effectively clean up the mess that the Tory's left them and that should not be overlooked. From an economic standpoint the 1997 budget left things pretty close to the status quo. The thing that was lacking was the absence of a tax cut that could stimulate jobs and help working Canadians. The addition of new funds for the poor is little but not nothing and could potentially help to raise the GDP by injecting more local money. With all of this said Paul Martin did not bail of job creation all together. The largest amounts of new spending in Martin's highly conservative budget are for innovation, education and children. These are the kinds of things that will do little to create jobs today, but will be crucial for the new jobs of tomorrow. The presence of a well-educated work force is crucial in attracting job-creating investment and that is what Martin is attempting to achieve with this budget. It appears that the worst of the tax cuts is behind us and although there are critics who criticized Martin's assault on the deficit, it appears that it had to be done in order to prevent Canada from hitting the debt wall. The all out war on the deficit has almost been won, and Martin and the Liberal government should take a bow for that. Martin's budget, filled with flowery phrases and dreams, did little to completely satisfy the average Canadian. The fact is that Martin is doing what has to be done to make this country viable into the 21st century and the voting public will likely not forget that come election time. That was the mission of the Liberal government, a mission that will likely continue for four more years. f:\12000 essays\business & economics (632)\Budget 97.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Budget 97 Finance Minister Paul Martin unveiled the Liberal government's 1997 budget recently. As most economic and political experts predicted there were very few surprises, if any. This was a cautious and predicable budget that was every bit political as it was economical. With the Liberal government set to call an election in late May or early June the Party was very reluctant to rock the boat further. This is what they have done in the 1997 budget and the subsequent reactions to the new budget from both the business and political communities. In this no-surprises, pre-election budget, Martin said deficit cutting is coming to an end and that Canadians, particularly the unemployed, will soon reap the rewards of 40 months of strict financial management. With the Federal deficit dropping over the last few years, the Liberals feel that they can balance the budget in the next two years. This is important because it will allow the government to halt their foreign borrowing to finance the deficit. This greatly helps the credibility of Canada and puts the country's destiny back into domestic palms. With this said, Martin announced no new tax increases, although the raise in the Pension Plan could be considered a hidden tax increase. Martin announced no new spending cuts in this budget although cuts made in previous budgets are set to slash 3 billion more dollars this year. There was some extra spending sprinkled into various areas. For starters, a new tax benefit will be created in co-operation with the provinces, costing the Federal government $600 billion. This program is attempting to help the poor and this can be effective economically because poor people tend to spend everything they have, and they almost always spend it domestically. This program will be introduced in two the stages, the first of which will begin this July with a $195 million supplement. Instead of benefits being capped at $500 per family, the maximum working income supplement benefit will be increased to $605 for the first child, $405 for the second child and $330 for each additional child. Other expenditures will be include; tax credits for students, $300 million in new health care funding and tax credits for medical expenses of the disabled. Depending on how you look at it, Martin is either spending more or just cutting less. There have been many contrary viewpoints that economic and political leaders have thrown out and most are unsure. It appears that Martin has created a no-brainer budget that doesn't do anything to hurt but does not make Canadians feel better either. Martin was expected to put money into job creation in order to lower the unemployment rate and inject money into the economy. That didn't happen. Martin was expected to cut some taxes in order to take some of the boulders off of the already burdened shoulders of the average Canadian. That didn't happen. On the plus side there were no new cuts or tax raises planed and that could be used as leverage by the Liberals in the upcoming election. All in all this was a very political budget filled with lots of rhetoric instead of concrete answers about the future of Canada. From a political point of view this budget and the results from previous budgets puts the Liberals on pretty solid ground. The promises of balanced budgets and a flourishing economy will ring in every Canadians ear as the election approaches. The promises of large financial rewards will definitely give the Liberals an edge, and a much-deserved edge. The Liberal party has begun to effectively clean up the mess that the Tory's left them and that should not be overlooked. From an economic standpoint the 1997 budget left things pretty close to the status quo. The thing that was lacking was the absence of a tax cut that could stimulate jobs and help working Canadians. The addition of new funds for the poor is little but not nothing and could potentially help to raise the GDP by injecting more local money. With all of this said Paul Martin did not bail of job creation all together. The largest amounts of new spending in Martin's highly conservative budget are for innovation, education and children. These are the kinds of things that will do little to create jobs today, but will be crucial for the new jobs of tomorrow. The presence of a well-educated work force is crucial in attracting job-creating investment and that is what Martin is attempting to achieve with this budget. It appears that the worst of the tax cuts is behind us and although there are critics who criticized Martin's assault on the deficit, it appears that it had to be done in order to prevent Canada from hitting the debt wall. The all out war on the deficit has almost been won, and Martin and the Liberal government should take a bow for that. Martin's budget, filled with flowery phrases and dreams, did little to completely satisfy the average Canadian. The fact is that Martin is doing what has to be done to make this country viable into the 21st century and the voting public will likely not forget that come election time. That was the mission of the Liberal government, a mission that will likely continue for four more years. f:\12000 essays\business & economics (632)\Burger King and Its Advertising Campaigns.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Burger King and Its Advertising Campaigns Burger King is a reliable burger company which has had its ups and downs. In 1974, it came out with a slogan of "Have it your way" and at this time it also had a 4 % market share. Burger King's idea was to have the customer have their burger done their way rather than a standard burger. In the early 80's Burger King was trying to keep sales growing so they had to keep changing their advertising. In 1982 "Battle of the burgers" and "Aren't you hungry for a Burger king now?" were the slogans used. In 1983 "Broiling vs. frying" and 1985 "The big switch". All these ads throughout the years helped increase market shares from 7.6% to 8.3% from 1983 to 1985. "Search for herb" was a slogan used by BK about a person that has never tasted a whopper burger, this campaign was supposed to increase market share by 10% but in reality only increased it by 1% it was a disaster. In 1986-1987 "this is a burger king town" and "best food for fast times" brought a lot of attention to the company. In 1988 "We do it like you do it" was used often but a year later they came out with two new slogans which confused the customer. In 1989 "Sometimes you gotta break the rules" and "BK tee vee" with MTV and Dan Cortese with "I love this place". This was another huge setback for BK because people on the go and parents found this ad loud and irritating. BK at this time has failed to establish a solid image that would differentiate it from its competitors. Ads if anything only confused consumers as to what advantages BK offered. In 1993 it had a market share of 6.1% were McDonalds had 15.6% and BK's sales were growing slower than its rivals. Failed advertising campaigns weren't the only problem's, they also had internal problems. Management lacked focus and direction and has struggled with marketing mix decisions. Franchises became confused and angered, service was slow and food preparation wasn't consistent. Burger King lost its core product- flame broiled burgers, made the way the customer wanted them. Another thing that hurt them was the fact they didn't lower prices to keep competing with their competitors this led to a below average sales growth. Many in store promotion also failed. In 1993 a new CEO was introduced, this allowed for huge turnaround and in fact it did. He helped please the franchises and responded to their problems and listened to their recommendations. Then later he lowered prices and hired a new advertising agency. 1. In reading this case analysis I figured Burger King to advertise the Whopper, but throughout the past years they didn't do this. I figure the whopper or the flame broiled ads would have been more productive and probably would have resulted in greater sales margin. I also feel that the ads should have distinguished themselves from what other ads by letting the people know that burger king wasn't just another standardized burger. Throughout the years, BK tried to establish the market by becoming someone they weren't. I feel the ads used by BK should have been simple and to the point. This would have caused less confusion and more honesty with the customer, this is because you don't want to advertise a pizza or a taco if your selling burgers. Other objectives BK wanted was to target teens with the MTV approach. This also failed because people found it loud and annoying. Then they tried a sit in type of restaurant, which also failed because people want a fast food low price meal not a high priced, sit down meal. Advertising is any paid form of non personal presentation and promotion of ideas, goods or services by an identified sponsor. Advertising is a good way to inform and persuade the customer. Advertising objectives are based on past decisions about the target market, positioning and target mix. There are five steps to making a major advertising decision these steps are as follows: Objective setting, Budget decisions, Message decision or media decision, and campaign evaluation. Along with these steps BK should also remember to inform, persuade, and to remind. These three are a must that a company should aim at, for example: in informing BK used the ad "Broiling vs. frying" in 1983 letting the consumer know that their burgers were broiled and not fried. In persuading, I think BK over did it and that is why I feel that they didn't retain market share. They tried to be someone they weren't with slogans like "search for herb" in 85 and many others like "BK Tee Vee" trying to persuade the younger generation and "Sometimes you gotta break the rules". These slogans and more tried to persuade the consumer. In reminding their customers BK has done a good job. They've at least expanded nationally and internationally and always have commercials everywhere with a juicy whopper on the screen, reminding the viewer that BK is the only place a whopper is made. 2. BK's past advertising and corporate strategy failed because BK did the two biggest mistakes they could have done. First they didn't listen to the customer and second they didn't advertise their main product a maintain a target market. In not accomplishing any of these two strategies in the past it allowed their rivals to get a lead on them. In 1993 McDonalds, for example, had a market share of 15.6 percent compared to BK's 6.1 percent. This is because they established their market and didn't try to invent new strategies. Burger King started to lose market shares when it first came out with the search for herb, and then it declined again when it tried to target the teenage generation rather than staying loyal to the general customer. It tried targeting the younger generation through MTV. This became insulting and irritating to the old customers and to the quiet more relaxed people and even all the young children who prefer clowns than some man screaming on TV . BK did not listen to its customer, they tried to establish a restaurant type of business, rather than their fast food burgers. Fast food patrons really wanted low prices and quick but high quality food, not a higher priced, sit down meal. The corporate strategy and the past advertising wasn't the only problem and wasn't the only one at fault for BK's failure. They also had internal problems. Management has had troubles with the market mix decisions. Service was slow and food preparation was inconsistent and many stores needed remodeling. BK didn't focus on its burger ,instead they were trying to experiment with pizza's and ice cream. This caused confusion ,and confusion brings problems. To add to the problems BK was more expensive than McDonalds or Wendy's combos, which was also hurt sales for Burger King. 3. For the new advertising campaign I would personally target the young and the old generation. I would also be very health conscious and try to establish myself as an environment safe corporation. Burger King is huge, they have the ability to do what they please, but they better make sure the customer are happy. I would make new slogans, and put new ideas for kids and grown ups to enjoy. I remember when I was growing up I used to love going to Burger King for a burger and getting a little toy. Now, you get a toy but the prices are so high you really end up paying for it anyway. I wouldn't leave out the teenage to mid- twenty's crowd, but I feel they are less influence by ads and specials, they will buy what is probably better and cheaper. Besides if you target them when they are small growing up then when they already grow they look they like you anyway. That is why you have to target the young and make sure you are good to them. New slogans are hard to come by in specially into this society where you better watch what you say or you will get suit. I do not really believe in slogans, I personally rather buy quality than to hear how good it could be. For me seeing is believing and I do not believe everything I hear. 4. I recommend a couple of things for Burger King to do. One has already been accomplish, this was I would first change the CEO. In this case Jim Adamson stepped in July 1991, since then Burger King has made a turn around. He listened and responded to franchise problems and recommendations. He locked into a strategy of concentrating on BK's core products flame broiled, bigger burgers. He launched a new pricing structure which will compete with that of McDonald's. Burger King also needed to get some effective advertising, and I believe Mr. Adamson also accomplished this, seeing BK has grown since 1991. He went back to the basics which I think was the most important part of a Company's rebuilding, because this how you got to where you are and if all else fails, it's like starting again with experience. BK became known as "The voice of the people" opposed to McDonald's been known as the voice of the Corporation. I also feel BK advertising has improved. Now you see burgers on TV compare to Dan Cortese a couple of years ago. You also see people having a good time and eating a whopper. I feel Burger King is a company with many obstacles but it is also a company that if is stuck to its basic game plan, it could regain a great deal of the market share. If I was to give a recommendation it would probably be for BK to stay been loyal to your customers and to try to keep the market share. f:\12000 essays\business & economics (632)\Business communication 1st essay.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Have you ever find yourself wishing for more hours in a day? Or have you ever felt like you were juggling with thousands of tasks that need to be done at one time? If you ever do, start thinking to manage your time from now on. Managing your time is very important because it will help you balance a professional life and gives you time to be creative. In this essay I will discuss the importance of effective time management skills for successful business communication, which will include some points like how you plan your time, how you can set your goals, have a balance in your work as well as in your life. However, this essay will also define the crisis time management that might happen when you have lack of planning, lack of self-discipline, which lead to stress. The aim of writing this essay is to recognise the importance of effective time management and be able to apply the skills to determine priorities, develop simple self-management techniques and manage others effectively. Establishing goals is the first step in effective management. You need time to achieve goals, that is why you should organize your days so that you are spending your time on activities that will help you achieve your goals. You will find it easy to adapt with the situation when you using your time effectively and as it is will greater progress toward your goals. As you make progress in efforts to control time, you will want to set goals for the time you save, ( Mackenzie, 1990). Without goals, there is little or no meaning in work and life, and without meaning there can be only dissatisfaction and general unhappiness, (Glesson, 1994). A goal must be achievable if you can't reach you goal, you will only frustrate yourself and may give up and destroy your motivation. You can choose to succeed or choose to fail but having goals makes the difference. People sometimes get confuse between goals and priorities. Priorities therefore are objectives that have been ranked in order of importance, (Webber, 1972). Whatever is on top is your number one priority. The next one down is the number two priority and so on. Often we seem to have many goals without taking the care to determine what is really important. When you are facing problems with priorities the best way is to have cards. It can be helpful for sorting priorities. This is one of the effective time management skills because you know how to put your first priority at the top and be more focus in it instead of doing all the tasks for example that will just cause you stress. "Time management is not about time in the abstract but it is about what you can accomplish with time," (Mackenzie, 1990, p.25). What it means is that what you can do or produce with the time effectively. In order to get an effective time management, you have to make a good planning before you even do anything. Planning itself means thinking about what you are going to do and how you are going to accomplish it. You have got to really prepare for the future by making your own decisions. When you have all the planning on what you do before you do something, you won't have things mixed up. It is not enough simply to create a great plan but you must be able to implement it. Planning enables you to get clear pictures of what you are doing. Start with having list of things to do, daily planning, weekly planning or even a monthly planning. A good planning will result in a good time management and therefore will succeed in any ways. Figure 1.1 Daily planning Monday Tuesday Wednesday Thursday Friday Saturday 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 As the table shown above, what most people have in the daily planning is goals for the day, for example, 1st, 2nd, 3rd task that you must get done. Also scheduled appointments, meeting, to do list or things that you don't want to forget, lower priority tasks you hope to get done. By having this daily planning you won't have to worry about things that you have to do. Figure 1.2 6 monthly planning January February March April May June Whatever planning you are using whether it is daily or 6 monthly planning but the main purpose is as a reminder device to help you see the step clearly and to help to achieve as you complete each step. If you have lack of planning and lack of self-discipline it will lead to crisis time management. There is no way that someone can be expected to continue to work at maximum productivity while experiencing negative stress, (Wenig, 1993, p.145). Managing time well can prevent much of the stress. In conclusion, effective time management is what makes success possible. The real value of time management is that it enhances our lives in all dimensions, (Webber, 1972). What we gain from time management is not more time but a better life. When you learn to use effectively the time that is given to you, you can have more time with your family, avoid getting stressed out, improve your personal level of productivity and be more successful in achieving your goals. REFERENCES Gleeson, K. 1994. The Personal Efficiency Program. John Willey Inc, Canada. Mackenzie, A. 1990, The Time Trap. Amacom, NewYork. Webber, R. 1972. Time and management. Van Nostrand Reinhold Company, Melbourne. Wenig, L. 1993, The A to Z of Time Management. Australia Print Group, Sydney (NSW). BIBLIOGRAPHY Albrecth, K. 1979, Stress and the manager. Prentice Hall, Englewood Cliffs. Gleeson, K. 1994, The personal Efficiency Program. John Willey and Son Inc. Kotnour, T.J. 1993,Time management helps first-line maintenance supervisors handle pressures, Industrial Engineering, V.25, n.3, p.50(4). Mackenzie, A. 1990, The Time Tap. AMACOM, New York (NSW). Pettiford, H. 2001, Time's a Wastin!, Black Enterprise, v.31, i.11, p.322. Taylor, Harold L. 1981, Making Time Work for You. Dell Publishing, New York. Webber, R. 1972, Time and Management. Van Nostrand Reinhold Company, Melbourne. Wenig, L. 1993, The A to Z of Time Management. Australia Print Group, Sydney (NSW). Williams, K. 2000, Tips on Effective Time Management, The Economist, v.12, p.278-300. Yates, Jere E. 1979, Managing Stress. AMACOM. New York. 1 f:\12000 essays\business & economics (632)\Business Education.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 747 4/3/00 Argumentative Draft Formal Education Is the Key to Success The advancement of technology in the last decade has increased the demand for Americans to seek higher and formal education. No longer do we live in the age of manual labor, family owned & operated conveniences, but rather a computerized age. Thirty-years ago job seekers could find stable and secure work that would ensure stability and a prosperous future. Those white collar jobs could be obtained and secured by individuals lacking a formal and/or higher education. Today, blue collar jobs like fast food restaurants, warehouse labor, and/or janitorial services prefer and sometimes require some form of education. Employers have become more openly concerned about their employees ability to represent their companies. (Formal education is the key to empowerment, but it is not necessary in order to become successful in today's society.) Education has become a large importance and often the determining factor for competitive job seeker. More than half of Americans citizens seek some form of education at one time or another whether it be for job placement or advancement. Technology is always changing and requires employers to train and re-train its employees to keep then afloat. College students like myself have always been for warned that higher education is the key to ensure success in the career world and will be the only means of providing a competitive income to accustom societies changing trends. Not long ago, education could be used by employers to determine which potential employee was qualified for the job. Today applicants are equally equipped with resumes, one or more degrees, fluency of languages, and references. Only highest achieved in education distinguishes him or herself from the competing applicants. Education is extremely important for those hoping for success in the twenty-first century. Those without a formal are not completely exempt from success, but without some form of education it will prove to be a difficult climb. Education open doors for those with the desire to enter the corporate world. People without a formal education may find it extremely difficult to compete with those with degrees. Professions like doctors, and lawyers are solely limited to those who have obtained higher education and proven to be skillful. People without higher education can not meet the minimum requirements. Mechanics, janitors, secretaries, and administration may put more emphasis on skills rather than education. Persons having those skills may be more successful than those without. The author, Unger states that "more than 28% of all full-time workers without college degrees earn more than the average without college degrees earn more than the average workers with a bachelors degree from college" (17). This proves that it is not completely impossible for individuals without formal education to be successful. Author John Gatto describes schools as a "body of knowledge that equips students with all the ideas, skills, and attitudes necessary to help them lead happy and productive lives" (166). Not all knowledge is obtained through schooling. There are many people that may argure that higher education is simply a waste of money. Malcolm X argued that the "biggest troubles with college is there are too many distractions" (227). Higher education enables individuals to obtain power. With education people are able to make decisions about the choices of their lives instead of settling for what is made available to them. With an education, you can market yourself to different companies and have your choice of the litter. Without an education this is almost impossible. Those persons that lack a formal education limit their future career choices. As we move into a new millennium, it will become more important for everyone to receive some form of formal education. Citizens will no longer be able to obtain jobs based on experience alone. Almost every employer will require some form of education to ensure the life of its company. The knowledge that can only be obtained through higher education will prove to be vital in the twenty-first century. Everyday performance such as grocery shopping, mailing letters, or pumping gas will become so sophisticated that we will need to be computer literate to complete the task. Knowledge is power and the more you know the farther you will be able to go. It is only when we limit ourselves academically that we limit ourselves economically and socially. f:\12000 essays\business & economics (632)\business enterprise in New York grew by leaps.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1348 April 17, 1996 For a number of reasons, business enterprise in New York grew by leaps and bounds between 1825 and 1860. New York's growth between the years 1825 and 1860 can be attributed to a number of factors. These include but cannot be limited to the construction of the Erie Canal, the invention of the telegraph, the developed of the railroads, the establishment of Wall Street and banking, the textile, shipping, agriculture and newpaper industries, the development of steam power and the use of iron products. On October 26, 1825 the Erie Canal was opened. The canal immediately became an important commercial route connecting the East with the Ohio and Mississippi Valleys. With tht time of travel cut to one-third and the cost of shipping freight cut to one-tenthof the previous figures, commerce via the canal soon made New York City the chief port of the Atlantic. The growing urban population and the contruction of canals, railroads and factories stimulated the demand for raw materials and food stuffs. In 1836 four-fifths of the tonnage over the Erie Canal came from western New York (North, 105). Much of this cargo was in the form of agriculture goods. The farmer become a shrewed businessaman of sorts as he tended to produce whatever products would leave him the greatest profit margin. The rise of the dairy industry was by far the most significant development in the agricultural history of the state between 1825 and 1860. Farmers discovered that cows were their most relliable money-makers, since both the domestic and foreign market kept demanding more dairy products (Ellis, 273). Price flucuations became increasingly important for the farming population between 1825 and 1860. Prices rose from the low level of the early 1820's until the middle 1830's and the farmer's shared in the general prosperity (271). Although the rapid industrialization and urbanization of New York had a great deal to do with the success of agricultural markets sporadic demand from aboard as a result of the Irish famine, the Crimean War and the repeal of the Corn Laws in England also contributed(North, 141). During this period Ohio, Pennsylvania, New York and Virginia, in that order were the leading wheat growing states. Between the years 1840 and 1850 New York ranked first in the production of beef. The absence of politic party differences on issues related to the the growth of democracy existed in regard to the foremost economic questions, there was absolutely no partisan division evident in the movement to incorporate new financial institutions; rather , the primary factors , which the legislators examined, concerned value, feasibility, profit and the location within the state. Dozens of turnpike proposals, most of which werebacked by the Republicans, passed the legislature; but the Federalists cooperated, seeing the chance for profits. Prominent Federalists like John Rutherfurd, John Neilson, William Paterson, John Bayard, and James Parker invested susstanial sums in the turnpike business. There were numerous Republicans who were also vitally interested in the turnpike business (Kass, 150). Bipartisan support also accompanied plans for the construction of bridges and canals. All of the parties contained a large number of adherents from from every level of economic well-being in society. This helps to expain the absence of any clear-cut party differences on the major economic issues of the such as the chartering of banks, the protestive tariff, internal improvements, the development of manufacturing, and the promotion of superior agricultural techniques. Each politcal faction had segments both pro and con on most of these questions, and, inall cases it was opprtunism, the desire for profits, which was decisive in determining one's political position on these economic issues(175). New York's economic growth can also be attributed to the invention of the cotton gin. Cotton had become a boom crop in the south, however, plantation owners were either too engrossed in the production of their crops or too unschooled in business techiniques to handle its distribution. Some just did not want to be bothered. This opened thee door for agents representing New York shipping firms who were only too happy to help them out - for a fee. This scheme not only earned the New York merchants a handsome profit but also solved the problem that without cotton the ship owner would be hards preesed to find adequate cargoes for their return voyages. And so it came about that New York in the nineteeth century became the nation's foremost shipper of cotton(Allen, 108-109). The cotton shipments entering New York harbor were brought to textile mills for processing. A group of New york capitalist estashlished the Harmony Cotton Manufacturing Company in Cohoes. A heavy investment of capital caused the rapid growth of the factory system, which was mass production with integration of processes and produced a high quality cotton cloth as well as other textiles(Ellis, 266). This set the scene for an industrial society by widening the market, manufacturing increased rapidly throughout this period, although development varied enormously from industry to industry. Often developments were due to improvements in technical processes such as the adoption of steam power and the use of anthracite coal instead of charcoal by the iron industry. The metallurgical industries emplyed thousands for skillful workers who produced a variety of iron and steel products, such as farm machinery, pistols, sewing machines, clocks and stoves. These products were being produced using standard parts and multiple quantities(267). The iron industry made rapid progress as a result of this processas well as the expansion of the railroad industry which created increased demand for iron products. It can therefore be surmized that often growth in a one industry would cause increased demand for another industry's product, hence the boom of both industries. The growth of manufacturing was the main impetus to expansion , the industrial base broadened during this period, reflecting the overall improvement in factor endowments for manufacturing. Equally important was the cost decline in transportation, which opened up new sites for manufacturing development and reduced transport costs for existing firms (North, 208). Production increases required a retail market. In November of 1858, R.H. Macy established a department store in New York City successfully implementing a fixed price policy on a large scale developed by small New York stores since 1840 establishing a n American retail sales custom (Spann, 125). Some additional elements that should mentioned include the founding of the New York Tribune by Horace Greely, the development of the telegraph by Samuel Morse, the colaboration of six New York newspapers who joined to pay telegragh costs of foreign news relayed from Boston, and the establishment of a New York clearinghouse to facilitate banking operations. Research reveals that the reasons for the success of New York's business enterprise between 1825 and 1860 were enumerous with no reason weighting more heavily than another with the exception of as Ellis states that, "Plank roads, railroads, canals, steamships-all had revolutionary effects on the economy of New York. The predominately self-sufficent farmer of pioneer days was gradually tramnsformed into a specialized commercial farmer sensitive to every shift in the markets. The isolation of many rural communities was breaking down as citzensand goods flowed freely in and out. Merchants in both the upstae and metropolitan region, recognizing the crucial role of canals and railroads, looked with satisfaction upon the finest and most actively expanding transportation network in the country. New York grew steadily in population, wealth, and trade largely to the splendid system of water and rail transportation promoted by its citizens in this period.", but all entwinding to create a boom of business expansion during this period. It appeared as if we were developing not only as a state but as a civilized nation whenever this development would be curtailed by the onsloat of a civil war. Works Cited Allen, Oliver E. New York, New York: A History of the World's Most Exhilarating and Challenging City. New York: Macmillan, 1990. Ellis, David M., et al. A History of New York State. Ithaca: Cornell UP, 1967. Kass, Alvin. Politics in New York State, 1800 -1830. Syracuse: Syracuse UP, 1965. North, Douglas C. The Economic Growth of the United States, 1790-1860. New York: Norton, 1966. Spann, Edward K. The New Metropolis: New York City, 1840-1857. New York: Columbia UP, 1981. f:\12000 essays\business & economics (632)\Business Ethics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Ethics From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldn't distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they aren't too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Works Cited Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing The words "ethical," "moral," and "legal" are often misunderstood and misused. The terms are similar in that each refers to a human behavioral code. Human behavior is complex and thus no one term is sufficient to describe it. Ethical, moral, and legal issues also intertwine to create our entire understanding of behavior as it relates to our sense of right and wrong. To further complicate matters, each civilization and culture (past and present) has its own of what is ethical, moral, or legal. Therefore, one cannot arrive at a simple, clear definition of what each term means. The "meaning" of the terms is often dependent upon who is defining them. Ethics Many people who write about ethics use the term when referring to the most general codes by which humankind lives; that is, those codes of behavior that, for the most part, transcend time, culture, and geography. In simple terms, ethics is the study of people's concept of right and wrong. Therefore, we use the word "ethical" when we are speaking of that general code of right and wrong recognize by enlightened civilizations from the beginning of time. When we ask the question "Was that act or decision ethical?" we are asking if it meets the test of what is accepted as universally right. Writers suggest that we consider such basic concepts as honestly, fairness, and compassion as universal ethical values. Morals The term "moral" speaks to issues that concern a community of people rather than humankind in general. The study of morals also concerns itself with right and wrong but more directly in terms of specific groups of people. One may consider morals as specific rules of right and wrong based on universal ethical truths. Thus, we use this word "moral" when we refer to behavior that may be acceptable for one society but not for another. Some people consider as moral issues such things treatment for children, the aged, animals, and the environment along with questions about marriage and other human relationships. (Purple, 1989, 66) Legal Just as moral can be seen as more specific than ethical, legal is seen as the most specific of the three terms. Laws are codified behaviors for members of society enacted by a specific lawful authority. (Gifts, 1991) The law may have as its foundation moral rules and ethical truths, but it is closely allied with politics. As a result, it suffers from greater subjectively than do ethics and morals. Laws differ not only from society to society but also from town to town. What is legal in Los Angeles, for example, may be punishable in Portland. Laws are more temporary than morals of ethics, often changed by simple majority vote or by decree. We use the word "legal" when judging an act by the most specific set of local laws that have been codified by local authority. Issues as universal as theft and as specific as jaywalking are subject to local law. (Elliott, 1992, 28-35) The terms "ethical," "moral," and "legal" are similar in the sense that each refers to the interpretation of right and wrong. Their differences depend upon how explicit and specific a description we use to interpret a set of behaviors. Business Ethics From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can f:\12000 essays\business & economics (632)\Business Growth Hypothesis 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business PRODUCTIVITY GROWTH HYPTHESIS In this assignment, we will attempt to study the effects that difference in Income Ratio (henceforth known as I.R.) between the years 1980 and 1990 have on the Productivity Growth (P.G.) during the same period of time. The Income Ratio of one specific year can be found if we take the average income of the richest faction of a country (the richest 20% of the population) and divide it by that of the poorest faction (the poorest 20%). In this assignment, the Income Ratios that were used were those of 13 different countries. The I.R.'s on both 1980 and 1990 were taken for all these countries and, to find the difference between them, the I.R. for 1990 was divided by the I.R. for 1980, for each country. These new numbers illustrate the change of I.R. between the two years so that we can compare how the P.G. changes in relation to the changes in the I.R.. On this assignment, we use inductive reasoning to examine the data and find a theory (a hypothesis) that would combine the data given in a way that would make sense, based solely on our data. How do we know if the "theory" that we formulate makes sense? In this case we will plot the points (derived from the column "I.R. 1990/1980," going on the x-axis, and the column "Productivity Growth 79-90," on the y-axis). According to how the points are on the graph in relation to the Average Point (0.94,1.45) (point that is an average of all values and which divides the graph into four Quadrants), if 80% of these points are where they would be expected to be to conform to the hypothesis, then there is no reason to reject this hypothesis. If, on the other hand, the majority of the points does not conform to our hypothesis (are not where they were predicted to be), then it is rejected. Another method of reasoning frequently used by Mainstream economists is "deductive knowledge," as opposed to "inductive," described above. Their theory is formulated and only then it is applied to the data. Their theory on this subject suggests that productivity within a country grows when the population has incentives to work harder (or to work more). When the gap between rich and poor increases (an increase in I.R. form 1980-90, resulting in a larger ratio on the column I.R. 1990/1980), so does the population's eagerness to work, therefore increasing the Productivity Growth. Since when one variable goes up the other also goes up, there is a positive (or direct) correlation between the two. Mainstream economists use deductive reasoning to deduce that there exists a positive correlation between the two factors. In short, their hypothesis is that when the Income Ratio increases, the Productivity Growth also increases, since people are more motivated. For this to be true, we would expect a line going up and to the right on the graph, passing by Quadrants II and IV. Most points (80% or more) would have to be on these two Quadrants. This, however, is not the case (see graph), since only about 30.77% of the points plotted satisfy these conditions. Since the original hypothesis was rejected, we might want to see if there is a negative correlation between the two variables (that is, as one goes up, the other goes down). Our new hypothesis would then be "as the Income Ratio increases, the Productivity Growth decreases." Then, in the case of a high I.R., people in lower classes would rationally start to feel insecure and that their work is not being recognized by society, therefore losing motivation and producing less. In this case, since there's a negative correlation, one would expect the line on the graph to go downwards, from left to right, passing on Quadrants I and III. If this hypothesis were valid, 80%+ of the points would have to be on these Quadrants. This is also not the case, for only 69.32% of the points are on the appropriate Quadrants. Like the first, this second hypothesis also has to be rejected. After analyzing these two relationships and seeing that neither is valid, we conclude that there is no direct relationship between the two variables tested. That does not mean that one has no effect on the other (it probably does), only that there may be other factors and influences involved that have not been accounted for in this assignment and that one is not the only factor responsible for the changes in the other. DATA SHEET Country Income Ratio 1980 Productivity Growth 1979-90 Income Ratio 1990 Income Ratio 1990 / 1980 United States 9.0 0.4 11.0 1.2 Australia 9.6 0.8 9.6 1.0 New Zealand 8.8 1.4 8.8 1.0 Switzerland 8.7 1.0 8.0 0.91 Canada 7.0 1.1 7.0 1.0 Britain 6.8 2.0 7.0 1.03 France 6.5 2.4 6.0 0.92 Italy 6.1 2.0 5.8 0.95 Germany 5.8 1.6 5.0 0.87 Holland 5.6 1.5 5.0 0.89 Belgium 4.7 2.2 3.8 0.81 Sweden 4.7 1.5 3.8 0.81 Japan 4.2 1.0 3.6 0.85 Average Income Ratio 1990 / 1980: 0.941 Average Productivity Growth 1979-90: 1.45 No. of points conforming to first hypothesis: 4/13 = 30.77% No. of points conforming to second hypothesis: 9/13 = 69.23% By: Leonardo Santos f:\12000 essays\business & economics (632)\Business Growth Hypothesis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business PRODUCTIVITY GROWTH HYPTHESIS In this assignment, we will attempt to study the effects that difference in Income Ratio (henceforth known as I.R.) between the years 1980 and 1990 have on the Productivity Growth (P.G.) during the same period of time. The Income Ratio of one specific year can be found if we take the average income of the richest faction of a country (the richest 20% of the population) and divide it by that of the poorest faction (the poorest 20%). In this assignment, the Income Ratios that were used were those of 13 different countries. The I.R.'s on both 1980 and 1990 were taken for all these countries and, to find the difference between them, the I.R. for 1990 was divided by the I.R. for 1980, for each country. These new numbers illustrate the change of I.R. between the two years so that we can compare how the P.G. changes in relation to the changes in the I.R.. On this assignment, we use inductive reasoning to examine the data and find a theory (a hypothesis) that would combine the data given in a way that would make sense, based solely on our data. How do we know if the "theory" that we formulate makes sense? In this case we will plot the points (derived from the column "I.R. 1990/1980," going on the x-axis, and the column "Productivity Growth 79-90," on the y-axis). According to how the points are on the graph in relation to the Average Point (0.94,1.45) (point that is an average of all values and which divides the graph into four Quadrants), if 80% of these points are where they would be expected to be to conform to the hypothesis, then there is no reason to reject this hypothesis. If, on the other hand, the majority of the points does not conform to our hypothesis (are not where they were predicted to be), then it is rejected. Another method of reasoning frequently used by Mainstream economists is "deductive knowledge," as opposed to "inductive," described above. Their theory is formulated and only then it is applied to the data. Their theory on this subject suggests that productivity within a country grows when the population has incentives to work harder (or to work more). When the gap between rich and poor increases (an increase in I.R. form 1980-90, resulting in a larger ratio on the column I.R. 1990/1980), so does the population's eagerness to work, therefore increasing the Productivity Growth. Since when one variable goes up the other also goes up, there is a positive (or direct) correlation between the two. Mainstream economists use deductive reasoning to deduce that there exists a positive correlation between the two factors. In short, their hypothesis is that when the Income Ratio increases, the Productivity Growth also increases, since people are more motivated. For this to be true, we would expect a line going up and to the right on the graph, passing by Quadrants II and IV. Most points (80% or more) would have to be on these two Quadrants. This, however, is not the case (see graph), since only about 30.77% of the points plotted satisfy these conditions. Since the original hypothesis was rejected, we might want to see if there is a negative correlation between the two variables (that is, as one goes up, the other goes down). Our new hypothesis would then be "as the Income Ratio increases, the Productivity Growth decreases." Then, in the case of a high I.R., people in lower classes would rationally start to feel insecure and that their work is not being recognized by society, therefore losing motivation and producing less. In this case, since there's a negative correlation, one would expect the line on the graph to go downwards, from left to right, passing on Quadrants I and III. If this hypothesis were valid, 80%+ of the points would have to be on these Quadrants. This is also not the case, for only 69.32% of the points are on the appropriate Quadrants. Like the first, this second hypothesis also has to be rejected. After analyzing these two relationships and seeing that neither is valid, we conclude that there is no direct relationship between the two variables tested. That does not mean that one has no effect on the other (it probably does), only that there may be other factors and influences involved that have not been accounted for in this assignment and that one is not the only factor responsible for the changes in the other. DATA SHEET Country Income Ratio 1980 Productivity Growth 1979-90 Income Ratio 1990 Income Ratio 1990 / 1980 United States 9.0 0.4 11.0 1.2 Australia 9.6 0.8 9.6 1.0 New Zealand 8.8 1.4 8.8 1.0 Switzerland 8.7 1.0 8.0 0.91 Canada 7.0 1.1 7.0 1.0 Britain 6.8 2.0 7.0 1.03 France 6.5 2.4 6.0 0.92 Italy 6.1 2.0 5.8 0.95 Germany 5.8 1.6 5.0 0.87 Holland 5.6 1.5 5.0 0.89 Belgium 4.7 2.2 3.8 0.81 Sweden 4.7 1.5 3.8 0.81 Japan 4.2 1.0 3.6 0.85 Average Income Ratio 1990 / 1980: 0.941 Average Productivity Growth 1979-90: 1.45 No. of points conforming to first hypothesis: 4/13 = 30.77% No. of points conforming to second hypothesis: 9/13 = 69.23% By: Leonardo Santos f:\12000 essays\business & economics (632)\Business Law Essay.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Law Assignment 2. Within this case there are two relevant parts, advice given to John, and advice given to Judith. I have separated these in respective order. Part 1. In consideration to the request lodged by John for advice on his legal position in regards to the case brought upon him by his son, I would outline the following argument. Outline of the facts: John purchases a new Holden Commodore car and queries his son Dave, if he would be able to use the car wash facilities at his garage on a regular basis agreeing to pay him "Whenever I have the money to spare." Dave replies with an answer saying "That's ok Dad, I suppose after all those years of love and care you have generously given to the family, it's only fair that I should give something in return." Within the space of the following year, John has frequented the car wash on a number of occasions resulting in the total of the bill amounting to $500. Dave then consequently sues John to the amount of $500 following this year of non-paid car washes. When analysing these facts, many issues arise which one must address in order to find out which party is in the wrong. Firstly one must ascertain whether there lies a legally enforceable contract between the two parties. Was the intent to form this contract of a legally enforceable nature or simply that of a family relationship? Also another issue one must look at is the default of payment. If the contract between the two parties was of a legally enforceable nature, then is John breaching the contract by not paying Dave the required sum of money. These issues are both dealt with in contract law. A contract must comprise of three aspects, without these it is not legally binding. Firstly there must be an actual agreement, comprising of an offer and an acceptance. Secondly the contract must possess the intention to be legally bound. Thirdly there must be consideration, meaning the contract must contain a bargain or exchange underlying the agreement. Within this case one can see these elements. Firstly, there is an offer put forward by John to Dave, as stated above - John requested the use of the car wash facilities stating that he will pay when he has the money to spare. Secondly, there is an acceptance to this offer by Dave when he replies to John - "Ok Dad...". Thirdly, there is consideration - this lies in the agreement of payment. Legally speaking, consideration can be viewed as price: law requires price to be paid for every promise, before the promise in question can be legally enforceable. A good definition of this fact lies in a similar case Currie v Misa (1875) LR 10 Ex 153 - "...A valuable consideration may exist either in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other." Clearly the elements of a contract of offer, acceptance and consideration have been met by the two parties, but is this contract of a legally binding nature, or simply that of a family relationship? This is where one must look at the intent on the formation of this contract. In law, one must look at the two presumptions made concerning the intent of contracts which are the following.. * Where the parties are in a commercial relationship, the presumption is that they intended to create a legally binding contract by their agreement; and * where the parties are in a purely domestic or social agreement, the presumption is that it was not intended to create a legally binding contract1. These presumptions and similar issues can be seen in the case of Woodward v Johnston (1992) 2 Qd R 214 at 225-6; (1991) 14 Fam LR 828. In this case Mrs. Woodward agreed to help her husband salvage and repair a dredge and barge in order to establish a gravel supply company and in return her husband agreed to forfeit towards her 10 per cent of the business. Over an 18-month period Mrs. Woodward completed the work she had previously promised her husband but was refused her share of the profits by her husband. Consequently, Mrs. Woodward sued her husband. The judge proclaimed that he was in the right and was not legally bound by contract to forfeit the money. The judge claimed that due to the language used and the circumstances at the time the arrangement was merely a family agreement and therefore not a contract. This case relates strongly to the one at hand in that the same circumstances are encountered. Therefore I would advise John that the arrangements made between himself and his son were that of a family agreement and not of a contract of legally enforceable nature. Furthermore, I would advise John that if the Judge found that it was a legally binding contract, that he has made no breach of it. He clearly stated in his offer that "He would pay when he had any spare money", therefore the contract carries no finite period for payment, and therefore no breach has taken place. Part 2. In regards to the request put forward by Judith concerning the case between her and her brother Dave, I would give the following advice. Outline of the facts: Judith told Dave of her plans to acquire a $5000 loan from the National Australia Bank and asked if Dave could provide a guarantee for this loan. Dave agreed to this offer replying "Yes, Judith I will help." Judith gained the loan from the bank, but the need for a guarantor, Dave, was discarded. Judith defaulted on her loan to the amount of $1000, and consequently sued Dave for this amount believing him to be guarantor. When looking at this case one can see offer and acceptance portrayed by the two parties, but this does not form a contract, as the bank saw no need in Dave being the guarantor. This then means that the only legally binding contract that Judith is part of is that of herself and the bank, not with herself and Dave. This argument brings forth another element of contract law, Privity of contract. This doctrine states that "A contract only binds those persons who are parties, or privy, to the contract - persons who are not parties to a contract cannot have rights imposed or enforceable benefits conferred on them.2" Applying this doctrine of privity to the case between Judith and Dave I would advise her that she would receive no money, as there was no binding legal contract between herself and her brother. She is the only party involved in the contract with the bank, therefore she is the only person responsible for repaying the amount of $1000. Reference Texts: B. Pentony, S. Graw, J. Lennard, D. Parker (1999) Understanding Business Law, Australia, Butterworths. Cases: Currie v Misa (1885) LR 10 Ex 153 Woodward v Johnstone (1992) 2 Qd R 214 at 225-6; (1991) 14 Fam LR 828 Introduction to Business Law ASSIGNMENT 2 For: Arthur Hoyle By: Brendan Kearney 991322 Due: 7th May 1999 1 B. Pentony, S. Graw, J. Lennard, D. Parker (1999) Understanding Business Law, Australia, Butterworths. 2 B. Pentony, S. Graw, J. Lennard, D. Parker (1999) Understanding Business Law, Australia, Butterworths. --------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------ f:\12000 essays\business & economics (632)\Business Paradigm.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Paradigm Key Point 1: How does Corporate Restructuring affect our Society? In the early 1990's, corporate restructuring was being reported in newspapers and magazines almost daily. In 1995 alone, domestic mergers totaled more than $450 Billion. In just the first week of the second quarter of 1996, merger activity totaled $28.3 Billion. To name a couple of corporations that were involved were Bell Telephone systems and AT & T. Pros and cons come from such large mergers and acquisitions. A good aspect that came from the Bell merger was that they were able to provide service to 30 million residential and business customers in seven states west of the Mississippi. On the other hand, a negative aspect that arrived from mergers is that often times, after the merger had taken place, the companies decided to downsize to make their new corporations more efficient. Long-time employees are now being pushed out of the company. Investors and analyst's alike, seemed to respect the companies that inflicted the deepest cuts and fired the greatest number of workers. Executive pay rose along with corporate profits and productivity. The compensation packages for those individuals laid-off were tied to job performance. This created a huge amount of hostility. Mergers also created fear amongst the employees. The fear of job loss eroded the loyalty between employees and their companies. Mergers, however, are sometimes inevitable. The corporations must find ways to stay competitive, not only internationally, but globally. Key Point 2: Social Responsiveness Management Large corporations are responsible for providing the consumer with a safe and reliable product. They are also legally obligated to ensure what the company is offering the consumer is what the consumer gets. Take the in-class video on U-Haul for example. U-Haul stated that each vehicle is routinely inspected to ensure customer safety. The inspection log would have a recent date annotating the last inspection. A team of reporters visited several U-Haul subsidiaries throughout the United States. The findings were shocking. It was found after having professional mechanics inspect the vehicles, that most were unsafe to drive. This negligence on U-haul's behalf places the consumers life in jeopardy. It has become a huge issue after several fatalities that resulted from U-haul's vehicle negligence. Laws should become more stringent on companies that provides this type of service to consumers. Key Point 3: Code of Ethics and Business Conduct (Nuclear Energy) The debate over whether nuclear energy is a socially acceptable has gone on for years. Recently, it has become quite questionable from early perceptions. The chaos at Three Mile Island turned passive stakeholders into active opponents of the development of nuclear energy sources. In 1986, the disaster at the Chenobyl plant in former Soviet Union further strengthened the position of antinuclear energy forces, particularly here in the United States. Public interests groups went to court to prevent new plants from opening. They also ensured that antinuclear energy questions were placed on state and local ballots. Everyone is now aware of the damages that are caused by nuclear radiation. The thing is how to solve the problem. Where is a safe place to dispose of nuclear waste? There is no safe place. The only way to prevent radioactive disasters is to destroy its source. Key Point 4: Crisis Management Every company or corporation faces some type of crisis during the existence of the company. These companies have to manage disasters precipitated by people, organizations, organizational structures, economics, and/or technology that can cause extensive damage to human life, and natural and social environments. One example of a company that experienced a crisis was Dow Corning (a breast implant company). Dow Corning had been in the implant business for 30 years and had received ample warning that a crisis could occur. Japanese researchers had even told them that the silicone implants may cause inflammatory immune diseases. Dow Corning contained the production and surgeries despite the warnings. Task force teams were created to do a study on the safety and effectiveness of the implants. It was ascertained from experimental animals, that after on e week, the animals showed mild to acute inflammatory reaction. This became a major problem with the people who had previously received the implants. In December 1991, Dow Corning was ordered to pay a woman $7.3 million in damages because the firm concealed evidence leaking implant ruptures to immune system disorders. Additional suits were pending. In my opinion, extensive research should be conducted before a product hits the market. The implants are not safe and the should be liable for the negligence of not adhering to the Japanese researchers. Consumers want to be sure that the products they are using are safe and not hazardous to their health. Key Point 5: Setting Standards for Ethical Behavior in Corporations. Many companies today have established ethic programs for which the employees should abide by. Ethics are very important because they seem to differentiate between right decisions and wrong ones. Before a company can draw up an ethics program, they must decide which ethical issues are important to them and how to identify and manage them. One good ethical question that should be asked, " Who could your decision or action injure?" This is important to determine if a product has a legitimate use, if it is likely to harm the consumer by falling into the wrong hands or being incorrectly used. Take the in-class video on the toys that were being manufactured. These toys were made of a polymer that children could extract by chewing or sucking on these toys. these toys could be very harmful to the children's health. In this case, the company had to do research to determine the safety of these toys placed in a child's mouth. It was concluded that the children could ingest this substance by chewing on the toy. In my opinion, it would be ethical to remove these harmful toys from the shelf. The company's effort were to provide a toy that would be enjoyable to the child. They should have taken into consideration that a child would place this toy in their mouth. Key Point 6: Polygraph Testing in the Workplace Polygraphs were used in many companies until 1989. Many people had different perspectives on whether polygraph tests worked and whether they should be used. The operators assured that the polygraph was accurate, but many people doubted the accuracy. In November 1987, the U.S. House of Representatives approved a bill that restricted the use of polygraphs to screen job applicants or test employee's in private industry. Today, an employer can ask a worker to take a polygraph test only if the worker has access to missing or damaged property and if the employer notifies the worker in writing that there is a reasonable suspicion that they were involved in the loss or damage. I feel that polygraph should be used for high profile personnel. Positions like the senate, congress, and even a Presidential candidate. A polygraph is not necessary to be given to an employee that works for British Petroleum at a 24 hour convenience store. These type of tests seem to impede on a person's personal life. Key Point 7: Stress Many people suffer from stress in the workplace. This type of stress can often lead to violence. Employees have to make decisions so quickly that they have no time to gather themselves. Employees at all levels appear to be stress victims. As the economy lagged in the 1990's, Americans worked harder to maintain their standard of living. There are several factors that can cause stress. Whether it be excessive workloads, physical ailments, and even problems in your personal life. Stress is particularly prevailment in jobs that require a great deal of customer contact or long hours in front of a computer. These jobs often are boring and require high, easily measurable output. Stress often causes high-blood pressure after a certain amount of time. People need to learn to manage stress. Classes are now being given to reduce high stress levels. These classes have proven to be quite successful. People in the Military experience high levels of stress in the workplace. A lot of stress is placed on Military personnel that have been deployed and separated from their families for an excessive amount of time. I feel that all companies need good human resources and stress management programs to be productive. Key Point 8: Family and Child Care Benefits Family and child care are two of this decade's most pressing workplace issues. In retrospect to when I was a child, my father was the sole provider for my family. My mother stayed at home with my sister and I until we were old enough to be home alone. Once we were old enough, my mother went searching for employment. Times have changed dramatically since then. Most families now have both the father and the mother employed due to rising cost. Since the divorce rate has climbed, many families are ran by a single parent. This can be very tough because the children need supervision. Several companies have teamed together to help provide their employers with child care and aging family members. The programs they created included new child care centers, in-home care for elderly family members, vacation programs for school-age children, and vocational training for at-home mothers. In my opinion, these types of benefits for the employees will make them more committed to the job. This relieves a huge burden off their shoulders. Employee's will be more apt to stay in the business due to these important benefits. Key Point 9: sexual Harassment Sexual harassment has become an important issue over the past few years. Not only in corporations, but the military as well. In recent years, women have fared better than minorities in the courts in terms of access to jobs and promotions. There are two specific types of sexual harassment: (1) situations in which sexual harassment created a hostile work environment and (2) cases in which a supervisor demanded sexual favors in exchange for job benefits. Corporations have finally put their foot down on sexual harassment. They have implemented policies in which the employees will abide by or they will suffer the consequences. Sexual harassment can create tension that will give bad vibes in the company. It is finally time that corporations implement the zero tolerance level across the board. Key Point 10: Management Strategy for Workplace Safety Issues Managers have a hard time establishing health and safety programs because it is taught in school. Many have no experience in assessing the cost and benefits of workplace safety. However, they have established three ways in which it will assist the managers in developing safety issues; planning, organizing, and controlling. Each category has questions that must be analyzed within each corporation to determine which ones will apply to their industry such as: How do other companies develop a corporate philosophy regarding safety and health matters? How do managers in high-hazard industries set occupational health and safety goals, and to what extent is the staff involved in the goals' exercise? If something within the corporation is unsafe and someone is injured, this could result in high worker compensation costs, disrupt productivity, and add to hiring and training costs. Managers have to calculate dollar losses due to safety and health incidents. All companies should have a management strategy for workplace safety issues in order to keep good employees and keep compensation cost at a minimum. f:\12000 essays\business & economics (632)\Business Plan 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Plan Business Plan: Progressive Consulting What follows is a complete business plan for a hypothetical company. Please copy or save to your disk and use as an example in developing your own business plan. If you would like to read a series of articles jump to Web Marketing . For additional business aids click on The Practical Tools of Consulting 1. 0 Executive Summary Progressive Consulting will be formed as a consulting company specializing in marketing of high technology products in international markets. Its founders are former marketers of consulting services, personal computers, and market research, all in international markets. They are founding Progressive Consulting to formalize the consulting services they offer. 1. 2 Mission Progressive Consulting offers high-tech manufacturers a reliable, high quality alternative to inhouse resources for business development, market development, and channel development on an international scale. A true alternative to in house resources offers a very high level of practical experience, know how, contacts, and confidentiality. Clients must know that working with Progrssive Consulting is a more professional, less risky way to develop new areas even than working completely in house with their own people. Progressive Consulting must also be able to maintain financial balance, charging a high value for its services, and delivering an even higher value to its clients. Initial focus will be development in the European and Latin American markets, or for European clients in the United States market. 1. 3 Keys to Success •Excellence in fulfilling the promise completely confidential, reliable, trustworthy expertise and information. •Developing visibility to generate new business leads. •Leveraging from a single pool of expertise into multiple revenue generation opportunities: retainer consulting, project consulting, market research, and market research published reports. 2. 0 Company Summary Progressive Consulting is a new company providing high-level expertise in international high-tech business development, channel development, distribution strategies, and marketing of high tech products. It will focus initially on providing two kinds of international triangles: •Providing United States clients with development for European and Latin American markets. •Providing European clients with development for the United States and Latin American markets. As it grows it will take on people and consulting work in related markets, such as the rest of Latin America, and the Far East, and similar markets. As it grows it will look for additional leverage by taking brokerage positions and representation positions to create percentage holdings in product results. 2. 1 Company Ownership Progressive Consulting will be created as a California C corporation based in Los Angeles County, owned by its principal investors and principal operators. As of this writing it has not been chartered yet and is still considering alternatives of legal formation. 2. 2 Startup Summary Total start up expense (including legal costs, logo design, stationery and related expenses) come to $73,000. Start up assets required include $3,000 in short term assets (office furniture, etc.) and $1,000,000 in initial cash to handle the first few months of consulting operations as sales and accounts receivable play through the cash flow. The details are included in the table. Start-up Plan _______________________________ Start-up Expenses Legal $1,000 Stationery etc. $3,000 Brochures $5,000 Consultants $5,000 Insurance $350 Expensed equipment $3,000 Other $1,000 _______________________________ Total Start-up Expense $18,350 Start-up Assets Needed Cash requirements $25,000 Start-up inventory $0 Other Short-term Assets $7,000 Total Short-term Assets $32,000 Long-term Assets WORD DOCUMENT HAS NO NUMBER HERE Capital Assets $0 _______________________________ Total Assets $32,000 Total Startup Requirements: $50,350 Left to finance: $0 Start-up Funding Plan Investment Investor 1 $20,000 Investor 2 $20,000 Other $10,000 Total investment $50,000 Short-term borrowing Unpaid expenses $5,000 Short-term loans $0 Interest-free short-term loans $0 Subtotal Short-term Borrowing $5,000 Long-term Borrowing $0 Total Borrowing $5,000 Loss at start-up ($23,000) Total Equity $27,000 Total Debt and Equity $32,000 2. 3 Company Services Progressive offers expertise in channel distribution, channel development, and market development, sold and packaged in various ways that allow clients to choose their preferred relationship: these include retainer consulting relationships, project based consulting, relationship and alliance brokering, sales representation and market representation, project-based market research, published market research, and information forum events. 2. 4 Company locations and facilities The initial office will be established in A quality office space in the Los Angeles County " Dearborn Valley" area of California, the heart of the U.S. high tech industry. 3. 0 Services Progressive offers the expertise a high-technology company needs to develop new product distribution and new market segments in new markets. This can be taken as high-level retainer consulting, market research reports, or project- based consulting. 3. 1 Service Description 1. Retainer consulting: we represent a client company as an extension of its business development and market development functions. This begins with complete understanding of the client company's situation, objectives, and constraints. We then represent the client company quietly and confidentially, sifting through new market developments and new opportunities as is appropriate to the client, representing the client in initial talks with possible allies, vendors, and channels. 2. Project consulting: Proposed and billed on a per-project and per-milestone basis, project consulting offers a client company a way to harness our specific qualities and use our expertise to solve specific problems, develop and/or implement plans, develop specific information. 3. Market research: group studies available to selected clients at $5,000 per unit. A group study is packaged and published, a complete study of a specific market, channel, or topic. Examples might be studies of developing consumer channels in Japan or Mexico, or implications of changing margins in software. 3. 2 Competitive Comparison The competition comes in several forms: 1. The most significant competition is no consulting at all, companies choosing to do business development and channel development and market research in-house. Their own managers do this on their own, as part of their regular business functions. Our key advantage in competition with in-house development is that managers are already overloaded with responsibilities, they don't have time for additional responsibilities in new market development or new channel development. Also, Progressive can approach alliances, vendors,and channels on a confidential basis, gathering information and making initial contacts in ways that the corporate managers can't. 2. The high-level prestige management consulting: High-Tec, San Diego Consulting Group, etc. These are essentially generalists who take their name- brand management consulting into specialty areas. Their other very important weakness is the management structure that has the partners selling new jobs, and inexperienced associates delivering the work. We compete against them as experts in our specific fields, and with the guarantee that our clients will have the top-level people doing the actual work. 3. The third general kind of competitor is the international market research company: International Electronic Data Corporation (IEDC), Dataquest, Stanford Research Institute, etc. These companies are formidable competitors for published market research and market forums, but cannot provide the kind of high-level consulting that Triangle will provide. 4. The fourth kind of competition is the market-specific smaller house. For example: Nomura Research in Japan, Select S.A. de C.V. in Mexico (now affiliated with IEDC). 5. Sales representation, brokering, and deal catalysts are an ad-hoc business form that will be defined in detail by the specific nature of each individual case. 3. 3 Sales Literature The business will begin with a general corporate brochure establishing the positioning. This brochure will be developed as part of the start-up expenses. Literature and mailings for the initial market forums will be very important, with the need to establish a high-quality look and feel for... ...[truncated because this plan is provided for purposes of illustration only] 3. 4 Sourcing •The key fulfillment and delivery will be provided by the principals of the business. The real core value is professional expertise, provided by a combination of experience, hard work. and education (in that order). •We will turn to qualified professionals for free-lance back-up in market research and presentation and report development, which are areas that we can afford to contract out without risking the core values provided to the clients. 3. 5 Technology Progressive Consulting will maintain latest Windows and Macintosh capabilities including: •1. Complete Email facilities in Internet, Compuserve, America Online, and Applelink, for working with clients directly through email delivery of drafts and information. •2. Complete presentation facilities for preparation and delivery of multimedia presentations on Macintosh or Windows machines, in formats including on-disk presentation, live presentation, or video presentation. •3. Complete desktop publishing facilities for delivery of regular retainer reports, project output reports, marketing materials, market research reports. 3. 6 Future Services In the future Progressive will broaden the coverage by expanding into coverage of additional markets (e.g. all of Latin America, Far East, Western Europe) and additional product areas (e.g. telecommunications and technology integration). We are also studying the possibility of newsletter or electronic newsletter services, or perhaps special on-topic reports. 4. 0 Market Analysis Summary Progressive will be focusing on high-technology manufacturers of computer hardware and software, services, networking, who want to sell into markets in the United States, Europe, and Latin America. These are mostly larger companies, and occasionally medium-sized companies. Our most important group of potential customers are executives in larger corporations. These are marketing managers, general managers, sales managers, sometimes charged with international focus and sometimes charged with market or even specific channel focus. They do not want to waste their time or risk their money looking for bargain information or questionnable expertise. As they go into markets looking at new opportunities, they are very sensitive to risking their company's name and reputation. Professional experience... [truncated because this plan is provided for purposes of illustration only] 4. 1 Market Segmentation •Large manufacturer corporations: our most important market segment is the large manufacturer of high-technology products, such as Apple, Hewlett- Packard, IBM, Microsoft, Siemens, or Olivetti. These companies will be calling on Progressive for development functions that are better spun off than managed in-house, and for market research, and for market forums. •Medium sized growth companies: particularly in software, multimedia, and some related high growth fields, Triangle will be able to offer an attractive development alternative to the company that is management constrained and unable to address opportunities in new markets and new market segments. 4. 2 Industry Analysis The consulting "industry" is pulverized and disorganized, thousands of smaller consulting organizations and individual consultants for every one of the few dozen well-known companies. Consulting is a disorganized industry, with participants ranging from major international name brand consultants to tens of thousands of individuals. One of Progressive's challenges will be establishing itself as a "real" consulting company, positioned as a relatively risk free corporate purchase. 4. 2. 1 Industry Participants The consulting "industry" is pulverized and disorganized, thousands of smaller consulting organizations and individual consultants for every one of the few dozen well-known companies. At the highest level are the few well established major names in management consulting. Most of these are organized as partnerships established in major markets around the world, linked together by interconnecting directors and sharing the name and corporate wisdom. Some evolved from accounting companies (e.g. Arthur Anderson, Touche Ross) and some from management consulting (McKinsey, Bain). These companies charge very high rates for consulting, and maintain relatively high overhead structures and fulfillment structures based on partners selling and junior associates fulfilling. At the intermediate level are some function specific or market specific consultants, such as the market research firms (IEDC, Dataquest) or channel development firms (ChannelCorp, Channel Strategies, ChannelMark). Some kinds of consulting is little more than contract expertise provided by somebody looking for a job and offering consulting services as a stop-gap measure while looking. 4. 2. 2 Distribution Patterns Consulting is sold and purchased mainly on a word-of-mouth basis, with relationships and previous experience being by far the most important factor. The major name-brand houses have locations in major cities and major markets, and executive-level managers or partners develop new business through industry associations, business associations, and chambers of commerce and industry, etc., even in some cases social associations such as country clubs. The medium-level houses are generally area-specific or function specific, and are not easily able to leverage their business through distribution. 4. 2. 3 Competition and Buying Patterns The key element in purchase decisions made at the Progressive client level is trust in the professional reputation and reliability of the consulting firm. 4. 2. 4 Main Competitors •The high-level prestige management consulting: Strengths: international locations managed by owner-partners with a high level of presentation and understanding of general business. Enviable reputations which make purchase of consulting an easy decision for a manager, despite the very high prices. Weaknesses: General business knowledge doesn't substitute for the specific market, channel, and distribution expertise of Triangle, focusing on high-technology markets and products only. Also, fees are extremely expensive, and work is generally done by very junior-level consultants, even though sold by high-level partners. •The international market research company: Strengths: International offices, specific market knowledge, permanent staff developing market research information on permanent basis, good relationships with potential client companies. Weaknesses: market numbers are not marketing, not channel development or market development. Although these companies compete for some of the business Triangle is after, they cannot really offer the same level of business understanding at a high level. •Market specific or function-specific experts Strengths: expertise in market or functional areas. Triangle should not try to compete with Normura or Select in their markets with market research, or with ChannelCorp in channel management. Weaknesses: the inability to spread beyond a specific focus, or to rise above a specific focus, to provide actuial management expertise, experience, and wisdom beyond the specifics. The most significant competition is no consulting at all, companies choosing to do business development and channel development and market research in- house. Strengths: no incremental cost except travel; also, the general work is done by the people who are entirely responsible, the planning done by those who will implement. Weaknesses: most managers are terribly overburdened already, unable to find incremental resources in time and people to apply to incremental opportunities. Also, there is a lot of additional risk in market development and channel development done in house from the ground up. Finally, retainer-based antenna consultants can greatly enhance a company's reach and extend its position into conversations that might otherwise never hanve taken place. 4. 3 Market Analysis As indicated by the illustrations, we must focus on a few thousand well- chosen potential customers in the United States,Europe, and Latin America. These few thousand high-tech manufacturing companies are the key customers for Progressive. Potential Customers Customers Growth rate ____________________________________________________ U.S. High Tech 5,000 10% European High Tech 1,000 15% Latin America 250 35% Other 10,000 2% ____________________________________________________ Total 16,250 n.a. 5. 0 Strategy Summary Progressive will focus on three geographical markets, the United States, Europe, and Latin America, and in limited product segments: personal computers, software, networks, telecommunications, personal organizers, and technology integration products. The target customer is usually a manager in a larger corporation, and occasionally an owner or president of a medium- sized corporation in a high-growth period. 5. 1 Pricing Strategy Progressive Consulting will be priced at the upper edge of what the market will bear, competing with the name brand consultants. The pricing fits with the general positioning of Triangle as high-level expertise. Consulting should be based on $5,000 per day for project consulting, $2,000 per day for market research, and $10,000 per month and up for retainer consulting. Market research reports should be priced at $5,000 per report, which will of course require that reports be very well planned, focused on very important topics very well presented. 5. 2 Sales Forecast The sales forecast monthly summary is included in the appendix. The annual sales projections are included here in the following table. Sales Forecast Sales 1995 1996 1997 __________________________________________________________________ Retainer Consulting $200,000 $250,000 $325,000 Project Consulting $270,000 $325,000 $350,000 Market Research $122,000 $150,000 $200,000 Strategic Reports $0 $50,000 $125,000 Other $0 $0 $0 Total Sales $592,000 $775,000 $1,000,000 Cost of sales 1995 1996 1997 __________________________________________________________________ Retainer Consulting $30,000 $20,000 $30,000 Project Consulting $45,000 $25,000 $31,000 Market Research $84,000 $45,000 $50,000 Strategic Reports $0 $20,000 $40,000 Other $0 $0 $0 Total Cost of Sales $159,000 $110,000 $151,000 5. 3 Strategic Alliances At this writing strategic alliances with Smith and Jones are possibilities, given the content of existing discussions. Given the background of prospective partners, we might also be talking to European companies including Siemens and Olivetti and others, and to United States companies related to Apple Computer. In Latin America we would be looking at the key local high-technology vendors, beginning with Printaform. 6. 0 Management Summary The initial management team depends on the founders themselves, with little back-up. As we grow we will take on additional consulting help, plus graphic/ editorial, sales, and marketing. 6. 1 Organizational Structure Progressive should be managed by working partners, in a structure taken mainly from Smith Partners. In the beginning we assume 3-5 partners: •Ralph Sampson •At least one, probably two partners from Smith and Jones •One strong European partner, based in Paris. The organization has to be very flat in the beginning, with each of the founders reponsible for his or her own work and management. •One other strong partner 6. 2 Management Team The Progressive business requires a very high level of international experience and expertise, which means that it will not be easily leveragable in the common consulting company mode in which partners run the business and make sales, while associates fulfill. Partners will necessarily be involved in the fulfillment of the core business proposition, providing the expertise to the clients. The initial personnel plan is still tentative. It should involve 3-5 partners, 1-3 consultants, 1 strong editorial/graphic person with good staff support, 1 strong marketing person, an office manager, and a secretary. Later we add more partners, consultants and and sales staff. Founders' resumes are included as an additional attachment to this plan. 6. 3 Personnel Plan The detailed monthly personnel plan for the first year is included in the appendices. The annual personal estimates are included here as Table 5. Personnel Plan 1995 1996 1997 _________________________________________________________________ Partners $144,000 $175,000 $200,000 Consultants $0 $50,000 $63,000 Editorial/graphic $18,000 $22,000 $26,000 VP Marketing $20,000 $50,000 $55,000 Sales people $0 $30,000 $33,000 Office Manager $7,500 $30,000 $33,000 Secretarial $5,250 $20,000 $22,000 Other $0 $0 $0 Subtotal $194,750 $377,000 $432,000 7. 0 Financial Plan We will maintain a conservative financial strategy, based on developing capital for future growth. 7. 1 Important Assumptions The table in this section summarizes key financial assumptions, including 45-day average collection days, sales entirely on invoice basis, expenses mainly on net 30 basis, 35 days on average for payment of invoices, and present-day interest rates. General Assumptions 1995 1996 1997 _________________________________________________________________________ Collection days 43 45 45 Payment Days 35 35 35 1995 1996 1997 _________________________________________________________________________ Short Term Interest Rate 8.00% 8.00% 8.00% Long Term Interest Rate 10.00% 10.00% 10.00% Payment days 35 35 35 Tax Rate Percent 0.00% 0.00% 0.00% Expenses in cash% 25.00% 25.00% 25.00% Sales on credit 100.00% 100.00% 100.00% Personnel Burden % 14.00% 14.00% 14.00% 7.2 Key Financial Indicators The chart summarizes key financial benchmarks. Unfortunately, as we increase sales we will have to show a decline in performance of collection days and gross margin. 7. 3 Break-even Analysis Break Even Analysis: ___________________________________________________ Monthly Units Break-even 125,000 Monthly Sales Break-even $125,000 Assumptions: Average Unit Sale $1.00 Average Per-Unit Cost $0.20 Fixed Cost $100,000 7. 4 Projected Profit and Loss The detailed monthly pro-forma income statement for the first year is included in the appendices. The annual estimates are included here. Pro-forma Income Statement 1995 1996 1997 _________________________________________________________________________ Sales $592,000 $775,000 $1,000,000 Cost of Sales $159,000 $110,000 $151,000 Other $1,000 $0 $0 _________________________________________________ Total Cost of Sales $160,000 $110,000 $151,000 Gross margin $432,000 $665,000 $849,000 Gross margin percent 72.97% 85.81% 84.90% Operating expenses: Advertising/Promotion 10.00% $36,000 $40,000 $44,000 Public Relations 10.00% $30,000 $30,000 $33,000 Travel 10.00% $90,000 $60,000 $110,000 Miscellaneous 10.00% $6,000 $7,000 $8,000 Payroll expense $194,750 $377,000 $432,000 Leased Equipment $6,000 $7,000 $7,000 Utilities 20% $12,000 $14,000 $17,000 Insurance 20% $3,600 $2,000 $2,000 Depreciation $0 $0 $0 Rent 25% $18,000 $23,000 $29,000 Payroll Burden $0 $0 $0 Contract/Consultants $0 $0 $0 Other $0 $0 $0 _________________________________________________ Total Operating Expenses $396,350 $560,000 $682,000 Profit Before Interest and Taxes$35,650 $105,000 $167,000 Interest Expense ST $3,600 $12,800 $12,800 Interest Expense LT $5,000 $5,000 $5,000 Taxes Incurred $0 $0 $0 Net Profit $27,050 $87,200 $149,200 Net Profit/Sales 4.57% 11.25% 14.92% 7. 5 Projected Cash Flow Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other the monthly balance. The annual cash flow figures are included here. Detailed monthly numbers are included in the appendices. Pro-Forma Cash Flow 1995 1996 1997 ____________________________________________________________________________________ Net Profit: $27,050 $87,200 $149,200 Plus: Depreciation $0 $0 $0 Change in Accounts Payable $49,413 $16,799 $13,764 Current Borrowing (repayment) $60,000 $100,000 $0 Increase (decrease) Other Liabilities $0 $0 $0 Long-term Borrowing (repayment) $50,000 $0 $0 Capital Input $0 $0 $0 Subtotal $186,463 $203,999 $162,964 Less: 1905 1905 1905 Change in Accounts Receivable $94,000 $5,750 $50,500 Change in Inventory $0 $0 $0 Change in Other ST Assets $0 $0 $0 Capital Expenditure $0 $0 $0 Dividends $0 $0 $0 Subtotal $94,000 $5,750 $50,500 Net Cash Flow $92,463 $198,249 $112,464 Cash balance $117,463 $315,712 $428,176 7. 6 Projected Balance Sheet The balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendices. Pro-forma Balance Sheet 1995 1996 1997 ____________________________________________________________________________________ Short-term Assets Starting Balances Cash $25,000 $117,463 $315,712 $428,176 Accounts receivable $0 $94,000 $99,750 $150,250 Inventory $0 $0 $0 $0 Other Short-term Assets $7,000 $7,000 $7,000 $7,000 Total Short-term Assets $32,000 $218,463 $422,462 $585,426 Long-term Assets Capital Assets $0 $0 $0 $0 Accumulated Depreciation$0 $0 $0 $0 Total Long-term Assets $0 $0 $0 $0 _________________________________________________ Total Assets $32,000 $218,463 $422,462 $585,426 Debt and Equity 1995 1996 1997 ____________________________________________________________________________________ Accounts Payable $5,000 $54,413 $71,212 $84,976 Short-term Notes $0 $60,000 $160,000 $160,000 Other ST Liabilities $0 $0 $0 $0 Subtotal Short-term Liabilities $5,000 $114,413 $231,212 $244,976 Long-term Liabilities $0 $50,000 $50,000 $50,000 Total Liabilities $5,000 $164,413 $281,212 $294,976 Paid in Capital $50,000 $50,000 $50,000 $50,000 Retained Earnings ($23,000) ($23,000) $4,050 $91,250 Earnings $0 $27,050 $87,200 $149,200 Total Equity $27,000 $54,050 $141,250 $290,450 Total Debt and Equity $32,000 $218,463 $422,462 $585,426 Net Worth $27,000 $54,050 $141,250 $290,450 7. 7 Business Ratios Progressive Consulting will be formed as a consulting company specializing in marketing of high-technology products in international markets. Its founders are former marketers of consulting services, personal computers, and market research, all in international markets. They are founding Progressive to formalize the consulting services they offer. Ratio Analysis Profitability Ratios: 1995 1996 1997 ____________________________________________________________________ Gross margin 72.97% 85.81% 84.90% Net profit margin 4.57% 11.25% 14.92% Return on Assets 12.38% 20.64% 25.49% Return on Equity 50.05% 61.73% 51.37% Activity Ratios: AR Turnover 6.30 7.77 6.66 Collection days 29 45 45 Inventory Turnover 0.00 0.00 0.00 Accts payable turnover 7.67 7.06 7.35 Total asset turnover 2.71 1.83 1.71 Debt Ratios: 1995 1996 1997 ____________________________________________________________________ Debt to net Worth 3.04 1.99 1.02 Short-term Debt to Liab. 0.70 0.82 0.83 Liquidity Ratios: Current Ratio 1.91 1.83 2.39 Quick Ratio 1.91 1.83 2.39 Net Working Capital $104,050 $191,250 $340,450 Interest Coverage 4.15 5.90 9.38 Additional Ratios: 1995 1996 1997 ____________________________________________________________________ Asset f:\12000 essays\business & economics (632)\Business Plan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Plan Business Plan: Progressive Consulting What follows is a complete business plan for a hypothetical company. Please copy or save to your disk and use as an example in developing your own business plan. If you would like to read a series of articles jump to Web Marketing . For additional business aids click on The Practical Tools of Consulting 1. 0 Executive Summary Progressive Consulting will be formed as a consulting company specializing in marketing of high technology products in international markets. Its founders are former marketers of consulting services, personal computers, and market research, all in international markets. They are founding Progressive Consulting to formalize the consulting services they offer. 1. 2 Mission Progressive Consulting offers high-tech manufacturers a reliable, high quality alternative to inhouse resources for business development, market development, and channel development on an international scale. A true alternative to in house resources offers a very high level of practical experience, know how, contacts, and confidentiality. Clients must know that working with Progrssive Consulting is a more professional, less risky way to develop new areas even than working completely in house with their own people. Progressive Consulting must also be able to maintain financial balance, charging a high value for its services, and delivering an even higher value to its clients. Initial focus will be development in the European and Latin American markets, or for European clients in the United States market. 1. 3 Keys to Success •Excellence in fulfilling the promise completely confidential, reliable, trustworthy expertise and information. •Developing visibility to generate new business leads. •Leveraging from a single pool of expertise into multiple revenue generation opportunities: retainer consulting, project consulting, market research, and market research published reports. 2. 0 Company Summary Progressive Consulting is a new company providing high-level expertise in international high-tech business development, channel development, distribution strategies, and marketing of high tech products. It will focus initially on providing two kinds of international triangles: •Providing United States clients with development for European and Latin American markets. •Providing European clients with development for the United States and Latin American markets. As it grows it will take on people and consulting work in related markets, such as the rest of Latin America, and the Far East, and similar markets. As it grows it will look for additional leverage by taking brokerage positions and representation positions to create percentage holdings in product results. 2. 1 Company Ownership Progressive Consulting will be created as a California C corporation based in Los Angeles County, owned by its principal investors and principal operators. As of this writing it has not been chartered yet and is still considering alternatives of legal formation. 2. 2 Startup Summary Total start up expense (including legal costs, logo design, stationery and related expenses) come to $73,000. Start up assets required include $3,000 in short term assets (office furniture, etc.) and $1,000,000 in initial cash to handle the first few months of consulting operations as sales and accounts receivable play through the cash flow. The details are included in the table. Start-up Plan _______________________________ Start-up Expenses Legal $1,000 Stationery etc. $3,000 Brochures $5,000 Consultants $5,000 Insurance $350 Expensed equipment $3,000 Other $1,000 _______________________________ Total Start-up Expense $18,350 Start-up Assets Needed Cash requirements $25,000 Start-up inventory $0 Other Short-term Assets $7,000 Total Short-term Assets $32,000 Long-term Assets WORD DOCUMENT HAS NO NUMBER HERE Capital Assets $0 ______________ _________________ Total Assets $32,000 Total Startup Requirements: $50,350 Left to finance: $0 Start-up Funding Plan Investment Investor 1 $20,000 Investor 2 $20,000 Other $10,000 Total investment $50,000 Short-term borrowing Unpaid expenses $5,000 Short-term loans $0 Interest-free short-term loans $0 Subtotal Short-term Borrowing $5,000 Long-term Borrowing $0 Total Borrowing $5,000 Loss at start-up ($23,000) Total Equity $27,000 Total Debt and Equity $32,000 2. 3 Company Services Progressive offers expertise in channel distribution, channel development, and market development, sold and packaged in various ways that allow clients to choose their preferred relationship: these include retainer consulting relationships, project based consulting, relationship and alliance brokering, sales representation and market representation, project-based market research, published market research, and information forum events. 2. 4 Company locations and facilities The initial office will be established in A quality office space in the Los Angeles County " Dearborn Valley" area of California, the heart of the U.S. high tech industry. 3. 0 Services Progressive offers the expertise a high-technology company needs to develop new product distribution and new market segments in new markets. This can be taken as high-level retainer consulting, market research reports, or project-based consulting. 3. 1 Service Description 1. Retainer consulting: we represent a client company as an extension of its business development and market development functions. This begins with complete understanding of the client company's situation, objectives, and constraints. We then represent the client company quietly and confidentially, sifting through new market developments and new opportunities as is appropriate to the client, representing the client in initial talks with possible allies, vendors, and channels. 2. Project consulting: Proposed and billed on a per-project and per-milestone basis, project consulting offers a client company a way to harness our specific qualities and use our expertise to solve specific problems, develop and/or implement plans, develop specific information. 3. Market research: group studies available to selected clients at $5,000 per unit. A group study is packaged and published, a complete study of a specific market, channel, or topic. Examples might be studies of developing consumer channels in Japan or Mexico, or implications of changing margins in software. 3. 2 Competitive Comparison The competition comes in several forms: 1. The most significant competition is no consulting at all, companies choosing to do business development and channel development and market research in-house. Their own managers do this on their own, as part of their regular business functions. Our key advantage in competition with in-house development is that managers are already overloaded with responsibilities, they don't have time for additional responsibilities in new market development or new channel development. Also, Progressive can approach alliances, vendors,and channels on a confidential basis, gathering information and making initial contacts in ways that the corporate managers can't. 2. The high-level prestige management consulting: High-Tec, San Diego Consulting Group, etc. These are essentially generalists who take their name-brand management consulting into specialty areas. Their other very important weakness is the management structure that has the partners selling new jobs, and inexperienced associates delivering the work. We compete against them as experts in our specific fields, and with the guarantee that our clients will have the top-level people doing the actual work. 3. The third general kind of competitor is the international market research company: International Electronic Data Corporation (IEDC), Dataquest, Stanford Research Institute, etc. These companies are formidable competitors for published market research and market forums, but cannot provide the kind of high-level consulting that Triangle will provide. 4. The fourth kind of competition is the market-specific smaller house. For example: Nomura Research in Japan, Select S.A. de C.V. in Mexico (now affiliated with IEDC). 5. Sales representation, brokering, and deal catalysts are an ad-hoc business form that will be defined in detail by the specific nature of each individual case. 3. 3 Sales Literature The business will begin with a general corporate brochure establishing the positioning. This brochure will be developed as part of the start-up expenses. Literature and mailings for the initial market forums will be very important, with the need to establish a high-quality look and feel for... ...[truncated because this plan is provided for purposes of illustration only] 3. 4 Sourcing •The key fulfillment and delivery will be provided by the principals of the business. The real core value is professional expertise, provided by a combination of experience, hard work. and education (in that order). •We will turn to qualified professionals for free-lance back-up in market research and presentation and report development, which are areas that we can afford to contract out without risking the core values provided to the clients. 3. 5 Technology Progressive Consulting will maintain latest Windows and Macintosh capabilities including: •1. Complete Email facilities in Internet, Compuserve, America Online, and Applelink, for working with clients directly through email delivery of drafts and information. •2. Complete presentation facilities for preparation and delivery of multimedia presentations on Macintosh or Windows machines, in formats including on-disk presentation, live presentation, or video presentation. •3. Complete desktop publishing facilities for delivery of regular retainer reports, project output reports, marketing materials, market research reports. 3. 6 Future Services In the future Progressive will broaden the coverage by expanding into coverage of additional markets (e.g. all of Latin America, Far East, Western Europe) and additional product areas (e.g. telecommunications and technology integration). We are also studying the possibility of newsletter or electronic newsletter services, or perhaps special on-topic reports. 4. 0 Market Analysis Summary Progressive will be focusing on high-technology manufacturers of computer hardware and software, services, networking, who want to sell into markets in the United States, Europe, and Latin America. These are mostly larger companies, and occasionally medium-sized companies. Our most important group of potential customers are executives in larger corporations. These are marketing managers, general managers, sales managers, sometimes charged with international focus and sometimes charged with market or even specific channel focus. They do not want to waste their time or risk their money looking for bargain information or questionnable expertise. As they go into markets looking at new opportunities, they are very sensitive to risking their company's name and reputation. Professional experience... [truncated because this plan is provided for purposes of illustration only] 4. 1 Market Segmentation •Large manufacturer corporations: our most important market segment is the large manufacturer of high-technology products, such as Apple, Hewlett-Packard, IBM, Microsoft, Siemens, or Olivetti. These companies will be calling on Progressive for development functions that are better spun off than managed in-house, and for market research, and for market forums. •Medium sized growth companies: particularly in software, multimedia, and some related high growth fields, Triangle will be able to offer an attractive development alternative to the company that is management constrained and unable to address opportunities in new markets and new market segments. 4. 2 Industry Analysis The consulting "industry" is pulverized and disorganized, thousands of smaller consulting organizations and individual consultants for every one of the few dozen well-known companies. Consulting is a disorganized industry, with participants ranging from major international name brand consultants to tens of thousands of individuals. One of Progressive's challenges will be establishing itself as a "real" consulting company, positioned as a relatively risk free corporate purchase. 4. 2. 1 Industry Participants The consulting "industry" is pulverized and disorganized, thousands of smaller consulting organizations and individual consultants for every one of the few dozen well-known companies. At the highest level are the few well established major names in management consulting. Most of these are organized as partnerships established in major markets around the world, linked together by interconnecting directors and sharing the name and corporate wisdom. Some evolved from accounting companies (e.g. Arthur Anderson, Touche Ross) and some from management consulting (McKinsey, Bain). These companies charge very high rates for consulting, and maintain relatively high overhead structures and fulfillment structures based on partners selling and junior associates fulfilling. At the intermediate level are some function specific or market specific consultants, such as the market research firms (IEDC, Dataquest) or channel development firms (ChannelCorp, Channel Strategies, ChannelMark). Some kinds of consulting is little more than contract expertise provided by somebody looking for a job and offering consulting services as a stop-gap measure while looking. 4. 2. 2 Distribution Patterns Consulting is sold and purchased mainly on a word-of-mouth basis, with relationships and previous experience being by far the most important factor. The major name-brand houses have locations in major cities and major markets, and executive-level managers or partners develop new business through industry associations, business associations, and chambers of commerce and industry, etc., even in some cases social associations such as country clubs. The medium-level houses are generally area-specific or function specific, and are not easily able to leverage their business through distribution. 4. 2. 3 Competition and Buying Patterns The key element in purchase decisions made at the Progressive client level is trust in the professional reputation and reliability of the consulting firm. 4. 2. 4 Main Competitors •The high-level prestige management consulting: Strengths: international locations managed by owner-partners with a high level of presentation and understanding of general business. Enviable reputations which make purchase of consulting an easy decision for a manager, despite the very high prices. Weaknesses: General business knowledge doesn't substitute for the specific market, channel, and distribution expertise of Triangle, focusing on high-technology markets and products only. Also, fees are extremely expensive, and work is generally done by very junior-level consultants, even though sold by high-level partners. •The international market research company: Strengths: International offices, specific market knowledge, permanent staff developing market research information on permanent basis, good relationships with potential client companies. Weaknesses: market numbers are not marketing, not channel development or market development. Although these companies compete for some of the business Triangle is after, they cannot really offer the same level of business understanding at a high level. •Market specific or function-specific experts Strengths: expertise in market or functional areas. Triangle should not try to compete with Normura or Select in their markets with market research, or with ChannelCorp in channel management. Weaknesses: the inability to spread beyond a specific focus, or to rise above a specific focus, to provide actuial management expertise, experience, and wisdom beyond the specifics. The most significant competition is no consulting at all, companies choosing to do business development and channel development and market research in-house. Strengths: no incremental cost except travel; also, the general work is done by the people who are entirely responsible, the planning done by those who will implement. Weaknesses: most managers are terribly overburdened already, unable to find incremental resources in time and people to apply to incremental opportunities. Also, there is a lot of additional risk in market development and channel development done in house from the ground up. Finally, retainer-based antenna consultants can greatly enhance a company's reach and extend its position into conversations that might otherwise never hanve taken place. 4. 3 Market Analysis As indicated by the illustrations, we must focus on a few thousand well-chosen potential customers in the United States,Europe, and Latin America. These few thousand high-tech manufacturing companies are the key customers for Progressive. Potential Customers Customers Growth rate _____________________________ _______________________ U.S. High Tech 5,000 10% European High Tech 1,000 15% Latin America 250 35% Other 10,000 2% ______________________________ ______________________ Total 16,250 n.a. 5. 0 Strategy Summary Progressive will focus on three geographical markets, the United States, Europe, and Latin America, and in limited product segments: personal computers, software, networks, telecommunications, personal organizers, and technology integration products. The target customer is usually a manager in a larger corporation, and occasionally an owner or president of a medium-sized corporation in a high- growth period. 5. 1 Pricing Strategy Progressive Consulting will be priced at the upper edge of what the market will bear, competing with the name brand consultants. The pricing fits with the general positioning of Triangle as high-level expertise. Consulting should be based on $5,000 per day for project consulting, $2,000 per day for market research, and $10,000 per month and up for retainer consulting. Market research reports should be priced at $5,000 per report, which will of course require that reports be very well planned, focused on very important topics very well presented. 5. 2 Sales Forecast The sales forecast monthly summary is included in the appendix. The annual sales projections are included here in the following table. Sales Forecast Sales 1995 1996 1997 ____________________ ______________________________________________ Retainer Consulting $200,000 $250,000 $325,000 Project Consulting $270,000 $325,000 $350,000 Market Research $122,000 $150,000 $200,000 Strategic Reports $0 $50,000 $125,000 Other $0 $0 $0 Total Sales $592,000 $775,000 $1,000,000 Cost of sales 1995 1996 1997 ____________________ ______________________________________________ Retainer Consulting $30,000 $20,000 $30,000 Project Consulting $45,000 $25,000 $31,000 Market Research $84,000 $45,000 $50,000 Strategic Reports $0 $20,000 $40,000 Other $0 $0 $0 Total Cost of Sales $159,000 $110,000 $151,000 5. 3 Strategic Alliances At this writing strategic alliances with Smith and Jones are possibilities, given the content of existing discussions. Given the background of prospective partners, we might also be talking to European companies including Siemens and Olivetti and others, and to United States companies related to Apple Computer. In Latin America we would be looking at the key local high-technology vendors, beginning with Printaform. 6. 0 Management Summary The initial management team depends on the founders themselves, with little back-up. As we grow we will take on additional consulting help, plus graphic/ editorial, sales, and marketing. 6. 1 Organizational Structure Progressive should be managed by working partners, in a structure taken mainly from Smith Partners. In the beginning we assume 3-5 partners: •Ralph Sampson •At least one, probably two partners from Smith and Jones •One strong European partner, based in Paris. The organization has to be very flat in the beginning, with each of the founders reponsible for his or her own work and management. •One other strong partner 6. 2 Management Team The Progressive business requires a very high level of international experience and expertise, which means that it will not be easily leveragable in the common consulting company mode in which partners run the business and make sales, while associates fulfill. Partners will necessarily be involved in the fulfillment of the core business proposition, providing the expertise to the clients. The initial personnel plan is still tentative. It should involve 3-5 partners, 1-3 consultants, 1 strong editorial/graphic person with good staff support, 1 strong marketing person, an office manager, and a secretary. Later we add more partners, consultants and and sales staff. Founders' resumes are included as an additional attachment to this plan. 6. 3 Personnel Plan The detailed monthly personnel plan for the first year is included in the appendices. The annual personal estimates are included here as Table 5. Personnel Plan 1995 1996 1997 ____________________ _____________________________________________ Partners $144,000 $175,000 $200,000 Consultants $0 $50,000 $63,000 Editorial/graphic $18,000 $22,000 $26,000 VP Marketing $20,000 $50,000 $55,000 Sales people $0 $30,000 $33,000 Office Manager $7,500 $30,000 $33,000 Secretarial $5,250 $20,000 $22,000 Other $0 $0 $0 Subtotal $194,750 $377,000 $432,000 7. 0 Financial Plan We will maintain a conservative financial strategy, based on developing capital for future growth. 7. 1 Important Assumptions The table in this section summarizes key financial assumptions, including 45-day average collection days, sales entirely on invoice basis, expenses mainly on net 30 basis, 35 days on average for payment of invoices, and present-day interest rates. General Assumptions 1995 1996 1997 ____________ _____________________________________________________________ Collection days 43 45 45 Payment Days 35 35 35 1995 1996 1997 ____________ _____________________________________________________________ Short Term Interest Rate 8.00% 8.00% 8.00% Long Term Interest Rate 10.00% 10.00% 10.00% Payment days 35 35 35 Tax Rate Percent 0.00% 0.00% 0.00% Expenses in cash% 25.00% 25.00% 25.00% Sales on credit 100.00% 100.00% 100.00% Personnel Burden % 14.00% 14.00% 14.00% 7.2 Key Financial Indicators The chart summarizes key financial benchmarks. Unfortunately, as we increase sales we will have to show a decline in performance of collection days and gross margin. 7. 3 Break-even Analysis Break Even Analysis: ___________________________________________________ Monthly Units Break-even 125,000 Monthly Sales Break-even $125,000 Assumptions: Average Unit Sale $1.00 Average Per-Unit Cost $0.20 Fixed Cost $100,000 7. 4 Projected Profit and Loss The detailed monthly pro-forma income statement for the first year is included in the appendices. The annual estimates are included here. Pro-forma Income Statement 1995 1996 1997 ____________ _____________________________________________________________ Sales $592,000 $775,000 $1,000,000 Cost of Sales $159,000 $110,000 $151,000 Other $1,000 $0 $0 _________________________________________________ Total Cost of Sales $160,000 $110,000 $151,000 Gross margin $432,000 $665,000 $849,000 Gross margin percent 72.97% 85.81% 84.90% Operating expenses: Advertising/Promotion 10.00% $36,000 $40,000 $44,000 Public Relations 10.00% $30,000 $30,000 $33,000 Travel 10.00% $90,000 $60,000 $110,000 Miscellaneous 10.00% $6,000 $7,000 $8,000 Payroll expense $194,750 $377,000 $432,000 Leased Equipment $6,000 $7,000 $7,000 Utilities 20% $12,000 $14,000 $17,000 Insurance 20% $3,600 $2,000 $2,000 Depreciation $0 $0 $0 Rent 25% $18,000 $23,000 $29,000 Payroll Burden $0 $0 $0 Contract/Consultants $0 $0 $0 Other $0 $0 $0 _________________________________________________ Total Operating Expenses $396,350 $560,000 $682,000 Profit Before Interest and Taxes$35,650 $105,000 $167,000 Interest Expense ST $3,600 $12,800 $12,800 Interest Expense LT $5,000 $5,000 $5,000 Taxes Incurred $0 $0 $0 Net Profit $27,050 $87,200 $149,200 Net Profit/Sales 4.57% 11.25% 14.92% 7. 5 Projected Cash Flow Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month and the other the monthly balance. The annual cash flow figures are included here. Detailed monthly numbers are included in the appendices. Pro-Forma Cash Flow 1995 1996 1997 ____ ________________________________________________________________________________ Net Profit: $27,050 $87,200 $149,200 Plus: Depreciation $0 $0 $0 Change in Accounts Payable $49,413 $16,799 $13,764 Current Borrowing (repayment) $60,000 $100,000 $0 Increase (decrease) Other Liabilities $0 $0 $0 Long-term Borrowing (repayment) $50,000 $0 $0 Capital Input $0 $0 $0 Subtotal $186,463 $203,999 $162,964 Less: 1905 1905 1905 Change in Accounts Receivable $94,000 $5,750 $50,500 Change in Inventory $0 $0 $0 Change in Other ST Assets $0 $0 $0 Capital Expenditure $0 $0 $0 Dividends $0 $0 $0 Subtotal $94,000 $5,750 $50,500 Net Cash Flow $92,463 $198,249 $112,464 Cash balance $117,463 $315,712 $428,176 7. 6 Projected Balance Sheet The balance sheet shows healthy growth of net worth, and strong financial position. The monthly estimates are included in the appendices. Pro-forma Balance Sheet 1995 1996 1997 ____ ________________________________________________________________________________ Short-term Assets Starting Balances Cash $25,000 $117,463 $315,712 $428,176 Accounts receivable $0 $94,000 $99,750 $150,250 Inventory $0 $0 $0 $0 Other Short-term Assets $7,000 $7,000 $7,000 $7,000 Total Short-term Assets $32,000 $218,463 $422,462 $585,426 Long-term Assets Capital Assets $0 $0 $0 $0 Accumulated Depreciation$0 $0 $0 $0 Total Long-term Assets $0 $0 $0 $0 _________________________________________________ Total Assets $32,000 $218,463 $422,462 $585,426 Debt and Equity 1995 1996 1997 ____ ________________________________________________________________________________ Accounts Payable $5,000 $54,413 $71,212 $84,976 Short-term Notes $0 $60,000 $160,000 $160,000 Other ST Liabilities $0 $0 $0 $0 Subtotal Short-term Liabilities $5,000 $114,413 $231,212 $244,976 Long-term Liabilities $0 $50,000 $50,000 $50,000 Total Liabilities $5,000 $164,413 $281,212 $294,976 Paid in Capital $50,000 $50,000 $50,000 $50,000 Retained Earnings ($23,000) ($23,000) $4,050 $91,250 Earnings $0 $27,050 $87,200 $149,200 Total Equity $27,000 $54,050 $141,250 $290,450 Total Debt and Equity $32,000 $218,463 $422,462 $585,426 Net Worth $27,000 $54,050 $141,250 $290,450 7. 7 Business Ratios Progressive Consulting will be formed as a consulting company specializing in marketing of high-technology products in international markets. Its founders are former marketers of consulting services, personal computers, and market research, all in international markets. They are founding Progressive to formalize the consulting services they offer. Ratio Analysis Profitability Ratios: 1995 1996 1997 ____________ ________________________________________________________ Gross margin 72.97% 85.81% 84.90% Net profit margin 4.57% 11.25% 14.92% Return on Assets 12.38% 20.64% 25.49% Return on Equity 50.05% 61.73% 51.37% Activity Ratios: AR Turnover 6.30 7.77 6.66 Collection days 29 45 45 Inventory Turnover 0.00 0.00 0.00 Accts payable turnover 7.67 7.06 7.35 Total asset turnover 2.71 1.83 1.71 Debt Ratios: 1995 1996 1997 ____________ ________________________________________________________ Debt to net Worth 3.04 1.99 1.02 Short-term Debt to Liab. 0.70 0.82 0.83 Liquidity Ratios: Current Ratio 1.91 1.83 2.39 Quick Ratio 1.91 1.83 2.39 Net Working Capital $104,050 $191,250 $340,450 Interest Coverage 4.15 5.90 9.38 Additional Ratios: 1995 1996 1997 ____________ _________________________________________________________ Asset f:\12000 essays\business & economics (632)\Business Policy and Strategy An Action Plan Critical Book .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Book Review of Business Policy and Strategy: An Action Guide Submitted in partial fulfillment of B.S. in Business Administration Century University, New Mexico Grade = 95% {A} Business Policy and Strategy: An Action Guide, by Robert Murdick, R. Carl Moor and Richard H. Eckhouse, attempts to tie together the broad policies and interrelationships that exist among the many functional areas which undergraduate students typically study. The authors intend the text to supplement the typical case book and/or computer simulations used in teaching business strategy (ix). Situational analysis is presented, as is a structure for developing strategy. Practicality and real world experience is combined with educational theory to provide as complete a picture as possible of strategy in business. The authors have divided the text into 15 chapters with no further subdivisions. It is possible, however, to group the chapters into specific areas of study. For example, the first chapter, "Business Failure -- Business Success," examines why businesses fail, and provides the reason for continuing with the remainder of the text. The next two chapters focus on the "field of action," including the business environment and the business system. The fourth and fifth chapters introduce strategic management (chapter 4) and the struggle not only to survive, but to prosper using strategic management (chapter 5). Chapters Six through Nine address specific functional areas (marketing, accounting/finance, production, and engineering/research and development). Chapters 10 and 11 introduce the reader to the problems of managing human resources (chapter 10) and data processing resources (chapter 11). The last four chapters discuss the issues involved with analyzing business situations. Multinational business analysis is the subject of chapter 12, while chapter 13 turns the reader's attention to how to conduct an industry study. Chapters 14 and 15 focus on how to analyze a case and illustrations of case analysis, respectively. The text concludes with an appendix of symbols used by those who evaluate reports and a general index to topics within the book. The authors make good and frequent use of charts, graphs, forms and other graphic techniques to illustrate their points. Each chapter concludes with a selected bibliography that the student may use for additional research. The book is printed entirely in black ink; the use of color for key concepts would have enhanced the book's value as a teaching text. Visually, the book is crowded without much white space for readers to make notes. Key concepts could also have been separated from supporting text in a more clear manner. While each chapter has a summary, they do not have an introduction or a listing of key words of concepts that the student should learn as a result of studying each chapter. Such aids would make the book more valuable and enhance the learning experience of readers. Chapter 1 examines why some businesses fail and why others succeed. The first sentence in the book states exactly where the authors stand on the issue: "Businesses fail because managers fail" (1). The authors present a chart that illustrates how businesses large and small can both have "relatively short successful life spans" (1) Reasons for the ultimate failure are presented in this chart, and the authors go into greater detail in the text. Fundamentally, the authors find that managers in business are unable to determine what action to take, or are unable to implement the necessary action once they have identified it. The reasons for these shortcomings are many, but the authors find that managers may be unable to differentiate between problems and symptoms. To help their readers overcome this problem and successfully manage one or more businesses, Murdick, Moor and Eckhouse identify five points that they address in the remaining 14 chapters. One, they present the field of action in which managers must operate. Two, they describe common major problems that must be identified and solved in order for firms to prosper. Three, they present a framework for determining a unified sense of direction. Four, they give a brief account of policies and problems in the major functional areas of business. Five, they give detailed case and analysis tools to enhance the reader's ability to identify complex business problems. Chapter 1 concludes with a list of business failures and their causes of 1987, helping the student to understand the importance of strategic management in the success or failure of a company (4). In Chapter 2, the authors move to consider the field of action, or the arena in which business executives and businesses operate. Chapters 2 and 3 focus on this field of action, with chapter 2 looking at the environment of the business system. Murdick, Moor and Eckhouse suggest that a business has seven groups of stakeholders, each of which provides some level of legitimacy to the organization: customers, shareholders, general public, suppliers, competitors, governments and special interest groups (5). It is important that the business act in a manner that is morally responsible toward these groups. However, any one of these groups may be powerful enough to force a business to close, or to support its operation even during general business downturns. Because this field of action is dynamic, it is up to the managers of individual organizations to determine the proper level of responsibility toward each of these groups of stakeholders. Murdick, Moor and Eckhouse also suggest that monitoring and forecasting the business environment is vital to the success of a business. The authors divide the environment into two distinct parts: remote and immediate. The remote environment consists of such aspects as: global economics, political factors, social and demographic features, technology and physical resources. The immediate environment comprises such areas as: customers and prospects, competitors, the labor pool, suppliers, creditors and government agencies (7). To those business managers who are of the opinion that they cannot forecast the future because they have problems in the present, the authors counter that by being mindful of what the future may hold, the managers can minimize their problems in the present. This chapter concludes with a discussion of opportunities and threats. Murdick, Moor and Eckhouse suggest that opportunities, like the environment itself, can be divided into immediate and long-term for the purpose of analysis. Immediate opportunities include new applications of existing products, new processes in manufacturing, and new and improved customer service (8). Threats that pose immediate problems may also pose extremely fragile environmental situations. Avoiding environmental threats requires long-term planning and anticipation of potential problems. Environmental threats may include competitors, changes in customer demand, legislation, inflation, recession and technological breakthroughs. In addition to opportunities and threats, which help managers attain long-term and short-term business success, managers must also be aware of constraints. Constraints may require careful and thoughtful analysis in order to realize their full implications. Legal constraints are often obvious, but political constraints may be nebulous. Some constraints to growth are identified by Murdick, Moor and Eckhouse as lack of natural resources, declining productivity and deteriorating transportation systems (13). In chapter 3, the authors turn their attention to the business system, which is the second field of action. Here, they suggest that the historically popular approach of studying functional areas separately without understanding their interrelationships proved short-sighted and the source of many business problems, and some spectacular failures. The discussion of the business system begins with the identification of general management. General managers are identified as individuals "responsible for a business system" (15). It is the general manager who is responsible for profit and loss and for long-term survival. It is up to the general manager to balance conflicting objectives of subsystems, differing value systems of internal and external influences, opposing views of priorities and emphasis and conflicting proposals for criteria in all areas. The general manager develops the concept of the enterprise, guides the development of a set of visions, goals, values and policies, and conducts the strategic management tasks of renewal and growth (16). Murdick, Moor and Eckhouse suggest that organization provides the structure of the business system. Some organizational aspects are dictated by law; sole proprietorships, partnerships, limited partnerships, corporations and joint-ventures are examples of these. While these are the legal forms of organization a business may have, the law does not dictate which form is appropriate for a given business. Determining the legal type of organization requires careful analysis. As businesses change and strategies are modified, managers must be willing to undertake changes in the legal organization, as well, in order to maintain the most competitive and advantageous organizational structure. Murdick, Moor and Eckhouse identify small firms as those that are guided by a single individual, or by two partners. Imposing the tight, formal structure of medium and large companies on small companies can be death for the smaller firm, according to the authors (18). Instead, small companies work best with loose organizational structures that allow for maximum creativity. While managers of small firms that are growing into medium-sized firms are well advised to avoid hiring managers from other medium-sized firms, and instead, seek to teach the individuals who are already associated with the company the skills they will need in the now-larger organization. In all cases, the goal is to keep the owner-manager occupied in the areas in which the company benefits the most from his expertise. This may mean delegating some responsibilities in order to allow the owner-manager time to focus on strategic planning. Turning their attention to medium-sized firms, Murdick, Moor and Eckhouse first acknowledge that there are no clear-cut rules for differentiating between medium and large companies, except through examining assets, sales, equity and number of employees. They suggest that medium-sized firms can be differentiated from some companies in that medium-sized companies require a functional manager for each functional area. Small companies may have one manager for several functional areas. Full-time specialists, such as lawyers or treasurer, may also be found in medium-sized firms, but not in small ones. Medium-sized companies are best served by "flat" organizational charts; that is, few hierarchical levels, with functional managers reporting directly to the president. Murdick, Moor and Eckhouse recommend a span of management of at least six people without crossover responsibilities (22-23). Large companies usually have complex organizational structures that may have any one of several hundred forms. Large companies are characterized by "staff" and "line" personnel, with staff personnel providing support services to line personnel, who are responsible for the company's products or services. There are increased layers of management in large companies when compared to medium and small firms, and there are often subdivisions or subsidiaries that are grouped under one large parent organization. Organizations may follow one of the six "pure" forms identified by the authors: people, product, geographic area, process, function or phase of activity (33). Large companies are likely to combine several of these forms. Organizational policies (as opposed to personnel and staffing policies), identify information such as the principles to be followed in organizing the parts of the company, relationships among major organizational components, guidelines for position titles, functional descriptions of components and spans of management. The authors end this chapter with a discussion of decision problems. Such problems are identified as situations that require action based on executive decision to pursue a given course of action (41) Chapter 4 formally introduces and explores a concept that has been central in the text so far, but which the authors have not defined until now: strategic management. Murdick, Moor and Eckhouse identify seven major tasks that form the strategic management process: formulation of the philosophy of management, corporate purpose and goals; environmental analysis and forecast, internal analysis of strengths and weaknesses; formulation of strategy; evaluation of strategy; implementation of strategy; and, strategic control (45). The philosophy of management is concerned with what the firm strives to achieve in the long-term, not with immediate objectives. Environmental analysis and forecast and internal analysis have already been discussed in previous chapters. Developing strategy is, along with implementing strategy, one of the most complex tasks a firm undertakes. The authors define strategy as 1) a statement of strategic objectives of the organization, 2) courses of action to be taken in moving the organization from its present position to a position defined by its principal strategic objectives, and 3) policies and standards of conduct pursued for one long-range cycle of the organization (46). When companies do not understand strategic management, there is a notable shift among various tactical strategies. Such companies lack procedures for developing strategies and plans, and may be carrying subsidiaries or products that are no longer money-makers. Companies lacking strategic management are likely to suffer a loss of market share and a deteriorating capital position. Top managers may strongly disagree about the direction the firm is taking, or should be taking. Finally, there is likely to be no long-term, written strategic plan for the organization, including strategic goals and the ways those goals will be reached (46-48). Murdick, Moor and Eckhouse identify a four-step process to help formulate strategic directions for business. One, top management must settle on the personality of the company through open and frank discussions. Two, analysis of the situation outside the company must be undertaken to see what opportunities and threats might be realized or overcome. Three, internal analysis is necessary to determine resource and capability. Four, the internal capabilities must be matched to the external opportunities (49). Murdick, Moor and Eckhouse also move to strategic planning and implementation, and suggest that planning is, in fact, the beginning of implementation. Strategic plans involve writing down what is to be done, when, how, and by whom. Such plans greatly enhance implementation by leaving few variables subject to chance. The authors end the chapter with a note of caution. They find that the best-made plans do no good unless they are implemented. Companies which may run efficiently may not be running according to their strategic plan. Total company control is necessary to long-term survival. They suggest that long-term plans include identification of Key Performance Areas (KPAS) and the monitoring system that will keep these areas on track with the strategic vision of top management (61). The authors include three appendices to this chapter, including key merger and acquisition terms, a discussion of value-based planning and a discussion of discounted cash flow valuation. In chapter 5, Murdick, Moor and Eckhouse take up the complex issue of survival and prosperity among firms. While they admit that new firms have the greatest risk of failure, they also point out that old, established firms (such as Packard Motors and Baldwin Locomotive) can also disappear from the business scene. In order to better understand why some firms survive while others fail, the authors look at small, medium and large firms. They also point out that there are many more causes for failure than can be covered in any one text, let alone any one chapter. Beginning with small firms, Murdick, Moor and Eckhouse suggest that the competitive edge that defines a company's survival be carefully analyzed. Small firms need to focus on facts rather than hunches and guesses. Owner-managers need to seek out qualified professional advice and take advantage of it. Growth for its own sake needs to be avoided, as does undercapitalization. Lack of cash planning and managerial problems also plague small companies. Medium and large companies are grouped together in the remainder of chapter 5 to examine why they succeed and fail. Here, the authors find that successful firms have written objectives and policies that cover all aspects of a company's operations, including its internal and external environment (92). Companies in this size category that fail almost always have no unified sense of direction (94). Failing companies may suffer inadequacy in one or more key functional areas, or have people problems that cannot be overcome. These companies may not have good controls, or may try to implement too many controls at one time. Finally, medium and large companies that fail to operate with an "international" mentality may well find themselves facing difficult times (100). Chapter 6 begins a four-part section on functional areas with a discussion of marketing. Here, Murdick, Moor and Eckhouse suggest that successful firms are characterized by everyone in the company being marketing-oriented (103). They also find that it is not enough for a company to understand the science of marketing; a company and its marketing staff must be able to understand the art, as well. Murdick, Moor and Eckhouse take a philosophical rather than mechanical approach to marketing in order to provide the reader with a better base of understanding that can be applied in the real world. The authors first present the idea of a "marketing concept," which they define as a philosophy that guides the attitude and behavior of each employee in the organization (104). Specific characteristics of the marketing concept include treating the customer as all-important, pinpointing a target market, gaining a competitive edge, and focusing on profits (105-106). Murdick, Moor and Eckhouse also attempt to identify the characteristics of good marketers. They find that good marketers are those who can identify the key factors associated with their business, foresee how those factors will behave in the future, and who can create outstanding strategies based on these factors. Good marketers satisfy a large number of customers at a high level of profit over a long period of time (at least ten years). Good marketers recognize that marketing is both an art and a science, and they make the best use of scientific information in order to enhance the art. When examining the marketing position of a company, it is necessary to analyze the marketing philosophy, policies, strategy and operations. Fundamentally, it is necessary to establish that a company is following its marketing concept. Broad marketing policies must be established. The marketing strategy of the company must be well defined within these broad policies. Finally, marketing operations must be carried out effectively and efficiently (109). Strategic marketing policies are developed by top managers working from top level marketing policies. Murdick, Moor and Eckhouse identify seven areas that may be covered by these strategic marketing policies: morality and public service, products, markets, profits, personal selling, customer relations and promotion (111) The authors then turn their attention to marketing policy and find that there are three policy options within marketing: expand sales into new classes of customers; increase penetration in existing market segments; avoid marketing innovations, but work to maintain present market share with product design and manufacturing innovations. Murdick, Moor and Eckhouse are also careful to discuss plans and tactics for keeping with the marketing concept and strategy. In suggesting ways to analyze the marketing of an organization, the authors suggest that companies strive to establish and maintain a competitive edge. Marketing research is of prime importance in order that the company base its direction on as much quantitative information as possible. Advertising and sales promotion policies must be considered in light of the company's customers, industry and other environmental factors. Personal selling must be taken into account. Distribution and pricing strategies must be reviewed and modified on a regular basis in order to keep the company operating at maximum efficiency. The authors conclude this chapter with a summary of the marketing mix as well as a summary of the pitfalls that may be symptomatic of companies experiencing marketing difficulty. Chapter 7, which focuses on the functional area of accounting and finance, is the longest chapter in the book; it is nearly twice as long as any other chapter. This illustrates the importance that the authors place on accounting and finance, and also the trepidation they believe most readers have when it comes to these subjects. The authors concentrate on the basic aspects of finance and accounting that can be learned quickly and that will bring the greatest benefit when taking a strategic approach to business. Three appendices provide review material for those readers who feel they are lacking in some area. The appendices cover business arithmetic, break-even analysis and definitions of accounting terms. Having recognized that there is hesitation and a general lack of comfort among business when confronted with accounting and finance, Murdick, Moor and Eckhouse discuss why it is important to understand financial analysis. Chief among these reasons is the idea that financial analysis is the most direct way to point out that a company may be experiencing difficulty. Financial analysis can be used to establish that there is a problem, though it may not always establish what the root cause of the problem is. Despite the fact that the authors consider financial analysis to be key in understanding companies, they are also careful to point out the limitations of this type of analysis. For example, there can be a tendency to use financial analysis to focus on the past, rather than anticipating what the historical figures may indicate about the future. There is also an inherent danger in expecting past trends to accurately predict future trends. Technological changes, changes in consumer demand and other environmental factors that are outside the realm of financial analysis can be overlooked if there is too much emphasis on historical financial performance. High technology companies or those in rapidly expanding industries may have financial figures that are too uneven to provide an accurate picture of how the company is actually performing. There is also the possibility that figures may not (whether intentionally or not), accurately reflect the true position of the company. Finally, the authors suggest that financial analysis is an art that is mastered by all too few people for it to be considered the ultimate analysis tool. Having presented this rather lengthy discussion of the limitations of financial analysis, the authors then counter with an equally lengthy discussion of the advantages of using financial analysis. Foremost among these is the idea that trends do exist and financial analysis is one of the most effective methods for spotting them. Financial analysis can also spotlight symptoms of problems (although not the underlying cause, necessarily). Companies seeking outside capital to infuse into the business find that potential investors consider financial analysis key to their decision-making process; inside managers would do well to keep a financial picture of the company in mind to prevent unpleasant surprises. Since financial analysis is quantitative, it can help point up where problems exist, rather than where managers may think they exist. Finally, and perhaps most importantly, the authors suggest that weighing different, exclusive courses of action quantitatively provides additional tools to managers to make strategic decisions. The authors then provide information on how readers can obtain financial information. General sources, such as Moody's and Standard & Poor's are discussed as are ratio reports. Ratios are of particular importance to the authors; they devote four pages of a chart to figuring ratios and a lengthy discussion of their proper use. Murdick, Moor and Eckhouse favor comparing performance across departments within a single organization, and across companies within a single industry in order to arrive at the most accurate comparison. They note that when performing industry comparisons, it is important to compare like industries, and like companies within the industries. Selecting the wrong category can render the value of the ratio comparison null. At this point, the authors shift their focus from finance to accounting, and discuss how accounting can help decision-makers. Murdick, Moor and Eckhouse suggest that financial accounting should answer five basic questions. One, how is the company doing overall? Two, when evaluating alternate plans, which is most attractive? Three, what is going wrong? Where? How can it be fixed? Four, how can activities be coordinated? Five, is the company operating as effectively as it can in its environment (144-145)? Anticipating that readers are curious as to how to begin their analysis, the authors suggest that they begin by taking financial information from the most recent ten years. Any trends that exist over this period are likely to persist, according to the authors, because trends generally do persist barring unforeseen circumstances. The authors suggest that the reader consider four questions when examining the profit and loss statement. One, what is the sales trend? Two, what is the trend of cost of goods sold as a percentage of sales? Three, what's the trend of operating expenses as a percentage of sales? Four, what is the trend in profits? If the trend in sales is up, but the trend in profits is down, the company is very likely already in serious trouble (147). Returning briefly to ratio analysis at this point, the authors identify four key areas to examine: profitability, liquidity, leverage and turnover. They also stress the importance of considering any other pertinent questions that must be considered for the specific company and industry. Murdick, Moor and Eckhouse consider break-even analysis to be important when: deciding whether to increase sales or advertising expenses to increase volume; weighing the relative merits of decreasing prices to increasing volume; determining the advisability of borrowing for capital improvements to increase capacity; and when evaluating office automation. The first step in break-even analysis, according to Murdick, Moor and Eckhouse, is dividing costs into fixed (constant) and variable. Murdick, Moor and Eckhouse give several examples of inventory valuation and the effect that changing valuation methods may have when considering a company's financial position. This discussion reminds the reader that the valuation method or changing valuation may result in a company overstating or understating its actual position. The reader is then introduced to the funds flow concept that establishes how many funds are needed for projects and the possible sources of those funds. The authors then discuss budgets, which they consider to be of prime importance when evaluating a company's managerial performance.. Budgets assist in planning, but also indicate how the firm has performed in the past. They indicate how well the company expects to do, and how well the company has predicted their past performance. They can also be used to spot difficulties and problem areas in the present, as well as areas that became problems in the past. Having presented a wealth of information to the reader on finance and accounting, the authors end the chapter with a lengthy chart designed to help the reader use his or her newly acquired skills. They also emphasize that it is through repeated and frequent analysis that the reader is likely to improve his or her financial analysis skills, and the tools presented in the three appendices to this chapter are designed to assist in that improvement. Chapter 8 is concerned with the functional area of production. The authors begin this chapter by stating that the concepts they are putting forth with regard to production apply equally to businesses that produce tangible goods as well as that provide service. Production, they suggest, is the "process of converting any design of product or service into the actual product or service," (177). NOTE: MY REVIEW WILL NOT FIT YOUR SPACE, THERE ARE 4 MORE PAGES WHICH I WILL SEND ONLY IF YOU TELL ME TO. PER INSTRUCTIONS OF ONLY SUBMIT ONCE!!! f:\12000 essays\business & economics (632)\Business Practices.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Practices Companies must have satisfied employees to satisfy customers. Continental Airlines is a perfect example of how a company can succeed by putting the emphasis on the employees and customers. Continental demonstrates remarkable turnaround from a disastrous performance. In the early 1980's, the management of Continental believed that the only way to save the company was to lower airfares, and to reduce all possible expenses. In doing so, it demolished the product and their quality of service. For instance, in the early 1990s, pilots could earn bonuses if the fuel burn rate on their airplane fell below a specific amount. The program motivated pilots to fly slowly, which often resulted in missed arrival times. Because of the delays, it was sometimes necessary to divert customers to the competition. Another example of this horrible "low-cost" approach was the CALite program. Continental replaced all first-class seats in some airplanes with coach seats to lower the cost-per-seat. This failed when airplanes were swapped during adverse weather conditions; the business class seats were not available to the passengers that had paid for them. Moreover, CALite eliminated all food on flights, all travel agent commissions, and all corporate discounts. This infuriated many of their very important customers. After 15 years of this "low-cost" approach, Continental had succeeded in creating services that nobody wanted. Continental's organizational culture was terrible. Many of the employees felt ashamed to work for Continental. Some employees were so ashamed, that they removed the logo from their shirts. To make matters worse, Continental had put in place a horrible communication structure: Nothing was told to the employees unless it was absolutely necessary. Most employees found out about company activities, plans, and performance through the public press. They did not have ways to share their ideas nor ask questions. For example, if an employee came up with an idea for improving service for the first-class passengers, there was a useless form to fill out. The information was hardly ever collected, and was never used as a source of possible improvements for the company. Furthermore, there were so many rules to follow that employees could not possibly do what was the best for customers. The Department of Transportation ranked Continental tenth out of the ten largest U.S. airlines in all key customer service. Especially abysmal scores for on-time arrivals, baggage handling, customer complaints, and voluntary denied boarding. Continental had been through two bankruptcies and ten presidents over ten years. It also had not posted any profit since 1978. The "Go Forward" plan was implemented under Gordon Bethune, Continental's chairman and CEO, and Greg Brenneman, president and COO. This plan had four components: (1) "Fly To Win" as a marketing plan, (2) "Fund The Future" as a financial plan, (3) "Make Reliability A Reality" as a product plan, and (4) "Working Together" as a people plan. In "Fly To Win", the plan was designed to build up Houston, Newark and Cleveland markets by drawing more business fliers than leisure fliers. The "Fund The Future" was designed to restrict the balance sheet to gain liquidity and to sell on strategic assets. The "Make Reliability A Reality" showed business travelers that Continental is reliable and regained trust and confidence of customers. Finally, with "Working Together," the purpose was to change Continental's organizational culture to an environment in which people enjoy working together for the company. With Go Forward plan, Continental begged forgiveness from the customers they had previously treated poorly. The "forgiveness campaign" had two parts. First, they collected angry letters from customers and then divided them amongst the officers-executives through the rank of vice president. Furthermore, Continental assigned one officer to each city in their system. Then they started making phone calls. The goal was not only to apologize, but also to explain their plans to fix the company. Each phone call took easily an hour, since the customer was invariably frustrated and wanted to let them know just how badly. Customers usually appreciated the time and effort. To improve the level of customer satisfaction, Continental concentrated on what frequent business users had to say. These customers regularly paid full fare and traveled often. Their demands were simple: airplanes and terminals that are safe, comfortable, and attractive. Other concerns were on-time flights reliable baggage handling, and good food at mealtimes. With the exception of safety, Continental had failed on all of these accounts miserably. The first thing they did was painting the exteriors of every airplane to match the interior. All the carpets in the airport terminals were replaced. The old Continental logo was redesigned as well. The renovation was completed in six months. Continental received high marks from customers and employees. In fact, many of them could perceive Continental was changing visibly. To assure on-time arrivals, flight schedules were rewritten by the Department of Transportation according to what pilots and airport operators advised. Continental also offered employees a reward: For every month, each employee would receive $65, if the company finished in the top five out of ten airlines in "on-time performances" as measured by DOT. With in months, most flights were on time and regularly finishing in the first place. The food policy was adjusted to reflect the time of the day, length of flights, and class of service. For instance, the breakfast is now served on 7:00 A.M. Nowadays, the first-class meals consist of items like fresh pasta, soups, sandwiches, and freshly baked cinnamon rolls. In 1995, Continental made a profit of $224 million, and in1996 it more than doubled that. Finally, Continental had to regain the faith the employees had lost in the company. The company needed to establish new culture, where employees are liberated and can perform effectively. Establishing communication with employees was the most significant element in the new Continental culture. It began with replacing 50 of the 61 officers with 20 new individuals, who were people-oriented and team players. Thus, officers are now more accessible to employees. There are bulletin boards throughout the system to inform the employees of daily news. Newspapers and magazines are published to inform what is happening in the company. Officers of Continental hold an open house every month for employees to get answers to the questions they have. A 24-hour hotline was put in place to handle employees' suggestions and to improve employee involvement. Continental set up incentive plans for employees, for example, employees can earn up to 15% of Continental's profit. The sales forces receive payments linked to the gains in revenue from business travelers. Reservation agents receive bonuses based on responsiveness and the number of completed calls. As a result, the proportion of customer reservation calls answered within 20 seconds jumped from 20 percent to more than 90 percent, the best in the industry. In 1999, Continental was named one of the Best Companies to Work for in America by Fortune magazine. Through hard work and open-minded policies Continental has pulled back from their nosedive. Continental's new focus on employee and customer satisfaction has resulted record profits and shareholder satisfaction. The basic principles of marketing mix (Product, Price, Promotion, and Place) were applied with great success. Continental illustrates the point that the "5th P", or People, is truly the most important. Companies must have satisfied employees to satisfy customers. Continental Airlines is a perfect example of how a company can succeed by putting the emphasis on the employees and customers. Continental demonstrates remarkable turnaround from a disastrous performance. In the early 1980's, the management of Continental believed that the only way to save the company was to lower airfares, and to reduce all possible expenses. In doing so, it demolished the product and their quality of service. For instance, in the early 1990s, pilots could earn bonuses if the fuel burn rate on their airplane fell below a specific amount. The program motivated pilots to fly slowly, which often resulted in missed arrival times. Because of the delays, it was sometimes necessary to divert customers to the competition. Another example of this horrible "low-cost" approach was the CALite program. Continental replaced all first-class seats in some airplanes with coach seats to lower the cost-per-seat. This failed when airplanes were swapped during adverse weather conditions; the business class seats were not available to the passengers that had paid for them. Moreover, CALite eliminated all food on flights, all travel agent commissions, and all corporate discounts. This infuriated many of their very important customers. After 15 years of this "low-cost" approach, Continental had succeeded in creating services that nobody wanted. Continental's organizational culture was terrible. Many of the employees felt ashamed to work for Continental. Some employees were so ashamed, that they removed the logo from their shirts. To make matters worse, Continental had put in place a horrible communication structure: Nothing was told to the employees unless it was absolutely necessary. Most employees found out about company activities, plans, and performance through the public press. They did not have ways to share their ideas nor ask questions. For example, if an employee came up with an idea for improving service for the first-class passengers, there was a useless form to fill out. The information was hardly ever collected, and was never used as a source of possible improvements for the company. Furthermore, there were so many rules to follow that employees could not possibly do what was the best for customers. The Department of Transportation ranked Continental tenth out of the ten largest U.S. airlines in all key customer service. Especially abysmal scores for on-time arrivals, baggage handling, customer complaints, and voluntary denied boarding. Continental had been through two bankruptcies and ten presidents over ten years. It also had not posted any profit since 1978. The "Go Forward" plan was implemented under Gordon Bethune, Continental's chairman and CEO, and Greg Brenneman, president and COO. This plan had four components: (1) "Fly To Win" as a marketing plan, (2) "Fund The Future" as a financial plan, (3) "Make Reliability A Reality" as a product plan, and (4) "Working Together" as a people plan. In "Fly To Win", the plan was designed to build up Houston, Newark and Cleveland markets by drawing more business fliers than leisure fliers. The "Fund The Future" was designed to restrict the balance sheet to gain liquidity and to sell on strategic assets. The "Make Reliability A Reality" showed business travelers that Continental is reliable and regained trust and confidence of customers. Finally, with "Working Together," the purpose was to change Continental's organizational culture to an environment in which people enjoy working together for the company. With Go Forward plan, Continental begged forgiveness from the customers they had previously treated poorly. The "forgiveness campaign" had two parts. First, they collected angry letters from customers and then divided them amongst the officers-executives through the rank of vice president. Furthermore, Continental assigned one officer to each city in their system. Then they started making phone calls. The goal was not only to apologize, but also to explain their plans to fix the company. Each phone call took easily an hour, since the customer was invariably frustrated and wanted to let them know just how badly. Customers usually appreciated the time and effort. To improve the level of customer satisfaction, Continental concentrated on what frequent business users had to say. These customers regularly paid full fare and traveled often. Their demands were simple: airplanes and terminals that are safe, comfortable, and attractive. Other concerns were on-time flights reliable baggage handling, and good food at mealtimes. With the exception of safety, Continental had failed on all of these accounts miserably. The first thing they did was painting the exteriors of every airplane to match the interior. All the carpets in the airport terminals were replaced. The old Continental logo was redesigned as well. The renovation was completed in six months. Continental received high marks from customers and employees. In fact, many of them could perceive Continental was changing visibly. To assure on-time arrivals, flight schedules were rewritten by the Department of Transportation according to what pilots and airport operators advised. Continental also offered employees a reward: For every month, each employee would receive $65, if the company finished in the top five out of ten airlines in "on-time performances" as measured by DOT. With in months, most flights were on time and regularly finishing in the first place. The food policy was adjusted to reflect the time of the day, length of flights, and class of service. For instance, the breakfast is now served on 7:00 A.M. Nowadays, the first-class meals consist of items like fresh pasta, soups, sandwiches, and freshly baked cinnamon rolls. In 1995, Continental made a profit of $224 million, and in1996 it more than doubled that. Finally, Continental had to regain the faith the employees had lost in the company. The company needed to establish new culture, where employees are liberated and can perform effectively. Establishing communication with employees was the most significant element in the new Continental culture. It began with replacing 50 of the 61 officers with 20 new individuals, who were people-oriented and team players. Thus, officers are now more accessible to employees. There are bulletin boards throughout the system to inform the employees of daily news. Newspapers and magazines are published to inform what is happening in the company. Officers of Continental hold an open house every month for employees to get answers to the questions they have. A 24-hour hotline was put in place to handle employees' suggestions and to improve employee involvement. Continental set up incentive plans for employees, for example, employees can earn up to 15% of Continental's profit. The sales forces receive payments linked to the gains in revenue from business travelers. Reservation agents receive bonuses based on responsiveness and the number of completed calls. As a result, the proportion of customer reservation calls answered within 20 seconds jumped from 20 percent to more than 90 percent, the best in the industry. In 1999, Continental was named one of the Best Companies to Work for in America by Fortune magazine. Through hard work and open-minded policies Continental has pulled back from their nosedive. Continental's new focus on employee and customer satisfaction has resulted record profits and shareholder satisfaction. The basic principles of marketing mix (Product, Price, Promotion, and Place) were applied with great success. Continental illustrates the point that the "5th P", or People, is truly the most important. Sources 1. Flynn, Gillian, "A flight plan for success," Workforce, Jul 97,Vol.76 Issue 7, p72, 2. Puffer, Sheila M, "Continental Airlines' CEO Gordon Bethune on teams and new product development," Academy of Management Executive, Aug 99, Vol. 13 Issue3, p28 3. Brenneman, Greg, "Continental Airline Holdings Inc.: organizational change, Management: airlines-Management," Harvard Business Review, Sep/Oct 98, Vol. 76 Issue 5, p162, 4. Laura Goldberg, "Airlines detail how they will improve customer service," Houston Chronicle, f:\12000 essays\business & economics (632)\Business Process Redesign or Reengineering.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Process Redesign or Reengineering Business Process Redesign (BPR) or Reengineering is "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed" (Hammer and Champy, Reengineering). Since the BPR idea has surfaced it has been under constant ridicule by the popular press. They say it takes far too long, creates management headaches, fails 70% of the time, and it's only for big companies with big checkbooks (Hydrel...). However, I feel that with the right plan, the right people, and total commitment from those involved, BPR or Reengineering can work for any company. The Hydrel Experience A good example of this is Hydrel, a manufacturer of in-ground and underwater lighting equipment. They were about to begin selling their products in the international market, and were afraid their current systems could handle the rapid increase in volume. So the company president, Craig Jennings, hired the D. Appleton Company (DACOM) to help reengineer the company's plans to handle its growth rate. After DACOM reviewed Hydrel's functional areas and the desires of the top-level management, they concluded that the order management and inventory control process had to be redesigned to meet the demands. Then they comprised three teams: process, quality, and information. But before the three teams could work separately, they had to go through a process to determine if the team members were on the right team, and if they could work together. So each of the three teams reviewed employee personalities using the Pearson Personality Inventory (Hydrel...). After using the PPI system they found that all the teams were compatible, and began working on the job at hand. The process team attacked the reengineering of the "Manage Customer Order" process which included all contact with prospects, customers, and sales agents the moment a question came up. Then they invited customers and suppliers to air their own issues and ideas about their company. All of them had something to say about the company and were impressed with the reengineering effort. The Hydrel process team concluded its redesign work with a delivery process that removes 37% of the order management activities (Hydrel...). And also designed a new computer system to carry out the new process. The new computer system will also be used by the quality team to update their new metrics system. The quality team developed a completely new system for the reengineering process. This new metrics system continually updates them on changes in the market that deal with quality. This is important so they can deal with the changes right away and stay competitive. And finally the information team came in to wrap up the whole process and implement the new computer system. They design a system that fit the current demands but is able to grow and expand a the same rate as the company. Due to total commitment from the right people, using the right methods Hydrel has successfully reengineered the process of order management and positioned the company for dramatic profitable growth. And they have proved my statement that reengineering can work for every company no matter what their size. The Texas Commerce Bank Experience In early 1994, Texas Commerce Bank (TCB) launched a reengineering process called Process Improvement, which included every organizational process and all 9,000 employees (Betting...). TCB's goals for their program were: remove all employee frustrations associated with policies, processes, services, or products; change processes to improve quality, deliver improved service to customers, and eliminate unnecessary expenses (Betting...). However, TBC took a different approach towards their business process redesign. They decided to approach this as a whole inorder to get maximum involvement from their employees. TBC had several reasons for this one being; there were already strong relationships present between bank employees and they didn't want those relationships damaged. However, this idea didn't last long due to the overwhelming number of replies from the "Ideas To Bank On," which was a suggestion box. And TCB was forced to create about 180 process teams. Which included senior managers,process managers, team leaders, and about 1,800 employees (Betting...). This move, however, caused a bit of turmoil in the whole process due to he fact that, many employees weren't use to works in groups. And eventually led to the redesign phase, one that went to drastic measures and wiped the slate clean. This time, however, the bank knew what it had to do. So this time TCB moved quickly through the process, and it led to quick results. They began by redesigning the bank's lines, question certain products, eliminated processes, and apply newer technologies. And finally a blue print emerged. Which included narrative descriptions of processes, new flowcharts, all projects cost/benefit analyses, and the implementation of strategies. The benefits of this process were significant: 16,000 ideas, 1005 projects, 1,100 positions to be terminated, and $43M in reduced expenses (Betting...). So now that a new plan is in place TCB has taken the appropriate steps to keep them in working order. The 1,005 recommendations have been assigned to teams within the line of business. Formal project plans for each team are developed and gathered weekly and are loaded into a database for tracking by other interdependencies (Betting...) This database is also available the employees to access if they want to check on an idea or if they want to suggest an idea. This database is also a great way for managers and employees to keep intouch on all aspects of the business, both big and small. Although this process didn't run as smooth the Hydrel experience it still proves that reengineering or BPR can work for a company. Also I think the TCB experience proved that, there are different ways to go about reengineering a company but the bottom line is, with total commitment it can work for all companies. f:\12000 essays\business & economics (632)\Business Redesign.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Process Redesign (BPR) or Reengineering is "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed" (Hammer and Champy, Reengineering). Since the BPR idea has surfaced it has been under constant ridicule by the popular press. They say it takes far too long, creates management headaches, fails 70% of the time, and it's only for big companies with big checkbooks (Hydrel...). However, I feel that with the right plan, the right people, and total commitment from those involved, BPR or Reengineering can work for any company. The Hydrel Experience A good example of this is Hydrel, a manufacturer of in-ground and underwater lighting equipment. They were about to begin selling their products in the international market, and were afraid their current systems could handle the rapid increase in volume. So the company president, Craig Jennings, hired the D. Appleton Company (DACOM) to help reengineer the company's plans to handle its growth rate. After DACOM reviewed Hydrel's functional areas and the desires of the top-level management, they concluded that the order management and inventory control process had to be redesigned to meet the demands. Then they comprised three teams: process, quality, and information. But before the three teams could work separately, they had to go through a process to determine if the team members were on the right team, and if they could work together. So each of the three teams reviewed employee personalities using the Pearson Personality Inventory (Hydrel...). After using the PPI system they found that all the teams were compatible, and began working on the job at hand. The process team attacked the reengineering of the "Manage Customer Order" process which included all contact with prospects, customers, and sales agents the moment a question came up. Then they invited customers and suppliers to air their own issues and ideas about their company. All of them had something to say about the company and were impressed with the reengineering effort. The Hydrel process team concluded its redesign work with a delivery process that removes 37% of the order management activities (Hydrel...). And also designed a new computer system to carry out the new process. The new computer system will also be used by the quality team to update their new metrics system. The quality team developed a completely new system for the reengineering process. This new metrics system continually updates them on changes in the market that deal with quality. This is important so they can deal with the changes right away and stay competitive. And finally the information team came in to wrap up the whole process and implement the new computer system. They design a system that fit the current demands but is able to grow and expand a the same rate as the company. Due to total commitment from the right people, using the right methods Hydrel has successfully reengineered the process of order management and positioned the company for dramatic profitable growth. And they have proved my statement that reengineering can work for every company no matter what their size. The Texas Commerce Bank Experience In early 1994, Texas Commerce Bank (TCB) launched a reengineering process called Process Improvement, which included every organizational process and all 9,000 employees (Betting...). TCB's goals for their program were: remove all employee frustrations associated with policies, processes, services, or products; change processes to improve quality, deliver improved service to customers, and eliminate unnecessary expenses (Betting...). However, TBC took a different approach towards their business process redesign. They decided to approach this as a whole inorder to get maximum involvement from their employees. TBC had several reasons for this one being; there were already strong relationships present between bank employees and they didn't want those relationships damaged. However, this idea didn't last long due to the overwhelming number of replies from the "Ideas To Bank On," which was a suggestion box. And TCB was forced to create about 180 process teams. Which included senior managers,process managers, team leaders, and about 1,800 employees (Betting...). This move, however, caused a bit of turmoil in the whole process due to he fact that, many employees weren't use to works in groups. And eventually led to the redesign phase, one that went to drastic measures and wiped the slate clean. This time, however, the bank knew what it had to do. So this time TCB moved quickly through the process, and it led to quick results. They began by redesigning the bank's lines, question certain products, eliminated processes, and apply newer technologies. And finally a blue print emerged. Which included narrative descriptions of processes, new flowcharts, all projects cost/benefit analyses, and the implementation of strategies. The benefits of this process were significant: 16,000 ideas, 1005 projects, 1,100 positions to be terminated, and $43M in reduced expenses (Betting...). So now that a new plan is in place TCB has taken the appropriate steps to keep them in working order. The 1,005 recommendations have been assigned to teams within the line of business. Formal project plans for each team are developed and gathered weekly and are loaded into a database for tracking by other interdependencies (Betting...) This database is also available the employees to access if they want to check on an idea or if they want to suggest an idea. This database is also a great way for managers and employees to keep intouch on all aspects of the business, both big and small. Although this process didn't run as smooth the Hydrel experience it still proves that reengineering or BPR can work for a company. Also I think the TCB experience proved that, there are different ways to go about reengineering a company but the bottom line is, with total commitment it can work for all companies. f:\12000 essays\business & economics (632)\Business Sample.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Sample Introduction to the Sample Plan The following document is a sample of a finished business plan. In your final plan, you have the opportunity to elaborate on those ideas in your outline that you feel are most integral to your business. In composing your business plan, you can follow your outline as loosely or closely as you choose. For instance, in the sample plan, the Executive Summary, which is the last section of the Business Planning Wizard, is presented first in order to emphasize the most impressive features of the business. Your goal in composing a finished business plan is to construct the most comprehensive, thorough document possible, in order to attract investors and to confirm that you have taken the time to explore as many potential issues for your business as may arise. Mr. Richard Carey Canton Street Seattle, Washington 22222 Dear Mr. Carey: My attorney, Mr. William Hollands, suggested I write to you regarding my business, Northwind Traders. I am currently seeking funding, and I believe that my company would coincide with your interest in businesses relating to the travel industry makes my company a great investment for you. Northwind Traders is positioned to take advantage of the significant market opportunities available in the customized travel-planning field. Through a professional approach to marketing, experienced management, and an emphasis on outstanding customer support and service, Northwind Traders can become the Greater Seattle area's premier provider of planning services for European adventure travel through a strong marketing campaign, experienced management, and an emphasis on outstanding customer support and service. From that base, the company will expand to become a regional force. We are seeking $83,500 in funding, and anticipate this to be the extent of the funds required. The funds will be used to refurbish the shop, to expand the staff, and to developincrease marketing activities, primarily our Web site and databasee development. I appreciate your consideration of the business plan for Northwind Traders. I will contact you next week in approximately ten days to see if you have any questions andor to discuss how we may proceed. Thank you. Sincerely, Heather Mitchell President Table of Contents EXECUTIVE SUMMARY 1 DESCRIPTION OF THE COMPANY 1 MISSION STATEMENT 1 PRODUCTS AND SERVICES 1 FINANCIAL FORECAST 2 FINANCING REQUIREMENTS 2 HISTORY AND POSITION TO DATE 4 THE COMPANY'S MISSION 4 MANAGEMENT TEAM AND KEY PERSONNEL 4 SERVICES 6 TRANSPORTATION 7 COMPANY HISTORY 7 GUARANTEES AND WARRANTIES 8 BUSINESS STRUCTURE 8 MARKET RESEARCH 8 ECONOMIC AND SOCIAL FACTORS 9 COMPETITIVE ENVIRONMENT 9 LONG-TERM OPPORTUNITIES 9 GEOGRAPHIC AREA 10 MARKET DESCRIPTION 10 TARGET CUSTOMERS 10 MARKET DEFINITION 10 MARKET OPPORTUNITIES 11 COMPETITIVE ANALYSIS 12 COMPETITIVE ADVANTAGES 13 COMPETITORS' POSITIONS 14 POTENTIAL FUTURE COMPETITION 14 BUSINESS STRATEGY 15 CUSTOMER INCENTIVES 15 ADVERTISING AND PROMOTION 15 SALES AND MARKETING 16 COMMISSION 17 OPERATIONS 17 PREMISES 17 CHOICE OF LOCATION AND PREMISES 17 HOURS OF OPERATION 17 EQUIPMENT 18 STAFFING 18 FORECASTING 18 SALES FORECAST 18 CASH FLOW PROJECTIONS 20 INCOME STATEMENT 20 BALANCE SHEET 21 PERFORMANCE RATIOS 21 BREAK-EVEN 21 FUNDS REQUIRED AND TIMING 21 FUNDING OPTIONS 22 BUSINESS CONTROLS 23 ACCOUNTING SYSTEM 23 QUALITY CONTROL 23 NEW TOUR OPERATORS 23 CAPACITY 23 LONG-TERM GOALS 24 STEPS FOR ACHIEVING GOALS 24 POSITION 25 RISKS ASSOCIATED WITH GROWTH 25 APPENDIX 1: MARKET RESEARCH 26 APPENDIX 2: FINANCIAL FORECASTS 35 EXECUTIVE SUMMARY 6 THE COMPANY 6 THE COMPANY'S MISSION 6 PRODUCTS AND SERVICES 6 MARKETING AND SALES TECHNIQUES 6 THE COMPETITION 7 TARGET MARKET 7 OPERATIONS 8 MANAGEMENT 8 FINANCIALS 8 FUNDING 9 HISTORY AND POSITION TO DATE 10 THE COMPANY'S MISSION 10 MANAGEMENT TEAM AND KEY PERSONNEL 10 SERVICES 12 TRANSPORTATION 13 COMPANY HISTORY 13 GUARANTEES AND WARRANTIES 14 BUSINESS STRUCTURE 14 MARKET RESEARCH 14 ECONOMIC AND SOCIAL FACTORS 15 COMPETITIVE ENVIRONMENT 15 LONG-TERM OPPORTUNITIES 15 GEOGRAPHIC AREA 16 MARKET DESCRIPTION 16 TARGET CUSTOMERS 17 MARKET DEFINITION 17 MARKET OPPORTUNITIES 18 COMPETITIVE ANALYSIS 19 COMPETITIVE ADVANTAGES 22 COMPETITORS' POSITIONS 22 POTENTIAL FUTURE COMPETITION 23 BUSINESS STRATEGY 23 CUSTOMER INCENTIVES 23 ADVERTISING AND PROMOTION 24 SALES AND MARKETING 25 COMMISSION 25 OPERATIONS 25 PREMISES 25 CHOICE OF LOCATION AND PREMISES 26 HOURS OF OPERATION 26 EQUIPMENT 26 STAFFING 26 FORECASTING 27 SALES FORECAST 27 CASH FLOW PROJECTIONS 28 INCOME STATEMENT 28 BALANCE SHEET 29 PERFORMANCE RATIOS 29 BREAK-EVEN 29 FUNDS REQUIRED AND TIMING 30 FUNDING OPTIONS 31 BUSINESS CONTROLS 31 ACCOUNTING SYSTEM 31 QUALITY CONTROL 31 NEW TOUR OPERATORS 32 CAPACITY 32 LONG-TERM GOALS 32 STEPS FOR ACHIEVING GOALS 32 POSITION 33 RISKS ASSOCIATED WITH GROWTH 34 APPENDIX 1: MARKET RESEARCH 35 INTERNATIONAL ARRIVALS BY WORLD REGION 35 INDICATIONS OF TOURISM DEMAND IN 1997 36 SUMMARY OF FINDINGS FROM MARKET RESEARCH SURVEY 37 NORTHWIND TRADERS QUESTIONNAIRE 41 INTERNET GROWTH AND THE SALE OF TRAVEL SERVICES 44 APPENDIX 2: FINANCIAL FORECASTS 46 CASH FLOW PROJECTION YEAR ONE 46 INCOME STATEMENT, YEARS ONE TO THREE 48 BALANCE SHEET AT END OF YEAR ONE 51 SOURCES AND USES OF FUNDS 53 EXECUTIVE SUMMARY The Description of the Company Northwind Traders, Inc. provides travel-planning services for European adventure vacations to residents ofindividuals in the Ggreater SeattleRedmond area. The service industry, including travel agencies, is one of the fastest growing business sectorsareas of the economy, and Northwind Traders intends to capitalize on the success of this industry by taking advantage of travel planning opportunities in the Pacific Northwest region. President Heather Mitchell and Vice President of Sales and Marketing Jim Kim currently hold the company's stock. Prior to starting the Northwind Traders travel agency, Ms. Mitchell cofounded, co-owned, and operated the Northwind Traders clothing store. She has selected a small team with extensive travel, sales, and computer skills, all of whom will be invaluable to the new venture. Her coworkers bring a combined total of 35 years of travel industry experience to the agency. President Heather Mitchell and Vice President of Sales and Marketing Jim Kim currently hold the company's stock. The Company's Mission Statement The mission of Northwind Traders is to become the premier provider of adventure vacations for 25- to 35- year-old professionals. Northwind Traders is dedicated to building long-term relationships with customers through quality training and customer support, and wants to be recognized as the leading adventure vacation company in the Ggreater SeattleRedmond area. The company's goal is to grow steadilyy expansion, becoming profitable by the secondthird year of operations. Products and Services Northwind Traders recently became the appointed agents for Margie's Travel, one of the largest and most respected tour operators in the market. With virtually no marketing effort, Northwind Traders has sold some 200 adventure vacations in the past six months, netting $66,800 in commissions. Sales of insurance policies and other services have added to this total, and could potentially add much more. Northwind Traders offers a comprehensive range of services to support the adventurous traveler, including pre- and postvacation briefings, travel insurance, and a directory of services specific to each destination and activity. Marketing and Sales Techniques Northwind Traders believes that by concentrating on one market segment and one geographic destination, it will be able to deliver a service that is superior to anything currently on the market. Published research shows that tourism is a fast-growing business sector and that Europe is the favored location for most travelers. Adventure vacations, while a relatively new and small market, looks set for explosive growth. In addition to targeting adventure travelers and working as the appointed agents for established travel tour firms, Northwind Traders plans to leverage its relationship with its sister business, Northwind Traders outdoor clothing shop, by offering discount services to shop customers. The Competition From desk and field market research carried out on 300 clients, it is clear that there is considerable potential in the adventure travel business. Research indicates that Northwind Traders' target market finds it difficult to obtain reliable and authoritative advice on destinations and activities. Research also suggests that the customers in this market are unlikely to purchase their vacations again from the firm who provided their last vacation due to a lack of informative sales personnel. Northwind Traders will cater to these needs and develop a strong return-customer base. Because they are currently the only travel agency focused on European adventure vacations that is located in the SeattleRedmond area, Northwind Traders has a substantial opportunity to dominate the region. In order to maintain and improve their current position in the region, they will need to invest in a Web site, as well as database software and systems, and in refurbishing the shop premises. Northwind Traders maintains the following advantages over existing competition: ongoing support to clients; extensive knowledge of the European adventure vacation field; superior customer service; specialized training programs for staff; informative Web site; competitive rates. informative Web site competitive rates Target Market From desk and field market research carried out on 300 clients, it is clear that there is considerable potential in the adventure travel business. Research indicates that Northwind Traders' target market finds it difficult to obtain reliable and authoritative advice on destinations and activities. Research also suggests that the customers in this market are unlikely to purchase their vacations again from the firm who provided their last vacation due to a lack of informative sales personnel. Northwind Traders will cater to these needs and develop a strong return-customer base. Operations The Northwind Traders travel agency business will operate from a self-contained facility within the existing clothing shop, with its own shop window and entrance from the main street. The business will benefit both from its accessible location in the heart of SeattleRedmond's downtown shopping district, as well as from the clientele it will gain through its proximity to the already established Northwind Traders clothing store. Management Prior to starting the Northwind Traders travel agency, Ms. Mitchell cofounded, co-owned, and operated the Northwind Traders clothing store. She has selected a small team with extensive travel, sales, and computer skills, all of whom will be invaluable to the new venture. Her coworkers bring a combined total of 35 years of travel industry experience to the agency. Financial Forecasts Northwind Traders started as a clothing store and has expanded into the travel agency business, with its focus on adventure travel in Europe. Last year, Northwind Traders clothing store made $200,400 profit on sales of $1,419,500 and employed seven people. Northwind Traders expects that by concentrating full-time on selling adventure vacations, clients will increase from the present level of 200 (achieved over a six-month period with only a part-time effort), to at least 660 in the first year, 1400 in the second, and 2100 in the third. To help achieve this growth, Ms. Mitchell has identified three other tour operators she wishes to represent and has begun negotiations with them. Selling between two and three vacations a day will allow the business to reach cash flow break-even in Year One, while makeing a modest profit in Year One. By the Year Two posttax profits should be $3040,0600, and will increase to nearly $496501,000 by Year Three. FundingFinancing Requirementss Sought and Utilization Ms. Mitchell plans to sell her shares in the clothing shop and invest the proceeds in the new travel business, Northwind Traders. In addition, she will be investing $41,750 of her own money in the business, and seeking $83,500 from outside sources. Return on shareholders capital by Year Three is projected to be close to 100 percent. The purpose of the business plan is to communicate this highly profitable opportunity to Ms. Mitchell's partners in the clothing shop and to outside investors, and to attract interest in the venture. Alternatively, Ms. Mitchell is considering loan finance made up of a $41,750 two-year loan and a credit line of $58,450. In total, about $125,250 will be needed to fund the business during the initial months. HISTORY AND POSITION TO DATE Northwind Traders, Inc. provides travel-planning services to individuals and businesses in the Ggreater SeattleRedmond area. The business is located at 1234 Franklin Street, SeattleRedmond, Washington. The Company's Mission The goal of Northwind Traders is to be the leading provider of hassle-free European adventure vacations to the 25- to 35-year-old business professional market. Initially operating in the SeattleRedmond area inoutside of Seattle, Washington, Northwind Traders is rapidly expanding to sell its services worldwide via the Internet. Travel service sales is the fastest growing category of business to consumer activity on the Internet, and by the year 2000, the value of this market is estimated at $4.500M billion (see Appendix 1, Internet Growth and the Sale of Travel Services). Our emphasis will be on providing a complete specialized service based on having a detailed knowledge of the vacation destination and adventure activities being offered. Market research indicates that the major criticism our type of client has of existing travel agencies is that their agents "know nothing about their products, they just open the catalogue and read," to quote one of many disappointed travelers. By capitalizing on our experience in the Northwind Traders clothing shop, we will be able to both advise and direct our clients to the type of travel equipment they will need to get the very best out of their vacation. Management Team and Key Personnel Heather Mitchell, President and CEO. Before founding Northwind Traders, Ms. Mitchell owned and operated Northwind Traders, an outdoor clothing shop in the Seattle area. Prior to that, she managed the Olympia branch of one of the larger regional chains of general travel agencies operating throughout western Washington, where she was responsible for managing the office systems and a staff of four. She has a degree in travel and tourism from State University. In addition to Ms. Mitchell, team members Jim Kim and Richard Bready will be moving into the new venture on a full-time basis, and Amy Egert has been recently recruited to cover Saturdays and vacations. Freelance business consultant Jae Pak will be advising during the business's changeover from clothing shop to adventure travel agency. Jim Kim, Vice President Sales and Marketing. Prior to joining Northwind Traders, Mr. Kim worked for the marketing department of a major airline. His current responsibilities include the company's direct marketing campaign and all sales-related issues. Richard Bready, Office Manager. Twenty years as a travel agent has given Mr. Bready the ideal background for Northwind Traders. A knowledgeable salesperson, Mr. Bready's expertise in the area of European travel enables him to entice the adventure traveler. Amy Egert, Sales Assistant. After completing her undergraduate degree at the Institute of Art, Ms. Egert spent a year traveling abroad and joined the staff at Northwind Traders recently as a sales assistant. Jae Pak, Business Consultant. With over 20 years of consulting experience in industries ranging from aerospace to technology to retail, Mr. Pak's knowledge and guidance will be instrumental to the success of Northwind Traders. The volunteer members of the Board of Directors provide guidance to the management and staff of Northwind Traders. The board meets twice yearly to discuss policy changes, review the mission statement, and update the business plan if needed. Members include Lisa Jacobson, retail store owner Holly Barrett, CPA Jo Brown, former travel agent William Hollands, lawyer Lisa Garmaise, retail store owner Tony Chor, human resource manager Prasanna Samarawickrama, caterer Services We are currently the appointed agents for Margie's Travel, a major supplier in the market. Currently, Margie's Travel offers some 40 different adventure vacation packages throughout Europe, including horse trekking in Iceland; above-the-clouds trekking on islands and in remote regions in such areas as Corsica and Norway; van-supported inn-to-inn bicycling; mountain biking and hiking adventure tours throughout France, Germany, Italy, and Austria; and ballooning across the Alps. We intend to be appointed agents by three other major adventure travel tour firms with whom we are currently in negotiation: Enchantment Lakes Corporation. Offers rafting, sea kayaking, and yachting trips around remote European rivers and coastline areas, covering such areas as the Adriatic, the Black Sea, and Turkey. West Coast Sales. Offers adventure vacation packages to corporate clients to use as incentives and rewards, and as part of management development programs. They are particularly strong in France, Italy, and Germany. Exploration Air. Specializes in adventure vacations in Eastern Europe and former Soviet countries, covering Bulgaria, Romania, Poland, and Latvia. These are three relatively new and small tour operators, but they have acquired a reputation for innovation and reliability-and they are currently underrepresented. In addition, we will offer a comprehensive range of complementary services to support the adventurous traveler, ensuring that they will have a safe, enjoyable, and memorable experience. These services will include insurance, pre- and postvacation briefing packs, and a directory of advice and information services particular to each destination and adventure activity. Transportation Systems The vacations we will offer will use all principal travel systems, including planes, trains, buses, and where appropriate, taxis. We will aim for a standard of travel higher than that offered by the general travel industry. The feeling we are looking for is definitely not that which is engendered by the backpacker market. Company History Five years ago Heather Mitchell cofounded Northwind Traders, an outdoor clothing shop in SeattleRedmond, Washington. Over the years, Northwind Traders has extended its product range to include everything the adventurous traveler could want, from tents and sleeping bags to maps, guidebooks, and insurance. The clothing shop has sales of $1,420,000 per year (see Table 1), makes a gross profit of $202,400, and employs seven people, either full- or part-time. A mail-order service is now provided by catalogue and via a new Web site. Table 1. Northwind Traders Clothing Shop Performance Over Past Five Years Year 1 2 3 4 Last Year Sales $183,700 $422,510 $669,670 $1,023,710 $1,421,170 Gross Profit $62,625 $167 $100,701 $133,602 $201,916 Increasingly, shop customers have asked for advice on adventurous places to go on vacation. Last year Northwind Traders acquired an agency from Margie's Travel, one of the largest and most respected tour operators in this market, and began to promote and sell their products. In the six months that we have been selling travel agency products, some 200 vacation packages, at an average cost of $3340, have been sold. Northwind Traders' commission on the sales has been $66,800 (10 percent commission). In addition, 35 insurance policies have been sold at an average price of $167, yielding $1754 (30 percent commission). Heather Mitchell, one of Northwind Traders's founding partners, intends to sell her shares in the store and to concentrate on setting up the new travel business, Northwind Traders. Guarantees and Warranties Our clients will be protected financially against either our own or our tour operator's failure, by virtue of the ARC bonding held by our principals. We will only use vacation providers who can provide 24-hour emergency support services for clients while on vacation. Business StructureLegal Status Northwind Traders is incorporated under the laws of the state of Washington. The company has authorized 10,000 shares, 6000 of which are owned by President and CEO Heather Mitchell. Vice President of Sales and Marketing Jim Kim owns 1000 shares, and the remaining shares are held by the company for future distribution. In the next few weeks, the business will be set up as an operation independent from the clothing store. This structure will clearly separate the travel business from the clothing shop and make it possible to attract the risk capital that will be required when the business starts to grow. At a later stage the business may wish to sell and issue airline tickets and to create its own charter vacations. This will require membership in the ARC (Airline Reporting Corporation) and IATAN (International Airlines Travel Agency Network). These organizations regulate the collection of money and distribution to the appropriate airlines. However, in the period covered by this Business Plan we intend to operate only as the appointed agents for a number of tour operators. As such we can "shelter" under their licenses and bonds. MARKET RESEARCHINDUSTRY ANALYSIS During the current period of strong economic growth, Northwind Traders can capitalize on the many significant opportunities in the travel industry. Economic and Social Factors Service industries represent the fastest growing sector of the national economy, and travel and tourism agencies are poised to flourish in the midst of today's economic boom. These services are projected to grow at an average annual growth rate of 4.1 percent over the period from 1990 to 2010 (Appendix 1). The travel and tourism industry thrives in a vital economy. The general economic climate in the city of SeattleRedmond is very strong. An influx of new businesses has added to the area's prosperity, and the already large population of young professionals is growing. Nearby, tThe city of Seattle is the center for business in King County, with over 400,000 people employed in industries such as aerospace, transportation equipment, health services, tourism, computer software, and biotechnology. Competitive Environment Currently, tThe qualitylevel of service and the number of providers in the travel industry constantly fluctuatebroadly uneven, and providers enter and leave the field rapidly. Our competitive edge will be in attracting and retaining our customers with the most highly trained and well-informed individuals we can recruit. With our expertise in European adventure vacations, we will be able to provide the most accurate, up-to-date information possible. Long-Term Opportunities Tourism in general is on the rise (Appendix 1), Europe looks like it will continue to be the major destination, and the Internet will be an important channel into this market. The state of the economy will be the most influential factor in how many people travel. Other driving forces for travel will include the cost of tickets, fuel prices, the threat of terrorism, and currency rates. Northwind Traders Can Develop Strong Position in Region The current lack of industry leaders in the European adventure travel industry represents an exceptional opportunity for Northwind Traders to develop a dominant presence in the European adventure travel industry in the Ggreater SeattleRedmond area. With their exceptional knowledge of the adventure travel industry, strong customer base, and competitive prices, the company will be well situated to take advantage of the region's current economic prosperity. TARGET MARKET ANALYSIS Geographic Area Northwind Traders is basedoperates in the SeattleRedmond, Washington, area, and targets individuals interested in adventure vacations in Europe. The region comprisesgeographic area includes the incorporated cities ofof Redmond, Bellevue, and Tacoma and the encompassing counties of King, Snohomish, and Pierce. RedmondSeattle Bellevue Tacoma and the encompassing counties of King Snohomish Pierce Market Size and Description The Ggreater Seattle area-including all of King, Pierce, and Snohomish counties-is home to approximately 3 million people (1994 figure), half of whom fall within our target market. Seattle's job rate is climbing at a rate of 10 percent each year, and new jobs and growth are expected through the year 2007. Seattle has become a world-class destination, and the downtown retail and shopping core has grown steadily over the last decade. The following major facilities reside in the Ggreater Seattle area: an international airport, several major medical centers, and a state university, and four other colleges and universities. The percentages of employment by industry are as follows: 28 percent services, 25 percent wholesale and retail, 16 percent manufacturing, 14 percent government, 6 percent transportation and communication, 6 percent finance and insurance, and 5 percent construction. Target Customers Seattle/King County's labor force is highly educated, skilled, productive, and stable. It consists of individuals who are deeply attached to the area and have tended to stay and wait out past periods of economic downturn. The vital economy, the Northwest lifestyle, and its unique environmental qualities attract people. Both public officials and business leaders recognize the need to keep our labor force well equipped with marketable skills. From within this population, our target customers are individuals who are professionals with incomes of $40,000+,, ages 25 to 35, with incomes of $40,000+, single or married, without children, and college educated. Market Definition The world travel market is forecast to expand at a 4.1 percent average annual growth rate until 2010. This is faster than the general economic growth rate, which is expected to be around 2.4 percent per year. The European market, while not the fastest growing, will be the most important destination, accounting for over 50 percent of all international arrivals (see Appendix 1). Within Europe, France, Italy, and Spain are the most popular destinations. This is why we have selected tour operators with appropriate products in these areas as our initial partners. Figures for the size and projected growth of adventure vacations are sketchy, but the figures from one recent study (World Adventure Travel Data Corp.) are in Table 2. Table 2. Adventure Travel Vacations - World forecast (Million Arrivals): 1990 - 2010 Destination 1990 1997 2003 2010 Europe 0.25 0.60 1.60 2.35 N. America 0.45 0.60 1.40 2.20 Rest of World 0.10 0.25 0.95 1.10 Total 0.80 1.45 3.95 5.65 Age 1990 % 2010 % 16 - 24 61 38 25 - 35 20 31 36 - 45 15 25 46+ 4 6 100 100 Source: WATD Corp. 1997 Market Opportunities We believe that by concentrating on the European travel market, offering a limited but extensive range of vacation packages, and targeting our service at affluent professionals, we can meet the needs of our clients. Our specialized knowledge of Europe and adventure travel will allow us both to satisfy our customers and to surpass the services offered by our competitors. Our market study (see Appendix 1) has shown that theis group composed of affluent professionals has specific needs that are not currently being met, as 65 percent of those planning vacations would not purchase them from the same source again! Specifically, they want their travel agent to have comprehensive knowledge of the destination (87 percent); to have an efficient administration system in which they can have confidence (84 percent); to go on vacation with similar professional people (81 percent); and to be offered useful advice and ancillary services such as insurance (79 percent). In addition, our market study confirms that Europe is likely to be the largest destination market for adventure vacations. Our study shows only 30 percent of adventure travelers to be under 24 years of age, while the World Adventure Travel Data study claims 61 percent is under 24. We feel the difference is because our survey sample is confined to relatively affluent people who had spent at least $350 on adventure clothing (see Appendix 1). One further emerging market segment for adventure vacations is that of corporate clients. Our research suggests that up to one in five adventure vacations is at this top price end of the market. CompetitiveOMPETITIVE AnalysisNALYSIS Northwind Traders is the only travel agency located in the Seattle area that is focused on European adventure vacations. However, there are many adventure travel agents in capital and secondary cities such as RedmondSeattle, Bellevue, and Tacoma that compete with Northwind Traders to provide adventure vacation packages. These agencies are described below: · General Travel Agents These agents have added adventure vacations to their services, but often have little or no knowledge of adventure destinations or activities. They sell literally from the page, offering limited advice, information, and support. According to our market study, 40 percent of adventure vacations are booked through these general travel agents, but only a third of clients would use them again. · Adventure Tour Operators These tour operators who advertise their vacations in the press attract about a quarter of all adventure vacation clients. However, clients have to shop around several tour operators to find what they want, and clientsthey cannot get unbiased advice or much help with information. Only 45 percent would go back to a tour operator for their next vacation. · Independent Travelers These travelers comprise about 15 percent of those going on adventure vacations, of whom 65 percent would travel that way again. We need to persuade this group that our superior product knowledge and service is worth their consideration. · Internet Providers These providers sell only 5 percent of adventure travel vacations; however, 70 percent of adventure travelers would buy their next vacation via the Internet. There is plenty of scope to offer a superior Web site. We believe that by having daily face-to-face contact with clients, we will be better able to manage a fresh, vital, and relevant Web site aimed at the specific needs of our market segment. · Specialist Adventure Travel Agencies These agencies sell only about 15 percent of travel packages at present, but we feel this is partially due to lack of client awareness and to the comparative rarity of such outlets. We will differentiate ourselves from our competitors by offering the most extensive material available from the most up-to-date, well-informed staff. Clients will return for our service, knowledge and competitive prices. These findings are some of the most powerful results of our research. While general travel agents may be the most likely resource for those travelers taking an adventure vacation, they are in fact the least likely place those clients will return to. And tAlthough specialist adventure travel agents, such as the business we are setting up, account for only 15 percent of the market, 65 percent of clients would use them again. We aim to increase this percentage through our superior service. Competitive Advantages Some 65 percent of those clients using specialist adventure vacation travel agents would use them again-many more than would use either a direct tour operator direct or a general travel agent. However, these agents were criticized for having such a wide range of activities and destinations that their sales agents knew little about them. Our research shows that while 41 percent of clients take adventure vacations in Europe, only 23 percent of the 5000 adventure tours offered are for European destinations. We feel that by concentrating on European destinations, which is the largest market for both vacations in general and adventure vacations in particular, we will be able to have superior product knowledge. We will need to know only perhaps 100 destinations and activities well, rather than have only a passing knowledge of the 5000 adventure vacations available. Our market research has also shown that many adventure travel agents are catering to the backpacker market, consisting mostly of individuals who are under 24 years of age and are generally very cost conscious. This can lead to very different types of clients ending up at the same destination, with some consequent dissatisfaction. It is also noteworthy that t The backpacker market requires a much lower level of service and information than does the market for the more affluent 25- to 35-year-old professional. 25-35 year old market. Competitors' Positions The two major competitors of Northwind Traders are Lakes & Sons and Ferguson and Bardell, and Lakes & Sons. Ferguson and Bardell is the strongest competitor of Northwind Traders, due to its strong client base and experienced owner. However, itstheir press releases are of a very low quality, and itstheir location is undesirable, with difficult parking and limited customer service space. In addition, Ferguson and Bardell lacks the knowledge and expertise in the field of European adventure travel that is valued so highly by the clientele of Northwind Traders. Lakes & Sons will be a formidable competitor for Northwind Traders because of itstheir prime location, well-established business, and extensive training program. Potential Future Competition Northwind Traders will occupy a specialized niche in the travel industry, with its focus on adventure vacations in Europe. Although they areit is currently the only European adventure travel agency located in the SeattleRedmond area, there are competitors do exist in nearby areas (see above). In order to stay competitive, Northwind Traders will need to establish itself as the leader in adventure travel planning for Europe with its superior product knowledge and high-quality service. The lack of current adventure travel providers in the area represents a unique opportunity for Northwind Traders to expand in a rapidly growing market. BUSINESS STRATEGYMARKETING & SALES PLANNING With Northwind Traders' expertise in European adventure travel, we can create customized travel itineraries for our clients and provide the most thorough, informative adventure travel service available. By offering superior customer service, Northwind Traders can distinguish itself from its competitors. Customer Incentives Our market research shows that publicity has the greatest impact on people's choice of an adventure vacation travel agent, followed closely by having the right location, and having a recommendation from a friend, relative, or colleague. General press advertising seems to be fairly ineffective in this sector, and event specialist press advertising only brings in one out of seven clients. (See Appendix 1, Summary of Findings from Market Research.) Advertising and Promotion Our advertising and promotions will pivot around six key strategies: public relations, our shop front, an Internet Web site, customer relations, press advertising, and our association with the Northwind Traders clothing store. Public relations. We will put considerable effort into preparing and disseminating a regular flow of press releases. These will be based on stories about our destinations, activities, corporate clients, and our staff. We will employuse a freelance public relations adviser to help us write copy and locate publications editors. Shop front. We plan to have an exciting, informative, and actively managed display window. There will be a video display showing adventure vacations in progress. Different destinations can be selected from outside the window via a control panel;, otherwise, the scenes will rotate on a random basis. Internet Web site. This is fast becoming a major promotional channel, and we believe it will increase in importance over time. Also, it is the most convenient way for us to have a global presence at the outset. (See Appendix 1, Internet Growth and the Sale of Travel Services.) Customer relations. We will keep records of every sales contact. Data such as source of inquiry, client needs, previous vacation, job, and income will be included. By having superior information on our clients and prospects, we intend to offer a truly personalized service. Our database will contain full details on all our clients, including the vacations they have taken and their postvacation appraisal data. We will use this data to encourage our satisfied customers to recommend our services to friends, relatives, colleagues, and employers. Press advertising. We will undertake a small amount of specialist press advertising in order to enhance our public relations activity. There is considerable research to support the argument that the more often a potential client hears about you, the more likely they are to approach you when they have a need for your type of service. Northwind Traders association. We will write to all past shop clients announcing the establishment of the travel business and offer them a special introductory adventure vacation package. Sales and Marketing Excellent selling skills are vital in our type of business. Therefore, everyone will be fully trained in sales. Additionally, every month we will "audit" each other by observing half-a-day's selling activity and giving feedback on strengths and weaknesses in skills. We will also be using a "contact management" system that will allow us to monitor the effectiveness of different promotional strategies and of different marketing messages. The key to our strategic advantage lies in having superior data on prospects and clients. Commission The normal commission paid to travel agents for this type of vacation is in the 10 percent to 15 percent range. While Margie's Travel, the first agency we have been appointed to, pays us at the lower end of the scale, they are a prestigious firm to represent. Having them in our portfolio will enable us to negotiate much higher commissions from our new principals. Accordingly, we are planning on an average travel agency commission of 11 percent, rising to 13 percent by the end of Year Three. Commission on insurance and other services will be 30 percent, throughout. Guarantees and Customer Protection Our clients will be protected financially against either our own or our tour operator's failure, by virtue of the ARC bonding held by our principals. We will only use vacation providers who can provide 24-hour emergency support services for clients while on vacation. OPERATIONS Premises It is vital that the travel business has both a storefront facing onto the main street and a visible separate entrance. The goal is for clothing shop clients to be able to move between the premises without going outside. We will be renting 2000 square meters of fully serviced space at a cost of $30,060 per year fully serviced. We will need to spend $25,050 on internal refurbishing. We plan to do some of this work ourselves. An additional $4175 will be needed for desks, chairs, and other office furnishings. Choice of Location and Premises We intend to locate within the existing Northwind Traders shop, sinceas this is close to the city center with a high density of both residential and business premises. The pavement is wide, so people can stand and look in the window without being in the way of other pedestrians. Opening Hours of Operation The telephone lines will be staffed 24 hours a day by live operators. During the period from 9 am to 6 pm, this will be done mostly by our staff. However, overload calls during the day and afterout-of-hours calls will go to our live telemarketing bureau. People consider vacation decisions at home in the evenings after discussion with friends and partners. We want to be available as their first point of contact with an informed, friendly service. We believe that since our clients will mostly be busy professional people, off-peak- hours access to our services is also a key way in which we can differentiate ourselves from other travel agencies. Equipment We will be renting an integrated telephone/data-base system from the outset. This will allow up to ten sales staff to answer calls and have full on-screen data on clients and products. As service is one of our key components, it is essential that we have full access to all relevant data speedily and efficiently. Staffing From the outset all staff will have job descriptions, a career and training history file, and a record of employee reviews. New staff will take the travel agency Psychometric Aptitude Test, and then spend time with each member of the Northwind Traders team. All staff will undergo full product training, and will spend at least four weeks a year on-site at key travel destinations. Our dress code will require us to look as though we are on our way to one of our adventure vacations. We plan to start with a staff of three full-time employees, including the founder, and one part-timer. We plan to be operating with a staff of thirteen during the fifth year of business. With this system we can review our sales and marketing activities on a regular basis. Thus we will be ableQuality Control We will be developing outline scripts to help the sales staff manage inquiries. This will ensure that all incoming phone calls are dealt with in the same way and meet a high standard. We will encourage people inquiring about vacations to give us feedback on: Our ability to handle their inquiry The amount of time from the client's first inquiry to the date of actual travel The client's reactions to the vacation in terms of whether it meets their expectations New Tour Operators Heather Mitchell will be responsible for reviewing the range of tour operators that we seek to represent, and negotiating with prospective new principals. Capacity Our offices can accommodate five sales desks. Each sales desk has a capacity to handle four clients per hour, which means over the year we could handle up to 40,000 inquiries. With our average sales rate of one in five, we could service 9600 clients from our present facilities. This is well above the numbers we are anticipating in the business plan. MANAGEMENT & ORGANIZATION Key Employees Heather Mitchell, President and CEO. Before founding Northwind Traders, Ms. Mitchell owned and operated Northwind Traders, an outdoor clothing shop in the Redmond area. Prior to that, she managed the Olympia branch of one of the larger regional chains of general travel agencies operating throughout western Washington, where she was responsible for managing the office systems and a staff of four. She has a degree in travel and tourism from State University. In addition to Ms. Mitchell, team members Jim Kim and Richard Bready will be moving into the new venture on a full-time basis, and Amy Egert has been recently recruited to cover Saturdays and vacations. Freelance business consultant Jae Pak will be advising during the business's changeover from clothing shop to adventure travel agency. Jim Kim, Vice President Sales and Marketing. Prior to joining Northwind Traders, Mr. Kim worked for the marketing department of a major airline. His current responsibilities include the company's direct marketing campaign and all sales related issues. Richard Bready, Office Manager. Twenty years as a travel agent has given Mr. Bready the ideal background for Northwind Traders. A knowledgeable salesperson, Mr. Bready's expertise in the area of European travel enables him to entice the adventure traveler. Amy Egert, Sales Assistant. After completing her undergraduate degree at the Institute of Art, Ms. Egert spent a year traveling abroad and joined the staff at Northwind Traders recently as a sales assistant. Jae Pak, Business Consultant. With over twenty years of consulting experience in industries ranging from aerospace to technology to retail, Mr. Pak's knowledge and guidance will be instrumental to the success of Northwind Traders. (Heather Mitchell's CV is in Appendix 3) Board of Directors The volunteer members of the Board of Directors provide guidance to the management and staff of Northwind Traders. The board meets twice yearly to discuss policy changes, review the mission statement, and update the business plan if needed. Members include: Lisa Jacobson, retail store owner Holly Barrett, CPA Jo Brown, former travel agent William Hollands, Lawyer Lisa Garmaise, retail store owner Tony Chor, human resource manager Prasanna Samarawickrama, caterer Long-Term Goals Northwind Traders plans to grow steadily over the next five years, becoming the premier provider of European adventure vacations in the greater Redmond area. Our financial objectives are to be operating at or close to break-even cash flow by the end of the first year. We aim to be profitable from Year One onward; our goal is to earn at least $300,000 post tax profit in the Year Two, and nearly $500,000 in Year Three. Our profit margin on sales by Year Three will be a respectable 7 percent. Strategy for Achieving Goals Extensive public relations campaign Recruit well-trained, enthusiastic staff Deliver superior product knowledge Provide high quality customer service Create library of tools/reference materials for clients Offer competitive pricing on vacation packages The first priority is to hire a competent public relations consultant. This individual will be the key to producing state-of-the art publicity materials and determining where these materials should be placed for optimum visibility. The second priority will be to increase the staff. The individuals recruited will go through an extensive training program to ensure that they will be able to provide superior product knowledge in the field of European adventure travel. The present staff is passionate about adventure vacations, and we intend to maintain their enthusiasm through constant product development and skill training. We will only recruit those individuals who share our vision. We also want the business to have an enjoyable atmosphere. The third priority is to install a library of reference works in the shop. These materials will be available for clients to browse through while in the shop, or to "check out" and peruse at home. An agent will be on hand at all times to answer any questions. Position While at present we are offering only other company's adventure vacations, we have protected our position in a number of ways. First, we have a two-year agency agreement with Margie's Travel, which gives us access to all their existing vacation products as well as any new ones. This contract is dependent on Northwind Traders achieving sales of at least 250 vacation packages a year. We intend to negotiate similar agreements with future suppliers, although sales targets with them will be lower to reflect their relative market position. Second, we intend to maintain a high service element to our business, extending our range of value added services such as vacation insurance, individualized prevacation booklets, postvacation follow-up, and continually updating our client database. In this way, we will seek to build up a high level of repeat business. Customer loyalty is vital to our profitable growth. Risks Associated with Growth Losing touch with customers Loss of clientele to other providers Quality of services diminished New businesses The risks facing the expansion of Northwind Traders can be summed up in one word: competition. In order to sustain our position in the area as the premiere European adventure travel business, Northwind Traders needs to outshine our competition. By maintaining our focus on superior product knowledge and outstanding customer service, we will be able to uphold our position in the industry, thereby retaining current clients and attracting new clients. FORECASTING Sales Forecast Our ratio of sales to inquiries ofn the adventure travel vacations sold to date, while operating within the outdoor clothing shop, has been one in three. For the purposes of our sales forecast, we are assuming that only one in five inquiries will actually result in an adventure vacation being booked. This is a very conservative estimate. We expect there to be a steady buildup of clients coming from the clothing shop to talk to us about vacations (see Table 3 below). However, the number of new inquiries generated by our promotional activity will also build up during the year, gradually overtaking inquiries from the clothinges shop. This is a trend we expect to continue. Based on the projection below, we are forecasting to sell 660 adventure travel vacations next year at an average price of $3549. Once insurance and other service sales are added in, we expect to generate a gross profitn income of $268,783 over the first 12 months. Table 3. Sales Forecast Projection Q1 Q2 Q3 Q4 Year Total Inquiriesgenerated through promotion 200 425 425 750 1800 Shop inquiries 300 300 450 450 1500 Total inquiries 500 725 875 1200 3300 Vacations sold 100 145 175 240 660 Average vacations cost $3340 $3340 $3758 $3758 $3549 Commission received $33,400 $48,430 $72,331 $98,757 $252,918 Commission on insurance & other services received $1670 $3340 $5010 $5845 $15,865 Total commission & fees earned $35,070 $51,770 $77,341 $104,602 $268,783 In Year Two we are forecasting a gross profitcommissions of $624,318, and in Year Three we plan to reach $986,846. Cash Flow Projections The Cash Flow projections for Year One (see Appendix 2) show that after the owner has put in $41,750, the business will need additional short-term financing of about $83,500. For the last two months of the year, we are forecasting a positive cumulative cash flow and a year-end cash surplus of $19,935. In our Cash Flow projection, we have assumed the whole $83,500 additional financing has come from a bank loan. We have allowed for interest on the full amount for the whole period. In practice we would hope to finance part of this at least by a line of credit equal to the money actually required. In this way we believe we have made a prudent, conservative provision. Income Statement We expect to make a small after- tax profit of $34,901 in the first year of $34,901 (see Appendix 2 and Table 4 below). This is before the owner's drawings. Any owner's drawings will be contingent on performance being better than that expected in the Plan. Table 4. Profits in Years One to Three will be Year One Year Two Year Three Sales 2,364,839 5,202,645 7,591,132 Less cost of sales 2,096,056 4,578,327 6,604,286 Gross profit 268,783 624,318 986,846 Less expenses 224,740 243,4043 345,690 Net income before taxes 44,043 380,9145 641,156 Provision for taxes 9142 76,184 145,751 Net income after taxes $34,901 $304,7301 $495,405 Balance Sheet The Balance Sheet at the end of Year One (see Appendix 2) shows a healthy surplus of current assets over current liabilities. We have shown a conservative funding position, which does not include any of the additional capital that we hope to secure. Performance Ratios We plan to move our gross profit up from 11 percent in Year One, to 13 percent in Year Three. These figures look quite low, but it should be remembered that our gross profitincome is really the sales commission we earn, not the full price of an adventure vacation. Our net income before taxes is a more accurate measure of performance. This we expect to move from 2 percent at the outset, up to 8 percent by Year Three. Commission generated and profit per employee will be among the highest in the industry. Table 5. Commission Generated and Profit per Employee Year One Year Two Year Three Gross profit % 11 12 13 Net income before taxes % 2 7 8 Commission generated per employee $76,795 $138,737 $164,473 Profit per employee $12,584 $69,257 $106,858 Break-Even To break even we will need to sell between 2 and 3 vacations per day. This compares with our present sales of 1.3 vacations per day, based on our part-time effort out of the clothing shop. We feel confident that the break-even point can be attained within a reasonable period of time. Funds Required and Timing We plan to make two major investments: one in Web site and database development and one in shop premises development. make are the: · Web site and data base development - this will cost $41,325750. The data base system is one of our key differentiators. It will allow us to offer superior service and ensure a high level of repeat business and referrals. The Web site is vital if we are to reach this wide and disparate global market. The group of potential clients we have chosen as our target market-, affluent, professional 25- to 35- year olds-, are prime users of the Internet. Even those people in our locality will expect to be able to research our offers on the Internet before coming to the shop. (See Appendix 1, Internet Growth and the Sale of Travel Services ) · Shop premises development - this will cost us $29,225. We have to look professional and to have an efficient work environment. If our staff do not have the right tools, we can hardly expect them to deliver superior performance. If clients see "amateur" premises, they will not be inspired to spend thousands of dollars and entrust their adventure vacation plans to us. Both these investments need to be made at the outset to ensure that the business creates the right impression from the start. We get only one chance to make a first impression. We have decided to lease our telephone and computer systems, sinceas this is a rapidly changing area and we need to have access to the very latest technology. Financing packages from equipment suppliers are currently very attractive. Funding Options The owner plans to invest $41,750 of her own money (the proceeds of the sale of her share of the clothing shop business). The cash flow projections show that the business will require $83,500 of working capital during the early months of the first year's operations. We think we should provide an additional $10,020 for unforeseen eventualities. We are considering In the event that additional funds prove necessary, we have identified two options for raising further fundsthis $93,520: Option 1: The sale of equity, perhaps to the original shop partners, could raise between $41,750 and $167,000. This would provide some capital to allow for growth. Any shortfall could be funded either by a line of credit or a bank loan. Option 2: Approach our bank with a view to raising a medium- term loan of $41,750 and a line of credit of $58,450. Heather Mitchell could, with family help, provide any lender with security for part, if not all, of this facility. Financial We will be using a computer-based financial management system. This will allow us to analyze the profitability of sales of different vacations through each tour operator. In this way we can review our sales and marketing activities on a regular basis. It will also allow us to reward staff on the basis of profit achieved rather than just on sales. BUSINESS CONTROLS Accounting System We will be using a computer-based financial management system. With this system we can review our sales and marketing activities on a regular basis. This will allow us to analyze the profitability of sales of different vacations through each tour operator. Thus we will be able to reward staff on the basis of profit achieved rather than just on sales. Quality Control We will be developing outline scripts to help the sales staff manage inquiries. This will ensure that all incoming phone calls are dealt with in the same way and meet a high standard. We will encourage people inquiring about vacations to give us feedback on our service: · Our ability to handle their inquiry · The amount of time from the client's first inquiry to the date of actual travel · The client's reactions to the vacation in terms of whether it meets their expectations New Tour Operators Heather Mitchell will be responsible for reviewing the range of tour operators that we seek to represent and negotiating with prospective new principals. Capacity Our offices can accommodate five sales desks. Each sales desk has a capacity to handle four clients per hour, which means over the course of a year, we could handle up to 40,000 inquiries. With our average sales rate of one in five, we could service 9600 clients from our present facilities. This is well above the numbers we are anticipating in the business plan. Long-Term Goals Northwind Traders plans to grow steadily over the next five years, becoming the premier provider of European adventure vacations in the Greater Seattle area. OurThe financial objectives of Northwind Traders are to be operating at or close to break-even cash flow by the end of the first year, with steady growth over the next five years. We aim to be profitable from Year One onward; our goal is to earn at least $304,000 posttax profit in Year Two and nearly $496,000 in Year Three. Our profit margin on sales by Year Three will be a respectable 7 percent. Steps for Achieving Goals Northwind Traders' strategy for achieving our goals consists of six major points: Establish an extensive public relations campaign Recruit well-trained, enthusiastic staff Deliver superior product knowledge Provide high-quality customer service Create a library of tools/reference materials for clients Offer competitive pricing on vacation packages The first step to achieving our goals is to hire a competent public relations agency. This will be the key to producing state-of-the art publicity materials and determining where these materials should be placed for optimum visibility. The second step will be to increase the staff. The individuals recruited will go through an extensive training program to ensure that they will be able to provide superior product knowledge in the field of European adventure travel. The present staff is passionate about adventure vacations, and we intend to maintain their enthusiasm through constant product development and skill training. We will only recruit those individuals who share our vision. We also want the business to have an enjoyable atmosphere. The third step is to install a library of reference works in the shop. These materials will be available for clients to browse through while in the shop or to "check out" and peruse at home. An agent will be on hand at all times to answer any questions. Position While at present we are offering only other company's adventure vacations, we have protected our position in a number of ways. First, we have a two-year agency agreement with Margie's Travel, which gives us access to all their existing vacation products as well as any new ones. This contract is dependent on Northwind Traders achieving sales of at least 250 vacation packages a year. We intend to negotiate similar agreements with future suppliers, although sales targets with them will be lower to reflect their relative market position. Second, we intend to maintain a high service element to our business, extending our range of value-added services such as vacation insurance, individualized prevacation booklets, postvacation follow-up, and continually updating our client database. In this way, we will seek to build up a high level of repeat business. Customer loyalty is vital to our profitable growth. Risks Associated with Growth We see some risks associated with our expected growth: · Losing touch with customers · Loss of clientele to other providers · Quality of services diminished · New businesses The risks facing the expansion of Northwind Traders can be summed up in one word: competition. In order to sustain our position in the area as the premier agency for European adventure travel, Northwind Traders needs to outshine its competition. By maintaining our focus on superior product knowledge and outstanding customer service, we will be able to uphold our position in the industry, thereby retaining current clients and attracting new clients. APPENDIX 1: MARKET RESEARCH International Arrivals by World Region Updated forecast for the years 2000 and 2010 (millions) 1975 1995 1996 2000 2010 Average annual growth rate (%)1990 - 2010 Europe 153.8 338.2 347.4 397 525 3.1 East Asia/Pacific 8.7 84.5 90.1 122 229 7.6 Americas 50.0 110.1 115.5 138 195 3.7 Africa 4.7 18.7 19.4 25 37 4.6 Middle East 3.6 11.3 15.1 14 21 4.9 South Asia 1.6 4.5 4.5 6 11 6.7 World total 222.3 567.4 592.1 702 1,018 4.1 Source: Global Stats. Corp. 1997 Indications of Tourism Demand in 1997 International tourist arrivals(x 1,000) Nights spent by foreign tourists (Mill) International tourism receipts (Mill. ECU) Austria 17,173 63.8 11,168 Belgium 5560 12.8 4776 Denmark 1614 10.8 2814 Finland 835 3.3 1320 France 60,110 54.3 20,742 Germany 14,847 35.5 12,408 Greece 10,130 39.6 3138 Ireland 4231 14.0 2059 Italy 31,052 113.0 20,993 Luxembourg 767 2.3 4776 Netherlands 6574 19.7 4946 Portugal 9706 22.2 3330 Spain 44,886 107.8 19,431 Sweden 683 7.9 2652 United Kingdom 22,700 164.9 14,366 EU 230,868 672.0 124,143 Iceland 190 0.8 127 Liechtenstein 59 0.1 n/a Norway 2880 7.1 1826 EEA 233,997 680.0 126,096 Switzerland 11,500 34.0 7236 Europe-19 245,497 714.0 133,332 Source: Global Stats. Corp. 1997 Summary of Findings from Market Research Survey Three hundred clients of Northwind Traders who had made purchases in excess of $350 in the past six months were surveyed. Percentage of Sample Customers Taking and Not Taking Adventure Vacations According to our research, only 20 percent of our sample customers had never taken or considered taking an adventure vacation. Thirty percent, while they had not yet taken such a vacation, had at least actively considered doing so. Fifty percent of our sample are regular adventure travelersusers, taking at least one adventure vacation each year. Information About 150 Respondents Who Took At Least One travel Vacation Per Year Gender: Male 65% Female 35% Status: Married 21% Single 79% Adventure Vacation Travelers, by Age and Percent According to our study, the percentages of adventure vacation travelers in fall into various age groups as follows: · 5% are under the age of 16 · 25% are between the ages of 16 toand 24 · 40% are between the ages of 25 toand 35 · 20% are between the ages of 36 toand 45 · 10% are over the age of 45 Percentage of Adventure Vacation Travelers by Income Group According to our research, the percentages of adventure vacation travelers in various income brackets are as follows: · 6% earn less than $16,700 or less annually · 22% earn between $16,701 and $25,050 annually · 28% earn between $25,051 and $33,400 annually · 25% earn between $33,401 and $41,750 annually · 19% earn more than $41,750 annually Forty-five percent of respondents taking adventure vacations spend in excess of $3340 per person per vacation. Twenty percent of the respondents, who tend to be professionals in the 25- to 35-year age range, typically spend over $5010 per person. Those respondents spending under $3340 are both in the lower income and lower age groups and represent 10 percent of the respondents. Percentage by Destination of 5000 Major Adventure Tours Available on the Market A study by destination of approximately 5000 major adventure tours on the market reveals the following: · 1200 of the 5000 offered are for destinations in Europe · 1000 of the 5000 offered are for destinations in North America · 600 of the 5000 offered are for destinations in India · 810 of the 5000 offered are for destinations in Africa · 675 of the 5000 offered are for destinations in the Far East · 675 of the 5000 offered are for other destinations By contrast, the percentages of the market adventure travelers devote f:\12000 essays\business & economics (632)\Canada Aid to Third World Countries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Canada's Aid to Third World Countries What are some of the major problems faced by "Third World" Countries today? Who should be held responsible for these problems? Why? What has Canada done to help "Third World Countries"? There has always been a dominant country in the world that sets the economic standard throughout powerful countries. Canada has always been a top rated economic country, usually behind the United States and other large Commonwealth countries. Starting back in the early to mid 60's, Prime Minister of Canada, Pierre Trudeau decided to use Canadian revenue as foreign aid. These included "Third World". Some of the major problems faced by "Third World" countries today include poor towns which have had a lack of food sources due to the serious poverty, lack of clean drinking water, lack of good sanitation systems, lack of good living conditions, lack of jobs and there is no industry, therefore no import or export revenue. The governments of the "Third World" countries have done horrible jobs of creating good living conditions for their people and in all have not tried to bring their country out of their economic slump. As Canada entered it second century, Prime Minister Trudeau called for a complete review of Canada's foreign policy. Starting in 1968 interested Canadians including politicians, journalists, professors, business leaders, financial experts, as well as church and labour leaders were invited to offer opinions and advice in what was called the Trudeau Review. The ending of this meeting brought about six foreign policy booklets which outlined the benefits of Canadian foreign aid. Some of these benefits included to help the Canadian economy grow stronger, to keep Canada independent, to work for peace and security, to promote fairness and equality for everyone and to improve living conditions for all people throughout the world. The Canadian foreign policy review suggested that Canada strengthened it's ties with Latin America. Trudeau visited Mexico, Cuba and Venezuela in 1976. Canada's trade with Latin America increased from $1099 million in 1970 to $3418 million in 1976. Also Canada gave an increasing amount of development funds to a number of Latin American countries. Canada, in 1973 had a major concern about the middle east and made an effort to bring about a lasting peace to the Arab-Israeli conflict. 1050 Canadian military specialists became part of the United Nations emergency force where they tried to maintain a cease fire by providing supplies, transportation and communication during the 1973 peacekeeping role. The Trudeau foreign policy review recommended that Canada was to work hard to support the United Nations and make it an effective organization for international co-operation. Canada contributed heavily, and still does so, to all the U.N organizations that are striving to help poor nations and are working toward the disarmament of nuclear weapons and human rights. Canada contributed the ninth largest share of the regular annual budget to the United Nations. Another issue that faced Canada was the fact that China's membership in the United Nations brought Canada into conflict with some other U.N members, especially the United States. Since 1966 Canada had said that it was becoming increasingly more important that China be represented at the U.N. At the time, the U.N only recognized the former government of China which was established on the island of Taiwan. The Canadian government prides itself on sending foreign aid to developing countries. In the 1970's there was an estimated 4.2 billion people on the earth, more then 2.5 billion of them were starving. It was also estimated that by the year 2000 the starving population could double. Canada tried very hard to provide these needy "Third World" countries with the best possible aid. Without the help of Canada as well as other "First World" countries such as the United States and Australia the "Third World" countries would not be around for this long and would have absolutely no hope of survival. f:\12000 essays\business & economics (632)\Canada Unemployment Rate.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Canada's Unemployment Rate For decades prior to the 1981-82 recession, the national unemployment rates of Canada and the United States had been nearly identical. Since then, a persistent "unemployment rate gap" has emerged. Throughout most of the 1980s, Canada's unemployment rate has consistently been about 2 percentage points higher than in the United States. The gap developed in spite of very similar economic performances across the two countries: the growth rate of real per capita incomes has been virtually identical since 1976. However, now, well into the 90s, the gap has widened much more significantly. In the last five years, the United States average has actually fallen from 6.7% to 6.5%, with a current rate of 5.2%, while the Canadian rate has and still remains at 9.4%, with a current rate of 9.7%. This substantial difference in Canada's unemployment rate can be attributed mostly to the safety net which the government provides, including generous payments of unemployment insurance and other social services; but also to the high payroll taxes; and the under performing Canadian economy. There is no single reason for the persistent gap in the unemployment rates of Canada and the U.S., but rather a combination of the above factors. "No society can be flourishing and happy, of which the far greater part of the members are poor and miserable." (Adam Smith) This is the theory behind the creation of social services such as unemployment insurance and welfare payments in many countries. The Canadian government provides a substantial "social safety net" for its population. At first, this seems like a fair and proper thing to do, as it is in the best interests of society as a whole. However, when this generosity is taken advantage of by undeserving recipients, problems and controversy arise. The problem of abuse of Canadian social services has become prominent in 1996. The general consensus of organizations such as the Fraser Institute and the OECD, is that Canada's generous social safety net is a disincentive to work, which leads to dependence on the government, thus resulting in increased unemployment. By comparing the social benefits provided for Canadians and Americans, the cause of this gap in the unemployment rate becomes apparent. In general, the social benefits provided for Canadians are incredibly generous, and unregulated in comparison to those of the U.S., resulting in a dependency on them and creating a disincentive to work. Unemployment insurance is a means of protecting workers who are out of work and looking for employment. The unemployed workers receive cash payments, usually each week for a limited period of time. Unemployment insurance is financed by the combination of employer and employee contributions, of which the employer contribution (a form of payroll tax) is slightly higher. Canada currently spends 70% as much on U.I. as the United States, in spite of the fact that the total U.S. labour force is about 11 times the size of Canada's. There are two principal differences between the two U.I. systems. The first is that unemployment insurance is operated at a state level in the United States. This means that the states administer the insurance system and determine the benefits, while maintaining certain standards according to federal law. The second is that in most cases the insurance premium employers must pay is related to the extent to which their employees use the system. In other words, there is an explicit insurance, or experience rating feature built into the U.S. system. In Canada the opposite occurs, with no penalty for employers who overuse the system. Unemployment insurance is regulated by the federal government, it applies in all provinces and territories, and covers about 97% of all Canadian workers. Due to the differences between the two systems, one can understand how Canadians have a more generous system and an easier time in claiming benefits. The differences in the requirements for obtaining unemployment insurance, also result in a more generous distribution of benefits in Canada. Over the years, there have been many changes in these requirements in the U.S., making it less accessible and desirable for the people. It is only recently that similar changes have been undertaken in the Canadian system. In comparing the laws and regulations of the two systems, it becomes apparent why Canadians have a greater dependence on unemployment insurance. The system of U.I. distribution in the U.S. requires workers of all states to be available, and able, to work to be eligible for the benefits. Most states also require the recipients to actively seek work. Although the rules are the same in Canada, the government is not as efficient in its execution of them. The usual maximum period that unemployed workers may collect benefits in the U.S. is 26 weeks, compared with 50 weeks in Canada. Another important difference is the qualifying period in which the individual must work before becoming eligible for a second claim. In the States this period is 32 weeks after their last claim, while in Canada the time period is strikingly low at 8 weeks. In the U.S., the benefit amount varies according to conditions of eligibility, such as total household income. However, the payment is usually equal to about half of the individual's average wage for a set period prior to his/her unemployment. In Canada the rate is virtually the same for all recipients with no regard to their circumstances. Recent work by the Fraser Institute revealed that all recipients of U.I. are not equally in need, and in fact over $10 billion in U.I. payments are made to families whose incomes are above the national average family income of $53, 854. Another factor resulting in greater dependence on the Canadian system, is the probability one has of collecting unemployment compensation. The likelihood of collecting U.I. is much lower in the U.S. than in Canada. Almost every person that becomes unemployed in Canada collects U.I., whereas the possibility is only about 30% that one can do so in the U.S. To the average person, it would seem obvious that a person who quits their job should not be eligible for U.I. This has been the case in the United States for many years, but it was only recently that this was made a law in Canada. Therefore in past years Canadian workers could simply quit their jobs and collect U.I. benefits without question. However, the new regulation may not have as much of an impact on the unemployment rate of Canada as one would think. It is speculated that employers will band with their employees to produce "lay offs" as opposed to "quits", therefore enabling employees to claim compensation. These differences between the two systems, provide evidence of a much more generous, and less regulated Canadian system of U.I. distribution. In fact, the Canadian system acts as a disincentive to work, as people realize they can get paid for doing nothing. To many people this is a more favourable option, thus resulting in an increasing unemployment rate. Many of the implemented social programs in Canada have proven to be ineffective in the goals they were meant to achieve. Well meaning programs keep jobs from being created and stop people from taking jobs that do exist. Another disincentive to work, for Canadians, is the welfare trap. "It traps the recipient into dependency, and it traps the government into perpetuating dependency." Welfare is simply a redistribution of the country's wealth obtained from taxes. The government of Canada views their redistributionist spending as part of a social contract. The government encourages and supports economic growth through a mixed public and private market economy, and compensates those that don't share "equally" in the generated wealth through social spending, including welfare. Governments resist any action that could make anyone less well off, even if only for a short period of time, as this would violate the contract. The net result of implementing these types of social programs is an increasing unemployment rate. In 1994, more of Ontario's population received social assistance per capita than received assistance in the United States. In Ontario, one in eight people are enrolled in social assistance, and one in five children live in families which are receiving social assistance. According to some reports, one in three children in metropolitan Toronto are being raised on welfare. A report by the Economic Council of Canada pointed out that a growing number of people are becoming dependent on social programs, and that the system is not helping recipients help themselves. In 1985, Ontario had the lowest percentage of its population (5.4%) collecting social assistance of all the provinces. By 1994, Ontario had the highest percentage of its population on social assistance of any province. "It is not clear how much dependency the system creates or encourages, however there is ample evidence that the number of people using the system has increased and that they are staying on the system longer" , reported Paul Storer of RBC Dominion Securities. Therefore, it is evident that a decrease in the dependency of the population on welfare would result in a decrease in the unemployment rate. However, as is the case with many other government programs, once they are implemented they are hard to remove. Welfare has become a very costly government program, which serves only to attract new recipients every year. The welfare system originally dealt with those who were unable to work; then sole-support parents were made eligible, followed by people who couldn't find employment. "Welfare has now become responsible for failed educational systems, failed marriages, failed contraceptives, failed personal finance planning, and a failed economy." Governments even manage to make trying to get off welfare difficult. To leave welfare, a "client" must give up the certain benefit of a government check for the uncertain return of work. A client faces a dollar for dollar deduction in B.C. and a $0.75 to the dollar deduction in Ontario from welfare income for every dollar earned privately. This reduces the incentive to learn new skills which could prove helpful in finding long-term employment, therefore causing dependency on government assistance. This dependency means more of the labour force is settling for government payments, thereby causing an increase in the unemployment rate. The United States does not have this problem of dependency, as it's system of welfare is once again stricter, and less generous, causing the people to be more self-sufficient as a whole. Too many Canadians are dependent on social programs such as unemployment insurance and welfare, which cause a growing unemployment rate. These programs are a disincentive to work. When comparing the benefits provided for Canadians, with those provided for Americans, it is evident why there is such a large gap in the unemployment rates of the two countries. The gap is the result of the less generous payments of social benefits, and stricter enforcement of eligibility conditions in the U.S. Therefore, one can assume that a trend in the Canadian system towards that of the American could prove to be instrumental in the decline of the unemployment rate. However, as with many other government implemented programs it is hard to take away from society what they have already become accustomed and dependent upon. A lesser contributing factor to the unemployment rate is the effect of payroll taxes. When government imposes or increases a payroll tax, the cost to employers of creating or maintaining a job goes up; thus resulting in a decrease in the demand for labour. Payroll taxes are a major component of the tax system in all industrial countries. Most taxes are instituted to help finance social security programs, such as pensions and unemployment insurance, these are referred to as "social security taxes." With payroll taxes of this type, a link exists between the taxes paid and the benefits or benefit entitlements available to the worker. Many governments also levy general revenue type payroll taxes. These are not linked to specific benefit entitlements for workers; the tax revenues collected simply go into consolidated government revenues. The tax base for general revenue payroll taxes is usually defined as aggregate employer payrolls. "We must recognize that these payroll taxes are job killers, they are taxation by stealth" , stated Fazil Mihlar of the Fraser Institute on the adverse effects of payroll taxes on the employment rate. There is concern in the business community over the effects of Canada's rapidly rising payroll taxes on job creation. A spring poll produced by the Fraser Institute concluded that high payroll and personal income tax levels are the biggest obstacle to job growth in Canada. Payroll taxes have risen dramatically over recent years. This increase has caused employers to reconsider their need for new employees, and has discouraged the employment of young, inexperienced workers. In comparing the payroll taxes of Canada and the U.S., all of Canada's component taxes are higher, with the exception of social security levies which are higher in the U.S. by only 0.9%. A recent study by the OECD concluded that a 1% increase in average payroll tax permanently lowers employment by 0.32%, which translates into about 50,000 jobs. From the 1980s to the early 1990s payroll taxes increased substantially in Canada; this is evident from looking at the figures of payroll taxes as a percentage of GDP. In 1980 they accounted for 3.3% of GDP, while in 1990, they accounted for 5.2% of GDP. There is compelling evidence that these steep increases in payroll taxes raised labour costs, therefore decreasing the demand for employment, thus causing an increase in the Canada/U.S. unemployment rate gap. The Canadian government makes it difficult for companies to increase their demand for labour. Not only must they pay a certain amount of their profits to the government in the form of payroll taxes, but there is a defined minimum wage which they must pay each employee. The average minimum wage for Canada as of October 1, 1996 was set at $6.35 Cdn. This minimum wage is quite generous in comparison to other countries, in particular the U.S., whose average minimum wage for the same date was set at $5.25 Cdn. Therefore, the cost of hiring a new employee can sometimes prove to have a negative effect on profitability, rather than positive, as the cost of employing him/her may be greater than the amount of incremental earnings that he/she could bring to the company. The result of a set minimum wage may be a disincentive in the hiring of employees unless they are absolutely necessary, therefore contributing to a decreased supply in jobs and an increase in the unemployment rate. One can conclude that Canada's higher unemployment rate is a direct result of the higher payroll taxes, and the higher fixed amount of minimum wage that companies are obligated to pay their employees. One can also conclude, that much could be done for job creation, and a reduction in the unemployment rate, if the federal, and provincial, governments cut payroll taxes, and reduced the minimum wage. Another factor leading to a decrease in job supply, and a high unemployment rate in Canada, is its underperforming economy. This under performance can be attributed to the recession which hit the country in the early 90s. The most appropriate way of measuring the success of an economy is by its GDP (Gross Domestic Product). After the recession Canada's real GDP figures showed a positive trend of increase, however the years of 1995 and 1996 displayed a decline in the average increases. This decline can be attributed to a lack of consumer spending, and fiscal drag, which occurs when governments rein in their deficits. In contrast, the U.S. economy is booming. As in Canada, there is a trend of increasing GDP, with two noteworthy differences: the first is that the average rates of increase over the years is much greater than those in Canada; and the second is that they have been increasing steadily with no decline in the level of growth in recent years. The net result of an under performing economy, like that of Canada, is a decrease in the demand for goods and services, and therefore a reduction in the demand for labour, causing the unemployment rate to rise. The economic downturn in the early 90s took a substantial toll on employment. Between the years of 1990 and 1992, the number of jobs fell by about 330,000, and full-time employment shrank by 460,000. There has been an increase in the number of jobs created in the private sector since 1992, however the pace has not been fast enough to make a notable difference in the unemployment rate. Canada's economy is operating well below full capacity, with real output running about 3% below the level if all resources were fully employed. This is known as an output gap of 3%. Employment gains are closely tied to output growth, therefore Canada's high unemployment rate may be explained by looking at its poor economic performance. Canada's somewhat sluggish output growth has caused many large corporations to downsize, as they do not have need for large numbers of employees. This recent trend of corporate downsizing, combined with several years of high unemployment, have aggravated fears about job security, and lessened consumer confidence and spending. People are now saving their money, which in essence is actually destroying their own jobs, as it contributes to the need for corporate downsizing. The United States has had nothing but success coming out of the most recent recession. Their economy is booming, their resources are being employed to their full capacity, and they have an envious unemployment rate. In comparison, the Canadian economy has been very slow in its recovery. As a result of corporate downsizing, and peoples' reluctance to invest their money in the Canadian economy, Canada has been experiencing a lengthy economic downturn, resulting in a decreased demand for labour. Therefore, by looking at the economic performances of Canada and the U.S., one can understand the reasons for the prominent differences in their unemployment rates. As with many economic phenomenon, there is no single explanation for the gap in unemployment between the U.S. and Canada. It is evident that Canada has many contributing factors affecting its high unemployment rate, although most seem to be rooted in government policies and programs. Some argue that a cut in such government instituted programs is the only way to initiate a decline in the unemployment rate, while others disagree maintaining that this would be undemocratic and would violate the social contract. The United States has a much less generous offering of social assistance, and lower payroll taxes and minimum wage rates, however this has not affected the people in a negative way. In fact, there is substantial evidence that their economy is booming, proving that it is possible to have a fruitful society with lower government subsidies. It is not until there is a cut back in these programs, that the Canadian unemployment rate will drop. Any change, calls for significant measures, with real impacts on peoples' lives. However, until this happens, the unemployment rate gap between Canada and the U.S. will remain present and lasting. f:\12000 essays\business & economics (632)\CanadaU S unemployment rateswhy is Canadas so high .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ For decades prior to the 1981-82 recession, the national unemployment rates of Canada and the United States had been nearly identical. Since then, a persistent "unemployment rate gap" has emerged. Throughout most of the 1980s, Canada's unemployment rate has consistently been about 2 percentage points higher than in the United States. The gap developed in spite of very similar economic performances across the two countries: the growth rate of real per capita incomes has been virtually identical since 1976. However, now, well into the 90s, the gap has widened much more significantly. In the last five years, the United States average has actually fallen from 6.7% to 6.5%, with a current rate of 5.2%, while the Canadian rate has and still remains at 9.4%, with a current rate of 9.7%. This substantial difference in Canada's unemployment rate can be attributed mostly to the safety net which the government provides, including generous payments of unemployment insurance and other social services; but also to the high payroll taxes; and the under performing Canadian economy. There is no single reason for the persistent gap in the unemployment rates of Canada and the U.S., but rather a combination of the above factors. "No society can be flourishing and happy, of which the far greater part of the members are poor and miserable." (Adam Smith) This is the theory behind the creation of social services such as unemployment insurance and welfare payments in many countries. The Canadian government provides a substantial "social safety net" for its population. At first, this seems like a fair and proper thing to do, as it is in the best interests of society as a whole. However, when this generosity is taken advantage of by undeserving recipients, problems and controversy arise. The problem of abuse of Canadian social services has become prominent in 1996. The general consensus of organizations such as the Fraser Institute and the OECD, is that Canada's generous social safety net is a disincentive to work, which leads to dependence on the government, thus resulting in increased unemployment. By comparing the social benefits provided for Canadians and Americans, the cause of this gap in the unemployment rate becomes apparent. In general, the social benefits provided for Canadians are incredibly generous, and unregulated in comparison to those of the U.S., resulting in a dependency on them and creating a disincentive to work. Unemployment insurance is a means of protecting workers who are out of work and looking for employment. The unemployed workers receive cash payments, usually each week for a limited period of time. Unemployment insurance is financed by the combination of employer and employee contributions, of which the employer contribution (a form of payroll tax) is slightly higher. Canada currently spends 70% as much on U.I. as the United States, in spite of the fact that the total U.S. labour force is about 11 times the size of Canada's. There are two principal differences between the two U.I. systems. The first is that unemployment insurance is operated at a state level in the United States. This means that the states administer the insurance system and determine the benefits, while maintaining certain standards according to federal law. The second is that in most cases the insurance premium employers must pay is related to the extent to which their employees use the system. In other words, there is an explicit insurance, or experience rating feature built into the U.S. system. In Canada the opposite occurs, with no penalty for employers who overuse the system. Unemployment insurance is regulated by the federal government, it applies in all provinces and territories, and covers about 97% of all Canadian workers. Due to the differences between the two systems, one can understand how Canadians have a more generous system and an easier time in claiming benefits. The differences in the requirements for obtaining unemployment insurance, also result in a more generous distribution of benefits in Canada. Over the years, there have been many changes in these requirements in the U.S., making it less accessible and desirable for the people. It is only recently that similar changes have been undertaken in the Canadian system. In comparing the laws and regulations of the two systems, it becomes apparent why Canadians have a greater dependence on unemployment insurance. The system of U.I. distribution in the U.S. requires workers of all states to be available, and able, to work to be eligible for the benefits. Most states also require the recipients to actively seek work. Although the rules are the same in Canada, the government is not as efficient in its execution of them. The usual maximum period that unemployed workers may collect benefits in the U.S. is 26 weeks, compared with 50 weeks in Canada. Another important difference is the qualifying period in which the individual must work before becoming eligible for a second claim. In the States this period is 32 weeks after their last claim, while in Canada the time period is strikingly low at 8 weeks. In the U.S., the benefit amount varies according to conditions of eligibility, such as total household income. However, the payment is usually equal to about half of the individual's average wage for a set period prior to his/her unemployment. In Canada the rate is virtually the same for all recipients with no regard to their circumstances. Recent work by the Fraser Institute revealed that all recipients of U.I. are not equally in need, and in fact over $10 billion in U.I. payments are made to families whose incomes are above the national average family income of $53, 854. Another factor resulting in greater dependence on the Canadian system, is the probability one has of collecting unemployment compensation. The likelihood of collecting U.I. is much lower in the U.S. than in Canada. Almost every person that becomes unemployed in Canada collects U.I., whereas the possibility is only about 30% that one can do so in the U.S. To the average person, it would seem obvious that a person who quits their job should not be eligible for U.I. This has been the case in the United States for many years, but it was only recently that this was made a law in Canada. Therefore in past years Canadian workers could simply quit their jobs and collect U.I. benefits without question. However, the new regulation may not have as much of an impact on the unemployment rate of Canada as one would think. It is speculated that employers will band with their employees to produce "lay offs" as opposed to "quits", therefore enabling employees to claim compensation. These differences between the two systems, provide evidence of a much more generous, and less regulated Canadian system of U.I. distribution. In fact, the Canadian system acts as a disincentive to work, as people realize they can get paid for doing nothing. To many people this is a more favourable option, thus resulting in an increasing unemployment rate. Many of the implemented social programs in Canada have proven to be ineffective in the goals they were meant to achieve. Well meaning programs keep jobs from being created and stop people from taking jobs that do exist. Another disincentive to work, for Canadians, is the welfare trap. "It traps the recipient into dependency, and it traps the government into perpetuating dependency." Welfare is simply a redistribution of the country's wealth obtained from taxes. The government of Canada views their redistributionist spending as part of a social contract. The government encourages and supports economic growth through a mixed public and private market economy, and compensates those that don't share "equally" in the generated wealth through social spending, including welfare. Governments resist any action that could make anyone less well off, even if only for a short period of time, as this would violate the contract. The net result of implementing these types of social programs is an increasing unemployment rate. In 1994, more of Ontario's population received social assistance per capita than received assistance in the United States. In Ontario, one in eight people are enrolled in social assistance, and one in five children live in families which are receiving social assistance. According to some reports, one in three children in metropolitan Toronto are being raised on welfare. A report by the Economic Council of Canada pointed out that a growing number of people are becoming dependent on social programs, and that the system is not helping recipients help themselves. In 1985, Ontario had the lowest percentage of its population (5.4%) collecting social assistance of all the provinces. By 1994, Ontario had the highest percentage of its population on social assistance of any province. "It is not clear how much dependency the system creates or encourages, however there is ample evidence that the number of people using the system has increased and that they are staying on the system longer" , reported Paul Storer of RBC Dominion Securities. Therefore, it is evident that a decrease in the dependency of the population on welfare would result in a decrease in the unemployment rate. However, as is the case with many other government programs, once they are implemented they are hard to remove. Welfare has become a very costly government program, which serves only to attract new recipients every year. The welfare system originally dealt with those who were unable to work; then sole-support parents were made eligible, followed by people who couldn't find employment. "Welfare has now become responsible for failed educational systems, failed marriages, failed contraceptives, failed personal finance planning, and a failed economy." Governments even manage to make trying to get off welfare difficult. To leave welfare, a "client" must give up the certain benefit of a government check for the uncertain return of work. A client faces a dollar for dollar deduction in B.C. and a $0.75 to the dollar deduction in Ontario from welfare income for every dollar earned privately. This reduces the incentive to learn new skills which could prove helpful in finding long-term employment, therefore causing dependency on government assistance. This dependency means more of the labour force is settling for government payments, thereby causing an increase in the unemployment rate. The United States does not have this problem of dependency, as it's system of welfare is once again stricter, and less generous, causing the people to be more self-sufficient as a whole. Too many Canadians are dependent on social programs such as unemployment insurance and welfare, which cause a growing unemployment rate. These programs are a disincentive to work. When comparing the benefits provided for Canadians, with those provided for Americans, it is evident why there is such a large gap in the unemployment rates of the two countries. The gap is the result of the less generous payments of social benefits, and stricter enforcement of eligibility conditions in the U.S. Therefore, one can assume that a trend in the Canadian system towards that of the American could prove to be instrumental in the decline of the unemployment rate. However, as with many other government implemented programs it is hard to take away from society what they have already become accustomed and dependent upon. A lesser contributing factor to the unemployment rate is the effect of payroll taxes. When government imposes or increases a payroll tax, the cost to employers of creating or maintaining a job goes up; thus resulting in a decrease in the demand for labour. Payroll taxes are a major component of the tax system in all industrial countries. Most taxes are instituted to help finance social security programs, such as pensions and unemployment insurance, these are referred to as "social security taxes." With payroll taxes of this type, a link exists between the taxes paid and the benefits or benefit entitlements available to the worker. Many governments also levy general revenue type payroll taxes. These are not linked to specific benefit entitlements for workers; the tax revenues collected simply go into consolidated government revenues. The tax base for general revenue payroll taxes is usually defined as aggregate employer payrolls. "We must recognize that these payroll taxes are job killers, they are taxation by stealth" , stated Fazil Mihlar of the Fraser Institute on the adverse effects of payroll taxes on the employment rate. There is concern in the business community over the effects of Canada's rapidly rising payroll taxes on job creation. A spring poll produced by the Fraser Institute concluded that high payroll and personal income tax levels are the biggest obstacle to job growth in Canada. Payroll taxes have risen dramatically over recent years. This increase has caused employers to reconsider their need for new employees, and has discouraged the employment of young, inexperienced workers. In comparing the payroll taxes of Canada and the U.S., all of Canada's component taxes are higher, with the exception of social security levies which are higher in the U.S. by only 0.9%. A recent study by the OECD concluded that a 1% increase in average payroll tax permanently lowers employment by 0.32%, which translates into about 50,000 jobs. From the 1980s to the early 1990s payroll taxes increased substantially in Canada; this is evident from looking at the figures of payroll taxes as a percentage of GDP. In 1980 they accounted for 3.3% of GDP, while in 1990, they accounted for 5.2% of GDP. There is compelling evidence that these steep increases in payroll taxes raised labour costs, therefore decreasing the demand for employment, thus causing an increase in the Canada/U.S. unemployment rate gap. The Canadian government makes it difficult for companies to increase their demand for labour. Not only must they pay a certain amount of their profits to the government in the form of payroll taxes, but there is a defined minimum wage which they must pay each employee. The average minimum wage for Canada as of October 1, 1996 was set at $6.35 Cdn. This minimum wage is quite generous in comparison to other countries, in particular the U.S., whose average minimum wage for the same date was set at $5.25 Cdn. Therefore, the cost of hiring a new employee can sometimes prove to have a negative effect on profitability, rather than positive, as the cost of employing him/her may be greater than the amount of incremental earnings that he/she could bring to the company. The result of a set minimum wage may be a disincentive in the hiring of employees unless they are absolutely necessary, therefore contributing to a decreased supply in jobs and an increase in the unemployment rate. One can conclude that Canada's higher unemployment rate is a direct result of the higher payroll taxes, and the higher fixed amount of minimum wage that companies are obligated to pay their employees. One can also conclude, that much could be done for job creation, and a reduction in the unemployment rate, if the federal, and provincial, governments cut payroll taxes, and reduced the minimum wage. Another factor leading to a decrease in job supply, and a high unemployment rate in Canada, is its underperforming economy. This under performance can be attributed to the recession which hit the country in the early 90s. The most appropriate way of measuring the success of an economy is by its GDP (Gross Domestic Product). After the recession Canada's real GDP figures showed a positive trend of increase, however the years of 1995 and 1996 displayed a decline in the average increases. This decline can be attributed to a lack of consumer spending, and fiscal drag, which occurs when governments rein in their deficits. In contrast, the U.S. economy is booming. As in Canada, there is a trend of increasing GDP, with two noteworthy differences: the first is that the average rates of increase over the years is much greater than those in Canada; and the second is that they have been increasing steadily with no decline in the level of growth in recent years. The net result of an under performing economy, like that of Canada, is a decrease in the demand for goods and services, and therefore a reduction in the demand for labour, causing the unemployment rate to rise. The economic downturn in the early 90s took a substantial toll on employment. Between the years of 1990 and 1992, the number of jobs fell by about 330,000, and full-time employment shrank by 460,000. There has been an increase in the number of jobs created in the private sector since 1992, however the pace has not been fast enough to make a notable difference in the unemployment rate. Canada's economy is operating well below full capacity, with real output running about 3% below the level if all resources were fully employed. This is known as an output gap of 3%. Employment gains are closely tied to output growth, therefore Canada's high unemployment rate may be explained by looking at its poor economic performance. Canada's somewhat sluggish output growth has caused many large corporations to downsize, as they do not have need for large numbers of employees. This recent trend of corporate downsizing, combined with several years of high unemployment, have aggravated fears about job security, and lessened consumer confidence and spending. People are now saving their money, which in essence is actually destroying their own jobs, as it contributes to the need for corporate downsizing. The United States has had nothing but success coming out of the most recent recession. Their economy is booming, their resources are being employed to their full capacity, and they have an envious unemployment rate. In comparison, the Canadian economy has been very slow in its recovery. As a result of corporate downsizing, and peoples' reluctance to invest their money in the Canadian economy, Canada has been experiencing a lengthy economic downturn, resulting in a decreased demand for labour. Therefore, by looking at the economic performances of Canada and the U.S., one can understand the reasons for the prominent differences in their unemployment rates. As with many economic phenomenon, there is no single explanation for the gap in unemployment between the U.S. and Canada. It is evident that Canada has many contributing factors affecting its high unemployment rate, although most seem to be rooted in government policies and programs. Some argue that a cut in such government instituted programs is the only way to initiate a decline in the unemployment rate, while others disagree maintaining that this would be undemocratic and would violate the social contract. The United States has a much less generous offering of social assistance, and lower payroll taxes and minimum wage rates, however this has not affected the people in a negative way. In fact, there is substantial evidence that their economy is booming, proving that it is possible to have a fruitful society with lower government subsidies. It is not until there is a cut back in these programs, that the Canadian unemployment rate will drop. Any change, calls for significant measures, with real impacts on peoples' lives. However, until this happens, the unemployment rate gap between Canada and the U.S. will remain present and lasting. f:\12000 essays\business & economics (632)\Canadian Foreign Policy .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ What are some of the major problems faced by "Third World" Countries today? Who should be held responsible for these problems? Why? What has Canada done to help "Third World Countries"? There has always been a dominant country in the world that sets the economic standard throughout powerful countries. Canada has always been a top rated economic country, usually behind the United States and other large Commonwealth countries. Starting back in the early to mid 60's, Prime Minister of Canada, Pierre Trudeau decided to use Canadian revenue as foreign aid. These included "Third World". Some of the major problems faced by "Third World" countries today include poor towns which have had a lack of food sources due to the serious poverty, lack of clean drinking water, lack of good sanitation systems, lack of good living conditions, lack of jobs and there is no industry, therefore no import or export revenue. The governments of the "Third World" countries have done horrible jobs of creating good living conditions for their people and in all have not tried to bring their country out of their economic slump. As Canada entered it second century, Prime Minister Trudeau called for a complete review of Canada's foreign policy. Starting in 1968 interested Canadians including politicians, journalists, professors, business leaders, financial experts, as well as church and labour leaders were invited to offer opinions and advice in what was called the Trudeau Review. The ending of this meeting brought about six foreign policy booklets which outlined the benefits of Canadian foreign aid. Some of these benefits included to help the Canadian economy grow stronger, to keep Canada independent, to work for peace and security, to promote fairness and equality for everyone and to improve living conditions for all people throughout the world. The Canadian foreign policy review suggested that Canada strengthened it's ties with Latin America. Trudeau visited Mexico, Cuba and Venezuela in 1976. Canada's trade with Latin America increased from $1099 million in 1970 to $3418 million in 1976. Also Canada gave an increasing amount of development funds to a number of Latin American countries. Canada, in 1973 had a major concern about the middle east and made an effort to bring about a lasting peace to the Arab-Israeli conflict. 1050 Canadian military specialists became part of the United Nations emergency force where they tried to maintain a cease fire by providing supplies, transportation and communication during the 1973 peacekeeping role. The Trudeau foreign policy review recommended that Canada was to work hard to support the United Nations and make it an effective organization for international co-operation. Canada contributed heavily, and still does so, to all the U.N organizations that are striving to help poor nations and are working toward the disarmament of nuclear weapons and human rights. Canada contributed the ninth largest share of the regular annual budget to the United Nations. Another issue that faced Canada was the fact that China's membership in the United Nations brought Canada into conflict with some other U.N members, especially the United States. Since 1966 Canada had said that it was becoming increasingly more important that China be represented at the U.N. At the time, the U.N only recognized the former government of China which was established on the island of Taiwan. The Canadian government prides itself on sending foreign aid to developing countries. In the 1970's there was an estimated 4.2 billion people on the earth, more then 2.5 billion of them were starving. It was also estimated that by the year 2000 the starving population could double. Canada tried very hard to provide these needy "Third World" countries with the best possible aid. Without the help of Canada as well as other "First World" countries such as the United States and Australia the "Third World" countries would not be around for this long and would have absolutely no hope of survival. f:\12000 essays\business & economics (632)\Canadian GDP.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Canadian GDP The output or GDP of Canada has increased from 1995 to 1999. This means that more people became employed or productivity has risen. With the GDP on the rise, Canada is able to buy more because people will have more money from work. This would appreciate the dollar because Canadians need the U.S. dollar to purchase our goods. Demand, on the other hand, has somewhat stayed the same. There were periods when it was up and periods when it was down. When the demand for passenger cars was falling, Canadians were looking elsewhere to buy their cars. This factor would, most likely appreciate the dollar because, one again, the Canadians would need the U.S. dollar to buy our cars. When the demand was up, the opposite situation would happen. The unemployment rate for Canada fell, possible because of increased advertisement. When the unemployment of a country is low, output and productivity are raising. I stated before, as output rises, imports will also rise. This is due to the increase of money in the country. The dollar will appreciate relative to the Canadian dollar. Canada's inflation has risen 7% in the last five years. As the price of Canada's goods increase, the U.S. is looking elsewhere to buy its products. The supply of the U.S. dollar would decrease in Canada and the U.S. dollar would appreciate. In order to get an exact reading of the actions taken by Canada, we must look at their inflation compared to the U.S. I looked at http://www.stls.frb.org/fred/data/cpi/cpiaucsl, and I found that the U.S. had an 11% inflation rate. This means that product price of the U.S. has risen faster to that of Canada. This means that Canada was possible taking there business elsewhere, causing the dollar to depreciate. The interest rates of Canada are clearly on the downfall. Less people are putting their money into the investing sector. When the interest decreases, it is likely that Canada is putting their money into the U.S. This would appreciate the dollar because Canada would need the U.S. currency to invest in our country. Canada is running a constant trade surplus. We must also look at the current account balance of Canada. It decreased drastically from 1996 to 1997. This, most likely, means their imports were greater than their exports. You would be able to see this on their goods and service balance. I would assume that they do have a merchandise trade deficit because Canada is getting money from investing income. I see this because there is little investing domestically. Therefore, Canada must be making their money abroad. This would appreciate the dollar because Canada is depending on our currency to buy our products. The Pacific Exchange Rate graph shows the U.S. dollar appreciating. The exchange rate started at $.71 in 1995 and is currently around $.676. Most of the indicators show the dollar appreciating to the Canadian currency. One strong indication of the dollar appreciation is that of the financial market. You can see the share prices decrease. At the same time the dollar appreciated drastically. This could have been due to the flooding of U.S. markets for higher rates of return. f:\12000 essays\business & economics (632)\Cannington.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ cannington Cannington Remuneration Policy Investigation. The organisation studied for the purpose of this investigation is Broken Hill Proprietary / Limited (B.H.P.). B.H.P. is Australia's largest company and was ranked 125th on the fortune global 500 list of the worlds largest industrial companies in 1993. The company was incorporated in 1885 and began mining silver , lead and zinc at Broken Hill in NSW Cannington is BHP's latest mine which is still yet to officially open, the mine was a Greenfield site discovered in June 1990. BHP is currently evaluating a world class silver lead and zinc deposit located in Cannington near McKinlay, North Queensland The company currently hold a mining permit for 7660 hectares in the area, it is estimated to be the largest silver mine in the world. The general context of the policy is focused on the change of attitude between management and staff on the Cannington site and the out come of the specific remuneration policy will hopefully be to attract and retain a good team of employees in order to recognise the value of the BHP workers and to extract maximum wealth from Cannington silver, lead and zinc deposits. By undertaking this investigation I hope to achieve a better understanding of the remuneration policy and how and why the policy was changed in the beginning of the Cannington project. I will also hope to achieve an understanding of future direction. To complete this investigation I will use information about the previous and current remuneration policies related to previous projects completed by BHP. I will also investigate, the pressures involved to inspire the Human Resource Management Department to change the policy, the new policy, and the desired effect the change is designed to have on the current mining site. I will also explain the effect the remuneration policy will have on structures and the effect it will have on activities of the business as well as the evaluation process used by the management to ensure that these policies are working. I have obtained this information from a lecture given by Glenn Morrow the manager of the Human Resource (H.R.M.)Dept. at BHP. Mr Morrow gave a speech on the organisation in which I am investigating and also on the Cannington site in particular . He achieved this by using overhead transparencies showing the objectives of the Cannington site, we were also given a copy of all of the overhead transparencies in the form of a booklet. The specific human resource management policy prior to change was effective in order for past projects, but Cannington is different to all previous sites such as BHP Manganese, BHP Iron Ore and BHP Australian Coal which were all examined and were not approved because these previous policies were based on people living close to the workplace. The second major reason these previous policies were not approved is because in the case of Cannington B.H.P is the provider of transport, social recreation, and all meals because Cannington has no local community as it is five hundred kms from the nearest town. The old policy states that there is a base pay, site allowances depending on the danger in the particular environment and for the inconvenience of being away from home, shift allowances for evening and night shift workers. Bonuses for meeting deadlines such as monetary and leave aiding, and annual leave pay outs vary depending the value of the employee these bonuses for a valued member of staff can include transport and accommodation paid holidays for contractors as well as officials and families of these people. Management perspective's on pressure for change in the Human resource management policy include. All established remuneration policies are based on people living close to their work place. All of the workers live at least five hundred kilometres away from Cannington therefore it is impossible for workers to rely on personal transport to arrive at work promptly in the early hours of the morning to start work. In response to the pressure B.H.P. has supplied a twenty seater plane for transportation to assist in the commuter "Fly In Fly Out" operation, which is free of charge to employees, on condition of this is that all workers must work for fourteen days whilst working twelve hour shifts in a twenty four hour mine and living on the Cannington site before being flown back to Townsville. The employees will live in the companies newly built motel style bed sitter apartments which are located five hundred to one thousand meters from the under ground mine. At the end of the fourteenth day the workers return home for seven days break before the next shift begins and the same procedures take place. Meals are supplied daily in a common dining room B.H.P. ensures that employees will be as comfortable as possible and taken care of . Another pressure involved is remoteness, workers wanted stability in their wage and BHP wanted to attract the best so annual pay is offered to employees, this makes situations such as self-sufficiency for employees and the families of employees possible, it also motivates workers to stay on the work force because it is an aim of B.H.P. to promote flexible and multi skilled employees who are in the long term valued as an asset to the company, the employees that are multi skilled are also eligible to higher pay according to specific qualifications. Multiskilling is important for all organisations because if for any reason staff is short their would be a loss in productivity and costs of re-hiring when interviewing takes place. Team pay will also be implemented for team ideas, team solutions, routine and rise in production. The evaluation of the comprehensiveness of the policy takes into account the polices impact on other areas of the human resource management policy within the organisation, such as Occupational Health and Safety. The Occupational Health and Safety policy states that every six months all employees must stand a blood test to ensure that he or she is not being over exposed to lead or any other toxins in the air. If the employee is proved to being over exposed they will be classified as being unfit for mining conditions in the interest of their own health and according to company standards, the employee who is over exposed will be redeployed or relocated to another task at the companies expense The evaluation policy also looks at training . Training is a compulsory company objective so that workers are properly made familiar with any new or updated equipment or technology and so that miltiskilling can be enforced in the workplace. By enforcing multiskilling in the workplace all workers will be more aware of their surroundings and in term more responsible for their designated areas of labour. The hiring policy has also been evaluated in the sense that BHP will from now on only require people with practical experience not just qualifications in the field, these employees that are recruited will be paid accordingly to their practical experience. This will ensure that multiskilling becomes an easier part of training and will in term increase productivity and the effectiveness and punctuality of the tasks in hand and this is reflected in the remuneration policy. A specific area of change to the remuneration policy includes the Activity structure which includes facilities for employees, such as a twenty five meter Swimming Pool, Volleyball Court, six hole Golf course and Cable TV The site is also equipped with Bed sitter style apartments and a dining and meals area with a separate wet area where alcohol is provided in moderation.. This is only what has been built so far, actual use of the mine by employees in mid October will determine what other facilities are to come. As result to the on-site contracts given to employees there is a change in structure, B.H.P. will provide a counselling service to deal with stressed employees and also to deal with the families of employees who are struggling with out their spouses. This service will be beneficial if it is necessary and the service will be free of charge. Another change in structure includes that BHP has included a Transport Co-Ordinate to their staff list, this person will ensure the Fly In Fly Out program runs according to plan. The response of the remuneration policy for the Cannington site has uncovered that the policy is expected to be highly successful in its new areas. The employee survey (will be distributed every six months). BHP prides its self on its three main goals Attraction- the ability to grow and use skills to achieve a high outcome, Retention- the ability to retain employees for the welfare of the employee and interim the welfare of the organisation, if BHP is able to retain at least ninety five percent of their employees this area of the policy will also prove the policy successful ; and Motivation- the individuals understanding of the organisation and their contribution to team work. The policy response will also take note in the future of the productivity rate of the steel being mined. The results will be compared to the average figures and figures compared with competitors. If the policy is effective it should show a higher productivity rate compared to the competitors, if the policy is not working the productivity is expected to be at or below average. If the productivity rate reduces by over five percent the policy will be a failure, in this case BHP will ensure that employees in the area of fault will be required to attend extra training and the policy will be reviewed thoroughly. If the policy is taking effect and the majority of people are happy this will be clear because the Unions will not have much to say. Due to the change of the remuneration policy, people will work as part of the body of the organisation, the employees will determine what the site is lacking and what has to be evaluated, they will be given this opportunity with evaluation surveys which will be distributed and carefully evaluated and considered once returned, these surveys will consider work, recreation and living necessities. The experience and the evaluation of surveys will benefit in the long run as the structure of the Cannington site will improve in productivity and living standards. The plans on the site can also possibly be used as a model for future projects. The evaluation is expected to be successful because suggestions and opinions are in writing and not just word of mouth they are better recognised. As result of these surveys employees and their families can feel more stable knowing that their problems have been addressed formally by the management team. If ninety five percent of the employees return a positive opinion (as expected) this will indicate job satisfaction and the policy a success. At the moment BHP maintains a fast growing production rate, and expects to keep on doing so. In the future I believe the changes will be made in the area of rewards. Rewards will be offered to those who perform at a worthy standard and for lengths of service for the organisation. Annual welfare should also be offered to those who perform above this company standard. In the future BHP will at some stage have to introduce rewards and bonuses for targets met in the productivity and production line these rewards and bonuses could include annual airfares or other rewards. If these introductions do come in to action, BHP will need to employ more staff as the mine expands. In every organisation there is room for improvement, and BHP is no exception to this. I believe that the likely future responses to the current Remuneration policy will indicate that the policy is one of well being and will indicate a positive direction in recruiting employees and the position BHP holds on the rich list. Word Count: 1979 f:\12000 essays\business & economics (632)\Capital Punishment Deters Murder.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Capital Punishment Deters Murder, and Is Just Retribution Capital punishment, is the execution of criminals by the state, for committing crimes, regarded so heinous, that this is the only acceptable punishment. Capital punishment does not only lower the murder rate, but it's value as retribution alone is a good reason for handing out death sentences. Support for the death penalty in the U.S. has risen to an average of 80% according to an article written by Richard Worsnop, entitled "Death penalty debate centres on Retribution", this figure is slightly lower in Canada where support for the death penalty is at 72% of the population over 18 years of age, as stated in article by Kirk Makir, in the March 26, 1987 edition of the Globe and Mail, titled "B.C. MPs split on Death Penalty". The death penalty deters murder by putting the fear of death into would be killers. A person is less likely to do something, if he or she thinks that harm will come to him. Another way the death penalty deters murder, is the fact that if the killer is dead, he will not be able to kill again. Most supporters of the death penalty feel that offenders should be punished for their crimes, and that it does not matter whether it will deter the crime rate. Supporters of the death penalty are in favour of making examples out of offenders, and that the threat of death will be enough to deter the crime rate, but the crime rate is irrelevant. According to Isaac Ehrlich's study, published on April 16, 1976, eight murders are deterred for each execution that is carried out in the U.S.A. He goes on to say, "If one execution of a guilty capital murderer deters the murder of one innocent life, the execution is justified." To most supporters of the death penalty, like Ehrlich, if even 1 life is saved, for countless executions of the guilty, it is a good reason for the death penalty. The theory that society engages in murder when executing the guilty, is considered invalid by most supporters, including Ehrlich. He feels that execution of convicted offenders expresses the great value society places on innocent life. Isaac Ehrlich goes on to state that racism is also a point used by death penalty advocates. We will use the U.S. as examples, since we can not look at the inmates on death row in Canada, because their are laws in Canada that state that crime statistics can not be based on race, also the fact that there are no inmates on death row in Canada. In the U.S. 16 out of 1000 whites arrested for murder are sentenced to death, while 12 of 1000 blacks arrested for murder were sentenced to death. 1.1% of black inmates on death row were executed, while 1.7% of white inmates will die. Another cry for racism, as according to Ehrlich, that is raised by advocates of the death penalty is based on the colour of the victim, for example "if the victim is white, it is more likely that the offender will get the death penalty than if the victim had been black". This is true, if you look at the actual number of people who are murder. More people kill whites and get the death penalty, then people who kill blacks and get the death penalty. The reason for this is that more whites are killed, and the murders captured. Now if we look at the number of blacks killed it is a lot less, but you have to look at these numbers proportionately. Percent wise it is almost the same number for any race, so this is not the issue. In a 1986 study done by Professor Stephen K. Layson of the University of North Carolina, the conclusions made by Ehrilich were updated, and showed to be a little on the low side as far as the deterrence factor of capital punishment. Professor Layson found that 18 murders were deterred by each execution is the U.S. He also found that executions increases in probability of arrest, conviction, and other executions of heinous offenders. According to a statement issued by George C. Smith, Director of Litigation, Washington Legal Foundation, titled "In Support of the Death Penalty", support for the death penalty has grown in the U.S., as the crime rate increased. In 1966, 42% of Americans were in favour of capital punishment while 47% were opposed to it. Since the crime rate United states has increased, support for the capital punishment has followed suit. In 1986, support for capital punishment was 80% for and only 17% against with 3% undecided, but most of the undecided votes said they were leaning toward a pro capital punishment stance, if they had to vote on it immediately. Let us now focus on Canada. The last two people to be executed, in Canada were Arthur Lucas and Ron Turpin. They were executed on December 11, 1962. The executions in Canada were carried out by hanging. 1 The death penalty was abolished in Canada in the latter part of 1976, after a debate that lasted 98 hours. The death penalty was only beaten by 6 votes. If we look back to 1976, the year the death penalty was abolished in Canada, threats of death, were being made to Members of Parliament and their immediate families from pro death penalty advocates. Most members of parliament, voted on their own personal feelings, as opposed to the views of their voters.2 The same was the case in British Colombia, where accepting of the death penalty, if it was reinstated 1987 , by the federal government was discussed. The M.P.s were split, 17 out of 29 were for the death penalty. This showed, that even the majority of the M.P.s were in favour of the death penalty in B.C. Support for the death penalty in British Columbia at the time was almost 70%, but the M.P.s felt that it was up to them to vote how they felt was right, and not to vote on which vote would give them the best chance for a second term.3 In 1987, the Progressive Conservative government wanted to hold a free vote on the reinstatement of Capital punishment, but Justice minister Ray Hnatyshyn, who was opposed to it, pressured the M.P.s, into voted against the bill. Ray Hnatyshyn, was the deciding factor, if not for him, it was widely believed that the reinstatement of capital punishment would have gone through, and the death penalty would be a reality today.4 Capital punishment is such a volatile issue, and both sides are so deeply rooted in their views that they are willing to do almost anything to sway all of the people they can to their side. We personally feel, and our views are backed up by proof, in the form of studies by the likes of Isaac Ehrlich's 1975 and Prof. Stephen K. Layson's, that was published in 1986, and polls that have been taken both in Canada and the United States over the past few years. All of these studies and surveys show that capital punishment is a valid deterrent to crime, and obviously the public, and society as a whole are in favour of it. The death penalty makes would be capital offenders think about weather committing a crime is really worth their lives. Even if capital punishment did not deter crime, the simple fact that it will allow society to "get even" with murders. Capital punishment also insures peace of mind because it insures that murders will never kill again. Bibliography 1 From: Take Notice, (Copp Clarke Pitman Ltd., 1979) page 163 2 From: Article written by David Vienneau published in the March 24, 1987 edition of the "Toronto Star", titled, Debate Agonizing for MPs. 3 From: Article written by Kirk Makir, published in March 26, 1987 edition of the "Globe and Mail", titled, BC MPs Split on Death Penalty Debate. 4 From: Article written by Hugh Winsor, published in April 29, 1987 edition of the "Globe and Mail", titled, Debate on Death Penalty placed on hold. f:\12000 essays\business & economics (632)\Capitalism 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CAPITALISM SENIOR PROJECT RESEARCH PAPER BY JASON GERKEN CAREER ENGLISH MRS. CONLON 5/14/95 CAPITALISM Today in the United States, a free market system or capitalism is the main economic system. I am interested in this subject because I someday wish to own my own business. I believe that in the future this topic will be very useful to me. Among the topics that I will discuss are the greeks and romans early practices of capitalism, the ideas of Joseph Schumpeter, Rush Limbaugh, and Karl Marx, corporations, regulation by the government, and Reaganomics. I will also discuss the relationship between inflation and unemployment. In addition, I will give my own perspective on the economic theories that I'm presenting. These are just a few of the things that I will be discussing in this paper. HISTORY OF CAPITALISM Many of the institutions of capitalism can be traced back to Greek and Roman times. Things such as trade, moneylending, and insurance were well known practices to them. Unfortunatly, growth of the Roman Empire prevented further development of a private business class. As power over economic growth came back to the people or lords during the Middle Ages, modern capitalism started to evolve. (The Software Toolworks Illistrated Encyclopedia) In the late Middle Ages, the medieval economy was based on MANORALISM. This system said that peasants worked on the land that the lord's owned, but everthing that was produced by them was kept in return they had to perform services or pay dues to there lord. During this time period, there was no incentive to produce large and productive resources. The end of the midieval Manoralism was brought about by a larger demand for goods. Kings competed against lords, and lords competed with peasants for the rights to what was produced. As a result, there was an emergence of merchants and businessmen who accumulated large sums of capital. In addition, there was also a large emergence of banks and the start of corporations. (Galbraith Pg. 58) The only other economic system that got much attention was a new idea called Communism. A person named Karl Marx wrote a book called the Communist Manifesto which thought of the state as being the main controller of economic growth, unlike capitalism where the people in a free market are the main controllers of economic growth. In the 19th century when most of the world like Britan, France, Germany, and the United States were in the age of Laissez-Faire economic capitalism, other countries like the Soviet Union and China followed Karl Marx's Communism. (Galbraith Pg. 97) Modern Capitalism The main thing that drives capitalism today is the large corporations that are able to finance large operations to promote economic growth. As corporations got bigger and bigger, many liberals favored breaking up corporations and putting them under state control. They pressed for antitrust laws to get a competitive economy. This meant that some corporations that got too big had to be broken up to make smaller companies in order to create a competitive economy. The large corporations fought back by saying that they were no less competitive than smaller businesses. An Austrian-American economist named Joseph Schumpeter who argued in defense of large corporations said, "the prime mover in capitalist progress is not the small businessperson but the entrepreneur who introduces new technologies and develops them." He also said "Capitalism gives creative people the freedom to make innovations, unlike state-runned economies which tended to stifle this creative force." He also predicted that capitalism would eventually be replaced by some form of socialism in order to protect the people and the global environment. (The Software Toolworks Illistrated Encyclopedia) Arguments for and Against Capitalism today differs from capitalism of the 19th century because of its dependence on the state. Today government is expected to take measures in order to stop inflation and unemployment. A British economist named John Maynard Keynes said, "government should spend more money in times of slump, and also reduce taxes in order to increase aggregate demand for goods and services, and in boom times the policies should be reversed to hold down inflation." Most liberal economists believed that large corporations ought to be broken up and nationalized so that their manager would be responsible to the public as a whole. (Lekachman Pg. 51) Other conservative econimists stated that evan large corporations were ultimately controlled by the market where they sold their product and the market is subject to the desires of the public. Conservatives also pointed out that government spending by federal, state, and local governments amounted to more than one-fifth of the gross national product. The same thing seemed to be happening in other European countries like Sweeden, and Britain. (Lekachman Pg. 62) During the 1980's when Ronald Reagan was elected president it signaled the return of capitalism as the dominant economic idea in the United States. Reagan's two main policies or objectives were to reduce the size of government and deregulate the economy. The main benefit of Reagan's new policies of lower taxes and tax reform was the virtual elimination of inflation. As a result, the U.S. economy expanded and new records were set on Wall Street. Critics of Reagan favored tax and spend policies that would inflate the economy into what we are now seeing in Russia. As our National Debt got larger, they blamed it on Reagan, but as I see things it was caused by the Democrats in Congress during the 70's who authorized many new spending progams that were not able to be paid for. This is why there was such a problem with inflation during the 70's. I believe it to be unfair to blame him when we saw some of the biggest economic growth in the history of the U.S. during the 1980's. Reagan, as well as many other conservatives, believed that if you cut taxes, it would give incentive to businesses to invest there marginal tax dollars,causing them to earn more money and pay more taxes on their earnings. As a result you get rid of inflation and unemployment at the same time. Critics still protest, saying that these policies are unfair to poor people and minorities. This statement has some truth to it, but in the words of Rush Limbaugh, "Capitalism, though not promising prosperity to all, greatly improves the lot of most and offers opportunity to all." (Limbaugh Pg. 273-274) The concept that I talked about in the last page is called supply-side economics. Liberals think that if you cut taxes, you get less revenue. Right? Wrong! Actual revenues nearly doubled during the 80's from 550 billion to 991 billion. To go even further I would like to see a flat tax implemented. A 15-18 percent flat tax rate would stimulate the American economy greatly. This would happen by giving huge incentive to everybody to make more money. Of course, some liberal might confuse you by saying that making money is greedy. Sure the rich will get richer, but their businesses will grow due to the fact that they will have more money to employ more people creating less unemployment. Also people currently avoiding taxes either legally or illegally will be brought into an evev system where they will not need to avoid taxes through current legal loop holes. The reason why people like Bill Clinton get elected to be president is because he plays the game of class warfare. Clinton did a good job of convincing the poor and the middle class that Reagan did them wrong. Clinton believes that the rich should be punished by higher taxes. I ask you, "why should you punish prosperity?" The main goal of the liberals and Bill Clinton is the reditribution of wealth. The key question to ponder is, " when do profits become unfair and excessive?" (Limbaugh Pg. 118-119) In conclusion, capitalism is the best thing to help the United States economy grow. The entrepreneur is the person who makes this economy rum smoothly and profitably. A creative person at the head of a company can do alot more than a person who is at the head of a state-runned bureaucracy. This is true because the entrepreneur has incentive to do the job correctly, but the bureacrat has none because he knows that his job will still be there tomorrow no matter how he performs. I will agree that pure capitalism won't work because you still need environmental laws and other laws to protect the consumer. However, problems begin when extreme socialistic views like Bill Clinton's are imposed. f:\12000 essays\business & economics (632)\Capitalism.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Capitalism SENIOR PROJECT RESEARCH PAPER BY JASON GERKEN CAREER ENGLISH MRS. CONLON 5/14/95 Today in the United States, a free market system or capitalism is the main economic system. I am interested in this subject because I someday wish to own my own business. I believe that in the future this topic will be very useful to me. Among the topics that I will discuss are the greeks and romans early practices of capitalism, the ideas of Joseph Schumpeter, Rush Limbaugh, and Karl Marx, corporations, regulation by the government, and Reaganomics. I will also discuss the relationship between inflation and unemployment. In addition, I will give my own perspective on the economic theories that I'm presenting. These are just a few of the things that I will be discussing in this paper. HISTORY OF CAPITALISM Many of the institutions of capitalism can be traced back to Greek and Roman times. Things such as trade, moneylending, and insurance were well known practices to them. Unfortunatly, growth of the Roman Empire prevented further development of a private business class. As power over economic growth came back to the people or lords during the Middle Ages, modern capitalism started to evolve. (The Software Toolworks Illistrated Encyclopedia) In the late Middle Ages, the medieval economy was based on MANORALISM. This system said that peasants worked on the land that the lord's owned, but everthing that was produced by them was kept in return they had to perform services or pay dues to there lord. During this time period, there was no incentive to produce large and productive resources. The end of the midieval Manoralism was brought about by a larger demand for goods. Kings competed against lords, and lords competed with peasants for the rights to what was produced. As a result, there was an emergence of merchants and businessmen who accumulated large sums of capital. In addition, there was also a large emergence of banks and the start of corporations. (Galbraith Pg. 58) The only other economic system that got much attention was a new idea called Communism. A person named Karl Marx wrote a book called the Communist Manifesto which thought of the state as being the main controller of economic growth, unlike capitalism where the people in a free market are the main controllers of economic growth. In the 19th century when most of the world like Britan, France, Germany, and the United States were in the age of Laissez-Faire economic capitalism, other countries like the Soviet Union and China followed Karl Marx's Communism. (Galbraith Pg. 97) Modern Capitalism The main thing that drives capitalism today is the large corporations that are able to finance large operations to promote economic growth. As corporations got bigger and bigger, many liberals favored breaking up corporations and putting them under state control. They pressed for antitrust laws to get a competitive economy. This meant that some corporations that got too big had to be broken up to make smaller companies in order to create a competitive economy. The large corporations fought back by saying that they were no less competitive than smaller businesses. An Austrian-American economist named Joseph Schumpeter who argued in defense of large corporations said, "the prime mover in capitalist progress is not the small businessperson but the entrepreneur who introduces new technologies and develops them." He also said "Capitalism gives creative people the freedom to make innovations, unlike state-runned economies which tended to stifle this creative force." He also predicted that capitalism would eventually be replaced by some form of socialism in order to protect the people and the global environment. (The Software Toolworks Illistrated Encyclopedia) Arguments for and Against Capitalism today differs from capitalism of the 19th century because of its dependence on the state. Today government is expected to take measures in order to stop inflation and unemployment. A British economist named John Maynard Keynes said, "government should spend more money in times of slump, and also reduce taxes in order to increase aggregate demand for goods and services, and in boom times the policies should be reversed to hold down inflation." Most liberal economists believed that large corporations ought to be broken up and nationalized so that their manager would be responsible to the public as a whole. (Lekachman Pg. 51) Other conservative econimists stated that evan large corporations were ultimately controlled by the market where they sold their product and the market is subject to the desires of the public. Conservatives also pointed out that government spending by federal, state, and local governments amounted to more than one-fifth of the gross national product. The same thing seemed to be happening in other European countries like Sweeden, and Britain. (Lekachman Pg. 62) During the 1980's when Ronald Reagan was elected president it signaled the return of capitalism as the dominant economic idea in the United States. Reagan's two main policies or objectives were to reduce the size of government and deregulate the economy. The main benefit of Reagan's new policies of lower taxes and tax reform was the virtual elimination of inflation. As a result, the U.S. economy expanded and new records were set on Wall Street. Critics of Reagan favored tax and spend policies that would inflate the economy into what we are now seeing in Russia. As our National Debt got larger, they blamed it on Reagan, but as I see things it was caused by the Democrats in Congress during the 70's who authorized many new spending progams that were not able to be paid for. This is why there was such a problem with inflation during the 70's. I believe it to be unfair to blame him when we saw some of the biggest economic growth in the history of the U.S. during the 1980's. Reagan, as well as many other conservatives, believed that if you cut taxes, it would give incentive to businesses to invest there marginal tax dollars,causing them to earn more money and pay more taxes on their earnings. As a result you get rid of inflation and unemployment at the same time. Critics still protest, saying that these policies are unfair to poor people and minorities. This statement has some truth to it, but in the words of Rush Limbaugh, "Capitalism, though not promising prosperity to all, greatly improves the lot of most and offers opportunity to all." (Limbaugh Pg. 273-274) The concept that I talked about in the last page is called supply-side economics. Liberals think that if you cut taxes, you get less revenue. Right? Wrong! Actual revenues nearly doubled during the 80's from 550 billion to 991 billion. To go even further I would like to see a flat tax implemented. A 15- 18 percent flat tax rate would stimulate the American economy greatly. This would happen by giving huge incentive to everybody to make more money. Of course, some liberal might confuse you by saying that making money is greedy. Sure the rich will get richer, but their businesses will grow due to the fact that they will have more money to employ more people creating less unemployment. Also people currently avoiding taxes either legally or illegally will be brought into an evev system where they will not need to avoid taxes through current legal loop holes. The reason why people like Bill Clinton get elected to be president is because he plays the game of class warfare. Clinton did a good job of convincing the poor and the middle class that Reagan did them wrong. Clinton believes that the rich should be punished by higher taxes. I ask you, "why should you punish prosperity?" The main goal of the liberals and Bill Clinton is the reditribution of wealth. The key question to ponder is, " when do profits become unfair and excessive?" (Limbaugh Pg. 118-119) In conclusion, capitalism is the best thing to help the United States economy grow. The entrepreneur is the person who makes this economy rum smoothly and profitably. A creative person at the head of a company can do alot more than a person who is at the head of a state-runned bureaucracy. This is true because the entrepreneur has incentive to do the job correctly, but the bureacrat has none because he knows that his job will still be there tomorrow no matter how he performs. I will agree that pure capitalism won't work because you still need environmental laws and other laws to protect the consumer. However, problems begin when extreme socialistic views like Bill Clinton's are imposed. f:\12000 essays\business & economics (632)\Capitol Punishment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CAPITAL PUNISHMENT Capital Punishment deters murder, and is just Retribution Capital punishment, is the execution of criminals by the state, for committing crimes, regarded so heinous, that this is the only acceptable punishment. Capital punishment does not only lower the murder rate, but it's value as retribution alone is a good reason for handing out death sentences. Support for the death penalty in the U.S. has risen to an average of 80% according to an article written by Richard Worsnop, entitled "Death penalty debate centres on Retribution", this figure is slightly lower in Canada where support for the death penalty is at 72% of the population over 18 years of age, as stated in article by Kirk Makir, in the March 26, 1987 edition of the Globe and Mail, titled "B.C. MPs split on Death Penalty". The death penalty deters murder by putting the fear of death into would be killers. A person is less likely to do something, if he or she thinks that harm will come to him. Another way the death penalty deters murder, is the fact that if the killer is dead, he will not be able to kill again. Most supporters of the death penalty feel that offenders should be punished for their crimes, and that it does not matter whether it will deter the crime rate. Supporters of the death penalty are in favour of making examples out of offenders, and that the threat of death will be enough to deter the crime rate, but the crime rate is irrelevant. According to Isaac Ehrlich's study, published on April 16, 1976, eight murders are deterred for each execution that is carried out in the U.S.A. He goes on to say, "If one execution of a guilty capital murderer deters the murder of one innocent life, the execution is justified." To most supporters of the death penalty, like Ehrlich, if even 1 life is saved, for countless executions of the guilty, it is a good reason for the death penalty. The theory that society engages in murder when executing the guilty, is considered invalid by most supporters, including Ehrlich. He feels that execution of convicted offenders expresses the great value society places on innocent life. Isaac Ehrlich goes on to state that racism is also a point used by death penalty advocates. We will use the U.S. as examples, since we can not look at the inmates on death row in Canada, because their are laws in Canada that state that crime statistics can not be based on race, also the fact that there are no inmates on death row in Canada. In the U.S. 16 out of 1000 whites arrested for murder are sentenced to death, while 12 of 1000 blacks arrested for murder were sentenced to death. 1.1% of black inmates on death row were executed, while 1.7% of white inmates will die. Another cry for racism, as according to Ehrlich, that is raised by advocates of the death penalty is based on the colour of the victim, for example "if the victim is white, it is more likely that the offender will get the death penalty than if the victim had been black". This is true, if you look at the actual number of people who are murder. More people kill whites and get the death penalty, then people who kill blacks and get the death penalty. The reason for this is that more whites are killed, and the murders captured. Now if we look at the number of blacks killed it is a lot less, but you have to look at these numbers proportionately. Percent wise it is almost the same number for any race, so this is not the issue. In a 1986 study done by Professor Stephen K. Layson of the University of North Carolina, the conclusions made by Ehrilich were updated, and showed to be a little on the low side as far as the deterrence factor of capital punishment. Professor Layson found that 18 murders were deterred by each execution is the U.S. He also found that executions increases in probability of arrest, conviction, and other executions of heinous offenders. According to a statement issued by George C. Smith, Director of Litigation, Washington Legal Foundation, titled "In Support of the Death Penalty", support for the death penalty has grown in the U.S., as the crime rate increased. In 1966, 42% of Americans were in favour of capital punishment while 47% were opposed to it. Since the crime rate United states has increased, support for the capital punishment has followed suit. In 1986, support for capital punishment was 80% for and only 17% against with 3% undecided, but most of the undecided votes said they were leaning toward a pro capital punishment stance, if they had to vote on it immediately. Let us now focus on Canada. The last two people to be executed, in Canada were Arthur Lucas and Ron Turpin. They were executed on December 11, 1962. The executions in Canada were carried out by hanging. 1 The death penalty was abolished in Canada in the latter part of 1976, after a debate that lasted 98 hours. The death penalty was only beaten by 6 votes. If we look back to 1976, the year the death penalty was abolished in Canada, threats of death, were being made to Members of Parliament and their immediate families from pro death penalty advocates. Most members of parliament, voted on their own personal feelings, as opposed to the views of their voters.2 The same was the case in British Colombia, where accepting of the death penalty, if it was reinstated 1987 , by the federal government was discussed. The M.P.s were split, 17 out of 29 were for the death penalty. This showed, that even the majority of the M.P.s were in favour of the death penalty in B.C. Support for the death penalty in British Columbia at the time was almost 70%, but the M.P.s felt that it was up to them to vote how they felt was right, and not to vote on which vote would give them the best chance for a second term.3 In 1987, the Progressive Conservative government wanted to hold a free vote on the reinstatement of Capital punishment, but Justice minister Ray Hnatyshyn, who was opposed to it, pressured the M.P.s, into voted against the bill. Ray Hnatyshyn, was the deciding factor, if not for him, it was widely believed that the reinstatement of capital punishment would have gone through, and the death penalty would be a reality today.4 Capital punishment is such a volatile issue, and both sides are so deeply rooted in their views that they are willing to do almost anything to sway all of the people they can to their side. We personally feel, and our views are backed up by proof, in the form of studies by the likes of Isaac Ehrlich's 1975 and Prof. Stephen K. Layson's, that was published in 1986, and polls that have been taken both in Canada and the United States over the past few years. All of these studies and surveys show that capital punishment is a valid deterrent to crime, and obviously the public, and society as a whole are in favour of it. The death penalty makes would be capital offenders think about weather committing a crime is really worth their lives. Even if capital punishment did not deter crime, the simple fact that it will allow society to "get even" with murders. Capital punishment also insures peace of mind because it insures that murders will never kill again. 1 From: Take Notice, (Copp Clarke Pitman Ltd., 1979) page 163 2 From: Article written by David Vienneau published in the March 24, 1987 edition of the "Toronto Star", titled, Debate Agonizing for MPs. 3 From: Article written by Kirk Makir, published in March 26, 1987 edition of the "Globe and Mail", titled, BC MPs Split on Death Penalty Debate. 4 From: Article written by Hugh Winsor, published in April 29, 1987 edition of the "Globe and Mail", titled, Debate on Death Penalty placed on hold. f:\12000 essays\business & economics (632)\Carrers in Investment Banking.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Davin Bloom English 152 Reuff, Instructor Paper 2 2/25/97 A career in the securities industry can offer exciting work if you enjoy working in a competitive and demanding atmosphere. Investment bankers, stock brokers, and stock traders all make up the securities industry providing services to each other, as well as the general public. All of people involved in this field deal with stocks, bonds, and other financial material in some way or another, but they all have their own specific objectives and duties. The primary differences between the three are the services they provide and who they provide these services to. Investment banking seems to be the most interesting of the three, as well as the most rewarding. This is due to the nature of the job an investment banker must perform. A career as an investment banker has its pros and cons just as any career does, but if you're looking for a high-demanding, high-risk career that at times is very rewarding financially, investment banking could be the career. Investment banking has been around since stocks have been issued and bonds sold, but the field demanded little, if any new jobs before the 1980's. This was due to the low complexity of the financial markets. Since then, investment banking jobs have been significantly growing due to the availability of complex securities and high-yield bonds, also known as junk bonds.(Investment Banking,12) Now that the financial market has become more complex, companies that didn't require and investment bankers now need their advice to effectively help their company sell stocks and bonds, and to make financial plans for the future. This shows the growing need for investment bankers in the securities industry. Investment bankers serve a major part in shaping our nation's economy as well as the world's. This is done by devising financial plans and putting them into effect. The process of doing this is very time consuming but doesn't seem a bit boring. Investment bankers also spend a lot of time traveling to various clients to present ideas and when at home, investment bankers work on developing financial plans and strategies for clients. All this work can appear to be very time consuming, and it is. According to Linda C. (So You Want To Be, 2) a typical day for an investment banker out of school is to start at nine in the morning and work fairly consistently until midnight, five days a week. To be considered for a job in the securities industry one must be content living in or near a large city, and have at least, a four year degree in some type of business field, typically finance or accounting. Working summer internships in your chosen field also aids in job finding. If these requirements are met an investment banking firm will consider hiring the graduate into their two-year financial analyst programs at starting salaries of $25,000-30,000.(Morgan, 12) The competition to get into an analyst position is extremely hard and competitive. The competition to get into the trainee classes at the top investment banking firms is tougher than becoming an astronaut, according to Preston Pumphrey. (Pumphrey,2) The typical analyst works mainly on analytical work and also does a fair amount of writing.(So You Want to Be A,4) From here an analyst has the option to either go back to school and pursue an MBA, or try to advance to the position of a junior associate, which basically has the job of supervising the analytical work done by the analysts. Junior associates are basically trying to learn the business and acquire the skills they need to develop financial plans rather than to execute them. Their main responsibilities, according to Rich W., a vice president of a large investment firm, include running computer analyses, preparing the financial reports which accompany stock issues, and putting together the documents used by senior bankers to pitch ideas.(So You Want To Be. 4) Junior associates are primarily watched over by the senior associates. Senior associates, or vice presidents, depending on the investment firm's structure, oversee the preparation of documents that leave the firm, and they begin to be involved in the more creative side of business, working with senior bankers and clients to develop financial strategies. Senior associates are basically more specialized in a specific type of transaction, and have established banking skills that will help them in the future. Normally, the only step up from a vice president is a senior banker who has ownership interests in the firm he or she works at. To become a senior banker it usually takes about ten years of experience and a lot of hard work. By now it's obvious to see that investment banking offers many opportunities to move up on the corporate ladder, and as one moves up so does his or her salary. The amount of increase in salary is quite significant. According to investment banking(Investment Banking,7) the average starting salary for a junior associate is around $100,000, while a vice president makes around $300,000 a year, and a ten to fifteen year experienced banker makes around one million dollars a year. These figures sound really great, but there are some catches. First off, investment bankers are guaranteed a relatively low base pay for the year, and the rest of their earnings are compensations determined by their job performance for the year. So in a given year one junior associate could make $65,000 while another of the same education and background could make $120,000, because he or she continuously had better job performance. Because investment firms determine salaries by job performance and base compensation on performance, employees of that firm work under extreme pressure to produce successful results. To many, this method of rewarding bankers is a positive, but others feel it is way too stressful not to be guaranteed a fixed income. Another drawback to working in the securities industry is a lack of job security. Poor performance or non-performance, being too conservative, can be a large factor determining whether a firm should keep its employees or not.(Investment Banking,3) When deciding whether a career in this particular field is right for someone looking into investment banking, one must first consider the advantages and the disadvantages of this particular career, and then decide whether the job will suit his or her individual needs. In general, a career in the securities industry seems extremely hard and very time consuming, and from time to time, has had me contemplating whether or not to major in finance. The type of work demanded is very diverse and seems very interesting, with very high compensation for individual performance. With that in mind, choosing to go into the securities industry could be very rewarding. f:\12000 essays\business & economics (632)\Cars Market In Lebanon.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Cars Market In Lebanon It is true that Lebanon is a very small country, but the car market in Lebanon is somehow enormous. In Lebanon, we have an oligopolistic market where there are a few sellers all of whom are highly sensitive to each other's pricing and marketing strategies. The moment one company sets a low price, or follows some sort of a good strategy, all the others do the same. Moreover, it is very difficult for a new company to enter this market. When we talk about the concept of "buying a car", we have to take in consideration: _Who buys cars in Lebanon. _Who sells cars in Lebanon. _Where the cars are mostly sold. _What the customer looks for in a car. _What the dealers are making to satisfy their customers. In addition to some other information... After some readings and some interviews, we found out that about 98% of Lebanese people would like to own a car, and about 90% of them have cars, ( not necessarily individually , it may belong to the father, to the mother, meaning in the family and they can drive it whenever the want). The 10% that do not have a car consist mainly of people who live in small counties; where they have old mentalities and old ways of thinking; somehow far from civilization and technology. There are about 4 million Lebanese people in Lebanon, and there are more than 2 million registered cars spread on all the Lebanese territories, but mostly in Beirut, isn't this a disaster?! Even though the economical situation in Lebanon is going down, but it seems that the personal consumption expenditure will rise at an estimated 4% annual rate in the 3rd and 4th quarters of year 2000. Dealership showrooms are busy and will deliver new vehicles. With consumer confidence, less unemployment and real earnings on the upswing, the future is bright for the automotive industry. Car sales in year 2000 will be up. Sports utility vehicles are the biggest sales gainer, up about 14% with almost every manufacturer now offering a sports utility model. Another faction of the local automotive business, the highly competitive used car market, is revving up in Lebanon. Local dealers say a quality supply of used cars is helping bring in customers who may not be able to afford a new car. "If there is any trend right now, it's an increase in the used car market". In recent years, savvy customers can find these deals cheaper than payments for a new car. What does the customer look for when buying a car? * pricing: The great news for consumers was "flat pricing" for 1998 models. Automakers have largely held the line on prices for 1998 models. They were avoiding the need to increase prices with gains in productivity, rigid internal cost controls and working closely with suppliers to hold down costs. When prices do rise, buyers usually get more in standard features, like power windows, upgraded audio equipment and anti-lock brakes. In some cases, the 1998 models were lower in prices than the 1997s. In addition, some manufacturers have been offering rebates on 2000 models. Khoury co, for example, the dealers of Chrysler in Lebanon, was exposing the new Neon during Lebanon Motor Show 2000 with an attractive price Another major trend in the industry is the growth of leasing. Leasing is attractive to consumers who like to own a new vehicle every 2 or 3 years. It allows customers to end their confusion about a certain car. Franchised new car dealers have greatly enhanced their ability to perform maintenance and minor repairs on a "quick service" basis, ( in Lebanon, IZI CAR is now offering this facility) * Quality & brand name : When it comes to the brand name and quality, the customer is affected by the word of mouth in addition to his expectations and perceptions. * Power & safety : The car's power, in Lebanon and most of the other countries, is a "young male" problem, they love speed and always hope to be the fastest. The new engines being introduced by auto makers have smaller displacements geared for better horsepower and gas mileage. Today's engineering has made vehicles safer in accidents than ever before. In all categories and weight classes, the industry is building vehicles that are safer. In addition, new models have features that appeal to youth. Auto makers want to build brand loyalty in all age groups to generate repeat sales. Although new product problems have been almost eliminated, quality and warranties are better than ever to keep new car purchasers happy with their vehicles. Furthermore, some other features are considered, such as: _ Fuel economy (but it is becoming important for middle to lower class) _ Environment (unfortunately, only few care about it) _ Cargo space (according to age and gender) _ After sale services (most people do care) _ Dealer (not so important to the Lebanese) In addition to all these features, demographic, geographic and psycho-graphic factors also affects the consumer's buying behavior, such as: _ Income _ Level of education _ Gender _ Family size _ Occupation _ Place of living Because of all these facts, each and every car dealer in Lebanon try to be the first to offer the best facilities, options and services to the customer's demands. Therefor, there is always this big competition between car dealers. __ Some of the most known car dealers in Lebanon: * Those who have more than a brand: Bassoul & Hneineh: BMW, RENAULT, ALFA ROMEO. Saad & Trad: JAGUAR, DAIMLER, ROLLS ROYCE, BENTLEY, FERRARI, FIAT. Rassamni Youness: NISSAN, INFINITY, GMC. Impex: CADILLAC, CHEVROLET, PORSHE, ISUZU. F.A. Kettaneh: VOLKSWAGEN and AUDI. Gemaco: TOYOTA and LEXUS. * Some other dealers are responsible only for one brand: T. Gargour and sons: MERCEDES. Sarkis group: SAMSUNG. Standard motors: DAEWOO. Century motors: HYUNDAI. Gabriel Abou Adal: VOLVO. Techno cars: OPEL . Natco: KIA. And of course there are much more companies and much more car brands. Between some of the dealers we find some kind of competitions; the moment that DAEWOO sets a low price, HYUNDAI and KIA do the same, or when one of them follows some strategy, the others hurry to do the same. Also HONDA, NISSAN and TOYOTA compete among each others. On the other hand, even though MERCEDES and BMW are both German cars and have almost the same quality, safety and value, but the competition between them seems to be slight or maybe it is not obvious to the people especially in Lebanon. The fact is that each one of them has its own customers who become loyal to their brand. Also we must not forget JAGUAR who surely has its own customers all around the world. The most obvious strategies to promote are in dealing with pricing. We always hear about some companies reducing their prices a $1000 or even more ($3000 like AUDI in the mean time). Others offers extra-options like (full insurance for two years, or fuel for free for 12 months...). Also companies follows different promoting strategies "T.V adv., BILL boards adv., or by sponsoring some important events..." For example, MERCEDES and FERRARI don't appear on TV as a product for advertising, we may see them in some movies showing their importance, also BMW is "James Bond's favorite". So these companies don't have adv. For Lebanon like KIA, HYUNDAI, DAEWOO..., they have international promoting campaigns like the F1 (Formula one) racing with MERCEDES & FERRARI, also BMW is working on entering this field soon. Everyone must have heard about "SAAD & TRAD" in Lebanon. Established in 1995, SAAD & TRAD S.A.L., are one of the leading companies in the automobile field, with such prestigious makes as FIAT, JAGUAR, AND ROLLS ROYCE/ BENTLEY cars. in 1994, they acquired as well the FERRARI and in 1998, they were appointed sole distributors of the German MAN trucks. For twelve consecutive years they dominated the Lebanese market with yearly sales figures reaching more than 4000units for the FIAT only. They also provide first class after-sales services in their up-to-date workshop which covers an area of approx 3000sq.m.per floor on three floors . They provide two year warranty for FIAT cars, two years for the FERRARI and three years for the JAGUAR and the ROLLS ROYCE/BENTLEY. There's a lot to talk about the new Jaguar S-TYPE, but unfortunately, the dealer couldn't give us so much information, all he just said was: "sorry, I'd like to help but I have an important meeting, you can take all you need from brochures and from some employees if they can help". Therefor all we could know about JAGUAR was from the brochure and from the net. 2000 Jaguar S-TYPE The 2000 S-Type is a 4-door, 5-passenger midsize luxury sport sedan available in two trims, the 3.0 and the 4.0. Base prices are around $42,500 and $48,000 for the 3.0 and 4.0, respectively. Among the S-Type's closest competitors are the BMW 5 Series, Saab 9-5, Mercedes E-Class and Infiniti Q45. The 3.0 is equipped with a standard 3.0-liter, V6, 240-horsepower engine that consumes 18-mpg in the city and 26-mpg on the highway. The 4.0 is equipped with a standard 4.0-liter, V8, 281-horsepower engine that consumes 17-mpg in the city and 23-mpg on the highway. A manually interactive 5-speed automatic transmission with overdrive is standard on both trims. The styling for the S-Type features a sporty, modern design while retaining the characteristic Jaguar elliptical vertical-bar grille and four-headlight design. Technologically, the S-Type offers several new features. Computer Active Technology Suspension provides improved handling and driver control and is offered for the first time on any Jaguar model in North America. The Voice-Activated Control System is a first for the auto industry and allows for operation of the climate control system, audio system, and telephone operation by voice command. f:\12000 essays\business & economics (632)\Case analysis of the Soft Drink Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Table of Contents Introduction 3 Description 3 Segments 3 Caveats 4 Socio-Economic 4 Relevant Governmental or Environmental Factors, etc. 4 Economic Indicators Relevant for this Industry 4 Threat of New Entrants 5 Economies of Scale 5 Capital Requirements 6 Proprietary Product Differences 7 Absolute Cost Advantage 8 Learning Curve 8 Access to Inputs 8 Proprietary Low Cost Production 8 Brand Identity 9 Access to Distribution 9 Expected Retaliation 9 Conclusion 10 Suppliers 10 Supplier concentration 10 Presence of Substitute Inputs 11 Differentiation of Inputs 12 Importance of Volume to Supplier 13 Impact of Input on Cost or Differentiation 13 Threat of Backward or Forward Integration 13 Access to Capital 14 Access to Labor 14 Summary of Suppliers 14 Buyers 15 Buyer Concentration versus Industry Concentration 15 Buyer Volume 15 Buyer Switching Cost 15 Buyer Information 16 Threat of Backward Integration 16 Pull Through 16 Brand Identity of Buyers 17 Price Sensitivity 17 Impact on Quality and Performance 17 Substitute Products 18 Relative price/performance relationship of Substitutes 18 Buyer Propensity to Substitute 18 Rivalry 18 Industry Growth Rate 20 Fixed Costs 21 Product Differentiation 21 Brand Identity 21 Informational Complexity 22 Corporate Stakes 22 Conclusion 23 Critical Success Factors 23 Prognosis 24 Bibliography 26 Appendix 27 Key Industry Ratios 27 Introduction Description The soft drink industry is concentrated with the three major players, Coca-Cola Co., PepsiCo Inc., and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996). The soft drink market is a relatively mature market with annual growth of 4-5% causing intense rivalry among brands for market share and growth (Crouch, Steve). This paper will explore Porter's Five Forces to determine whether or not this is an attractive industry and what barriers to entry (if any) exist. In addition, we will discuss several critical success factors and the future of the industry. Segments The soft drink industry has two major segments, the flavor segment and the distribution segment. The flavor segment is divided into 6 categories and is listed in table 1 by market share. The distribution segment is divided in to 7 segments: Supermarkets 31.9%, fountain operators 26.8%, vending machines 11.5%, convenience stores 11.4%, delis and drug stores 7.9%, club stores 7.3%, and restaurants 3.2%. Table 1: Market Share 1990 1991 1992 1993 1994 Cola 69.9 69.7 68.3 67 65.9 Lemon-Lime 11.7 11.8 12 12.1 12.3 Pepper 5.6 6.2 6.9 7.3 7.6 Root 2.7 2.8 2.3 2.7 2.7 Orange 2.3 2.3 2.6 2.3 2.3 Other 7.8 7.2 7.9 8.6 9.2 Source: Industry Surveys, 1995 Caveats The only limitations on access to information were: 1. Financial information has not yet been made available for 1996. 2. The majority of the information targets the end consumer and not the sales volume from the major soft drink producers to local distributors. 3. There was no data available to determine over capacity. Socio-Economic Relevant Governmental or Environmental Factors, etc. The Federal Government regulates the soft drink industry, like any industry where the public ingests the products. The regulations vary from ensuring clean, safe products to regulating what those products can contain. For example, the government has only approved four sweeteners that can be used in the making of a soft drink (Crouch, Steve). The soft drink industry currently has had very little impact on the environment. One environmental issue of concern is that the use of plastics adversely affects the environment due to the unusually long time it takes for it to degrade. To combat this, the major competitors have lead in the recycling effort which starting with aluminum and now plastics. The only other adverse environmental impact is the plastic straps that hold the cans together in 6-packs. These straps have been blamed for the deaths of fish and mammals in both fresh and salt water. Economic Indicators Relevant for this Industry The general growth of the economy has had a slight positive influence on the growth of the industry. The general growth in volume for the industry, 4-5 percent, has been barely keeping up with inflation and growths on margins have been even less, only 2-3 percent (Crouch, Steve). Threat of New Entrants Economies of Scale Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per case cost of production. In addition, larger corporate coffers allow for capital investment in automated high speed bottling lines that increase efficiency (Industry Surveys, 1995). This trend is supported by the decline in the number of production workers employed by the industry at higher wages and fewer hours. This in conjunction with the increased value of shipments over the period shows the increase in efficiency and the economies gained by consolidation (See table 2). Table 2 General Statistics: Year Companies Workers Hours Wages Value of Shipments 1982 1626 42.4 85.2 7.84 16807.5 1983 41.5 85.1 8.24 17320.8 1984 39.8 81.7 8.51 18052 1985 1414 37.2 77.8 9.1 19358.2 1986 1335 35.5 73.5 9.77 20686.8 1987 1190 35.4 71.5 10.45 22006 1988 1135 35.2 71.8 10.78 23310.3 1989 1027 33.4 67.7 10.98 23002.1 1990 941 32 65.7 11.48 23847.5 1991 31.9 66.8 11.85 25191.1 1992 29.8 61.6 12.46 26260.4 1993 28.6 59.3 12.93 27224.4 1994 27.4 56.9 13.39 28188.5 1995 26.2 54.5 13.86 29152.5 1996 25 52.1 14.32 30116.5 Source: Manufacturing USA, 4th Ed. Further evidence of economies is supported by the increased return on assets from 1992-1995, as shown in table 3. Coke and Pepsi clearly show increased return on assets as the asset base increases. However, Cadbury/Schweppes does not show conclusive evidence from 95 to 96. Table 3 CADBURY/SCHWEPPES 93 94 95 96 ASSETS 2963100 3266900 3501500 4595000 SALES 3372400 3724800 4029600 4776000 NET INCOME 195600 236800 261900 300000 Sales/Income 5.80% 6.36% 6.50% 6.28% Income/Assets 6.60% 7.25% 7.48% 6.53% COKE ASSETS 11051934 12021000 13873000 15041000 SALES 13073860 13963000 16181000 18018000 NET INCOME 1664382 2176000 2554000 2986000 Sales/Income 12.73% 15.58% 15.78% 16.57% Income/Assets 15.06% 18.10% 18.41% 19.85% PEPSI ASSETS 20951200 23705800 24792000 25432000 SALES 21970000 25021000 28472400 30421000 NET INCOME 374300 1588000 1752000 1606000 Sales/Income 1.70% 6.35% 6.15% 5.28% Income/Assets 1.79% 6.70% 7.07% 6.31% Source: Compact Disclosure Capital Requirements The requirements within this industry are very high. Production and distribution systems are extensive and necessary to compete with the industry leaders. Table 4 shows the average capital expenditures by the three industry leaders. Table 4 Dec-95 Dec-94 Jan-94 Jan-93 Receivables 1624333 1385767 1226633 1077912 Inventories 867666.7 803666.7 777366.7 716673.7 Plant & Equip 5986333 5795367 5246600 4642058 Total Assets 15022667 14055500 12997900 11655411 Source: Compact Disclosure The magnitude of these expenditures causes this to be a high barrier to entry. Proprietary Product Differences Each firm has brands that are unique in packaging and image, however any of the product differences that may develop are easily duplicated. However, secret formulas do create a difference or good will that cannot be duplicated. The best example of this is the "New Coke" fiasco of 1985. Coke reformulated its product due to test marketing results that showed New Coke beat Pepsi 47% to 43% and New Coke was preferred over old Coke by a 10% margin. However, Coke executives did not take into account the good will created by the old Coke name and formula. The introduction of New Coke as a replacement of Coke was met by outrage and unrelenting protest by the public. Three months from the initial launch of New Coke, management apologized to the public and reissued the old Coke formula. Test marking shows that there is only a small difference in actual product taste (52% Pepsi, 48% Coke), but the good will created by a brand can have significant proprietary differences (Dess, 1993). This is a high barrier to entry. Absolute Cost Advantage Brands do have secret formulas, which makes them unique and new entry into the industry difficult. New products must remain outside of patented zones but these differences can be slight. This leads to the conclusion that the absolute cost advantage is a low barrier within this industry. Learning Curve The shift in the manufacturing of soft drinks is gravitating toward automation due to speed and cost. However, industry technology is low and the manufacturing process is not difficult, therefore the learning curve will be short and will have a low barrier to entry. Access to Inputs All the inputs within the soft drink industry are commodity items. These include cane, beet, corn syrup, honey, concentrated fruit juice, plastic, glass, and aluminum. Access to these inputs is not a barrier to enter the industry. Proprietary Low Cost Production The process of manufacturing soft drinks is not a proprietary process. The methods used in the process are relatively standard within the industry and the knowledge needed to begin production can easily be acquired. This is not a barrier to entry. Brand Identity This is a very strong force within the industry. It takes a long time to develop a brand that has recognition and customer loyalty. "Brand loyalty is indeed the HOLY GRAIL to American consumer product companies." (Industry Surveys, 1995) A well recognized brand will foster customer loyalty and creates the opportunity for real market share growth, price flexibility, and above average profitability (Industry Surveys, 1995). Therefore this is a high barrier to entry. Access to Distribution Distribution is a critical success factor within the industry. Without the network, the product cannot get to the final consumer. The most successful soft drink producers are aggressively expanding their distribution channels and consolidating the independent bottling and distribution centers. From 1978 to the present, the number of Coca-Cola bottlers decreased from 370 to 120 (Industry Surveys, 1995). In addition, 31.9% of the soft drink business is in supermarkets, where acquiring shelf space is very difficult (Santa, 1996). This is a high barrier to entry. Expected Retaliation Market share within the industry is critical; therefore any attempt to take market share from the leaders will result in significant retaliation. The soft drink industry is a moderately mature market with slow single digit growth (Industry Surveys, 1995). Projected growth rates are 4-5% in sales volume and 2-3% in margin (Crouch, Steve). Therefore, growth in market share is obtained by stealing share from rivals causing retaliation to be high in defense of current market position. This is a high barrier to entry. Conclusion To be successful on a large scale, the high capital requirements for manufacturing, distribution, and marketing are high barriers to entry. Therefore the threat of new entrants is low making this an attractive industry. Suppliers Supplier concentration Supplier concentration is low due to the fact that the main ingredients are sugar (cane and beet), water, various chemicals, and aluminum cans, plastic and glass bottles. There are many places to get sugar and ingredients for soft drinks because they are commodity items. The containers (aluminum cans, bottles etc.) make up 36 percent of all the inputs that the industry uses. Other supplies like sugars, syrups and extracts account for 23 percent of the inputs (Manufacturing USA). There are five major suppliers of glass bottles. Altrista Corp., Anchor Glass Container, Glassware of Chile, Owens Illinois, and Vistro Sa are the major makers of glass bottles (Compact Disclosure). This is a fair amount of suppliers considering that only five percent of soft drink sales are in glass bottles. There are even more suppliers of plastic bottles. This is good because 43% of all sales are from plastic bottles (Prince, 1996). All this makes the concentration for glass and plastic suppliers moderate. The aluminum can industry is even older and more established than the plastic industry. Reynolds Metal Products, American National Can Company and Metal Container Corp. are the main suppliers of aluminum cans. 50.6% of total soft drink sales are packaged in aluminum cans (Prince, 1996). Since the aluminum industry is older and more established, these are likely to be the only manufacturers for a while. Even though the concentration of aluminum producers are low there are only three major players in the industry, Coke, Pepsi, and Cadbury. These three account for nearly 90% of domestic soft drink sales (Dawson, 1996). This makes the balance of power slightly favor the suppliers of aluminum cans, even though the number of producers and buyers are equal (3). Syrups and extracts account for 16.7% of input costs to the soft drink industry (Manufacturing USA, Fourth Ed.). Even though these are a small percentage of inputs, all the major soft drink companies own companies that produce flavoring extracts and syrups (Industry Surveys, 1995). This is probably due to the fact that they all have "secret formulas" and this is how they protect the secret. Coke, Pepsi, and Dr. Pepper all have "secret formulas". This makes the concentration of suppliers for extracts very low but they are owned by the soft drink industry. This backward integration by the major players makes the power question moot. Suppliers do have limited power over the soft drink industry. The concentration of suppliers remains relatively low, which would seem to give the supplier power. The shear mass and volume that the industry buys negates that effect and balances, if not tips it back toward the soft drink industry. Presence of Substitute Inputs There is not a lot of variety in inputs. The biggest substitute input was when the industry switched from aluminum cans to plastic bottles. This made the glass industry almost shake out completely. The next big substitute input was for sugar. Since people were demanding more and more ways to lose weight and consume fewer calories, the diet soft drink exploded in sales. This demand made the soft drink industry find an alternative to sugar to sweeten their product. This substitute turned out to be Nutrasweet non-sugar sweetener. This was found to reduce the calories and retain the taste of their respective products. Other sweeteners, like molasses, do not work because they change the flavor of the product. Most of these substitute inputs had already taken place so they become less relevant to the industry as time marched on. Substitute inputs usually do not become important until the customer or market changes dramatically. This happens when new studies come out from the government about how harmful something is. This was the case when scientists came out with the study that stated that saccharin was harmful to rats. The industry had to respond by reducing its use of saccharin and look for a substitute. At this time, the industry found Nutrasweet to be a reasonable substitute for saccharin, which was used more heavily in diet drinks. All in all, there are a lot of substitutes for packaging but not for sweeteners because these sweeteners must have government approval (Crouch, Steve). This makes suppliers have power over the industry as seen in the almost overnight empire of Nutrasweet. This will most likely change drastically when Aspirtain (Nutrasweet) loses its patent in a few years. Differentiation of Inputs Sugar is commonly available while Nutrasweet is patented. There is no differentiation for sugar and only one choice in Nutrasweet. As far as the other chemicals and inputs, they are commodity items, and it does not matter who supplies them. This makes suppliers have little power over the soft drink industry. Importance of Volume to Supplier The soft drink industry buys a large portion of the Nutrasweet market but their percentage of purchases are falling as other products begin to use it. Sugar is bought but not in the volume that the grocery store or other industries do. The aluminum can, plastic bottles and glass bottles (less now) are all pretty much dependent on the soft drink industry for their livelihood. This makes the supplier have pretty much no power over the industry. Impact of Input on Cost or Differentiation Since the inputs are basic elements there is no differentiation and therefore no impact on the final product for using different inputs. If the price of the input changed, it would dramatically change the price of the product as the aluminum cartel did in 1994. Since the major inputs are commodity items, the prices can change dramatically due to environmental forces. If the sugar industry suffers a loss due to weather or because of political unrest (like in Cuba), then the prices go up and the soft drink industry is usually left absorbing them. The soft drink industry can not, in all cases, simply pass along the price increase. Customers and distributors are more price sensitive than ever. This makes the supplier have a fair amount of bargaining power over the industry. Threat of Backward or Forward Integration With the current climate of "sticking to the core of the company," there is little threat of backward integration into the supplier's industry. This is after the fact that they already have integrated into the extracts to protect their secrets. The integration into the extract-producing segment of the suppliers will be the extent of the backward integration. The suppliers do not have the capital required to forward integrate into the soft drink industry. This makes the industry attractive for investment. Access to Capital The soft drink industry is very profitable and therefore looked upon favorably by financial institutions. This includes the stock market, direct investors (bondholders), and banks. Currently the operating margins for the industry have grown from 17.9% in 1992 to 19.5% in 1996. The projected operating margins are projected to grow to 20.5% from 1997 to 2001 (Value Line 1996). The profit margins and demand are increasing for the soft drink industry (Industry Surveys, 1995). What this means is that capital is available for expansion or upgrading, if additional capital is required. This is favorable to the industry. Access to Labor The industry is not highly technical except for chemical engineering. This means that the demands for skilled labor are not very high. Which means that the soft drink industry will not have trouble finding labor. There are no established labor unions. The average labor cost is no more than in any other industry. The average hourly wage is $11.85 per hour, which just about the same as all manufacturing firms of $11.49 (Manufacturing USA). Summary of Suppliers When you sum up the different aspects of the suppliers you come to the quick conclusion that the power is definitely in the hands of the soft drink industry. This makes the industry very attractive for investment and for the companies already in the industry from the supply aspect. This means that it is attractive to new entrants as well. Buyers Buyer Concentration versus Industry Concentration The buyers for the soft drink industry are members of a large network of bottlers and distributors that represent the major soft drink companies at the local level. Distributors purchase the finished, packaged product from the soft drink companies while bottlers purchase the major ingredients. With the consolidation that has occurred within the industry, there is little difference between the two. Distributors are assigned to represent a specific geographic area, for example a town or a county. In turn, these distributors are responsible for distributing the product to the retailers who sell the products to the end consumer. In recent years, the national companies have been purchasing independent bottlers in an effort to consolidate the business and gain some distribution economies of scale (Thompson and Strickland, 1993). Buyer Volume The contractual agreements, which are present in this industry, dictate that the major soft drink companies will sell their products to the distributors. Therefore, buyer volume is not a factor for this industry. Buyer Switching Cost Independent bottlers have contractual agreements to represent that company within a certain area. Switching costs would include establishing new relationships with other companies to represent and the legal costs associated with distributors being released from the contract. Buyer Information Distributors are very informed about the product that they are distributing. Information flows freely between the soft drink Companies and the local distributors and down to the retailers. There are many co-operative promotions where distributors and soft drink companies collaborate on price and advertising campaigns (Crouch, Steve). For example, major soft drink firms will send a regular report out to its distributors describing upcoming promotional events where the cost will be shared between the two companies. For promotions that fall outside of this report, the distributors will have to coordinate that sponsorship with the soft drink company. Threat of Backward Integration It is doubtful that local distributors will move into the actual production process of soft drinks. Distributors specialize in the transportation and promotion of the product that they rely on the carbonated beverage companies produce. However, major retailers; for example Wal-Mart and Harris Teeter have begun distributing their own private label brands of soft drinks. Wal-Mart now offers Sam's Choice and Harris Teeter offers President's Choice at a significantly lower price. These private label competitors will not provide the variety of packaging alternatives, which make the national leaders so successful (PepsiCo 1995 Annual Report). For example, Pepsi offers 12-ounce cans, 20 ounce bottles, 1 liter bottles, six packs, twelve packs, cases and "The Cube" 24 can boxes. Pull Through Pull through is not a factor from the independent bottler's perspective. These bottlers have a franchise agreement to represent a major carbonated beverage company on the local level. These distributors are legally bound to represent these companies and therefore cannot choose not to promote certain types of beverages. Brand Identity of Buyers Brand identity of buyers is not relevant to the distributors because of the contractual relationship that exists where distributors represent the soft drink companies. The distributors have an exclusive contractual agreement to represent that soft drink brand. Price Sensitivity Distributors are not highly price sensitive buyers. Independent bottlers are on a national contract so all distributors pay the same price for the same products. Price to Total Purchases Soft drinks are the single product that the distributors are concerned with so price is very important to them. Soft drink companies rely on these distributors to represent them on the local level, so it is important to maintain a healthy relationship. Impact on Quality and Performance All three of the leading carbonated beverage producers, Coca-Cola, PepsiCo, and Cadbury Schweppes believe that their buyers (distributors) are an important step in taking their products to the end consumer. The service, which their distributors provide to the retailers, makes a difference to the retailers who sell the product to the end consumer. The actions of that distributor reflect on the soft drink company so if the distributor does not provide the level of service that retailer or restaurant desires, it may harm the company's image. Substitute Products Relative price/performance relationship of Substitutes The carbonated beverage industry provides a non-alcoholic means of satisfying an individuals desire to quench their thirst. Traditionally, coffee and tea would be considered substitute products. In recent years, carbonated beverages have seen the emergence of many new substitute products that wish to reduce soft drink's market share. The soft drink market has been traditionally competitive, without the added friction from "ready to drink tea, shelf stable juice, sports drinks and still-water" competitors also. (Gleason, 1996) Leaders in these emerging segments include Quaker Oats, with their Snapple and Gatorade products, Perrier, and Arizona Iced Teas. "In other words, Pepsi isn't Coke's biggest competition, Tap water is." (Gleason, 1996). Generally speaking, soft drinks are less expensive to the consumer than these substitute products. Buyer Propensity to Substitute Buyer propensity to substitute is low due to the contractual relationships between the soft drink companies and the distributors. Rivalry Degree of Concentration and Balance among Competitors Three main competitors: Pepsico, Coca-Cola, and Dr. Pepper/Cadbury control the Soft Drink industry. Their combined total sales revenues account for 90 percent of the entire domestic market. This market dominance makes the industry a fiercely competitive and dynamic business environment to operate in. The single market leader is Coca-Cola with a 42 percent market share and over $18 billion in sales worldwide. PepsiCo maintains a 31 percent market share with $10.5 billion in sales worldwide. The smallest of the three leaders is Dr. Pepper/Cadbury, which holds roughly 16 percent of the market. Coke's consistent dominance of both Pepsi and Dr. Pepper/Cadbury has caused Coke to become a household name when referring to soft drinks. As far as balance among competitors is concerned, PepsiCo is a much larger company than Coke and Dr. Pepper/Cadbury combined. The reason being that PepsiCo also owns companies in the snack and food industries (Frito-Lay, Pizza Hut, Taco Bell, and KFC). With a work force of 480,000 people, PepsiCo is the world's third largest employer behind General Motors and Wal-Mart. This has not lead to a more profitable soft drink business, nor has it helped PepsiCo use its size to steal market share from Coke or Dr. Pepper/Cadbury. Diversity among Competitors Though Coca-Cola dominates the industry in sales volume and market share, it does not dominate when it comes to innovative marketing and business strategy efforts. For instance, PepsiCo generates 71 percent of its revenues from the U.S., while Coca-Cola derives 71 percent of its from international markets. Similarly, PepsiCo only gets 41 percent of its total revenues from soft drinks. The remaining 59 percent come from its snack and food business. Coke on the other hand gets all of its revenues from its soft drinks. Clearly both of the industry leaders have different strategies as far as revenue generation is concerned. However, as far as their product lines are concerned they are very similar and operate parallel to one another. Pepsi and Coca-Cola both have lemon-lime, citrus, root beer, and cola flavors. Dr. Pepper/Cadbury does not have as similar a product line to that of Pepsico and Coca-Cola. It manufactures Dr. Pepper (a unique spicy cola drink), ginger ale, tonic water, and carbonated water under its Schweppes and Canada Dry brands. Coke does have an answer to Dr. Pepper in its Mr. Pibb, but only holds a .4 percent market share compared to Dr. Peppers 6 percent market share. The relatively low level of diversity makes the soft drink industry unattractive for investment. Industry Growth Rate Although new product lines have come into the beverage industry over the past two to three years, the soft drink segment has held and grown its share steadily. The onslaught of the sport drink and bottled tea have proven to be a passing fad that has gained little if no long term market share from soft drinks. Growth figures for the soft drink industry have been very steady since 1993, and are projected to continue to be so into the last part of the twentieth century. As can be seen in Figure 1, volatility was somewhat prevalent in the 1980's but has since lessened and leveled off (Valueline, 1996). Figure 1 Year '87-'88 '88-'89 '89-'90 '90-'91 '91-'92 '92-'93 '93-'94 '94-'95 Growth 5.7% 5.2% 2% 3% 2.9% 4% 4.4% 4% Over the past ten years soft drinks have gained 5 percent of total beverage sales, putting them over the 25 percent share level for all beverage sales. As for new and emerging markets, both Coke and Pepsi are attacking the international environment. Coca-Cola generates 80 percent of its revenues abroad, and Pepsi is attempting but failing to put more emphasis there as well. "Pepsi is losing customers to Coke in every major foreign territory. The company has always struggled overseas, but in the past few months it has lost key strongholds in Russia and Venezuela to Coke" (Sellers, 1996). Because of the consistent growth of both the domestic and foreign markets, the soft drink industry is attractive for investment. Fixed Costs The S&P Industry Survey has shown the soft drink industry profit margin to be on a steady incline over the past fifteen years. Levels in 1980 were near 14%, while as of year-end 1995 were over 20% and expected to flatten a bit. This flattening effect may be an indication that fixed costs are on the rise due to expansion f:\12000 essays\business & economics (632)\Case Study Of Carnival Corporation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Case Study Of Carnival Corporation The history of the Carnival Corporation begins in 1972, when Ted Arison set up Carnival Cruise Lines as a subsidiary of the American International Travel Service. The first ship ran aground, but Arison remained steadfast in achieving his vision of a cruise line offering affordable vacation packages to middle-income consumers. By 1977, Carnival had three ships, and ten years later, as the industry leader, the company went public. In the early 1990s, Carnival began to diversify into land-based entertainment, thus changing its name to Carnival Corp. The company is the world's #1 cruise operator with about a third of the market. Carnival Corporation is comprised of Carnival Cruise Lines; the world's largest cruise line based on passengers carried, Holland America Line, Windstar Cruises and Seabourn Cruise Line. It owns 25 cruise ships serving customers worldwide and has 6 new ships under construction (EXHIBT 1). It basically has three market segments: Contemporary, Premium and Luxury. Carnival also operates 14 hotels in Alaska and Canada and runs Holland America Westours, which markets sightseeing tours. Carnival has a 29.5% stake in Airtours, one of the UK's largest tour operators, and is bidding for control of cruise line NCL. CEO Micky Arison and family control Carnival. Carnival was able to increase profits through the acquisition of Holland America Line in 1988 and consequently Carnival expanded its cruise lines to a broader market, however Carnival experienced a loss of $135 million from disposal of the Crystal Palace Resort & Casino in 1991. The company's current strategy is to attract more repeat cruisers and new cruisers of different segments by offering different types of packages. Such differences include choice of shorter or longer cruises, a low to moderate price for affordable cruises for middle class, and longer luxury cruises for affluent classes. As part of the company's plan, Carnival is "going global" through a joint venture with Hyundai Merchant Marine to the Asia market. Strengths Carnival's strategy focused on the "Fun Ship" concept, beginning with the Mardi Gras, which targeted people of all ages. In recent years the driving force behind why a person needs to take a vacation has changed. Today vacationers look to get away from everyday stress, and opt for a stress-relieving cruise. Carnival is considered the cruise industry's leader, and in the past few years, Carnival has increased its market share through acquisition and joint venture. In 1988, Carnival acquired Holland America Line to expand its market share in Alaska, Mediterranean, and South Pacific. Holland America Lines (HAL) is an upscale line. It targets the older, more sophisticated cruisers with fewer youth-oriented activities and emphasizes on the beauty of the Alaskan wilderness. Furthermore, the Holland America Westours operates various tours targeting different markets. Similarly, Westmark operates a hotel business, which enables Carnival to participate in another profitable industry. Seabourn, known as the "Rolls Royce" of the industry, targets the luxury market. In terms of targeting international cruisers, Carnival has purchased 29.5% equity interest in Airtours to enter into the European and Canadian markets. Also, Carnival entered into the Asian market through a 50-50 joint venture with Hyundai Merchant Marine, one of the world's leading marine shipping companies with knowledge of Asian Market, in order to expand its market worldwide. Carnival and its cruise companies together operate 25 ships in the Caribbean, Alaska, and other worldwide destinations. Combined, Carnival Cruise Lines and Holland America have six new ships slated for delivery over the next three years. Weaknesses In the late 1980s, Carnival built the Crystal Palace Resort and Casino situated in Bahamas. During the 1990 fiscal year, the company incurred a $25.5 million loss for the operation of the Crystal Palace Resort & Casino. In addition, because operations were not profitable and stock values decreased in early 1990, Carnival sold the resort to Bahamian government in 1991 in exchange for the cancellation of the debt incurred in constructing and developing the resort. The company took a $135 million write-off for that year. When Carnival acquired Holland America Lines, it borrowed $375 million. In order to finance the borrowing, it issued Convertible Subordinated Notes (4 1/2 percent) to raise $113 million to repay various bank loans and issued more than 5.6 million shares Class A Common stock to increase capital. And when Carnival acquired a 29.5% equity interest in Airtours for approximately $307 million, the company entered into an unsecured five-year $200million multi-currency revolving credit facility and funded about $163 million of the acquisition cost through this facility. Opportunities. In general, the cruise industry will continue to search for innovative ways to increase passenger volumes, on-board expenditures and ancillary revenue streams. The keys to the cruise experience appeal include the predictability of travel cost and the ease of the vacation decision. A telephone call to a single entity - and one check - will reserve a vacation, which at a minimum typically includes on-board dining, entertainment, children's programming, accommodations, and airfare to and from points of embarkment. In addition, cruise ships have greatly improved the quality of on-board experiences with more diverse food and beverage venues, entertainment and deck activities, meeting and conference facilities, golf, tennis and gaming. In short, cruise packages now provide experiences that have historically been the land-based resort's stock-in-trade. Cruise companies leverage opportunities to buy airfares in bulk, take the savings and pass them on to consumers. The overall price point typically looks very appealing for a cruise package vacation. While the industry once targeted the elderly or very young, it now has the entire family in its sights. Threats This is the identical customer that drives resort economics. In response to these competitive factors, the gap between resort and cruise ship operators is closing. The entry of resort companies Disney into the cruise market will mark a true blending of the resort/cruise vacation industry. Disney, for example will now provide "Cruise Vacation Packages," giving guests three or four days at a Disney resort, followed by a three- or four-night cruise. Unlike many of its future competitors, however, Disney Cruise line will not offer gambling on their vessels. The entire package may be purchased by a single phone call. Carnival Resorts and Casinos and Carnival Cruise Lines, need to explore ways to work more closely together. This section lists actions the Carnival Corporation could take in order to be more successful. Referral Program Begin a program where, if you recommend your friend(s) and/or family, you will receive discount. For example, if a past Carnival customer referred a customer who chose the minimum cruise package which is $249, Carnival could send the customer who gave the referral a certificate for $50 off their next cruise for each passenger they referred. The restriction could be the certificate must be used within two years. This will benefit Carnival by increasing the number of return cruisers and will combat the image of a first time cruise company. Cost: $50 per referred customer Benefit: Since Carnival's gross income percentage (net income/net sales) is 27%; it would make a minimum of $67.23 (minimum cruise package = $249.00) on the referred customer, plus when the customer who receives the certificate cashes it in. Carnival will make at least $17.23 (if they choose the minimum package). Carnival will also gain the profit of the companions that the repeat customers bring along, since people rarely travel alone. In summary, Carnival will make at least $84.46 per certificate used, (this includes the cost of the certificate). More Employee Incentives Royal Caribbean specializes in providing incentives for employees to better their customer service. Carnival does not and as a consequence, Royal Caribbean on average has better customer service. Cost: The average cruise line employee makes $20,000 per year. 20,000/50 weeks per year/ 40 hours per week = $10 per hour in wages. It would cost about $10 per hour per employee for Carnival to provide customer service training, assuming a current staff member could provide the training. Benefit: Better customer services will increase the chance that a customer will return to the cruise line. It also helps to improve reputation and compete with competitors such as Royal Caribbean who offer great customer service. If this program results in any repeat customers or attracts any new customers over time, it will generate at least $67.23 per customer in profit. Support Environmental Issues Carnival should donate one thousandth of one percent of net income (this would be $666,050 in 1997) to the "Save the Ocean" campaign. This would make them stand out as a socially responsible company. It would also help to appease the environmental groups that are currently against cruise lines. Cost: 1/1000 of 1% of net income Benefit: Improved image. Decrease likelihood of lawsuit or attacks from social groups. Also, management and employees can sleep better at night knowing they have done the "right thing" since they are harming the ocean and making quite a profit by doing so. Summary Carnival Corporation has been a successful company thus far. It is important for every company to constantly be researching its environment in order to keep up and change with it. Carnival has demonstrated that they are somewhat aware of their environment by announcing the first smoke-free cruise ship. The above recommendations are simply more ways that the Carnival Corporation can adapt to its constantly changing environment in order to be more profitable. f:\12000 essays\business & economics (632)\Censoring Of A Free Nation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Censoring Of A Free Nation Does the American public enjoy paying exorbitant rates for gasoline? Airplane Tickets? Food? The truth is that no one enjoys paying these grossly inflated prices just to line the pockets of money- hungry capitalists. The United States government, in an effort to control the industrialists, has created laws that contribute to the very thing they are trying to control. The nation's main concern should be to help the "working man," 85% of the nation, by not controlling the corporations that supply them with the products they desire, but by controlling the prices at which these items are sold. The current anti-trust laws are doing this very thing. The U.S. government is forbidding the American people from choosing who and what they want to spend their hard earned money on. With the creation of monopolies lies the future of this country, not the downfall as many Americans are led to believe. The people of this wonderful nation, this Free nation, should demand the immediate revocation of the current anti-trust regulations. Many people are of the opinion that ungoverned capitalism will lead to the downfall of American society, from an economic standpoint. This viewpoint, while based on a very true precedent, is merely a projection of falsified ideals from an ill-informed public. The very laws that you feel are protecting you are actually destroying your right of choice. Yes, everyday the American people buy a corporation's product and consequently show they believe that product, or corporation, to be superior to the competition. It is with this overwhelming consumer support that the company comes to monopolize a market. Due to the manufacturing of a superior product the company is forced to dissolve, and yet another fine American corporation is destroyed. Some may say that a monopoly destroys the small, family owned businesses, and in the process kills the spirit of entrepreneurship all together. This is but a small price to pay, since the creation of conglomerates would begin a new era of technological advancement. The increase in allocation of funds for research along with the drive to beat out the competition could lead the world into the new age renaissance. The theories of Darwinism would be of great use in the business environment. If left to compete with no restrictions the superior companies would emerge victorious, thus creating a more stable, more efficient business world. The progress of the nation could be increased two-fold with the right motivation and resources. Both of which would be created by a dominating corporation. With the elimination of anti-trust laws the U.S. government would stand to inherit great diplomatic relations with many foreign countries. With such large contributing to the U.S. market international business partnership would be a given. And with a company creating so many jobs and such an increase in the standard of living in many third-world countries, the foreign governments would be very accommodating to American policies throughout the world. The diplomatic relations between The U.S. government and other world powers would be greatly improved once the American corporations had broken through the racial border. With such a great rapport already going with the foreign countries we would be one step closer to a sovereign nation and world peace. In retrospect, it would seem that the potential for economic progress greatly outweighs the negative effects that repealing the anti-trust laws could engender. It also seems that a policy of laissez-faire would be the best position for the U.S. Government to hold. The less government interaction in the inner workings of the nation the better off the people will be. f:\12000 essays\business & economics (632)\Chaos in the currency market.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chaos in The Currency Markets : Currency Crisis of The EMS 1. What does the crisis of September 1992 tell you about the relative abilities of currency markets and national governments to influence exchange rates? The currency markets and national governments both have abilities to influence exchange rates. Like other financial markets, foreign exchange markets react to any news that may have a future effect. Speculators are the part of the currency markets that take currency positions based on anticipated interest rate movements in various countries. Day-to-day speculation on future exchange rate movements is commonly driven by signals of future interest rate movements. By using the signal, speculators usually take the position before the things actually occurred. Sometime, if high power enough, the speculators position can influence the exchange rate movement. The government controls is one of the factors affecting exchange rate. The government can influence the equilibrium exchange rate in many way, including direct intervening (buying and selling currencies) in the foreign exchange markets and indirect intervening by affecting macro variables such as interest rates. 2. What does the crisis of September 1992 tell you about the weakness of fixed exchange rate regimes? From European currency crisis of September 1992, it shows us that there are weakness of the fixed exchange rate system. When exchange rate are tied, a high interest rate in one country has a strong influence on interest rates in the other countries. Funds will flow to the country with a more attractive interest rate, which reduces the supply of fund in the other countries and places upward pressure on their interest rates. The flow of fund would continue until the interest rate differential has been eliminated or reduced. This process would not necessarily apply to countries outside ERM that do not in the fixed exchange rate system, because the exchange rate risk may discourage the flow of funds to the countries with relatively high interest rate. However, since the ERM requires central banks to maintain the exchange rates between currencies within specified boundaries, investors moving funds among the participating European countries are less concerned about exchange rate risk. 3. Assess the impact of the events of September 1992 on the EU 's ability to establish a common currency by 1999. A major concern of a common currency is based on the concept of a single European monetary policy. Each country's government may prefer to implement its own monetary policy. It would have to adapt to a system in which it had only partial input to the European monetary policy that would be implemented in all European countries, including its own. The system would be alike to that used in the U.S., where there is a single currency across states. Just as the monetary policy in the U.S. cannot be separated across different states, European monetary policy with a single European currency could not be separated across European countries. While country governments may disagree on the ideal monetary policy to enhance their local economies, they would all have to agree on a single European monetary policy. Any given policy used in a particular period may enhance some countries and adversely affect others. There are some other concerns that could prevent the implementation of a single currency. For example, at what exchange rate would all currencies be cash in to be exchanged for the common currency to be used? (think about the trouble after reunification of Germany). It would be difficult to reach agreement on this question for each European country's home currency. Also, some economists believe that changing exchange rates serve as a stabilizer for international trade. Thus, the lack of an exchange rate mechanism could possibly cause greater trade imbalances between countries. 4. The crisis of September 1992 occurred because the ERM system was too inflexible. Discuss. The inflexible system was not the main reason. The main reason is because there are too different monetary policies among the member of ERM. The German government was more concern about inflation and less concerned about unemployment because its economy was relatively strong. On the other hand, other European governments were more concerned about stimulating their economies to reduce their high unemployment levels. This argument was proved at the end of the crisis when Germany and France 's government joined forces to defend the franc against speculative pressure. If all the member joined forces early the crisis may not occur. 5. If you were an executive for a company that engages in substantial intra-EU trade, how would you react to the events of September 1992? Because the company engages in substantial intra-EU trade, the exchange rate risk is not the major issue-under fixed exchange rate system the exchange rate will fluctuate narrowly. A major concern is the interest rate movement. High interest rate results in high cost of capital to the company and slow growth economic. The problem will even more serious if the company have to pay floated rate liabilities in foreign currencies. The company should consider hedging against interest rate risk such as using interest rate swap or using fixed rate liabilities. f:\12000 essays\business & economics (632)\Chaos in The Currency Market1.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chaos in The Currency Markets : Currency Crisis of The EMS 1. What does the crisis of September 1992 tell you about the relative abilities of currency markets and national governments to influence exchange rates? The currency markets and national governments both have abilities to influence exchange rates. Like other financial markets, foreign exchange markets react to any news that may have a future effect. Speculators are the part of the currency markets that take currency positions based on anticipated interest rate movements in various countries. Day-to-day speculation on future exchange rate movements is commonly driven by signals of future interest rate movements. By using the signal, speculators usually take the position before the things actually occurred. Sometime, if high power enough, the speculators position can influence the exchange rate movement. The government controls is one of the factors affecting exchange rate. The government can influence the equilibrium exchange rate in many way, including direct intervening (buying and selling currencies) in the foreign exchange markets and indirect intervening by affecting macro variables such as interest rates. 2. What does the crisis of September 1992 tell you about the weakness of fixed exchange rate regimes? From European currency crisis of September 1992, it shows us that there are weakness of the fixed exchange rate system. When exchange rate are tied, a high interest rate in one country has a strong influence on interest rates in the other countries. Funds will flow to the country with a more attractive interest rate, which reduces the supply of fund in the other countries and places upward pressure on their interest rates. The flow of fund would continue until the interest rate differential has been eliminated or reduced. This process would not necessarily apply to countries outside ERM that do not in the fixed exchange rate system, because the exchange rate risk may discourage the flow of funds to the countries with relatively high interest rate. However, since the ERM requires central banks to maintain the exchange rates between currencies within specified boundaries, investors moving funds among the participating European countries are less concerned about exchange rate risk. 3. Assess the impact of the events of September 1992 on the EU 's ability to establish a common currency by 1999. A major concern of a common currency is based on the concept of a single European monetary policy. Each country's government may prefer to implement its own monetary policy. It would have to adapt to a system in which it had only partial input to the European monetary policy that would be implemented in all European countries, including its own. The system would be alike to that used in the U.S., where there is a single currency across states. Just as the monetary policy in the U.S. cannot be separated across different states, European monetary policy with a single European currency could not be separated across European countries. While country governments may disagree on the ideal monetary policy to enhance their local economies, they would all have to agree on a single European monetary policy. Any given policy used in a particular period may enhance some countries and adversely affect others. There are some other concerns that could prevent the implementation of a single currency. For example, at what exchange rate would all currencies be cash in to be exchanged for the common currency to be used? (think about the trouble after reunification of Germany). It would be difficult to reach agreement on this question for each European country's home currency. Also, some economists believe that changing exchange rates serve as a stabilizer for international trade. Thus, the lack of an exchange rate mechanism could possibly cause greater trade imbalances between countries. 4. The crisis of September 1992 occurred because the ERM system was too inflexible. Discuss. The inflexible system was not the main reason. The main reason is because there are too different monetary policies among the member of ERM. The German government was more concern about inflation and less concerned about unemployment because its economy was relatively strong. On the other hand, other European governments were more concerned about stimulating their economies to reduce their high unemployment levels. This argument was proved at the end of the crisis when Germany and France 's government joined forces to defend the franc against speculative pressure. If all the member joined forces early the crisis may not occur. 5. If you were an executive for a company that engages in substantial intra-EU trade, how would you react to the events of September 1992? Because the company engages in substantial intra-EU trade, the exchange rate risk is not the major issue-under fixed exchange rate system the exchange rate will fluctuate narrowly. A major concern is the interest rate movement. High interest rate results in high cost of capital to the company and slow growth economic. The problem will even more serious if the company have to pay floated rate liabilities in foreign currencies. The company should consider hedging against interest rate risk such as using interest rate swap or using fixed rate liabilities. f:\12000 essays\business & economics (632)\Chaos in The Currency Markets.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chaos in The Currency Markets : Currency Crisis of The EMS 1. What does the crisis of September 1992 tell you about the relative abilities of currency markets and national governments to influence exchange rates? The currency markets and national governments both have abilities to influence exchange rates. Like other financial markets, foreign exchange markets react to any news that may have a future effect. Speculators are the part of the currency markets that take currency positions based on anticipated interest rate movements in various countries. Day-to-day speculation on future exchange rate movements is commonly driven by signals of future interest rate movements. By using the signal, speculators usually take the position before the things actually occurred. Sometime, if high power enough, the speculators position can influence the exchange rate movement. The government controls is one of the factors affecting exchange rate. The government can influence the equilibrium exchange rate in many way, including direct intervening (buying and selling currencies) in the foreign exchange markets and indirect intervening by affecting macro variables such as interest rates. 2. What does the crisis of September 1992 tell you about the weakness of fixed exchange rate regimes? From European currency crisis of September 1992, it shows us that there are weakness of the fixed exchange rate system. When exchange rate are tied, a high interest rate in one country has a strong influence on interest rates in the other countries. Funds will flow to the country with a more attractive interest rate, which reduces the supply of fund in the other countries and places upward pressure on their interest rates. The flow of fund would continue until the interest rate differential has been eliminated or reduced. This process would not necessarily apply to countries outside ERM that do not in the fixed exchange rate system, because the exchange rate risk may discourage the flow of funds to the countries with relatively high interest rate. However, since the ERM requires central banks to maintain the exchange rates between currencies within specified boundaries, investors moving funds among the participating European countries are less concerned about exchange rate risk. 3. Assess the impact of the events of September 1992 on the EU 's ability to establish a common currency by 1999. A major concern of a common currency is based on the concept of a single European monetary policy. Each country's government may prefer to implement its own monetary policy. It would have to adapt to a system in which it had only partial input to the European monetary policy that would be implemented in all European countries, including its own. The system would be alike to that used in the U.S., where there is a single currency across states. Just as the monetary policy in the U.S. cannot be separated across different states, European monetary policy with a single European currency could not be separated across European countries. While country governments may disagree on the ideal monetary policy to enhance their local economies, they would all have to agree on a single European monetary policy. Any given policy used in a particular period may enhance some countries and adversely affect others. There are some other concerns that could prevent the implementation of a single currency. For example, at what exchange rate would all currencies be cash in to be exchanged for the common currency to be used? (think about the trouble after reunification of Germany). It would be difficult to reach agreement on this question for each European country's home currency. Also, some economists believe that changing exchange rates serve as a stabilizer for international trade. Thus, the lack of an exchange rate mechanism could possibly cause greater trade imbalances between countries. 4. The crisis of September 1992 occurred because the ERM system was too inflexible. Discuss. The inflexible system was not the main reason. The main reason is because there are too different monetary policies among the member of ERM. The German government was more concern about inflation and less concerned about unemployment because its economy was relatively strong. On the other hand, other European governments were more concerned about stimulating their economies to reduce their high unemployment levels. This argument was proved at the end of the crisis when Germany and France 's government joined forces to defend the franc against speculative pressure. If all the member joined forces early the crisis may not occur. 5. If you were an executive for a company that engages in substantial intra-EU trade, how would you react to the events of September 1992? Because the company engages in substantial intra-EU trade, the exchange rate risk is not the major issue-under fixed exchange rate system the exchange rate will fluctuate narrowly. A major concern is the interest rate movement. High interest rate results in high cost of capital to the company and slow growth economic. The problem will even more serious if the company have to pay floated rate liabilities in foreign currencies. The company should consider hedging against interest rate risk such as using interest rate swap or using fixed rate liabilities. f:\12000 essays\business & economics (632)\Charles H Keating.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Charles H. Keating Charles H. Keating Jr. has been the focus of criminal investigations by the Federal Bureau of Investigation, the Internal Revenue Service, the Justice Department, The Securities and Exchange Commission, and the House Banking Committee for a six-year shadow of the nation's biggest savings-and loan debacle. The federal government proclaims that he fraudulently managed California's Lincoln Savings into its closure, and in the process profited for himself and his family an estimated thirty-four million dollars. Consequently, taxpayers may suffer a loss of two billion dollars. The federal government is suing Keating, his family and associates for one billion dollars. Despite Keating's denial to the charges, evidence proves that his misconduct began since the early 1980s. Shockingly, Charles Keating worked for an extended amount of time without being investigated or caught. Keating did not have a very credible background, which should have led to some suspicion. About a decade ago, many incidents should have foreshadowed Keating's malicious intentions. At that point Keating was under the leadership of Carl Lindner at American Financial Corp., a city conglomerate with interests in insurance and banking. In 1979 SEC, better known as the Security & Exchange Commission, cited Keating and other officials of the American Exchange Commission for failure to reveal particular loan transactions with their employer. Keating, a national championship swimmer, attended the University of Cincinnati on an athletic scholarship and continued in law school. Along with help from his brother, Charles Keating founded the prominent Cincinnati law firm of Keating, Muething and Klekamp. In 1972 Keating abandoned the profession of law, turning to work for the publicity-shy multimillionaire Carl Linder. Lindner served as a guide and mentor in the life of Mr. Keating. Many similarities can be traced between the business style of these two men; preeminently they both built their empires on savings and loans.1 Charles Keating exceeded Mr. Lindner's expectations, which persuaded Mr. Lindner to extend an offer to the forty-eight year-old lawyer a position with American Financial in 1972 as the executive vice-president. Under Lindner's supervision at American Financial in the mid-1970's, Keating found a resourceful strategy to raise money from the public without the interference of the Wall Street underwriters. The success of this strategy resulted from sharp decline in profits that Lindner's company was experiencing. Keating's success revolved around him raising fifty million dollars for American Financial from the public without using an underwriting syndicate. This technique was quite uncommon for a corporate business of their size. Consequently, American Financial sold the fifty million dollars in debentures through local stockbrokers. These debentures were offered at a surprisingly high annual interest payment of eleven and three-quarters. As a result of the high payment, these debentures were promoted in cities where small savers were eager for high rates. Keating had no fear of re-sales because he assumed that most of the buyers would simply store the debentures, providing American Financial with stable, long-term money. Also there was a lack of restrictive covenants or sinking fund requirements, which normally would have been required in a syndicated offering. Keating left Lindner's shadow and the employ of American Financial in 1976, when he departed to Phoenix, Arizona. At the time his departure, he took a four-year consulting contract at one hundred and fifty thousand a year from Lindner. Despite the fact that Keating had left Lindner's side, in some way Keating success was connected with Lindner. In 1977 Keating gained control of American Continental Homes, a home building operation. The reasons for Keating's leave from American Financial stand quite vague to the public eye. The question remains as whether or not Charles H. Keating Jr. left by his free will or with the aid of others. The loan activities that occurred during the duration of Keating's vice presidency at American Financial resulted in a consent decree with the Securities & Exchange Commission, better known as the SEC, in 1979. The SEC charges Lindner, Keating, and Donald Klekamp of the Keating law firm with arranging millions of dollars in improper loans to Lindner's employees. Despite the close encounters with the officials of the SEC, Keating developed tactics to raise reported earnings at American Continental Homes. The most popular tactic was the use of interest capitalization, which involves listing interest payments as an asset rather than as an expense, thus boosting earnings. Evidence confirms that Keating inflated American Continental Homes's pretax earning by having fifteen million dollars out of American Continental Homes's twenty-five million dollars interest payments capitalized in 1980. Similarly, in 1981, he managed to capitalize eighteen million dollars out of the thirty-two million dollars. The money had been paid out in interest, but more than half of it remained recorded under American Continental Homes's books as an asset. American Continental Homes lost an estimate of two and a half million dollars in the year 1981, and surprisingly managed to post a net income of roughly three and a half million dollar with the aid of some unusual land dealing that produced a sizable gain. These efforts were merely the beginning of Keating's operation. He later turned to approaches such as: joint ventures, partnerships and debt-for-property swaps in an attempt to magnify the profits of American Continental Homes. In 1984 Charles Keating purchased Lincoln Savings and Loan, an Irvine, Calif. Thrift. Alas, he possessed a large sum of money, specifically the thrift's one billion dollars or so of deposits. Not only did Lincoln Savings and Loan have one billion dollars in deposits, but also, luckily, it was located in California, the state with most liberal rules in the country in reference to investing funds. It took Keating no more than a year to double Lincoln's deposits, bringing in most of the new money through brokered deposits. When it came time for Keating to invest the deposits, he considered the traditional home mortgage lending pretty dull. Instead he chose speculative business like the two hundred eighty million dollars resort hotel, the Phoenician in Scottsdale, Arizona. Keating also invested funds into land development and stocks, as well as junk bonds. Keating established a tax-sharing plan between Lincoln Savings and Loans and its parent company, American Continental Homes, which was permitted by the Internal Revenue Service, or IRS. The initial purpose of the plan allows subsidiaries to advance cash to the parent company to cover tax liabilities. The government reports that Keating altered the plan's purpose to fit his purpose. Lincoln Savings and Loans paid about ninety-five million dollars to American Continental Homes between the time of 1986 and 1988, but there were no taxes payable to the IRS by the parent company. Keating used this method for stealing from Lincoln for the benefit of Keating and American Continental Homes. The government accuses Keating and his family for taking approximately thirty-four million dollars from American Continental Homes in salaries, bonuses, and sales of stock during the years of 1986, 1987 and 1988. In order for Keating's ingenious plan to work, income had to be created in Lincoln. Officials believe that Lincoln and its subsidiaries frequently would come up with "straw" borrowers. The institution profited from doing so, because it forced the "straw" borrowers to pay interest. The model example of this lending and investing tactic emerged in the Hotel Pontchartrain Limited Partnership deal. Keating and his associates obtained unsecured loans from Lincoln Savings and Loans that allowed their partnership to acquire Detroit's ancient Pontchartrain hotel for about thirty-seven million dollars in March of 1986. With the aid of Keating's accounting skills, this somehow triggered a bookkeeping profit of almost ten million dollars out of Lincoln Savings and Loans under the tax-sharing plan. The true beneficiaries of the Pontchartrain loan, according to officials, were Keating, his family and friends. The loan allowed them to repay ten million dollars in money Lincoln Savings and Loans had previously advanced to the partnership, to service the debt of Hotel Pontchartrain, and to obtain sizable tax benefits. It was not until early 1987 that government regulators began to raise suspicion about Keating's activities at Lincoln Savings and Loans. A delay in action resulted because officials were held back by five U.S. senators to whom Keating had made substantial campaign contributions.2 Alas, in 1991 the Supreme Court convicted Charles H. Keating on the charges of fraud and racketeering. Keating spent a duration of four years and nine months in jail, which he describes as a time in which he never felt concerned about his safety because he was located in medium-to-high-security areas. He claims to have enjoyed the company of some of the other inmates, as well as the physical training that he endured. The state of California overturned the conviction of Mr. Keating had in April, meaning that once again Mr. Keating was "presumed innocent". The prosecutors are expected to appeal U.S. District Judge Mariana Pfaelzer's decision to overturn Mr. Keating's federal conviction. The judge decided that the jurors were prejudiced by knowledge of Mr. Keating's 1991-state conviction. Stephen C. Neal, Mr. Keating's longtime attorney, stated that a new trial would be a wasteful attempt.3 All in all, Charles H. Keating Jr. was seventy-three years old when he was released from prison, he served time for his crimes, but there really would be no purpose to try to pursue any other convictions. 1. Adams, James Ring. The Big Fix: Inside the S & L Scandal (New York, NY: John Wiley & Sons Inc., 1990), p. 238 2. Porteous, Skipp. Institute for First Amendment Studies, Inc. (Freedom Writer. November/December 1989). 3. McKinney, Jeff. The Enquirer. (December 1996). www.enquirer.com/editions/1996/12/04/bus-keating.html f:\12000 essays\business & economics (632)\Chernobyl 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The topic I have chosen for this term paper is "Ex-Soviet Bloc's Environmental Crisis, Issue C. #2 Upgrading nuclear reactors to meet international standards. I have chosen this topic because nuclear power is not only an environmental issue but also a severe health issue for the citizens around the nuclear site and also for the rest of the country and world because of food products that could be grown there and used as market items. Nuclear radiation is in no way healthy to anyone. It is much more easier to develop a life threatening disease if you are currently being effected by the radiation or have already been effected. Becoming sick from high amounts of radiation does not only happen to people in the immediate area of the nuclear accident. Although these people are the most effected, they are by far not the only ones. Radiation can be carried in many products, including food which is the most common and easy way to become sick from radiation poisoning. Cattle in the area of radiation may appear to be healthy but the milk they produce and the meat they give should not be eaten. As you can see, radiation can very easily be transferred from one point to another and ingested by someone without even their knowledge that there is a problem. The government of the Soviet Union was the owner of the nuclear power plant in Chernobyl. When there was a problem, the government immediately sent soldiers to surround the plant and only two days later did they evacuate the surrounding town of Pripyat, but by then it was already much too late. The effects of radiation do not take a long time to occur. In adults, it is severe but not a severe as it is in children. In children, radiation sickness can and will effect the thyroid glands. This can lead to many different kinds of cancer and most likely more than one will effect the body at once. In adults, the effects of radiation can be cancerous, but the real issue is whether or not it will effect their DNA and thus effect the next generation. This issue is highly debated. Scientists are not sure whether or not radiation effects a persons DNA and causes mutations in the sperm and egg cells, later on effecting their children and their generation. Before the nuclear reactor in Chernobyl had a melt down, a joint US and Japanese research team set up in Hiroshima to study the effects of radiation on the survivors of the A-bomb on Hiroshima and Nagasaki. Forty years later, they had found no evidence that there were any genetic problems in any of the survivors children. In contrast, Yuri E. Dubrova of the University of Leicester in England and his colleagues claim that they have found evidence that germline mutation rates in humans can be increased by ionizing radiation. Dubrova's team compared specific gene segments taken from the blood of people in 79 families that lived in a exposed area surrounding Chernobyl. Also they studied 105 members from unexposed families in the United Kingdom. All children in both groups were born 8 years after the melt down. "The researchers studied gene segments known as minisatellite loci, repeating patterns of roughly 5 to 45 bases, the units that make up DNA. No one knows the genetic purpose, if any, of minisatellites, but their variation from person to person enables scientists to use them as the basis of so-called genetic fingerprinting".(Dubrova )Because a child's DNA represents a combination of germline DNA from both parents, any sequence in the child that does not have either parents DNA in it, must result from a germline mutation. Dubrova's team therefore looked for minisatelite sequences in the children's DNA that did not appear in either of the parents DNA. They found twice the number of mutations in children of exposed Belarus parents as in U.K. children. "We are 99 percent sure that these are real germline mutations and they have been passed from parent to child,"(Dubrova ) Other researchers, such as James Neel of the University of Michigan in Ann Arbor, a 40 year veteran of the Hiroshima research, are not so sure. "I am very doubtful that the findings of these investigations are due to the fallout of the Chernobyl disaster"(Neel ). Neel objects that the "doses of radiation given in their paper are very low, so their report implies a genetic sensitivity far beyond that observed in experiments with fruit flies and mice and our own observations in Japan." (Neel ) Neel also noted that controls should have come from Belarus, not the United Kingdom. Dubrova counters that finding uncontaminated people in Belarus would be next to impossible. Radiation effects also show up in the wildlife regions. Biologist Robert J. Baker of Texas Tech University in Lublock says he found mutation rates in two species of mice that were "probably thousands of times greater" than normal. "It was the worst civilian disaster in the history of nuclear power-and it could be repeated."(Nagorski ) To this very day, two of the four Chernobyl reactors still remain in use. It has been proven that radiation is not safe to be around, nevermind work in it everyday, so why don't they just shut the plant down? The reason is simple, they cannot afford to. Severe cracks have been reported in the concrete sarcophagus that surrounds the reactor number four. Despite this constant danger, thousands of people still live and work there every day. About 500 people have moved back to their old homes inside the effected area also called the "Zone". The Ukrainian government says that it cannot afford to close down the plant and permanently seal the sarcophagus without billions in western aid. "Local scientists insist the deaths-and the danger- are real. Yet in and around Chernobyl, people carry on a semblance of normal life. About 12,000 people work at jobs inside the zone. The nuclear complex's 5,000 employees commute daily from Slavutych, a town just outside the perimeter." says Nikolai Lebakh, the editor of the local paper: "You can't think too much about the danger or you'll go crazy." Some westerners suspect that officials in Ukraine and Belarus are making Chernobyl out to be a bigger problem than it is. Westerners are not eager to give away their money to other countries unless the need in really there. On the other hand, representatives of the effected countries are saying that the western countries are severely underestimating the problem trying to minimize their cash outlay as much as possible. In a summit in Moscow, the leaders of Russia and Ukraine meet with the western counter parts to discuss exactly what would have to happen to close Chernobyl completely. The Ukrainians say that it will cost more than $4 billion to decommission the two remaining reactors and to presently and properly seal off the reactors. They say the G-7 countries will have to bear almost all of that expense-or the nuclear reactors will continue to operate because they cannot afford to close them down. There may only be a small amount of pure, factual evidence that portrays the Chernobyl accident in thousands of illnesses and deaths over the last decade, but even this small amount of information shows how terrible this accident was and how people are forced to still live in today. The figures we have may not be of totally accurate but many experts are predicting that as many as 65,000,000 people in Russia received a dose of radiation, 90,000,000 people north of the Ukraine may have been contaminated, and as many as 7,000 died immediately. For humane reasons alone western countries should contribute money to this cause so that the deaths and illnesses don't continue to pile up. A million and a half people in and around Chernobyl (including the workers who cleaned up the site after the accident) received extremely high doses of radiation, not to mention the people everyday that ingest radiation daily from the food products that were produced and still are being produced there. Ukraine used to be one of the main producers of food products of all kinds for Europe. Now, because the soil is contaminated, it is impossible to clean up the soil enough that there is anyway someone to grow healthy food there. The food there is still grown and eaten despite the fact that 70% of it is contaminated. "Those who consume these irradiated products develop problems of esophagus and circulatory system, anemia, and other disorders; the blood becomes totally affected and the immune system completely breaks down. For a child, a small cold can be tragic."(Chernousenko ) The international nuclear community will not accept the responsibility for this accident and will not help with the clean up or safety measures that must be taken. As of today, there are 48 commercial power plants in the Soviet Union and 110 in the United States. "With one or two such explosions, it is utterly ridiculous to discuss defense measures. We shall all be killed in silent ways."(Vladimir Chernousenko) All of the facts that I have listed above are very true. It is true that people still live and work in radioactive environments. It is true that children are dying because of unnecessary exposure to radiation. Food is grow and cattle is raised in these contaminated area's, only to be distributed for miles around. Why do these people live with these conditions? For only one reason, they are forced to live there. They cannot afford to live anywhere else, they cannot not just quit their jobs at the plant because they will have nowhere else to go. The government cannot help because it does not have the money to shut down these plants and clean up the surrounding area's, not without western help at least. If we do not help these people, it could be years, maybe even decades before anything is resolved. The people living in these areas today are not the only ones effected, but also their unborn children will be effected as well. Is that really fair to these children, to be brought into a world and die only a few months later from a simple illness as a cold. Radiation will always be in the soil around Chernobyl, but we can prevent it from being in the people and children. f:\12000 essays\business & economics (632)\Chernobyl.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chernobyl The topic I have chosen for this term paper is "Ex-Soviet Bloc's Environmental Crisis, Issue C." #2 Upgrading nuclear reactors to meet international standards. I have chosen this topic because nuclear power is not only an environmental issue but also a severe health issue for the citizens around the nuclear site and also for the rest of the country and world because of food products that could be grown there and used as market items. Nuclear radiation is in no way healthy to anyone. It is much more easier to develop a life threatening disease if you are currently being effected by the radiation or have already been effected. Becoming sick from high amounts of radiation does not only happen to people in the immediate area of the nuclear accident. Although these people are the most effected, they are by far not the only ones. Radiation can be carried in many products, including food which is the most common and easy way to become sick from radiation poisoning. Cattle in the area of radiation may appear to be healthy but the milk they produce and the meat they give should not be eaten. As you can see, radiation can very easily be transferred from one point to another and ingested by someone without even their knowledge that there is a problem. The government of the Soviet Union was the owner of the nuclear power plant in Chernobyl. When there was a problem, the government immediately sent soldiers to surround the plant and only two days later did they evacuate the surrounding town of Pripyat, but by then it was already much too late. The effects of radiation do not take a long time to occur. In adults, it is severe but not a severe as it is in children. In children, radiation sickness can and will effect the thyroid glands. This can lead to many different kinds of cancer and most likely more than one will effect the body at once. In adults, the effects of radiation can be cancerous, but the real issue is whether or not it will effect their DNA and thus effect the next generation. This issue is highly debated. Scientists are not sure whether or not radiation effects a persons DNA and causes mutations in the sperm and egg cells, later on effecting their children and their generation. Before the nuclear reactor in Chernobyl had a melt down, a joint US and Japanese research team set up in Hiroshima to study the effects of radiation on the survivors of the A-bomb on Hiroshima and Nagasaki. Forty years later, they had found no evidence that there were any genetic problems in any of the survivors children. In contrast, Yuri E. Dubrova of the University of Leicester in England and his colleagues claim that they have found evidence that germline mutation rates in humans can be increased by ionizing radiation. Dubrova's team compared specific gene segments taken from the blood of people in 79 families that lived in a exposed area surrounding Chernobyl. Also they studied 105 members from unexposed families in the United Kingdom. All children in both groups were born 8 years after the melt down. " The researchers studied gene segments known as minisatellite loci, repeating patterns of roughly 5 to 45 bases, the units that make up DNA. No one knows the genetic purpose, if any, of minisatellites, but their variation from person to person enables scientists to use them as the basis of so-called genetic fingerprinting".(Dubrova )Because a child's DNA represents a combination of germline DNA from both parents, any sequence in the child that does not have either parents DNA in it, must result from a germline mutation. Dubrova's team therefore looked for minisatelite sequences in the children's DNA that did not appear in either of the parents DNA. They found twice the number of mutations in children of exposed Belarus parents as in U.K. children. "We are 99 percent sure that these are real germline mutations and they have been passed from parent to child,"(Dubrova ) Other researchers, such as James Neel of the University of Michigan in Ann Arbor, a 40 year veteran of the Hiroshima research, are not so sure. "I am very doubtful that the findings of these investigations are due to the fallout of the Chernobyl disaster"(Neel ). Neel objects that the "doses of radiation given in their paper are very low, so their report implies a genetic sensitivity far beyond that observed in experiments with fruit flies and mice and our own observations in Japan." (Neel ) Neel also noted that controls should have come from Belarus, not the United Kingdom. Dubrova counters that finding uncontaminated people in Belarus would be next to impossible. Radiation effects also show up in the wildlife regions. Biologist Robert J. Baker of Texas Tech University in Lublock says he found mutation rates in two species of mice that were "probably thousands of times greater" than normal. "It was the worst civilian disaster in the history of nuclear power-and it could be repeated."(Nagorski ) To this very day, two of the four Chernobyl reactors still remain in use. It has been proven that radiation is not safe to be around, nevermind work in it everyday, so why don't they just shut the plant down? The reason is simple, they cannot afford to. Severe cracks have been reported in the concrete sarcophagus that surrounds the reactor number four. Despite this constant danger, thousands of people still live and work there every day. About 500 people have moved back to their old homes inside the effected area also called the "Zone". The Ukrainian government says that it cannot afford to close down the plant and permanently seal the sarcophagus without billions in western aid. "Local scientists insist the deaths-and the danger- are real. Yet in and around Chernobyl, people carry on a semblance of normal life. About 12,000 people work at jobs inside the zone. The nuclear complex's 5,000 employees commute daily from Slavutych, a town just outside the perimeter." says Nikolai Lebakh, the editor of the local paper: "You can't think too much about the danger or you'll go crazy." Some westerners suspect that officials in Ukraine and Belarus are making Chernobyl out to be a bigger problem than it is. Westerners are not eager to give away their money to other countries unless the need in really there. On the other hand, representatives of the effected countries are saying that the western countries are severely underestimating the problem trying to minimize their cash outlay as much as possible. In a summit in Moscow, the leaders of Russia and Ukraine meet with the western counter parts to discuss exactly what would have to happen to close Chernobyl completely. The Ukrainians say that it will cost more than $4 billion to decommission the two remaining reactors and to presently and properly seal off the reactors. They say the G-7 countries will have to bear almost all of that expense-or the nuclear reactors will continue to operate because they cannot afford to close them down. There may only be a small amount of pure, factual evidence that portrays the Chernobyl accident in thousands of illnesses and deaths over the last decade, but even this small amount of information shows how terrible this accident was and how people are forced to still live in today. The figures we have may not be of totally accurate but many experts are predicting that as many as 65,000,000 people in Russia received a dose of radiation, 90,000,000 people north of the Ukraine may have been contaminated, and as many as 7,000 died immediately. For humane reasons alone western countries should contribute money to this cause so that the deaths and illnesses don't continue to pile up. A million and a half people in and around Chernobyl (including the workers who cleaned up the site after the accident) received extremely high doses of radiation, not to mention the people everyday that ingest radiation daily from the food products that were produced and still are being produced there. Ukraine used to be one of the main producers of food products of all kinds for Europe. Now, because the soil is contaminated, it is impossible to clean up the soil enough that there is anyway someone to grow healthy food there. The food there is still grown and eaten despite the fact that 70% of it is contaminated. "Those who consume these irradiated products develop problems of esophagus and circulatory system, anemia, and other disorders; the blood becomes totally affected and the immune system completely breaks down. For a child, a small cold can be tragic."(Chernousenko ) The international nuclear community will not accept the responsibility for this accident and will not help with the clean up or safety measures that must be taken. As of today, there are 48 commercial power plants in the Soviet Union and 110 in the United States. "With one or two such explosions, it is utterly ridiculous to discuss defense measures. We shall all be killed in silent ways."(Vladimir Chernousenko) All of the facts that I have listed above are very true. It is true that people still live and work in radioactive environments. It is true that children are dying because of unnecessary exposure to radiation. Food is grow and cattle is raised in these contaminated area's, only to be distributed for miles around. Why do these people live with these conditions? For only one reason, they are forced to live there. They cannot afford to live anywhere else, they cannot not just quit their jobs at the plant because they will have nowhere else to go. The government cannot help because it does not have the money to shut down these plants and clean up the surrounding area's, not without western help at least. If we do not help these people, it could be years, maybe even decades before anything is resolved. The people living in these areas today are not the only ones effected, but also their unborn children will be effected as well. Is that really fair to these children, to be brought into a world and die only a few months later from a simple illness as a cold. Radiation will always be in the soil around Chernobyl, but we can prevent it from being in the people and children. f:\12000 essays\business & economics (632)\China Economic Growth Due to Recent Foreign Policies.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ China's Economic Growth Due to Recent Foreign Policies Recent Chinese economic policies have shot the country into the world economy at full speed. As testimony of this, China's gross domestic product has risen to seventh in the world, and its economy is growing at over nine percent per year (econ-gen 1). Starting in 1979, the Chinese have implemented numerous economic and political tactics to open the Chinese marketplace to the rest of the world. Just a few areas China's government is addressing are agricultural technology, the medical market, and infrastructures, like telecommunications, transportation and the construction industry. Chinese reform measures even anticipated the rush of foreign investment by opening newly expanded industries to out-of-country investors. Effects of this sudden change in economic strategy by a world power can be felt by practically every nation of the globe involved in international trade. The change in the amount of imports and exports to and from China will increase the demand on countless markets, from automobile, to petrochemical, to pharmaceuticals, and optical fiber. Also, with all the foreign investment China is receiving, the socialistic republic will only grow more and more interdependent upon the world economy. However, the impressive growth rate of China's economy is not without its shortcomings. Problems such as inflation and inefficient state-owned enterprises plague the rise of the Chinese economy. The main goal for China's modern foreign policies is the development of the Chinese infrastructure. The significance of improved communication and transportation cannot be over-stressed. Economically, enhanced means of communication and transportation allows more expedient supply and demand scheduling. Two of the latest Chinese reform measures to aid in the development of the country are the Provisional Regulations on Direction Guide to Foreign Investment and the Catalogue Guiding Foreign investment in China. Both these policies place specific industries including telecommunications, machinery, and electronics on top priority. Funding for these projects come from foreign investments and appropriations from the Chinese government in the form of grant financing, and legislative or administrative support. Yet another example of the Chinese emphasis on industrial based growth is the far-reaching goal of having just under 100 million telecommunication lines by the year 2000. China's Central Ministry of Posts and Communication said that in order to complete this major task China will enlist the aid of major overseas suppliers and create manufacturing plants within the nation. AT&T, Motorola, Northern Telecom, Alcatel, Erricsson, NEC, and Siemens are just a handful of the multinational companies which hold a considerable share of the Chinese telecom market, once again proving that China is becoming a party to global interdependence. The Chinese pharmaceutical market, much like Chinese industrial markets, is experiencing rapid growth due to reforms in China's economic strategy. The nation's government has decided to lower import tariffs and remove the necessity of an import license to bring pharmaceuticals into the country. Also, patented foreign drugs, such as Tylenol, are now being protected from counterfeiting by administrative action. The result of these provisions are overseas contractual investments totaling $1.5 billion in the past five years, and income from the medical industry's exports reaching 2.6 times the amount five years ago, according to Zheng Xiaoyu, director of the State Pharmaceutical Administration (scitech/med 1). The pharmaceutical market's growth is another example of the economic progress China has made. Even after accounting for all the economic benefits recognized by the world, the Chinese still come out as the country with the most gains. However, there are more motives behind China's market reforms than just purely economic. On the political front, China is fast becoming an integral part of international organizations. The Chinese government is making a conscious effort to reenter GATT (the General Agreement on Tariffs and Trade), realizing the importance of creating a favorable trading status among foreign nations. Slowing this progress, the 124 nation strong trade bloc has requested that numerous conditions must be met by China before the nation can become a member of GATT once again. Several of these provisions are the "elimination of import prohibitions, restrictive licensing requirements and other controls or restrictions; lifting of all restrictions on access to foreign exchange and full convertibility of the Chinese currency" (china-tr. 2). Other important key themes behind China's Open-Door policies are "economic and technological cooperation with the West" (china-tr 1) and that China's government no longer supports Third World revolution. Instead, China realizes that cooperation with developing countries would be far more practical. Although Chinese foreign policy is aimed at opening the nation's entire economy to the world, it neglects the agricultural market almost entirely, with the exception of technical contracts. These contracts are designed to improve the transfer of technologies to improve crop yields. "Technical contracts are made between farmers and village economic cooperatives and a wide variety of offices and technical personnel from different administrative levels" (int12 1). The funding for the technology used by the agricultural industry can be traced to extension stations of political parties, finance bureaus, or local insurance company. Since the groups funding technical contracts are nothing more than investors, a portion of the profits from increased production due to the technological advancements are returned to these groups. However, the technology providers also bear the risk of investors, "if output and economic returns can't reach prescribed figures, the extension administrations have to make up the losses" (intl2 2). Like all good things, China's formidable economic growth has its downsides. A few of these detriments are inflation, an under-aided agricultural market, government inefficiency, and geographically uneven development. High inflation, caused by a demand for more exchange medium on the Chinese market is causing Chinese currency to depreciate relative to other national currencies. A lack of emphasis on the agricultural market is causing that sector of the Chinese economy to fall behind, and soon the supply of agricultural products will fall below the demand for these goods, resulting in a sortage. Another problem is the inefficiency of large, state-owned production facilities can be explained by excess bureaucratic red tape and corruption. Finally, there has been an uneven distribution of development between the land-locked, western section of China and the industrialized east-coast, consequently causing ineffective land use. China has quickly become a world leader in trade and will only increase in importance to the global economy. These facts are proven with China's current economic statistics --growing at over nine percent per year-- and economists' projections of the nation's future --China will double its gross domestic product of the year 2000 in the year 2010. The way the Chinese government achieved these impressive economic figures are through a thorough renovation of Chinese trade policies. Reform measures in the country range from reduced trade barriers and technical contracts for agriculture, to infrastructure investment policies and improved standards for pharmaceutical products. However, stemming from China's economic growth are dilemmas such as inflation and uneven development of the country. On a planetary scale, the effects of China's Open-Door policies are best described through a visual representation like the attached graphs. These graphs represent the supply of Chinese goods and services and demand for Chinese products by other countries. As Chinese policies are placed in effect the supply curve shifts to the right because of improved quality standards and higher production capabilities. Open-Door policies also indirectly increase the demand for Chinese goods and services due increased Chinese competitiveness on foreign markets. Works Cited http://www.wissago.uwex.edu/test/joe/1992fall/intl2.html. http://www.china- embassy.org/scitech/med.htm. http://www.chinesebusinessworld.com/business/bgeneral/econ-gen.html. http://www.dfait-maeci.gc.ca/english/geo/asia/china-tr.htm. f:\12000 essays\business & economics (632)\Chinas Economic Growth Due To Recent Foreign Policies.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Recent Chinese economic policies have shot the country into the world economy at full speed. As testimony of this, China's gross domestic product has risen to seventh in the world, and its economy is growing at over nine percent per year (econ-gen 1). Starting in 1979, the Chinese have implemented numerous economic and political tactics to open the Chinese marketplace to the rest of the world. Just a few areas China's government is addressing are agricultural technology, the medical market, and infrastructures, like telecommunications, transportation and the construction industry. Chinese reform measures even anticipated the rush of foreign investment by opening newly expanded industries to out-of-country investors. Effects of this sudden change in economic strategy by a world power can be felt by practically every nation of the globe involved in international trade. The change in the amount of imports and exports to and from China will increase the demand on countless markets, from automobile, to petrochemical, to pharmaceuticals, and optical fiber. Also, with all the foreign investment China is receiving, the socialistic republic will only grow more and more interdependent upon the world economy. However, the impressive growth rate of China's economy is not without its shortcomings. Problems such as inflation and inefficient state-owned enterprises plague the rise of the Chinese economy. The main goal for China's modern foreign policies is the development of the Chinese infrastructure. The significance of improved communication and transportation cannot be over-stressed. Economically, enhanced means of communication and transportation allows more expedient supply and demand scheduling. Two of the latest Chinese reform measures to aid in the development of the country are the Provisional Regulations on Direction Guide to Foreign Investment and the Catalogue Guiding Foreign investment in China. Both these policies place specific industries including telecommunications, machinery, and electronics on top priority. Funding for these projects come from foreign investments and appropriations from the Chinese government in the form of grant financing, and legislative or administrative support. Yet another example of the Chinese emphasis on industrial based growth is the far- reaching goal of having just under 100 million telecommunication lines by the year 2000. China's Central Ministry of Posts and Communication said that in order to complete this major task China will enlist the aid of major overseas suppliers and create manufacturing plants within the nation. AT&T, Motorola, Northern Telecom, Alcatel, Erricsson, NEC, and Siemens are just a handful of the multinational companies which hold a considerable share of the Chinese telecom market, once again proving that China is becoming a party to global interdependence. The Chinese pharmaceutical market, much like Chinese industrial markets, is experiencing rapid growth due to reforms in China's economic strategy. The nation's government has decided to lower import tariffs and remove the necessity of an import license to bring pharmaceuticals into the country. Also, patented foreign drugs, such as Tylenol, are now being protected from counterfeiting by administrative action. The result of these provisions are overseas contractual investments totaling $1.5 billion in the past five years, and income from the medical industry's exports reaching 2.6 times the amount five years ago, according to Zheng Xiaoyu, director of the State Pharmaceutical Administration (scitech/med 1). The pharmaceutical market's growth is another example of the economic progress China has made. Even after accounting for all the economic benefits recognized by the world, the Chinese still come out as the country with the most gains. However, there are more motives behind China's market reforms than just purely economic. On the political front, China is fast becoming an integral part of international organizations. The Chinese government is making a conscious effort to reenter GATT (the General Agreement on Tariffs and Trade), realizing the importance of creating a favorable trading status among foreign nations. Slowing this progress, the 124 nation strong trade bloc has requested that numerous conditions must be met by China before the nation can become a member of GATT once again. Several of these provisions are the "elimination of import prohibitions, restrictive licensing requirements and other controls or restrictions; lifting of all restrictions on access to foreign exchange and full convertibility of the Chinese currency" (china-tr. 2). Other important key themes behind China's Open-Door policies are "economic and technological cooperation with the West" (china-tr 1) and that China's government no longer supports Third World revolution. Instead, China realizes that cooperation with developing countries would be far more practical. Although Chinese foreign policy is aimed at opening the nation's entire economy to the world, it neglects the agricultural market almost entirely, with the exception of technical contracts. These contracts are designed to improve the transfer of technologies to improve crop yields. "Technical contracts are made between farmers and village economic cooperatives and a wide variety of offices and technical personnel from different administrative levels" (int12 1). The funding for the technology used by the agricultural industry can be traced to extension stations of political parties, finance bureaus, or local insurance company. Since the groups funding technical contracts are nothing more than investors, a portion of the profits from increased production due to the technological advancements are returned to these groups. However, the technology providers also bear the risk of investors, "if output and economic returns can't reach prescribed figures, the extension administrations have to make up the losses" (intl2 2). Like all good things, China's formidable economic growth has its downsides. A few of these detriments are inflation, an under-aided agricultural market, government inefficiency, and geographically uneven development. High inflation, caused by a demand for more exchange medium on the Chinese market is causing Chinese currency to depreciate relative to other national currencies. A lack of emphasis on the agricultural market is causing that sector of the Chinese economy to fall behind, and soon the supply of agricultural products will fall below the demand for these goods, resulting in a sortage. Another problem is the inefficiency of large, state-owned production facilities can be explained by excess bureaucratic red tape and corruption. Finally, there has been an uneven distribution of development between the land-locked, western section of China and the industrialized east-coast, consequently causing ineffective land use. China has quickly become a world leader in trade and will only increase in importance to the global economy. These facts are proven with China's current economic statistics --growing at over nine percent per year-- and economists' projections of the nation's future --China will double its gross domestic product of the year 2000 in the year 2010. The way the Chinese government achieved these impressive economic figures are through a thorough renovation of Chinese trade policies. Reform measures in the country range from reduced trade barriers and technical contracts for agriculture, to infrastructure investment policies and improved standards for pharmaceutical products. However, stemming from China's economic growth are dilemmas such as inflation and uneven development of the country. On a planetary scale, the effects of China's Open-Door policies are best described through a visual representation like the attached graphs. These graphs represent the supply of Chinese goods and services and demand for Chinese products by other countries. As Chinese policies are placed in effect the supply curve shifts to the right because of improved quality standards and higher production capabilities. Open-Door policies also indirectly increase the demand for Chinese goods and services due increased Chinese competitiveness on foreign markets. Works Cited http://www.wissago.uwex.edu/test/joe/1992fall/intl2.html. http://www.china-embassy.org/scitech/med.htm. http://www.chinesebusinessworld.com/business/bgeneral/econ-gen.html. http://www.dfait-maeci.gc.ca/english/geo/asia/china-tr.htm. f:\12000 essays\business & economics (632)\Chinese Economic Reform under Communist Rule.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chinese Economic Reform under Communist Rule Two years after the death of Mao Zedong in 1976, it became apparent to many of China's leaders that economic reform was necessary. During his tenure as China's premier, Mao had encouraged social movements such as the Great Leap Forward and the Cultural Revolution which had had as their bases ideologies such as serving the people and maintaining the class struggle. By 1978 "Chinese leaders were searching for a solution to serious economic problems produced by Hua Guofeng, the man who had succeeded Mao Zedong as CCP leader after Mao's death" (Shirk 35). Hua had demonstrated a desire to continue the ideologically based movements of Mao. Unfortunately, these movements had left China in a state where "agriculture was stagnant, industrial production was low, and the people's living standards had not increased in twenty years" (Nathan 200). This last area was particularly troubling. While "the gross output value of industry and agriculture increased by 810 percent and national income grew by 420 percent [between1952 and 1980] ... average individual income increased by only 100 percent" (Ma Hong quoted in Shirk 28). However, attempts at economic reform in China were introduced not only due to some kind of generosity on the part of the Chinese Communist Party to increase the populace's living standards. It had become clear to members of the CCP that economic reform would fulfill a political purpose as well since the party felt, properly it would seem, that it had suffered a loss of support. As Susan L. Shirk describes the situation in The Political Logic of Economic Reform in China, restoring the CCP's prestige required improving economic performance and raising living standards. The traumatic experience of the Cultural Revolution had eroded popular trust in the moral and political virtue of the CCP. The party's leaders decided to shift the base of party legitimacy from virtue to competence, and to do that they had to demonstrate that they could deliver the goods. (23) This movement "from virtue to competence" seemed to mark a serious departure from orthodox Chinese political theory. Confucius himself had posited in the fifth century BCE that those individuals who best demonstrated what he referred to as moral force should lead the nation. Using this principle as a guide, China had for centuries attempted to choose at least its bureaucratic leaders by administering a test to determine their moral force. After the Communist takeover of the country, Mao continued this emphasis on moral force by demanding that Chinese citizens demonstrate what he referred to as "correct consciousness." This correct consciousness could be exhibited, Mao believed, by the way people lived. Needless to say, that which constituted correct consciousness was often determined and assessed by Mao. Nevertheless, the ideal of moral force was still a potent one in China even after the Communist takeover. It is noteworthy that Shirk feels that the Chinese Communist Party leaders saw economic reform as a way to regain their and their party's moral virtue even after Mao's death. Thus, paradoxically, by demonstrating their expertise in a more practical area of competence, the leaders of the CCP felt they could demonstrate how they were serving the people. To be sure, the move toward economic reform came about as a result of a "changed domestic and international environment, which altered the leadership's perception of the factors that affect China's national security and social stability" (Xu 247). But Shirk feels that, in those pre-Tienenmen days, such a move came about also as a result of an attempt by CCP leaders to demonstrate, in a more practical and thus less obviously ideological manner than Mao had done, their moral force. This is not to say that the idea of economic reform was embraced enthusiastically by all members of the leadership of the Chinese Communist Party in 1978. To a great extent, the issue of economic reform became politicized as the issue was used as a means by Deng Xiaoping to attain the leadership of the Chinese Communist Party. Mao's successor, Hua Guofeng, had "tried to prove himself a worthy successor to Mao by draping himself in the mantle of Maoist tradition. His approach to economic development was orthodox Maoism with an up-to-date, international twist" (Shirk 35). This approach was tied heavily to the development of China's oil reserves. "[W]hen [in 1978] estimates of the oil reserves were revised downward[,] commitments to import plants and expand heavy industry could not be sustained" (Shirk 35). Deng took advantage of this economic crisis to discredit Hua and aim for leadership of the party. "Reform policies became Deng's platform against Hua for post-Mao leadership" (Shirk 36). Given this history of economic reform, it is evident that "under the present system economic questions are necessarily political questions" (Dorn 43). Once Deng and his faction had prevailed, it was necessary for some sort of economic reform to evolve. The initial form the new economy took was not a radical one. China was "still a state in which the central government retain[ed] the dominant power in economic resource allocation and responsible local officials work[ed] for the interest of the units under their control" (Solinger 103). However, as time passed, some basic aspects of the old system were altered either by design or via the process of what might be called benign neglect. As Shirk points out, in rural areas, decollectivization was occurring: "decision making power [was being transferred] from collective production units (communes, brigades, and teams) to the family" (38); purchase prices for major farm products were increased (39). In 1985, further reforms were introduced. For example, long-term sales contracts between farmers and the government were established. In addition, in an effort to allow the market to determine prices, "city prices of fruit and vegetables, fish, meat, and eggs, were freed from government controls so they could respond to market demand" (Shirk 39). Most importantly, "a surge of private and collective industry and commerce in the countryside" (Shirk 39) occurred. This allowed a great percentage of the populace to become involved in private enterprise and investment in family or group ventures. The conditions also allowed rural Chinese to leave the villages and become involved in industry in urban centers (Shirk 40). The economy grew so quickly that inflation occurred and the government had to reinstitute price controls. China's economy retains these characteristics of potential for growth-and inflation-to this day. Another important aspect of Chinese economic reform was the decision of China to join the world economy. Deng Xiaoping and his allies hoped to effect this 1979 resolution in two ways: by expanding foreign trade, and by encouraging foreign companies to invest in Chinese enterprises. This policy-denoted the "Open Policy" (Shirk 47)--was a drastic removal from the policies of Mao Zedong and, in fact, from centuries of Chinese political culture. The Open Policy, which designated limited areas in China "as places with preferential conditions for foreign investment and bases for the development of exports" (Nathan 99), was extremely successful in the areas where it was implemented (Shirk 47). However, it was looked upon by many Chinese as nothing less than an avenue to "economic dependency" (Nathan 50). Indeed, when the policy was first implemented, many Chinese seem[ed] to fear that Deng's policies [were] drawing China back toward its former semi-colonial status as a "market where the imperialist countries dump their goods, a raw material base, a repair and assembly workshop, and an investment center." (Nathan 51) It is interesting to note the symptoms of a national character that would subscribe to the above sentiment. In an article written in 1981, just two years after the Open Policy was first proposed, Andrew J. Nathan noted the almost pathological resistance to foreign intervention in the Chinese economy: "Some Chinese fear that reliance on imported technology will encourage a dependent psychology ... [Many] Chinese perceive joint ventures as a costly form of acquisition. 'Some people worry: Won't we be suffering losses by letting foreigners make profits in our country?'" (52). The Chinese were as vociferous about issues of sovereignty. Nathan maintained that the Mao- led revolution, which culminated in victory in 1949, had been fueled by "an intense patriotism: ... once China had 'stood up,' no infringement on its sovereignty, no matter how small, should be permitted" (53). These feelings were manifested in denying foreign businessmen long-term, multiple entry visas, resisting "increased foreign economic contacts" and alteration of current ways of doing things, and disinclination to become involved in government-to- government loans and joint ventures lest Chinese become exploited in some way (Nathan 53-55). Given these hesitancies on the part of the Chinese society vis- a-vis foreign relations, it is impressive that Deng and his allies were able initially to create and implement the Open Policy since many members of the society at large were resistant to becoming involved in a policy so antithetical to the Chinese national character. However, once the successes of the Open Policy were apparent, resistance to the plan by the populace waned. Moreover, given the confluence of politics and economics in China, it seems apparent that some members of the CCP would also not be in favor of the plan. Nevertheless, the Open Policy was implemented and has become instrumental in the success of the burgeoning Chinese economy. The implementation of the Open Policy was so successful that by 1988 the leaders of the CCP were encouraged to create a new program called the "coastal development strategy." In this program, even more of the country was opened up to foreign investment-an area which, at the time, included nearly 200 million people. Moreover, by involving more overseas investors, "importing both capital and raw materials," and "exporting China's cheap excess labor power," the new policy was one of "'export-led growth' or 'export-oriented industrialization.' It [was] explicitly modeled on the experiences of Taiwan and the other Asian 'small dragons'" (Nathan 99). One analyst has maintained that "China now stands at the threshold of the greatest opportunity in human history: a new economic era promising greater wealth and achievement than any previous epoch" (Gilder 369). Illustrative of this optimistic feeling is Shanghai, an area that was designated for preferential conditions for foreign investment and as a base for the development of exports in 1988. This city and environs in the Yangtze Delta area have a population of approximately 400 million people and the city has become the nation's financial hub for international and national investors. For political reasons, this area was excluded from the original Open Policy designation in 1978, but is currently in the process of catching up with other areas so designated. Indeed, the increase in foreign investments in the last two years is striking. The area received 3.3 billion dollars in foreign investments during the 1980s. The area received the same amount from foreign investments in 1992 alone. In only the first ten months of 1993, the area had received over six billion dollars worth of foreign investments (Tyler A8). Western analysts have asserted that the Open Policy and the coastal development strategy have allowed Deng to entrench his political power (Shirk 47) and will allow his power to be sustained even after death. If this is true, Deng should be very popular in Shanghai. With its new designation, and with the billions of foreign dollars coming into the area, it has become necessary to improve the city's facilities. To that end forty billion dollars worth of public works projects have been allocated by the central government for Shanghai within the last year (Tyler A1). These public works projects include new sewers, a new water system, new gas lines, a new bridge, and extensive roadwork. Future plans include the construction of a second international airport, a container port, a new subway system, and more roads and bridges (Tyler A8). The financial district, which will feature a new stock exchange, is also being rebuilt by China and foreign investors in a joint venture. By being designated for preferential conditions, Shanghai received from the central government tax exemptions for enterprises doing business with foreign companies, tax holidays for new factories set up with foreign investments, and a bonded zone-the largest in China-for duty free imports of raw materials. Shanghai now has all the trappings of a modern city: discos, construction projects, and conspicuous consumption. In short, where "revered monuments and golden arches exist side by side" (Riboud 12), the appearance of the new Shanghai does nothing less than signal "the end of the ideological debate over China's free market experiments" (Tyler A8). Shanghai has joined the ranks of the modern metropolis. However, this is not necessarily a beneficial development. Inflation is rampant: prices have doubled in the industrial zones in the last five years. Nevertheless, the fact that Shanghai currently possesses the fifth most expensive office space in the world demonstrates that demand is high and that the prospects for future growth are promising (Tyler A8). Indeed, Pudong, a free export manufacturing zone described as "the future sight of Shanghai's Manhattan" (Tyler A8), boasts more than twenty factories built or being built with names like Siemens and Hitachi prominent. This area has become particularly attractive to foreign investors and companies because of its tax concessions, duty free imports of raw materials, and cheap labor. Shanghai stands to benefit, too, as it receives ancillary technology and discretionary spending from the workers and executives of the companies represented (Tyler A8). It is conditions like these that have caused at least one analyst to predict that China will be "the richest economy in the world within the next 25 years" (Gilder 372). Shanghai is by no means unique to this growth. Additional foreign investments have continued to pour into other areas of China. For example, the Boeing Company recently announced its intention to "invest $100 million in a plant in [Xian] China to make tail sections for 737 jetliners" ("Boeing" D4). In addition, E.I. du Pont recently predicted "that its investments and business in China could increase as much as ten times by the end of the century" ("Du Pont" D2). Tellingly, du Pont's chairman attributed the company's negotiations of "as many as 28 new projects in China" to the fact "that the country's financial changes, improved infrastructure and rising disposable income has [sic] encouraged the company to expand its business activities" ("Du Pont" D2). The Chinese government has made conscientious attempts to promote the strength of the country's economy while protecting its citizens. Just a few weeks ago, the government instituted "tight-money policies, intended to control inflation and slow what has been the world's fastest growing major economy" (Shenon "China Halts" D1). However, after doing so, China's Securities Regulatory Commission was forced to stop the issuing of new issues on the Shanghai and Shenzhen Stock Exchanges because the value of the markets had decreased so greatly. This latter move was "meant to calm millions of first-time Chinese investors who evidently went into the market believing that stock prices could only go up" (Shenon "China Halts" D1). Might this policy show a union of economic and moral concern? If so, it demonstrates the desire on the part of the government to show some kind of responsibility, some moral force, to its citizenry. At the very least, the strategy appears to show a practical desire on the part of the government to take control over what could have been a bad economic situation. Indeed, after these measures were instituted, China's trade deficit decreased (Hansell D2) and the stock markets' volume attained record highs ("Stocks Surge" D2). To be sure, Chinese investors remain somewhat wary about the stock market and, ironically enough, more control of the stock markets appears to be necessary (Shenon "A Nail-Biting" D1). But, in discussing Chinese attempts to control inflation, Philip J. Suttle, head of emerging markets research at the investment firm of J.P. Morgan, has predicted that "[i]t looks as though the Chinese are going to have the soft landing they are aiming for" (quoted in Hansell D2). China's interest in stock markets is no longer restricted to within its own boundaries. This month, Shandong Huaneng Power Development Company, "the first mainland Chinese company to have its primary listing on the New York Stock Exchange" ("China Stock" D5), began trading shares. The stock should be an attractive one to investors: Chinese electrical "demand ... is expected to grow by a whopping 17 million kilowatts a year until the turn of the century" (Zuckerman D6). Moreover, China stands to gain from the issue's sales. "The company plans to use the $311 million dollars it received from the offering to retire $83 million in loans from ... Chinese state entities. It also plans to expand its overall generating capacity" (Zuckerman D6). Nor does this signify the only Chinese attempt of raising capital from foreign sources on foreign soil. "Three more power companies are expected to be listed in New York and Hong Kong in the coming months" (Zuckerman D6). Given the apparent strength of the Chinese economy as shown by huge public works projects, extensive foreign investments, participation in the world economy, and a generally higher standard of living by the populace, it would appear that China is now ready to join the world as a modern capitalistic and democratic society. However, this is not quite the case. The CCP retains vestiges of those characteristics of insularity and intransigence as discussed by Nathan. Because of its human rights record, the country's economic growth is being impeded. That is, the politics of China, which have always been allied with its economics, are now restricting international growth. The United States, especially, has been concerned with China's treatment of political dissidents. In May, President Clinton decided to end linking China's trade status with the United States with its record on human rights. The president has been criticized for this because of situations like the following: trials for "'counterrevolutionary activities' [including] ... plans to use a remote-controlled airplane to drop pro-democracy leaflets over ... Tienenmen Square" ("China cracks" A13) have recently begun for fifteen dissidents and labor organizers who were involved in the Tienenmen Square protests. These trials have "been delayed twice, first to avoid negative international reaction just before the decision last September on China's failed bid to host the 2000 Olympics and then this spring to avoid influencing Clinton's trade decision" ("China cracks" A13). In addition, China has instituted "new laws effective in June [which] give sweeping powers to China's State Security Bureau to clamp down on dissidents" ("China cracks" A13). China is fully aware of United States' concerns about its human rights record. Given the fact that the United States has made it clear to China that that record will be allied with trade status, China's timing of such restrictive activities has caused United States legislators and administrators to question China's sincerity in its desire to have a favored trade status with the United States. Indeed, just in the past few days, it took a last-minute lobbying campaign by President Clinton and his Cabinet [to head off a] potentially embarrassing vote by the House of Representatives to restrict trade with China as a way to punish Beijing for reported human rights violations. (Bradsher A7) But China's problems in joining the community of the world market have more to do than with its political ethos and practices. China appears not to understand or to be able to follow through on fundamental modern economic practices. For example, the United States has recently complained that "China has not complied with international rules on access to its markets and protection of copyrights and patents" (Gargan 14). Such non-compliance could make it difficult for China to become a founding member of the World Trade Organization, the successor to the General Agreement on Tariffs and Trade and the body that is intended to promote global free trade by lowering tariffs and other barriers, [which] will be formally constituted on January 1, 1994. (Gargan 14) The specific nature of the United States' complaint has to do with China's pirating of musical compact disks, video laser disks and computer software. In fact, it is estimated that such pirating costs American companies a billion dollars a year. This phenomenon seems to have to do with the Chinese psychology as described by Nathan. In his 1981 essay he noted that China did not wish to become a "technological client of the west. The preferred solution is to buy one item and copy it" (Nathan 52). Clearly, this is not the way trade works today. It is the United States' position that China must adhere to the rules of trade before it can be included in a trade organization. Needless to say, exclusion from WTO would be disastrous for any country, but particularly for an emerging market such as China. Even on a day to day basis, China's economic leaders seem unable to understand how some aspects of a market economy work. In discussing the status of the Shanghai Stock Market, for example, one stock dealer referred to it as "crazy" ("Stocks Surge" D2). Moreover, American analysts have been amazed to discover in the Shanghai market "the lack of regulation and the poor disclosure requirements. Some companies have been listed for two or three years and have not issued an annual report" (Hansell D2). It is no wonder that Chinese investors become anxious about their investments. The issuance of shares in the Shandong Huaneng Power Development Company also demonstrates the lack of expertise on the part of the Chinese in the modern world market. In fact, according to one Hong Kong investment analyst, "'[t]he company wasn't really a company. It was just a bunch of discrete plants that they tied a bow around and wrote a prospectus on'" (Zuckerman D6). The prospectus guaranteed a fifteen percent annual return on investments. In fact, the return will no doubt be less than that because of prevailing currency exchange rates and debt that the company will have to assume. To be sure, the problems of the Shandong Huaneng Power Development Company and the Shanghai Stock Exchange may demonstrate only the problems of an immature economy. Nevertheless, if China wishes to become a viable member of the world economic community, such shortcomings will have to be eliminated quickly. These apparent problems may also be the result of an economic system that is run by the state. Certainly, one thing that the CCP has attempted to do is create a market economy while retaining a state controlled system. This structure may be possible but it does have its critics. Steven N.S. Cheung, in an essay written in 1989, argued for the "creation of private property by mandate" (31), feeling that privatization in China would lead to necessary additional investment in the society's infrastructure and the establishment of a "judicial system that is based firmly on the principle of equality before the law" (Cheung 32). Echoing Cheung's sentiments, James Dorn saw problems in the areas of Chinese banking and finance. In this arrangement, Dorn argued, "the state controls the bulk of investment resources. The lack of a private capital market has handicapped economic development in China and hampered rational investment decisionmaking" (43). In order to become a modern economic state Dorn argued for the necessity of circumventing "China's ruling elite who oppose the dismantling of state monopolies and who benefit from price fixing and nonprice rationing" (51). Xu Zhiming also saw the necessity for a revamping of the Chinese system: "We must throw off the traditional system completely" (249) in order for economic reform to thrive. Communist Party members, of course, articulate a different position. In a recent interview that appeared in the Beijing Review, Feng Bing, Deputy Secretary General of the State Commission for Restructuring the Economic System, spoke to the issue of economic reform in China. It is striking that Feng spoke of the benefits that the populace has received as a result of the economic reform now occurring in China. That is, his comments appeared to demonstrate the beneficence, or the moral force, of the Chinese Communist Party vis-a-vis economic reform. He noted that such reform involves the essence of socialism: "to liberate and develop productive forces; to eradicate exploitation; to remove polarization; and ... to attain the goal of common prosperity" ("Official" 12). Thus, CCP leaders still appear to see their roles as representatives of a moral force. CCP members and leaders wish economic reform not to be judged on just its practical merits, but also as an effect of the moral force of the leadership. Economic reform, then, becomes nothing less than a moral crusade and it is thus easy to see why, for example, China "has staked its national prestige on becoming a founding member of the World Trade Organization" (Gargan 14). Will China succeed in taking its place among the nations of the world market? Will the CCP succeed in retaining its political power given the drastic changes in the societal makeup of China that are occurring due to the changing economic realities? I would suggest that the chances are better for the former than for the latter. Once the Chinese attain more sophistication relative to international and national markets, institute a more manageable banking system, and make a good faith effort to insure acceptable human rights, the country may well become "the richest economy in the world within the next 25 years" (Gilder 372). However, whether or not these conditions can occur without a weakening of the state controlled system is problematic. The most impressive and far-reaching display of moral force by the CCP may well have to be a voluntary reduction of its power over the people. Paradoxically, by weakening itself politically, the party may demonstrate its true moral force by liberating, politically and economically, one billion Chinese citizens. WORKS CITED "Boeing Planning to Invest $100 Million for China Plant." New York Times: 9 August 1994, D4. Bradsher, Keith. "Bill to Restrict China's Imports Loses in House." New York Times: 10 August 1994, A7. Cheung, Steven N.S. "Privatization vs. Special Interests: The Experience of China's Economic Reforms." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 21-32. "China cracks down on dissent after trade threat lifted, report says." Hartford Courant: 29 July 1994, A13. "China Stock Is Most Active." New York Times: 5 August 1994, D5. Dorn, James A. "Pricing and Property: The Chinese Puzzle." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 39-61. "Du Pont Plans Increase In Chinese Investment." New York Times: 10 August 1994, D2. Gargan, Edward A. "U.S. May Thwart China's Trade Goal." New York Times: 24 July 1994, 14. Gilder, George. "Let a Billion Flowers Bloom." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 369-374. Hansell, Saul. "Chinese Stock Markets Bounce Back, Rising 30%." New York Times: 2 August 1994, D2. Nathan, Andrew J. China's Crisis. New York: Columbia University Press, 1990. "Official on Economic Reform." Beijing Review: 27 June-3 July 1994, 11-15. Riboud, Marc. "China Leaps Upward." New York Times Magazine: 27 December 1992, 12-15. Shenon, Philip. "A Nail-Biting Ride in Shanghai." New York Times: 6 August 1994, 33, 41. Shenon, Philip. "China Halts Listing of New Stock." New York Times: 1 August 1994, D1, D4. Shirk, Susan L. The Political Logic of Economic Reform in China. Berkeley: University of California Press, 1993. Solinger, Dorothy J. China's Transition from Socialism: Statist Legacies and Market Reforms, 1980-1990. Armonk, NY: M. E. Sharpe, 1993. "Stocks Surge in China As Volume Sets Record." New York Times: 9 August 1994, D2. Tyler, Patrick E. "Economic Focus in Shanghai: Catching Up." New York Times: 22 December 1993, A1, A8. Xu, Zhiming. "The Impact of China's Reform and Development on the Outside World." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 247-253. Zuckerman, Laurence. "A Foreign Offering's Unsure Pedigree." New York Times: 11 August 1994, D6. f:\12000 essays\business & economics (632)\CHINESE ECONOMIC REFORM.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chinese Economic Reform under Communist Rule Two years after the death of Mao Zedong in 1976, it became apparent to many of China's leaders that economic reform was necessary. During his tenure as China's premier, Mao had encouraged social movements such as the Great Leap Forward and the Cultural Revolution which had had as their bases ideologies such as serving the people and maintaining the class struggle. By 1978 "Chinese leaders were searching for a solution to serious economic problems produced by Hua Guofeng, the man who had succeeded Mao Zedong as CCP leader after Mao's death" (Shirk 35). Hua had demonstrated a desire to continue the ideologically based movements of Mao. Unfortunately, these movements had left China in a state where "agriculture was stagnant, industrial production was low, and the people's living standards had not increased in twenty years" (Nathan 200). This last area was particularly troubling. While "the gross output value of industry and agriculture increased by 810 percent and national income grew by 420 percent [between 1952 and 1980] ... average individual income increased by only 100 percent" (Ma Hong quoted in Shirk 28). However, attempts at economic reform in China were introduced not only due to some kind of generosity on the part of the Chinese Communist Party to increase the populace's living standards. It had become clear to members of the CCP that economic reform would fulfill a political purpose as well since the party felt, properly it would seem, that it had suffered a loss of support. As Susan L. Shirk describes the situation in The Political Logic of Economic Reform in China, restoring the CCP's prestige required improving economic performance and raising living standards. The traumatic experience of the Cultural Revolution had eroded popular trust in the moral and political virtue of the CCP. The party's leaders decided to shift the base of party legitimacy from virtue to competence, and to do that they had to demonstrate that they could deliver the goods. (23) This movement "from virtue to competence" seemed to mark a serious departure from orthodox Chinese political theory. Confucius himself had posited in the fifth century BCE that those individuals who best demonstrated what he referred to as moral force should lead the nation. Using this principle as a guide, China had for centuries attempted to choose at least its bureaucratic leaders by administering a test to determine their moral force. After the Communist takeover of the country, Mao continued this emphasis on moral force by demanding that Chinese citizens demonstrate what he referred to as "correct consciousness." This correct consciousness could be exhibited, Mao believed, by the way people lived. Needless to say, that which constituted correct consciousness was often determined and assessed by Mao. Nevertheless, the ideal of moral force was still a potent one in China even after the Communist takeover. It is noteworthy that Shirk feels that the Chinese Communist Party leaders saw economic reform as a way to regain their and their party's moral virtue even after Mao's death. Thus, paradoxically, by demonstrating their expertise in a more practical area of competence, the leaders of the CCP felt they could demonstrate how they were serving the people. To be sure, the move toward economic reform came about as a result of a "changed domestic and international environment, which altered the leadership's perception of the factors that affect China's national security and social stability" (Xu 247). But Shirk feels that, in those pre-Tienenmen days, such a move came about also as a result of an attempt by CCP leaders to demonstrate, in a more practical and thus less obviously ideological manner than Mao had done, their moral force. This is not to say that the idea of economic reform was embraced enthusiastically by all members of the leadership of the Chinese Communist Party in 1978. To a great extent, the issue of economic reform became politicized as the issue was used as a means by Deng Xiaoping to attain the leadership of the Chinese Communist Party. Mao's successor, Hua Guofeng, had "tried to prove himself a worthy successor to Mao by draping himself in the mantle of Maoist tradition. His approach to economic development was orthodox Maoism with an up-to-date, international twist" (Shirk 35). This approach was tied heavily to the development of China's oil reserves. "[W]hen [in 1978] estimates of the oil reserves were revised downward[,] commitments to import plants and expand heavy industry could not be sustained" (Shirk 35). Deng took advantage of this economic crisis to discredit Hua and aim for leadership of the party. "Reform policies became Deng's platform against Hua for post-Mao leadership" (Shirk 36). Given this history of economic reform, it is evident that "under the present system economic questions are necessarily political questions" (Dorn 43). Once Deng and his faction had prevailed, it was necessary for some sort of economic reform to evolve. The initial form the new economy took was not a radical one. China was "still a state in which the central government retain[ed] the dominant power in economic resource allocation and responsible local officials work[ed] for the interest of the units under their control" (Solinger 103). However, as time passed, some basic aspects of the old system were altered either by design or via the process of what might be called benign neglect. As Shirk points out, in rural areas, decollectivization was occurring: "decision making power [was being transferred] from collective production units (communes, brigades, and teams) to the family" (38); purchase prices for major farm products were increased (39). In 1985, further reforms were introduced. For example, long-term sales contracts between farmers and the government were established. In addition, in an effort to allow the market to determine prices, "city prices of fruit and vegetables, fish, meat, and eggs, were freed from government controls so they could respond to market demand" (Shirk 39). Most importantly, "a surge of private and collective industry and commerce in the countryside" (Shirk 39) occurred. This allowed a great percentage of the populace to become involved in private enterprise and investment in family or group ventures. The conditions also allowed rural Chinese to leave the villages and become involved in industry in urban centers (Shirk 40). The economy grew so quickly that inflation occurred and the government had to reinstitute price controls. China's economy retains these characteristics of potential for growth-and inflation-to this day. Another important aspect of Chinese economic reform was the decision of China to join the world economy. Deng Xiaoping and his allies hoped to effect this 1979 resolution in two ways: by expanding foreign trade, and by encouraging foreign companies to invest in Chinese enterprises. This policy-denoted the "Open Policy" (Shirk 47)--was a drastic removal from the policies of Mao Zedong and, in fact, from centuries of Chinese political culture. The Open Policy, which designated limited areas in China "as places with preferential conditions for foreign investment and bases for the development of exports" (Nathan 99), was extremely successful in the areas where it was implemented (Shirk 47). However, it was looked upon by many Chinese as nothing less than an avenue to "economic dependency" (Nathan 50). Indeed, when the policy was first implemented, many Chinese seem[ed] to fear that Deng's policies [were] drawing China back toward its former semi-colonial status as a "market where the imperialist countries dump their goods, a raw material base, a repair and assembly workshop, and an investment center." (Nathan 51) It is interesting to note the symptoms of a national character that would subscribe to the above sentiment. In an article written in 1981, just two years after the Open Policy was first proposed, Andrew J. Nathan noted the almost pathological resistance to foreign intervention in the Chinese economy: "Some Chinese fear that reliance on imported technology will encourage a dependent psychology ... [Many] Chinese perceive joint ventures as a costly form of acquisition. 'Some people worry: Won't we be suffering losses by letting foreigners make profits in our country?'" (52). The Chinese were as vociferous about issues of sovereignty. Nathan maintained that the Mao-led revolution, which culminated in victory in 1949, had been fueled by "an intense patriotism: ... once China had 'stood up,' no infringement on its sovereignty, no matter how small, should be permitted" (53). These feelings were manifested in denying foreign businessmen long-term, multiple entry visas, resisting "increased foreign economic contacts" and alteration of current ways of doing things, and disinclination to become involved in government-to-government loans and joint ventures lest Chinese become exploited in some way (Nathan 53-55). Given these hesitancies on the part of the Chinese society vis-a-vis foreign relations, it is impressive that Deng and his allies were able initially to create and implement the Open Policy since many members of the society at large were resistant to becoming involved in a policy so antithetical to the Chinese national character. However, once the successes of the Open Policy were apparent, resistance to the plan by the populace waned. Moreover, given the confluence of politics and economics in China, it seems apparent that some members of the CCP would also not be in favor of the plan. Nevertheless, the Open Policy was implemented and has become instrumental in the success of the burgeoning Chinese economy. The implementation of the Open Policy was so successful that by 1988 the leaders of the CCP were encouraged to create a new program called the "coastal development strategy." In this program, even more of the country was opened up to foreign investment-an area which, at the time, included nearly 200 million people. Moreover, by involving more overseas investors, "importing both capital and raw materials," and "exporting China's cheap excess labor power," the new policy was one of "'export-led growth' or 'export-oriented industrialization.' It [was] explicitly modeled on the experiences of Taiwan and the other Asian 'small dragons'" (Nathan 99). One analyst has maintained that "China now stands at the threshold of the greatest opportunity in human history: a new economic era promising greater wealth and achievement than any previous epoch" (Gilder 369). Illustrative of this optimistic feeling is Shanghai, an area that was designated for preferential conditions for foreign investment and as a base for the development of exports in 1988. This city and environs in the Yangtze Delta area have a population of approximately 400 million people and the city has become the nation's financial hub for international and national investors. For political reasons, this area was excluded from the original Open Policy designation in 1978, but is currently in the process of catching up with other areas so designated. Indeed, the increase in foreign investments in the last two years is striking. The area received 3.3 billion dollars in foreign investments during the 1980s. The area received the same amount from foreign investments in 1992 alone. In only the first ten months of 1993, the area had received over six billion dollars worth of foreign investments (Tyler A8). Western analysts have asserted that the Open Policy and the coastal development strategy have allowed Deng to entrench his political power (Shirk 47) and will allow his power to be sustained even after death. If this is true, Deng should be very popular in Shanghai. With its new designation, and with the billions of foreign dollars coming into the area, it has become necessary to improve the city's facilities. To that end forty billion dollars worth of public works projects have been allocated by the central government for Shanghai within the last year (Tyler A1). These public works projects include new sewers, a new water system, new gas lines, a new bridge, and extensive roadwork. Future plans include the construction of a second international airport, a container port, a new subway system, and more roads and bridges (Tyler A8). The financial district, which will feature a new stock exchange, is also being rebuilt by China and foreign investors in a joint venture. By being designated for preferential conditions, Shanghai received from the central government tax exemptions for enterprises doing business with foreign companies, tax holidays for new factories set up with foreign investments, and a bonded zone-the largest in China-for duty free imports of raw materials. Shanghai now has all the trappings of a modern city: discos, construction projects, and conspicuous consumption. In short, where "revered monuments and golden arches exist side by side" (Riboud 12), the appearance of the new Shanghai does nothing less than signal "the end of the ideological debate over China's free market experiments" (Tyler A8). Shanghai has joined the ranks of the modern metropolis. However, this is not necessarily a beneficial development. Inflation is rampant: prices have doubled in the industrial zones in the last five years. Nevertheless, the fact that Shanghai currently possesses the fifth most expensive office space in the world demonstrates that demand is high and that the prospects for future growth are promising (Tyler A8). Indeed, Pudong, a free export manufacturing zone described as "the future sight of Shanghai's Manhattan" (Tyler A8), boasts more than twenty factories built or being built with names like Siemens and Hitachi prominent. This area has become particularly attractive to foreign investors and companies because of its tax concessions, duty free imports of raw materials, and cheap labor. Shanghai stands to benefit, too, as it receives ancillary technology and discretionary spending from the workers and executives of the companies represented (Tyler A8). It is conditions like these that have caused at least one analyst to predict that China will be "the richest economy in the world within the next 25 years" (Gilder 372). Shanghai is by no means unique to this growth. Additional foreign investments have continued to pour into other areas of China. For example, the Boeing Company recently announced its intention to "invest $100 million in a plant in [Xian] China to make tail sections for 737 jetliners" ("Boeing" D4). In addition, E.I. du Pont recently predicted "that its investments and business in China could increase as much as ten times by the end of the century" ("Du Pont" D2). Tellingly, du Pont's chairman attributed the company's negotiations of "as many as 28 new projects in China" to the fact "that the country's financial changes, improved infrastructure and rising disposable income has [sic] encouraged the company to expand its business activities" ("Du Pont" D2). The Chinese government has made conscientious attempts to promote the strength of the country's economy while protecting its citizens. Just a few weeks ago, the government instituted "tight-money policies, intended to control inflation and slow what has been the world's fastest growing major economy" (Shenon "China Halts" D1). However, after doing so, China's Securities Regulatory Commission was forced to stop the issuing of new issues on the Shanghai and Shenzhen Stock Exchanges because the value of the markets had decreased so greatly. This latter move was "meant to calm millions of first-time Chinese investors who evidently went into the market believing that stock prices could only go up" (Shenon "China Halts" D1). Might this policy show a union of economic and moral concern? If so, it demonstrates the desire on the part of the government to show some kind of responsibility, some moral force, to its citizenry. At the very least, the strategy appears to show a practical desire on the part of the government to take control over what could have been a bad economic situation. Indeed, after these measures were instituted, China's trade deficit decreased (Hansell D2) and the stock markets' volume attained record highs ("Stocks Surge" D2). To be sure, Chinese investors remain somewhat wary about the stock market and, ironically enough, more control of the stock markets appears to be necessary (Shenon "A Nail-Biting" D1). But, in discussing Chinese attempts to control inflation, Philip J. Suttle, head of emerging markets research at the investment firm of J.P. Morgan, has predicted that "[i]t looks as though the Chinese are going to have the soft landing they are aiming for" (quoted in Hansell D2). China's interest in stock markets is no longer restricted to within its own boundaries. This month, Shandong Huaneng Power Development Company, "the first mainland Chinese company to have its primary listing on the New York Stock Exchange" ("China Stock" D5), began trading shares. The stock should be an attractive one to investors: Chinese electrical "demand ... is expected to grow by a whopping 17 million kilowatts a year until the turn of the century" (Zuckerman D6). Moreover, China stands to gain from the issue's sales. "The company plans to use the $311 million dollars it received from the offering to retire $83 million in loans from ... Chinese state entities. It also plans to expand its overall generating capacity" (Zuckerman D6). Nor does this signify the only Chinese attempt of raising capital from foreign sources on foreign soil. "Three more power companies are expected to be listed in New York and Hong Kong in the coming months" (Zuckerman D6). Given the apparent strength of the Chinese economy as shown by huge public works projects, extensive foreign investments, participation in the world economy, and a generally higher standard of living by the populace, it would appear that China is now ready to join the world as a modern capitalistic and democratic society. However, this is not quite the case. The CCP retains vestiges of those characteristics of insularity and intransigence as discussed by Nathan. Because of its human rights record, the country's economic growth is being impeded. That is, the politics of China, which have always been allied with its economics, are now restricting international growth. The United States, especially, has been concerned with China's treatment of political dissidents. In May, President Clinton decided to end linking China's trade status with the United States with its record on human rights. The president has been criticized for this because of situations like the following: trials for "'counterrevolutionary activities' [including] ... plans to use a remote-controlled airplane to drop pro-democracy leaflets over ... Tienenmen Square" ("China cracks" A13) have recently begun for fifteen dissidents and labor organizers who were involved in the Tienenmen Square protests. These trials have "been delayed twice, first to avoid negative international reaction just before the decision last September on China's failed bid to host the 2000 Olympics and then this spring to avoid influencing Clinton's trade decision" ("China cracks" A13). In addition, China has instituted "new laws effective in June [which] give sweeping powers to China's State Security Bureau to clamp down on dissidents" ("China cracks" A13). China is fully aware of United States' concerns about its human rights record. Given the fact that the United States has made it clear to China that that record will be allied with trade status, China's timing of such restrictive activities has caused United States legislators and administrators to question China's sincerity in its desire to have a favored trade status with the United States. Indeed, just in the past few days, it took a last-minute lobbying campaign by President Clinton and his Cabinet [to head off a] potentially embarrassing vote by the House of Representatives to restrict trade with China as a way to punish Beijing for reported human rights violations. (Bradsher A7) But China's problems in joining the community of the world market have more to do than with its political ethos and practices. China appears not to understand or to be able to follow through on fundamental modern economic practices. For example, the United States has recently complained that "China has not complied with international rules on access to its markets and protection of copyrights and patents" (Gargan 14). Such non-compliance could make it difficult for China to become a founding member of the World Trade Organization, the successor to the General Agreement on Tariffs and Trade and the body that is intended to promote global free trade by lowering tariffs and other barriers, [which] will be formally constituted on January 1, 1994. (Gargan 14) The specific nature of the United States' complaint has to do with China's pirating of musical compact disks, video laser disks and computer software. In fact, it is estimated that such pirating costs American companies a billion dollars a year. This phenomenon seems to have to do with the Chinese psychology as described by Nathan. In his 1981 essay he noted that China did not wish to become a "technological client of the west. The preferred solution is to buy one item and copy it" (Nathan 52). Clearly, this is not the way trade works today. It is the United States' position that China must adhere to the rules of trade before it can be included in a trade organization. Needless to say, exclusion from WTO would be disastrous for any country, but particularly for an emerging market such as China. Even on a day to day basis, China's economic leaders seem unable to understand how some aspects of a market economy work. In discussing the status of the Shanghai Stock Market, for example, one stock dealer referred to it as "crazy" ("Stocks Surge" D2). Moreover, American analysts have been amazed to discover in the Shanghai market "the lack of regulation and the poor disclosure requirements. Some companies have been listed for two or three years and have not issued an annual report" (Hansell D2). It is no wonder that Chinese investors become anxious about their investments. The issuance of shares in the Shandong Huaneng Power Development Company also demonstrates the lack of expertise on the part of the Chinese in the modern world market. In fact, according to one Hong Kong investment analyst, "'[t]he company wasn't really a company. It was just a bunch of discrete plants that they tied a bow around and wrote a prospectus on'" (Zuckerman D6). The prospectus guaranteed a fifteen percent annual return on investments. In fact, the return will no doubt be less than that because of prevailing currency exchange rates and debt that the company will have to assume. To be sure, the problems of the Shandong Huaneng Power Development Company and the Shanghai Stock Exchange may demonstrate only the problems of an immature economy. Nevertheless, if China wishes to become a viable member of the world economic community, such shortcomings will have to be eliminated quickly. These apparent problems may also be the result of an economic system that is run by the state. Certainly, one thing that the CCP has attempted to do is create a market economy while retaining a state controlled system. This structure may be possible but it does have its critics. Steven N.S. Cheung, in an essay written in 1989, argued for the "creation of private property by mandate" (31), feeling that privatization in China would lead to necessary additional investment in the society's infrastructure and the establishment of a "judicial system that is based firmly on the principle of equality before the law" (Cheung 32). Echoing Cheung's sentiments, James Dorn saw problems in the areas of Chinese banking and finance. In this arrangement, Dorn argued, "the state controls the bulk of investment resources. The lack of a private capital market has handicapped economic development in China and hampered rational investment decisionmaking" (43). In order to become a modern economic state Dorn argued for the necessity of circumventing "China's ruling elite who oppose the dismantling of state monopolies and who benefit from price fixing and nonprice rationing" (51). Xu Zhiming also saw the necessity for a revamping of the Chinese system: "We must throw off the traditional system completely" (249) in order for economic reform to thrive. Communist Party members, of course, articulate a different position. In a recent interview that appeared in the Beijing Review, Feng Bing, Deputy Secretary General of the State Commission for Restructuring the Economic System, spoke to the issue of economic reform in China. It is striking that Feng spoke of the benefits that the populace has received as a result of the economic reform now occurring in China. That is, his comments appeared to demonstrate the beneficence, or the moral force, of the Chinese Communist Party vis-a-vis economic reform. He noted that such reform involves the essence of socialism: "to liberate and develop productive forces; to eradicate exploitation; to remove polarization; and ... to attain the goal of common prosperity" ("Official" 12). Thus, CCP leaders still appear to see their roles as representatives of a moral force. CCP members and leaders wish economic reform not to be judged on just its practical merits, but also as an effect of the moral force of the leadership. Economic reform, then, becomes nothing less than a moral crusade and it is thus easy to see why, for example, China "has staked its national prestige on becoming a founding member of the World Trade Organization" (Gargan 14). Will China succeed in taking its place among the nations of the world market? Will the CCP succeed in retaining its political power given the drastic changes in the societal makeup of China that are occurring due to the changing economic realities? I would suggest that the chances are better for the former than for the latter. Once the Chinese attain more sophistication relative to international and national markets, institute a more manageable banking system, and make a good faith effort to insure acceptable human rights, the country may well become "the richest economy in the world within the next 25 years" (Gilder 372). However, whether or not these conditions can occur without a weakening of the state controlled system is problematic. The most impressive and far-reaching display of moral force by the CCP may well have to be a voluntary reduction of its power over the people. Paradoxically, by weakening itself politically, the party may demonstrate its true moral force by liberating, politically and economically, one billion Chinese citizens. WORKS CITED "Boeing Planning to Invest $100 Million for China Plant." New York Times: 9 August 1994, D4. Bradsher, Keith. "Bill to Restrict China's Imports Loses in House." New York Times: 10 August 1994, A7. Cheung, Steven N.S. "Privatization vs. Special Interests: The Experience of China's Economic Reforms." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 21-32. "China cracks down on dissent after trade threat lifted, report says." Hartford Courant: 29 July 1994, A13. "China Stock Is Most Active." New York Times: 5 August 1994, D5. Dorn, James A. "Pricing and Property: The Chinese Puzzle." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 39-61. "Du Pont Plans Increase In Chinese Investment." New York Times: 10 August 1994, D2. Gargan, Edward A. "U.S. May Thwart China's Trade Goal." New York Times: 24 July 1994, 14. Gilder, George. "Let a Billion Flowers Bloom." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 369-374. Hansell, Saul. "Chinese Stock Markets Bounce Back, Rising 30%." New York Times: 2 August 1994, D2. Nathan, Andrew J. China's Crisis. New York: Columbia University Press, 1990. "Official on Economic Reform." Beijing Review: 27 June- 3 July 1994, 11-15. Riboud, Marc. "China Leaps Upward." New York Times Magazine: 27 December 1992, 12-15. Shenon, Philip. "A Nail-Biting Ride in Shanghai." New York Times: 6 August 1994, 33, 41. Shenon, Philip. "China Halts Listing of New Stock." New York Times: 1 August 1994, D1, D4. Shirk, Susan L. The Political Logic of Economic Reform in China. Berkeley: University of California Press, 1993. Solinger, Dorothy J. China's Transition from Socialism: Statist Legacies and Market Reforms, 1980-1990. Armonk, NY: M. E. Sharpe, 1993. "Stocks Surge in China As Volume Sets Record." New York Times: 9 August 1994, D2. Tyler, Patrick E. "Economic Focus in Shanghai: Catching Up." New York Times: 22 December 1993, A1, A8. Xu, Zhiming. "The Impact of China's Reform and Development on the Outside World." Economic Reform in China: Problems and Prospects. Ed. James A. Dorn and Wang Xi. Chicago: University of Chicago Press, 1990. 247-253. Zuckerman, Laurence. "A Foreign Offering's Unsure Pedigree." New York Times: 11 August 1994, D6. f:\12000 essays\business & economics (632)\Classical liberalism 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Classical liberalism was the dominant ideology of capitalism during the periods of eighteenth century. It view was widely accepted. It said that government should just sit back and watch business so they do not cheat the government also to enforce contracts. The classical had many creeds they were Psychological, economic, and ,political. Each view has its own points. In this paper I will discuss those points and show you how Bob Dole is a classical liberalist. Psychological creed of classical liberalism is based on four assumptions of human nature. People were believed to be egoistic, coldly calculating, essential inert, and atomistic. Hobbes a economics argued that people were motivated by the desire for pleasure and to avoid pain. Jeremy Bentham believed pleasure differ in intensity but there was no qualitative difference. He argued that "quality of pleasure being equal, to a pushpin is as good as poetry," The theory he is trying to say about human motivation is that the we are lazy and selfish A big part of classical liberalism is that we are coldly calculating. Being coldly calculating means that when a situation comes about we dissever what will make us receive less pain and more pleasure. Although the human motivation is by pleasure it is the decision that are cold, selfish, dispassionate, and rational assessment of the situation to choose how to avoid the pain and receive the pleasure. The emphasis on the importance of rational measurement of pleasure and pains that forms the calculating intellectual side of the classical liberal's of psychology. Classical liberalism tells us that if the individuals saw there was no chance of pleasure or feared no pain, then they would be inert, motionless, or in simpler terms. Just plain lazy. Any type of extra work is consider painful therefore would not been done unless someone were to promise them greater pleasure then the pain. This thinking of the human race being lazy came about in the 1700 to 1770 in England where people only worked because of the fear of hunger. The Reverend Joseph Townsend put this view very succinctly: " Hunger is not only peaceable, silent and unremitted pressure, but, as the most natural motive to industry and labor, it calls forth the most powerful exertions." Towsend believed that "only the experience of hunger would goad them to labor" The last view of classical liberalism is atomistic. The view of atomism is that the individual was a more fundamental reality than the group or society. The classical liberals rejected the views of Christian paternalist ethic which was that the society is like a family and the relationships that made up that society was more important then the individual. Classical liberals believed the society was nothing but a additive of the individuals that constructed it. The classical liberals believed that economic creed was that people would always exert themselves to be better and more wealthy then the people around them. If both capitalists and laborers were left alone, self-interest would guide them o use their capital and labor where were are most productive. The search for more money would be all society would need to keep itself together. They believed that the government should have no control to limit or control in any way to what is to be produced and how. A better product will always top another so self-interest would strive producers to produce better quality products for the consumers. The political creed said that the government should protect society in three ways. The first way was from any threats of from external threats which lead in the nineteenth century to a protection of foreign markets through armed coercion. The second way was to protect citizens against "injustices" committed by other citizens. The protection was only for private property, enforcement of contracts, and preservation of internal order. The third was giving the government the job to protect the source of power of the economically and politically dominant class; the capitalists. When Bob Dole said "its your money , its your money, its your money, and you know how to spend it better than the government" he was referring to the view of the classical liberalism where we are coldly calculating, egotistical, inert, and ,atomistic. He believes that society would drive themselves. He agrees with the economic creed that the government should only protect us from the "injustices" of society. I agree with what Bob Dole is saying because I believe that people will dive themselves to get more money which in turn will cause better quality goods and also more jobs. Which in turn will cause a better society. I also believe that the government should not be able to control businesses only watch over them. I also agree that the government should only protect us from "injustices" and to help maintain contracts. Classical liberalism is a view that people know how to run a good society whether they know it or not. It is a instinctive drive to do better. Society will learn to use each other to do better, to push ourselves further, and intern help each other out. We do not need the government to control us because that may in time cause a society to self-destruct because you are not being lead by the views and drives of yourself but the wills of others. So inconclusion classical liberalism is a view that is very necessary in our society. . f:\12000 essays\business & economics (632)\Classical Liberalism.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Classical Liberalism Classical liberalism was the dominant ideology of capitalism during the periods of eighteenth century. It view was widely accepted. It said that government should just sit back and watch business so they do not cheat the government also to enforce contracts. The classical had many creeds they were Psychological, economic, and ,political. Each view has its own points. In this paper I will discuss those points and show you how Bob Dole is a classical liberalist. Psychological creed of classical liberalism is based on four assumptions of human nature. People were believed to be egoistic, coldly calculating, essential inert, and atomistic. Hobbes a economics argued that people were motivated by the desire for pleasure and to avoid pain. Jeremy Bentham believed pleasure differ in intensity but there was no qualitative difference. He argued that "quality of pleasure being equal, to a pushpin is as good as poetry," The theory he is trying to say about human motivation is that the we are lazy and selfish A big part of classical liberalism is that we are coldly calculating. Being coldly calculating means that when a situation comes about we dissever what will make us receive less pain and more pleasure. Although the human motivation is by pleasure it is the decision that are cold, selfish, dispassionate, and rational assessment of the situation to choose how to avoid the pain and receive the pleasure. The emphasis on the importance of rational measurement of pleasure and pains that forms the calculating intellectual side of the classical liberal's of psychology. Classical liberalism tells us that if the individuals saw there was no chance of pleasure or feared no pain, then they would be inert, motionless, or in simpler terms. Just plain lazy. Any type of extra work is consider painful therefore would not been done unless someone were to promise them greater pleasure then the pain. This thinking of the human race being lazy came about in the 1700 to 1770 in England where people only worked because of the fear of hunger. The Reverend Joseph Townsend put this view very succinctly: " Hunger is not only peaceable, silent and unremitted pressure, but, as the most natural motive to industry and labor, it calls forth the most powerful exertions." Towsend believed that "only the experience of hunger would goad them to labor" The last view of classical liberalism is atomistic. The view of atomism is that the individual was a more fundamental reality than the group or society. The classical liberals rejected the views of Christian paternalist ethic which was that the society is like a family and the relationships that made up that society was more important then the individual. Classical liberals believed the society was nothing but a additive of the individuals that constructed it. The classical liberals believed that economic creed was that people would always exert themselves to be better and more wealthy then the people around them. If both capitalists and laborers were left alone, self-interest would guide them o use their capital and labor where were are most productive. The search for more money would be all society would need to keep itself together. They believed that the government should have no control to limit or control in any way to what is to be produced and how. A better product will always top another so self-interest would strive producers to produce better quality products for the consumers. The political creed said that the government should protect society in three ways. The first way was from any threats of from external threats which lead in the nineteenth century to a protection of foreign markets through armed coercion. The second way was to protect citizens against "injustices" committed by other citizens. The protection was only for private property, enforcement of contracts, and preservation of internal order. The third was giving the government the job to protect the source of power of the economically and politically dominant class; the capitalists. When Bob Dole said "its your money , its your money, its your money, and you know how to spend it better than the government" he was referring to the view of the classical liberalism where we are coldly calculating, egotistical, inert, and ,atomistic. He believes that society would drive themselves. He agrees with the economic creed that the government should only protect us from the "injustices" of society. I agree with what Bob Dole is saying because I believe that people will dive themselves to get more money which in turn will cause better quality goods and also more jobs. Which in turn will cause a better society. I also believe that the government should not be able to control businesses only watch over them. I also agree that the government should only protect us from "injustices" and to help maintain contracts. Classical liberalism is a view that people know how to run a good society whether they know it or not. It is a instinctive drive to do better. Society will learn to use each other to do better, to push ourselves further, and intern help each other out. We do not need the government to control us because that may in time cause a society to self-destruct because you are not being lead by the views and drives of yourself but the wills of others. So inconclusion classical liberalism is a view that is very necessary in our society. f:\12000 essays\business & economics (632)\Clinton Administrations Proposal to Increase Taxes for Multinational.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Clinton Administration's Proposal to Increase Taxes for Multinational Corporations My topic is the increase if the taxes which Clinton Administration is planning. This increase in taxes will target "multinational Corporations, end the favored tax treatment of extra long term bonds", It will also raise capital gains taxes by "changing the rules for computing the cost basis of securities when they are sold at a profit". What this will do is increase the taxes for the rich and will decrease the difference between the rich and the poor. The plan is intent on cutting the middle class tax and finance higher education (yeah right). The current tax law decreases the Federal Treasury Revenue and makes the economy less efficient or less competitive. The multinational tax would disallow multinationals to assume half of their goods are foreign even if they are made in the US. Thus they could export to a country with low taxes and thus pay less taxes. This change would bring an increase of 7.9 Billion in corporate taxes over the next 5 years. This withdraws a lot of money from the economy and may thus decrease demand for goods, as people have less money to spend. The multinationals would employ many people and with and increase in their cost (tax is a type of cost) they would be forced to decrease the average amount of wages which the their employees received. This may take the form of decreased raises, or the laying off of some people. This would thus decrease aggregate demand for goods Nationally (as Multinationals would employ people in the US). It would also cause the companies to produce their goods in other countries and thus decrease the amount of people employed in the US. It would help the economy of other countries as those multinationals would move there. Thus the supply of goods demanded in the US would decrease. This decrease in economic activity (due to the reduction of the money supply and the wages of the people) would cause the economy to slow down and may plunge the country further into recession. These companies may also provide goods for the US and would thus decrement the supply of goods in America. The multinationals produce goods in the US to export into other countries. This would decrease. They would produce goods in the countries with lower tax costs and import them into the US. With the US balance of trade in such a poor shape, I am sure that any further damage to it would not be beneficial to the economy. They also wish to force people to use a bundle of stocks when computing capital gains tax. Presently there are 3 methods for computing the "cost basis of stock" and most people, like the economic man, attempt to reduce the amount of tax paid. This would bring another 600 million a year. Thus there would be even less money in the economy and that would further decrease demand. Wall Street would have a decrease in trading as people would not buy as many stocks as they did before, and the economy would lose out due to the multiplier effect, of the people in Wall Street losing a little, and passing this on to the shops which they buy things from etc.. These proposals would prevent the large corporations from getting more capital, but increase the amount of small business in the economy. This change in the market structure may be good and bad. The sole proprietor would benefit due to the tax cuts to the middle class. However the large companies, which are usually Public Limited Companies would lose out. f:\12000 essays\business & economics (632)\Clintons Tax stuff.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Essay My topic is the increase if the taxes which Clinton Administration is planning. This increase in taxes will target "multinational Corporations, end the favored tax treatment of extra long term bonds", It will also raise capital gains taxes by "changing the rules for computing the cost basis of securities when they are sold at a profit". What this will do is increase the taxes for the rich and will decrease the difference between the rich and the poor. The plan is intent on cutting the middle class tax and finance higher education (yeah right). The current tax law decreases the Federal Treasury Revenue and makes the economy less efficient or less competitive. The multinational tax would disallow multinationals to 'assume' half of their goods are foreign even if they are made in the US. Thus they could export to a country with low taxes and thus pay less taxes. This change would bring an increase of 7.9 Billion in corporate taxes over the next 5 years. This withdraws a lot of money from the economy and may thus decrease demand for goods, as people have less money to spend. The multinationals would employ many people and with and increase in their cost (tax is a type of cost) they would be forced to decrease the average amount of wages which the their employees received. This may take the form of decreased raises, or the laying off of some people. This would thus decrease aggregate demand for goods Nationally (as Multinationals would employ people in the US). It would also cause the companies to produce their goods in other countries and thus decrease the amount of people employed in the US. It would help the economy of other countries as those multinationals would move there. Thus the supply of goods demanded in the US would decrease. This decrease in economic activity (due to the reduction of the money supply and the wages of the people) would cause the economy to slow down and may plunge the country further into recession. These companies may also provide goods for the US and would thus decrement the supply of goods in America. The multinationals produce goods in the US to export into other countries. This would decrease. They would produce goods in the countries with lower tax costs and import them into the US. With the US balance of trade in such a poor shape, I am sure that any further damage to it would not be beneficial to the economy. They also wish to force people to use a bundle of stocks when computing capital gains tax. Presently there are 3 methods for computing the "cost basis of stock" and most people, like the economic man, attempt to reduce the amount of tax paid. This would bring another 600 million a year. Thus there would be even less money in the economy and that would further decrease demand. Wall Street would have a decrease in trading as people would not buy as many stocks as they did before, and the economy would lose out due to the multiplier effect, of the people in Wall Street losing a little, and passing this on to the shops which they buy things from etc.. These proposals would prevent the large corporations from getting more capital, but increase the amount of small business in the economy. This change in the market structure may be good and bad. The sole proprietor would benefit due to the tax cuts to the middle class. However the large companies, which are usually Public Limited Companies would lose out. f:\12000 essays\business & economics (632)\CocaCola And Its Evolution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Coca-Cola And Its Evolution The Coca-Cola company started out as an insignificant one man business and over the last one hundred and ten years it has grown into one of the largest companies in the world. The first operator of the company was Dr. John Pemberton and the current operator is Roberto Goizueta. Without societies help, Coca-Cola could not have become over a 50 billion dollar business. Coca-Cola was invented by Dr. John Pemberton, an Atlanta pharmacist. He concocted the formula in a three legged brass kettle in his backyard on May 8, 1886. He mixed a combination of lime, cinnamon, coca leaves, and the seeds of a Brazilian shrub to make the fabulous beverage(Things go better with Coke 14). Coca-Cola debuted in Atlanta's largest pharmacy, Jacob's Pharmacy, as a five cent non- carbonated beverage. Later on, the carbonated water was added to the syrup to make the beverage that we know today as Coca-Cola. Coca-Cola was originally used as a nerve and brain tonic and a medical elixir. Coca-Cola was named by Frank Robinson, one of Pemberton's close friends, he also penned the famous Coca-Cola logo in unique script. Dr. John Pemberton sold a portion of the Coca-Cola company to Asa Candler, after Pemberton's death the remainder was sold to Candler. Pemberton was forced to sell because he was in a state of poor health and was in debt. He had paid $76.96 for advertising, but he only made $50.00 in profits. Candler acquired the whole company for $2,300(Coca-Cola multiple pages). Candler achieved a lot during his time as owner of the company. On January 31, 1893, the famous Coca-Cola formula was patented. He also opened the first syrup manufacturing plant in 1884. His great achievement was large scale bottling of Coca-Cola in 1899. In 1915, The Root Glass Company made the contour bottle for the Coca-Cola company. Candler aggressively advertised Coca-Cola in newspapers and on billboards. In the newspapers, he would give away coupons for a free Coke at any fountain. Coca-Cola was sold after the Prohibition Era to Ernest Woodruff for 25 million dollars. He gave Coca-Cola to his son, Robert Woodruff, who would be president for six decades(Facts, Figures, and Features Multiple pages). Robert Woodruff was an influential man in Atlanta because of his contributions to area colleges, universities, businesses and organizations. When he made a contribution, he would never leave his name, this is how he became to be known as "Mr. Anonymous." Woodruff introduced the six bottle carton in 1923. He also made Coca-Cola available through vending machine in 1929, that same year, the Coca- Cola bell glass was made available. He started advertising on the radio in the 1930s and on the television in 1950. Currently Coca-Cola is advertised on over five hundred TV channels around the world. In 1931, he introduced the Coke Santa as a Christmas promotion and it caught on. Candler also introduced the twelve ounce Coke can in 1960. The Coca-Cola contour bottle was patented in 1977. The two liter bottle was introduced in 1978, the same year the company also introduced plastic bottles(Coca-Cola multiple pages). Woodruff did have one dubious distinction, he raised the syrup prices for distributors. But he improved efficiency at every step of the manufacturing process. Woodruff also increased productivity by improving the sales department, emphasizing quality control, and beginning large-scale advertising and promotional campaigns. Woodruff made Coke available in every state of the Union through the soda fountain. For all of these achievements he earned the name, "The Boss"(Facts, Figures, and Features Multiple pages). In 1985, the Coca-Cola Company made what has been known as one of the biggest marketing blunder. The Coca-Cola company stumbled onto the new formula in efforts to produce diet Coke. They put forth 4 million dollars of research to come up with the new formula. The decision to change their formula and pull the old Coke off the market came about because taste tests showed a distinct preference for the new formula. The new formula was a sweeter variation with less tang, it was also slightly smoother(Demott 54). Robert Woodruff's death was a large contributor to the change because he stated that he would never change Coca-Cola's formula. Another factor that influenced the change was that Coke's market share fell 2.5 percent in four years. Each percentage point lost or gain meant 200 million dollars. A financial analyst said, "Coke's market share fell from 24.3 percent in 1980 to 21.8 percent in 1984"(Things go better with Coke 14). This was the first flavor change since the existence of the Coca- Cola company. The change was announced April 23, 1985 at the Vivian Beaumont Theater at the Lincoln Center. Some two hundred TV and newspaper reporters attended this very glitzy announcement. It included a question and answer session, a history of Coca-Cola, and many other elements(Oliver 131). The debut was accompanied by an advertising campaign that revived the Coca-Cola theme song of the early 1970s, "I'd Like to Buy the World a Coke"(Say it ain't so, Coke 24). The Jingle read like this: I'd like to teach the world to sing In perfect harmony. I'd like to buy the world a Coke And keep it company. The change to the world's best selling soft drink was heard by 81 percent of the United States population within twenty-four hours of the announcement. Within a week of the change, one thousand calls a day were flooding the company's eight hundred number (1-800-GET-COKE). Most of the callers were shocked and/or outraged, many said that they were considering switching to Pepsi. Within six weeks, the eight hundred number was being jammed by six thousand calls a day. The company also fielded over forty thousand letters, which were all answered and each person got a coupon for the new Coke. A retired Air Force officer, explained in a letter to the Coca-Cola company that he wanted to be cremated and interred in a Coke can, but now that this change had come about he was reconsidering(Pendergrast Multiple pages). Sharlotte Donneally, a thirty-six year old anthropologist said, "I hate the new stuff"(Demott 60). Wendy Koskela, a thirty-five year old vice president of an insurance company said, "It's too sweet. It tastes like Pepsi." She also stated, "Real Coke had punch. This taste almost like it's flat"(Demott 60). Many American consumers of Coca-Cola asked if they would have the final say. When Pepsi heard that the Coca-Cola company was changing its secret formula they said that it was a decision that Pepsi tastes better. Roger Enrico, the president and CEO of Pepsi-Cola wrote a letter to every major newspaper in the U.S. to declare the victory, the letter read like this(Oliver 128): It gives me great pleasure to offer each of you my heartiest congratulations. After eighty-seven years of going at it eyeball to eyeball, the other guy just blinked. Coca-Cola is withdrawing their product from the marketplace, and is reformulating brand Coke to be more like Pepsi...There is no question the long-term market success of Pepsi has forced this move...Maybe they finally realized what most of us have known for years, Pepsi tastes better than Coke. Well, people in trouble tend to do desperate things...and we'll have to keep our eye on them. But for now, I say, victory is sweet, and we have earned a celebration. We're going to declare a holiday on Friday. Enjoy! Best Regards, Roger Enrico President, CEO Pepsi-Cola USA Coca-Cola officials said, "The new formula will boost Coke's share by 1 percent. That is worth 200 million dollars a year." Coca-Cola management had to decide: Do nothing or "buy the world a new Coke"(Things go better with Coke 14). They decided to develop the new formula. Roberto Goizueta, the president of the Coca-Cola Company stated, "The old Coke formula, with its secret flavoring ingredient, called Merchandise 7X, will stay locked in the Trust Company of Georgia bank vault in Atlanta, never to be used again"(Demott et. al 55). This is what many Coke officials said, "This is the most significant soft drink development in the company's history"(Demott et. al 54). The change back to the old Coke was known as the Second Coming. Roberto Goizueta said, "Today, we have two messages to deliver to the American consumer, first, to those of you who are drinking Coca-Cola with its great new taste, our thanks...But there is a second group of consumers to whom we want to speak to today and our message to this group is simple: We have heard you"(Oliver 178). On July 10, 1985, eighty-seven days after the new Coke was introduced, the old Coke was brought back in addition to the new one. This was greatly due to dropping market share and consumer protest. The market share fell from a high of 15 percent to a low of 1.4 percent(Miller 38). Roberto Goizueta and Donald Keough took full blame for this failed product launch. Don Keough, Coca-Cola president, said in response to the comeback, "The truth is we are not dumb and we are not that smart"(New bottle 18). Roberto Goizueta's response when the change about, "We have heard you"(Moore 8). This was said to be a classic marketing retreat. Coca-Cola executives admitted that they had goofed by taking the old Coke off the market. One old Coke loyalist said, "The company had spoiled the taste of its ninety nine year old soft drink and betrayed a national trust"(Moore 8). Ike Herbert, a Coke marketer said, "You would have thought we had invented a cure for cancer"(Pendergrast 366). The Coca- Cola company's eight hundred number received eighteen thousand calls of gratitude. One caller said they felt like a lost friend had returned home. The comeback of old Coke drove stock prices to the highest level in twelve years. This was said to be the only way to regain the lead on the cola wars(Classic comeback of an old champ 12). In 1979, fifteen hundred employees moved to the new corporate headquarters in Atlanta located on North Avenue. The new corporate headquarters came to be known as "The Tower." During the time when the research for the new formula was taking place, it was known as "The Bunker"(Oliver 53). The known ingredients in present day Coca-Cola are water. caffeine, phosphoric acid, vanilla, various oils and essences and extracts of the coca leaf and the kola nut. The one in four hundred part of cocaine was removed from Coca-Cola in 1903(Demott 54). Five years after the infamous Coke fiasco, the Coca-Cola company tried to bring back the reformulated Coke. The effort to phase in Coke II into the soda market was quite unsuccessful(Miller 38). During the Woodruff era, Mr. Woodruff made a promise to the armed forces of the United States to supply Coca-Cola to every serviceperson. He said that costs and location did not matter, he supplied 5 billion bottles to the service. In the mid-1970's, more than half Coca-Cola sold was outside of the U.S. Coca-Cola products outsell closest competitor by more than two to one. One in every two colas and one in every three soft drinks is a Coca-Cola product(Facts, Figures, and Features 16). The best known trademark in the world is sold in about one hundred and forty countries to 5.8 billion people in eighty different languages. This is why Coca-Cola is the largest soft drink company in the world. Coca-Cola is worth more than 58 billion dollars on the stock market(Coca-Cola, The Coca-Cola Company 232). For more than 65 years, Coca-Cola has been a sponsor of the Olympics. The 1996 Summer Olympics will be held in Atlanta, Georgia, the home of Coca-Cola. One great earmark that the Coca-Cola company has is helping the people of Atlanta. They accomplish this through scholarships, hotlines, donations and contributions, etc. Another large accomplishment that the Coca-Cola has, is being the first company to make and use recycled plastic bottles. One way to see all of the achievements of the Coca- Cola company is to visit the World of Coke in Atlanta. It houses a collection of memorabilia, samples of the products, exhibits, and many other exciting items(Facts, Figures, and Features Multiple pages). All of what has been said is the basis of what Coca-Cola was built on. Without societies help, Coca-Cola could not have become over a 50 billion dollar business. Keep on consuming the world's favorite soft drink, Coca-Cola. f:\12000 essays\business & economics (632)\CocaCola.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Management's Achievement Claims Perspective It is to no one's surprise that Coca-Cola is one of the world's largest companies. Fourteen years ago, Coca-Cola began building credibility to its investors by never over-promising, just consistently hitting long-term growth targets. In Great Britain, Coca-Cola surpassed two leading teas of consumption per capita. People said it would not be possible, but Coke did it. That is just one example. Coca-Cola's management believes in the theory that people need 64 ounces of liquid everyday to survive. Right now, Coke only accounts for an average of less than two of those ounces. They believe that by adding strength to the world's strongest brand, it will help people make Coke a more frequent choice for those 64 ounces. The part of this Annual Report that I personally wanted to attack was the lack of sales in Canada and Coca-Cola's goals in improving them. Being native of Canada and a big Coke fan, I know that Coke has struggled in my homeland for several years. M. Douglas Ivester answered my concern by stating that Coke allowed the retail prices of their products to out pace their value in the eyes of our consumers. Since 1994-1995, Canada's unit per case volume increased 4%. Coke is expecting an even greater increase in 1996 because their Canadian bottler signed with two major grocery retailers. Coca-Cola used Canada as a lesson they can use as a guide worldwide never repeat. CEO, Robert Goizueta believes that there is no limit to your growth. He will not allow boundaries to be set. It is evident to me that Coke is not setting boundaries considering that they have a bottler in almost every corner of the world. Coke is focused on strengthening world wide markets and creating new ones. In this report, they state how the will improve sales in Nigeria, China, South Africa, and Canada. Of all the Financial Reports I have read (Anderson Consulting, Home Depot, Green Park, etc.), Coca-Cola is a company in which I believe what the management claims. Coke has a great responsibility of making investors, employees, and consumers happy all over the world. Why would they blow it?? Coke realigned their management team at the beginning 1996 to more accurately reflect the global nature of their business. That says growth all over it. Comparison to Industry Standards Coca-Cola Industry Standard 1.) Quick Ratio .2 .7 This states that Coke through these calculations is not as liquid as the industry standard. 2.) Current Ratio 1.0% 1.4% 3.) Profit Margin 11% 9% 4.) Return on Equity 55% 9.5% This is very good percentage, above industry standard. 5.) Asset Turnover 1.2% 3.6% 6.) Return on Assets 20% 8.5% 7.) Debt to Equity 75.3% 66.5% A little high compared to industry, but still has not peaked at 100%. The present value of Coca-Cola's discounted cash flow compared with the market value shows that Coca-Cola is greatly undervalued. This makes Coca-Cola a good investment for the future. Conclusion After doing several ratios and comparing them to the industry average, I see nothing but a solid investment for 1997. Coca-Cola has not yet peaked in its profit increase and return on equity. This company is so big that if the company burned down to the ground, they would have no trouble borrowing the money to rebuild, just based on the strength of their Trademarks alone. Coca-Cola's trademark is worth $1 for accounting purposes, but in the neighborhood of $40 billion in actuality. Coke has an unbelievable cash flow because their capital requirements are low for a company of their size. They only have 32,000 employees worldwide. Unlike wine, Coke products can go from production to consumption in a matter of hours. As far as their advertising goes, they now use many different agencies instead of just one. This will add more creativity and ideas. When we finally have our meeting with the investment club, Coke will be one of the stocks I invest in because of the sense of security it gives you. ;klj f:\12000 essays\business & economics (632)\Code of Professional Ethics by American Institute of Certified Public Accountants.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Code of Professional Ethics by American Institute of Certified Public Accountants Introduction "A code of professional ethics is a voluntary assumption of self discipline above and beyond the requirements of the law. The Code of Ethical Conduct serves the highly practical purpose to notify the public that the profession will protect the public interest" (Carey, Doherty: p 3). When people need a doctor, a lawyer or a certified public accountant, they seek someone whom they can trust to do a good job, not for himself but for them. People assume that the hired professional is qualified since they cannot appraise him. They must take it on faith that he is competent. That is why professionals are distinguished from businesses and why there is a need for ethical regulations. The Code of Professional Ethics The Code of Professional Ethics for public accountants was developed by the American Institute of Public Accountant and includes four different categories. The first, Concepts of Professional Ethics, establishes major requirements for CPAs in different areas of their day-to-day professional activities. The main parts of the Code are: Independence, Integrity and Objectivity in the practice of public accounting, Competence and technical standards, Responsibilities to clients, Responsibilities to colleagues and Other responsibilities and Practices. Independence has always been the fundamental concept to the accounting profession. In fact it is the most essential to the practice of all professions. The financial reports produced by CPAs would be of little value to the public unless CPAs maintain their independence. Independence has always been associated with integrity and objectivity. Since faults on financial statements may be the result of either a honest mistake or a lack of integrity it is imperative to associate the notion of independence with the objectivity and integrity. As part of the requirements by the Code of ethics, CPA should avoid any relationships that may result in the CPA's becoming dependent on the particular client. Such relationships include financial interests and client management. It is very important that the opinion of the CPA reflects the results of operating decisions taken by the client and not any underlying ideas which may be the case if a CPA takes part in the decision making process of the company. Another important issue discussed in the Code of ethics is competence and responsibility of CPAs. It establishes a basic ethical obligation that a CPA shall not render any services which he is not competent to render. Within this topic, the code mentions continuing improvement of the competence of CPAs in all areas in which they engage. In fact, the requirements of competence are established by law. If a man renders a service he is not familiar with, he commits a fraud on the public (However, CPAs are supposed in a reasonable manner to carry this principle beyond). The code of ethics assumes that in situations where CPAs face a problem he/she is not familiar with, they may ask other practitioners for help. A CPA may drop the case only when his/her efforts prove to be futile. From the other standpoint, there are always unknowns in every profession. Thus, to assume that every practitioner is completely knowledgeable would be inaccurate. Responsibilities to Clients include CPAs' maintaining their independence, integrity and objectivity regardless of any personal interest that previously exists. CPAs should hold in confidence, all the information about their clients which they acquire during engagements. However the Code states that CPAs should insist on disclosing in financial reports, all information necessary for the fair presentation of the clients' affairs. The accountancy laws in some states of the USA contain provisions which do not require disclosing information obtained during engagement by accountant in any court. These clauses directly interfere with federal jurisdiction. Federal courts have held that a "state statute conferring privileged status on communications to accountants does not apply to a Federal administrative proceedings" (Carey and Doherty: p. 133) and may require disclosure of the information by CPA. With reference to the Responsibilities to Colleagues, good relations within a profession are very important because they aid in the exchange information and opinions. "The public confidence in professional accounting is gained mainly by cumulative accomplishments of all CPAs" (AICPA, Section 55, article 01). Successful professionals in accounting do not hide secrets from what they have learned from their experience. They share their ideas with other practitioners who address them directly or publish articles in professional publications, through speeches and professional meetings. The code prescribes assisting colleagues in complying with the code of ethics and disclosing cases of its enforcement. Basically, the principles of responsibilities to fellow practitioners described in the Code do not establish the limits of professional conduct. They define the area and basic foundations of the professional courtesy. Finally the code defines general principles of ethical conduct for professional accountants. These responsibilities are not discussed in other parts of the Code but they underlie all ethical principles mentioned in the text of the Code. They establish basic regulations of rivalry inside the profession and also establish the ethical obligation of CPAs to clients in determining fair fees for their services, and other principles. The foundation of public accounting is the client confidence and those people who are using financial statements produced by CPAs. To keep the confidence of clients, CPAs shall maintain their independence and objectivity. The standards of independence require that the CPA does not subordinate his judgement on to that of the client keeping in mind that there are other CPAs who are knocking at his client's door. One of the other principles mentioned in the Code is the renunciation of promotional methods of the commercial world which increase the pressure on CPAs and will lead to conformity with the letter of the code evading its spirit. CPA shall not be involved with business activities that are incompatible with the practice of public accounting. These activities include selling securities because this may include promotional activities for a public accounting practice and consequently negatively influence the independence of CPAs. The next category of the Codes of professional ethics include Rules of Conduct which establish more detailed regulations of the principles described in the first part of the Code. These rules become effective only after approval of the membership. A member who is found guilty in enforcing Rules of conduct may be expelled or suspended by the Trial Board. The Rules of conduct have four major parts as mentioned in the first part of the Code under the Concepts of Professional ethics. Each section of the Rules of Conduct has a subset of particular cases given under Ethics Rulings. In addition to the standards described above, state CPA institutions and other government establish their own ethical standards. Conclusion Professional ethics is concerned with human behaviour and human relations. As human society becomes more complicated, so do the codes of professional conduct. The purpose of the rules is to attract and increase public confidence and discourage behaviour inconsistent with the image of profession. Public confidence may even be more important to the public accountant than to any other professional because CPAs are concerned not only about their clients but also about those who rely on their reports. The code of ethical conduct provides members of the profession with the rules that were worked out on the historical basis to attract the confidence of the public. Therefore, the rules of ethics are the foundation of public confidence. Works Cited John L. Carey and William O. Doherty. Ethical Standards of the Accounting Profession. New York: American Institute of Certified Public Accountants, 1966 American Institute of Certified Public Accountants. Code of Professional Ethics. New York: AICPA, 1977 f:\12000 essays\business & economics (632)\Cola Wars InternationalCOKE V PEPSI.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Stephen Brennan Accounting II Tue/Thur. 3-4:30 The Wall Street Journal recently did an article on how the soft-drink battleground has now turned toward new overseas markets. While once the United States, Australia, Japan, and Western Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they are still important markets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China, Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming joint bottling ventures in these nations and in other areas where they see growth potential. As we have seen, international marketing can be very complex. Many issues have to be resolved before a company can even consider entering uncharted foreign waters. This becomes very evident as one begins to study the international cola wars. The domestic cola war between Coca-Cola and Pepsi is still raging. However, the two soft-drink giants also recognize that opportunities for growth in many of the mature markets have slowed. Both Coca-Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10 billion cases come from?" The answer lies in the developing world, where income levels and appetites for Western products are at an all time high. Often, the company that gets into a foreign market first usually dominates that country's market. Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy to make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that Awherever American boys were fighting, they'd be able to get a Coke. By the time Pepsi tried to make its first international pitch in the 50s, Coke had already established its brand name and a powerful distribution network. In the intervening 40 years, many new markets have emerged. In order to profit from these markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially prevents them from conducting business in these markets. This paper seeks to examine these markets and the opportunities and roadblocks that lie within each. In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the first-mover advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand. Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka since rubles are not tradable on the world market. However, Pepsi has also had some problems. There has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even though it has produced commercials tailored to the Russian market and has sponsored television concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price between the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters for Rb1,800. Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high- class image, it is unable to capture market share. Romania is the second largest central European market after Poland, and this makes it a hot battleground for Coca-Cola and Pepsi. When Pepsi established a bottling plant in Romania in 1965, it became the first U.S. product produced and sold in the region. Pepsi began producing locally during the communist period and has recently decided to reorganize and retrain its local staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert. Another reason for drinking Pepsi is that it is slightly sweeter than Coca-Cola and is more suited for the sweet-toothed Romanians. Lastly, some drink Pepsi because, in the past, only top officials were allowed to drink it, but now everyone can. Coca-Cola only began producing locally in November 1991, but it is outselling all of its competitors. In 1992, Coca-Cola saw an increase in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. While Pepsi preferred to buy its equipment from Romania, Coca-Cola preferred to bring equipment into Romania. Also, Coca- Cola brought 2 bottlers to Romania. One is the Leventis Group, which is privately owned. Coca- Cola has invested almost $25 million into 2 factories. These factories are double the size of the factory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with a local company, Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressive publicity campaign and has sponsored local sporting and cultural events. Lastly, Romanians drink Coke because it is a powerful western symbol which was once forbidden. Both Coca-Cola and Pepsi are trying to have their colas available in as many locations in Eastern Europe, but at a cost which consumers would be willing to pay. The concepts which are becoming more important in Eastern Europe include color, product attractiveness visibility, and display quality. In addition, availability (meeting local demand by increasing production locally), acceptability (building brand equity), and afford ability (pricing higher than local brands, but adapting to local conditions) are the key factors for Eastern Europe. Both companies hope that their western images and brand products will help to boost their sales. Coca-Cola has a universal message and campaign since it feels that Eastern Europe is part of the world and should not be treated differently. Currently, it is difficult to say who is winning the cola wars since the data from the relatively new market research firms focusses on major cities. Pepsi had a commanding 4 to 1 lead in 1992 in the former Soviet Union. Without this area, Coca-Cola has a 17% share versus Pepsi's 12% share in the soft drink industry. While both companies have been in Eastern Europe for many years, the main task now is to develop the market. f:\12000 essays\business & economics (632)\Cola Wars.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Cola Wars Stephen Brennan Accounting II Tue/Thur. 3-4:30 The Wall Street Journal recently did an article on how the soft-drink battleground has now turned toward new overseas markets. While once the United States, Australia, Japan, and Western Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they are still important markets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China, Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming joint bottling ventures in these nations and in other areas where they see growth potential. As we have seen, international marketing can be very complex. Many issues have to be resolved before a company can even consider entering uncharted foreign waters. This becomes very evident as one begins to study the international cola wars. The domestic cola war between Coca-Cola and Pepsi is still raging. However, the two soft-drink giants also recognize that opportunities for growth in many of the mature markets have slowed. Both Coca- Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10 billion cases come from?" The answer lies in the developing world, where income levels and appetites for Western products are at an all time high. Often, the company that gets into a foreign market first usually dominates that country's market. Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy to make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that Awherever American boys were fighting, they'd be able to get a Coke. By the time Pepsi tried to make its first international pitch in the 50s, Coke had already established its brand name and a powerful distribution network. In the intervening 40 years, many new markets have emerged. In order to profit from these markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially prevents them from conducting business in these markets. This paper seeks to examine these markets and the opportunities and roadblocks that lie within each. In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the first-mover advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand. Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka since rubles are not tradable on the world market. However, Pepsi has also had some problems. There has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even though it has produced commercials tailored to the Russian market and has sponsored television concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price between the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca- Cola sells 1.5 liters for Rb1,800. Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high-class image, it is unable to capture market share. Romania is the second largest central European market after Poland, and this makes it a hot battleground for Coca-Cola and Pepsi. When Pepsi established a bottling plant in Romania in 1965, it became the first U.S. product produced and sold in the region. Pepsi began producing locally during the communist period and has recently decided to reorganize and retrain its local staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert. Another reason for drinking Pepsi is that it is slightly sweeter than Coca-Cola and is more suited for the sweet-toothed Romanians. Lastly, some drink Pepsi because, in the past, only top officials were allowed to drink it, but now everyone can. Coca-Cola only began producing locally in November 1991, but it is outselling all of its competitors. In 1992, Coca-Cola saw an increase in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. While Pepsi preferred to buy its equipment from Romania, Coca-Cola preferred to bring equipment into Romania. Also, Coca-Cola brought 2 bottlers to Romania. One is the Leventis Group, which is privately owned. Coca-Cola has invested almost $25 million into 2 factories. These factories are double the size of the factory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with a local company, Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressive publicity campaign and has sponsored local sporting and cultural events. Lastly, Romanians drink Coke because it is a powerful western symbol which was once forbidden. Both Coca-Cola and Pepsi are trying to have their colas available in as many locations in Eastern Europe, but at a cost which consumers would be willing to pay. The concepts which are becoming more important in Eastern Europe include color, product attractiveness visibility, and display quality. In addition, availability (meeting local demand by increasing production locally), acceptability (building brand equity), and afford ability (pricing higher than local brands, but adapting to local conditions) are the key factors for Eastern Europe. Both companies hope that their western images and brand products will help to boost their sales. Coca-Cola has a universal message and campaign since it feels that Eastern Europe is part of the world and should not be treated differently. Currently, it is difficult to say who is winning the cola wars since the data from the relatively new market research firms focusses on major cities. Pepsi had a commanding 4 to 1 lead in 1992 in the former Soviet Union. Without this area, Coca-Cola has a 17% share versus Pepsi's 12% share in the soft drink industry. While both companies have been in Eastern Europe for many years, the main task now is to develop the market. f:\12000 essays\business & economics (632)\Colgate Palmolive.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Colgate Palmolive With a continuous expansion in it's product line, Colgate-Palmolive is taking on the look of one of the most stable stocks on the exchange. Colgate has a wide variety of products sold around the globe including, Colgate Toothpastes, Speed Stick Deodorants, Ajax Surface Cleaner, and Hill's Science Diet foods for house pets. Colgate was founded in 1806 in New York City on Dutch Street by William Colgate as a starch, soap and candle business. Colgate produced soaps and perfumes or the next 67 years and then in 1873, they introduced their first toothpastes, which were aromatic toothpastes. Then 13 years later, they introduced the first dental creme packaged in collapsible tubes similar to those used today. After 104 years of being in business on Dutch Street, the largest tenancy on record in New York City the entire Colgate organization moved to Jersey City. In 1928 Colgate made its greatest merger of all time with the Palmolive-Peet Company and in 1953 took on its present name of Colgate-Palmolive. By 1967 Colgate-Palmolive was on a roll with sales passing the 1 billion dollar mark. In the years after, Colgate began acquiring major companies and expanding its product line with the purchases of Hill's Pet Products in 1976, the Mennen Company in 1992 and in 1993 acquired the liquid soap brands of S.C. Johnson. Before the purchase of Mennen Co. in 1992, Colgate Palmolive had no major presence in the deodorant industry. With the purchase of Mennen Co. they held 16% of the deodorant market but had to compete with Proctor and Gamble, who held 26% of the market with products such as Sure, Secret and Old Spice. After the purchase of Mennen Co., which was easily purchased without resist for $670 million in cash, Colgate-Palmolive held 16% of the deodorant market with their Speed Stick and Lady Speed Stick deodorants, which are now the leading in world wide sales of deodorants. They also now own products under the Baby Magic name such Skin Bracer and Baby Magic Foot. Powder. In 1976 , Colgate-Palmolive acquired Hills Pet Products Inc. Since the foundation of this company in 1948, they have committed themselves to the health and welfare of dogs and cats. Today, Hill's Pet Nutrition Inc. is one of the leading pet food manufactures and is revolutionizing the pet food industry with its Prescription Diet products used by veterinarians to manage such conditions as obesity, heart disease, kidney disease and many others. Hill's Pet Products also manufacture Hill's Science Diet food. Hill's Pet Products has not always been a success. When it was founded in 1948 by Mark Morris it grew very slowly in it's specialty foods and attempted to enter into other areas of pet care such as flea baths and aquarium supplies. It was taken over a number of times but it seemed to be more of a loss rather than gain. In 1976 Colgate-Palmolive acquired it, attracted by it's Science Diet brand. Colgate revolutionized Hills Pet Nutrition by marketing not through supermarkets but through veterinarians and through pet food stores as the Prescription Diet product line. Since Hills Pet Nutrition was acquired they have had an increase in annual sales from $40 million to $832 million and now make up 11% of Colgate sales. After the takeover of Mennen Co. the price of Colgate-Palmolive Co. rose from 49.13, the 1991 high, to 60.63, the 1992 high. Their sales also increased by 947 million from 6060 million in 1991 to 7007 million in 1992. The net income also increased drastically from $125 million to $477 million. And lastly, the takeover increased the number employed by Colgate-Palmolive from 24,900 to 28,800. Through mergers and divestitures Colgate-Palmolive has grown from a small shop on dutch street to a major stock on the NYSE. Mergers and divestitures are economically wise because they allow for the larger more dependable companies to take another company's products and turn them on the right path, such as Hills Pet Products Inc. The government should not be allowed to regulate them because mergers allow for a more dependable product. Mergers and divestitures help competition between major companies and also bring more money in for the investor through dividends. Although this may cause unemployment, it does help the economy. Bibliography: Financial World-June 20,1995 p 58 "Top Dog-How Hills Pet Nutrition became one of the all-time stars in the Colgate stable" Colgate-Palmolive via Internet Money Online via Internet Chicago Tribune-Feb. 14, 1992 f:\12000 essays\business & economics (632)\Colgate.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Colgate Palmolive With a continuous expansion in it's product line, Colgate-Palmolive is taking on the look of one of the most stable stocks on the exchange. Colgate has a wide variety of products sold around the globe including, Colgate Toothpastes, Speed Stick Deodorants, Ajax Surface Cleaner, and Hill's Science Diet foods for house pets. Colgate was founded in 1806 in New York City on Dutch Street by William Colgate as a starch, soap and candle business. Colgate produced soaps and perfumes or the next 67 years and then in 1873, they introduced their first toothpastes, which were aromatic toothpastes. Then 13 years later, they introduced the first dental creme packaged in collapsible tubes similar to those used today. After 104 years of being in business on Dutch Street, the largest tenancy on record in New York City the entire Colgate organization moved to Jersey City. In 1928 Colgate made its greatest merger of all time with the Palmolive-Peet Company and in 1953 took on its present name of Colgate-Palmolive. By 1967 Colgate-Palmolive was on a roll with sales passing the 1 billion dollar mark. In the years after, Colgate began acquiring major companies and expanding its product line with the purchases of Hill's Pet Products in 1976, the Mennen Company in 1992 and in 1993 acquired the liquid soap brands of S.C. Johnson. Before the purchase of Mennen Co. in 1992, Colgate Palmolive had no major presence in the deodorant industry. With the purchase of Mennen Co. they held 16% of the deodorant market but had to compete with Proctor and Gamble, who held 26% of the market with products such as Sure, Secret and Old Spice. After the purchase of Mennen Co., which was easily purchased without resist for $670 million in cash, Colgate-Palmolive held 16% of the deodorant market with their Speed Stick and Lady Speed Stick deodorants, which are now the leading in world wide sales of deodorants. They also now own products under the Baby Magic name such Skin Bracer and Baby Magic Foot. Powder. In 1976 , Colgate-Palmolive acquired Hills Pet Products Inc. Since the foundation of this company in 1948, they have committed themselves to the health and welfare of dogs and cats. Today, Hill's Pet Nutrition Inc. is one of the leading pet food manufactures and is revolutionizing the pet food industry with its Prescription Diet products used by veterinarians to manage such conditions as obesity, heart disease, kidney disease and many others. Hill's Pet Products also manufacture Hill's Science Diet food. Hill's Pet Products has not always been a success. When it was founded in 1948 by Mark Morris it grew very slowly in it's specialty foods and attempted to enter into other areas of pet care such as flea baths and aquarium supplies. It was taken over a number of times but it seemed to be more of a loss rather than gain. In 1976 Colgate-Palmolive acquired it, attracted by it's Science Diet brand. Colgate revolutionized Hills Pet Nutrition by marketing not through supermarkets but through veterinarians and through pet food stores as the Prescription Diet product line. Since Hills Pet Nutrition was acquired they have had an increase in annual sales from $40 million to $832 million and now make up 11% of Colgate sales. After the takeover of Mennen Co. the price of Colgate-Palmolive Co. rose from 49.13, the 1991 high, to 60.63, the 1992 high. Their sales also increased by 947 million from 6060 million in 1991 to 7007 million in 1992. The net income also increased drastically from $125 million to $477 million. And lastly, the takeover increased the number employed by Colgate-Palmolive from 24,900 to 28,800. Through mergers and divestitures Colgate-Palmolive has grown from a small shop on dutch street to a major stock on the NYSE. Mergers and divestitures are economically wise because they allow for the larger more dependable companies to take another company's products and turn them on the right path, such as Hills Pet Products Inc. The government should not be allowed to regulate them because mergers allow for a more dependable product. Mergers and divestitures help competition between major companies and also bring more money in for the investor through dividends. Although this may cause unemployment, it does help the economy. Bibliography: Financial World-June 20,1995 p 58 "Top Dog-How Hills Pet Nutrition became one of the all-time stars in the Colgate stable" Colgate-Palmolive via Internet Money Online via Internet Chicago Tribune-Feb. 14, 1992 f:\12000 essays\business & economics (632)\Collective Bargaining.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Collective Bargaining: A Great Social Invention? Discuss. "There's strength in numbers" This is a cliché, or could even be called a proverb that most of us have heard at some stage in our lives. It also lies at the heart of collective bargaining, and it provides a reasonable, although simplistic reason for the use of collective bargaining, and also gives us an indication of where and for whom it is most useful. Collective bargaining's origins lie in one of man's primary instincts; defence. In an industrial relations context this is defence of proper working conditions, secure employment and proper pay. Collective bargaining allowed this by gaining pay increases through the increased power of the workers as a joint force. In this context I see collective bargaining as more of an economic and political invention which has had an influence on the social aspects of employment and living. Because of this I would have to say that collective bargaining is not a great social invention simply because it was not a social invention. But it does have social benefits, by providing more economic stability for those who partake in it among other things which I will discuss in this essay. Collective bargaining also has its disadvantages which I will also discuss. These advantages and disadvantages fall on both sides of the collective bargaining fence; the employees and employers. But what exactly is collective bargaining? The answer to that depends on ones viewpoint. What are the social benefits of collective bargaining? And who do these benefits affect? These are but a few of the questions I intend to answer in the course of the next 2000 or so words. To put this essay in context I must say what I feel collective bargaining is and what its purposes are. I see collective bargaining, in its most basic form, as the process by which an organised group of employees, in the form of trade unions, negotiate with employers, their representatives or their associations in relation to any aspect of employment within the employers organisation. The reason that collective bargaining and trade unions are used is the reason cited in the first paragraph; "There's strength in numbers". The individual threat by a single employee to withhold labour is not very great. But when the majority of a workforce in an organisation threaten to strike, or threaten any other form of industrial action this threat becomes altogether more substantial. Collective bargaining gives redress to the imbalance of power between individual workers and employers (Gunnigle et al, 1995). This is the main purpose that collective bargaining is used in industrial relations, and essentially gives collective bargaining a political purpose; the equalisation of power. Once this extra power is attained, collective bargaining is then used for primarily economic purposes. It is only in recent times that social issues have been included in the negotiations in collective bargaining. As this process tends to lead to equal pay for all workers doing the same work, there is as a consequence a social benefit; equality amongst the workforce. While this can have its downside, namely complacency among the employees as there is little incentive to do better in work, this disadvantage has been partly eroded in recent times with the advent of productivity deals, which I will discuss in more detail later in this essay. Collective bargaining is also a political institution in that it regulates and defines the interaction between trade unions and management. In a social context, the consequences of this is a system for regulating industrial conflict. This can help ensure that any industrial conflict is kept within reasonable bounds, and that in most cases the more militant elements in trade unions are kept under control by virtue of the fact that the majority of the workforce see an alternative avenue of dealing with disputes. I believe that this consequence of collective bargaining contradicts the optimistic Marxist view that trade unions and collective bargaining are a school for socialism and a potential revolutionary force. It does confirm the pessimistic view that it ensures that trade unions will never be any more than trade unions, and that collective bargaining oils the wheels of capitalism. But that's not a bad thing at all, and is one of the great social benefits of collective bargaining. So how exactly does collective bargaining oil the wheels of capitalism? Collective bargaining provides management with a method for dealing with employees in an equitable way. But not only equitable, but also seen to be equitable. If areas of common interest are maximised, and stressed in the collective bargaining process, this can reinforce a an acceptance of common interest by the workforce (Purcell, 1979). The process of collective bargaining also legitimises trade unions within the company or employing organisation. Purcell also contends that this legitimacy can give trade union members a sense of belonging to the organisation (1979). These three things; the sense of equality, common interest and belonging will make workers more content, minimise conflict and create a feeling of stability within the company. Collective bargaining, when agreements that come from it are for set time periods, can allow management to plan for the future based on those agreements and the knowledge that the unions are likely to cooperate. All of the above oil the wheels of a capitalist society. And as I both live in and believe in a largely capitalist society, this has to be a good social influence. Collective bargaining also has its disadvantages as far as capitalism is concerned. In cases where radicals have managed to hijack the union's side of collective bargaining then unreasonable demands can lead to severe conflict. The same can be said of the employer side. Inflexible and uncompromising employers can cause severe disharmony, and possibly cause irreversible damage to the employee-employer relationship. But this will only occur in a minority of situations. The greatest disadvantages of collective bargaining in a capitalist society lie mainly in the financial arena. Collective bargaining in the form of wage rounds leads to both wage and grade drift. Wage drift leads to higher wage costs for employers and higher inflation within the economy, which in turn leads to higher interest rates and lower investment. Lower investment means that fewer jobs are created, unemployment rises, social welfare payments increase and possibly an increase in the national debt. Following these consequences there would be less money in the economy overall in real terms. Grade drift is a problem for employers which is linked to wage drift. Grade drift occurs where secure jobs are one of the trade unions aims in collective bargaining. As jobs become more automated with the advance of technology, employers are forced to keep staff to keep to previous agreements. As companies no longer need as many staff the workforce tends to get older, with rising wage costs and mainly static skill levels. In Ireland over the last 25 years, the focus of collective bargaining has been widened to a nation-wide one from localised and industry level, with various degrees of success. This focus on the nation-wide picture has led to 7 national wage agreements, 2 national understandings, and three other agreements or programmes; the Programme for National Recovery (PNR), The Programme for Economic and Social Progress and the Programme for Competitiveness and Work. It is my opinion that centralised collective bargaining has evolved in much the same manner as collective bargaining itself; focusing on purely economic issues, and then steadily including more social issues. While the national wage agreement secured certain pay increases, the real value of those wages dropped. It was during the era of the National Wage Agreements that inflation rose to 20%, days lost through strikes increased and unofficial strikes increased (Gunnigle et al, 1995). Although this may seem that this type of collective bargaining had a bad social influence, it must be noted that the OPEC recessions of the 1970's would have had been a contributing factor to all of the above. In 1987 the government, trade unions and the FUE negotiated the PNR. Other than the provisions for pay increases, social issues were taken into consideration: 'The programme was to cover the period up to the end of 1990 and entailed the following provisions: -The creation of a fiscal, exchange and monetary climate conducive to economic growth. This included a commitment that the ration of debt to GNP should be reduced to between 5 and 7 percent; -movement towards greater equity and fairness in the tax system -measures to generate employment opportunities -Reduction of social inequalities" (Gunnigle et al, 1995; 191..192) Overall the PNR proved to be a successful venture, although it was helped along by the boom period of the late 80's. There was substantial economic growth, a reduction in the debt to GNP ratio and a decline in strike levels (Gunnigle et al, 1995). The PESP contained similar, but widened social commitments to the PNR. While not as entirely successful as the PNR, the PESP had its positive social influences in the form of low interest rates and low inflation, in spite of the recession of the early 1990's. Industrial peace also continued throughout this period. The PCW, like the two programmes before it, focused on social issues in increasing strength. As this programme is still running, we can say little about its success or otherwise, other than to say that there is still relative industrial peace, sustained economic growth and low inflation and interest rates. In the above discussions on the three programmes, I have only considered the more obvious social benefits, i.e.. those which the programmes set out to achieve. There are other social benefits which follow on from those discussed above. One of the most important of these is confidence in the Irish economy. With industrial harmony, low interest rates, low inflation and sustained growth comes confidence in the economy. One indicator of the fact that the programmes inspire confidence is this: In 1987, when the PNR was being negotiated, the Federated Union of Employers had to be coerced into the negotiations. Yet in 1993, 95% of senior personnel managers were in favour of a further PESP style agreement. (Gunnigle et al, 1995). The stability of the agreements has provided management with a situation where they can be reasonably sure of what is coming and can plan ahead based on that. The programmes have also allowed successive governments to plan ahead, something normally unheard of. Previously, governments had tended to plan for one fiscal year in the form of the budget, but now we have a situation where they are planning for three years with the programmes. The programmes have also provided a sense of continuity, as successive governments from all political parties have continued the programmes. This form of planning ahead has allowed significant progress in the areas of debt reduction, social welfare and taxation. It is not only in an Irish context that collective bargaining has been seen as desiring an effect on social aspects of the economy. In the UK, where there has been little, if any centralised collective bargaining, Fox states: "[Collective bargaining] has often been seen as, though not by all pluralists, not only as levelling up employee power to an acceptable approximation of that of management, but also as reinforcing government social welfare and redistributive policies in gradually reducing class difference." (Fox, 1985:22) But it would seem that the lack of any centralised bargaining has reduced this impact of collective bargaining; "Collective bargaining has not substantially shifted the proportion of the national product going to wages and lower salaries, nor have welfare and other so-called redistributive policies had the equalising effects imputed on them" (Fox, 1985;22) In Ireland, while there have been few dramatic changes with regard to social welfare, there have been significant cuts in the effective tax rate in favour of the lower paid. If we take the 1994 budget as one example, the effective tax rate for a single person earning £120 per week was cut by 3% from 20.6% to 17.6%. For the higher paid, if we take the example of someone earning £600 per week, the effective tax rate was only cut by 1.5% (McCarthy and Tansey, 1994). While this cannot be directly attributed to the success or otherwise of Collective bargaining, I maintain that the stabilising effect of the three agreements, along with the commitment therein would have had a distinct influence. This reduction in taxation will have a social influence: "to re integrate larger numbers of the unemployed back into the labour market, it is clearly desirable that the taxation burden on earned income be reduced" (McCarthy and Tansey, 1994;67) Centralised collective bargaining didn't actually do away with localised collective bargaining. Instead it changed the focus of collective bargaining. Gunnigle and Flood contend that the focus changed from pay increases towards employment conditions, pay anomalies and productivity. (1995). This is another of the good social influences of collective bargaining in Ireland. Now, rather than haggling over minimal wage increases, localised collective bargaining is instead working at improving working conditions, reducing grievances and increasing productivity. This change in focus has led collective bargaining away from the adversarial win-lose situation to a more cooperative model, with management and unions working together to achieve common goals.. While management have had to pay out more to improve working conditions and fund productivity deals, they have gained increases in productivity, worker flexibility and industrial harmony. In the negotiation of these 'win-win' deals, one added bonus is the extension of trust. Where both parties to the negotiation stand to gain, communications between them tend to be more open than would occur in an adversarial situation. If agreements are made under good faith, both parties to the negotiation may feel a moral obligation to follow the agreement. This can cause dual loyalties in staff, that is loyalty to both the Union and the company. This can become a problem should the good relationship between management and unions break down. (Fox 1985). I must say that although I believe that collective bargaining's origins lie mainly in an economic arena, had it been a social invention it would have been a good one. In an Irish context, where the prevailing ideology and public opinion has allowed collective bargaining to flourish, its social impact, while not as great as some would have hoped, has been for the better. When collective bargaining addresses a range of issues which are inter-related, and addresses the interactions between them, the benefits can be great. But when collective bargaining focuses on one issue, without regard for its effects on other issues that the effects can be disastrous, as seen in the case of the national wage agreements.. Collective bargaining is not however, and never will be, a revolutionary force. As Fox wrote in 1985: "Collective bargaining... emerges as a process through which employee collectives aspire, not to transform their work situation, but to bend it somewhat in their favour" (Fox, 1985;153) In conclusion then, while I believe that collective bargaining has many good social influences, it cannot hope to change society in any dramatic way. f:\12000 essays\business & economics (632)\Command and Market Economies.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 27/9/96 Command and Market economies Neil Samtani When considering the advantages and disadvantages of command and market economies, you may notice that they are usually straight forward, yet, both advantages and disadvantages may merge at times, resulting in an unclear issue, that could be debatable whether it is for the good of the society, or for the government. Therefore, what I am trying to say, is that no matter how hard you try, it is always impossible to debate on which economic system is better. Both have their good points and their bad, but, each is aimed towards a community that will make use of it. This community has usually got a majority of people either rich or poor, and, social class usually effects the way people may choose their government. In a market economy, the advantages are normally aimed towards the middle/upper class in a community. This is why we normally find them in richer communities (i.e. England, USA). The concept of a market economy is to allow people to get through life by themselves. Government usually does little to change the economy, and, the control is given to the people with the money, or, rather, the people with the businesses. The main people in such an economy are usually the consumers, the producers, the owners of private property, and, the government. These are the people with the power. The whole system revolves around private gain rather than the interests of everyone in a community. Since the rich are in control of the economy, their decisions result in the rich getting richer and the poor getting poorer. This is a perfect example of what I mentioned before, which is the way that you can not categorise all statements. This would be an advantage for the rich, but, a disadvantage for the poor. However, governments may also affect the situation, resulting in the rich getting richer, and, the poor managing to stay alive. The entire idea of the market economy is freedom. The freedom for people to do what they want, make what they want, and, sell what they want (to a certain extent). This can also be described as being able to decide WHAT is going to be produced (what products), HOW it is going to be produced (organisation, etc.) and FOR WHOM it is going to be produced. This is definitely an advantage, as freedom and rights are allowed. Besides this, the norm is that you're wage is affected by the amount you work. The harder a person works, the more you would expect to get paid. This is another advantage, since people are paid by the amount they work : a lot of work results in a high outcome, and a high income for the person. This is an incentive to work too, since, the point stated previously can affect a person negatively, since, not enough work can result in pay cuts or, even job losses. Since the economy is controlled by the rich, a problem that is bound to occur is the economic growth rates increasing and decreasing. This can result in people either spending a lot of money (ending up with more people being employed) , and, people not spending a lot of money (ending up with people being fired, to save money). This means that there is little job security, which is one of the disadvantages we are facing today. This means that not working hard can result in no source of income. However, since the economic growth changes so much, nothing can be certain. You can be rich one moment, and bankrupt the next. This also means that a man willing to work can not have a job, and below the poverty line, which is another disadvantage. There are not always enough jobs to accommodate the people with the ability to work. Advantages Disadvantages Everyone has rights and freedom to build what they wwant, sell what they want, and buy what they canafford. Poor people can not necessarily afford much. Since there is little government interaction with the community, the people have to manage to live without their help. It is usually possible to increase living standards by increasing your level of work, or your quality of it. The economy is controlled by the rich, and, therefore the richhave the power. Their decisions would always be to get themselves richer, and, that makes the poor poorer. There are strong incentives built into the system to innovate and produce high quality goods (high quality goods = higher income, low quality goods = lower income / unemployment) Since the economy is controlled by the people, stable growth is is very difficult. This can result in job losses, due to a the economic cycle.(boom followed by bust) This result in low job security. Free markets provide choice for the incentives to innovate, and the economy to grow. There are bound to be losses. Since job security is low, and the economy can not always be predicted, bankruptcy is and poverty can creep up on anyone. The advantages and Disadvantages of a market economy. f:\12000 essays\business & economics (632)\Commercial Art.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Commercial Art The contemporary commercial art and design of today has no doubt been created through the heavy influences of 20th century art. Most corporations who advertise on a large scale look back to the most influential art of the past century when creating their ads. It's almost impossible to walk the city streets without being bombarded by billboards with crafty designs and catchy phrases. With a little research though, it's fairly easy to find that the basis of this commercial art can be found in the art of the last one hundred years. Cartoons come first to mind when thinking about the different ways 20th century art have impacted modern day art and design. Long before I saw the original "American Gothic" by Grant Wood, I laughed at a portrait of Bugs Bunny and Daffy Duck standing together in front of a farm house with pitch fork in hand. Most cartoons seem to have an underlying humor meant to be understood by even the most articulate and intellectual adult, while at the same time being simplistic enough to entertain a small child. Cartoonists successfully accomplish this by being well read and educated in myth, history and art. Advertising agencies must be just as well educated in order to create influential advertisements that will impact consumers. "De Stijl" created by Peit Mondrian has without a doubt been one of the most popular designs incorporated into today's commercial art. On almost every bottled hair care product from Loreal is a composed set of lines complete with red, yellow and blue squares, expressing striking similarities to "De Stijl." Tommy Hilfiger uses clean lines and the three primary colors in all of his advertisements as well as on his signature label which also mimic the style of Peit Mondrian. While visiting a museum and studying a Mondrian, most of the general public repeatedly remarks to how his paintings look as if "anyone could do them." However, using the same artistic logic and redesigning his work on a bottle of hairspray or a t-shirt, the public becomes awe-stricken and then rushes out in a mad fury to purchase this stylish product which is actually based on the same style of art which if hung in a museum looks to them like something "anyone could make." Advertisers look also to the photography of the past century when designing ads for magazines. Dolce and Gabbana created a series of photos to advertise their jeans which have the same look as the style of photography which became popular in the depression time of the 30's. The models sit in front of their homes, in everyday clothes, next to their families. The photo is rather high in contrast and looks the subject straight in the eye. The ads evoke the feeling from the consumer that for some reason or another they can relate to the models in the ad. Many past artistic styles of photography have been used to advertise. It's probably one of the more successful ways to send messages that in some ways may be seen as subliminal. Steve Madden shoes have a photographed advertisements where the girls wearing his shoes have heads close to twice the size of their bodies, sparking some to be reminded of the surreal style of the earlier part of the century. People may or may not subconsciously recognize these styles in the ads they see, but that is not important to advertisers. What is important, is that through the use of these types of ads, consumers feel some recognition and can relate in one way or another to the product, therefore making them more inclined to buy whatever the product may be. With the creation of Adobe PhotoShop, collages have become the leading method of creating corporate and product logos, designs for billboards, packaging and even common newsletters. Just as Pablo Picasso and Juan Gris did, designers who use PhotoShop gather single images and layer them on top and around each other on one single canvas to create a composition which incorporates many factors into one image. In a collage made by Juan Gris, "Fantomas," many images are composited to create a message and only a slight bit of text is used to drive that message home. Today, it seems the same exact approach is being used. On a billboard made to advertise for Ford cars, images are piled on top of each other and use only a word or two to ensure the message comes across clear. Surrealism seems to be quite an effective way of expression. To cause a viewer to stop and ponder how whatever it is they are looking at could be possible in this world is quite powerful. Surrealism in photography is even more effective in causing its viewer to question the photo and reality. Photography is perceived by most people as a scene taken straight from everyday life and reality. When reality is played with through different photographic manipulations though, the whole basis for photography is thrown off as well as the viewer. This has been the style of art from the 20th century which has influenced my personal work the most. In a composited photo of mine, pigeons are extremely large in the foreground and shrink smaller towards the background as well as diminish in opacity. They all stand on what is obviously concrete, however in the background is a hill of sand and brush with a small view of the ocean shore. To me, this form of surrealism has great impact. It's hard to look at the photo without either questioning the picture or reality itself. The art of the past century impacts more than just these few areas of life which have been discussed. Through many arenas of life today as well as in the up and coming future, 20th century art will hold a place in history as work that was and still is extremely influential, edgy, controversial and innovative. It's a shame that the commercial artists, designers and advertisers can't be just as creative as these artists of the past, but instead base most of their work on that which has been already created. However, it might be a strange world if Mark Rothko and Salvador Dali were your average Joe f:\12000 essays\business & economics (632)\Commodities.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. f:\12000 essays\business & economics (632)\Communism in the Soviet Union and Why it Failed.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Communism in the Soviet Union and Why it Failed Communism is defined as "a system of political and economic organization in which property is owned by the community and all citizens share in the enjoyment of the common wealth, more or less according to their need." In 1917 the rise of power in the Marxist-inspired Bolsheviks in Russia along with the consolidation of power by Vladimir Lenin and Joseph Stalin, the word communism came to mean a totalitarian system controlled by a single political party. This came to justify that the means of production is controlled and the wealth is distributed with the goal of producing a classless or possibly a stateless society. The ideological meaning of communism arose in 1848 with the publication of the Communist Manifesto by Karl Marx and Friedrich Engels. They believed that communism is inevitable and is an outcome of the historical process. They believed that the "struggle between an exploiting class, the capatalists at present age, and an exploited class, the workers, would enter a crucial stage in the period of capitalism where industrialization occurs and that the effects of industrialization is to heighten and intensify the internal contradictions in capitalism." To put it bluntly they believed that the ownership of industry would be in fewer and fewer hands where the workers would plunge into a state of ever-increasing misery. These impoverished workers grow in numbers and organize themselves into a political party which would lead a revolution in which they dispose of the capitalists. The proletariat would establish a society governed by a " dictatorship of the proletariat" based on communal ownership of the wealth. According to Marx this phase of human society is referred to as socialism. Communism is the final transcendence of this revolution in which there is a break up and elimination of the state and no class division. That is the primary reason that it was called the Union of Soviet Socialist Republics. In 1991 the Soviet Union collapsed. What was the problem with this system of government, if this is a workers paradise what happened ? What did the Soviet Union do wrong to cause a breakdown of their ideal system ? In this paper I will explore the rise of the Soviet power and causes of the 1991 breakup. The person who started the whole transition into a communist empire was Vladimir Lenin. He felt that the working class was not capable of starting this revolution on their own and needed a professional group of revolutionaries to guide it. This led to Lenin and Bolsheviks coming into power in 1917. The Bolsheviks renamed themselves the Communist party and under the leadership of Lenin took control of government and outlawed all of the other political parties. In 1918 they became the ruling party of Russia and formed a dictatorship so they could ensure the Soviet transition from capitalism to socialism. The communist party arose in opposition to both capitalism and socialists of the Second International who had supported their capitalist governments during World War I. The name communists was specifically taken to distinguish Lenin's followers in Russia and abroad from such Socialists. Following their victory in the Russian Civil War in 1918, the Soviet Communists followed a cautious policy of limited capatalism during the New Economic Program until Lenin's death in 1924. Lenin's successor, Joseph Stalin, forcibly accomplished the transition from capitalism to socialism. During his years in power the party grew from about 470,000 to millions. He nationalized the Soviet industries and agriculture. A rapid industrialization program was pushed on the people even though they lacked materials. Police terror was also used to suppress dissent and opposition. This became known as Stalinism. Communist rule was confined to the Soviet Union until the end of World War II. The Soviet Red Army liberated several countries in eastern Europe from the Nazi Germany control. The soviets sponsored and helped form the communist governments in Bulgaria, Czechoslovakia, Hungary, Romania, Poland, East Germany, and North Korea. Stalinism became the basic model for most of these new governments. After Stalin's death in 1953, Nikita Khrushchev began a rapid rise and in 1956 repudiated Stalin's "tyrannical excesses" in his famous "Secret Speech" at the 20th party congress. The next year he became the parties leader. Krushchev ended the practice of "bloody purges" of the party membership, but his rule aroused dissatisfaction among the other party leaders. He was kicked out in 1964. Leonid Brezhnev succeeded him and was general secretary until his death in 1982, when he was succeeded by Yuri Andropov. Andropov died in 1984 and the position was passed to Konstantin Chernenko. After Chernenko's death in 1985 the leadership was passed on to Mikhail Gorbachev. Both as an ideology and a practical system for the organization of a state, communism entered a period of crisis in the late 20th century. By the 1980's it had become quite clear that state-owned systems of economic production were unable to provide the same standards of living obtained in many countries with free market economies. The unequal concentrations of wealth in capitalist countries were matched by glaring concentrations of power in communist ones. It had become clear that the maintenance of a one party communist rule tended to limit personal freedoms in a way unknown in parliamentary democracies. The rise to power in the Soviet Union of leader Mikhail Gorbachev in the mid-1980's set in motion a farther reaching reassessment of the efficiency of the communist ideals and practices. In 1989-90 the communist parties of eastern Europe abandoned their monopoly of power and the communist governments in these nations either fell or submitted themselves to free multiparty elections. In the Soviet Union Gorbachev's attempts to liberalize the Soviet politico-economic system provoked that system's collapse altogether in 1991, after which communism rapidly withered as a viable ideology in Russia and the other former Soviet Republics. In the winter of 1990-91 many asked how the Soviet Union would end . While Mikhail Gorbachev was arrested the real target escaped, Boris Yeltsin. The failure was not only contributed to the myth surrounding the new Russian state but it also pushed the Soviet Union beyond any parameters envisioned by the process of reform they were attempting to stem. When Gorbechev came into power he knew that his country was stagnating but they termed it a "pre-crisis situation". They did not realize the depth of this problem and believed that their nation only needed reform. Six and a half years later the Soviet Union and Soviet Communism were dead. The Soviet Economic crisis was clearly visible in the declining growth rates, increasing scarcity of exploitable resources, and the worsening imbalance between military production and that for the general economy, especially consumer goods. The Soviet economy seemed ready and mobilized for war. In the consumer sector a very large portion of the capital stock was not only under productive but was also at the limit of its physical capacity. According to the Russian Prime minister Ivan Silayev, "only 15 percent of investment in the Russian republic went to consumer industries. Military industry, on the other hand, was constantly being supplied with new technology." Several Generals, especially ones involved in technical services, tried to break the hold of traditional strategy that emphasized numerical superiority, only to be shot down by high command. The Soviet bureaucracies shifted from the Stalinist era into a more corporatist system. They neglected their goal of service to the state and society in favor of self interest. Political and economic corruption, which has existed throughout Soviet History, increased systematically in the years prior to Gorbachev. The size of the "second" or illegal "shadow" economy eventually accounted for 25-30 percent of the market and became essential for the economy to function as a whole. By the end of the Brezhnev era many politicians where accepting bribes openly. This corruption of the bureaucracies only separated them further from the people they where put in place to serve. Not only was corruption a problem but the quality of leadership deteriorated as well. This was not only true in intelligence and organizational talent but also in a physical sense. Most of the members of the central committee were aged and lacked spark. The respect and fear they once generated was rapidly declining in an increasingly young and educated country. This weakness of political dissent within the Soviet Union was also important to the crisis. It planted seeds of antitotalitarianism and anticommunism in the native soil. Also the potential for political action sunk to an all time low in the community. The final problem that they encountered was in their relationships with other nations and ethnic groups. This may have been the most potent flaw in their system. Non-Russian ethnic regions contained under developed, peasant cultures. These groups were able to resist with surprising force subordination to Russian culture or submersion into the Soviet state. This lack of development led to cultivation of old ethnic identities and the process of modernization only created new strains. The Soviet Union lost all of its internal vitality, the powers of the regime were still intense. Decay was probably unavoidable but the disintegration did not seem immediate. The counter actions to the already failing government are what caused the final demise of the nation, the actions only accelerated the demise of communism. f:\12000 essays\business & economics (632)\Company Insights on BP.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Company Insights on BP, Microsoft, and Western Digital. On August 30, we all chose 5 stocks to evaluate before purchasing. At this time I chose BP AMOCO, Microsoft, Western Digital, Toys-R-Us, and Fortune Financial Incorporated. After a few weeks of tracking these stocks, I chose to keep BP AMOCO, Microsoft, and Western Digital, because the stocks were relatively stable and most of them were on the rise at this time. As you are aware, we were given $30,000.00 to invest in our three chosen stocks, which breaks down to $10,000.00 per stock. We also had to include a broker's fee of $500.00 for every $10,000.00 invested. My first stock was BP AMOCO. On September 8, I purchased 167 shares at $57.06 per share, which totaled $9,523.00 and incurred a $476.15 broker's fee, making the grand total spent $9,999.15. BP is one of Britain's biggest companies and one of the world's largest oil and petrochemical groups. Its origin dates back to May 1901. BP owes its origin to one man, William Knox D'Arcy, a wealthy Englishman, who obtained concession from the Muz-affaru'd-Din, Shah of Persia (1896-1907) to explore and exploit the oil resources of the country, excluding the five northern providence's that bordered Russia. He, shortly after the turn of the century, invested time, money and labor in the belief that worthwhile deposits of oil could be found in Persia, which is now known as Iran. Having been granted the concession; D'Arcy employed an engineer, George Reynolds, to undertake the task of exploring for oil in Persia. For seven years, Mr. D'Arcy battled with severe weather, the absence of a developed infrastructure, the shortage of skilled local labor, the problems of dealing with neighboring tribes in the absence of a strong central government, difficult terrain, and an uncertain political situation. These conditions made Reynolds pioneering task an exceptionally difficult venture. Meanwhile, the costs mounted stretching D'Arcy's resources to the point where e sought outside financial assistance. This came in 1905 from the Burmah Oil Company, which provided new funds for his venture. More exploration in Persia followed without success, until eventually, in May of 1908, Reynolds and his helpers struck oil in commercial quantities at Masjid-i-Suleiman in southwest Persia. It was the first commercial oil discovery in the Middle East, signaling the emergence of that region as an oil producing area. After the discovery had been made, the Anglo-Persian Oil Company was formed in 1909 to develop the oilfield and work the concessions. At the top of Anglo-Persian's formation, Burmah Oil Company owned 97 percent of its ordinary shares. Lord Strathcona, the company's first chairman, owned the rest. Although D'Arcy was appointed a director and remained on the board until his death in 1917, he was not to play a major part in the new company's affairs. His role as the initial risk-taking investor was past and the daunting task of developing the oil discovery into a commercial enterprise shifted to others, amongst whom one stands out: Charles (later Sir Charles, then Lord) Greenway. Greenway was one of Anglo-Persian's founder-directors, becoming managing director in 1910 and chairman, after Strathcona, in 1914. Greenway, anxious to avoid falling under the domination of Royal Dutch-Shell, also turned to another potential source of revenue and capital: the British government. The basis of an agreement to mutual advantage lay in Greenway's desire to find new capital and an outlet for Anglo-Persian's fuel oil; and, on the government's part, in the desire by the Admiralty (then headed by Winston Churchill as First Lord) to obtain secure supplies of fuel oil, which had advantages over coal as a fuel, for the ships of the Royal Navy. After lengthy negotiations, an agreement was reached in 1914 shortly before the outbreak of World War I. Anglo-Persian contracted to supply the Admiralty with fuel oil and the government injected $2 million of new capital into the company, receiving in return a majority shareholding and the right to appoint two directors to Anglo-Persian's board. Although the government undertook not to interfere in Anglo-Persian's normal commercial operations, its shareholding introduced an unusual political dimension to the company's affairs. In later years, the government shareholding was reduced and -- apart from a tiny residual holding -- ended in 1987. Further expansion followed in the decade after World War I. New marketing methods were introduced, with curbside pumps replacing two-gallon tins for the distribution of motor spirit (or, gasoline). Anglo-Persian also marketed its products in Iran and Iraq; it established an international chain of marine bunkering stations, and in 1926 began to market aviation spirit. New refineries, much smaller than the plant at Abadan, also came on stream -- at Llandarcy in South Wales in 1921 and at Grangemouth in Scotland in 1924. Moreover, the company's majority-owned French associate had a refinery at Courchelettes, near Douai. On the other side of the world, in Australia, a new refinery at Laverton, near Melbourne, was commissioned in 1924. Exploration was carried out not only in the Middle East, but also in other areas, such as Canada, South America, Africa, Papua and Europe. By the time Greenway retired as chairman in March 1927, he had realized his main strategic goal of establishing Anglo-Persian as one of the world's largest oil companies, with a substantial presence in all phases of the industry. In 1935, the company was renamed the Anglo-Iranian Oil Company. During the post-war reconstruction of Europe, the high demand for oil enabled Anglo-Iranian to expand its business greatly. The company's sales, profits, capital expenditure and employment all rose to record levels in the late 1940's. The refinery at Abadan was by this time the largest in the world. Moreover, crude oil production from the company's Iranian oilfields kept Iran at the top of the league of Middle East oil producing countries. Meanwhile, Anglo-Iranian entered the field of petrochemicals. An agreement with the Distillers Company in 1947 resulted in the formation of a joint company, later to become known as British Hydrocarbon Chemicals, which produced basic materials from naphtha at Grangemouth. A second petrochemical complex was built at Baglan Bay in South Wales in 1961. While the company was expanding its operations in the late 1940's, it was also engaged in talks with the Iranian government about the terms of its oil concession. Long and complex negotiations failed to produce an agreement, and in 1951 the Iranian government passed legislation nationalizing the company's assets in Iran, then Britain's largest single overseas investment. The nationalization precipitated a major international crisis in which the British and US governments became deeply involved. The company's operations in Iran were brought to a halt. Only after three years of intensive negotiations was the crisis resolved by the formation of a consortium of oil companies, which, by agreement with the Iranian government, re-started the Iranian oil industry in 1954. Anglo-Iranian -- which was renamed The British Petroleum Company in 1954 -- held a 40 percent share in the consortium. One of the effects of the Iranian nationalization crisis was that the company was forced to broaden its operations to make good the loss of oil supplies from Iran, on which it had depended. Crude oil production in other countries, notably Kuwait and Iraq, was greatly increased; and new refineries were built in Europe, Australia and Aden. In another development, in 1952, the company commissioned its first lubricating oils plant at Dunkirk. Two years later, it began marketing BP Visco-Static, Europe's first multi-grade-oil. Although all of these events were important for the company, it was hydrocarbons under the North Sea and under the permafrost of Alaska that were to play the key role in transforming BP into the company it is today. Earlier, in 1959, the Dutch had discovered a giant gas field on the edge of the North Sea at Groningen. This discovery encouraged others to begin searching for hydrocarbons offshore. BP scored the first success in British waters when, in 1965, it found the West Sole gas field, which it brought on stream two years later. The search for oil spread farther north, and in 1970 BP discovered the Forties field -- the first major commercial find in the UK sector. Meanwhile, in Alaska, BP was rewarded for ten years' exploration effort when, in 1969, it announced a major oil discovery at Prudhoe Bay on the North Slope. When it became clear that, through its large share in Prudhoe Bay, BP owned part of the biggest oilfield in the USA, the company decided that its Alaskan oil could best be handled by a well-established US refining and marketing company. Accordingly, it signed an agreement with the Standard Oil Company of Ohio in August 1969. This company, the original John D. Rockefeller Standard Oil, was the market leader in Ohio and was strongly represented in neighboring states. Under the agreement, which became effective from 1st January 1970, Standard took over BP's leases at Prudhoe Bay and some East Coast downstream assets that BP had acquired in 1968. In return, BP acquired 25 percent of Standard's equity, a stake that would rise to a majority holding in 1978 when Standard's share of Alaskan production passed 600,000 barrels a day. The 1970's were the decade of the two great oil price shocks (1973 and 1979/80) that were to have serious effects on the world's economies. It was also a decade when the major oil companies saw a decisive change in their old concessionaire relationships. Like its major competitors, BP lost direct access to most of its supplies of OPEC oil as the OPEC countries took control of production and prices. The 1973 price explosion had a dramatic effect on demand. BP's oil sales started falling for the first time since 1952 (with the exception of 1957, the year of the Suez crisis). By 1978, sales had recovered somewhat; but then the Iranian revolution came and another major rise in the price of oil. In 1979, BP suffered further blows when its assets in Nigeria were nationalized and its supplies from Kuwait cut back. By 1980, its sales were down again. The entire oil industry was affected by the events of the 1970's. But thanks to BP's large investment program in areas outside the Middle East, the company showed as it had done in Iran in 1951, that it could survive. As noted, of key importance were the developments of its oilfield discoveries in the North Sea and Alaska. In the autumn of 1975, BP pumped ashore the first oil from the North Sea's UK sector when it brought the Forties field on stream. This field development was financed by a bank loan of $370 million, then the largest wholly private bank advance ever arranged. At its peak, Forties produced half a million barrels a day, equivalent to one-quarter of the UK's daily oil requirement. Since the early 1980's, BP has developed many more oil and gas fields in the North Sea. Among these have been, in the UK sector, Magnus (commissioned in 1983), the Village gas fields (1988), Miller (1992) and Bruce (1993) and, in Norwegian waters, Ula (1986) and Gyda (1990). In Alaska, meanwhile, the construction of the 800-mile Trans-Alaska Pipeline System enabled the Prudhoe Bay field to come on stream in 1977. In 1981, the Kuparuk field also started production, and towards the end of 1987 the world's first continuous commercial production from an offshore area in the Arctic was achieved when the Endicott field was commissioned. Today, BP's other oil- and gas-producing countries include Abu Dhabi, Australia, Colombia, Norway and Papua New Guinea. The upheavals of the 1970's led BP to conclude that it should broaden its activities so that it could operate in the future with more balanced sources of income. Accordingly, from the mid-1970's there was increased emphasis on diversification into new areas of activity. BP's entry into the nutrition business originated in the 1950's, when the company's French researchers began to develop a process for converting oil into protein. Although the process was later discarded, BP developed other interests in nutrition. From the mid-1970's, it became involved in animal feed, animal breeding and consumer foods and related products. As a result of the purchase in 1986 of the US Company, Purina Mills, BP Nutrition became one of the world's largest feed millers. In 1990, it also took responsibility for BP's household cleaning and personal care products -- successors of the old detergents business. Another industry, which BP entered in the mid-1970's, was minerals. BP expanded its mineral interests considerably in 1980, when, in what was then the London stock market's largest-ever takeover bid, it bought Selection Trust, the British-based mining finance house. In the following year, Standard Oil acquired Kennecott, America's largest copper producer and a major force in other metals. The mid-1970's also saw the start of the build-up of BP's coal business. By 1989, about half the group's coal operations were in the US, the remainder being in Australia, South Africa and Indonesia, with some coal trading in Europe. Meanwhile, in the 1960's, BP had become involved in the information technology industry through its acquisition of Scicon. With a view to the effective management of this now much more diversified group, the company underwent major restructuring in 1981. The organization that resulted consisted of international business streams, national associate companies around the world, and, at the center, the supporting services and corporate head office. These elements were coordinated by a matrix system of management. Also during the early 1980's, BP's refining, shipping and chemicals operations were suffering from the effects of industry-wide over-capacity and economic recession. Consequently, these activities were thoroughly rationalized. BP cut back its refining capacity, particularly in Europe, so that by the end of 1988 it was left with five main fuels refineries in the region, compared with 16 in 1981. In chemicals, BP had augmented its interests substantially when, at the end of 1978, it acquired European assets from Union Carbide and Monsanto. But the difficult trading environment that emerged shortly afterwards led BP to make severe cuts in its operations. Between 1980 and 1984 it closed a number of chemicals plants and withdrew from certain products. The year 1987 was dominated by three historic events in BP's development: the company's $4.7 billion offer for the 45 percent of Standard Oil it did not already own; the sale by the British government of its remaining holding in BP; and, as the year ended, the start of BP's successful bid to acquire Britoil, the UK-based oil exploration and production company. After acquiring Standard Oil outright, BP combined its existing interests in the US with Standard's operations to form a new company: BP America. The merging of Standard Oil into BP gave the group access to the full potential of the world's biggest market as well as to Standard's considerable cash flow. Today, about one-third of BP's fixed assets is in the US. When the government came to sell its remaining 31.5 percent shareholding in BP in October 1987, few could have forecast the collapse in the world's stock markets that was to occur between the opening and the closing of the offer. The outcome was naturally a disappointment to BP. But even if the hoped-for international broadening of the company's ownership did not fully materialize, the number of names on BP's share register more than doubled to around 600,000. The share sale did attract one large new investor -- the Kuwait Investment Office, which, by early 1988, had built up a 21.6percent stake in BP. After an investigation by the UK's Monopolies and Mergers Commission, the government endorsed the Commission's findings that the KIO's holding could operate against the public interest. The KIO was therefore required to reduce its stake to not more than 9.9percent of BP's stock. In 1989, BP purchased (and then cancelled) 790 million BP shares from the KIO, so reducing the holding. The third major event of the year was BP's bid for Britoil, whose purchase was completed in 1988. The success of the $2.8 billion acquisition meant that BP almost doubled its exploration acreage in the North Sea and reinforced its position as the largest oil and gas producer in the area. After the diversification's of the 1970's and early 1980's BP found -- like other companies which followed a similar course -- that it experienced mixed success in managing its 'new' businesses. Towards the end of the decade, in a change of strategy, the company decided to concentrate on its core, hydrocarbon-based activities. To that end, it began a series of divestments. In early 1988, BP sold its subsidiary, Scicon, and so withdrew from the computing services industry. After developing its mineral interests successfully during the 1980's, the company sold most of the business to RTZ in 1989 and disposed of the balance during the next few years. Similarly, most of BP Coal was sold in 1989 and 1990. The company did not begin to sell its nutrition interests until 1992, but by the middle of that year the divestments program was well advanced. From the early 1970's, BP's center of gravity has shifted westwards, away from the Middle East where its origins were laid. Having diversified into other industries, the company is now focusing again on its core activities in petroleum and chemicals. In 1989, the company launched a campaign to introduce a stronger corporate identity, featuring a restyled BP shield and an emphasis on the color green. And in a complementary program that was to prove highly successful, BP started to re-image its global network of service stations in a new design and livery. At the same time, in the quest to find new sources of oil and gas, BP's explorers began to focus their skills more and more on the regions of the world that for political or technical reasons remained relatively unexplored. For example: Colombia, the republics of the Former Soviet Union, and the deep-water areas of the Gulf of Mexico. And in all its operations, BP maintained its policy of striving to be an industry leader in health, safety and environmental standards. To equip itself for the challenges of the 1990's and beyond, the company introduced, in a program called Project 1990, major changes in its organization and way of working to improve efficiency and flexibility. To help further in the running of BP, the roles of chairman and group chief executive were split in 1992. A new management, under Lord Simon of Highbury, Peter Sutherland and later Sir John Browne, set tough targets for debt reduction, profitability and cost cutting. Four years later profits trebled, and BP had managed a turn-around - moving from the bottom of the industry into the top quarter. Then, on December 31, 1998, BP and Amoco completed a $53 billion merger after winning regulatory approval from the Federal Trade Commission. The Chicago-based Amoco was the nation's fifth-largest oil company with 9,300 gasoline stations, and the London-based BP, was the world's third-largest oil company, and sold its products through a network of 17,900 gasoline stations. Now, 97 years after William Knox D'Arcy set off to explore the Iranian desert, the company has transformed itself into BP Amoco, one of the world's largest oil producers, and Britain's largest company. The BP Amoco of today is one of the world's leading oil companies. It is an international company that has operations in seventy countries, including the U.S., with its U.S. headquarters located at 535 Madison Avenue, New York, New York 10022-4212. BP Amoco's key strengths are in oil and gas exploration and production; the refining, marketing and supply of petroleum products; and the manufacturing and marketing of chemicals. For the first six months of this year, BP Amoco's turnover rose 81percent to $60.87 Billion. Net income according to the U.S. GAAP, totaled $5.29 Billion, up from $1.58 Billion in 1999. As I stated earlier, I purchased 167 shares in this companies stock for $57.06 each. This stock now sells for $51.56 a share, which for me means a loss of $5.50 per share. Then with the 5 percent broker's fee of $430.53 included, equals $8,179.99. This total subtracted from the original money spent of $9,999.15 puts me $1,819.16 in the red. The next stock I chose was Microsoft. On September 8, I purchased 136 shares at $70.16 per share, which totaled $9,523.00 and incurred a $476.15 broker's fee, making the grand total spent $9,999.15. Microsoft Corporation develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. Microsoft software includes operating systems for intelligent devices, personal computers and servers; server applications for client/server environments; knowledge worker productivity applications; and software development tools. The Company's online efforts include MSN network of Internet products and services; e-commerce platforms; and alliances with companies involved with broadband access and various forms of digital inter-activity. Microsoft also licenses consumer software programs; sells PC input devices; trains and certifies system integrators; and researches and develops advanced technologies for future software products. It all started with the dream of "a computer on every desk and in every home." In just 25 years, Microsoft turned this revolutionary idea into a reality, creating a new industry and transforming how we work, live, learn and play. In January 1975 a programmer brought a Popular Mechanics' advertisement for a microcomputer kit--along with an idea--to his friend's college dorm room. Their partnership eventually evolved into the world's most valuable company, with a market capitalization that surpassed $260 billion on Sept. 14, slightly ahead of General Electric Corp.'s valuation of $257.4 billion. The boy was Paul Allen. The friend was Bill Gates, whom he had met while they were classmates at the exclusive Lakeside School in Seattle. The school was Harvard University and the idea was to build software for the machine. The result is Microsoft Corporation, and the rest is history. Microsoft Corporation was founded as a partnership by William H. (Bill) Gates and Paul G. Allen on April 4, 1975. The word Microsoft first appeared with a hyphen between micro and soft (Micro-Soft) meaning "microcomputer software". This name was first used in a letter to Paul Allen from Bill Gates to refer to their partnership. This name has been used officially after it registered in November 1976 with the officer of the Secretary of the State of New Mexico. On June 25, 1981, Microsoft reorganized into a privately held corporation with Bill Gates as President and Chairman of the board, and Paul Allen as Executive Vice President. Microsoft became Microsoft, Inc, an incorporated business in the State of Washington. Their business objective was to develop languages for the Altair and for other microcomputers that were bound to appear soon on the market. Thus, Microsoft was the first company formed for the specific purpose of producing software for such computers. The core of Microsoft today centers around five main product lines: operating systems, languages, business software, hardware, and computer "how to" books. It all began with Bill Gates in 1975. He developed Microsoft Basic interpreter for the first microcomputer while he was an undergraduate at Harvard University in 1975. His foresight into personal computers and continuing improvement has been the essential to Microsoft. In 1975 after dropping out of Harvard University at age nineteen, Gates teamed with high school friend Paul Allen to sell a condensed version of the programming language BASIC. While Gates was at Harvard, the pair had written the language for the Altair, the first commercially available microcomputer sold by MITS, an Albuquerque-based maker of electronic kits. Gates and Allen moved to Albuquerque and set up Microsoft in a hotel room to produce the program for MITS. Although MITS folded in 1979, Microsoft continued to grow by modifying its BASIC program for other computers. Microsoft moved to Bellevue, in the Seattle area in 1977, where it developed software that enabled others to write programs. The modern PC era dawned in 1980 when Microsoft was chosen by IBM to write the critical operating system for IBM's new PC's. This was Microsoft's big break. Given the complexity of the task, Microsoft bought the rights to an operating system called QDOS (quick and dirty operating system) for $50,000 from a Seattle programming, Tim Paterson, and converted it to Microsoft Disk Operating System (MS-DOS). The popularity of IBM's PC made MS-DOS a huge success. And because other PC makers wanted to be compatible with IBM, MS-DOS was licensed to over 100 companies, making it the standard PC operating system in the 1980's. The company then began developing databases, word processors, and other software packages that could run on its operating system. In the mid-1980's Microsoft introduced Windows, an easier-to-use version of MS-DOS that borrowed from Apple Computer's point and click Macintosh. Allen fell ill with Hodgkin's disease and left Microsoft in 1983. He later started his own software company, Asymetrix. Today, Allen owns 15 percent of Microsoft's stock and serves on its board. By 1984 Microsoft's sales had exceeded $100 million. Microsoft went on to develop software for IBM, Apple, and Radio Shack computers. Microsoft went public in 1986. Gates retained 45 percent of the shares, making him the PC industry's first millionaire in 1987. In 1990, Gates' paper value surpassed $2 million. In 1992 Microsoft won a key ruling in Apple's suit over similarities between Apple's Macintosh interface and that of Windows. Windows' popularity (more than 12 million copies shipped in fiscal 1992) had boosted sales of Microsoft's business software developed for Windows. The FTC then invested claims that Microsoft engaged in unfair practices to gain dominance in the Windows market. Gates has played an important role in the technical development as well as the management of the company. His significant contribution was so highly appreciated that he was awarded on June 23, 1992. President George Bush awarded Bill Gates the National Medal of Technology for Technological Achievement, at a White House Rose Garden ceremony. In addition, Microsoft Corporation has been awarded in 1992 to 1995 for its recent achievements. Microsoft and IBM teamed again in the late 1980's to develop the OS/2 operating system. That effort's failure resulted in Gates' commitment to Windows NT (short for New Technology), as an alternative to the Unix operating system popular on high performance computers. Windows NT was introduced in 1993. In the early 1990's Microsoft first heard charges of "monopoly!" from both inside and outside the industry. In 1995 antitrust concerns scotched Microsoft's $1.5 billion deal to buy personal finance software maker, Intuit, so the company set its sights on startup companies and the leading-edge technologies they possessed. By adding heavy development dollars, and selling the resulting products cheaper than its foes, the company expanded its reach. When the rise of the Internet began to transform the way companies did business, Gates at last embraced the medium. In 1996, Microsoft licensed the Java Web programming language from Sun and introduced its Internet Explorer Web browser. The following year, Sun alleged in a lawsuit that Microsoft had violated its licensing agreement by creating an incompatible version of Java; Microsoft countersued. In October of 1998 the Justice Department and the attorneys general of twenty states sued Microsoft, accusing the company of stifling both Internet browser competition and consumer selection to extend its operating system dominance. Perhaps the greatest footnote left by Microsoft upon the software industry is that it has created one standard for the PC. Since the inception of MS Windows in 1989, Microsoft has created order in an industry prior characterized by proprietary technology, competing standards and lack of interoperability between applications. However, in order to achieve Bill Gate's mandate to have Windows in every household, Microsoft has been accused of breaking the barriers that encompasses what the Federal Trade Commission considers fair play. The Federal Trade Commission defines "fair play" through laws and regulations that promote and maintain competition in an industry. The Sherman Antitrust Act outlawed agreements to fix prices, limit output, or share the market and declared that monopolies and attempts to monopolize are illegal. The Clayton Antitrust Act forbade mergers between competitors where the impact of a merger would be to substantially lessen competition. The Federal Trade Commission Act created the Federal Trade Commission (FTC) and empowered it to initiate and decide cases involving "unfair competition." With respects to the software industry, the issue stands as to whether Microsoft's marketing, pricing and acquisition strategies impeded the level of competition in the industry. Though Microsoft is not a monopoly in the software market, it is a highly contested debate whether Microsoft wields monopolistic power. Like John D. Rockefeller's Standard Oil in 1991, Bill Gate's Microsoft commands a 90% market share of operating systems. In a federal complaint to the Justice Department, Netscape accused Microsoft of using "strong-arming tactics" and "a wide variety of predatory pricing and bundling behavior that violates the antitrust laws." Original Equipment Manufacturers (OEMs) have anonymously complained that if OEMs were distributing competing Microsoft products, such as the Netscape Navigator, Microsoft would offer higher pricing arrangements for them than for others who offered only Microsoft software. As part of Microsoft's pricing for Internet Explorer, OEMs are given discounts on the license price of the Windows operating system if the OEM not only continues to feature the Microsoft browser on its desktop but also makes competitors' browsers far less accessible to users. OEMs estimate that it will cost $10 million to offer their customers non-Microsoft Internet software. To further gain footing in the "Browser Wars," Microsoft is making its browser free to all users, whereas Netscape's Navigator is available for retail purchase for non-academicians. Some businesses are given cash for each browser they replace with Microsoft's Internet Explorer. On the surface, it appears that the customers will be the winners of the free software given by Microsoft. However, Bill Gates best conveys Microsoft's true intention in an interview with Financial Times, "Our business model works even if all Internet software is free. We are still selling operating systems. What does Netscape's business model look like if that happens? Not very good." A Microsoft representative was quoted as saying, "Our intent is to flood the market with free Internet software and squeeze Netscape until they run out of cash." On June 7, 2000, a federal judge, calling the world's largest software maker "untrustworthy," ordered Microsoft to be broken into two smaller companies to prevent it from violating state and federal antitrust laws in the future. In a scathing memorandum that accompanied his 14-page decision, U.S. District Judge Thomas Penfield Jackson said he was ordering the breakup because the company was totally unwilling to admit that it had violated federal antitrust law and has shown no willingness to modify its business conduct. The court has "reluctantly come to the conclusion that a structural remedy has become imperative: Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct," the judge's memorandum said. If Judge Jackson's breakup order survives the appeals process, it would be the largest court-initiated split since AT&T agreed to be broken into a long distance company and seven regional phone companies under a 1984 consent decree. Today, Microsoft is the largest software manufacturer in the world, with more than 18,700 employees across the United States and at 48 worldwide subsidiaries. With Gates' leadership, Microsoft's mission is to develop products that meet the evolving needs of consumers and provide leading products for global commitment with organizations worldwide. Microsoft is a huge company, in the top of its industry. To help give you an idea of how big a company Microsoft Corporation is, here are some brief facts. In Microsoft's 25-year history, both revenues and profits have increased in every year. Microsoft is the world's greatest independent producer of computer operating systems and software, resulting in being the world's richest software company. Nearly 1/2 of world's total PC software revenue goes directly to Microsoft. The company's DOS and Windows programs run on 80% to 90% of all personal computers. Net Revenues for fiscal year ending June 30, 1995 were up 28% at $5.94 billion dollars and for the fiscal year ending June 30, 1996. Net revenues were up 46% at $8.67 billion dollars. Revenues in the U.S. and Canada have grown substantially while growth rates of revenue have been lower in Europe due to the general economic slowness. But in other international areas, revenue's growth rate has been very strong. Microsoft has heavily invested in research and development. In 1995 they increased spending for research and development by 41% and in 1996 research and development expenses increased 67%. Total operating expenses were for 1994, 1995, and 1996 respectively: $2.92 billion dollars, $3.90 billion dollars, and $5.59 billion dollars. Net Income as a percent of revenues decreased in 1995 while in 1996 it increased. The percent decrease in 1995 was because of increased relative research and development, sales and marketing, and general and administrative expenses which were offset by the lower relative cost of revenues and the higher relative net non-operating income. The percent increase in 1996 was because of the lower relative cost of revenues, sales and marketing expenses, general and administrative expenses, and non-operating expenses, which were offset by higher relative research and development expenses and the higher tax rate. Net income in 1994 was $1.15 billion dollars while in 1995 it was $1.45 billion dollars and in 1996 net income was $2.20 billion dollars. The company mainly holds cash and short-term investments which in fiscal year ended June 30, 1996 was $6.94 billion dollars. Most investments the company makes are liquid and short term to minimize interest rate risk and enable rapid deployment in case of immediate need for cash. Additionally Microsoft has no long-term debt. Cash from operations has been sufficient in funding Microsoft's investment in research and development and facilities expansion. This will continue in the future and the company will also use cash to acquire technology and to fund ventures and other strategic opportunities. For the first quarter of Fiscal Year 1997, July 1 - September 30, there were revenues of $2.30 billion dollars, which was 14% more than the same quarter last year. During the same time period Microsoft had a net income of $614 million dollars, up from $499 million dollars the previous year's first quarter. This is despite the fact that the same quarter last year involved the introduction of Windows 95. During 1997's first quarter, version 4.0 of Window NT came out and sales of Windows NT Server grew at nearly double the rate of other operating systems environments. Growth rate in revenues was flat in Europe and at a 9% increase in U.S. and Canada. Both areas were lower in growth rate but in other international areas, there was a 32% increase in revenues. Also royalties from original equipment manufacturers who preinstall Microsoft products on PCs reached the highest ever with $663 million dollars in the September quarter. Research and Development expense continue to grow faster than revenues at $432 million dollar, 43% increase in the September quarter. Microsoft has a repurchase program that allows employees to buy and sell the company's stock. All employees are allowed to purchase company shares at 15% discount. Common stock can be sold back to the company on certain dates at specified prices. This has made over 30% of Microsoft employees millionaires. In the 1997 September quarter, the company repurchased 5.8 million shares of Microsoft common stock for $697 million dollars. On November 12, 1996 the Board of Directors approved a 2-for-1 stock split where shareholders will receive one additional share for every share held on the record date of November 22, 1996. On October 31, 1996 there were about 600 million Microsoft shares outstanding and after the split there will be 1.2 billion shares outstanding. For the first six months of 2000, revenue rose 16 percent to $22.96 billion. Net income applicable to Common rose 21 percent to $9.42 billion. As I told you earlier, I purchased 136 shares in this companies stock for $70.16 a share. This stock now sells for $70.56 a share, which for me means a gain of 40 cents per share. Then with the 5 percent broker's fee of $479.81 included, equals $9,116.35. This total subtracted from the original money spent of $9,999.15 puts me $882.80 in the red. The last stock I chose was Western Digital. On September 8, I purchased 1638 shares at $5.81 per share, which totaled $9,523.00 and incurred a $476.15 broker's fee, making the grand total spent $9,999.15. Western Digital Corporation is a manufacturer of hard drives used for information storage in desktop computers and home electronic products. The Company's hard drives are designed for the PC market and the high-end hard drive market and recently, for the emerging market for hard drives specially designed for audio-visual applications, such as new video recording devices. The Company's hard drive provides currently includes 3.5" form factor hard drives ranging in storage capability from 4.3 gigabytes to 27.3 gigabytes. The Company sells its products worldwide to computer manufacturers for inclusion in their computer systems or subsystems and to distributors, resellers and retailers. The Company's products are currently manufactured in Singapore and Malaysia. Through its Connex subsidiary, the Company serves users of network-attached storage systems and enterprise-wide storage area networks. The company, originally called General Digital Corporation, was founded in California on April 23, 1970 by Alvin B. Phillips. Mr. Phillips had 20 years of semi-conductor experience, which included setting-up IC facilities for Motorola, GTE Sylvania and North American Rockwell. The original officers included Mr. Phillips, Larry Alves, Albert Dall, Henry Rodeen, Richard Sirrine, and Joseph Baia. Mr. Baia, also a former Rockwell employee, was an original investor and was to remain with Western Digital for 18 years before retiring as Vice Chairman. With the financial backing of individual investors and Emerson Electric Company of St. Louis, which provided a major portion of the venture capital, this group of pioneers set up their first headquarters in a 3000-square foot building at 1612 South Lyon in Santa Ana, California. Company operations began in June of 1970 and by September of 1970 the design and development of MOS/LSI had commenced. In March of 1971, the company moved to its new facility at 3128 Redhill in Newport Beach. Shortly thereafter, the first Spartan 770 LSI test system was completed and the company changed its name to Western Digital Corporation in July of 1971. One of the first highly successful products produced was the 1402A UART, the result of a bid on a Digital Equipment Corporation project. A bid made, incidentally, at a time when the company lacked a facility in which to build the product. Although initially losing the contract, Western Digital later produced the part for DEC. It became the world's first, single-chip, universal asynchronous receiver/transmitter (UART) to provide more affordable data communications. Given the Rockwell connection and extensive semiconductor experience of both Alvin Phillips and Joe Baia, it is not surprising that Western Digital began as a specialized semiconductor manufacturer. And like Rockwell, Western Digital became heavily involved in calculator chips. In those early years, 80 percent of Western Digital's business was comprised of calculator chips. They rapidly became the largest independent manufacturers of calculator chips in the world- one million chips manufactured by 1975. By 1975 Western Digital's fortunes changed for a number of reasons. The worldwide oil crisis had brought on a recession; the original Emerson leadership was replaced by an outsider with no ties to Western Digital. Western Digital's largest customer, Bowmar Instruments, went bankrupt and the market for calculator chips slumped due to excess inventory and severe price competition. Gillette Company backed out of an ambitious calculator program. Between 1975 and 1976 Western Digital's founder resigned and the Company lost key customers. The staid Emerson Electric Company had little appreciation for Western Digital's problems, which finally resulted in the filing of Chapter XI Bankruptcy in 1976. Emerson wanted to close the doors, but Western Digital would not go easily. In 1977 Charles W. Missler, a turn-around specialist who was brought in to scrub up the company for resale, convinced United California Bank, the principal secured creditor, that Western Digital possessed the core strengths to reestablish itself in the semiconductor industry. Missler became CEO and Chairman of a newly structured Board of Directors as part of the refinancing agreement. Although he acted as Western Digital's President and CEO, he regarded his position as Chairman and visionary as his primary function. By 1980, the year of the Phoenix, Western Digital turned the corner and revenues doubled to $20.6 million. Missler's financial acumen and unusual Product Sponsorship Program, a tax-sheltered investment partnership to obtain funds for much needed research and development, put Western Digital back on its feet. During the early Eighties, Western Digital shifted its focus to the newly emerging PC market. There were a few important events that helped propel Western Digital in this direction: the development of the floppy disk and IBM's introduction of the PC/XT. Al Shugart of Shugart Associates, later known as Seagate, developed the first 8-inch and 5.25-inch floppy interfaces and form factors. Through Western Digital's involvement in the design of floppy disk controller chips, they gained much expertise. In August of 1981, IBM introduced the PC, later followed by the PC/XT. Unfortunately, Western Digital underestimated the success of the PC/XT and the importance of developing a floppy controller for the PC and XT markets. In the meantime, Shugart had also developed the ST-506 drive and interface. In 1982, Roger W. Johnson became President and Chief Operating Officer. His critical contribution to Western Digital was to provide the business structure and focus for a young company of engineers and mavericks. He recognized the importance of cultivating business relationships with major OEMs. While they had failed to be on time with an XT hard drive controller, they were ready for the IBM PC/AT in 1983. In 14 days Western Digital produced a wire-wrapped prototype controller to meet with IBM's approval. Negotiations were conducted during a February thunderstorm in Boca Raton. Nearby, while Roger Johnson awaited IBM's decision, he relaxed with a game of Solitaire. The autographed Joker from that fateful deck of cards hangs in Dave Schafer's office today. Western Digital combined the PC/AT controller design with the WD1010. The 1003-register set, which the company developed, became the standard compatibility set used for all disk controllers. Since XT controllers were based on the SASI protocol developed by Shugart, which was the precursor of SCSI, it was logical that the protocol for AT controllers might develop along the same lines. With the introduction of the WD1010, the personal computer industry veered away from the SASI protocol. By the middle of 1985, nearly 90 percent of Western Digital's revenue was derived from storage controller products, the rest from communications products. Western Digital's success was founded on the decision to become a PC products company in an industry where product compatibility is all-important to success. Success was also due to early entry into the major supplier market (IBM, Compaq, Tandy, Hewlett-Packard) of a hugely successful, evolving industry standard. Through their efforts, Microsoft became a dominant supplier to major OEMs. They also saw the importance of setting up a good distribution network to serve the many start-up companies as well as expanding their sales force into Europe and Japan. It's important to note that during this time period, controllers were not the only product Western Digital was working on. They worked with the Massachusetts Institute of Technology to develop an artificial intelligence machine called the "Nu machine" which was later sold to Texas Instruments and became the Explorer LISP machine. The Nu bus was developed by MIT and licensed to Western Digital. It was instrumental in opening up the Macintosh box to accept peripherals and was chosen over several internally developed Apple buses. The years from 1986 through 1990 was a period of aggressive acquisition, expansion, and risk taking. In 1986 earnings soared to $21 million and sales more than doubled due to a refocus on efficiency, strategy, and recruitment of top talent. It was at this time that Western Digital began working on the concept of IDE disk drives. The fact that drive companies were somewhat contemptuous of controller companies and unwilling to partner the development of an IDE drive forced Western Digital to a momentous decision. With the purchase of the disk drive assets of Tandon Corporation in 1988, Western Digital's Senior Vice President and General Manager of Storage, Kathryn Braun, cast the die in favor of supplying hard disk storage to OEMs. Starting up in the drive manufacturing business was a major undertaking fraught with difficulties. The Singapore team worked hard to transform the former Tandon drive facility into one of the drive industry's most efficient manufacturing operations. Thanks to their efforts, Western Digital can claim to be a quality and time-to-market/volume leader in the data storage industry today. Having elected to become a drive manufacturer, they essentially participated in the demise of stand-alone storage devices and controllers. Fortunately, the demand for storage was great, and the transition from manufacturing controller boards for ST-506 drives to manufacturing IDE drives, though difficult, was a sound one. Their strong desire to succeed and a willingness to sacrifice carried them through. IDE became the standard for the PC market. By the quarter's end in December of 1990, hard disk drives represented 50percent of corporate revenue. Besides the Tandon acquisition, they made several other acquisitions, which brought in new technology and highly skilled talent. Adaptive Data Systems contributed skilled engineers and knowledge of SCSI devices. Paradise and Verticom brought in video graphics expertise. Faraday contributed core logic expertise and ViaNetix added software development for LAN systems. Many of these companies were based in the Silicon Valley region of Northern California, establishing to this day a significant Western Digital presence in this high technology hotbed. The early Nineties began with a harsh test of corporate resolve to withstand the vicissitudes of the market and an economy in recession. Western Digital now had to pay the price for the rapid demise of the stand-alone storage controller and the transition to IDE drives, a new standard, which Western Digital had pioneered. In 1991 and 1992 the Company weathered record losses which forced it to lay off employees, endure substantial write-offs and restructure its debt. In this darkest hour, the storage product team decided to design a family of disk drive products for the desktop PC market that would offer lower cost and higher performance. Compaq Computer's move to low-cost PCs in 1992 changed the landscape of PC marketing, making Western Digital's positioning of the Caviar drive family a fortunate, well-timed move. Today, the Caviar line enjoys enormous recognition for high quality, reliability, and performance at a cost-effective price. With Roger Johnson departing to Washington, D.C. in 1993 to work for the Clinton administration as head of the General Services Administration, Chuck Haggerty, President and Chief Operating Officer, stepped to the helm, bringing along 28 years of experience with IBM Corporation. Western Digital has been very fortunate throughout its history to find the right leader for every critical juncture in its corporate life. Haggerty's team cemented Western Digital's return to profitability and facilitated its transition to a large corporation by establishing controls and disciplines that re-enforced the Company's commitment to quality products and superior customer service. To maintain focus on this commitment, the Company introduced a guiding set of values with emphasis on quality, customer satisfaction and integrity. The Company has established technology leadership in the 3.5-inch hard drive business for desktop PCs as well as in the development of graphics devices for portable applications. Revenue has grown to a $2 billion annualized run rate and Company operations are worldwide with more than half of its 7000 people employed outside of the United States. Once more, Western Digital has risen from the ashes to become a stronger, more mature company, fiercely rededicated to its goals and even more competitive. Western Digital has traveled a long distance from the early days when Alvin Phillips and Joe Baia, their investors, and a few employees opened the doors for business. From an entrepreneurial startup and close-knit family of employees, Western Digital has grown to a Fortune 500 company that is a leading supplier to the Personal Computer industry. Although the Company has matured into a large, multinational corporation, that founding spirit has sustained itself and still guides the Company. The markets they serve and the technologies that they employ are moving rapidly towards enabling convergence of many industries. Western Digital is uniquely positioned to serve many facets of these emerging markets as the digitization of data accelerates. Central to all of them is information storage management, which is one of Western Digital's most important strengths. Collectively, their leading position in personal storage, their strong position in I/O products for high-performance storage systems, and the addition of their investment in high-performance disk drives, provide Western Digital an opportunity to take the lead in all facets of information storage management. Throughout its 25 years of history Western Digital has proved itself to be a resilient, innovative company that from its inception has attracted talented people with imagination and a can-do spirit. The legacy of a unique corporate history and the contributions of its outstanding people have made Western Digital what it is today. For the first six months of this year, revenues fell 29 percent to $1.96 billion. Net loss before extraordinary items fell 28 percent to $354.9 billion. The results reflect reduction in average selling prices due to competition. As I told you earlier, I purchased 1638 shares in this companies stock for $5.81 each. This stock now sells for $5.56 a share, which for me means a loss of 25 cents per share. Then with the 5 percent broker's fee of $455.36 included, equals $8,651.92. This total subtracted from the original money spent of $9,999.15 puts me $1,347.23 in the red. This assignment has definitely been a learning experience for me. It was really surprising to see how quickly money can be made and/or lost in the coarse of just one-day. My three chosen stocks' shares lost a total of $4,049.19. I lost $1,819.16 on my BP Amoco PLC stock; lost $882.80 on my Microsoft stock; and lost $1,347.23 on my Western Digital stock for a total of $4,049.19 lost. My stocks could come back and triple in price tomorrow, but no one really knows. I feel three primary factors impacted the price of my stocks. The Microsoft anti-trust ruling in the summer of 2000 left the nation wondering what would become of Microsoft and made people question how the judges' decision would effect them. Also, the gas price hikes should have sent most of the larger gas and oil company's stock prices soaring, but President Clinton stepped in to try to release more oil from the Federal Reserves. And last but not least, this never-ending presidential election has impacted the stock market by lowering the price of stocks because of political instability. No one really knows what the stock market will do from one day to the next, but the best way to play the market successfully is with lots of research and patience. My outcome might have been better had I done more "homework" into the company's background. You must know about the companies you choose: the history and stability of the company, the stock price fluctuation for the past few years, and the risks involved. Also, if this were a real-life situation, you wouldn't have a set day to sell, so you could ride out the lull and wait for a high time to sell. Another helpful hint would be to get a broker that you trust to council you on the risks involved or to buy and trade for you. Overall, I may have lost some money but I gained a valuable experience in the game of life. Now I know why my father always says, "To win at card, you first have to know how to play the game." References http://www.finance.yahoo.com/ http://www.hoovers.com http://www.bp.com http://www.microsoft.com http://www.wdc.com f:\12000 essays\business & economics (632)\Comparative Advantage in Japan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Japanese Market has become vital to the U.S. Economy. Japan is the number one export market for the United States. In 1993, Japan accounted for 37.6 percent of the total growth in U.S. value-added exports. U.S. food products, in particular, are a huge market in Japan. American agricultural exports to Japan in 1993 were $8.7 billion. About one-third of Japanese agricultural imports come from the United States. However, there is sometimes a mixed reception in Japan regarding products from the United States. Japanese, on one hand, wish to do things "American" ever since the Second World War. But, on the other hand, U.S. products are perceived as less sophisticated than Japanese and European food products, in product formulation or packaging. Also, U.S. products are considered not as safe as domestics ones, due to the use of pesticides and chemical additives and the partiality of the Japanese consumer to purchase Japanese items. The reason for the large volume of exporting to Japan is due to United State's comparative advantages. Food products are very expensive to produce in Japan. Japan's current labor shortage, combined with import restrictions and domestic price stabilization programs, have driven up domestic production costs. The Japanese food consumption pattern consist of an openness to foreign products and a strong interest in things international. All types of international cuisine can be found in Japan. Many varieties of tropical and imported fruits, such as Florida grapefruit, California cherries, New Zealand kiwifruit, and Hawaiian papayas are readily available in supermarkets and department stores, as are imported alcoholic beverages ranging from Kentucky bourbon and Chinese beer to Russian vodka and California sake. Japanese food consumption is marked by short-term trends. For example, Korean and Mexican food became popular a few years ago and then unpopular. There have also been Italian and Spanish food booms. The Japanese economic recession has shifted the focus of many consumers to the more affordable neighborhood restaurants that feature traditional Japanese dishes. This has made consumers price conscious at grocery counters, which benefits cheaper imported goods. As a result, imported foods account for over half of Japan's average annual caloric intake. Moreover, with Japanese agriculture contracting, Japan's reliance on (and openness toward) imported food products will continue to increase. Conclusion In the future, the United States may no longer be considered to have a comparative advantage for food products in Japan. Countries in the western Pacific are likely to provide stiff competition for the U.S., due to the shorter shipping distances and the ease of conducting long-distance business from with in neighboring time zones. Offshore investment for processing exporting consumer ready products to Japan is taking place in Australia. Highly processed packaged specialty items are being predicted within the European Community. These processors often put forth a greater effete to produce top-quality packaging for their items than Americans. Southeast Asia challenges the U.S. in products such as pet food. 2. Japanese place a high importance on appearance and invest heavily in packaging. Americans view Japanese processed foods as being over-packaged. 3. Domestic processors package in smaller sizes. Smaller packages are preferred by housewives who cater to the individual tastes of different members of the family. 4. Japanese processors are closely in tune with changes in society and evolving consumption patterns. Recently there has been an increase in the health-conscious consumer. Fiber-enriched foods and beverages have been created. Japan has been investing in R&D projects and developing intensive marketing programs. In addition to providing heavy competition for U.S. finished goods, however, Japanese processors also provide a large potential customer base, for U.S. suppliers of semi-finished and other high-value food inputs. The increase in imports of processed food products has forced Japanese domestic food manufacturers to search for ways to cut costs, particularly raw material and labor costs which account for 59% and 11%, respectively, of total manufacturing costs. In order to cut costs, many Japanese food processors have turned to overseas suppliers for high-quality, competitively priced intermediate food products. This is resulting in an agricultural processing industry that is more accessible to exporters. Exports of intermediate food products from the United States are a small percentage of total U.S. agricultural exports to Japan. However, there are many areas within the Japanese food processing sector where U.S. exporters could be competitive, given U.S. processing technology and the ability to supply products with uniform size, color and texture. An example is the bakery/confection industry which uses large amounts of semi-processed fruits and nuts. 1 f:\12000 essays\business & economics (632)\Comparing Japan and American Food Markets.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Comparing Japan and American Food Markets The Japanese Market has become vital to the U.S. Economy. Japan is the number one export market for the United States. In 1993, Japan accounted for 37.6 percent of the total growth in U.S. value-added exports. U.S. food products, in particular, are a huge market in Japan. American agricultural exports to Japan in 1993 were $8.7 billion. About one-third of Japanese agricultural imports come from the United States. However, there is sometimes a mixed reception in Japan regarding products from the United States. Japanese, on one hand, wish to do things "American" ever since the Second World War. But, on the other hand, U.S. products are perceived as less sophisticated than Japanese and European food products, in product formulation or packaging. Also, U.S. products are considered not as safe as domestics ones, due to the use of pesticides and chemical additives and the partiality of the Japanese consumer to purchase Japanese items. The reason for the large volume of exporting to Japan is due to United State's comparative advantages. Food products are very expensive to produce in Japan. Japan's current labor shortage, combined with import restrictions and domestic price stabilization programs, have driven up domestic production costs. The Japanese food consumption pattern consist of an openness to foreign products and a strong interest in things international. All types of international cuisine can be found in Japan. Many varieties of tropical and imported fruits, such as Florida grapefruit, California cherries, New Zealand kiwifruit, and Hawaiian papayas are readily available in supermarkets and department stores, as are imported alcoholic beverages ranging from Kentucky bourbon and Chinese beer to Russian vodka and California sake. Japanese food consumption is marked by short-term trends. For example, Korean and Mexican food became popular a few years ago and then unpopular. There have also been Italian and Spanish food booms. The Japanese economic recession has shifted the focus of many consumers to the more affordable neighborhood restaurants that feature traditional Japanese dishes. This has made consumers price conscious at grocery counters, which benefits cheaper imported goods. As a result, imported foods account for over half of Japan's average annual caloric intake. Moreover, with Japanese agriculture contracting, Japan's reliance on (and openness toward) imported food products will continue to increase. Conclusion In the future, the United States may no longer be considered to have a comparative advantage for food products in Japan. Countries in the western Pacific are likely to provide stiff competition for the U.S., due to the shorter shipping distances and the ease of conducting long-distance business from with in neighboring time zones. Offshore investment for processing exporting consumer ready products to Japan is taking place in Australia. Highly processed packaged specialty items are being predicted within the European Community. These processors often put forth a greater effete to produce top-quality packaging for their items than Americans. Southeast Asia challenges the U.S. in products such as pet food. 2. Japanese place a high importance on appearance and invest heavily in packaging. Americans view Japanese processed foods as being over- packaged. 3. Domestic processors package in smaller sizes. Smaller packages are preferred by housewives who cater to the individual tastes of different members of the family. 4. Japanese processors are closely in tune with changes in society and evolving consumption patterns. Recently there has been an increase in the health-conscious consumer. Fiber-enriched foods and beverages have been created. Japan has been investing in R&D projects and developing intensive marketing programs. In addition to providing heavy competition for U.S. finished goods, however, Japanese processors also provide a large potential customer base, for U.S. suppliers of semi-finished and other high-value food inputs. The increase in imports of processed food products has forced Japanese domestic food manufacturers to search for ways to cut costs, particularly raw material and labor costs which account for 59% and 11%, respectively, of total manufacturing costs. In order to cut costs, many Japanese food processors have turned to overseas suppliers for high-quality, competitively priced intermediate food products. This is resulting in an agricultural processing industry that is more accessible to exporters. Exports of intermediate food products from the United States are a small percentage of total U.S. agricultural exports to Japan. However, there are many areas within the Japanese food processing sector where U.S. exporters could be competitive, given U.S. processing technology and the ability to supply products with uniform size, color and texture. An example is the bakery/confection industry which uses large amounts of semi-processed fruits and nuts. f:\12000 essays\business & economics (632)\Comparism of the East German and the West German Economic Sys.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Max Renneberg Kl. 12 Geschichte 7.4.1996 2. Ein Land - zwei Systeme b) Wirtschaftssystem BRD-DDR Die gängigste Gegenüberstellung der Wirtschaftssysteme Ost- und Westdeutschlands lautet: Planwirtschaft - Marktwirtschaft. Das ist allerdings stark vereinfachend und nicht vollkommen richtig. | Die DDR konnte nämlich ohne marktwirtschaftliche Instrumente wie Zins, Gewinn und verschiedener Steuerformen ihre sogenannte Planwirtschaft nicht handhaben. Das wollte man in der DDR-Führung oft nicht wahrhaben, und es hat immer wieder sogenannte ideologische Auseinandersetzungen mit verschiedenen Ökonomen gegeben, die stärker marktwirtschaftliche Instrumente in der Planung anwenden wollten. | In der Bundesrepublik hingegen existiert eine Marktwirtschaft mit verschiedenen Planungsformen. So wird z.B. als ein wichtiges Planungsinstrument der Leitzins genutzt, mit dem der Staat über die Bundesbank konjunkturell eingreift. Dem zur Seite stehen eine Reihe wichtiger vom Staat über den Bundesminister für Finanzen im Sinne einer "Planung" handzuhabender finanzieller Instrumente. Außerdem verfügen große Konzerne, deren Wirkungsbereich fast der gesamten früheren Volkswirtschaft der DDR entspricht, über große Planungsabteilungen. | Wesentlich waren vor allem die unterschiedlichen Eigentumsverhältnisse. In der Bundesrepublik dominiert seit jeher das privatwirtschaftliche Eigentum an Grund und Boden, Banken, Fabriken, wenngleich es auch Staatseigentum gibt wie Bundesbahn, teilweise VW, bis vor kurzem Post, Lufthansa u.a. Aufgrund der Monopolstellung einzelner Unternehmen - Bsp. Post, Bahn - ist die Wirkung marktwirtschaftlicher Instrumente stark eingeschränkt, was teilweise sogar gesetzlich fixiert ist - Bsp. Beförderungsmonopol der Post. | In der DDR gab es sogenanntes Vokseigentum, das aber eigentlich nur Staatseigentum war. Offizielle Version war die Gleichsetzung von Volksinteressen mit denen des Staates, was nicht stimmen konnte, weil die Interessen des Einzelnen völlig unzureichend berücksichtigt wurden. Der Einzelne hat dann ein Interesse an der Arbeit, wenn es ihm etwas bringt. Das ist auch heute nicht anders, und die Praxis zeigt, daß beispielsweise zu hohe (progressiv steigende) Steuern initiativbremsend wirken. Die DDR hatte ein Wirtschaftsmodell der UdSSR übernommen oder übernehmen müssen, das in einem entwickelten Land nicht funktionieren kann, weil die staatliche Planung nicht das Wirken bestimmter sich selbst regulierender Instrumente ersetzen kann. Solche Instrumente kann man zwar in jeder Gesellschaft zeitweise bei Mangelerscheinungen (Nachkriegszeit) außer Kraft setzen, sie sind jedoch niemals auf Dauer lebensfähig. | Wenn man über die Unterschiede der ost- und westdeutschen Wirtschaft spricht, gehören auch die unterschiedlichen Ausgangsbedingungen dazu. Die DDR mußte der UdSSR viele Milliarden Reparationen für das Erbe des Krieges zahlen, während die Bundesrepublik von den USA in der gleichen Zeit Milliardenkredite im Rahmen des Marshall-Planes erhielt. So hat der kalte Krieg, der jahrelang die Ost-West-Beziehungen beherrschte, die ostdeutsche Wirtschaft viel stärker getroffen als die westdeutsche, zumal die DDR keine potenten Verbündeten besaß, wie das Erbe der UdSSR beweist. Im Zeitalter der rasanten technologischen Revolution fehlte in der DDR jegliche Basis, um mit der Weltwirtschaft wirklich Schritt zu halten. Der Abstand wurde ständig größer und war nicht aufholbar. Daran ändern auch einige Spitzenleistungen nichts, die man außerdem nach 1990 größtenteils nicht mehr sehen wollte, weil sie in der funktionierenden Volkswirtschaft der Bundesrepublik nur Kapazitäts-Konkurrenz bedeuteten. konjunktburell = die wirtschaftliche Gesamtlage und ihre Entwicklungstendenz betreffend Reparationen = Kriegsentschädigungen f:\12000 essays\business & economics (632)\Comparison of Trade Rivalries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Comparison of Trade Rivalries The German-Great Britain trade rivalry like the U.S.-Japan trade rivalry involved a rising power cutting into the trade of an already dominant trading power. There were several causes of the German-Great Britain trade rivalry according to Hoffman. The first was German's industry's zeal in procuring new contracts and expanding markets. They did this by fulfilling contracts even if they were very small and constantly trying to stay up with market demand. Second, Germans had a knowledge of languages that the English firms lacked. Third, German industry was aided by their government. In contrast Great Britain did not even supply consular assistance in helping develop markets in British colonies. Fourth, British trade was hurt by the conservatism of British manufacturers who were unwilling to develop new markets or hold onto those it already possessed. These four factors are just some of the factors that helped German industry grow and rival that of Great Britain. These four factors are all very similar to the Japan-U.S. trade rivalry. Japan like Germany was able to catch up to the U.S. because the U.S. was large and arrogant and refused to believe it could face competition from Japan. Like Britain, U.S. industry believed that they could hold onto markets and would not face competition. British and U.S. industry were startled by the fast rate of growth and industrialization that allowed Germany and Japan to transform themselves quickly into trading rivals. This fast rate of growth also caused friction between both sets of countries. Relations between Germany and Great Britain were damaged as they bickered over markets in particular colonies in Africa . This is similar to the friction between the U.S. and Japan unfair trading practices and closed markets. Both the U.S. and Great Britain in response to losing markets toyed with the idea of economic nationalism and tariffs. As Britain lost markets to Germany many in Britain felt that Britain should adopt tariffs on goods while others known as the free traders believed that a free trade would benefit Britain by creating markets. This split between Tariff Reformers and Free Traders is similar to the split in the U.S. between those in favor of free trade and those opposed to it. Germany's grab for new markets in the 1890's through commercial treaties such as the 1891 treaty with Austria-Hungry is similar to both the United States and Japan's free trade zones with neighboring countries using treaties such as ASEAN and NAFTA. The German-Great Britain trade rivalry is different then the U.S.-Japan trade rivalry because a large sector of Japan's market for selling goods is the United States who it is competing against; this was not true of Germany. Both Britain and Germany were competing for markets outside of both their countries. Also the trade rivalry between Japan and the United States did not involve a fight over colonies. Trade rivalries between rising and dominant powers change little over time. The German-British trade rivalry and the Japan U.S. rivalry were very similar in their causes, effects, and the solutions that both sets of governments used to overcome their trading rival. f:\12000 essays\business & economics (632)\ComputAbility.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 3428 ComputAbility, a mail-order company, began in 1982. An authorized reseller of computer software and hardware, ComputAbility offers their clients over 50,000 products. The company has built their reputation on a foundation of competitive prices and quality service. In August of 1997, Creative Computers, also a mail-order company, acquired ComputAbility. The acquisition provided a number of benefits to the company, primarily a larger product selection to offer to customers. Currently, ComputAbility employs 60 + people with plans of adding on 20 to 30 more sales representatives and support staff during the next year. Prior to February of 1998, all of the sales representatives were in the inbound division. This division handles all incoming sales calls. Majorities of these calls are from individual consumers. Creative Computers had started their company the same way, but found the growth potential was in the business sector. In February of 1998, ComputAbility started their corporate sales division, an area already underway at Creative. This division of the company was created to develop relationships with business clients, and become the primary way of increasing company profit. Computability added a dedicated trainer to the staff at the same time the corporate division was started. This individual's primary responsibilities were to train new hires in the areas of sales, product knowledge, company policies and procedures and computer systems. Although there was a solid training program in place, including ongoing new product training from manufacturers, the company was not profiting at an acceptable rate. ComputAbility experienced a decrease in sales and profits during the first year after the acquisition. The expectation was that the acquisition should have provided the tools necessary to increase sales. So what could be the problem? Although ComputAbility sales representatives now had more tools available to them, something was still missing. Creative Computers decided to test a sales training program for the corporate sales division. There are a number of sales training tools available. Tools range from books and seminars to dedicated sales training company programs. Management decided to work with a company who had developed a sales training program. The initial step was for top management to go through the training to see if it was worth the time and money investment. After extensive research, the sales training program, from this point forward called "Discovery", was adopted. Creative Computers hired the company who developed "Discovery," to train the company's internal trainers and select corporate sales representatives. After the initial training, the company trainers conduct Discovery for all remaining and new employees. The training program consists of five courses, each containing one to three modules. The modules focus on techniques for cold calling, probing the company needs, developing client relationships, and account and time management. Representatives are given metrics (daily goals) in the following areas; number of calls, talk time (amount of time the representative spends on the telephone), and dollar. The following goals show the expectations given to the employees during the first 6 months the training was in place: Calls: 80-120 calls per day Talk Time: 3.5-4 hours per day Dollars: $3000 - $28000 gross profit (determined by months of employment) The company who created Discovery developed the metrics of calls and talk time. The dollar goals were determined by ComputAbility. Discovery has been in place for approximately 9 months. ComputAbility has experienced a few issues regarding the metrics. The first issue deals with the number of calls the sales representatives are required to make. Representatives have expressed to management that the goals are not realistic and do not allow for development of client relationships. As a result of the first issue, the company is finding that not all representatives are following the program. This typically occurs after a few weeks on the job. At this point, the company needs to analyze if the Discovery program is effective; are the metrics given realistic? In addition, the determination needs to be made if Discovery is followed, it leads to the representatives' success. This is very difficult to analyze because as mentioned earlier, not every corporate sales representative is thoroughly following the program. It is also important to measure other factors that may be hindering their performance or assisting in their success, such as length of employment. The best way to determine the effectiveness of the Discovery program is to research proven sales training programs and techniques, analyze existing sales numbers in relation to the metrics and weigh additional factors that may influence the end result. RESEARCH Telesales is the offering of goods and/or services by the telephone, fax, television, computer, or other electronic media (Zajas, Church, 1997, p.227). Telesales has several advantages such as low cost personal contact, flexibility in responding to customer needs, and flexibility in adjusting the sales campaign. When telesales is integrated into a company's total marketing process by qualifying leads, increasing response from catalogs and direct mail, and maintaining contact with direct marketers most valuable asset, their customer base, it can increase sales efficiency and profits (Stone, 1995). Telesales requires managers who are effective at getting others to market and sell effectively over the telephone. Managers with limited telesales experience are susceptible to a number of problems: establishing unrealistic goals, pushing high pressure tactics, writing inflexible, unworkable scripts, failing to recognize or cope with burnout, neglecting to collect information systematically, and committing too many resources before testing a concept (Harlan, Woolfson, Jr., 1991, p.8). ComputAbility has experienced some of the above problems by relying on the established "Discovery" metrics. Who developed them? How does management know they are measurable? A telesales manager should test every new program by personally making calls and keeping the statistics to use as benchmarks to ensure that unrealistic goals are not set (Harlan, Woolfson, 1991). An effective telesales manager must have patience and develop enough rapport with their team to listen to problems that are both work and non work related, in order to prevent possible burnout. A manager needs to sense when boredom or frustration with the job sets in. A few months into the Discovery program, many of the sales representatives (titled Account Executives at Computability) were becoming frustrated. Managers called a meeting to determine the cause and found the daily micro managing of the numbers and hence the people, was adding to the stress of the job. This is when the first issue of unrealistic goals, was discovered. What management did in response to this was to re-evaluate the metrics. After careful planning, the following revisions were established: Months 1-3 Months 4-6 Months 7-12 Calls: 400 week 350 week 300 week Talk Time: 1.5-3 hrs week 3-4 hours week 3-4 hours week $ goals: remained the same The primary goal of the revision was to give the representatives weekly goals instead of daily to eliminate the micro managing and in turn result in less stress for the employees. In relation to the second issue, management felt all employees would now be more willing to follow the program. The revised metrics also gave employees more flexibility. Regardless of the length of employment, the employee is performing to expectation if they are achieving any one of the metric breakdowns per week. Example: Employee A has been with the company for 2 months, call time is 3.5 hours a day and call amount is 300 a week. The employee is performing to the metrics. What management hoped to achieve with this breakdown relates to the first issue expressed by employees that the call amount did not allow for relationship building with the client. Telesales representatives need adequate training and compensation to do the job (Harlan, Woolfson, Jr., 1991). Creative Computers and ComputAbility understand how important a solid training program is to the success of the account executives. The Discovery training program is very effective. The metrics simply need revision. However, it is critical for the company to realize that the Discovery training program is not the "total solution" to making a representative successful. There are other essential factors. It is crucial for a manager to look at a potential employees work references before hiring a salesperson, as attitude can be demonstrated by habits such as promptness, attendance, and completion of job assignments (Zajas, Church, 1997). In order to excel in telesales, a person must have several desired traits. An account executive needs to have a voice that sounds pleasant, trustworthy, and pleasing to the ear, is easily understood, and enthusiastic. Telesales representatives should be friendly and have an interest in helping others, even when callers are rude, unfeeling, or obscene. They should be confident and have the ability to handle rejection and operate under pressure without getting defensive. The most important characteristic the representative needs to possess is to be a good listener. This includes the ability to empathize, read between the lines, and analyze what they hear. Product knowledge is essential to enable them to handle routine customer questions. This product knowledge is acquired through the training program. Account Executives need to be able to sit for long periods, often in small cubes. Those who have had experience in a quality telesales program and have experience with the product have the best background for success (Harlan, Woolfson, Jr. 1991). If one were to compare telesales to field sales, it is evident that the pure ratios favor telesales. On the average, it is possible for a field sales person to make five or six calls a day whereas a telesales person can make over one hundred contacts a day. If the same contact level were to be achieved in field sales, five salespersons would have to be added for every one telesales person (Baier, 1994). Understanding this, the company has no plans of extended it sales force from inside to outside. The success of Computability depends on the success of their corporate account executives. Computability is unsure at this time which of the following factors play a role in the employees abilities to increase sales profits and which factors are most significant: length of employment, sex, education level, number and/or length of sales calls per month, and attendance. The first step in determining which factors are most significant is to state the null hypotheses and alternative hypotheses. The null hypotheses states there is a relationship between the improvement in adjusted gross profit from sales and the influence from the above named factors. Ho: The mean of age of employment is equal to the mean of sex is equal to the mean of education level is equal to the mean of number and/or length of sales calls per month is equal to the mean of attendance. The alternate hypothesis states there is not a relationship between the improvement in adjusted gross profit from sales and the influence from the above named factors. H1: There is a difference between the means of age of employment, sex, education level, number and/or length of sales calls per month, and attendance. This data will be analyzed at the .05 significance level. DATA ANALYSIS Data for analysis was collected over a five-month period from November 1998 to March 1999. The raw data information is contained in Table 1. Subject sample size was nine sales personnel in active employment in the target time frame. Independent variables included length of employment, sex, education level, average number of calls, average length of a sales call and the average monthly attendance record for each subject. Each variable was subjected to a correlation analysis to determine the level of significance to the adjusted gross profit generated. The variables were than subjected to a multiple regression to determine the overall significance of the multiple factors. The basic outline and formulas for using the correlation with multiple regression was outlined in Chapter 13 of Statistical Techniques in Business and Economics, by Mason, Lind and Marchal, 1999. Totals of five-month sales figures for the Adjusted Gross Profit (AGP) from representatives were used as the dependant variable in the analysis. This was a sum of profit from total sales in the time frame. A five-month time frame was chosen because of the sample information available and the deadline for this report. A factor for consideration was the total months employed in a sales position in this division. The division was started in February of 1998 and the different start dates were noted for all subjects. The work force is relatively stable as suggested by the mean number of months in the program of 11.8. The whole program is 15 months old. Some participants have been with the program since the start up and have developed a comfort level for their position. Suggested sales goals are adjusted for the amount of time a particular sales person has worked in this department. There is a start up suggested sales target that is adjusted on an established schedule. The commissions paid are tied to the ability of a sales person to reach their individual profit goals. A dummy variable was used to record the sex of the individual. The female was recorded as a zero and the male was recorded as a one. Education was a factor with the highest level achieved in formal education noted. A dummy variable was assigned to three levels finished high school, received an associates degree, and received a batchlers degree. The level attained was noted with a one, levels not attained were recorded as a zero. Phone data was analyzed to collect information for the next two factors. The first was the average number of daily calls. There is a suggested quota of 80 calls per day and the individual daily call frequency for each salesperson was noted and than averaged for the recorded data. The second group of data was the daily average call length, in minutes, for each call. Individual calls are timed by seconds and recorded. The mean of the total time was computed. The daily average was than adjusted to a format in minutes. The final factor for analysis was the average monthly attendance of the subjects. Actual days worked were recorded against total days available and the total averaged to establish a pattern of absenteeism. All data analysis would be subjected to a significance level of .05. This level was chosen as the critical values would be accepted at the 95% significance for business use. The raw data was included in a Windows, Excel format on a spreadsheet marked Table 2. The information was correlated by two computerized formats. This was done to display the same information in two different formats for comparison of ease of data extraction. Table 3 shows the correlation statistics completed in Windows Excel, data analysis. Table 4 shows the same information conducted by the Windows Excel, Megastat program. The different programs gave the same results however this researcher found the Megastat presentation easier to comprehend. The Megastat program included critical values for the sample size so comparison information was readily available. The results showed significant correlation between adjusted gross profit and months employed. Adjusted gross profit and call length also showed a significant correlation. There was very little correlation between adjusted gross profit and the education of the subjects. Due to the limited sample size and the correlation results the education category was eliminated from the final analysis. The adjusted sample information is shown in Table 5. This information omits the educational data and was subjected to a correlation analysis with little difference in reported results. The adjusted information was subjected to a regression analysis and an analysis of variance. The results are shown in Table 7 and 8. A low p value of .15 was recorded suggesting an acceptable analysis of the variables. Scatter plot charts were constructed to show the positive correlation for APG vs months of employment, see Graph 1 and call length in Graph 4. Negative correlation was witnessed in the scatter plot for APG vs number of calls see Graph 3. Graph 2 and 4 showed no real direction. Analysis of the information compiled in the mentioned tables will be handled in the next section on the conclusions. Conclusion I other portions of this paper we have discussed what factors play a role in the salesperson's abilities to increase profit. We have collected outside research to determine which factors are most significant in influencing an increase of sales and gross profits. We have outlined the collected data and the statistical methods we feel are relevant to give us some direction to base some decisions. The following section will interpret the data results the statistical analysis and display that data in multiple forms of numerical and graphic presentation. We start with an analysis of the data displayed in the correlation matrix in the appendix marked table 2. There were seven different parameters used in this matrix. In comparing these parameters to our established critical value it was decided to exclude the level of achieved education based on the low numerical results in the correlation analysis. The data was removed and a second correlation matrix was performed which showed little difference in values from the first group and still showed strong relationships in other areas. Of the six remaining parameters the significant relationships of adjusted gross profit to number of months employed and the average length of a phone call turned out to have the strongest correlation in the comparison to the critical value at .05 of .666. The relationship of the average length of a phone call to the average number of calls made was also significant suggesting that the quantity and quality of the phone calls are better correlated than a relationship between increasing the number of phone calls and sales that can be generated. This idea disagrees with what past studies have suggested to management. That is the idea that the more calls made will lead to increased sales. Our findings suggest that developing a comfort level and product expertise based on time in grade and developing a high quality conversation with prospective clients is more effective than high volume, short length, impersonal sales pitches. The regression analysis lends confirmation to these interpretations. In table 5 the regression analysis shows the relationship of all the variables and the significant quantifiable strength of each relationship. This regression data allows us reject the null hypothesis and not reject our alternate hypothesis. All the variables are not equal to each other and show different effects on the ability to increase adjusted gross profits. If one looks at the coefficient of multiple determination shown as R squared on the regression analysis table it indicates that 86 percent of the variation in the adjusted gross profit is due to a combination of all the variations studied. The length of time employed at the company and the length of phone calls are the significant factors. It should be noted that this study was conducted with a rather limited sample size due to constraints of time. The high correlation rates substantiated with a significant percent of relationship should suggest that the results would very little if the sample size were increased. There is further confirmation when one looks at the p-value in the analysis of variance table. The recorded p-value is .1513. When this is compared to the value of .863 coefficient of multiple determination on the regression analysis table one can see that it reinforces the decision to reject the null hypothesis with a fair confidence of not having a type 2 error. To display the results in a more pictorial presentation we have outlined in scatter plot design the relationships of the different variables. The first scatter diagram shows the adjusted gross income vs the amount of months employed with Computability. There is a strong positive relationship between these two variables. The fact that the salespersons have been in place for a fair time frame leads one to speculate that there is some sort of comfort level that develops over time and helps to improve sales. The development of a stable sales force is a significant way to improve sales and profits. The effects of the sex of the salesperson had no real correlation. This suggests that the job is suited to any person with other talents and is not a gender-based attribute. The graph shows there is a zero correlation between these two variables. The average number of calls vs the adjusted gross profits yielded another strong correlation but in a negative direction. This would suggest that improvements in sales would not benefit from increasing the number of sales calls but might have the opposite effect. If a salesperson is only judged by the volume of calls made they may project a limited willingness to get to properly qualify the customer and offer the correct solution to a need because they are more interested in meeting management's call quotes. This may actually hurt sales and profits over the long term. The next graph showing the relationship of the average length of calls vs the adjusted gross profit supports the theme began from the last graph. The criteria that call for good customer qualification and a building of a relationship with that customer will be reflected by a positive correlation to sales improvement. This relationship will take some time. A longer phone conversation can help to qualify better and build the trust needed to assist in repeated sales volume. The longer you are on the phone, the greater the chance you will have to sell something to the client. The last graph looks at the monthly attendance vs adjusted gross profit and one can see little relationship on a direct basis. It should be noted that if you do not come to work you would not make any calls. However just being at work will not guarantee you success. The success of the program is dependent on the attitude of quality not quantity. In summary, the amount of expertise developed over time and the amount of quality conversations developed over time are the important factors. Sales will not improve when activity is based on factors of quantity only. Harlan, R., Woolfson, Jr., W., (1991). Telesales That Works. Chicago, Il: Probus Publishing Company. Stone, B., (1995). Successful Direct Marketing Methods. Lincolnwood, Il: NTC Business Books. Zajas, J., Church, O., (1997). Applying Telecommunications and Technology from a Global Business Perspective. Binghamton, NY: The Haworth Press, Inc. f:\12000 essays\business & economics (632)\Computer Stores Arriving In Volume.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Computer dealers are crowding shopping districts, and some analysts think the market is becoming saturated. In Connecticut alone, the two major shopping districts, Buckland and the Berlin Turnpike, for instance, shoppers can compare equipment and costs at Nobody Beats the Wiz, Lechmere, Circut City, Staples, and Office Max - all within minutes in one another. Yet, computer retailers insist that there has been a need for more stores - specifically their own - citing a nearly constant updating of equipment and a growing emphasis on service. They also believe revenue potential remains because computers are constanly changing and more people are becoming curious about the Internet. Still, many worry the market potential might be waning. Analysts believe the market is very close to being saturated, if not already there. there are only so many computers a person will buy, and only so many stores will a customer visit. f:\12000 essays\business & economics (632)\Conflicting Goals in Economic Growth.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Conflicting Goals in Economic Growth Goals of monetary policy are to "promote maximum employment, inflation (stabilizing prices), and economic growth." If economists believe it's possible to achieve all the goals at once, the goals are inconsistent. There are limitations to monetary policy. The term "maximum employment" means that we should try to hold the unemployment rate as low as possible without pushing it below what economists call the natural rate or the full- employment rate. Pushing unemployment below that level would cause inflation to rise and thereby ruin the other objective-- stable prices, economic growth, which is our objectives in the long run. Overall financial stability will lead to a better balance between consumption and saving that will make resources available for investment purposes, reduce changes in the economy created by the inflation in the past, and by the reactions of savers, as well as fostering high and sustainable economic growth; and contribute towards an investor friendly environment that will attract foreign investors to the country. Evidence has suggested that economies perform better, in terms of growth, employment and living standards, in low inflation environments than they do when inflation is persistently high. This evidence is a comparison across countries over long periods. The association between economic performance, measured by growth of output or growth of productivity, and inflation. This indicates a negative relation; that is, the higher the inflation, the lower the rate of real growth. Evidence suggesting that low inflation promotes growth has motivated recent decisions by a number of central banks and governments, most notably New Zealand. Canada, the United Kingdom and Sweden also have moved in recent years to establish monetary policy with official low inflation targets. Decisions to adopt a policy objective of low inflation suggest that other policy-makers are reading the evidence pertaining to inflation and growth as we are. Consistent attempts to expand the economy beyond its potential for production will result in higher and higher inflation, while ultimately failing to produce lower average unemployment. Therefore, most economists would argue that there are no long-term gains from consistently pursuing expansionary policies. Monetary policy can determine the economy's average rate of inflation in the long run. And that's important for the economy, because high inflation can hinder economic growth. For example, when inflation is high, it also tends to vary a lot, and that makes people uncertain about what inflation will be in the future. That uncertainty can hinder economic growth in a couple of ways--it adds an inflation risk premium to long-term interest rates and it complicates the planning and contracting by business and labor that are so essential to capital formation. High inflation also hinders economic growth in other ways. For example, because the tax system isn't in agreement with inflation, high inflation arbitrarily helps and hurts different sectors of the economy. In addition, it makes people spend their time hedging against inflation instead of pursuing more productive activities. Because the government can determine the economy's average rate of inflation, some commentators--and some members of Congress as well--have emphasized the need to define the goals of monetary policy in terms of price stability, which is achievable. One kind of conflict involves deciding which goal should take precedence at any point in time. For example, the government needs to be careful to avoid letting short-run temporary successes in preventing employment losses during recessions lead to longer-run failures in maintaining low inflation. Another kind of conflict involves the potential for pressure from the political arena. For example, in the day-to-day course of governing the country and making economic policy, politicians may be tempted to put the emphasis on short-run results rather than on the longer-run health of the economy. The government is somewhat insulated from such pressure, however, by its independence, which allows it to achieve a more appropriate balance between short-run and long-run objectives. When unemployment is high the policy that should take place is inflation should increase slightly to drive up prices in order to cause increases in output. When unemployment is below average and nearing full employment the policy that should take place is to slightly lower the productivity of the workers and therefore cause a decrease in the output. This would slow the economy down and into the ideal condition of maximum employment. When the production is at its maximum and unemployment at a minimum the government must raise the inflation rate in order to make sure that the situation stays where it is. It must be sure not to raise inflation too sharply or else everyone will be afraid to spend their money. The belief that a 4% unemployment rate and stable prices are inconsistent is shaped by the widely accepted "natural rate hypothesis." It argues that monetary policy has no effect on the economy's unemployment rate, which is often called the natural rate of unemployment. The reason is that, in the long run, unemployment depends on so-called "real" factors--such as technology and people's preferences for saving, risk, and work effort; these factors are beyond the reach of monetary policy. Most current estimates place the natural rate of unemployment in the range of 53/4-63/4%. Consistent attempts to expand the economy beyond its potential for production will result in higher and higher inflation, while ultimately failing to produce lower average unemployment. Therefore, most economists would argue that there are no long-term gains from consistently pursuing expansionary policies. f:\12000 essays\business & economics (632)\Conflicts in Monetary Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Goals of monetary policy are to "promote maximum employment, inflation (stabilizing prices), and economic growth." If economists believe it's possible to achieve all the goals at once, the goals are inconsistent. There are limitations to monetary policy. The term "maximum employment" means that we should try to hold the unemployment rate as low as possible without pushing it below what economists call the natural rate or the full- employment rate. Pushing unemployment below that level would cause inflation to rise and thereby ruin the other objective--stable prices, economic growth, which is our objectives in the long run. Overall financial stability will lead to a better balance between consumption and saving that will make resources available for investment purposes, reduce changes in the economy created by the inflation in the past, and by the reactions of savers, as well as fostering high and sustainable economic growth; and contribute towards an investor friendly environment that will attract foreign investors to the country. Evidence has suggested that economies perform better, in terms of growth, employment and living standards, in low inflation environments than they do when inflation is persistently high. This evidence is a comparison across countries over long periods. The association between economic performance, measured by growth of output or growth of productivity, and inflation. This indicates a negative relation; that is, the higher the inflation, the lower the rate of real growth. Evidence suggesting that low inflation promotes growth has motivated recent decisions by a number of central banks and governments, most notably New Zealand. Canada, the United Kingdom and Sweden also have moved in recent years to establish monetary policy with official low inflation targets. Decisions to adopt a policy objective of low inflation suggest that other policy-makers are reading the evidence pertaining to inflation and growth as we are. Consistent attempts to expand the economy beyond its potential for production will result in higher and higher inflation, while ultimately failing to produce lower average unemployment. Therefore, most economists would argue that there are no long-term gains from consistently pursuing expansionary policies. Monetary policy can determine the economy's average rate of inflation in the long run. And that's important for the economy, because high inflation can hinder economic growth. For example, when inflation is high, it also tends to vary a lot, and that makes people uncertain about what inflation will be in the future. That uncertainty can hinder economic growth in a couple of ways--it adds an inflation risk premium to long-term interest rates and it complicates the planning and contracting by business and labor that are so essential to capital formation. High inflation also hinders economic growth in other ways. For example, because the tax system isn't in agreement with inflation, high inflation arbitrarily helps and hurts different sectors of the economy. In addition, it makes people spend their time hedging against inflation instead of pursuing more productive activities. Because the government can determine the economy's average rate of inflation, some commentators--and some members of Congress as well--have emphasized the need to define the goals of monetary policy in terms of price stability, which is achievable. One kind of conflict involves deciding which goal should take precedence at any point in time. For example, the government needs to be careful to avoid letting short-run temporary successes in preventing employment losses during recessions lead to longer-run failures in maintaining low inflation. Another kind of conflict involves the potential for pressure from the political arena. For example, in the day-to-day course of governing the country and making economic policy, politicians may be tempted to put the emphasis on short-run results rather than on the longer-run health of the economy. The government is somewhat insulated from such pressure, however, by its independence, which allows it to achieve a more appropriate balance between short-run and long-run objectives. When unemployment is high the policy that should take place is inflation should increase slightly to drive up prices in order to cause increases in output. When unemployment is below average and nearing full employment the policy that should take place is to slightly lower the productivity of the workers and therefore cause a decrease in the output. This would slow the economy down and into the ideal condition of maximum employment. When the production is at its maximum and unemployment at a minimum the government must raise the inflation rate in order to make sure that the situation stays where it is. It must be sure not to raise inflation too sharply or else everyone will be afraid to spend their money. The belief that a 4% unemployment rate and stable prices are inconsistent is shaped by the widely accepted "natural rate hypothesis." It argues that monetary policy has no effect on the economy's unemployment rate, which is often called the natural rate of unemployment. The reason is that, in the long run, unemployment depends on so-called "real" factors--such as technology and people's preferences for saving, risk, and work effort; these factors are beyond the reach of monetary policy. Most current estimates place the natural rate of unemployment in the range of 53/4-63/4%. Consistent attempts to expand the economy beyond its potential for production will result in higher and higher inflation, while ultimately failing to produce lower average unemployment. Therefore, most economists would argue that there are no long-term gains from consistently pursuing expansionary policies. f:\12000 essays\business & economics (632)\Consequences of imposing trade restrinctions.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How does imposing trade restrictions affect a country's macro economic objectives? Nowadays all countries need to trade between themselves. Countries always lack of some type of good and the only way they can get them is by importing them from other countries which do produce the desired goods. However, countries many times import products they are able of producing and now, this isn´t a matter of need; it´s a matter of taste in order to give the consumers the possibility to choose. Both imports and exports contribute, in different ways, to the development of a certain economy, for example the Peruvian one. Nowadays, Peru has an open economy which allows importing and exporting. When a country imports any product it can be because it doesn´t produce it or because it want´s to give greater variety to certain areas of the market. This last case should be like a stimuli for national producers to produce more and with a better quality and to find ways of having lower costs of production. This aims come to light because, as foreign products enter the market, they may be of a better quality and even cheaper than the national ones. Now, the consumers will have more possibilities to choose from and, it is very probbable that they will choose the cheaper and brand new products. So, if national producers don´t do anything in order to improve thier products, then they will be in danger of going to bankruptcy. As a result of this, the national products have to seek, as I said before, for cheaper costs and better products. When this occurrs, then national products are ready (or at least have more possibilities) to compete in international markets. Supposedly, now they should have a better quality, they should be cheaper and so, they are ready to be exported. When products are sold at international markets, then this brings more money into the peruvian economy; as exports are like the salary of a country (the most important source of money), then this is very positive for the peruvian economy because we can say that the national income has increased. So, we have seen how having imports and exports are very benefitial for any country. However, countries many times apply barriers to imports coming into the country in order to protect national products. The most common type of barrier applied are the tariffs. Tariffs are taxes applied to every imported product which comes into the country. In Peru, for example, the tariff rate has two values: one which is 15% of the original price (the most commonly applied) and the other one which is 25% of the original price (rarely applied, only for luxurious goods.) By applying this tariffs, then it may not be very profitable to bring certain products into the country, and, in this way, the national products are able to keep on in the same way, without worrying about having a powerfull competence. This type of barrier may allow certain national companies to keep on being leaders in the national market, even though their products aren´t export quality. So, if they try to export these products, then they won´t have much luck in foreign markets because here, in their local markets, they haven´t developed really good and relatively cheap goods. However, nowadays there are many international organisations, like NAFTA, which aim at having a 0% tariff on all the member countries. In this way, there will be no additional value added to the imported products and, so, if national companies aren´t well prepared, then they won´t be able to compete and, so, they will go to bankruptcy. I think that this type of agreements are good for the companies and their local countries because in the future, where international trade will be even more important than what is now, any enterprise which isn´t prepared to compete internationally won´t be able to survive. If these non tariff measures start to be applied at the present, then companies will get used to having constant and competent competence and, therefore will not have any problems in the future. In conclusion, I think that countries which insist on applying tariffs are preventing themselves and their own companies from preparing for the future. In the long run this will be negative for both the country and the companies because they will not be likely to develop the adequate techniques for competing internationally and, so, their products won´t be able to be exported and, as a result, the country´s "salary" (money gained by exporting) will be greatly reduced. f:\12000 essays\business & economics (632)\Consequences of Trade Restrictions and Tariffs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Consequences of Trade Restrictions and Tariffs How does imposing trade restrictions affect a country's macro economic objectives? Nowadays all countries need to trade between themselves. Countries always lack of some type of good and the only way they can get them is by importing them from other countries which do produce the desired goods. However, countries many times import products they are able of producing and now, this isn´t a matter of need; it´s a matter of taste in order to give the consumers the possibility to choose. Both imports and exports contribute, in different ways, to the development of a certain economy, for example the Peruvian one. Nowadays, Peru has an open economy which allows importing and exporting. When a country imports any product it can be because it doesn´t produce it or because it want´s to give greater variety to certain areas of the market. This last case should be like a stimuli for national producers to produce more and with a better quality and to find ways of having lower costs of production. This aims come to light because, as foreign products enter the market, they may be of a better quality and even cheaper than the national ones. Now, the consumers will have more possibilities to choose from and, it is very probbable that they will choose the cheaper and brand new products. So, if national producers don´t do anything in order to improve thier products, then they will be in danger of going to bankruptcy. As a result of this, the national products have to seek, as I said before, for cheaper costs and better products. When this occurrs, then national products are ready (or at least have more possibilities) to compete in international markets. Supposedly, now they should have a better quality, they should be cheaper and so, they are ready to be exported. When products are sold at international markets, then this brings more money into the peruvian economy; as exports are like the salary of a country (the most important source of money), then this is very positive for the peruvian economy because we can say that the national income has increased. So, we have seen how having imports and exports are very benefitial for any country. However, countries many times apply barriers to imports coming into the country in order to protect national products. The most common type of barrier applied are the tariffs. Tariffs are taxes applied to every imported product which comes into the country. In Peru, for example, the tariff rate has two values: one which is 15% of the original price (the most commonly applied) and the other one which is 25% of the original price (rarely applied, only for luxurious goods.) By applying this tariffs, then it may not be very profitable to bring certain products into the country, and, in this way, the national products are able to keep on in the same way, without worrying about having a powerfull competence. This type of barrier may allow certain national companies to keep on being leaders in the national market, even though their products aren´ t export quality. So, if they try to export these products, then they won´t have much luck in foreign markets because here, in their local markets, they haven´t developed really good and relatively cheap goods. However, nowadays there are many international organisations, like NAFTA, which aim at having a 0% tariff on all the member countries. In this way, there will be no additional value added to the imported products and, so, if national companies aren´t well prepared, then they won´t be able to compete and, so, they will go to bankruptcy. I think that this type of agreements are good for the companies and their local countries because in the future, where international trade will be even more important than what is now, any enterprise which isn´t prepared to compete internationally won´t be able to survive. If these non tariff measures start to be applied at the present, then companies will get used to having constant and competent competence and, therefore will not have any problems in the future. In conclusion, I think that countries which insist on applying tariffs are preventing themselves and their own companies from preparing for the future. In the long run this will be negative for both the country and the companies because they will not be likely to develop the adequate techniques for competing internationally and, so, their products won´t be able to be exported and, as a result, the country´s "salary" (money gained by exporting) will be greatly reduced. f:\12000 essays\business & economics (632)\Consumer Alert 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CONSUMER ALERT In an era when free enterprise is the key to an efficient, productive, and successful country, business sometimes digresses from their true duties of producing goods and services at an honest and decent price. Consumer Alert, founded in 1977, was founded with a single purpose in mind: "to advance the consumer interest through advocacy of free-market solutions to consumer dissatisfaction and scrutiny of any action which discourages competition in the marketplace." Consumer Alert was founded in 1977 as a national, non-profit membership organization for people concerned about excessive growth of government regulation at the national and state levels. Consumer Alert's mission is to inform the public about the consumer benefits of competitive enterprise and to expose the flawed economic, scientific and risk data that underlie certain public policies. Now, Consumer Alert is the home to the spare time of over 6,000 volunteers. Each of these volunteers donate their valuable time to Consumer Alert for the sole reason of upholding high ethics within the American marketplace. Anyone can become a member. The only qualification is that the individual have a distinct and strong faith in competitive enterprise, a healthy skepticism of government solutions, a dislike of government related monopolies, labor, or business, and be in the favor of safe technology, free trade, smaller government and lower taxes. We found that to become a member, all it would take is $35 and a mailed in request to their office in Washington. Consumer Alert depends on contributions from individual donors, corporations, and foundations to protect consumer choice and competition and promote sound science. Some basic facts about Consumer Alert are that the size of their annual budget (1988) was $411,900. This helps to maintain their bimonthly publication, Consumer Alerts Comments, and pay their full-time president, vice-president, and contracted legal counsel. Currently, their salaried executive officer is Frances B. Smith, and his office is where his lobbying is needed most, Washington DC. Consumer Alert has only one interest in mind, and only a single area where their influence can be fully realized. With a central office in Washington DC, Consumer Alert is always up-to-the-minute on news that effects the consuming public. They are continually active in issues such as privatization, free trade, deregulation in the marketplace, reduction in government spending, and a balanced budget without tax increase. Consumer Alert operates the National Consumer Coalition, which is comprised of 20 public policy organizations. Members of the coalition participate in various events, including a Washington DC forum that examines critical consumer issues. The coalition advances solutions to real consumer problems and seeks the most cost-effective manner in which to achieve desired results. As the coalition's sponsor, Consumer Alert actively publicizes public policy achievements by member organizations. Consumer Alert also sponsors conferences to foster discussion of important consumer issues. Consumer Alert is clearly on the side of the consuming people. The people, and preventing their abuse, is the number one priority for Consumer Alert as seen through their vigilant watch over legislation in out government. They are our watchdogs. Consumer Alert's National Consumer Coalition forum features leading public policy experts, journalists, authors, scientists, and public officials. With an educated board of members continually at their side, we believe that their tendencies would be towards a more conservative Republican standpoint. Just as Republicans call for minimization of government control over the economy, as does Consumer Alert with their strong stance on the deregulation of the marketplace. Consumer Alert is also very effective in their influence. Representatives of Consumer Alert are often called upon by federal regulatory agencies and congressional committees to testify on the consumer effects of proposed regulations and legislation. For example, Consumer Alert recently testified before both Senate and the House Banking subcommittees on how changes to disclosure laws would make the mortgage process more understandable to consumers. Consumer Alert identifies consumer problems that can be solved through litigation and supplies information to public interest legal groups active in protecting individual rights and consumer choice. Consumer Alert was instrumental, for example, in fostering legal action that successfully prevented universities from forcing all students to fund causes with which they do not agree, such as Public Interest Research Groups. Through a national program that stresses public education, coalition-building, litigation, testimony, conferences and forums to advance these views, Consumer Alert has a significant impact on the issues. The group supports the third rule of Lineberry's traditional democratic theory: enlightened understanding. With offices in Washington DC, Consumer Alert has individual members in all 50 states, and along with their bimonthly publication, Consumer Alert does a good job of 'alerting' consumers and allowing them to have a louder voice in today's marketplace. WORKS CITED Jaszczak, Sandra. Ed. Encyclopedia of Associations. Detroit: Gale Publishing, 1996. Consumer Alert World Wide Web site: Zipperer, Rich. Consumer Comments June 1996, Vol. 20. f:\12000 essays\business & economics (632)\Consumer Alert.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Consumer Alert In an era when free enterprise is the key to an efficient, productive, and successful country, business sometimes digresses from their true duties of producing goods and services at an honest and decent price. Consumer Alert, founded in 1977, was founded with a single purpose in mind: "to advance the consumer interest through advocacy of free-market solutions to consumer dissatisfaction and scrutiny of any action which discourages competition in the marketplace." Consumer Alert was founded in 1977 as a national, non-profit membership organization for people concerned about excessive growth of government regulation at the national and state levels. Consumer Alert's mission is to inform the public about the consumer benefits of competitive enterprise and to expose the flawed economic, scientific and risk data that underlie certain public policies. Now, Consumer Alert is the home to the spare time of over 6,000 volunteers. Each of these volunteers donate their valuable time to Consumer Alert for the sole reason of upholding high ethics within the American marketplace. Anyone can become a member. The only qualification is that the individual have a distinct and strong faith in competitive enterprise, a healthy skepticism of government solutions, a dislike of government related monopolies, labor, or business, and be in the favor of safe technology, free trade, smaller government and lower taxes. We found that to become a member, all it would take is $35 and a mailed in request to their office in Washington. Consumer Alert depends on contributions from individual donors, corporations, and foundations to protect consumer choice and competition and promote sound science. Some basic facts about Consumer Alert are that the size of their annual budget (1988) was $411,900. This helps to maintain their bimonthly publication, Consumer Alerts Comments, and pay their full-time president, vice-president, and contracted legal counsel. Currently, their salaried executive officer is Frances B. Smith, and his office is where his lobbying is needed most, Washington DC. Consumer Alert has only one interest in mind, and only a single area where their influence can be fully realized. With a central office in Washington DC, Consumer Alert is always up-to-the-minute on news that effects the consuming public. They are continually active in issues such as privatization, free trade, deregulation in the marketplace, reduction in government spending, and a balanced budget without tax increase. Consumer Alert operates the National Consumer Coalition, which is comprised of 20 public policy organizations. Members of the coalition participate in various events, including a Washington DC forum that examines critical consumer issues. The coalition advances solutions to real consumer problems and seeks the most cost- effective manner in which to achieve desired results. As the coalition's sponsor, Consumer Alert actively publicizes public policy achievements by member organizations. Consumer Alert also sponsors conferences to foster discussion of important consumer issues. Consumer Alert is clearly on the side of the consuming people. The people, and preventing their abuse, is the number one priority for Consumer Alert as seen through their vigilant watch over legislation in out government. They are our watchdogs. Consumer Alert's National Consumer Coalition forum features leading public policy experts, journalists, authors, scientists, and public officials. With an educated board of members continually at their side, we believe that their tendencies would be towards a more conservative Republican standpoint. Just as Republicans call for minimization of government control over the economy, as does Consumer Alert with their strong stance on the deregulation of the marketplace. Consumer Alert is also very effective in their influence. Representatives of Consumer Alert are often called upon by federal regulatory agencies and congressional committees to testify on the consumer effects of proposed regulations and legislation. For example, Consumer Alert recently testified before both Senate and the House Banking subcommittees on how changes to disclosure laws would make the mortgage process more understandable to consumers. Consumer Alert identifies consumer problems that can be solved through litigation and supplies information to public interest legal groups active in protecting individual rights and consumer choice. Consumer Alert was instrumental, for example, in fostering legal action that successfully prevented universities from forcing all students to fund causes with which they do not agree, such as Public Interest Research Groups. Through a national program that stresses public education, coalition- building, litigation, testimony, conferences and forums to advance these views, Consumer Alert has a significant impact on the issues. The group supports the third rule of Lineberry's traditional democratic theory: enlightened understanding. With offices in Washington DC, Consumer Alert has individual members in all 50 states, and along with their bimonthly publication, Consumer Alert does a good job of 'alerting' consumers and allowing them to have a louder voice in today's marketplace. WORKS CITED Jaszczak, Sandra. Ed. Encyclopedia of Associations. Detroit: Gale Publishing, 1996. Consumer Alert World Wide Web site: Zipperer, Rich. Consumer Comments June 1996, Vol. 20. D f:\12000 essays\business & economics (632)\Consumer Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The reasons we as Americans buy on credit varies, but without it most of us would probably never be able to purchase necessities such as a home or automobile. The nation's economy depends on credit, the promise to pay later for goods and services used today; but along with consumer credit comes consumer debt. With the rise in telemarketing and commercializing in America it is no wonder why Americans feel the impulse to buy now, pay later. The most common form of consumer debt is installment debt, which is when a consumer borrows the money to purchase an item and agrees to repay the loan in equal installments over a fixed period of time. Without installment debt most consumers could not afford to purchase items such as a home. The truth of the matter is that we, as Americans, tend to want to purchase more than we can afford to purchase when we want it. But, we can afford to pay it out, over time, in fixed payments. Mortgages, a debt owed on real property, are the latest form of installment debt. Other forms include automobile loans and credit card purchases. Just pick up the newspaper any time after Christmas and you will find articles on managing your mounting debt from Christmas. Not realizing the extent of the consumers' debt is one of the most common types of credit problems. Denial may play a partial role in this problem, but the lack of education seems to be the largest reason for consumer debt. Credit card use is up 20% and a large number of Americans do not know the percentage rate at which the credit card companies charge. Many credit card companies have started "personalizing" interest rates by not disclosing the interest rate until after the consumer has received the card. By not disclosing the interest rate on the application the credit card companies prohibit the consumer from shopping around for the best deal. You could just say they should cancel the credit card, but did you know several requests for consumer credit could be viewed negatively because the information is reported to the credit bureaus? This leaves you, the consumer, with a bad credit report. Household debt and bankruptcy are at record levels and appear to be on the rise. Until we as consumers begin to educate ourselves and stop living beyond our means, we only have ourselves to blame. In conclusion, although consumers are not forced to buy, most feel compelled to purchase goods and services because they need them and do not want to wait. Rather than saving they go into debt, the most common of which is installment debt. Bibliography 1. Miller, R. L., Economics: Today and Tomorrow, Hesterville, Ohio; Glencoe-McGraw Hill, 1995 2. "Major Growing Pains" U.S. News and World Report (Oct. 21, 1996) Pg. 62-64 3. "What's the Rate? They Won't Say." U.S. News and World Report (Aug. 19, 1996) pg. 61 4. Lee, Susan Susan Lee's ABZ's of Economics New York; Poseidon Press, 1987 f:\12000 essays\business & economics (632)\Consumers Purchasing on Credit.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Consumers Purchasing on Credit The reasons we as Americans buy on credit varies, but without it most of us would probably never be able to purchase necessities such as a home or automobile. The nation's economy depends on credit, the promise to pay later for goods and services used today; but along with consumer credit comes consumer debt. With the rise in telemarketing and commercializing in America it is no wonder why Americans feel the impulse to buy now, pay later. The most common form of consumer debt is installment debt, which is when a consumer borrows the money to purchase an item and agrees to repay the loan in equal installments over a fixed period of time. Without installment debt most consumers could not afford to purchase items such as a home. The truth of the matter is that we, as Americans, tend to want to purchase more than we can afford to purchase when we want it. But, we can afford to pay it out, over time, in fixed payments. Mortgages, a debt owed on real property, are the latest form of installment debt. Other forms include automobile loans and credit card purchases. Just pick up the newspaper any time after Christmas and you will find articles on managing your mounting debt from Christmas. Not realizing the extent of the consumers' debt is one of the most common types of credit problems. Denial may play a partial role in this problem, but the lack of education seems to be the largest reason for consumer debt. Credit card use is up 20% and a large number of Americans do not know the percentage rate at which the credit card companies charge. Many credit card companies have started "personalizing" interest rates by not disclosing the interest rate until after the consumer has received the card. By not disclosing the interest rate on the application the credit card companies prohibit the consumer from shopping around for the best deal. You could just say they should cancel the credit card, but did you know several requests for consumer credit could be viewed negatively because the information is reported to the credit bureaus? This leaves you, the consumer, with a bad credit report. Household debt and bankruptcy are at record levels and appear to be on the rise. Until we as consumers begin to educate ourselves and stop living beyond our means, we only have ourselves to blame. In conclusion, although consumers are not forced to buy, most feel compelled to purchase goods and services because they need them and do not want to wait. Rather than saving they go into debt, the most common of which is installment debt. Bibliography 1. Miller, R. L., Economics: Today and Tomorrow, Hesterville, Ohio; Glencoe- McGraw Hill, 1995 2. "Major Growing Pains" U.S. News and World Report (Oct. 21, 1996) Pg. 62-64 3. "What's the Rate? They Won't Say." U.S. News and World Report (Aug. 19, 1996) pg. 61 4. Lee, Susan Susan Lee's ABZ's of Economics New York; Poseidon Press, 1987 f:\12000 essays\business & economics (632)\Copyright and Patent Fraud.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Copyright and Patent Fraud Copyright and Patent Fraud by David Lee Roth 12th hon. Government Mr. Pibb January 5, 1998 Roth 1 Today, more than ever before, products, goods, and services are being provided by businesses of all variations. Fewer and fewer people today are self-sufficient. Practically no one today makes his or her own clothes, and some people do not even prepare their own meals. Today's business world and modern day technology make it possible for people to obtain almost anything and everything they need or want, provided they have the money to buy it. There are gardening, music, painting, moving, clothing, and countless other businesses all around the world. Undoubtedly, there is a business for practically anything one could think of, and many people have gained great success and wealth by finding these needs and filling them. With all this success and wealth, it is not surprising that ideas are often stolen by other people in the hopes of gaining great wealth themselves. The success of many of these businesses has caused the copying of many materials. Although many diverse ideas and products are "stolen," the biggest problems are clothing and software. The majority of copying and fraud involve software, like CDs, tapes, and computer programs, but there also is a huge market for clothing items like jeans, shirts, and sunglasses. Roth 2 CD piracy is currently the fastest-growing counterfeiting threat, with China and Bulgaria suspected as the largest of the counterfeiters, according to Mike Edwards of the International Federation of the Phonographic Industry. Edwards claims that worldwide piracy from street bootleggers, to organized crime, robs the recording industry of about 2.5 billion dollars or 6.5 per cent of the industry's annual sales. (Edwards 6) However, it is not always a product that is being copied. As in one case, Miller Brewing Co. has developed a new beer with a label that appears to be aimed at taking customers away from Anheuser-Busch Co. The problem is that the new brand gives a prominent display of an eagle, like Anheuser's label. Anheuser-Busch is currently the number one brewer in America, but Miller is planning to release a new flagship brand called "Miller Beer." This "new brew" is aimed at taking sales away from the "king of sales," and the "king of beers," Budweiser. John N. McDonough of Miller claims that this new beer "tastes different from anything out there." Miller plans to put some 65 million dollars into promoting the new beer. (Melcher 37) In another case it is golf clubs and accessories that are being copied. In this case, however, the companies are not Roth 3 copying each other; rather, they are working together in an effort to stop production of cheaper, copy-cat clubs that are taking away from their sales. There are three main companies involved in this fight against the fakes. The companies are: Cobra Golf Canada Inc. and Taylor Made Canada, both companies based in Montreal, along with Calloway Golf, which is based in Carlsbad, California. (Estok 30) In one instance, the Taylor Made Burner Driver, the company's top club, is being copied with the name "The Tour Made Ruler." This fake club is almost identical to the Burner Driver. The fake club has similar colors, markings, and the same shape as the Burner Driver. In addition to the Burner, there is also Tommy Man's Bumber, which is an apparent knock-off of Taylor Made's Burner Bubble. The Tommy Man's Bumber even comes with similar stylized lettering and red flames. (Estok 30) Bob Cote, vice-president of Cobra, claims that he has been battling pirate clubs since 1994. Mr. Cote has even gone to the extreme of visiting retailers with a bailiff, and seizing imitation clubs off the racks. Once the companies recognize imitations, they report them to a team of lawyers based in Montreal that sends out cease and desist letters to the stores with the imitation clubs. (Estok 30) Roth 4 Materials are being copied in many different ways by many different people ranging from the nice neighborhood man who copies a computer game for a friend of his, to large production factories called sweatshops. Sweatshops are illegal factories in which patent products are counterfeited for a profit. In these sweatshops workers slave to counterfeit expensive, top-quality products which are then sold illegally for high prices. Company and product logos are another category subject to copying. A "logo" is defined as an advertising symbol that represents a product or service or conveys a message about a product or service. Some logos like Coca Cola are known around the world, and symbols like McDonald's "golden arches" are recognized by people of all generations. One major component that leads people to recognize products is color, and just recently a Supreme Court decision ruled that the color of commercial dry-cleaning press pads can be trademarked. Justice Stephen Breyer ruled that, "Qualitex can trademark its press pads' 'sun glow' green-gold color because that color has attained a 'secondary meaning,' which in effect distinguishes a particular brand." (Reske 28) Roth 5 Obviously, ownership of logos and/or symbols can become complicated and difficult to maintain. For years, orange juice has been associated with the abbreviation of O. J. Today, because of the fact that sports celebrity O. J. Simpson has become so famous, (and later infamous, as well), his initials have become the subject of dispute. Recently, Mr. Simpson agreed to share marketing rights of his initials with the Florida Department of Citrus. In turn, the agency that markets Florida's citrus products has withdrawn opposition to his attempt to trademark his initials. According to Clark Jennings, a lawyer for the citrus agency, Mr. Simpson was not paid any money; but "Simpson can pursue his interests, and we can use O. J. in connection with orange juice." Simpson wants to control the use of his initials on about 50 products from apparel to toys. (Wells 1) Logos and products can sometimes be protected from counterfeiting by filing for a U.S. patent, a document that enables It's owner to exclude others from making, selling, or using an invention. It is against the law to intentionally copy or imitate a product or logo. Any false products or slogans cannot be used anywhere at anytime without the written consent of the legal "owner. " Roth 6 Digital technology today presents a real challenge for graphic artists who are trying to protect their creations. The creator must register the copyright in order to sue for Fraud. Images not copyrighted are in the "public domain." Also, copyrights expire 50 years after the creator's death. (Baer 163) Industry officials have estimated that China is the world leader in copyright "piracy," another term used for the unauthorized use of another person's or company's product or invention. Officials estimate that Chinese counterfeiting costs U. S. companies about 827 million a year. China exports gray-market, impostor products to the United States with familiar American names and labels that are trusted for quality, dependability, and safety. Some gray-market products like shampoo and toothpaste contain different ingredients than the U.S. versions which sometimes leads to problems with American health and safety regulations. Some leading gray-market cosmetics contain Red Dye no. 2 which violates U.S. health laws. Other products such as children's toys are not tested for safety and could prove to be safety hazards. (Ludwig and Koenig270) These gray-market products pose a great threat to the concept of reliance on brand names as indicators of safety and Roth 7 performance. For instance, someone who has been buying a certain product for years suddenly falls upon a fake which dissatisfies them in some way, and the original company loses business due to the false impression. Gray market products include thousands of common items ranging from personal care products like soaps, toothpastes, perfumes, pharmaceuticals, and cosmetics, to more expensive merchandise like cameras, watches, and crystals. (Ludwig and Koenig 26) Many stores that carry gray-market products place the fake products right next to the real products on the shelf, a clever tactic which often fools customers into buying the fake product without even knowing it. Later when the profits are made, the American company with the actual trademark loses out due to these false imitations. Another problem which arises is that the gray-market goods may have worthless warranties, or they may be damaged because they were not intended to be shipped internationally. (Ludwig and Koenig 26) One of the largest counterfeiting industries for the Chinese is the record industry. Chinese copyright pirates net about 2.5 billion dollars a year from these fraudulent records. It is believed that, currently, one out of four albums is counterfeit, and the problem probably will not stop there. (Edwards 6) Roth 8 A Milwaukee court recently ruled that a "hog" is a Harley- Davidson Motorcycle and nothing else. Harley-Davidson Motorcycle Company became involved in this lawsuit with a motorcycle parts and repair shop called the Hog Farm in San Jose, California, in 1991. The Hog Farm owners argued that a "hog" referred to any large motorcycle. In this case, Harley-Davidson filed for a trademark of the nickname "hog," and was able to win the case. (Fritz 30) An article in the Los Angeles Times reports that on July 5th, 1995, Federal agents raided a stuffy yellow warehouse in downtown Los Angeles, where twelve men were cheating the Chanel Clothing Company of large profits. These few men make money by copying Chanel's crossed "C" logo and selling the fake product with a 500-per cent markup. (Simon A1) Most counterfeiting products tend to be cheaply made, using flimsy plastics, inexpensive polyester, or cheap screen printing machines. However, some products are so real that even the legitimate business owners can not tell the difference. One particular factory counterfeited "Gucci" watches that looked so real, even the actual Swiss experts had a difficult time determining the authenticity of the watches. (Simon A1) Roth 9 Although investigators have discovered such odd products counterfeited as soy sauce and doggy chews, (Simon A1) for the most part, product knock-offs are expensive items like designer jeans or sunglasses that are easy to make. Counterfeiters take normal denim blue jeans and slap on a cheap, home-made designer label of an expensive clothing line like Calvin Klein jeans. Another favorite item to counterfeit is sunglasses. Consumers pay top dollar for designer sunglasses with special lenses to block the sun. As many know, counterfeiters mold cheap plastic frames together, put a sticker on them, and ship them to pawn shops, street vendors, or anywhere else people will buy them. Most counterfeiters realize that what they are doing is illegal, but they always say that they are not really hurting anybody. The truth is that aside from the companies with their sales losses, people really are getting hurt. Some counterfeit products can really endanger the public's safety. Over the last 20 years, fake airplane bolts have caused damaged engines, fake birth control pills have caused internal bleeding, and counterfeit brake pads have caused fatal car accidents. Although there are many serious cases of product fraud, small counterfeiting operations like the one in downtown Los Roth 10 Angeles are the most familiar. Los Angeles and New York are considered the nation's counterfeiting capitals. Factory workers involved with the Chanel counterfeiting barely moved their heads when the Federal agents raided the building. They realize the agents are after the person running the factories, and not the workers. They have seen it all before, and they know the drill. (Simon, A1) Another problem is that when these sweatshops get raided, no one really knows who is in control of them. The boss of the operation stays "low key" and has someone manage the factory. If one operation gets busted, the boss simply moves on to a new location and product, hires all new workers, and starts all over again. To combat all this counterfeiting, there are several ways in which one can protect, or patent a product, slogan, or logo. First, the product or mark should be sent to the U.S. Patent and Trademark Office in Washington, D.C. The product will start with state protection, and then will later be registered for federal protection. Many people incorrectly believe that simply by incorporating, that they are protecting their company names. However, Roth 11 incorporating does not mean that they have registered their names within the state or the federal government.(Munro 53R.) To register for protection, an application must be filled out that requires information about the company or the person registering the trademark. The current application fee ranges from about $245 for a simple database search to about $1,200 for a typical patent office search. (Patents) Persons are entitled to federal registration only if there are plans to use the mark in more than one state. The record search can be done by the business owner or by a specialized trademark lawyer. Next, the application is inspected as to form and substance. It must initially comply with the formal requirements set forth in the Patent Laws and Rules of Practice of the United States Patent Office. (Mandell 24.) If the trademark application is approved, then the Patent Trademark Office will issue a certificate of registration within 15 to 18 months. The certificate issued by the Patent Office is good for 20 years after the filing date, although it must be renewed every five years thereafter. (Munro 53R)(Patents.) Spending money for trademark protection in a young business may seem expensive to begin with, but will be worth the trouble to avoid litigation in the future. According to Debora H. Shavarese, a trademark attorney in the Dallas office of the Roth 12 Hopkins & Sutter law firm, "The key is to protect your business's mark before you invest time and money in advertising and product development. Protection may seem cost-prohibitive at the beginning, but it's worth it. The whole value of a catchy name is no good if you can't use it." (Maynard 12) Because the problem of copyright infringement and counterfeiting have reached such enormous proportions worldwide, there are now organizations that specifically concentrate on fighting these counterfeiters. Serving as "copy cops" in a way, groups such as the Software Publishers Association (SPA) and the Business Software Alliance (BSA) are winning substantial copyright infringement settlements. These software industry groups are often successful because of tips from laid-off or disgruntled employees who report massive illegal infringement on the part of their former companies. As an example, in December of 1994, a posse of federal marshals, attorneys, and software piracy auditors appeared at the offices of Southern Benefits Consulting in Dallas, Texas. Representing their plaintiffs Microsoft Corporation and Novell, Inc., they conducted a surprise audit of the insurance company's Roth 13 computers. The on-the-spot audit was allowed by a court order after Microsoft and Novell filed a sealed complaint of massive copyright infringement. In just a few hours, the audit of one hundred PCs produced sufficient evidence to reap a $110,000 out-of-court settlement. (Alster E1) Once the SPA has gathered enough evidence to proceed in any case, it can then move in one of three ways. If the case is small and there is only a small amount of infringement, the SPA will issue a cease-and-desist letter. This letter is usually the only step needed for the infringing company to understand they must stop. The second measure is to confront the company and offer them the option of conducting an audit of all the computers in the company as opposed to litigation. The third and most serious cases usually end up in court immediately without previous warning. As with every new addition to the modern world there comes both advantages and disadvantages. Currently the Internet is causing many different battles over copyrights, fraud, and creator royalties. A new law was just passed that will in the future let performers receive royalties when their pieces of music are played over the Internet.(web) Roth 14 Consumer Fraud in America is a tremendous problem, and it is not going away any time soon. People all across the globe are suffering from fraud of some type, and many are fighting back. It is going to be a long time, however, before the problem is all resolved if it ever can be. Copy cats now have to watch out because the copy cops are out. Works Cited Baer, Marjorie. "Making Sure Web Content is Legal: Industry Legal Issue." Macworld October 1996. 163. "Copyright Pirates Raid 2.5 billion From Record Industry Revenue." USA Today. 27 November. 1995: 6. Estok, David. "The Clone Crackdown." Maclean's 1 July 1996. 30. Fritz, Sandy. "What do you Call a Big Pig?" Popular Science. March 1994: 30. Ludwig, Eugene, and Koenig, Eric. "Importing a Fraud: Gray market Products." USA Today (magazine). March 1990: 26-28. Mandell, Irving. How to Protect and Patent your invention. New York: Oceana, 1973.Fritz, Sandy. Maynard, Roberta. "Protect your Trademark Before you Start Using it". Nation's Business September 1993. 12. Melcher, Richard A. "Is it Finally Miller Time?" Business Week 12 February 1996. 37. Miller, Jerome K. Applying the New Copyright Law: A guide for educators and Librarians. Chicago: ALA, 1979. Munro, Billie. "When you want a 'R' Rating." Nation's Business June 1995. 53R. Patents FAQ: URL: http://www.owgm@patentable.com Reske, Henry J. "Dye is Cast: Color can be Trademarked." ABA Journal June 1995. 28. Simon, Stephanie. "Brash World of Bogus Goods Thrives in L.A." Los Angeles Times. July 1995: A1+. Web of Confusion: URL: http://infolawalert.com/stories/120195a.html Wells, Melanie. "O. J. Agrees to Sell Rights to his Initials." USA Today 22 February 1996: 1. "What do you Call a Big Pig?" Popular Science. March 1994: 30. Word Count: 2932 f:\12000 essays\business & economics (632)\Corn Consumer Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 275 Corn Corn is the common name for the cereal grass widely grown for food and livestock fodder. Corn ranks with wheat and rice as one of the world's chief grain crops, and it is the largest crop of the United States. The Cultivation of corn in exists in the United States southwestern for least 3000 years. There are many varieties of corns with widely different characteristics; some mature in 2 months; others take 11 months. In the US sweat corn is commonly grown for human consumption as a vegetable. World output of corn in the early 1990s stood at more than 469 million metric tons annually; in volume of production, corn ranked third behind wheat and rice. A net gain of about 11 percent in production was realized during the 1980s; intensive cultivation with heavy use of fertilizer and herbicides was responsible for the increase. The United States is the leading corn-growing country, with more than 40 percent of the world's production. Most of its crop is grown in the Midwestern region known as the Corn Belt, comprising Ohio, Indiana, Illinois, Iowa, Missouri, Kansas, and Nebraska. The other leading corn-growing nations are China, Brazil, and Mexico. Approximately 61 percent of the corn sold by farmers in the United States are used as livestock feed. About half of that amount is fed directly to hogs, cattle, and poultry, and the rest is used in mixed feeds. Another 22 percent of U.S. corn is exported; the remaining 17 percent is sold as food and taken by commercial users for the production of alcohol and distilled spirits, syrups, sugar, cornstarch, and dry-process foods. f:\12000 essays\business & economics (632)\Corporate Development During the Industrial Revolution .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Corporate Development During the Industrial Revolution The Standard Oil Company founded by John D. Rockefeller and the U.S. Steel Company founded by Andrew Carnegie. The Standard Oil Company and U.S. Steel Company were made successful in different ways due to the actions of their different owners. The companies differed in their labor relations, market control, and structural organization. In the steel industry, Carnegie developed a system known as vertical integration. This means that he cut out the middle man. Carnegie bought his own iron and coal mines because using independent companies cost too much and were inefficient. By doing this he was able to undersell his competetors because they had to pay the competitors they went through to get the raw materials. Unlike Andrew Carnegie, John D. Rockefeller integrated his oil business from top to bottom, his distinctive innovation in movement of American industry was horizontal. This meant he followed one product through all its stages. For example, rockrfeller controlled the oil when it was drilled, through the refining stage, and he maintained control over the refining process turning it into gasoline. Although these two powerful men used two different methods of management their businesses were still very successful (Conlin, 425-426). Tycoons like Andrew Carnegie, "the steel king," and John D. Rockefeller, "the oil baron," exercised their genius in devising ways to circument competition. Although, Carnegie inclined to be tough-fisted in business, he was not a monopolist and disliked monopolistic trusts. John D. Rockefeller came to dominate the oil industry. With one upward stride after another he organized the Standard Oil Company, which was the nucleus of the great trust that was formed. Rockefeller showed little mercy. He believed primitive savagery prevailed in the jungle world of business, where only the fittest survived. He persued the policy of "ruin or rule." Rockefeller's oil monopoly did turn out a superior product at a relatively cheap price. Rockefeller belived in ruthless business, Carnegie didn't, yet they both had the most successful companies in their industries. (The American Pageant, pages 515-518) Rockefeller treated his customers in the same manner that Andrew Carnegie treated his workers: cruel and harsh. The Standard Oil Company desperately wanted every possible company to buy their products. Standard Oil used ruthless tactics when Rockefeller threatenedto start his own chain of grocery stores and put local merchants out of business if they did not buy oil from Standard Oil Company. Carnegie dealt with his workers with the same cold lack of diplomacy and consideration. Carnegie would encourage an unfriendly competition between two of his workers and he goaded them into outdoing one another. Some of his employees found working under Carnegie unbearable. These rivalries became so important to the employees that somedidn't talk to each other for years (McCloskkey, page 145). Although both Carnegie and Rockefeller created extermely successsful companies, they both used unscrupulous methods in some aspect of their corporation building to get to the top. The success of the Standard Oil Company and U.S. Steel company was credited to the fact that their owners ran them with great authority. In this very competetive time period, many new businesses were being formed and it took talented businessmen to get ahead and keep the companies running and make the fortunes that were made during this period. BIBLIOGRAPHY Conlin, Joseph R. History of the U.S.: Our Land, Our Time. pp. 425-426. 1985. Bailey, Thomas A. and David M. Kennedy: The American Pageant. pp. 515-518. 1987. Latham, Earl: John D. Rockefeller; Robber Baron Or Industrial Statesman? (Problems in American Civilization Series). pg. 39. 1949. McCloskey, Robert Green: American Conservatism In The Age Of Enterprise 1865-1910. pg. 145. 1951. f:\12000 essays\business & economics (632)\Corporate Development During the Industrial Revolution 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Corporate Development During the Industrial Revolution The Standard Oil Company founded by John D. Rockefeller and the U.S. Steel Company founded by Andrew Carnegie. The Standard Oil Company and U.S. Steel Company were made successful in different ways due to the actions of their different owners. The companies differed in their labor relations, market control, and structural organization. In the steel industry, Carnegie developed a system known as vertical integration. This means that he cut out the middle man. Carnegie bought his own iron and coal mines because using independent companies cost too much and were inefficient. By doing this he was able to undersell his competetors because they had to pay the competitors they went through to get the raw materials. Unlike Andrew Carnegie, John D. Rockefeller integrated his oil business from top to bottom, his distinctive innovation in movement of American industry was horizontal. This meant he followed one product through all its stages. For example, rockrfeller controlled the oil when it was drilled, through the refining stage, and he maintained control over the refining process turning it into gasoline. Although these two powerful men used two different methods of management their businesses were still very successful (Conlin, 425-426). Tycoons like Andrew Carnegie, "the steel king," and John D. Rockefeller, "the oil baron," exercised their genius in devising ways to circument competition. Although, Carnegie inclined to be tough-fisted in business, he was not a monopolist and disliked monopolistic trusts. John D. Rockefeller came to dominate the oil industry. With one upward stride after another he organized the Standard Oil Company, which was the nucleus of the great trust that was formed. Rockefeller showed little mercy. He believed primitive savagery prevailed in the jungle world of business, where only the fittest survived. He persued the policy of "ruin or rule." Rockefeller's oil monopoly did turn out a superior product at a relatively cheap price. Rockefeller belived in ruthless business, Carnegie didn't, yet they both had the most successful companies in their industries. (The American Pageant, pages 515-518) Rockefeller treated his customers in the same manner that Andrew Carnegie treated his workers: cruel and harsh. The Standard Oil Company desperately wanted every possible company to buy their products. Standard Oil used ruthless tactics when Rockefeller threatenedto start his own chain of grocery stores and put local merchants out of business if they did not buy oil from Standard Oil Company. Carnegie dealt with his workers with the same cold lack of diplomacy and consideration. Carnegie would encourage an unfriendly competition between two of his workers and he goaded them into outdoing one another. Some of his employees found working under Carnegie unbearable. These rivalries became so important to the employees that somedidn't talk to each other for years (McCloskkey, page 145). Although both Carnegie and Rockefeller created extermely successsful companies, they both used unscrupulous methods in some aspect of their corporation building to get to the top. The success of the Standard Oil Company and U.S. Steel company was credited to the fact that their owners ran them with great authority. In this very competetive time period, many new businesses were being formed and it took talented businessmen to get ahead and keep the companies running and make the fortunes that were made during this period. Terra Harnish Heather Rodgers Carly Wolfensberger BIBLIOGRAPHY Conlin, Joseph R. History of the U.S.: Our Land, Our Time. pp. 425-426. 1985. Bailey, Thomas A. and David M. Kennedy: The American Pageant. pp. 515-518. 1987. Latham, Earl: John D. Rockefeller; Robber Baron Or Industrial Statesman? (Problems in American Civilization Series). pg. 39. 1949. McCloskey, Robert Green: American Conservatism In The Age Of Enterprise 1865-1910. pg. 145. 1951. f:\12000 essays\business & economics (632)\Corporate Development During the Industrial Revolution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Corporate Development During the Industrial Revolution The Standard Oil Company founded by John D. Rockefeller and the U.S. Steel Company founded by Andrew Carnegie. The Standard Oil Company and U.S. Steel Company were made successful in different ways due to the actions of their different owners. The companies differed in their labor relations, market control, and structural organization. In the steel industry, Carnegie developed a system known as vertical integration. This means that he cut out the middle man. Carnegie bought his own iron and coal mines because using independent companies cost too much and were inefficient. By doing this he was able to undersell his competetors because they had to pay the competitors they went through to get the raw materials. Unlike Andrew Carnegie, John D. Rockefeller integrated his oil business from top to bottom, his distinctive innovation in movement of American industry was horizontal. This meant he followed one product through all its stages. For example, rockrfeller controlled the oil when it was drilled, through the refining stage, and he maintained control over the refining process turning it into gasoline. Although these two powerful men used two different methods of management their businesses were still very successful (Conlin, 425-426). Tycoons like Andrew Carnegie, "the steel king," and John D. Rockefeller, "the oil baron," exercised their genius in devising ways to circument competition. Although, Carnegie inclined to be tough-fisted in business, he was not a monopolist and disliked monopolistic trusts. John D. Rockefeller came to dominate the oil industry. With one upward stride after another he organized the Standard Oil Company, which was the nucleus of the great trust that was formed. Rockefeller showed little mercy. He believed primitive savagery prevailed in the jungle world of business, where only the fittest survived. He persued the policy of "ruin or rule." Rockefeller's oil monopoly did turn out a superior product at a relatively cheap price. Rockefeller belived in ruthless business, Carnegie didn't, yet they both had the most successful companies in their industries. (The American Pageant, pages 515-518) Rockefeller treated his customers in the same manner that Andrew Carnegie treated his workers: cruel and harsh. The Standard Oil Company desperately wanted every possible company to buy their products. Standard Oil used ruthless tactics when Rockefeller threatenedto start his own chain of grocery stores and put local merchants out of business if they did not buy oil from Standard Oil Company. Carnegie dealt with his workers with the same cold lack of diplomacy and consideration. Carnegie would encourage an unfriendly competition between two of his workers and he goaded them into outdoing one another. Some of his employees found working under Carnegie unbearable. These rivalries became so important to the employees that somedidn't talk to each other for years (McCloskkey, page 145). Although both Carnegie and Rockefeller created extermely successsful companies, they both used unscrupulous methods in some aspect of their corporation building to get to the top. The success of the Standard Oil Company and U.S. Steel company was credited to the fact that their owners ran them with great authority. In this very competetive time period, many new businesses were being formed and it took talented businessmen to get ahead and keep the companies running and make the fortunes that were made during this period. BIBLIOGRAPHY Conlin, Joseph R. History of the U.S.: Our Land, Our Time. pp. 425-426. 1985. Bailey, Thomas A. and David M. Kennedy: The American Pageant. pp. 515-518. 1987. Latham, Earl: John D. Rockefeller; Robber Baron Or Industrial Statesman? (Problems in American Civilization Series). pg. 39. 1949. McCloskey, Robert Green: American Conservatism In The Age Of Enterprise 1865- -1910. pg. 145. 1951. f:\12000 essays\business & economics (632)\Corporate Downsizing in America.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ - INTRODUCTION - Downsizing, restructuring, rightsizing, even a term as obscure as census readjustment has been used to describe the plague that has been affecting corporate America for years and has left many of its hardest working employees without work. In the 1980's, twenty-five percent of middle management was eliminated in the United States (Greenberg/Baron 582). In the 1990's, one million managers of American corporations with salaries over $40,000 also lost their jobs (Greenberg/Baron 582). In total, Fortune 500 companies have eliminated 4.4 million positions since 1979 (Greenberg/Baron 627). Although this downsizing of companies can have many reasons behind it and cannot be avoided at times, there are simple measures a company can take to make the process easier on the laid-off employees and those who survive with the company. - STAGES OF DOWNSIZING - The downsizing process can generally be broken down into three distinct stages. The first stage is called the diagnostic stage. In this stage, management staff pulls together and determines the amount of costs and expenses that need to be reduced, and how much can come out of layoffs (Moore 49). This stage usually takes about two to three months to complete. During this time, the upper management reviews all financial records in order to determine how much is needed to be cut from salary expenditures (Moore 50). This stage is concluded when the senior management has a detailed plan on who will be let go, and who will remain with the company. During this stage, there is one common mistake many companies make: lack of communication. The middle management is usually left out of all downsizing plans. This is wrong and creates a big mistake. Middle management should be looked upon as a valuable tool for giving input where cuts should be made (Moore 51). The next stage of downsizing is the implementation stage. During this stage the employees are laid off. The time between an announcement and the actual layoff should be as short as possible. This will almost insure that a panic will be avoided, and give a clear view of the situation at hand without causing mass-hysteria. In a managerial position, it is difficult to explain to an employee that he or she is being laid off, but Terrence Moore gives a guideline on how it should be done. Small talk should be avoided. Management should clearly explain that the employee is being laid off and be prepared to answer questions directly; avoid beating around the bush. It is extremely important to detail all employee benefits and severance pay, also the employee should be encouraged to come back with any questions that he or she may have (Moore 52). An important note is that the employee should not be given false hope. It should be made clear, from the start, that the employee is being laid off and doesn't have a chance of being rehired. Finally, you should not try to lie to the employee and say you know how they may feel if you don't (Moore 52). The final stage is the post-implementation stage. This is dealing with the survivor syndrome and helping displaced employees find jobs throughout placement sources. Sadly, management usually expects the remaining employees to return to their jobs as if nothing had happened. However, this is not usually the case. Survivors suffer with negative feelings of resentment, frustration, irritability, fatigue and burnout. They may also undergo feelings of insecurity with their company. A way to help survivors deal with their problems is to offer personnel workshops (or programs) that offer support to help cope with the anxiety that adjustment brings (Moore 53). - REASONS FOR AND EFFECTS OF DOWNSIZING - There are many reasons why a company might need to downsize. In today's corporate America, it is a plain fact that far fewer employees are necessary to maintain a successful operation. Many times, it is the case where a technological advance or breakthrough makes it possible to replace a previously human job. It is also an all-too-common scenario that outside influences such as sudden shifts in the market or changed government policies force corporate executives to make coinciding decisions regarding their staff and these external changes. Another one of the major problems in today's business world are the salaries being paid to the workers. Since employers are not paying their workers high wages, the workers have little to put back into the economy. This causes the system to plummet and forces companies to downsize to keep from going under. The downsizing of a company can affect employees before, during and after it occurs. Employees usually know of a possible downsizing (care of the almighty grapevine) months before it is supposed to happen. Thus, employees may become paranoid and self-absorbed, and their top priority is their own career rather than the bottom line of their employer. This causes them to be unfocused and prevents them from performing their jobs efficiently. Many workers would also be perfectly willing to stab their peer(s) in the back in hopes of keeping their job. Usually when a downsizing is complete, the company is at an all-time low. This is due to the fact that in almost every merger, acquisition or downsize, employees are faced with uncertainty about their jobs before and after the restructure. After a large percentage of downsizes, ten percent of the remaining workforce will easily adapt to the change, while another ten percent will never adapt (Hollreiser 27). Workers who survive the downsize often have feelings of anger, fear or distrust. Further internal problems result from employees who survive with the company, but cannot adapt to their new settings and expectations, and eventually quit their job. Many steps can be taken to ease the transition of the employees after downsizing occurs. For the employees who were let go from the company, reasonable severance packages should be offered to help the person until a new job is found. Downsizing not only affects workers that have been terminated, but also affects the survivors. This is commonly referred to as the survivor syndrome. Many people who survive as a result of downsizing often live with the fear that they too will be terminated. They are often shell shocked and distrustful. They are mentally scared survivors of an economic restructuring that they have never seen before. In this constant climate of economic insecurity, their jobs are constantly being redefined. They are forced to meet new levels of production criteria requiring them to do more work in less time and the notion of job security (because of expandability) is obsolete (Caudren 52). As for the remaining employees, simple means of communication can be very important. One of the major reasons for employee problems after a downsizing is the mistrust in the management and lack of knowledge regarding their own job status. If the employees are informed of what is transpiring within their company, they might not be fearful of losing their job, or so quick to stab a fellow employee in the back. This problem has affected millions of families in America and has forced good, decent workers to settle for lower wages and little or no benefits in exchange for supposed higher job security. I also have some personal experience with this subject. My father currently works for AT&T and survived the recent downsize and split the company underwent. However, he was not so lucky with his previous employer, Nabisco, Inc.. In 1988 Nabisco, Inc. and RJ Reynolds, Inc. Merged and downsized, laying off thousands of employees of which my father was one. - POSITIVE EFFECTS OF DOWNSIZING - Although downsizing can have devastating effects on those people on the negative side, the remaining employees can have tremendous opportunities for growth and skill development. After a restructure, there are many ways an employee can grow vertically and horizontally within their company. Since so many positions are eliminated in such a process, the remaining employees sometimes need to learn new skills and adapt to handling greater amounts of work than ever before. While this may be an inconvenience at first, these skills and abilities can assist these people in future job searches. - CONCLUSION - The downsizing process is a fact of life. It affects all people from managers to laid off employees and their families as well as those who remain with the company. It is something that will continue to occur with no end in sight. As long as our world market continues to grow, so too will the concept of downsizing grow. This process can lead to psychological problems, and creates anxiety and frustration for those of both ends of it. This is a problem that most likely will not have an easy solution, or at least not any time soon. It is something that we all must deal with in one way or another, and as for the victims of downsizing, the only thing they can do is try to piece their lives back together and hope for the best. f:\12000 essays\business & economics (632)\Corporate Downsizing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Corporate Downsizing - INTRODUCTION - Downsizing, restructuring, rightsizing, even a term as obscure as census readjustment has been used to describe the plague that has been affecting corporate America for years and has left many of its hardest working employees without work. In the 1980's, twenty-five percent of middle management was eliminated in the United States (Greenberg/Baron 582). In the 1990's, one million managers of American corporations with salaries over $40,000 also lost their jobs (Greenberg/Baron 582). In total, Fortune 500 companies have eliminated 4.4 million positions since 1979 (Greenberg/Baron 627). Although this downsizing of companies can have many reasons behind it and cannot be avoided at times, there are simple measures a company can take to make the process easier on the laid-off employees and those who survive with the company. - STAGES OF DOWNSIZING - The downsizing process can generally be broken down into three distinct stages. The first stage is called the diagnostic stage. In this stage, management staff pulls together and determines the amount of costs and expenses that need to be reduced, and how much can come out of layoffs (Moore 49). This stage usually takes about two to three months to complete. During this time, the upper management reviews all financial records in order to determine how much is needed to be cut from salary expenditures (Moore 50). This stage is concluded when the senior management has a detailed plan on who will be let go, and who will remain with the company. During this stage, there is one common mistake many companies make: lack of communication. The middle management is usually left out of all downsizing plans. This is wrong and creates a big mistake. Middle management should be looked upon as a valuable tool for giving input where cuts should be made (Moore 51). The next stage of downsizing is the implementation stage. During this stage the employees are laid off. The time between an announcement and the actual layoff should be as short as possible. This will almost insure that a panic will be avoided, and give a clear view of the situation at hand without causing mass-hysteria. In a managerial position, it is difficult to explain to an employee that he or she is being laid off, but Terrence Moore gives a guideline on how it should be done. Small talk should be avoided. Management should clearly explain that the employee is being laid off and be prepared to answer questions directly; avoid beating around the bush. It is extremely important to detail all employee benefits and severance pay, also the employee should be encouraged to come back with any questions that he or she may have (Moore 52). An important note is that the employee should not be given false hope. It should be made clear, from the start, that the employee is being laid off and doesn't have a chance of being rehired. Finally, you should not try to lie to the employee and say you know how they may feel if you don't (Moore 52). The final stage is the post-implementation stage. This is dealing with the survivor syndrome and helping displaced employees find jobs throughout placement sources. Sadly, management usually expects the remaining employees to return to their jobs as if nothing had happened. However, this is not usually the case. Survivors suffer with negative feelings of resentment, frustration, irritability, fatigue and burnout. They may also undergo feelings of insecurity with their company. A way to help survivors deal with their problems is to offer personnel workshops (or programs) that offer support to help cope with the anxiety that adjustment brings (Moore 53). - REASONS FOR AND EFFECTS OF DOWNSIZING - There are many reasons why a company might need to downsize. In today's corporate America, it is a plain fact that far fewer employees are necessary to maintain a successful operation. Many times, it is the case where a technological advance or breakthrough makes it possible to replace a previously human job. It is also an all-too-common scenario that outside influences such as sudden shifts in the market or changed government policies force corporate executives to make coinciding decisions regarding their staff and these external changes. Another one of the major problems in today's business world are the salaries being paid to the workers. Since employers are not paying their workers high wages, the workers have little to put back into the economy. This causes the system to plummet and forces companies to downsize to keep from going under. The downsizing of a company can affect employees before, during and after it occurs. Employees usually know of a possible downsizing (care of the almighty grapevine) months before it is supposed to happen. Thus, employees may become paranoid and self-absorbed, and their top priority is their own career rather than the bottom line of their employer. This causes them to be unfocused and prevents them from performing their jobs efficiently. Many workers would also be perfectly willing to stab their peer(s) in the back in hopes of keeping their job. Usually when a downsizing is complete, the company is at an all-time low. This is due to the fact that in almost every merger, acquisition or downsize, employees are faced with uncertainty about their jobs before and after the restructure. After a large percentage of downsizes, ten percent of the remaining workforce will easily adapt to the change, while another ten percent will never adapt (Hollreiser 27). Workers who survive the downsize often have feelings of anger, fear or distrust. Further internal problems result from employees who survive with the company, but cannot adapt to their new settings and expectations, and eventually quit their job. Many steps can be taken to ease the transition of the employees after downsizing occurs. For the employees who were let go from the company, reasonable severance packages should be offered to help the person until a new job is found. Downsizing not only affects workers that have been terminated, but also affects the survivors. This is commonly referred to as the survivor syndrome. Many people who survive as a result of downsizing often live with the fear that they too will be terminated. They are often shell shocked and distrustful. They are mentally scared survivors of an economic restructuring that they have never seen before. In this constant climate of economic insecurity, their jobs are constantly being redefined. They are forced to meet new levels of production criteria requiring them to do more work in less time and the notion of job security (because of expandability) is obsolete (Caudren 52). As for the remaining employees, simple means of communication can be very important. One of the major reasons for employee problems after a downsizing is the mistrust in the management and lack of knowledge regarding their own job status. If the employees are informed of what is transpiring within their company, they might not be fearful of losing their job, or so quick to stab a fellow employee in the back. This problem has affected millions of families in America and has forced good, decent workers to settle for lower wages and little or no benefits in exchange for supposed higher job security. I also have some personal experience with this subject. My father currently works for AT&T and survived the recent downsize and split the company underwent. However, he was not so lucky with his previous employer, Nabisco, Inc.. In 1988 Nabisco, Inc. and RJ Reynolds, Inc. Merged and downsized, laying off thousands of employees of which my father was one. - POSITIVE EFFECTS OF DOWNSIZING - Although downsizing can have devastating effects on those people on the negative side, the remaining employees can have tremendous opportunities for growth and skill development. After a restructure, there are many ways an employee can grow vertically and horizontally within their company. Since so many positions are eliminated in such a process, the remaining employees sometimes need to learn new skills and adapt to handling greater amounts of work than ever before. While this may be an inconvenience at first, these skills and abilities can assist these people in future job searches. - CONCLUSION - The downsizing process is a fact of life. It affects all people from managers to laid off employees and their families as well as those who remain with the company. It is something that will continue to occur with no end in sight. As long as our world market continues to grow, so too will the concept of downsizing grow. This process can lead to psychological problems, and creates anxiety and frustration for those of both ends of it. This is a problem that most likely will not have an easy solution, or at least not any time soon. It is something that we all must deal with in one way or another, and as for the victims of downsizing, the only thing they can do is try to piece their lives back together and hope for the best. f:\12000 essays\business & economics (632)\Corporate Structure Colesmyer.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1754 Introduction Corporate structure is the way in which the parts of a corporation are put together. Corporations usually have several strategic business units (SBUs). These SBUs are also called strategy centers, strategic planning units, or independent business units (Jain, 1990, p.17). Kotler (1997, p.71) states that an SBU is a single business or collection of related businesses that can be planned separately from the rest of the company. An SBU can be a company division, a product line within a division, or sometimes a single product or brand (Kotler et al., 1998, p.35). A corporation and its SBUs have structures that must be understood before a marketing plan can be created. These are very important because a marketing plan is a significant key to achieve the organisational goals. A good description of the corporation and its SBUs will provide an adequate understanding about them. This essay will describe the structures of a corporation and one of its SBUs, namely Coles Myer Limited and Coles. Corporate Structure Coles Myer Limited is an Australia company which provides services for its customers. History Coles Myer Ltd. is an Australia's retailer. It is a merge of two large retailers, namely G.J. Coles & Coy. Ltd. and The Myer Emporium Ltd. G.J. Coles & Coy. Ltd. started its first store in Collingwood, Melbourne on 9 April 1914; while The Myer Emporium was established in 1900 in Bendigo, Victoria, by Sidney Myer. G.J. Coles operated variety stores; Myer operated department stores, as well as discount and specialty stores. The two companies united in 1985 and became Coles Myer Ltd. with a new company logo. Shareholders Coles Myer Ltd. has over 300,000 shareholders. It has about 33,000 employee shareholders. These employees are part-owners of Coles Myer Ltd. through the Employee Share Plan. There are also some shareholders who invest indirectly in the company through managed investments such as superannuation and trust funds. The substantial shareholders are shown in the table below. Substantial Shareholders as at 30 September 1998 Number of Shares 1 S.L. Nominees Pty Ltd and its associates 141,352,959 2 The Capital Group of Companies, Inc. and its associates 86,090,011 3 Barclay Investments Pty Ltd and its associates 72,485,198 4 Macquarie Bank Ltd and its associates 85,660,000 5 Permanent Trustee Co. Ltd and its associates 70,021,605 Source: www.colesmyer.com.au/invest_info/98_annual_review/35.html Mission Coles Myer Ltd. has a mission to be the best retailer in every market in which it operates. It wants to produce benefits to its stakeholders. It also wants to be known for honesty and leadership. For this purpose, it considers communication as a very important aspect. It needs to have an open and responsive communication with every aspect of the environment to achieve its goals. Strategic Business Units As it is explained before, an SBU could be a company division, a product line within a division, or a single product or brand. In Coles Myer Ltd., the SBUs are the company divisions. Coles Myer Ltd. operates twelve SBUs in order to achieve its organisational goals. The SBUs are: · Coles Coles is a full service supermarket. It provides food and liquor. There are about 407 stores across Australia. It employs more than 52,000 people. · Bi-Lo Bi-Lo is also a supermarket that provides food and liquor. It is known for its tradition of discount grocery retailing. There are about 149 Bi-Lo stores across Australia. · Myer Grace Bros Myer Grace Bros (MGB) provides shopping places which change overtime in order to fulfill the expectations of the customers. It has about 69 stores in Australia. · Myer Direct Myer Direct is an Australia's leading mail order business. It was established in 1989 and has been growing rapidly since then. · Kmart Kmart offers general merchandise with very competitive prices. It provides the convenience of self-service and front-end register. It has about 163 stores across Australia and New Zealand. · Target Target is a discount department retailer. It offers a merchandise range of softgoods, dress fabrics, manchester and furniture. There are about 126 Target stores now in Australia. · Fosseys Fosseys integrated with Target in 1996. It provides a family apparel and homewares merchandise. It usually focuses on rural areas. It has about 144 stores in Australia. · Liquorland Liquorland is a liquor retailer. It operates four brands, namely Liquorland, Vintage Cellars, Quaffers, and Liquorland Direct. Currently it operates about 410 stores Australia-wide. · Red Rooster Red Rooster is an Australian-owned fast-food restaurant. It has about 272 stores throughout Australia. · Katies Katies is a ladieswear specialty store. It operates about 228 stores throughout Australia and New Zealand. · Officeworks Officeworks provides general merchandise for small businesses, home office, and students. Officeworks has about 28 stores in Australia. · South Cape South Cape is a direct mail business which was launched in 1996. It provides clothing for men and women. Operating Areas Until now, Coles Myer Ltd. operates more than 1990 stores in two countries, namely Australia and New Zealand. Although it operates only in those two countries, it is also listed in the stock exchanges in London and New York. Sales Coles Myer Ltd. had annual sales of over $20,500 million in 1998. It spent over $19,500 million for merchandise and services. The annual profit before interest and tax in 1998 was $674.5 million. These numbers are higher than before. The table below shows the numbers in the last 5 years. 1998 1997 1996 1995 1994 $M $M $M $M $M Total Group Sales 20,587.6 19,224.8 18,175.0 16,801.6 15,921.4 Expenses excl. depreciation and amortisation 19,501.4 18,225.1 17,242.5 15,773.7 14,935.9 Earnings Before Interest and Tax (EBIT) 674.5 615.3 578.4 729.9 671.9 Source: www.colesmyer.com.au/invest_info/6.html The sales growth for the last 5 years is shown in the table below. Sales Growth 1998 1997 1996 1995 1994 No. of weeks 52 52 52 52 53 Actual 7.1% 5.8% 8.2% 5.5% 5.0% Actual-equivalent weeks 7.1% 5.8% 8.2% 7.4% 3.2% Source: www.colesmyer.com.au/invest_info/6.html Employees Currently Coles Myer Ltd. employs more than 150,000 employees across Australia and New Zealand. This includes the National Office staff in Melbourne, Victoria. The table below shows the allocation of the employees in both countries. Number of Employees NSW/ACT VIC QLD SA/NT WA TAS NZ Total 41,625 50,239 27,245 12,855 18,324 2,456 2,085 154,829 Source: www.colesmyer.com.au/invest_info/98_annual_review/23.html Assets The value of gross assets owned by Coles Myer Ltd. is $7,172.5 million. Most of the assets, exactly 34.7%, are allocated in "food and liquor" SBUs. "General merchandise" SBUs have 17.3% of the total assets. Myer Grace Bros has 17.1% of the assets; "apparel and home" SBUs have 12%; and the rest of the assets is property or unallocated. Dividends In 1998, Coles Myer Ltd. gave out dividends of $237.3 million, which is 1.2% of the sales revenue, and about 35.2% of the earnings before profit and tax. The ordinary share price (closing) of the company was $6.36 in 1998. The current share price is shown in the table below. Current Share Price Open ($) High ($) Low ($) Last ($) Cumulative volume ($) Cumulative value ($) Coles Myer Ltd. (CML) 9.095 9.095 8.940 8.990 913,739 8,217,757.18 Source: www.colesmyer.com.au/invest_info/98_annual_review/8.html Strategic Business Unit The strategic business unit (SBU) of Coles Myer Ltd. that will be explained is Coles Supermarket. Size of SBU Coles Supermarket currently employs more than 52,000 people and it has about 407 stores in Australia. It does not have any store in New Zealand. The number of stores in each state is shown in the table below. Number of Stores NSW/ACT VIC QLD SA/NT WA TAS NZ Total 111 99 80 39 64 14 - 407 Source: www.colesmyer.com.au/invest_info/98_annual_review/23.html Mission Coles Supermarket has a mission or a reason for its existence. The mission statement identifies what it stands for and what it wants to achieve (www.coles.com.au). The mission is "we are innovative industry leaders, who provide customers with value, convenience and superior service" (www.coles.com.au). This mission statement applies to all of the stores owned by Coles Supermarket. Sales The annual sales in 1998 for Coles Supermarket was about $3,000 million. It is not an exact number, but an assumption based on the 1998 sales for category "food & liquor" (this category includes 4 SBUs, so the sales is divided by 4). The EBIT (Earnings Before Interest and Tax) of Coles Supermarket in 1998 was about $102 million. This is also an assumption, which is based on the EBIT margin for "food & liquor" category (3.4%). Business Philosophy A business philosophy is a guide to do marketing efforts (Kotler, 1997, p.17). It is perceived that Coles Supermarket's business philosophy is societal marketing philosophy. Coles Supermarket focuses on customer needs and wants. It can be seen clearly from the mission statement and the slogan in the logo, that is "serving you better". However, it also does activities that show it cares about the environment, which currently is the society best interest. For instance, Coles has provided $150,000 to help the WRAP (Waste Reduction Accreditation Program) campaign and it also will be the first retailer to run the program in its entire stores. Its activities also include recycling, using energy efficiently, and providing green products. Target Markets Target markets are the market segments in which a company will sell its products. Coles Supermarket has various target markets, because it provides service of selling food and personal, household or domestic products. Generally, everyone can be the target market. However, it seems that Coles' target markets are young people and old people, but children are not really the target markets. Product Range Product range is the extent to which products of a company vary. Coles provides services of selling products for its customers. The product range is quite wide. The products vary from food to electricity equipment. It sells food, pet food, cleaning stuff, magazines, stationery, cards, batteries, electricity equipment, and many other things. The products are mainly categorized in personal, domestic, or household products. However, more than 85% of Coles' products are Australian-made products. The price of the same products may vary in different stores. It depends on the season, availability, store location, and competition with other stores. Major Competitor Currently Coles' major competitor is Safeway Supermarket from Woolworths group. Safeway's sales in 1998 was about $4,800 million (this number is assumed based on the sales of supermarkets group of Woolworths). The EBIT in 1998 was about $170 (this number is assumed based on the EBIT of supermarkets groups of Woolworths). The EBIT was 3.56% of the sales. Safeway has share of national food spend of about 20%, while Coles has the share of about 17% (www.woolworths.com.au). Compare to Safeway, Coles has lower sales value, but higher EBIT. It means that Coles is more efficient and effective in allocating its expenses. Conclusion Coles Myer Ltd. is a big corporation that provides services for its customers. Its goal is to be the best retailer in the markets. To achieve the goal, it has twelve SBUs in some categories. One of its SBUs is Coles Supermarket. It sells personal, domestic, or household products. By understanding the structure of the corporation, what the corporation needs can be seen and the marketing plan can be created. Bibliography Boyd, H.W. & Walker, O.C. (1990), Marketing Management: A Strategic Approach, Richard D. Irwin, Inc., Boston. Coles Myer Ltd., Coles Myer Limited, , (Accessed <23 August 1999>). Coles Supermarket, Coles Supermarket, , (Accessed <23 August 1999>). Diamond J. & Pintel, G. (1991), Principles of Marketing, (4th edn), Prentice Hall International, Inc., New Jersey. Kotler P. & Armstrong G. (1999), Principles of Marketing, (8th edn), Prentice Hall International, Inc., New Jersey. Kotler P., et al. (1998), Marketing, (4th edn), Prentice Hall Australia Pty Ltd., Sydney. f:\12000 essays\business & economics (632)\Counterfeiting Were In The Money.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Counterfeiting: We're In The Money A frequently asked question by a customer is "Can you break a hundred dollar bill?" If this request has been granted, why do the cashiers take the bill and turn it into a biology experiment? Between pouring a liquid on the note and/or holding it up to the light to check for authenticity, is our currency system in danger? As of the beginning of 1996, the Chairman of the Federal Reserve and the Secretary of the United States Treasury, prove their economic wizardry by making the new one hundred dollar bill nearly impossible to counterfeit in attempt to protect our economy. This is just the first step in improving our currency system. Counterfeiting U.S. currency is an illegal practice that has has been around for years and, unfortunately,is getting worse. "Last year, ...the Secret Service cooperated with the Italian authorities' seizure of $43.8 million in counterfeit U.S. currency, Germany's capture of more than $19 million in counterfeit cash, and the Canadian authorities; seizure of than $129 million in counterfeit U.S. currency." (Gomez, Bertha. "Officials Say..") In a small town north of Chicago, two high school seniors were arrested for the use of counterfeit bills. With the use of the internet and a color printer, these two teenagers were able to create and pass their counterfeit twenty dollar bills through the high school cafeteria but were later arrest by police after trying to use their money at a local Taco Bell. If teenagers are finding ways to counterfeit money, that should tell someone that we need to do something to protect our economy for the future. In attempt to enhance our currency system, the one hundred dollar bill was completely redesigned last year and released at the beginning of this year. This new bill contains a security thread, a watermark, a larger portrait, varriable-color ink and infrared fibers. It is called the 1996 series. Next year the fifty dollar bill will change and so forth. At first, economist talked about recalling all of US currency, but later this idea was ruled out o keep a smooth transition and to honor the new bills at current face value. If our economy is at its strongest, who paid for the creation of the series 1996? The Federal Reserve, under the direction of Alan Greenspan, paid for this currency improvement. When the fed decides the economy is growing at a too quick a pace, or inflation is getting out of hand, it can take action to slow spending and decrease the money supply. The fed does this by selling securities on the open market. This in turn, reduces bank's reserves and forces the interest rate to rise so the bank can afford to make loans. People seeing these rises in rate will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the fed will effect all aspects of business, from the price level to interest rates on credit cards. In a recent article from the Wall Street Journal, criticizes the fed's action in raising the interest rates, and complains that the fed has fallen behind in it's job. It discusses the plan for a Neutral policy and what the fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but the fed will probably continue to raise interest rates. ("Fed Moves Too..." Wall Street Journal) Rise and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. Directly after the Fed's actions, the stock market is immediately effected. Unfortunately, this new bill is not completely counterfeit proof. According to an article from...... by Ron Moreau and Russell Watson, Two men, in a Thai resort of Pattaya, use counterfeit bills (series 1996) in a photo shop. The shop owner did examine the bills but did not realize they were fake. High Quality counterfeit bills are thought to be produced in several countries; Iran, Syria and Russia are frequently named as suspected sources. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of a real money available be willingly held. Because this is such a delicate system this equilibrium is never exactly met, and the Fed's job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. It seems that no matter what the United States Treasury creates for a currency system, as long as it is an inanimate object, someone will try to copy it. But, what if our currency system was strictly based on a credit? This will be the United States currency of the future. Our world has advanced so far with the aid of the computer. Ten years ago, computers were for only a weak version of typing. We have come so far from the past. Technology will improve in the years to come. The money in our wallets is just a special type of paper with a special type of ink. It does not back gold like it use to. In the future, we will have two cards in our wallet. A credit card, if we so choose to own one, and a currency card. Our treasury and federal reserve will design a feasible system where paper money is something of the past. Work Cite "Fed Moved Too Slow On Increasing Rates." Wall Street Journal 11 April 1994. "Who Controls The Fed?." Investors Business Daily 19 August 1996 Gomez, Berta "U.S. Officials Say Currency Counterfeiting Remains Small." USIA Staff Writer (1996) WWW Internet Access. Moreau, Ron and Russell Watson. The Hard-Up North Koreans are suspected of making nearly perfectly fakes of U.S. $100 bills. f:\12000 essays\business & economics (632)\Creative Writing The County Courthouse.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Creative Writing: The County Courthouse When we are young, most of us are somewhat naive. We are inherently taught that good will always triumph over evil. A courthouse is the forum where evil should be dealt with. But, in reality, this is seldom the case. The county courthouse looks like a typical courthouse. The courthouse itself looks like a place where justice is served. It is a Romanesque building, three stories high, with large pillars in the front. Ivy grows up one side of the building. The green grass in the courtyard is immaculately kept. The United States flag flies high above the building. Etched in stone on the front wall of the courthouse are the words" truth, justice, and liberty." This is a place where one should feel truly safe. As I walk inside the cold and quiet building, a young woman is talking with the circuit court clerk. She is very innocent looking, with blond hair and a petite figure. She seems to be getting more upset by the second. The young lady finally erupts, yelling and almost crying. Her ex-husband has not paid her child support in a month, and she cannot buy diapers for her baby. The clerk tells her that nobody can do anything about it until he is six months behind in his support. After five more minutes of intense arguing, the young lady, now engulfed in tears, leaves. The clerk shrugs and turns around. The building seems colder upstairs. There almost seems to be a dampness in the air. Down a corridor there are empty offices and paintings of important looking people. I recognize two of them as Washington and Jefferson. In between them is a copy of the constitution. As I read it I chuckle, and wonder if this government is really what they had in mind. Farther down the hall I hear voices. The general court is in session. Inside the courtroom, a scruffy-looking man is in front of the judge. He has been charged with public intoxication and resisting arrest. He does not seem nervous; he has probably done this before. I assume he will be put in jail for a little while, at the least. The judge tells the man that he does not want to see him in court again. The man assures the judge that he will not be back. With the bang of a gavel, the judge gives him a five dollar fine, plus court costs. The man stumbles out of the courtroom already looking half drunk again. As I walk out of the courtroom, the courthouse seems colder than ever. This is not a place where truth, justice, and liberty prevail. It is a place of tragedy. A place where innocent people suffer because of the system, and where guilty people walk free because of it. f:\12000 essays\business & economics (632)\Creative Writing Things and Stuff.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Creative Writing: Things and Stuff There is a highly distinguishable difference between things and stuff per se. In this essay I will help the reader become proficient in identifying what may fall under the classification of things and what is stuff. The thing is that things and stuff often appear the same on the surface, but they are in actuality very different. Things have more spirituality as opposed to stuff, which has a meaning that is more of the literal kind. It is kind of hard to understand at first, but hopefully I will be able to enlighten you. Things are like closer to God or something. On the seventh day, God said "I'm tired of this creations stuff. It's too specific. Let there be things." And so then there were things. It is in this way that we have God to thank for our fortunate inheritance of all the beautiful things on this earth. This is why things are cool. Stuff is more literal f:\12000 essays\business & economics (632)\Creative Writing Utopia Z.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Creative Writing: Utopia Z Utopia Z: Recreation Besides being able to live comfortable and easily, the people also have a lot of recreation to do, with in Utopia Z. All of the recreation, is located in the recreation dome, which is located between the Construction Plant, and the Hospital Dome. The Recreation Dome is filled with different activities, such as artificial ski-mountains, a swimming pool, and amusement park, an ice arena, a playground, a football field/track, a bungee jumping station, and a large field for miscellaneous activities. One of the biggest attractions in this dome, is the artificial ski- mountains. These mountains are constructed with sturdy steel frames, and with artificial snow. This mountain is equipped with chairlifts, and three different ski-runs designed for different skill levels. The dome also has an extra large swimming pool, equipped with many slides. This pool is designed to fit in as many as 1,000 people. The swimming pool can also simulate tidal waves. And aside of that, it has a whirlpool, and a steam room. For the kids' amusement, we have put in a mini-amusement park, which contains a couple of rollercoaster rides, a Ferris wheel, and many other rides, designed for children and adults of all ages. Along with that, the amusement park, also has many carnival games. Beside all of that, we have the football field, which also includes a track for running. The football field includes a computerized refereeing system, which will run the game, and also keep track of the score. Another big addition to the Recreation Dome is the built-in Ice Arena. This Ice Arena also has a computerized refereeing system. But besides that, the Ice Arena is pretty close to the modern ones we have today, along with a couple of little improvements. The dome also has another little addition, the playground, which is specially designed for the younger kids. This large playground is pretty close to the ones we have today. This playground maintains and cleans itself, which makes the playground sanitary for the kids. One of the biggest, and most unusual attractions to the dome, is the 400 feet bungee jump site, designed for the older more-daring people. This site is restricted to citizens 19 or younger, so this is only intended for adults. This site is equipped with a vacuum capsule, which transports the users to the top of the tower. Along with all those activities, we have also included a gigantic playing field for whatever activities the citizens can think of. Whether it is Baseball, Frisbee, walking their pets, whatever, this field will serve their needs. Although the dome has many attractions already, it still has extra space for future additions. Utopia Z: Agriculture Since Utopia Z, is a fully self-maintained unit, it is able to supply and grow it's own food. This is all done in the Agriculture Dome, which is located at the center, shown on the diagram. This dome is especially bigger than all the other domes. Actually, it is precisely 10 times larger than it's surrounding domes. A giant growth light is also installed into the dome to provide the crops and animals with artificial sunlight. This light actually provides a better, more concentrated light than the sun can provide on Earth. The dome is separated into 3 sections, designed to supply Utopia Z with vegetables and livestock of all kinds. Two of the sections are used to grow plants and vegetables. They are purposely separated into sections, in case, one of them are malfunctioning. These two sections are equipped with strong durable beams that encircles the area. These beams supply water to all the plants and crops evenly. Besides the watering system, the ground of the dome is also equipped with a fertilizing system. This system, evenly and regularly, inserts fertilizing material to the soil, keeping it full of nutrition for the plants. The third dome is provided for the livestock of Utopia Z. This section contains a very complex shelter for the animals, and a large grazing field for the animals. The shelter provided for the animals, is a very complex system designed to take care of the livestock without the aid a human being. This shelter supplies the animals regularly with clean food and water. It also cleans the mess and odors and animals make, keeping the dome sanitized for the other animals and plants. This system also aids the animals in injures, keeping them healthy. All without the aid of a single human being. Past that, the shelter is equipped with a large grazing field, which is guarded by a heavy- duty steel fence, which automatically opens and closes for the animals at the set time. The grazing field, allows the animals to get the exercise and freedom, that they get on Earth. There is also a watering system and a fertilizing system installed for the field. Many of the foods are distributed to citizens of Utopia Z. But a fraction of it, is stored in the Storage Dome, located between the Hospital Dome and the Court and Government Dome. This is done, in case, and major failure occurs in the Agriculture Dome. This well equipped system, will supply the citizens with almost all the different foods, that can be found on Earth. Utopia Z: Conclusion In conclusion, Utopia Z is a very efficient, self-maintained unit, and can supply the citizens with all neccessary living needs. Although Utopia Z, supplies all the citizens with sufficient amounts of food, it also supplies water to them. This is done at the "core" of the unit, near the energy generator plant (shown on diagram). Utopia Z collects water not by direct source, but by gathering the neccessary minerals needed to develop water from space. Because water is made, it is very clean, so there will not be a need for filters. The water is then run through a very complex system, which distributes equal amounts of water to the people. A fraction of it, will be stored into a water tank, for emergencies. Utopia Z, not only supplies the citizens with materials need to maintain life, but it also gives them many other recreations to do. We have supplied them with a Recreation Dome. Utopia Z, also has a Court and Government Dome which settles problems for the citizens. The citizens on Utopia Z, have to go through a very straight-forward, but effective system using "stars" as ranking. So in conclusion, Utopia Z can almost give every to the citizens, that they could get on Earth. We can garantee that the citizens will enjoy and nice relaxing, no stress, life on this unit. Utopia Z : Living Arrangements The citiznes of Utopia Z live in a very clean, and healthy environment. They live in a very simple, but effective way. The homes in Utopia Z are divided into two different sections. One is a average, with normal area and the other is for four stars and greater. The four stars and five live neer the bottom while the three stars and less live up higher. Even though this is a non biest colony people that have not followed the rules and or break a law their food is given at an amount just so that they can live and no more. Food is given to everyone and if more is wanted you must go and buy it with their own credits, which can also be used to purches other items around for plessure. Credits can be exchanged for many free time activities, including the Recreation dome, hospital, extra food and set-up gift stores. Credits are also spent on a annual monthly fee to support our station. Credits can be earned in two ways buy doing a job and every two weeks credits are put in their savings to buy extra goods and activities that are wanted. Water runs free through the water system so there is water available twenty-four hours a day. Water is stored in one area incase of a virus getting in the water supply. Waste products are shot into space where a machine collects them and turns them into fresh nice smelling farming soil. Utopia Z, has many domes insuring that life will be safe, some domes include, Recreation dome, Government dome, Storage dome, Construction plant, a prision and an Ariculture dome. People get from their homes to these places by space suction that sucks capsules from one end to the other in approxamitly thirty second. Twenty people can fit in a capsule and there are twelve normal capsules and two emergency tubes. Families are only aloud to have two children and one animal. These rules are set so that the population doesn't grow over 10,000. Utopia Z, has both animal and plant products. This isures a healthy and balanced diet, and also gives choice in what one chooses to eat. Utopia Z: Education In Utopia Z schooling is very different ways, but also similare in others. School starts at age four which is called adgustment schooling, basicly to get the children away from play and use to the idea of school. Five year olds go into Learners, then on to grade one through to grade twelve and then on to a trade school. The schooling takes place at home. The teacher is a holographic image produced by a screen with s hard-drive attached. A (S.C.D.) or super compaced disk, is incerted and at a spacifice time comes on and teaches. This teacher is programed to teach the way the student best lerns. This goes on through trade school, which is also manditory. Learning setions are three hours long with a ten minute brake in between. Students have to spend three hours a week on studing and homework, this starts in grade one. The study time is not manditory as of grade sevon, if the person gets a (B) average, but continues if grades are less. Study time is timed by a clock that is used to punch in and out. There is also a test that goes every month to see how the progress of the students are going. Dropouts are concidered fools and are not aloud anything special. They are rated as a one star and are not give a monthly fee and are pushed back into the school. If the student tries it again they will not be pushed back but will live with no honor untill they go back and complete the training. Utopia Z: Law Utopia Z is a very stricked yet peaceful space station. If a crime is made there are strong thuro investigations making sure nothing is left out. Everyone that was neer the spot were the crime took place is asked questions and put under a lie detector and nothing is taken for granted. If people that were neer the crime couldn't help then eventually everyone one the station on the station will be investigated. There is also camras so the criminal doesn't have that good of a chance. The rules or laws are basiclly the same as in Canada and probably the whole World. The punshments are totaly different in most cases. Some examples of crimes and punishments. Murder--------------------------------Death Murder, (self defence)----------------Nothing Stealing (first time, small thing)----One month in prison Stealing (first time, big thing)------One hand chopped off Stealing (twice small)----------------One hand chopped off Stealing (twice big)------------------Death Stealing (three times)----------------Death Drugs/Weapons,(one time)--------------Hand chopped off Drugs/Weapons, (twice)----------------Death B&E-----------------------------------Prision-death Rape------------------------------------Wipped then death If you get sent to death, you die without your last meal and then you get shot into space. The death sentences and all other sentences go for all ages from four- till age of death. If you do a crime and are put in jail or any other punishment then you become a one star and can't even start gaining higher stars for ten years and can never get a higher star then three stars. This will also make the people think twice before making a crime. Utopia Z: Introduction This is the year 1997, we (Canadian developers inc.) have developed a self supporting, self contained space-station. The space-station is rotating earth at a rate of .5/day. We have named the station; Utopia Z. We have selected 10,000 lucky individuals randomly from Earth. Approximately 2-4 people from each sex were selected from each Country. Utopia Z is equipped fully for all circumstances, including meteroids showers, alien attacks (for those who believe), etc.. As far as energy resources, Utopia Z uses the only energy resource which can be obtained from space, Solar Energy. When the station passes by the sun, the energy is stored in panels, then transferred to the energy generator plant. We have developed a "rating system", which we like to call the "star system", each citizen is rated from 1-5, 1 being the lowest, and 5 being the highest. For example, a government official would be rated at 5, while a criminal would be rated at 1. Utopia Z's currency, is similar to Earth's "credit card" system. We use a card which records the amount of money spent on an iten, in its memory. This process is fully explained later in our report. Transportation is very different from Earth's. We use tubes which launch the citizens in capsuls to their destination, safely. Utopia Z is self supporting; in the idea that we raise and grow all our own food products. The food is grown in domes on the higher part of the station. The food is then sent to markets, where it is sold to the citizens. We also have a huge selection of recreational things, including; three ski hills, football field, Olympic size swimming pool, ice arena, childrens playroom, amusement park, and a bungee-jumping tower. We hope that you take the time to fully read our report on our newly developed space-station. "It's one small step for man, one large leap for man kind." Utopia Z: Government Utopia Z's government consists of the following: The government officals wear uniforms, with sewed on stars on their chestm the stars signify how highly rated the official is in the civilization. Ordinary citizens are rated on the same basis, but do not need to wear uniforms. Criminals or ex-criminals are rated at 1 star. Only the government officials have the right to input their ideas on the civilization to the President, who then relays the input to the King/Queen. The government officials are elected in a civilized manner by the citizens, once every six years. If an official dies, or becomes seriously ill, it is up to the next highest rated official to chose a new official to take the missing official's position. If a government official is found guilty of any crime, he is automatically removed from government and downgraded to 1 star. Utopia Z: Population Utopia Z has a very consistent population. To this date, we have a population of 9,998. Utopia Z's population was originally chosen by wither one or two people from each sex being randomly from each, the privledged few, then had to take a thorough medical exam, to make sure of perfect medical condition. Once a male and female have married, and decide to start a family, they may have a maximum of two children, to keep down the population in the station. Once a female has given birth to two children, Once a female has given birth to two children, it is mandatory for her to use birth-control. From the ages of 6-18, it is mandatory for that portion of the population to go through some kind of education. If education is refused, the child will be down graded to a 1 start citizen until the age of 19. Medi-Care is supplied freely to those who are in need of it, no matter of their economic situation. There is a limit of $6,000 of medical care to one individual, annually. University's/College's are set up in such a matter, so that only a limited amount of people are able to take a certain course in a certain field. This is to make sure there aren't 1000 shoe repairmen, for example. Utopia Z: The Economy Utopia Z's economy is a growing interest. Utopia Z is not in deby by any means. Ordinary citizens (2 stars), earn a living as any person on Earth would. The jobs relate around the station, business's offer products and services which people on the station are in need of. Employers pay there employee's by way of upgrading there "card". A computer is given to the employer from a government official, which is used to upgrade the employee's "card". The way the "card system" works is; when a peron purchases an item/service, the person who runs the business scans the buyer's card through a computer, imprinting the amount spent into the card's memory. At the end of each month, it is mandatory for every citizen to bring there cards to a government agency, and pay off there debts. Jobs related to the space station (ie. Litter picking), which are not claimed by a 2 star citizen, are assigned to a 1 star citizen by a government official. Private property can be purchased through a long and slow process by filing a report to a government agency, stating what you would like the property for, for how long, etc.. Private property may be used for building homes for citizens with 3 stars or higher. f:\12000 essays\business & economics (632)\Crime and the Black Market in Modern Day China.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Crime and the Black Market in Modern Day China With a population of approximately 1,203,097,268 people , China, who has the world's largest population, also has the world's fastest growing black market and crime problem. In China, crime rates have been climbing an estimated 10 percent a year since the early 1980s . China is a country that is currently experiencing both political and economic instability. Economic reforms that have been put in place by the government have only widened the income gap, creating a middle class with money and a lower class of newly poor. With an ever increasing size in this gap of income distribution and the relative ease of making money through black market sales, it is no wonder more and more Chinese are turning to a life of commonly accepted and profitable crime. Thomas Jefferson once said, "he who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me." Unfortunately, Thomas Jefferson lived in a different time. He lived in a time when piracy was not as evident and intellectual property was not worth so much. In China, the largest crime which is currently occurring is intellectual piracy. Unlike the pirates of old who plundered the merchant vessels and ports of the South China Sea, modern day pirates are more interested in illegal replication of intellectual rights. From music compact discs to computer software to films to best selling novels, The Chinese black market is a virtual warehouse of "plundered goods". It is estimated that there are at least thirty illegal high tech factories in China that can churn out over 20,000 optical discs a day. America's Microsoft estimates that 98 out of every 100 of its software programs being used in China are illegal copies . Because of these statistics, and because this only amounts to a small amount of the estimated piracy which occurs in China, program manufacturers, worldwide, are lobbying the Chinese government to impose stricter standards and greater restrictions upon the distribution and sale of illegal intellectual rights. In July of 1996, investigators from Microsoft led Chinese officials to a plant near Guilin in Guanxi Province, where they found 5700 bootleg windows CDs. The plant had four production lines. Three of them were operated around the clock. It was estimated that this particular plant churned out 20,000 illegal copies of Microsoft programs a day. A trade report to Congress from the Trade office cites China as the worst violator of United States - copyrighted intellectual property. The report, which came days after the joint raid on the Guilin plant by Microsoft and Chinese investigators, blasted China for failing to honor a February 1995 agreement to police production at its replication plants and mark the software with a source identification code. In a statement, Microsoft characterized the raid as a matter of luck, not enforcement: "There were no copyright monitors stationed at the factory, nor were the source-identifier markings required under Chinese law in place." In June of 1996, the United States government planned to impose punitive tariffs against Chinese textiles and electronics imports. These tariffs were going to be imposed if the Chinese government didn't immediately comply with a US-Chinese piracy agreement. However, at press time, China stated that they would retaliate with duties on American agricultural and automotive products. China insisted that they were trying to rectify the situation, and the punitive tariffs never went through. The United States currently has a 34 billion dollar balance-of-trade deficit with China. If 2 billion dollars of illegally pirated U.S. goods are included in this amount, it counts for a lot. Even though the Chinese government states that they are trying to prevent this piracy, they still have restrictions in place that only encourage it. For example, China permits only 10 new foreign movies to be distributed within its borders each year. Although China says this is to protect its domestic film industry, American film makers estimate that they lose $150 million a year due to piracy of films that would be otherwise unavailable to the Chinese public. China may be the worst piracy offender, but it is not alone. Around the world, according to figures published on May 9th, 1996 by the International Federation of the Phonographic Industry (IFPI), one in five recordings of music is now a pirated copy. It is estimated that the music industry lost 5% of their revenues, or 2.1 billion dollars, because of this. What worries officials about China is that it is estimated that they produce 150 million bootleg copies of music CDs a year. However, it is estimated that China only consumes a total of 40 million CDs a year, bootlegged or legal. It is obvious from these numbers that over 100 million bootlegged CDs are being exported from China each year. Where as the United States only accounts for 13% of value of pirated CDs, other developing and economically or politically unstable countries, such as Russia or Mexico, are also consuming a large portion of China's illegal goods. Being China only produced 54 million bootlegged copies of music CDs in 1994, and it is estimated that they produce 150 million today, a new problem of exportation arises. What if China breaks into the U.S. market, which consumes 30% of all recorded music? If not put under control, the results could be crippling for the music industry, worldwide. An escalating black market problem in China, which is gaining an international spotlight due to its human rights injustices, is the kidnapping and selling of women and children. Late in 1988, a Chinese - language newspaper in Shanghai reported on rings of people who traded in women; the most expensive were slightly mentally retarded, because they worked hard but did what they were told without complaining or trying to run away. One man in Hebei province had been imprisoned for trading in women, but used his connections with authorities to secure an early release and simply reestablish his former trade . The sale of women was acknowledged as being among six types of very serious and widespread crimes targeted for suppression from the autumn of 1989. This suggests that, before then, the abuse of power in the form of deliberate laxity in the face of serious crime had become a major problem among police and other authorities. In a Beijing newspaper interview, Li Tieying, a CCP (Chinese Communist Party) Political Bureau member, stated that, "At present, party committees and governments at all levels must first of all be fully aware of the importance of cracking down on the criminal activities of kidnapping and selling of women and children as well as of prostitution and visiting whores. They must also be soberly aware that clamping down on this rampancy and the eradication of these vile social phenomena, is a significant struggle in protecting the personal interest of the masses, in maintaining social stability, and in straightening up current social practices. We must adopt a serious attitude and be responsible to the party, state, people, nationality, and history in this respect. We must carry out this task with a strong sense of responsibility and urgency." Li Tieying's statement expresses how the Chinese government sees this problem to be of timed importance. Another black market problem, which is growing in China, is that of illegal dogs. Among newly rich Chinese, cameras or refrigerators used to be the things to show you had arrived. Now, to be associated with the "yuppy" class, the thing to have and show off is a pedigree lap dog. Now, where this may sound crazy in most of the world, it is not in China. Dogs are illegal in a lot of China and are generally destroyed. This is because of the fact that they spread rabies, which is responsible for thousands of deaths a year in China. A pedigree dog could go for as much as $4500 on the black market in China, and it is becoming increasingly common to find "dog - pushers" in the back alleys and shady parts of Beijing. Li Wenrui, deputy chief of the public order department of Beijing's Dongcheng district, has dog squads established to help track down illegal dog owners and destroy their pets. In Dongcheng, one of Beijing's districts, Mr. Li stated that it is not uncommon to find and destroy approximately 500 dogs a week . State run newspapers rage against dog lovers who lavish food and money on their pets. On January 26th, 1994, the Legal Daily reported angrily that at one hospital doctors turned away a human patient because they were treating a dog at the time. He had paid his way and had a life too, the doctors said in their defense. The pampered pekinese, shihtzus, and shapeis with ribbons in their fur, whose doting owners buy them sprays for their halitosis and additives for their food to make their droppings smell sweet, are usually sheltered from the dangers of street life. Most are kept indoors, away from the prying eyes of those who might inform the dog squads. "You don't need to take your pet outside," says one owner. "It doesn't grow very big, so you can just keep it in a box." Even though in some areas of China, such as Xiamen and Shanghai, it is legal to own a dog, dogs may still wind up getting "cooked"; For it is becoming an increasingly popular delicacy in China to eat fried, stewed or baked dog. What used to be popular only among the Cantonese has found a liking with Chinese northerners, and dogs can increasingly be found on the menus of Beijing restaurants. A major cause of the ever increasing black market problem in China is corrupt politicians. Organized crime seems, for the most part, to be organized by the state . It is of general suspicion in China that the police and customs officials are involved heavily in smuggling and other illicit practices. For example, Fangcheng, a small port in Guangxi Province, suddenly became one of the most popular harbors in China. The reason was that the local customs officials were involved in small sideline broker companies that offered to handle all the paper work for importing goods. These broker companies set up offices along a street near the port, and the importer simply handed shipping documents to the company, which then filled out all the required customs forms, obtained the import licenses, and ushered the goods through customs. For this the officials took a fat commission, but the buyer wasn't affected at all. The customs officers never assessed the true substantial duties on goods handled by the sideline companies, so importers saved large sums on duties. Of the money saved, the brokers could skim nice percentages for themselves. The central government realized something was up when cargoes destined for all parts of China lined up to use the one small port in Guangxi. There were huge delays for ships to get into the port, and hardly any duty was being paid. After an investigation, the port at Guangxi was shut down by the central government in 1993. Although piracy and the black market are increasingly growing in China, the country may not entirely become sheathed in a cloak of crime. A visitor to the United states in the 19th century might have easily been overwhelmed at the great injustices which occurred here. Crime, crooked politicians, and even a basic anarchy were evident in many parts of our country. At that time, we were in a period of rapid economic growth. China is in a similar period of economic expansion, today. If any similarities can be drawn, China will pull through. f:\12000 essays\business & economics (632)\Critiques On Wall Street.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 688 The article, "Greenspan gets another Fed term," in the New York Times discussed Alan Greenspan's success and failures during his term. The article was fairly easy reading. I found some statements to be quite amusing however, there were some issues discussed that was a little ambiguous. Reading this article, I learned that President Clinton nominated Alan Greenspan to a fourth term as chairman of the nation's central bank. I had no clue as to what the title of chairman of the nation's central bank did. However, after reading this article, I had some ideas as to what role chairman of the nation's central bank plays. Alan Greenspan makes decisions in the S & P, NASDAQ, and DOW Jones markets. Alan Greenspan also approves interest rates, evaluate US currency against all other countries, makes sure the value of the dollar is at the best interest of the economy, decides on economic policies, and among many other things that I have yet to learn. The third paragraph into the article talks about fear of rising interest rates will negatively affect corporate profits. I do not understand how rising interest rates will negatively affect corporate profits. One guess might be due to the increase in interest rates, the percentage earned on stocks will decrease. This to me means that the taxes on the stocks will increase. Stockholders will have to pay more taxes on their stocks. Stockholders will not like this, therefore they will end up selling their stocks. This will negatively affect corporate profits. The article mentioned, "Greenspan this year rank among the most formidable he has had to meet over his tenure at the Fe. Although he is adored at the moment, all of his fine work could be forgotten if he is unable to walk the tightrope of maintaining economic growth while keeping inflation low," sounds very threatening. It sounds like Greenspan better not screw up or else all his success, hard work, and accomplishments will be well forgotten. In a sense, it is true. Once Alan Greenspan makes a wrong turn, all hell will break loose and no-one will give him the benefit of the doubt. I found this statement real amusing. "Clearly, the economy is strong and the financial markets have been exceedingly robust. But the pace that both the economy and the market are moving in are not sustainable long-term," is another statement I found quite amusing, but at the same time a little troubling. My question is, does this statement boil down to the cliché, "too much of a good thing is too good to be true."? The economy and financial markets are at the best it has ever been, which means a downfall is somewhere in the future. One paragraph mentioned that the Fed is "expected to raise the bench mark federal funds rate, currently at 5.5%, by one quarter of one percentage point in what would be its fourth interest rate increase since June 1999." I was really confused with the content of this statement. I found the wording really hard to comprehend. Finally, I figured out that what this statement was really trying to say is that interest rate is currently at 5.5%. Interest rate is expected to rise one quarter of one percentage point. This rise in interest rate will be the fourth time that it has risen. The article basically reviews Alan Greenspan's work. There were ups and downs throughout Alan Greenspan's term. The article mentioned when Alan Greenspan took command of the Fed, the stock market crashed. However, Alan Greenspan saved his reputation by flooding the banking system with funds, making sure that credit was readily available to everyone who needed it. This prevented the economy from going into a recession. Alan Greenspan recovered the recession in the early 1990'' and was recognized for that. Although there were some downfall during Alan Greenspan's term, but he cleared them up quickly and has done many great things for the economy. f:\12000 essays\business & economics (632)\Cutting the National Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Cutting the National Debt "It's time to clean up this mess." Famous last words heard from the mouths of many different politicians when talking about the national debt and the budget deficit. Our debt is currently $4.41 trillion and we have a budget deficit of around $300 billion and growing. Our government now estimates that by the year 2002 the debt will be $6.507 Trillion. While our politicians talk of balancing the budget , not one of them has proposed a feasible plan to start paying down the debt. In the early days of our government debt was considered to be a last resort. In 1790, when Alexander Hamilton, as secretary of the Treasury, made his first report on the national debt of the United States, he estimated it at close to $70 million. After alternately rising and falling, the debt stood at only $4 million, or 21 cents per capita, in 1840. That was the lowest point ever reached by the public debt of the U.S. After 1840 it rose to a peak, in the last year of the Civil War, of almost $2.68 billion and a per capita figure of $75.01. The only justification for debt of any significant amount was a war. By 1900 this had been reduced to under $1 Billion. By 1919, the end of World War I, the debt had climbed to $25.5 Billion. In each of the following years the debt was reduced, and by 1930 stood at $18.1 Billion. With the collapse of Wall Street in 1929, the country (debt history: 1850 to 1950) fell into the Great Depression, which lasted until 1940. At that time the debt had climbed to $51 Billion. By the end of World War II the debt was $269 Billion. Again the government worked to reduce the debt, and by 1949 it was $252.7 Billion. At that point the Korean War started, sending the debt to $274 Billion by 1955. Since then, there has been no serious effort to pay down the debt. The main point to be made was that on three separate occasions a major debt reduction effort had been made, but in the past 55 years in spite of much arm-waving there have been no similar results. The U.S. debt is divided into two major kinds of loans, marketable and nonmarketable. The former provides about 52 percent of the total and is made up of bills, notes, and bonds that can be traded; the latter includes U.S. savings bonds, foreign-government-owned securities, and government account securities that are redeemable but not tradable. Maturity of this debt ranges from less than a year to over 20 years, with the average maturity about 3 years. More than half of the debt, however, is short term, maturing in less than a year. A ceiling is placed on U.S. federal debt, and Congress must enact new legislation to raise the ceiling. Between 1981 and 1990 the ceiling was raised from about $1.08 trillion to about $4.15 trillion. Unfortunately at the end of 1995 we reached the ceiling again, and Congress refused to raise it. They felt that it had become too much, and there was a government shutdown for a few days in November. Not only was this an inconvenience to many people, it also accounted for an estimated $63 million a day in lost productivity, and almost double that in lost tax revenue. Due to the threat of this, Clinton has a plan to balance the budget by 2005. This plan includes a projected $1.1 trillion spending cut over the next ten years, slow the growth of spending on Medicare and Medicaid, trim social and farm programs, close a number of corporate tax loopholes and retain the package of middle-class tax cuts he proposed earlier. He also specified that programs such as Social Security, education, and training would be immune from such cuts. He did warn though, "Make no mistake-- in other areas, there will be big cuts, and they will hurt. This was June of 1995, and at the end of Fiscal Year 1996, the national debt growth was $80 billion higher than previous projections, with a final debt increase of $331 billion. Where does this money go? This happens to be the most popular question asked, yet the one nobody has a definite answer to. Out of all of the places the government spends money, more than 50% goes to three main areas: defense, Social Security, and Medicare and Medicaid, all of which combined account for between $750 and $900 billion per year. In the case of national defense, there are a few different points to be made in justification of these outrageously high numbers. First, the costs in the 1940s and 50s due to both World War II and the Korean War. Next comes the costs of the War in Vietnam in the mid-1960s and 1970s along with LBJ's Great Society Programs. This trend of big spending continued on through the until the end of the 1980s under Reagan's Cold War programs. With the Cold War over, and the United States recognized as the world's only superpower, the defense budget is now being cut. But despite these cuts, experts estimate that up through the year 2005, we will spend at least $250 billion a year on national defense. Social Security is yet a different story. Social Security has become the linchpin of the Federal Government. Every politician in Washington knows that Social Security will eventually fall, but very few will actually propose a budget that cuts out Social Security completely. For those who do, any such plan is shot down immediately. Since its conception in the 1950s, Social Security has done nothing but grow, and this year will cost somewhere in the neighborhood of $330 to $350 billion. If that's not enough, it is projected that by 2005, the program will balloon to almost $450 billion. That's a 28% increase in less than 10 years. Medicare and Medicaid are also untouchables in the federal budget, although in Clinton's new plan, he plans to cut the growth of both equally. While exact numbers aren't available for Medicaid, Medicare is soaring at the same rate as Social Security. Right now, Medicare costs about $160 billion. In ten years, it will grow at an alarming rate up to over $270 billion. That is a 68% growth rate. If this trend continues, Medicare will reach $500 billion within 25 years. That's a lot of money for health care. As for the rest of the money, the bulk of it goes to programs such as income security, health, education, and transportation among other projects. About $220 billion goes towards interest we pay on the debt, and as our national debt keeps rising so will this number. If the debt grows to the amount predicted by Leon Panetta, Clinton's Chief of Staff, $6401 billion, or to the size that some economists believe, in the excess of $7000 billion, this number will soar higher and higher each year. As the earlier graph pointed out, our national debt is not going to decrease by itself. What this country needs is a compromise between Congress and the President, no matter which President. Some experts feel that it is necessary that we side with one party or the other (www.nationaldebt.com). Currently we have a Republican Congress and a Democratic President. This isn't going to help make the situation any easier. As a matter of fact, in recent years the measure of annual deficit is determined inversely by the amount of money that the government can loot from the Social Security Trust Fund and the Federal Employees' Trust Funds plus 148 other trust funds. It has little or no relationship to the fiscal management of the government's officials. The more trust fund money they can plunder, the less the deficit will be, but the more the debt will increase. The best comparison that can be made to the national debt is an enigma. If the government tries to decrease it, somebody is going to be mad over what program is being cut. The more the government spends, the more people complain that it is spending too much. There is no balance, and that is why it makes elected officials so indecisive about their views on the debt, they want to get re-elected. One final thought, balancing the budget will eliminate the deficit, but it will not stop the growth of the debt, and the debt is what we pay interest on, not the deficit. If there had been no deficit during the 1990's, the debt would still have increased by $1 Trillion. Seem scary? Obviously we need immediate action, with minimal bickering. Works Consulted Clinton Outlines Plan To Balance Budget By 2005; Melissa Healy; Los Angeles Times; June 14 1995 "National Debt"; Encarta On-Line Encyclopedia 1996 Http://www.cnn.com Http://www.nationaldebt.com f:\12000 essays\business & economics (632)\Daimler Chrysler.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ DAIMLERCHRYSLER Introduction: Daimler and Chrysler which have recently merged to form the company Daimler Chrysler resulted in the company becoming the fifth largest auto maker in the world with an estimated annual revenue of $130 billion. This merger resulted in a workforce of 421, 000 employees worldwide. Mission: "Our companies share a common culture and mission. We are both clearly focused on serving the customers by building world class cars and trucks." Task Environment: Competitors, customers, strategic allies, suppliers, and regulators. COMPETITORS: Due to its product diversity, Daimler Chrysler faces strong competition from all car manufacturers. Daimler Chrysler's scope varies from small passenger cars through luxury cars to vans and trucks. However, Daimler Chrysler's strongest competitors are GM, Ford Motor Company, Toyota, and Volkswagen because they are the leading car manufacturers in the world respectively. CUSTOMERS: Due to its scope, Daimler Chrysler enjoys a wide variety of customers ranging from the working class up to the upper class. Daimler Chrysler also targets the young and sporty people with its sports utility vehicles. The luxury models target the elderly and richer population. SUPPLIERS: Daimler Chrysler's suppliers include electronics, plastics, rubber for tires and steel. ALLIES: Daimler Chrysler's allies are tire manufacturers, which include Bridgestone, Michelin, and Dunlop. REGULATORS: They are environmentalist groups such as Green Peace and others that place Daimler Chrysler under pressure to reduce pollution in the air by reducing CO, CO2 emissions by cars. Governmental agencies also regulate Daimler Chrysler in that it requires Daimler Chrysler to reduce pollution and increase safety features in the cars' design such as side impact beams, air bags, three point seat belts in rear seats and safety features that accommodate young children. TOTAL QUALITY MANAGEMENT: Benz INTRODUCTION: Benz is the biggest industrial firm in Germany. They feature mostly simple passenger cars to luxury cars. In order to stay number one, they must practice TQM. TQM: Benz concentrates on car quality, stability, reliability, safety, high performance and luxury. All these combined result in an effective program of TQM. Benz must constantly emphasize that its cars are stable and reliable, which means that there are no defected cars in their production. Next, the safety should include rear three point seat belts, special seats for children, and bumpers on cars made of special composite materials to absorb great impacts to the cars, thereby protecting the cars' occupants. The luxury in TQM is that the cars constantly have automatic features such as automatic windows and gears, automatic climate control, electronically adjusted seats with heaters installed in them. COMPARISON: As we have shown, McDonald's, Daimler Chrysler , and Benz are large corporations with a common goal: to provide its customers with top quality products. These firms are very highly customer oriented, taking into account their customers' needs and wants. Also the companies are growth oriented shown by Benz's merger with Chrysler and McDonalds opening of three new restaurants every three hours. In addition, these companies are decentralized resulting in high employee morale and thus motivation. Another important aspect is that these companies operate on a global scale. Also, these companies follow an Analyzer Strategy by constantly innovating new products. These firms also became diversified in that McDonald's uses a backward vertical integration, thus replacing its suppliers, while Chrysler and Daimler have merged to become a more diversified company. These companies also differ. For example, Benz uses a differentiation strategy emphasizing its high quality and high value of its products. On the other hand, McDonalds uses an overall cost leadership strategy to reduce costs and increase sales. Similarly Chrysler uses an overall cost leadership strategy to reduce costs and to sell a much larger amount. CONCLUSION: In conclusion, we have explored a large corporation such as McDonald's and shown how its Task Environment, Workforce Diversity and Total Quality Management can have a profound effect on the organization. In order for such a corporation to remain a leader in its field, it must stay growth oriented and constantly have contingency plans to overcome turbulence. Another important factor is the type of strategy that it follows. McDonald's, Daimler Chrysler and Benz follow an analyzer type of strategy, constantly introducing new products while defending their existing products. f:\12000 essays\business & economics (632)\Death Penalty.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Death Penalty Should Continue to be Used in the U.S. Ever since the death penalty has been declared constitutional in 1976, thousands of people have been placed on death row and 314 of them have been executed.( Yaffe,1) Thirty-eight states now allow the death penalty, with New York being the last to adapt this legislation last March. Massachusetts and Iowa have been trying to pass a law that would to allow the death penalty to be used in their states. Capital punishment is most often saved for murder and sometimes arson, treason, burglary, and forcible rape of a 14 year old or under from a 18 year old or older, but it varies within each state. There are many politicians who are trying to pass laws banning the death penalty. There are around 3000 people on death row across the country right now and if these politicians get their way, then 3000 lives will be spared.(Matthews,1) The rage of this issue continues to persist with many people questioning if capital punishment is really the answer to solving the problem of crime. The death penalty should be allowed because it is not inhumane but rather fair and it's continued use will end up helping out society in many ways. Many people who oppose the death penalty say it is inhumane and unfair. These people who oppose it say that all human life has the right to be respected. All human life does have the right to be respected but there is a point when that right can be lost, if someone takes the life of another human being then they have given up that right. Another claim the opposers to the death penalty make is that the death penalty encourages more murders because if people see the authority taking someone's life, then they will think they can do it too. This is not true, if criminals see that more and more people are getting the death penalty, this will cause them to think their actions over. The United Kingdom abolished the death penalty in 1965 and since then, violent crime has more than doubled.(Matthews,2) The death penalty is not inhumane because it can be done painlessly and quickly. In most cases when the execution was performed the process that was most often used was lethal injection. Out of the 314 executions that have taken place since 1976 the majority of them, 179 have been done by means of lethal injection. The electric chair has been used 123 times, the gas chamber: 9 times, a firing squad: twice, and hanging: once.(Rodriquez, 4) Lethal injection is a quick, non-suffering way to execute the death row prisoners. Opposers to the death penalty don't even realize that these inmates are being done a favor. By being executed, they are being put out of their misery. There are not that many people who want to be stuck in a small cell for the rest of their life where prison rape has become more common. By executing these prisoners, they won't have to suffer. Another reason the people who oppose the death penalty feel that it is unfair is that it denies the person the privilege to be retried if any new evidence comes up. On the average, an inmate in kept in prison 8 years before their death sentence is carried out.(Yaffe,2) If no evidence is found by then to prove their true innocence, chances are no evidence will ever be found. Besides anyone who is on death row has already gone through a trial so they had their chance to prove their innocence. The jury obviously found them guilty beyond a reasonable doubt and decided they should get the death penalty. Justice has already prevailed. Even though the Old Testament book of Exodus commands "Thou shall not kill," just three chapters later in the same book it is advocating "life for life," "eye for eye," and "tooth for tooth". The death penalty can be justified because it can be done painlessly, it is actually putting the prisoners out of their misery, and the prisoner has to deal with the consequences from what they did. The death penalty also keeps dangerous criminals from ever returning to the streets again where they can recommit they same crimes. There are criminals who have been sentenced for 50 years to life in prison but end up getting out years earlier for good behavior because the prisons are getting so crowded. When the U.S. Department of Justice studied all the available criminal records of those that were on death row they found out some pretty interesting facts. Sixty-seven percent of the people on death row were convicted of a previous felony. Every two out of five of them committed their capital offense while they were on parole or on probation. Forty- two percent of them had active criminal justice records.(Matthews, 3) Some criminals are too dangerous too even be put in prison because of the risk of them escaping. Terrorists threaten and endanger the lives of many people so if they are caught, they should immediately be put to death. This doesn't seem to be a problem because most terrorists have no fear of dying. Many take huge risks with dangerous explosives or carry out attacks that could kill themselves as well as the others. If the inmates are eventually let out, most have nowhere to go and it is hard for them to find a job so they will return to their old ways. Only 37.4% have finished high school, 15.3% have never even finished eighth grade and only 10.2% have attended college.(Matthews, 4) Not only do the prisons get crowded but it gets to be too expensive to keep all these criminals in prison until they die. More and more people are put in prison each year and the inmates from all the previous years still remain there and few are released so it is an unequal balance. Eventually, more prisons are going to have to be built which means more money being spent or dangerous criminals are going to be put back onto the streets. It is cheaper to execute the ones who have life sentences. Many who oppose the death penalty say that the execution would cost more, but that is not true. It only costs more when the trial that decides if the defendant should get the death penalty goes on for a long time and when the jury can't decide a verdict. The death penalty will allow more room in prison so less dangerous criminals will be forced to return back to the streets of society and it will lessen costs as opposed to keeping an inmate in prison for the rest of their life. This will help the country out a lot. The death penalty should be allowed because it is not inhumane but rather fair and it's continued use will end up helping out society in many ways. The thousands of criminals who take a person's life should be punished. If a jury decides what they did was severe enough to earn the death penalty, then their judgement should be approved. This way society is showing it is not going to go soft on criminals who victimize and frighten the country. This way the tables are turned and the criminals are the ones who are frightened for their lives, it may sound cruel to some people but at least there is one less person who is out there to victimize them and that person will never be able to hurt anyone else again. Works Cited Matthews, Robert. "The Final Judgement." Focus, 18 November 1995: CD Newsbank. Rodriquez, Era M. "Court Ponders Limits of Its Own Power." The Recorder, 19 March 1996: Internet. Yaffe, Deborah. "Federal Court Weighs in on California Rule for Death Row Cases." New York Times, 4 June 1996: CD Newsbank. f:\12000 essays\business & economics (632)\Deficit Spending The Deficit Good or Bad.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Deficit Spending: The Deficit Good or Bad "Spending financed not by current tax receipts, but by borrowing or drawing upon past tax reserves." , Is it a good idea? Why does the U.S. run a deficit? Since 1980 the deficit has grown enormously. Some say its a bad thing, and predict impending doom, others say it is a safe and stable necessity to maintain a healthy economy. When the U.S. government came into existence and for about a 150 years thereafter the government managed to keep a balanced budget. The only times a budget deficit existed during these first 150 years were in times of war or other catastrophic events. The Government, for instance, generated deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, and World War I. However, as soon as the war ended the deficit would be eliminated and the economy which was much larger than the amounted debt would quickly absorb it. The last time the budget ran a surplus was in 1969 during Nixon's presidency. Budget deficits have grown larger and more frequent in the last half-century. In the 1980s they soared to record levels. The Government cut income tax rates, greatly increased defense spending, and didn't cut domestic spending enough to make up the difference. Also, the deep recession of the early 1980s reduced revenues, raising the deficit and forcing the Government to spend much more on paying interest for the national debt at a time when interest rates were high. As a result, the national debt grew in size after 1980. It grew from $709 billion to $3.6 trillion in 1990, only one decade later. Increase of National Debt Since 1980 Month Amount -------------------------------------------- 12/31/1980 $930,210,000,000.00 * 12/31/1981 $1,028,729,000,000.00 * 12/31/1982 $1,197,073,000,000.00 * 12/31/1983 $1,410,702,000,000.00 * 12/31/1984 $1,662,966,000,000.00 * 12/31/1985 $1,945,941,616,459.88 12/31/1986 $2,214,834,532,586.43 12/31/1987 $2,431,715,264,976.86 12/30/1988 $2,684,391,916,571.41 12/29/1989 $2,952,994,244,624.71 12/31/1990 $3,364,820,230,276.86 12/31/1991 $3,801,698,272,862.02 12/31/1992 $4,177,009,244,468.77 12/31/1993 $4,535,687,054,406.14 12/30/1994 $4,800,149,946,143.75 10/31/1995 $4,985,262,110,021.06 11/30/1995 $4,989,329,926,644.31 12/29/1995 $4,988,664,979,014.54 01/31/1996 $4,987,436,358,165.20 02/29/1996 $5,017,040,703,255.02 03/29/1996 $5,117,786,366,014.56 04/30/1996 $5,102,048,827,234.22 05/31/1996 $5,128,508,504,892.80 06/28/1996 $5,161,075,688,140.93 07/31/1996 $5,188,888,625,925.87 08/30/1996 $5,208,303,439,417.93 09/30/1996 $5,224,810,939,135.73 10/01/1996 $5,234,730,786,626.50 10/02/1996 $5,235,509,457,452.56 10/03/1996 $5,222,192,137,251.62 10/04/1996 $5,222,049,625,819.53 * Rounded to Millions Federal spending has grown over the years, especially starting in the 1930s in actual dollars and in proportion to the economy (Gross Domestic Product, or GDP). Beginning with the "New Deal" in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt sought to use the full powers of his office to end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to nearly $7 billion in 1934 and to over $8 billion in 1936. Then, U.S. entry into World War II sent annual Federal spending soaring to over $91 billion by 1944. Thus began the ever increasing debt of the United States. What if the debt is not increasing as fast as we think it is? The dollar amount of the debt may increase but often times so does the amount of money or GDP to pay for the debt. This brings up the idea that the deficit could be run without cost. How could a deficit increase productivity without any cost? The idea of having a balanced budget is challenged by the ideas of Keynesian Economics. Keynesian economics is an economic model that predicts in times of low demand and high unemployment a deficit will not cost anything. Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used. For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic system. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980's when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit. This means as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. But, what if the government spends money on programs that do not increase its assets or productivity. For instance consider small businesses. If the company invests money to higher a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on a paper clips when they have staplers they will just lose the money spent on the paper clips. This frivolous spending is what makes a deficit dangerous. Then the governments net worth decreases putting it into serious debt. Debt should not be a problem because we can just borrow more, right? This statement would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the private sectors essentially reallocating its own countries funds to spend on its country. This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars. Deficit dollars then translate into demand for goods that aren't being produced. Referring back to the small business example, if a company is selling all the products it can produce they can still higher another salesman. But since there are no more goods to be sold the salesman only increases the number of consumers demanding the product. Without actually increasing sales. The problems of deficit spending out of a recession even out through two negative possibilities, inflation and crowding out. Inflation means there is more demand or money than there are goods this causes an increase in prices and drives down the worth of the dollar. This depreciation of the dollar counters the cost of the deficit but destroys the purchasing power of the dollar. A five dollar debt is still a five dollar debt even if the five dollars are only worth what used to be a five cent piece of bubblegum. Despite its dangers inflation is used to some extent to curb the debt. Crowding out is when the government is looking for the same capital that the business sector wants to invest. This causes fierce competition for funds to invest. The fierce competition causes an increase in interest rates and often business will decide against further investment and growth. The government may have the money to build new highways but the truckers cannot afford trucks to use on them. The governments needs will "crowd out" business needs. This turns potential assets into waste. However, there is a third option which would allow the government to run a deficit and avoid the negative aspects of inflation and crowding out. Borrowing from foreign sources is a tangible and recently very common practice. Attracted by high interest rates and stability, foreigners now buy huge amounts of U.S. national debt. Of course this cannot be the perfect solution otherwise no one would be concerned about the debt. The problem with borrowing from external sources is the lack of control the government has over foreign currency and debts. Internal debts can be paid with increased taxes, inflation, and other monetary controls the government has but external debts can extremely damaging to a country if it cannot buy enough of the foreign currency to pay the interest. Running a deficit is apparently good for an economy that is operating inside its production possibilities curve but it can be damaging to an economy operating on the curve. A deficit managed properly has the effect of increasing demands. An economy inside its curve can increase supplies in reaction. An economy on the curve can increase demand but its supplies cannot increase causing prices to rise, or inflation. If there is no deficit and the curve shifts to the right then supplies will not increase and the country will no longer be operating on the curve. A deficit must be maintained to insure that the economy grows with its resources. Is the U.S.'s current debt bad or good? The trick is finding out how large the deficit should be in order to allow for growth without waste. The U.S.'s deficit is bad at this point because the U.S. is close to its maximum production capabilities, and deficit money is being wasted. For example two of the largest portions of the budget: defense and social security. Defense spending produces little or nothing except in times of war. Judging by the current status of the United States as the only existing "Nuclear Super Power" war is not a tangible event in the near or distant future. The way social security is managed creates a huge waste. As managed, social security is money spent to immobilize a large and fairly capable part of the work force. It encourages elderly people not to work by spending deficit money on them. Reducing productivity and increasing the debt at the same time. In its current state the U.S. should attempt to reduce its deficit but eliminating it is not necessary and could do more damage than good. f:\12000 essays\business & economics (632)\Describe the roles of government in the present business envi.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business Studies - Essay Q: Describe the roles of government in the present business environment. In the present business environment governments have the power to change and make laws, having a major role and influence on the business environment. There are three levels of government; federal, state and local. The federal government has power over such areas as; company law, income tax, trade etc. State government has power over pollution, price controls, state courts etc. and local government has power over rates, building approvals and zoning. Through zoning the local government can decide where businesses are located, or how many similar businesses should be built in a particular area. The power of the government can have direct or indirect influences on the business environment, encouraging or forcing businesses to comply. The federal government has the greatest effect over the macroeconomic business environment through the making of policies. The government has a number of economic objectives. They aim to have consistent economic growth, low rates of inflation, a sound international trading situation and low unemployment. To meet these objectives the government must place policies such as fiscal, monetary, trade and income policies. Fiscal policy is the deliberate action of the government to change its levels of income and expenditure, through the annual budget. By budgeting for a deficit or surplus, the government will contract or expand the economy. e.g If the government needed to cut unemployment they would budget for a deficit so more money is injected and less money is taken from the economy by less taxes and higher expenditure raising employment. Monetary policy can also raise the level of economic activity. It controls the availability of money by influencing the level of interest rates. Lowering interest rates encourages people to spend and borrow while higher interest rates encourages people to save and not borrow. By lowering interest rates the government encourages spending thus increasing the level of economic activity. Income policies influence wage outcomes by negotiating with the unions and the employers and putting arguments before the industrial relations commission. Governments can restrain real wages and cause unemployment levels to fall. Trade policies influence the exchange rate and determines the levels of production for Australian industries. Trade policies include tariffs, quotas, embargoes and subsidies, to protect businesses from foreign competition. Trade policies help the economy by encouraging Australians to buy Australian products. The federal governments role in the present business environment is to promote economic growth, keep unemployment at a minimum, and protect businesses from foreign competition, by creating policies. f:\12000 essays\business & economics (632)\Describe The Roles of Government In The Present Business Environment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Describe The Roles of Government In The Present Business Environment In the present business environment governments have the power to change and make laws, having a major role and influence on the business environment. There are three levels of government; federal, state and local. The federal government has power over such areas as; company law, income tax, trade etc. State government has power over pollution, price controls, state courts etc. and local government has power over rates, building approvals and zoning. Through zoning the local government can decide where businesses are located, or how many similar businesses should be built in a particular area. The power of the government can have direct or indirect influences on the business environment, encouraging or forcing businesses to comply. The federal government has the greatest effect over the macroeconomic business environment through the making of policies. The government has a number of economic objectives. They aim to have consistent economic growth, low rates of inflation, a sound international trading situation and low unemployment. To meet these objectives the government must place policies such as fiscal, monetary, trade and income policies. Fiscal policy is the deliberate action of the government to change its levels of income and expenditure, through the annual budget. By budgeting for a deficit or surplus, the government will contract or expand the economy. e.g If the government needed to cut unemployment they would budget for a deficit so more money is injected and less money is taken from the economy by less taxes and higher expenditure raising employment. Monetary policy can also raise the level of economic activity. It controls the availability of money by influencing the level of interest rates. Lowering interest rates encourages people to spend and borrow while higher interest rates encourages people to save and not borrow. By lowering interest rates the government encourages spending thus increasing the level of economic activity. Income policies influence wage outcomes by negotiating with the unions and the employers and putting arguments before the industrial relations commission. Governments can restrain real wages and cause unemployment levels to fall. Trade policies influence the exchange rate and determines the levels of production for Australian industries. Trade policies include tariffs, quotas, embargoes and subsidies, to protect businesses from foreign competition. Trade policies help the economy by encouraging Australians to buy Australian products. The federal governments role in the present business environment is to promote economic growth, keep unemployment at a minimum, and protect businesses from foreign competition, by creating policies. f:\12000 essays\business & economics (632)\Direct marketing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Direct marketing Mail Order has prospered for decades and it still continues to prosper even during the Internet revolution. You still receive sales letters in the mail. You still see ads through magazines you are reading. If you will open your eyes you will see that the "Death" of mail order has been greatly exaggerated. It is still alive and well on planet earth. Mail order has withstood the test of time. Although, everything isn't profitable to sell by mail. You will see many people online who are trying to sell products that could have never made it through a mail order approach. The sales letter is too poor and the concept behind the product just won't fly. Many of them are trying to sell products, which can be picked up at any local store. These types of web sites would never have stood a chance if they tried mail order. The expenses that went along with it would absolutely destroy their business - the postage, the ad costs, the fulfillment, the order lines, etc. The reason they have never realized that they have picked such a hard product to sell is the fact that they have never compared it to a mail order approach. Through the Internet and the free advertising available online, they are able to make money from even the most difficult products and the worst sales letters. Even though they are making some sales through free advertising online, what they don't realize is that their time could be used much more productively by selling the "right" product to the "right" market. Companies could be making 10 to100 times as much money by putting forth the exact same amount of effort if they had applied a few mail order ideas to their Internet business. How does a mail order business choose the right product? The first test they put it through is that it must not be available reliably locally. It shouldn't be something people can run down to the store and pick up. It should be something unique or something that can presented in a unique way (if it is available locally). The second test they put it through is that it must be easy to target the best potential prospects and buyers. People do not start mail order businesses and try to sell to everyone. The product needs to be something that appeals to a specific niche market. Successful mail order and direct mail businesses target their market like a sharp shooter. Mail order initiativeswould not work if your going through the phone book and trying to send a letter to everyone listed. You must seek mailing list managers who can help them find specific lists of people who: · Have Money. · Bought a Similar Product by mail. · Spent The Same Amount or More. · Did all of the above recently. Mail order goes after buyers of similar products. In other words, most successful mail order companies or initiatives don't create a product and try to find people to buy it. They find people who want to buy something. Then, they create something to sell them. Most Internet marketers have the process backwards. Creating a product and then trying to find people to buy it is the hard way. Use a Proven Sales Process: Too many people have jumped on the Internet bandwagon and have led us to believe that anything goes online. People have been selling products and services by mail for decades now, and every single one of them has something to teach you about creating a successful sales process. Some will teach you what to do. Some will teach you what not to do. The same rules, which have applied to mail order advertising, apply to Internet advertising. For example: 1. Mail order advertisers have told us for years, "The more you tell, the more you sell." Yet, Internet advertisers have tried to tell us differently. They have said people won't read long copy online. They have said people are too educated to be convinced by a sales letter. They have said that you don't even want to use a sales letter on your site. Guess what? THEY are wrong. The mail order advertisers had it right...after decades of testing their hypothesis again and again. People will read long copy. People just won't read boring copy. If your sales letter educates the customer and tells them more than the competition, then you will make sales online. Good effective ad copy still works today just as it always has. 2. Mail order advertisers have told us to use a headline on every sales letter. Yet, Internet "experts" have forgotten to tell us to use headlines on all of our web pages. No mail order marketer would even consider sending out a letter without a headline. So, why would you even consider having a single web page without a headline? Mail order advertisers have also taught us an easy method of increasing our response rates by an immediate 27%. All you have to do is put quotation marks around your headline and your response rate will immediately go up, because people believe the quotation marks show that you are saying something extremely important. 3. Mail order advertisers have told us to write our sales letters like we are writing them to our best friends. Internet "experts" have told us to present a more professional appearance. Sales letters, which have been proven to work time and time again, are those, which are written, in a friendly tone. They use underlining to emphasize key points, shorts words, short sentences, and a personal signature in blue coloring at the bottom. This same process of writing winning sales letters still works online. You don't want your visitors to think of you as a big corporation. You want them to get to know you personally and to bond with you. Then, once they know you, they will buy from you. Keep Detailed Records Of Everything. A successful mail order business is always testing everything that they do. Nothing is set in stone until it has been proven in the marketplace. They track how much they spend for ads, how many people respond, and how many of the responders actually purchase their products or services. Every new ad will be tracked in the exact same way. If they don't keep the records and haven't done their math, they won't be in business for long. Just because much of Internet advertising is currently free does not give you any excuse for not tracking even more specifically. Develop a Control and Keep Testing It. When you hear mail order advertisers talk, they always speak of a control piece. This is a scientific word, which refers to the sales piece, which has already been proven to sell. The goal of every mail order business is to continually test this control document and try to outsell it with another piece. Then, once they find a piece, which has been proven to outsell the first one, they will replace it as the new control. Then, the process of competition between the pieces begins again. Do you have a control web site for your product? Have you tested a web site again and again to prove whether it is effective at selling your products or services? If not, then as soon as you are finished reading this manual the first time, start testing your piece. Once you have a site that is making sales, then it is time to create a mirror page where you make some minor changes such as a new headline, a different picture, a different price, etc. Then, test that new page in the same type of medium as the first page. Compare the results. Then, test some other sites. You should never be completely finished in testing your selling process. There is almost always a way to make it sell a little bit better. Think about the difference in profits if you find out that a certain product sells better with a $10 higher price. What if you sell twice as many by dropping the price 10%? The marketers who are usually talked about as "Genius" are not any such thing. They are just people who have tested every possible method until they eliminated everything that didn't work. All they are left with is the BEST way to sell their products or services. f:\12000 essays\business & economics (632)\Discuss the importance of depreciation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Discuss the importance of depreciation Title: Discuss the importance of depreciation expenses. Depreciation as a concept and in practice plays a very important role in a company's cash flow hence in funding. The reason's are basically two, firstly because depreciation is a way of self finance for an organization and secondly because is a way of decreasing taxes that the government claims as the company doesn't have to pay taxes on depreciation which consequently enlarges the cash flow of the company. As a term depreciation in accounting is the process of allocating the cost of a capital asset over the period of its useful life. Depreciation takes into account the decrease in the service potential of capital assets invested in a business venture, resulting from such causes as physical wear and tear in ordinary use, deterioration by natural elements or obsolescence caused by technological changes. Basically depreciation is a loss in value or a diminishment in market price of a good always taking the time factor into account. Depreciation is a rate of change in value in an asset fixed or current compared to the present value of that asset. For example if a company purchases machinery for the production of a certain product the management must take under consideration the equipment's life cycle, meaning that this machinery has a certain period of time in which it can contribute to the production before it becomes useless. Useless in a sense of a newer machine will be invented in some years which will be probably faster or more capable to produce better quality. The time factor of course always varies depending on the asset. For example the usefulness of a computer may be three years before it needs replacing, as for a building may be fifty years. A Mercedes van for instance in year 2000 could be purchased at the value of 13 million drachmas and its productive life span before it needs to be replaced will probably be 8 years. After the 8 years the van purchased would cease from being of any productive use to the company and if it needs to be resoled its market value would have depreciated drastically due to the time fade from the initial purchase. Its devaluation is its year zero value less an annual percentage of the devaluation process updated annually. But depreciation doesn't apply only to current assets but also is applicable to fixed assets as well. Buildings are losing their value too taking the time scale factor under consideration again. If a new building in year 1980 was valued 100 million drachmas as a newly built structure its value by the year 2030 will be definitely decreased by the depreciation rate estimated. The most widely used method to calculate depreciation is the so called straight line method, in which the rate of depreciation is constant for the entire working life of the capital assets. Thus, if a machine cost 1 million 100 thousand drachmas and is assumed to have a 10 year useful life and a scrap value of 100 thousand drachmas at the end of 10 years, the amount of annual depreciation would be 100 thousand drachmas and the annual depreciation rate 10 per cent. Which is the annual depreciation divided by cost minus scrap value. Because depreciation is subtracted from the assets of a financial statement it is not a subject to taxation therefore the company has automatically achieved a higher cash flow status by depreciating its assets, the worth of its capital value. This can be visible from the following cash flow calculation. CASH FLOW CALCULATION Depreciation Depreciation No Accounting basis Cash basis depreciat. Sales 2400 2400 2400 Cost of goods Sold. 1600 1600 1600 800 800 800 Cash fixed Expenses 300 300 300 500 500 500 Depreciation 200 200 0 300 300 500 Federal income Taxes. (40%) 120 120 200 Earnings 180 380 300 + Depreciation 200 0 0 Cash flow 380 380 300 In the first and second row because depreciation is included the cash and accounting sum of depreciation is not taxed this leaves the company with more cash flow compared to the third column of the calculation sheet where depreciation is not included. With this form of saving the company is capable of having greater financial flexibility in the industry is involved in and also it ensures the replacement of the necessary current and fixed assets needed for its production purposes. One of the most effective ways for a company to be financed this days is by self financing and since depreciation offer this capability and is a retained cash for future asset replacement it is a form of self financing. Bibliography Internet: http:// www.aarf.asn.au www.hmco.com/college/accounting/ www.tax.org Books: "Depreciation and wasting assets and their treatment in assessing annual profit and loss" 1976 Percy. D. Leake. "Depreciation and investment credit manual" 1986 Martin. E. Holbrook. Manoussakis Emmanouil f:\12000 essays\business & economics (632)\Discussion of Internal Comtrols that are placed in an Account.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal and external controls for the system. The internal controls are the checks that are placed in the system my the company's own management and directors. Today more and more companies are moving from the manual accounting systems to computerized accounting information systems. The advantages of a computerized system are increases in the speed and accuracy of processing accounting information. However, as systems become computerized, the internal controls for that system has to be adapted accordingly. This is because computerized systems bring with them certain unique problems that can only be removed or minimized by adapting the present controls and adding new controls. These problems are · In a manual system there is a paper trail for the internal auditor to follow. All records and transactions are kept on paper and so an auditor has clear and documented proof of what has transpired. Computerized systems rarely have a clear paper trail to follow. Since computers do all of the sorting of the information the company rarely sorts the source documents. Also the computer does most of the calculations and processing so there would not be the amount of documentation that there would be in a manual system. · Another problem of computer systems is the fact that there can be difficulty in determining who entered the data. In a manual system the identity of the person entering the data can be identified possibly by the person's handwriting. This cannot be done in a computerized system. This makes it very difficult to determine who is responsible for errors or fraud. · Since the computers do all calculations and processing errors can occur due to bad design of the program. This can be difficult to detect especially if the error does not occur frequently and only does so under particular conditions. · Computer systems also offer new opportunities for fraud. If a computerized system is not set up properly and certain checks not put in then the computer system can be used to defraud the company. The fact that it is difficult to trace who enters the data only adds to the magnitude of this. In order to minimize the risks of errors or fraud occurring in the computer system certain controls have to be put into place. These controls can be broken up into three different categories. They are 1. Administrative Controls 2. Systems Development Controls 3. Procedural Controls Administrative Controls Administrative controls are those controls are those controls that are placed on the system to ensure the proper organization and processing of data. These administrative controls are Division of duties. Duties are assigned to different individuals in the organization. This is done in such a way that no one person can have full control over a transaction. This ensures that an individual cannot have full control over the creation and operating of the system. One reason for this division is having one person controlling the system can result in fraud if that person is not completely trustworthy. Another reason for the division of duties is to prevent the organization from becoming totally dependent on the person controlling the computer system. If this person were to leave then the organization would have no one to run the system. The division of duties ensures that employees can leave without having any major effect on the system. Operation Controls Operation controls are necessary controls since they since they determine what the computer systems and the employees using the system have been doing. These controls can come in the form of · rotation of shifts · duty logs · a manual of operating instructions · attendance controls · computer logs These controls can allow an auditor to track the exact actions of the computer systems and employees. This documentation allows the to easily spot any errors or improper actions that have occurred. Files Controls These controls are put in place to minimize the number of errors and omission that occur in the file system. Good file controls are · Availability of a skilled technician · Proper procedures for issuing and returning files · proper labeling and indexing of files · protection of storage media from dust, humidity, fire etc. · Procedures for returning files for certain minimum periods · Facilities for recovering files that have been damaged or corrupted. · Facilities for creating backup copies of files. The placement of these controls have very serious implications. These controls that information that is vital to the organization is safe. The data in these files must be protected from errors or tampering whether intentional or accidental. Hardware Security The computer hardware is not only important to the processing of the information but is also a valuable fixed asset for the company. Therefore controls for the protection of the hardware must be put into place. Computer hardware must be placed in a secure area where the access to it is limited only to those who need to use it. Certain levels of security must me maintained e.g. only the systems administrator can have access to the CPU and storage systems. The computer system must also be placed in a control environment to protect it from environmental hazards e.g. dust and humidity. Arrangements should be made to protect the computer against fires and power fluctuations. There should also be some controls in place to recover the system in case the hardware fails. These controls would ensure that the breakdown of the hardware would not have a serious effect on the company. Systems Development controls These are the controls that are put over the design and implementation of the system. These controls ensure that the system is developed with a minimum number of errors. Standardization One important control is standardization. These consist of various standards that are laid down by management for the design and development of the system. These standards include the complete documentation of the development of the system. These standards would not only benefit in the correcting of problems and updating of the system, the documentation would allow the auditor to get a better idea of how the system works. This would help the auditor in spotting possible problems in the system. Involvement of Management The involvement of the organizations management in the development of the system is an important control. With these controls, management must have documentation such as feasibility studies, budgets and performance evaluations. These documents would allow management to decide if the system being developed would be viable and cost effective. Without such controls, expensive projects can be started and never finished, costing the organization a great deal in time and money. These managerial controls force the development team to do a thorough job since they are accountable to management.. Testing Testing and trials are important controls and require that systems are thoroughly tested before they become operational. The extensive testing of programs will minimize or even eliminate the errors in the computer system. The tests will show exactly what type of problems occur in the system in the processing of certain data and would also indicate any problems in the response time of the systems. Also, the benchmarks that are calculated in testing can be compared with benchmarks taken later on to see if the program has been tampered with. Training The training of the data processing staff is a very important control. Proper training of staff would reduce the number of errors that would occur in the system due to inadequate knowledge of the system. The trained staff would be less likely to make mistakes. Concurrent Running of old and new systems. Running the old and new systems concurrently is also an important control. This control would allow the organization to compare the results of the two systems when they do different tasks. These results would allow them to find any problems in the new system by validating the results of the new system with the results of the old one Procedural Controls. Procedural controls are one of the most important set of controls as they are the ones that are placed on the day to day running of the system. Procedural controls are particularly effective in detecting whether a system has been tampered with and so are effective in detecting fraud. Procedural controls are divided into those controls placed on input, output, processing and storage. Input Controls These are procedural controls that are placed on the input of data into the system. These controls are · Serial numbering of documents · Validation checks on documents · Batching documents and checking of batch totals · authorization procedures These controls are carried out by the user department. The Data processing depart also then gets the data and put carry out their own controls. These are · Vetting of batches to ensure that they are correct · checks on data conversion methods These checks are made so that the data that is entered is as accurate and as error free as possible. Processing Controls Once that data has been entered into the system and is being processed, the processing controls are used to ensure that the data is processed properly. Processing controls are divided into two categories. These are 1. Validation tests 2. File checks The validation checks are made on the data when it is being processed. These checks ensure that the data is processed correctly. Validation checks include · Check digit verification · Checks in the size of file and records · check on mode of the file · Check on consistency of fields in files · Range tests on numbers and values · Hash totals · Control record checks · Sequence checks to ensure that records are entered in the right order · Error logs which contain a record of all errors that have occurred during the processing of the data. · Transaction logs which contain a record of each transaction that has been made. This provides an audit trail for the auditor. The transaction log would contain where a particular transaction originated and who initiated it. File checks are the controls to ensure that the integrity of the files that hold the data for the organization remain intact during processing. Some file checks are · Use of header tables to identify files · Use of trailer labels to ensure that the record is completely read. · Arithmetic proof of the validation of certain fields by checking them with other fields in the record Output controls The outputting of processed data also has certain controls. These output controls are used to ensure the completeness, accuracy and timeliness of the output on screen, printed form as well as on storage media. Some output control procedures are · Initial screening of the output to detect obvious errors · Output should only be distributed by authorized persons to authorized persons. · Controls totals on the output should be checked against the control totals of the input to ensure the consistency of data. · All the documents produced should be numbered and accounted for · Highly sensitive materials should not be seen by the general data processing staff but should be outputted to a secure location. · A feedback system must be developed between the users and the data processing department so that any errors that occur would be reported and subsequently corrected. Storage Controls When data is stored additional controls must be put into place to ensure that the data is stored properly and that the data is to tampered with in any way. These controls ensure that no unauthorized persons would be able to tamper with or destroy the data whether it be intentionally or deliberately. Some of these controls are · Authorization controls to ensure that only authorized personnel is allowed to make amendments and deletions to the files. · Controls to ensure that amendments and deletions are to be thoroughly documented so that the person who made the amendments can be made accountable for the changes they made. · Controls to ensure that there are proper facilities for the backup of files. These include ensuring that files are backed up regularly, multiple backup files are kept and that these files are kept at a secure location and are easily retrievable in case of an emergency. · Controls that would ensure that the data can be recovered in case of disaster. This includes transaction logs of complete system dumps which will make periodic backups of all the transactions that occur within the system. Computerized accounting systems bring with then a set of new and unique problems. The internal controls that have been put into place for a manual system to help the internal auditor cannot fully prevent or minimize the possibility of errors or fraud that come with the computerized systems. Therefore the old controls must be modified for the new system and new controls must be put in. Only then can the internal auditor ensure that the number of errors that occur within the system be minimized or even eliminated.. Bibliography Basset P.H. (1993) Computerised accounts, 3rd Edition, Manchester : NCC Blackwell. 1-85554-205-6. Grudinsku G., Burch J., (1989), Information Systems Theory and Practice, 5th Edition, John Wiley and Sons, Inc. 0-471-61293-6. f:\12000 essays\business & economics (632)\Dissertation Outline.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Dissertation Outline Introduction Chapter 1: Drama criticism, Cather and the rise of celebrity culture Chapter 2: McClure's, Muckracking, and celebrity journalism Chapter 3: Cather's early reputation building: how Cather constructed herself as a regionalist; infuse it with a close reading of Song of the Lark, Cather's response to celebrity culture ? Sue's suggestion about a chapter that turns the frame of celebrity to Nebraska. Chapter 4: Cather & the Problem of Celebrity: possibly a two part chapter? Part one concentrate on Cather's Pulitzer Prize-look at the rise of young male authors (in response to Hemingway's comments) Part two concentrates on Cather & the movies. Chapter 5: Cather and Photography Chapter 6: Look at the last years of Cather's life. Biographers and critics have often constructed this as a time when Cather resisted celebrity culture and secluded herself. This chapter re-examines this time, especially since Cather was still producing new work up until the time of her death-allowing, for example, a spread of SSG in The Book of the Month Club catalog. How did Cather manage her public career during this period, etc. Conclusion f:\12000 essays\business & economics (632)\Domestic Violence 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Domestic Violence By: Kris Hudson Each day, the statistics on domestic violence get more and more horrifying. A woman is beaten every 15 seconds, 22 to 35 percent of emergency room visits from women are because of ongoing partner abuse, 1 in 4 pregnant women have a history of partner violence, and 63 percent of young men between the ages of 11 and 20 are in jail for murdering their mothers abuser. Also domestic violence is the leading cause of injuries to women between 15 and 44. All these statistics prove that domestic violence is a big problem in our country. Battering in a relationship is the establishment of control and fear through violence and other forms of abuse. The batterer will use acts of violence and goes through a series of behaviors, including intimidation, threats, psychological abuse, isolation, etc. to control the other person. The violence in the relationship may not happen often but it remains a hidden and terrorizing factor. There are many people among us that are battered or have been battered. This problem is very sensitive and embarrassing. Some indicators that a woman is being abused are: · the woman mentions not being able to use the phone she cannot see friend unless her significant other is around · her significant other will not let her drive, get a job, or go to school · look for low self-esteem like she is unable to make eye contact or she always looks away or at the ground when talking Some indicators that a male child is being abused are: · serious problems with temper tantrums · continual fighting at school or between siblings · treating pets cruelly or abusively · attempting to get attention by hitting, kicking, or choking with female children: · withdrawal (not obvious) · cringing if you raise your arm Batterings in the home usually don't start out with abuse. The spouse will use verbal abuse, hit objects, throw objects, break objects, and making threats. When these actions start, in almost 100 percent of the cases, the significant other resorts to battering. After the woman gets sick of the battering and decides to leave he will almost definitely try to get her back. There are five different ways he will try to get the woman back. One way is for him to bribe the woman into coming back, this is known as the honeymoon syndrome. The superdad syndrome is used when kids are involved and he has neglected them in the past. He will tell her that he will be a great dad if she returns. Another is known as the revival syndrome he will say that he has been to church every Sunday since the woman left and say that he has accepted god into his life. Next is the sobriety syndrome, the woman will think if he stops drinking he will stop beating me. The last is counseling syndrome, he will say he has been to counseling and will not beat her anymore when about one percent actually go to counseling. What all this means is that we have a big problem on our hands that needs to be addressed and taken care of immediately. This cannot go on any longer unnoticed. f:\12000 essays\business & economics (632)\Domestic Violence.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Domestic Violence By: Kris Hudson Each day, the statistics on domestic violence get more and more horrifying. A woman is beaten every 15 seconds, 22 to 35 percent of emergency room visits from women are because of ongoing partner abuse, 1 in 4 pregnant women have a history of partner violence, and 63 percent of young men between the ages of 11 and 20 are in jail for murdering their mothers abuser. Also domestic violence is the leading cause of injuries to women between 15 and 44. All these statistics prove that domestic violence is a big problem in our country. Battering in a relationship is the establishment of control and fear through violence and other forms of abuse. The batterer will use acts of violence and goes through a series of behaviors, including intimidation, threats, psychological abuse, isolation, etc. to control the other person. The violence in the relationship may not happen often but it remains a hidden and terrorizing factor. There are many people among us that are battered or have been battered. This problem is very sensitive and embarrassing. Some indicators that a woman is being abused are: · the woman mentions not being able to use the phone she cannot see friend unless her significant other is around · her significant other will not let her drive, get a job, or go to school · look for low self-esteem like she is unable to make eye contact or she always looks away or at the ground when talking Some indicators that a male child is being abused are: · serious problems with temper tantrums · continual fighting at school or between siblings · treating pets cruelly or abusively · attempting to get attention by hitting, kicking, or choking with female children: · withdrawal (not obvious) · cringing if you raise your arm Batterings in the home usually don't start out with abuse. The spouse will use verbal abuse, hit objects, throw objects, break objects, and making threats. When these actions start, in almost 100 percent of the cases, the significant other resorts to battering. After the woman gets sick of the battering and decides to leave he will almost definitely try to get her back. There are five different ways he will try to get the woman back. One way is for him to bribe the woman into coming back, this is known as the honeymoon syndrome. The superdad syndrome is used when kids are involved and he has neglected them in the past. He will tell her that he will be a great dad if she returns. Another is known as the revival syndrome he will say that he has been to church every Sunday since the woman left and say that he has accepted god into his life. Next is the sobriety syndrome, the woman will think if he stops drinking he will stop beating me. The last is counseling syndrome, he will say he has been to counseling and will not beat her anymore when about one percent actually go to counseling. What all this means is that we have a big problem on our hands that needs to be addressed and taken care of immediately. This cannot go on any longer unnoticed. f:\12000 essays\business & economics (632)\Downsizing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Downsizing According to a 1997 survey by the American Management Association (AMA), the most often claimed reasons for downsizing are "organizational restructuring," "business downturn," and "reengineering of business processes." Downsizing has adversely affected 43 million jobs since 1980. Many organizations are realizing that downsizing may not be the best solution for reducing costs. The time and money it takes to train employees often make downsizing a wasteful procedure. By changing their business strategy, companies can find ways to maintain their workforce. Many organizations are now looking for alternatives to downsizing that allow them to save their employees, which are now seen as large assets. Downsizing of staff is often undertaken when an organization needs to quickly improve its profits. A company under siege (or claiming to be) takes a look at its largest expense typically payroll and benefits and starts slashing. Many accounts exist that depict the sad consequences of worker displacement: the breakup of families, the loss of homes, and the blow to self-esteem from which the downsized never recover. Some researchers go so far as to describe the downsized worker as clinically traumatized, comparing the experience of downsizing as "similar to that of other trauma: death, combat, abuse, violence, natural catastrophe, crime, chemical dependence...disease and terrorism" (Bumbaugh 30). The most well-known of these is a seven-part series published by The New York Times entitled "The Downsizing of America." This series of articles (since enlarged and published as a book with the same title) was the largest set of related articles printed by the paper since it covered the Watergate scandal. Some proponents of downsizing claim that the media has distorted the statistics on the number of people downsized, their fate and the impact on their former workplaces. The New York Times series has especially been attacked for too freely extrapolating statistics. There is no doubt that downsizing reeks havoc in the lives of those who lose their jobs, but critics claim that downsized workers find employment fairly quickly, and point to the statistics that show that jobs have been created at record numbers throughout the 1990's''. Record numbers of jobs have been created, but U.S. Labor Department figures "show that now only about 35% of laid-off full-time workers end up in equally remunerative or better paid jobs" (Uchitelle 3). Downsizing does indeed increase profits for the organization that undertakes it, but these profits are short-lived. A survey by Wyatt Associates of Canadian downsized businesses found "40% reported that downsizing did not result in reduced expenses and more than 60% did not experience higher profits after cutting staff" (Estok 28). These and other studies show that at least half of all eliminated positions are refilled within a year after a major downsizing effort. One of our group members was the victim of downsizing, or what the company called a "re-structuring" effort. Being a single mother of a pre-school child, this was very difficult to handle. The fate of her child's life was left unknown. Fortunately, the company announced this downsizing effort six months in advance, giving her the opportunity to search for another position. At the time she lacked higher education and could not find a job that would pay as well as her previous one. Looking for an answer, she made the conscious decision to better her and her daughter's lives by continuing her education. Looking back on it now, she is thankful that she was given the opportunity to go back to college. Unfortunately, many people don't have this opportunity and must take whatever job they can find. The negative effects of the remaining employees can be almost as serious as that of the victims. Many of these employees, still holding a position within a downsized company, have a constant fear of losing their job next. The morale will tend to tail off and an "I don't care" attitude will often set in. Remaining employees may have a hard time concentrating on their work because of emotional distress. This can cause a lower performance, which may threaten productivity. Successful planning and innovating for the future require staff that is well-trained, willing to take risks, physically healthy, and committed to an organization. Downsizing, time after time, leads to exactly the opposite result. Organizations that think of and treat their employees as assets rather than liabilities can retain their staff, retrain them if necessary, and keep productivity up. Creativity and true strategic planning that includes close attention to capital costs and increased revenue generation can enable most organizations to avoid the quick fix of downsizing. Downsizing drains an organization of the talent and loyalty of its workforce - its most precious resource for growth and innovation. "Whoever retains organizational memory has a priceless asset. The people who know what make an organization perform maximally are assets not costs to be reduced" (Piturro 37). In many cases, employers lose money when they eliminate employees. Evan Schnade, representative of Patagonia, says employees are an investment. It takes a long time before an employee is fully trained. At Patagonia, Schnade notes that it usually takes up to a year before an employee becomes productive. After such a long and costly investment Patagonia needs to hold on to its employees. To do anything else would be bad business. Management should adopt an intelligent approach and understand the repercussions that might entail the downsizing. "Instead of adopting downsizing as a short-term plan for ineffectual performance, it would be better to adopt a long-term solution to improve the bottom line. One could look at the alternatives to gain cost savings within the organization. "Introducing new products, entering new markets, and cutting costs elsewhere within the company, are some of the many alternate ways that are worth considering" (Rayburn 49). These can produce the desired outcome without jeopardizing the employees' jobs. Showing employees that they are assets to the company can ultimately optimize their attitude, performance and productivity. They need to know the work they do is important and beneficial to the whole scheme of things. Unfortunately, In the modern competitive business scenario, many companies are pressured to make a quick decision to reduce costs and improve the bottom line. Although this is the case, there are some important questions that need to be asked before blindly falling into the downsizing trap. Taking the time to ask these questions can save a lot of trouble in the future. "Some of the questions that need to be considered to avoid any miscalculations that might have a negative backlash are as follows: · What mix of skills do we need today? · What skills are we likely to need in the future? · Do we have the right number of people employed today? · How will these numbers change in the future? · How do our staffing costs compare to others in our type of business? These are difficult but essential questions to consider when making hasty decisions that could have a disturbing foreboding. Research shows that downsizing is a risky gamble, with less than half of companies seeing improvements in productivity" (Maurer 12). There is usually a need for a business plan change and calculated risk strategies before jumping to what most people think is the obvious way to cut costs. There is an array of alternatives to downsizing that a human resources department can exercise in times of pressure to save money. Many of the alternatives rest on two important pillars, the share pain and long-term linked vision. "Share the pain deals with an extent of adopting painstaking measures on even terms among the high brass as well as the commoner working in the company without granting immunity to anyone" (Maurer 12). "Long term staffing alternatives include hiring linked to vision, cross training, succession planning, redeployment within the organization, creating value-added and revenue-enhancing opportunities, a comprehensive model, reduced hours, lower wages, attrition, alternative placement, leave of absence, employee buy-outs, and shared ownership" (Maurer 13). A brief synopsis explaining the virtues and liabilities of the mentioned alternatives is listed henceforth: · Redeployment within the organization/Alternative placement: Job opportunities should be ascertained within a company to accommodate people as and when a vacancy emanates. Lincoln Electric Holdings is a manufacturer of arc-welding products based in Cleveland, OH. In 1992 they were faced with losses after expanding in to Latin America, Russia, Europe, and Asia. Despite this, Lincoln Electric avoided firing employees. They redeployed 54 factory workers into sales people. These sales people earned a total of $10 million in sales their first year, which helped Lincoln Electric pull out of their decline. Roy Morrow, the director of corporate relations, knows that this company's employees are valuable. According to Morrow, Lincoln Electric loses $100,000 every time they replace an employee. At that kind of cost it's foolish to lose employees unnecessarily. · Outplacing: Organizations find employment opportunities for their workers with other corporations. Rhino Foods exercised this method to save the employment of their workers. Rhino Foods, a small company of only sixty employees, faced operational inefficiencies, and a drop in orders during 1994. The small size of the company created an intimate feel among the employees. Searching for a way to cut losses without firing people, Rhino Foods "lent" about a dozen workers to their biggest customer, Ben and Jerry's Ice Cream. The workers retained their Rhino benefits and seniority, learned new skills while gaining a better understanding of the customer, and some employees even earned a higher salary. Two years later Rhino Foods, now recovered from their losses, recalled the employees. · The Great Game of Business: Empowers employees by giving them a stake in the company and allowing them access to financial and other pertinent information. This system is employed by: creating financials, setting up incentive programs that will reward their performance, learning to forecast financial results, learning what drives financial results, communicating progress with each other and sharing the rewards of good performance. The inventors of this method, Springfield Remanufacturing (SRC) in Springfield, Missouri proved that it works. The employees of SRC have stock ownership. Each year their stock increases in value based on the productivity of the company. As a result the employees put a lot into their work. When faced with a large order cancellation, layoffs seemed eminent. Management responded by putting the jobs in the hands of the employees. The employees were informed of the cancellation, and given the financial information about what and how productivity needed to happen. In each area of the company there was a computer, accessible by any employee, in which any financial information regarding the company was available. The employees had the numbers and everyday they were challenged to beat them. By teaching the employees to act, and think like owners, and measure success in the same way the financial world does, SRC allowed workers to save their own jobs as well as increase the value of their company. · Hiring linked to vision: It refers to the idea that a company identifies the potential present and future market needs and tries to recruit skilled personnel to meet demands and goals of the company rather than having surplus manpower · Cross training: This helps employees to expand their working potential and allows them to diversify and venture into other specialized fields related to their work by internal retraining. This has special importance due to the ever-changing technological advances. · Succession planning: It has a special relevance in respect to the needs and positions vacant in the upper hierarchy within the company. Instead of hiring outside the organization or making a compromise by promoting an undeserving candidate to fill the brass, continuous effort should be made to train people in the junior positions to fill their vacancies. · Creating value added and revenue enhancing opportunities: A company can expand its business and create new jobs by incorporating and implementing new range of products and services created by people within the organization. · A comprehensive Model: A company shares its profit/loss with the employees working within. Better productivity and profits leads to better compensation while losses are shared proportionately. · Reduced hours: Total working hours is reduced throughout the company during tough times, depending on the market requirements. · Lower wages: Wages are reduced proportionately within a company instead of downsizing during a downturn in a market. This is a temporary phase where everyone participates and bears the brunt according to their status within a company. · Attrition: Schemes like voluntary retirement can be encouraged within a company and the positions vacant can be left that way to increase profits instead of downsizing. · Leave of Absence: Employees can be offered leave of absence with full benefits during the crunch time. They are promised their jobs back as and when conditions become favorable. · Employee Buy-Outs: Employees are offered to buy a closed down operation, which they could set up there own business. · Shared ownership: Instead of just cutting wages, employees will trade salary cut for company stock. As discussed in chapter 2 of the HRM textbook: Gaining a Competitive Advantage, downsizing as an organizational factor, is a directional strategy. Its intentional use is to gain competitive advantage. The unintentional use of corporate restructuring leads to selection and placement, employee development and training usually within a year of the initial effort. All in all, downsizing achieves its goal in the short-term: it improves an organization's profit line by reducing its biggest expense. Long-term, though, the organization suffers from mass confusion, psychic depression, and lack of key ingredients for growth and leadership: energy, loyalty, creativity, time and teamwork. As organizations downsize, they are bleeding their biggest asset: their workers. As put by Alan downs, author of Corporate Executions, "Like an anorexia of the organization, begin depleting the business of its fat, then it muscle, and finally its brain power." Bibliography American Management Association International (1997). "AMA Survey: Corporate Job Creation, Job Elimination, and Downsizing." 1998 Available: HYPERLINK http://www.amanet.org/survey.htm http://www.amanet.org/survey.htm [1998, Library 16] Bumbaugh, M (1998, February). Moving Beyond Survival After Downsizing. Nursing Management, 29, 30-33. Downs, A (1996, July/August). The Wages of Downsizing. Mother Jones Magazine (1996): Available: http://www.motherjones.com/mother_jonesJA96/downs.html Estok, D. "The High Cost of Dumbsizing." Maclean's 6.3.109 (1996): 28-29. Great Game of business Online. 30 August 1999 http://www.greatgame.com Hawken, P. "Growing a Business." Ambrose Video Publishing vol. 7, New York. Mauer, R "Stop! Downsizing doesn't work!" The Canadian Manager 24.1 (1999): 11-13 Noe, R. A., Hollenbeck, J.R., Gerhart, B., Wright, P.M. Human Resource Management, Gaining a Competitive Advantage. Boston: McGraw Hill Companies Inc., 2000. Piturro, M "Alternatives to Downsizing." Management Review; New York 88 (1999): 37-41 Rayburn, M. and Rayburn, G. "Smart Alternatives to Downsizing." Competitive Reviews 9.2 (1999): 49-57. Uchitelle, L & Kleinfeld, N "The Downsizing America." New York Times 116 pars. 3 Mar 1996. 13 Feb. http://www.nytimes.com/specials/downsize/ f:\12000 essays\business & economics (632)\drinking and driving offences.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1 "DRINKING AND DRIVING OFFENCES" My essay is on "Drinking and Driving Offences". In my essay I will tell you the various kinds of drinking and driving offences, the penalties, and the defences you can make if you are caught drinking and driving. Let me tell you about the different offences. There are six offences in drinking and driving. They are "driving while impaired", "Having care and control of a vehicle while impaired", "Driving while exceeding 80 m.g.", "Having care and control of a vehicle while exceeding 80 m.g.", "Refusing to give a breath sample", and "refusing to submit to a roadside screen test. These are all Criminal Code Offences. Now lets talk about the penalties of drinking and driving. The sentence for "refusing to give a breath sample" is usually higher than either of the "exceeding 80 m.g." offences. Consequently it is usually easier in the long run for you to give a breath sample if asked. If, for example you are convicted of "Refusing ato give a breath sample" for the first time, but was earlier convicted of "Driving while impaired", your conviction for "Refusing" will count as a second conviction, not a first, and will receive the stiffer penalty for second offences. For the first offence here is the penalty and the defences you can make. Driving a vehicle while your ability to drive is impaired by alcohol or drugs is one of the offences. Evidence of your condition can be used to convict you. This can include evidence of your general conduct, speech, ability to walk a straight line or pick up objects. The penalty of the first offences is a fine of $50.00 to $2000.00 and/or imprisonment of up to six months, and automatic suspension of licence for 3 months. The second offence penalty is imprisonment for 14 days to 1 year and automatic suspen- sion of licence for 6 months. The third offence penalty is imprisonment 2 for 3 months to 2 years (or more) and automatic suspension of licence for six months. These penalties are the same for the following offences. "Having Care and Control of a Motor Vehicle while Impaired" is another offence. Having care and control of a vehicle does not require that you be driving it. Occupying the driver's seat, even if you did not have the keys, is sufficient. Walking towards the car with the keys could be suffi- cient. Some defences are you were not impaired, or you did not have care and control because you were not in the driver's seat, did not have the keys, etc. It is not a defence that you registered below 80 m.g. on the breath- ayzer test. Having care and control depends on all circumstances. "Driving While Exceeding 80 m.g. is the next offence. Driving a vehicle, having consumed alcohol in such a quantity that the proportion of alcohol in your blood exceeds 80 miligrams of alcohol in 100 mililitres of blood. Some defences are the test was administered improperly, or the breathalyzer machine was not functioning properly. "Having Care and control of a Motor Vehicle while Exceeding 80 m.g." is the next offence I will talk about. This offence means having care and control of a vehicle whether it is in motion or not, having consumed alcohol in such a quantity that the proportion of alcohol in your blood exceeds 80 miligrams of alcohol in 100 mililitres of blood. The defences are the test was administered improperly, or the breathalyzer machine was not functioning properly. To defend against breathalyzer evidence you must understand how the test should be administered. The proper procedure for a breathalyzer test is as follows. Warming up the machine until the thermometer registers 50 degrees centigrade. This should take at least 10 minutes. The machine should then be turned to zero (by using the "adjust zero control") and a comparison ampoulel (of normal air) inserted. if the metre remains at zero, the test can proceed. An ampoule with a standard solution is then inserted. 3 If the metre reads high or low by more than .02% on two successive tests, the machine should not be used. If the trial is valid, the machine should be flushed with room air and the pointer set at start. You will then be asked to provide two breath samples, about fifteen minutes apart. Normally they will take the result of the lowest result and use it as evidence against you. "Refusing to Give a Breath Sample" means refusing without a reasonable excuse to give a sample or refusing without a reasonable excuse to accompany a polic officer, when demanded by the police officer. Before demanding by the police officer, he must have reasonable and probable grounds to believe that you are committing or at any time in the preceeding two hours have committed, one of the offences of driving or having care and control of a vehicle while impaired or while having a blood alcohol level in excess of 80 m.g. You can refuse to give a breath sample until you have communicated in private with your lawyer even if this takes you beyond the two hour period, unless it is shown that your request for a lawyer was not genuine and merely to delay the testing. The test can be done after the two hour period, but a technician must testify in court as to what your blood alcohol would have been in the two hour period. You cannot refuse to accom- pany the officer until you see your lawyer. You can argue that the officer didn't have reasonable and probable grounds to suspect you, but this however depends on the circumstances. "Refusing to submit to a Roadside Screening Test" is the last offence. When you commit this offence you are refusing without reasonable excuse to give a breath sample for a roadside screening device, or refusing without reasonable excuse to accompany a police officer for the purposes of giving such a sample, when demanded by an officer. Before the officer demands a breathalyzer he must reasonably suspect that you have alcohol in your blood. 4 The maximum penalties for impaired driving causing bodily harm to someone is up to 10 years in prison and up to a 10 year prohabition from driving. The maximum penalties for impaired driving causing death is up to 14 years and a 10 year prohabition from driving. The maximum penalty for manslaughter and criminal negligence causing death is up to life in prison and up to a lifetime prohabition from driving. I think that these penalties for all the drinking and driving offences are very appropriate, but I think impaired driving causing death should be a lifetime imprisonment. Also if a person is impaired and causes bodily harm to some one they should have their licence suspended from him for 20 years instead of 10 years. BIBLIOGRAPHY Highway Traffic Law, (Copyright January 1986: Community Legal Education Ontario) p.17-32 Government Document, Canada Law Reform Commision Report on Investigative Tests: Aclohol, Drugs, and Driving Offences (1983). Erwin,Richard E. M.Bender ,Defence of Drunk Driving Cases, Criminal Civil (Albany 1986) p.79-81 Purich, Donald John, Drinking and Driving:What To Do If Your Caught (International Self Counsel Pr. 1978) p.22-25 Verticle File at Hill Crest Library, Drinking and Driving-Offences ands penalties:A Summary (1988) p.2 Verticle File at Hill Crest Liabrary, Criminal Code-Part 6 (1989), section 3, section 11. Verticle File at Hill Crest Library, HighWay Trafic (1989), section 26 f:\12000 essays\business & economics (632)\Drinking and Driving Offenses.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Drinking and Driving Offenses My essay is on "Drinking and Driving Offenses". In my essay I will tell you the various kinds of drinking and driving offenses, the penalties, and the defences you can make if you are caught drinking and driving. Let me tell you about the different offenses. There are six offenses in drinking and driving. They are "driving while impaired", "Having care and control of a vehicle while impaired", "Driving while exceeding 80 m.g.", "Having care and control of a vehicle while exceeding 80 m.g.", "Refusing to give a breath sample", and "refusing to submit to a roadside screen test. These are all Criminal Code offenses. Now lets talk about the penalties of drinking and driving. The sentence for "refusing to give a breath sample" is usually higher than either of the "exceeding 80 m.g." offenses. Consequently it is usually easier in the long run for you to give a breath sample if asked. If, for example you are convicted of "Refusing to give a breath sample" for the first time, but was earlier convicted of "Driving while impaired", your conviction for "Refusing" will count as a second conviction, not a first, and will receive the stiffer penalty for second offenses. For the first offense here is the penalty and the defences you can make. Driving a vehicle while your ability to drive is impaired by alcohol or drugs is one of the offenses. Evidence of your condition can be used to convict you. This can include evidence of your general conduct, speech, ability to walk a straight line or pick up objects. The penalty of the first offenses is a fine of $50.00 to $2000.00 and/or imprisonment of up to six months, and automatic suspension of licence for 3 months. The second offense penalty is imprisonment for 14 days to 1 year and automatic suspen-sion of licence for 6 months. The third offense penalty is imprisonment for 3 months to 2 years (or more) and automatic suspension of licence for six months. These penalties are the same for the following offenses. "Having Care and Control of a Motor Vehicle while Impaired" is another offense. Having care and control of a vehicle does not require that you be driving it. Occupying the driver's seat, even if you did not have the keys, is sufficient. Walking towards the car with the keys could be suffi-cient. Some defences are you were not impaired, or you did not have care and control because you were not in the driver's seat, did not have the keys, etc. It is not a defence that you registered below 80 m.g. on the breath-ayzer test. Having care and control depends on all circumstances. "Driving While Exceeding 80 m.g. is the next offense. Driving a vehicle, having consumed alcohol in such a quantity that the proportion of alcohol in your blood exceeds 80 miligrams of alcohol in 100 mililitres of blood. Some defences are the test was administered improperly, or the breathalyzer machine was not functioning properly. "Having Care and control of a Motor Vehicle while Exceeding 80 m.g." is the next offense I will talk about. This offense means having care and control of a vehicle whether it is in motion or not, having consumed alcohol in such a quantity that the proportion of alcohol in your blood exceeds 80 miligrams of alcohol in 100 mililitres of blood. The defences are the test was administered improperly, or the breathalyzer machine was not functioning properly. To defend against breathalyzer evidence you must understand how the test should be administered. The proper procedure for a breathalyzer test is as follows. Warming up the machine until the thermometer registers 50 degrees centigrade. This should take at least 10 minutes. The machine should then be turned to zero (by using the "adjust zero control") and a comparison ampoulel (of normal air) inserted. if the metre remains at zero, the test can proceed. An ampoule with a standard solution is then inserted. If the metre reads high or low by more than . 02% on two successive tests, the machine should not be used. If the trial is valid, the machine should be flushed with room air and the pointer set at start. You will then be asked to provide two breath samples, about fifteen minutes apart. Normally they will take the result of the lowest result and use it as evidence against you. "Refusing to Give a Breath Sample" means refusing without a reasonable excuse to give a sample or refusing without a reasonable excuse to accompany a polic officer, when demanded by the police officer. Before demanding by the police officer, he must have reasonable and probable grounds to believe that you are committing or at any time in the preceeding two hours have committed, one of the offenses of driving or having care and control of a vehicle while impaired or while having a blood alcohol level in excess of 80 m.g. You can refuse to give a breath sample until you have communicated in private with your lawyer even if this takes you beyond the two hour period, unless it is shown that your request for a lawyer was not genuine and merely to delay the testing. The test can be done after the two hour period, but a technician must testify in court as to what your blood alcohol would have been in the two hour period. You cannot refuse to accom-pany the officer until you see your lawyer. You can argue that the officer didn't have reasonable and probable grounds to suspect you, but this however depends on the circumstances. "Refusing to submit to a Roadside Screening Test" is the last offense. When you commit this offense you are refusing without reasonable excuse to give a breath sample for a roadside screening device, or refusing without reasonable excuse to accompany a police officer for the purposes of giving such a sample, when demanded by an officer. Before the officer demands a breathalyzer he must reasonably suspect that you have alcohol in your blood. The maximum penalties for impaired driving causing bodily harm to someone is up to 10 years in prison and up to a 10 year prohabition from driving. The maximum penalties for impaired driving causing death is up to 14 years and a 10 year prohabition from driving. The maximum penalty for manslaughter and criminal negligence causing death is up to life in prison and up to a lifetime prohabition from driving. I think that these penalties for all the drinking and driving offenses are very appropriate, but I think impaired driving causing death should be a lifetime imprisonment. Also if a person is impaired and causes bodily harm to some one they should have their licence suspended from him for 20 years instead of 10 years. BIBLIOGRAPHY Highway Traffic Law, (Copyright January 1986: Community Legal Education Ontario) p.17-32 Government Document, Canada Law Reform Commision Report on Investigative Tests: Aclohol, Drugs, and Driving offenses (1983). Erwin,Richard E. M.Bender ,Defence of Drunk Driving Cases, Criminal Civil (Albany 1986) p.79-81 Purich, Donald John, Drinking and Driving:What To Do If Your Caught (International Self Counsel Pr. 1978) p.22-25 Verticle File at Hill Crest Library, Drinking and Driving-offenses ands penalties:A Summary (1988) p.2 Verticle File at Hill Crest Liabrary, Criminal Code-Part 6 (1989), section 3, section 11. Verticle File at Hill Crest Library, HighWay Trafic (1989), section 26 f:\12000 essays\business & economics (632)\DuPont An Investment Analysis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ DuPont An Investment Analysis DuPont makes a variety of high-value products for industry today, including polymers, chemicals, fibers, and petroleum products...products for agriculture, electronics, transportation, apparel, food, aerospace, construction, and health care. DuPont serves customers in these and other industries every day, offering "better things for better living" as the company prepares to begin its third century of scientific, technological, commercial, and social achievement. DuPont is a research and technology based chemical and energy company with its annual revenue exceeding $39 billion. Eleuth‚re Ir‚n‚e du Pont de Nemours, a French immigrant, established DuPont in 1802 in a small Delaware town. E.I. du Pont was a student of Antoine Lavoisier, the father of modern chemistry, and when he came to America he brought some of the new ideas about the manufacturing of consistently reliable gun powder. His product ignited when it was supposed to, in a manner consistent with expectations. This was greatly appreciated by the citizens of the growing nation, including Thomas Jefferson, who wrote thanking du Pont for the quality of his powder, which was being used to clear the land at Monticello. Many other heroes of early America owed their success, and their lives, to the dependable quality of DuPont's first product. This represents a good, strong start for a company. DuPont, which is moving through the last decade of the twentieth century and toward its third century, emphasizes several things; competing globally; sharpening its business focus; increasing productivity; committing to safety, health, and environmental excellence; and continuing to extend its significant science and technological achievement. One of DuPont's major strategies is to focus on businesses in which DuPont has core competencies, where DuPont can build competitive advantage. The most notable example of this focus was the 1993 transaction in which DuPont acquired ICI's nylon business and ICI acquired DuPont's acrylics business. This strengthened the company's position in the global nylon business while divesting a business that no longer fit its portfolio. Another major factor in the transformation of the company in the1990s was the focus on reducing costs and improving productivity. This was necessary to give the company the flexibility for competitive pricing and to grow market share and earnings. DuPont had strong plants in several countries around the world for many years, and their globalization trend continued in the 1990s. New plants opened in Spain, Singapore, Korea, Taiwan, and China, and a major technical service center opened in Japan. In 1994, a Conoco joint venture began producing oil from the Ardalin Field in the Russian Arctic--the first major oil field brought into production by a Russian/Western partnership since demise of the Soviet Union. A further major development was the redemption of 156 million DuPont shares from Seagram for $8.8 billion in cash and warrants --- one of the largest stock redemptions in history. This large block of shares was redeemed at a 13 percent discount to market price. While DuPont later sold some new shares, there are 18 percent fewer shares currently outstanding than just prior to the redemption. This resulted in a significant opportunity for wealth creation for our stockholders. The share redemption was made possible by four years of cost reduction, productivity improvement and organizational change that have made DuPont strong financially and allowed them to move decisively and quickly. The DuPont that emerged from the company's transformation in the 1990s has often been described by people inside and outside the company as "the new DuPont." This characterization is only partly appropriate, because while DuPont has changed, there are many things that remain the same. The core competency in science and technology, the commitment to safety, the concern for people, the feeling of community, the emphasis on personal and corporate integrity, the future focus, and indeed the willingness to change. DuPont is a company not only out for their own interest, but also for the best interest of the world. What has always set DuPont apart is the quality of the people, people committed to making life easier and better for everybody, proud to be a part of an enterprise making "better things for better living." That was true in 1802. And it is just as true today. In the second quarter of 1995 DuPont reported earnings per share of $1.70, up 47 percent from the $1.16 earned in the second quarter 1994. Net income totaled $938 million, compared to $792 million earned in 1994. Both earnings per share and net income increased 27 percent."These outstanding results continue to reflect strong revenue gains and ongoing productivity improvements," said DuPont Chairman Edgar S.Woolard Jr. Sales for the second quarter were $11.1 billion, up 9 percent from prior year. The third quarter of the 1995 business year led DuPont to a $1.38 per share earning. This number exceeded the $.95 earned in the third quarter of 1994 by more than 45%. Net income totaled $769 million compared to $647 million earned in 1994. Sales for the third quarter were $10.2 billion, up 4 percent from the prior year. DuPont saw a drop in the earnings per share price for the fourth quarter of 1995. The $1.13 per share of the fourth quarter was $.25 lower than the third quarters report. But the report was still $.18 higher than the fourth quarter report from 1994. The average rise in earnings per share per quarter from 1994 to 1995 is roughly $.40, which is not bad at all. The full year's earnings were $5.61 per share compared to $4.00 per share in 1994 (Graph 3). The average number of shares outstanding in 1995 declined 14 percent due to the redemption of stock from Seagram in 1995. "This was our second consecutive year of record earnings and significant year-over-year improvement," said John A. Krol, DuPont president and chief executive officer. "These outstanding results are a tribute to the talent and dedication of DuPont's people worldwide. We are pleased with the progress we have made to increase profitability and expand our businesses globally." In a day and age where any thing can happen, diversity in production is key. No company comes close to the variance that DuPont expresses in their production. Share earnings continue to rise throughout the past two years, as do the price per share numbers (Graph1), and there is no reason for the pattern to change. DuPont is obviously a company that is going places in the global community. If something goes wrong with the clothing industry, they will still compete in the construction industry. If something happens in transportation, electronics will be there to hold strong for the company. With a company that is so diversified in its production, DuPont is a smart investment, and I fully endorse it. f:\12000 essays\business & economics (632)\EAPS.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ This being the day of the great downsize many managers are hurrying to make the cut's and in doing so closely examining their Employee-Assistance Programs for effectiveness. What are they? How do they help? How do they work? Are they worth the hassle? What are they? By definition employee-assistance programs (EAP's) give a business the means for identifying employees whose job performance is negatively affected by personal problems. EAP's should arrange for structured assistance to solve those problems with the goal of reestablishing the employee's job performance. Three ways they help the employer and the employee: First, EAP's should help in identifying a troubled worker. The two largest problems in the workplace today are drug/alcohol abuse and the stressful effects of downsizing. Many researchers today believe that drug/alcohol abuse is responsible for most modern-day EAP's. According to The National Council on Alcoholism and Drug Dependance, 25 percent of all hospitalized patients have alcohol related problems. Alcohol is involved in 47 percent of all industrial accidents and half of all auto fatalities. The cost totals 86 billion dollars per year due to decreased productivity, treatment programs, accidents, crime and law enforcement. Although it is most costly at the top alcoholism/drug abuse affects employees at every level of an organization. One company found that in the pervious five years each worker with an alcohol/drug related problem missed 113 days of work and filed $23,000 more in medical claims than the average employee. However, recovered alcohol/drug abusers will frequently credit their EAP for literally saving their lives. By reclaiming highly experienced employees the company also can recover some of their losses. One of the most painful aspects of a human resource professional's job is downsizing and it probably won't be going away soon. Layoffs affected 1.1 million workers in 1995 and are not expected to improve. EAP's are a resource that can often help managers smooth the transition for outgoing employees and for those who remain. When a company severs its ties with an employee, the emotional reaction can be intense. Most laid-off workers will react with anger then fade into denial and finally acceptance. This emotional roller coaster is not unlike those experienced by people diagnosed with a serious illness. They generally make the EAP available for up to six months after termination. This "after termination counseling" will help a company by removing the possible threat of retaliation in the form of sabotage or bad mouthing the company in the public's eye (which can be as damaging as sabotage). Second, through orientation and job leverage the EAP should motivate the employee to get the help they need. The job leverage comes from the Quality Assurance in Drug Testing Act, SEC. 2707.Employer Practices which says: "Nothing in this title shall be construed to prohibit an employer from taking action necessary, up to and including termination, in the case of an applicant or employee who tests positive for drugs or who refuses to take a drug test authorized under this title." This act has not yet passed but it will provide the perfect motivation and release the employer from any lawsuits that might come about from employees who think they have the right to do drugs. The purpose of orientation is to educate employees about EAP policies, procedures and services. Although it's not financially practical to spend an enormous amount of time on this topic, it is important that an organized effort be made to inform all employees of what the EAP is, How it works and for whom it is intended. Obviously, having a program is wasteful if employees fail to use it. Orientation should be done in a series of informal discussions like the half hour before the end of the work day. Combining orientation with written hand outs, posters and pay envelope enclosures may be most effective method. Third, the EAP should help the troubled employee in getting help. This requires the people involved in the EAP to be extremely knowledgeable of the resources available in the community. EAP's come in many shapes and sizes generally dependant on the size of the company. Some EAP's are simply a hotline in which employees are encouraged to call a particular number and ask for help. The person on the other end will provide names and numbers of local public service agencies. This is considered to be an external program and is very effective due to its confidentiality, however, the biggest problem is trying to get the person to pick up the phone. The most adaptable model for an EAP is one in which posters, cards, brochures, supervisors and trained volunteers refer employees to an off site councilor. Using this "broad approach" a company can probably reduce the cost and provide the best help their employees can find. Supervisor interaction and education on the services available are the keys to a successful EAP. Are they worth the hassle? Although EAP's are here to stay and not many studies are being done to show their worth or effectiveness. Most evaluation studies have assumed that a "balance" exists between the activities in the workplace and activities in the treatment facilities. This assumption is only valid for the EAP's of the 1970's that focused almost entirely on alcoholism. The major difference between the early programs and the modern is in the training of the supervisor. In the early programs they trained supervisors to identify problem drinkers based on their symptoms and to refer them to the company's medical department. Today, EAP's train supervisors to manage the problems affecting job performance and to refer poorly performing employees to the EAP for diagnosis and treatment of the "underlying" personal problems. This assumption leads to studies being purely derived from the outcome and generally state that employees who use the program show an increase in job performance. A most recent study surveyed 508 human-resource professionals, used several statistics that were not based on the "balance." Released in April of 1995 the study shows that replacing workers who have behavioral health problems or not treating them will cost companies much more than it costs to finance the treatment. On the average it costs more that $7,000 to replace one salaried worker, $10,000 for a mid-level employee and $40,000 for a senior executive. For every dollar invested in an EAP, a loss of $5 to $7 is avoided. Time missed from work will decrease by 66%, and about 12 percent of employees at one time or another will use the program if it is available. Employees who were closely involved with their companies EAP found them to be effective and said the program resulted in a better work attitude and increased lob performance. Since the beginning of time people have been trying to help people. This idea never occurred to the corporations until alcohol and drug abuse began to run wild during the Industrial Revolution. Large companies were formed and people turned to alcohol for a release. The big companies began to see the decrease in productivity and that meant lost money. As in any company the true goal is to make money and only recently in the fields of Human Resource Management with the study of behavioral sciences have corporations decided to address employees as people. Believing employee behavior is not only due to human relationships but due to changes in the organization too. Things like Downsizing and changes in technology will influence employee's behavior in mostly negative ways. The corporation is no longer a force that cannot be beaten. EAP's are a very important part of the new world company. They are an effective and worthwhile ventures on any scale. Every company from three to 3,000 employees needs to have some sort of EAP. With the overwhelming self-serving attitudes people have today getting a person to commit him/herself to the company is almost impossible unless they feel as though the company has committed its self to them. A well designed and maintained EAP will do just that. Like anything there are some parts of an EAP that are most important. No matter how well thought through the best EAP could fail and that is what must be avoided. Sinking money into a program that will not give any sort of payback is wasteful. This being the time of the Downsize when companies are trying to get the most bang for the buck you must be careful not to cut your EAP to the bare minimum, don't get caught up in the statistics. The only way to truly tell if you have an effective program is to count the uses. If the program is being used then the chances are extremely good that it is working. EAP's are not self installing /self running programs. As supervisors we must keep our ears open to new ideas and suggestions, constantly trying to improve the system. This is why having dedicated personnel or good volunteers is so important. In conclusion Employee Assistance Programs are definitely worth the hassle. There is overwhelming evidence supporting the need for these programs in every company. We must strive to help our employees help themselves as much as possible. Happy employees' and a cohesive work group are the most important quality's a business could possibly have. If you don't think it is working then fix it. Cutting back on an EAP is the key to your businesses' end. f:\12000 essays\business & economics (632)\EastAsianEconomy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ East Asian Economic Crisis A large economic downturn in East Asia threatens to end its nearly 30 year run of high growth rates. The crisis has caused Asian currencies to fall 50-60%, stock markets to decline 40%, banks to close, and property values to drop. The crisis was brought on by currency devaluations, bad banking practices, high foreign debt, loose government regulation, and corruption. Due to East Asia's large impact on the world economy, the panic in Thailand, Indonesia, Korea, and other Asian countries has prompted other countries to worry about the affect on their own economies and offer aid to the financially troubled nations (Sanger 1). The East Asian crisis has affected almost all of the Asian nations, but the three hardest hit countries are Thailand, Indonesia, and South Korea. The panic began in Thailand in May of 1997 when speculators, worried about Thailand's slowing economy, exces sive debt, and political instability devalued the baht as they fled for market-driven currencies like the American dollar. Indonesia's economy soon fell soon after when the rupiah hit a record low against the U.S. dollar. Indonesia is plagued by more than $70 billion worth of bad debts and a corrupt and inefficient government. Thailand and Indonesia also suffer from being overbuilt during real estate booms that Reven2 were the result of huge influxes of cash by optimistic foreign investors. South Korea faltered under the weight of its huge foreign debt, decreasing exports, and weakening currency (Lochhead 4-5). Other major countries touched by the crisis are Japan, China, Malaysia, and the Philippines. Japan's economy is burdened by $300 billion in bad bank loans and a recession. Chinese banks may carry bad banks loans of up to $1 trillion. The banks lend 66% of China's investment capital to state-run industries that only produce 12% of China's industrial output (Manning 2). Malaysia and the Philippines are both faced with devalued currencies and lowered stock markets (Lochhead 5). The implications of the Asian financial crisis are many. A declining Asian economy will reduce demand for U.S. and other countries' exports. The devalued currencies of East Asia will make Asian imports seen cheap and will lead to increased American impor ts, thus increasing our trade deficit (Lochhead 2). A worldwide banking emergency could result if the embattled Asian economies failed to pay back their loans to the U.S. and other countries (Duffy 2). If the Asian economies fall further, in a desire to r aise cash, they might sell the hundreds of billion dollars of U.S. treasuries they now own, leading to higher interest rates and an American recession (Lacayo 2). An article in the Economist reported that the Asian economic turmoil and the layoffs that may result, could instigate increased discontent and possibly give rise to violent strikes, riots, and greater political instability (1-2). Reven 3 Since the financial tumult causes instability in the world market, several solutions have been proposed designed to restore the health of the Asian economy. The International Monetary Fund is offering $60 billion in aid packages to Thailand, Indonesia, a nd South Korea (Lacayo 1). The aid will be used for converting short-term debt to long-term debt and to keep currencies from falling lower in the world market (Passell 2). Lower currency values make repaying loans to other nations more difficult (Sanger 1 ). The aid packages are tied to measures that will ensure that the recipient countries reform their economies. Some of the measures the nations must follow are increasing taxes to decrease budget deficits, ending corruption, increasing banking regulation, improving accounting information so investors can make better decisions, closing insolvent banks, selling off inefficient state enterprises, and increasing interest rates to slow growth and encourage stability (Lacayo 3). Hopefully these market reforms will allow East Asia to improve its economic outlook. Since most of the Asian nations have balanced budgets, low inflation, cheap labor, pro-business governments, and high savings rates, the long-term outlook for these coun tries is very good (Marshall 1). The financial crisis, instead of destroying the Asian tigers, will merely serve as a much needed lesson in debt management, orderly growth, competent accounting practices, and efficient government. Considering the size of Asia's contribution to the world economy, a rapid recovery will be greatly anticipated. f:\12000 essays\business & economics (632)\eastern airlines faces bankruptcy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Eastern Airlines Facing Bankruptcy In 1986, Eastern Airlines was in desparate trouble. The fourth quarter of 1985 had shown a $67.4 million loss, and financially experts had told Frank Borman, president and chief executive officer, that the airline had three choices: 1) a 20 percent pay cut for all union and noncontract employees. 2) Filing for Chapter 11 (bankruptcy) or 3) Selling the airline. On February 23, 1986, Eastern's board of directors met to decide the fate of the company. Frank Borman, quickly left his home in Coral Gables to Building 16 at Miami International Airport that Sunday evening, to discuss plans on saving the airlines. The board of directors had recessed for dinner following afternoon session and was scheduled to convene at 7:30 p.m. At the earlier meeting, Wayne Yeoman, senior vice president for finance, had spent most of the time outlining the details of Texas Air's offer to buy Eastern. Frank Lorenzo and Frank Borman had been talking since December originally about consolidating the computerized reservation systems, then , as Eastern's problems deepen, about a possible sale. As Frank entered his office, he found his his loyal excutive assistant; Wayne Yeoman; and Dick Magurno, Eastern's senior vice president for legal affairs. For about 20 minutes the three discussed the fourthcoming meeting and the prospects for saving the airline. Negotiations were going to come around for ALPA and TWU but no break from the IAM. The IAM would not budge since Charlie Byran, head of the machinist's union, stood firm against a 20 percent wage cut. At 7:30 the board meeting began with the discussion of the Texas Air offer, concentrating on some of the conditions attached to the buying of the company. More talk and hours dragged on. Finally word got out that ALPA was nearing an agreement. The meeting recessed for an hour. During the recess Frank needed to get Charlie's surport on the 20 percent pay cut, otherwise the company was going to sold. He told Charlie to come up to his office. Frank told Charlie, " we've been at this since 83' and you have to recognize it can't go on. I have every reason to believe that the pilots and flight attendants are going to give us what we need. I know it's more difficult for you because your contract is not open. But I know you have a sense of history. We have a very good opportunity to cure this airline, and if you just understand this, in the long run you'll come out a stronger, more admirable person. Choose the harder right instead of the easier wrong, and let's go forward." With this Charlie replied, "Frank you don't understand that you are just trying to run the company down and I can't go along with that. With this, Frank gave up and told Charlie to wait outside. He tryed everything he could to get Charlie's surport but all attempts failed. This was going to be the end of Eastern Airlines. The board meeting finally reconvened at 10:30, an hour an a half away from the deadline. Word had reached that ALPA reached an agreement and TWU negotiations were still up in the air. The directors heard analysis of the Texas Air offer by representatives of Saloman Brothers and Merrill Lynch, at this point Charlie Bryan finally spoke up. He said, "I've had discussion with the chairmen of the audit and finance committees, and would like the board to be informed what we talked about." Two of the directors, Harry Hood Bassett and Peter Crisp, told Charlie to reconsider in the view of the 57 years of the airline, and the fact that his decision would impact all the company's employees. They also reminded him that seemed to be a tragic end for such fine people. Nineteen pairs of eyes turned towards Bryan. Mr. Bryan stated that when the IAM amended it's contract on October 17, 1985, they never complained about the other two unions. The IAM has made recommendations for cost savings over the past several months, but we were never given the opportunity to implement them. Frank responded , "That's nonsense!". He told Charlie if he doesn't co- operate , he'll destroy the airline, and it's his fault! Byran replied," Year in and out the unions have been asked to trust management. Each year has been a crisis situation and unions were told there were still enormous problems. It's time for management to trust the employees to find ways to improve productivity and reduce costs." After a half an hour more of discussions, and no agreement, the board was ready to vote. But then word come around that ALPA agreement was ready to besigned and TWU was within an inch of reaching an agreement. Also Texas Air is willing to extend the deadline to 4 a.m. One board member in a last ditch effort asked Mr. Byan, "are you fully aware that this board is going to sell the airline? If so, I'd like you to say for the record that you still refuse to participate." Byan replied, " Although the IAM will not agree to the company's proposals, we have proved that we are saving labor costs and improving productivity, and, if the board decides to sell or bankrupt the company, you can't point to me and say, 'It's your fault.' I am against any activity tonight to sell Eastern or any decision to file for bankruptcy." At this point, one of the board directors said, " Mr. Bryan you have said that you will vote no tonight to the sale, and you indicated to me that there is no basis whatsoever that you would agree to come along with the other unions to fix it. It is obvious to me that the responsibility for forcing the board to sell the company is clearly yours!" After this there was a brief adjournment, Charlie Byran finally came back with a proposal to cut the IAM's salary wages to 15 percent since the IAM had contributed 5 percent through productivity gains. An attached condition was also proposed that a new chief executive officer to be appointed within a reasonable time. Frank responded "Any allegation that the IAM has given 5 percent is nonsense! If the IAM will give 20 percent this evening like other employees I will submit my resignation this evening. I will not submit my resignation if the IAM will only give 15 percent, because that supposed 5 percent simply simply doesn't exist!" The time was 2:00 am. The board believed that it was time to vote on the Texas Air offer. Frank left the auditorium and told the board that is best that he abstain from any vote. Outside, one of Byran's lawyers came out to persuade Frank to resign. He told the lawyer, "like I said, if the IAM takes a 20 percent wage deduction I will gladly resign." After this comment Frank walked away. A counter proposal was made by the directors to the appointment of a vice chairmen to be selected by the board committee if the IAM takes the 20 percent pay decrease. Charlie went off on a huddle with his lawyers and returned to reject the proposal. At 3 a.m. Eastern Airlines sold the company to Texas Air with a vote to sell was 15 to 4. All four union directors. Byran included included against the merger. The major management problem concerned here is that management was unable to get the IAM union to negotiate proposal in wage deceases which lead to the selling of the company. f:\12000 essays\business & economics (632)\Eastern Airlines Facing Bankruptcy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Eastern Airlines Facing Bankruptcy In 1986, Eastern Airlines was in desparate trouble. The fourth quarter of 1985 had shown a $67.4 million loss, and financially experts had told Frank Borman, president and chief executive officer, that the airline had three choices: 1) a 20 percent pay cut for all union and noncontract employees. 2) Filing for Chapter 11 (bankruptcy) or 3) Selling the airline. On February 23, 1986, Eastern's board of directors met to decide the fate of the company. Frank Borman, quickly left his home in Coral Gables to Building 16 at Miami International Airport that Sunday evening, to discuss plans on saving the airlines. The board of directors had recessed for dinner following afternoon session and was scheduled to convene at 7:30 p.m. At the earlier meeting, Wayne Yeoman, senior vice president for finance, had spent most of the time outlining the details of Texas Air's offer to buy Eastern. Frank Lorenzo and Frank Borman had been talking since December originally about consolidating the computerized reservation systems, then , as Eastern's problems deepen, about a possible sale. As Frank entered his office, he found his his loyal excutive assistant; Wayne Yeoman; and Dick Magurno, Eastern's senior vice president for legal affairs. For about 20 minutes the three discussed the fourthcoming meeting and the prospects for saving the airline. Negotiations were going to come around for ALPA and TWU but no break from the IAM. The IAM would not budge since Charlie Byran, head of the machinist's union, stood firm against a 20 percent wage cut. At 7:30 the board meeting began with the discussion of the Texas Air offer, concentrating on some of the conditions attached to the buying of the company. More talk and hours dragged on. Finally word got out that ALPA was nearing an agreement. The meeting recessed for an hour. During the recess Frank needed to get Charlie's surport on the 20 percent pay cut, otherwise the company was going to sold. He told Charlie to come up to his office. Frank told Charlie, " we've been at this since 83' and you have to recognize it can't go on. I have every reason to believe that the pilots and flight attendants are going to give us what we need. I know it's more difficult for you because your contract is not open. But I know you have a sense of history. We have a very good opportunity to cure this airline, and if you just understand this, in the long run you'll come out a stronger, more admirable person. Choose the harder right instead of the easier wrong, and let's go forward." With this Charlie replied, "Frank you don't understand that you are just trying to run the company down and I can't go along with that. With this, Frank gave up and told Charlie to wait outside. He tryed everything he could to get Charlie's support but all attempts failed. This was going to be the end of Eastern Airlines. The board meeting finally reconvened at 10:30, an hour an a half away from the deadline. Word had reached that ALPA reached an agreement and TWU negotiations were still up in the air. The directors heard analysis of the Texas Air offer by representatives of Saloman Brothers and Merrill Lynch, at this point Charlie Bryan finally spoke up. He said, "I've had discussion with the chairmen of the audit and finance committees, and would like the board to be informed what we talked about." Two of the directors, Harry Hood Bassett and Peter Crisp, told Charlie to reconsider in the view of the 57 years of the airline, and the fact that his decision would impact all the company's employees. They also reminded him that seemed to be a tragic end for such fine people. Nineteen pairs of eyes turned towards Bryan. Mr. Bryan stated that when the IAM amended it's contract on October 17, 1985, they never complained about the other two unions. The IAM has made recommendations for cost savings over the past several months, but we were never given the opportunity to implement them. Frank responded , "That's nonsense!". He told Charlie if he doesn't co-operate , he'll destroy the airline, and it's his fault! Byran replied," Year in and out the unions have been asked to trust management. Each year has been a crisis situation and unions were told there were still enormous problems. It's time for management to trust the employees to find ways to improve productivity and reduce costs." After a half an hour more of discussions, and no agreement, the board was ready to vote. But then word come around that ALPA agreement was ready to besigned and TWU was within an inch of reaching an agreement. Also Texas Air is willing to extend the deadline to 4 a.m. One board member in a last ditch effort asked Mr. Byan, "are you fully aware that this board is going to sell the airline? If so, I'd like you to say for the record that you still refuse to participate." Byan replied, " Although the IAM will not agree to the company's proposals, we have proved that we are saving labor costs and improving productivity, and, if the board decides to sell or bankrupt the company, you can't point to me and say, 'It's your fault.' I am against any activity tonight to sell Eastern or any decision to file for bankruptcy." At this point, one of the board directors said, " Mr. Bryan you have said that you will vote no tonight to the sale, and you indicated to me that there is no basis whatsoever that you would agree to come along with the other unions to fix it. It is obvious to me that the responsibility for forcing the board to sell the company is clearly yours!" After this there was a brief adjournment, Charlie Byran finally came back with a proposal to cut the IAM's salary wages to 15 percent since the IAM had contributed 5 percent through productivity gains. An attached condition was also proposed that a new chief executive officer to be appointed within a reasonable time. Frank responded "Any allegation that the IAM has given 5 percent is nonsense! If the IAM will give 20 percent this evening like other employees I will submit my resignation this evening. I will not submit my resignation if the IAM will only give 15 percent, because that supposed 5 percent simply simply doesn't exist!" The time was 2:00 am. The board believed that it was time to vote on the Texas Air offer. Frank left the auditorium and told the board that is best that he abstain from any vote. Outside, one of Byran's lawyers came out to persuade Frank to resign. He told the lawyer, "like I said, if the IAM takes a 20 percent wage deduction I will gladly resign." After this comment Frank walked away. A counter proposal was made by the directors to the appointment of a vice chairmen to be selected by the board committee if the IAM takes the 20 percent pay decrease. Charlie went off on a huddle with his lawyers and returned to reject the proposal. At 3 a.m. Eastern Airlines sold the company to Texas Air with a vote to sell was 15 to 4. All four union directors, Byran included were against the merger. The major management problem concerned here is that management was unable to get the IAM union to negotiate proposal in wage deceases which lead to the selling of the company. f:\12000 essays\business & economics (632)\Economic Analysis of Hawaii.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Analysis of Hawaii Hawaii, with an area of 28,313 sq. km (10,932 sq. mi.), is the 43rd largest state in the U.S.; 6.9% of the land is owned by the federal government. It consists mainly of the Hawaiian Islands, eight main islands and 124 islets, reefs, and shoals. The major islands in order of size are Hawaii, Maui, Oahu, Kauai, Molokai, Lanai, Nihau, and Kahoolawe. Population growth has increased by 80,000 persons over the past five years. Demographics show a large number of Hispanic origin: Asian Hispanics are the most populated with white Hispanic and Asian non-Hispanic following. Hawaii's economy has been long dominated by plantation agriculture and military spending. As agriculture has declined in importance, the economy has diversified to encompass a large tourist business and a growing manufacturing industry. Hawaii's economy has changed drastically since statehood. In 1958, defense, sugar, and pineapple were the primary economic activities, accounting for 40% of Gross State Product (GSP). In contrast, visitor-related expenditures stood at just over 4% of Hawaii's GSP prior to statehood. Today the positions are reversed; sugar and pineapple constitute about 1% of GSP, defense accounts for just under 11%, while visitor-related spending comes close to 24% of Hawaii's GSP. The movement toward a service- and trade-based economy becomes even more apparent when considering the distribution of Hawaii's jobs across sectors. The share of the economy's jobs accounted for by manufacturing and agriculture have declined steadily since 1959 and each currently makes up less than 4% of total jobs in the economy. At the same time, the shares of jobs in wholesale and retail trade and in services have risen, standing at about 23% and 28%, respectively. Since 1991, Hawaii's economy has suffered from rising rates of unemployment . This stands in marked contrast to the period 1980 to 1993, when the state enjoyed very low unemployment rates relative to the nation as a whole. But by 1994 the recession had raised Hawaii's unemployment rate to the national average (6.1%) for the first time in 15 years. In 1995, the state's unemployment rate improved slightly in the first eleven months of the year to 5.4 percent, a 0.6 percentage point decline from the first eleven months of 1994. Despite the lower unemployment rate, the total number of wage and salary jobs declined by 0.6 percent during the first eleven months of 1995. This was due in part to a fall in part-time jobs which are often held by persons who also have primary jobs elsewhere in the economy. The number of construction jobs declined by more than 7 percent in the same period. Other industries--namely, manufacturing, agriculture, transportation, communications/utilities, and finance, insurance, and real estateexperienced declines in the number of jobs as well. Jobs in retail trade and services, however, increased 2.2 percent and 0.5 percent, respectively, reflecting an increase in visitor spending since 1994. Following a dismal first quarter due to the Kobe earthquake, there was steady growth in the tourism sector in 1995 with increases in the number of visitor arrivals and hotel room rates. The number of visitor arrivals to the State increased 3.2 percent during the first eleven months of 1995. The increase in the value of the Japanese yen vis-a-vis the U.S. dollar during this period contributed to a rise in eastbound visitors in the second and third quarter of 1995 by 11.8 percent and 15.4 percent, respectively. However, in the first eleven months of 1995, the number of westbound visitors remained flat. This year is the 11th year in a row that the U.S. has experienced reduced spending on national defense. The continued reduction is due to the decline in superpower tensions and the political disintegration of the Soviet and East European-block during this decade which have prompted the Congress and Administration to initiate significant cuts in the level of defense expenditures in recent years. However, because of the strategic location of Hawaii in the Pacific this changing military posture has not significantly affected Hawaii's $3.7 billion Federal defense sector. The construction industry continued its decline in the first eleven months of 1995. This loss was mainly due to decreasing demand exacerbated by higher interest rates during the first half of 1995, following a 12.4 percent drop in 1994. Another reason is that construction costs rose by 15 percent from 1992 to 1995, which is much higher than the consumer inflation rate of 8 percent during the same period. Agriculture jobs, including self-employed, showed a 6.6 percent decline in the first eleven months of 1995 from the same period in 1994. In the earlier part of the year, the agricultural work force fell to its lowest level in 21 years. Agriculture accounts for slightly less than 2percent of jobs in the state. Latest data from the Bureau of Economic Analysis ranked Hawaii 26th among the 50 states in terms of growth in personal income between the first and second quarters of 1995. During the second quarter of 1995, personal income was estimated to be an annualized 29.2 billion dollars, up 4.0 percent at an annual rate from the second quarter of 1994. The growth in personal income is mainly attributed to an increase in rents, dividends and interest, along with transfer payments of 7.6 percent and 7.5 percent in the second quarter, respectively. The largest component of personal income, wages and salaries, increased by 2.3 percent over the period as compared to only 1.0 percent in 1994. The consumer inflation rate, as reflected in the percentage change of the Honolulu Consumer Price Index, increased by 2.1 percent between the first half of 1994 and the first half of 1995. In the second half of 1995, the inflation rate slowed to 0.7 percent as compared to the second half of 1994. If the current trend continues, overall inflation for Hawaii in 1995 will be slightly lower than 2.0 percent, the lowest since 1986. DBEDT expects the Honolulu Consumer Price Index to increase about 2.0 percent in 1995 and 2.5 percent in 1996. This is lower than the expected consumer price increases of 3.0 to3.5 percent for the nation as a whole in 1996, reflecting the relatively slower growth of Hawaii's economy. Real Gross State Product (RGSP) is expected to grow at an annual rate of approximately 2.2% between 1995 and 2000. Average annual growth in the number of civilian jobs is projected to rise by 1.8% per year over the next five years. Over the same period, the unemployment rate should decline gradually from 5.5% in 1995 to 5.3% over 1996-2000. Growth of real disposable income is anticipated to rise to 1% next year and to an average of 1.2% each year to 2000. Hawaii's people have seen dramatic changes in the economic structure over the last generation. The military and agriculture, the traditional pillars of the Hawaii economy, have declined and no longer employ the bulk of the labor force. At the same time, Hawaii's increasing reliance on service industries, especially tourism, makes them particularly sensitive to external economic events. To some extent, the effects of this sensitivity are reflected in the unprecedented long period of low growth in recent years. At no time since statehood has Hawaii grown at such low rates for such a sustained period. The initial downturn was clearly associated with the cyclical recession on the mainland and eventually in Japan. This cyclical downturn was exacerbated by important structural changes in Hawaii's economy. While Hawaii cannot ignore and must still address these structural issues, it appears that it is now rebounding from the cyclical downturn. Fourth quarter economic data for 1995 show that it is entering an economic recovery and prospects for the medium term are good. Economic Analysis of Hawaii Thesis: As military and agriculture decline, Hawaii's economy has diversified to encompass a large tourist business and a growing manufacturing industry. I. Hawaii A. Land B. Population C. Demographics II. Changes A. Defense B. Agriculture C. Tourism D. Industry III. Labor Force and Jobs A. Distribution B. Decline 1. Manufacturing 2. Agriculture C. Increase 1. Trade 2. Services IV. Unemployment V. Tourism VI. Defense VII. Construction VIII. Agriculture IX. Income X. Inflation XI. Price and Product XII. Recovery 1. HTTP://www.hawaii.gov.html, internet. 2."Hawaii," Microsoft (R) Encarta. Copyright (c) 1994 Microsoft Corporation. Copyright (c) 1994. Funk & Wagnall's Corporation. 3. "Hawaii," World Book Encyclopedia. C1996. Worldbook, Inc. Chicago, London, Sydney, Toronto. 4. Hawaii. Sylvia McNair. C1990. Childrens Press. Chicago. 5. "Hawaii" 1995 Almanac. Microsoft Bookshelf. C1995. 6. Hawaii. Bureau of Economic Analysis. C1996. f:\12000 essays\business & economics (632)\Economic and Monetary Union of Europe 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ECONOMIC AND MONETARY UNION OF EUROPE The main reason for creating a European Market was the growing international competitiveness. In the mid of the eighties the European countries recognized that in the long run the national economies alone won't be able to compete against countries like the US, Japan and the new industrial centers in East Asia. The biggest advantage of the European integration is the unique chance of causing significant economic growth in the member countries by abolishing all kinds of barriers e.g. customs controls, trade restrictions, liberation of the movement of capital, tax harmonization, and by the opening of the financial market, a common trade policy, a common service market, common legal protection of companies and so on. The two countries who support the European integration most (at least their governments) are Germany and France. One reason therefore might be that both countries have a dramatic increase in unemployment rate within the past few years. In Baden-Württemberg for example, the area where I am from, the unemployment rate has gone up from about 4% in 1992 to around 9% nowadays. Most likely Mr. Chirac's and Mr. Kohl's only solution concerning the unemployment is a fully integrated economy which for sure would create new jobs in Europe. The German population, however, is scared that a United Europe would create new jobs only in low wage countries like e.g. Portugal. Many think that a European market with no barriers would would even cause "job hollowing out" of Germany. Moreover the German population likes the strength of the D-Mark and is worried that a single European currency would be weaker. As a result of this many Germans change their money into Swiss Francs. So far Switzerland has done quite well by not taking place in all events available. One reason why they are better off is that they didn't take place neither in World War I nor in World war II and therefore didn't have to rebuild everything. Some people expect that in a Unified Europe the standard of living in the richer countries will decrease while the people in poorer countries will fare better. One professor of mine once said: "Somebody must pay for the European Integration. Most likely this will be the richer countries like us. It was the same with the German Unification". This shows that even some very educated people in Germany are skeptical concerning the new Europe. The light poll at the last election of the European parliament seems to be showing that the German population is not that much interested in Europe. The average worker/person if living in Germany or any other European country is not interested in politics anyway. Most people probably still can't see how a United Europe will affect them personally and therefore they don't care that much. I am convinced that most of Europe's population don't know what is written in the 1993 Maastricht treaty. To set the rules for a treaty like the Maastricht treaty is very difficult because the topic is very complex. On the one hand the inflation is well on target at the moment. But is a very low inflation always good for the economy? One reason why twelve out of fifteen European countries are on target might also be that there is nearly no economic growth. One the other hand should we raise the question if the finances of fourteen countries are not on target because of nearly no economic growth. No growth means lots of government expenses to support the economy. Aren't the two Maastricht's criteria a bit controversial? Because of the complexity of the Maastricht treaty I think it is right that the politicians, like e.g. in Germany and France, decide weather to accept or disagree to the treaty. The example of Denmark, where the population didn't accept the Maastricht treaty at first, doesn't prove that the people there are more or less skeptical concerning Europe than in any other European country. To reach a fully European Integration all the above barriers must be abolished which is not always that easy. Tax differences like the variation of the countries value added tax to totally different law systems are just two out of many problems that need to be solved. The German constitution for example is just over fifty years old while Britain's law system goes back to the middle ages. As you can imagine it is very difficult to adjust those two systems. Especially the British people can't understand how something that has been right for more than thousand years can all of a sudden found wrong by the European court. Another difficulty is that all the regulation made by Brussels cause bureaucracy. If the politicians don't bare this in mind there might be more barriers in some years than than before a Common European market. All in all I think the idea of an integrated Europe is great. The question is if the whole process is not going to quick. In my opinion the governments of the European countries should inform the population much more about Europe and its advantages. In my opinion nowadays nobody knows if Europe will be a big success, a disaster or something in between. Only time will tell! Let's hope the best! I choose this topic simply because I am European and therefore will be very much affected by Europe's development in the future. I HAVE NEITHER GIVEN OR RECEIVED, NOR HAVE I TOLERATED OTHER'S USE OF UNAUTHORIZED AID. SIGNED:...................................................... f:\12000 essays\business & economics (632)\Economic and Monetary Union of Europe.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic and Monetary Union of Europe The main reason for creating a European Market was the growing international competitiveness. In the mid of the eighties the European countries recognized that in the long run the national economies alone won't be able to compete against countries like the US, Japan and the new industrial centers in East Asia. The biggest advantage of the European integration is the unique chance of causing significant economic growth in the member countries by abolishing all kinds of barriers e.g. customs controls, trade restrictions, liberation of the movement of capital, tax harmonization, and by the opening of the financial market, a common trade policy, a common service market, common legal protection of companies and so on. The two countries who support the European integration most (at least their governments) are Germany and France. One reason therefore might be that both countries have a dramatic increase in unemployment rate within the past few years. In Baden-Württemberg for example, the area where I am from, the unemployment rate has gone up from about 4% in 1992 to around 9% nowadays. Most likely Mr. Chirac's and Mr. Kohl's only solution concerning the unemployment is a fully integrated economy which for sure would create new jobs in Europe. The German population, however, is scared that a United Europe would create new jobs only in low wage countries like e.g. Portugal. Many think that a European market with no barriers would would even cause "job hollowing out" of Germany. Moreover the German population likes the strength of the D-Mark and is worried that a single European currency would be weaker. As a result of this many Germans change their money into Swiss Francs. So far Switzerland has done quite well by not taking place in all events available. One reason why they are better off is that they didn't take place neither in World War I nor in World war II and therefore didn't have to rebuild everything. Some people expect that in a Unified Europe the standard of living in the richer countries will decrease while the people in poorer countries will fare better. One professor of mine once said: "Somebody must pay for the European Integration. Most likely this will be the richer countries like us. It was the same with the German Unification". This shows that even some very educated people in Germany are skeptical concerning the new Europe. The light poll at the last election of the European parliament seems to be showing that the German population is not that much interested in Europe. The average worker/person if living in Germany or any other European country is not interested in politics anyway. Most people probably still can't see how a United Europe will affect them personally and therefore they don't care that much. I am convinced that most of Europe's population don't know what is written in the 1993 Maastricht treaty. To set the rules for a treaty like the Maastricht treaty is very difficult because the topic is very complex. On the one hand the inflation is well on target at the moment. But is a very low inflation always good for the economy? One reason why twelve out of fifteen European countries are on target might also be that there is nearly no economic growth. One the other hand should we raise the question if the finances of fourteen countries are not on target because of nearly no economic growth. No growth means lots of government expenses to support the economy. Aren't the two Maastricht's criteria a bit controversial? Because of the complexity of the Maastricht treaty I think it is right that the politicians, like e.g. in Germany and France, decide weather to accept or disagree to the treaty. The example of Denmark, where the population didn't accept the Maastricht treaty at first, doesn't prove that the people there are more or less skeptical concerning Europe than in any other European country. To reach a fully European Integration all the above barriers must be abolished which is not always that easy. Tax differences like the variation of the countries value added tax to totally different law systems are just two out of many problems that need to be solved. The German constitution for example is just over fifty years old while Britain's law system goes back to the middle ages. As you can imagine it is very difficult to adjust those two systems. Especially the British people can't understand how something that has been right for more than thousand years can all of a sudden found wrong by the European court. Another difficulty is that all the regulation made by Brussels cause bureaucracy. If the politicians don't bare this in mind there might be more barriers in some years than than before a Common European market. All in all I think the idea of an integrated Europe is great. The question is if the whole process is not going to quick. In my opinion the governments of the European countries should inform the population much more about Europe and its advantages. In my opinion nowadays nobody knows if Europe will be a big success, a disaster or something in between. Only time will tell! Let's hope the best! I choose this topic simply because I am European and therefore will be very much affected by Europe's development in the future. f:\12000 essays\business & economics (632)\Economic Consequences of Software Crime.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Consequences of Software Crime In 1996 worldwide illegal copying of domestic and international software cost $15.2 billion to the software industry, with a loss of $5.1 billion in the North America alone. Some sources put the total up-to-date losses, due to software crime, as high as $4.7 trillion. On the next page is a regional breakdown of software piracy losses for 1994. Estimates show that over 40 percent of North American software company revenues are generated overseas, yet nearly 85 percent of the software industry's piracy losses occurred outside of North America. The Software Publishers Association (SPA) indicated that approximately 35 percent of the business software in the North America was obtained illegally. In fact, 30 percent of the piracy occurs in corporate settings. In a corporate setting or business, every computer must have its own set of original software and the appropriate number of manuals. It is illegal for a corporation or business to purchase a single set of original s! oftware and then load that software onto more than one computer, or lend, copy or distribute software for any reason without the prior written consent of the software manufacturer. Many software managers are concerned with the legal compliance, along with asset management and costs to their organizations. Many firms involve their legal departments and human resources in regards to software distribution and licensing. Information can qualify to be property in two ways; patent law and copyright laws which are creations of federal statutes, which are subject to Constitutional authority. In order for the government to prosecute the unauthorized copying of computerized information as theft, it must first rely on other theories of information-as-property. Trade secret laws are created by provincial law, and most jurisdictions have laws that criminalize the violations of a trade-secret holder's rights. The definition of a trade secret varies somewhat from province to province, but commonly have the same elements. For example, the information must be secret, not of public knowledge or of general knowledge in the trade or business. A court will allow a trade secret to be used by someone who discovered or developed the trade secret independently if the holder takes adequate precautions to protect the secret. In 1964, the National Copyright Office began to register software as a form of literary expression. The office based its decision on White-Smith Music Co. v. Apollo, where the Supreme Court determined that a piano roll used in a player piano did not infringe upon copyrighted music because the roll was part of a mechanical device. Since a computer program is textual, like a book, yet also mechanical, like the piano roll in White-Smith, the Copyright Office granted copyright protection under the rule of doubt. In 1974, the government created the Natural Commission on New Technological Uses (CONTU) to investigate whether the evolving computer technology field outpaced the existing copyright laws and also to determine the extent of copyright protection for computer programs. CONTU concluded that while copyright protection should extend beyond the literal source code of a computer program, evolving case law should determine the extent of protection. The commission also felt copyright was the best alternative among existing intellectual property protective mechanisms. CONTU rejected trade secret and patents as viable protective mechanisms. The CONTU report resulted in the 1980 Computer Software Act, and the report acts as informal legislative history to aid the courts in interpreting the Act. In 1980, the Copyright Act was amended to explicitly include computer programs. It now states that it is illegal to make or to distribute copies of copyrighted material without authorization, except for the user's right to make a single backup copy for archival purposes. Any written material (including computer programs) fixed in a tangible form (written somewhere - i.e. printout) is considered copyrighted without any additional action on the part of the author. Therefore, it is not necessary that a copy of the software program be deposited with the National Copyright Office for the program to be protected as copyrighted. With that in mind a copyright is a property right only. In order to prevent anyone from selling your software programs, you must ask a (federal) court to stop that person by an injunction and to give you damages for the injury they have done to you by selling the program. The Software Rental Amendments Act was approved in 1990. This Act prohibits the commercial rental, leasing or lending of software without the express written permission of the copyright holder. Another amendment to the Copyright Act was passed in 1992. This amendment made software piracy a federal offense, and instituted criminal penalties for copyright infringement of software. The penalties can include imprisonment of up to five years, fines up to $250,000 or both for unauthorized reproduction or distribution of 10 or more copies of software with a total retail value exceeding $2,500 or more. According to federal law duplicating software for profit, making multiple copies for use by different users within an organization, and giving an unauthorized copy to someone else is prohibited. Under this law if anyone is caught with the pirated software, an individual or the individual's company can be tried under both civil and criminal law. A Civil action may be established for injunction, actual damages (which includes the infringer's profits) or statutory damages up to $100,000 per infringement. The criminal penalties for copyright infringement can result in fines up to $250,000 and a jail term up to five years for the first offense and ten years for a second offense. When software is counterfeit or copied, the software developer loses their revenue and the whole software industry feels the effect of piracy. All software developers spend a lot of time and money in developing software for public use. A portion of every dollar spent in purchasing original softwar! e is funneled back into research and development of new software. Software piracy can be found in three forms: software counterfeiting, which is the illegal duplication and sale of copyrighted software in a form that is designed to make it appear to be a legitimate program; Hard disk loading, whereby computer dealers load unauthorized copies of software onto the hard disks of personal computers, which acts as an incentive for the end user to buy the hardware from that particular dealer; and downloading of copyrighted software to users connected by modem to electronic bulletin boards and/or the Internet. When software is pirated the consumer pays for that cost by new software and/or upgrade version being more expensive. Federal appellate courts have determined that operating systems, object code and software contained in ROMs are protected by copyright. Some lower federal courts have also determined that microcode (the instructions set on microprocessor chips) and the look and feel of computer screens is subject to copyright protection. Which has created major problems for the widespread development of multimedia applications with regards to clearing copyright for small elements of text, images, video and sound. The United States Government has been an active participant in protecting the rights of the software industry. When the Business Software Alliance (BSA) conducts a raid, Federal Marshals or local law enforcement officials participate as well. An organization known as the Software Publishers Association (SPA) is the principal trade association of the PC software industry. SPA works closely with the FBI and has also written an enforcement manual for the FBI to help them investigate pirate bulletin board systems and organizations (audits). With the help of the FBI, the result of enforcement actions resulted in recoveries from anti-piracy actions totaling $16 million since the program started in 1990. The Software Publishers Association (SPA) funds an educational program to inform individuals and corporations about software use and the law. This program provides all PC users with the tools needed to comply with copyright law and become software legal. The SPA also publishes brochures free of charge about the legal use of software for individuals and businesses. Also available to help corporations understand the copyright law is a 12-minute videotape, which is composed of the most commonly asked questions and answers to them. The video tape is available in French and Spanish and all together over 35,000 copies of the tape had been sold. The SPA has also compiled a free Self-Audit Kit with which organizations can examine their software use practices. Included in the kit, is a software inventory management program designed to help an organization track their commercial software programs that are on all their hard disks. The program searches the PC's hard disk for more than 1300 of the most common programs used in business. Also available is the SPA Software Management Guide which helps companies audit their current software policies, educate employees about the legal use of software, and establish procedures to purchase, register, upgrade and backup computing systems. The guide, in addition, provides an Internal Controls Analysis and Questionnaire. The guide also contains all of the SPA's current anti-piracy materials. The software industry is facing the challenges of more sophisticated network environments, greater competition among software companies along with hardware manufacturers. At this moment more software than ever before is distributed on a high volume, mass marketed basis. There are many types of software out on the market and the amount is increasing every day. They range from graphical user interfaces for application programs such as mass-market spreadsheets, to more sophisticated technical software used to design integrated circuits. The use of software plays a more vital role in our daily lives than it ever has. Such as embedded software, which is critical to equipment in such locations as a doctor's office or an automotive shop. The instrument and devices found there depend more and more on software, because software provides the flexibility to meet the many different needs to the end user. As our lives our shaped and enhanced more by technology, there is already a greater demand that impacts the software industry. One of the main concerns of the software industry is how to deal with the issues of software licensing. More and more customers want customized software suited for their business or personal need, and expect the software development firms to accommodate to their wishes. The other side of this issue is that software development firms are concerned with unrealized revenue and excess costs in the form of software piracy, unauthorized use, excess discounts and lengthened sales cycles. For the customer and the software development firm, all of these have high administrative costs in regards to software programs. Software licensing policies were originally a result of software developer's need to protect their revenue base in the face of potential piracy. Product delivery for software is made up of a number of different components, which are referred to as software licensing. The following factors are taken into consideration when determining a cost for a software license; physical delivery pricing, metric discounts, license periods support and maintenance, license management Tech support, change in use bug fixes and Platform Migration Product enhancements. The most commonly found type of software license found in business is known as a network license. There are four types of categories that are classified as a network license. Concurrent use licenses authorize a specified number of users to access and execute licensed software at any time. Site licenses authorize use at a single site, but are slowly being phased out and replaced by enterprise licenses. Enterprise licenses cover all sites within a corporation because of more virtual computing environments. Node licenses are also slowly being phased out because they are mainly used in a client/server environment, since the licensed software may be used only on a specified workstation in which a user must log on to in order to access and execute the software application. Currently the trend in a network system is to use measurement software, which allows vendors to be more flexible in licensing arrangements. This management software monitors and restricts the number of users or clients who may access and execute the application software at any one time. This is significant because a user pays only for needed use and a vendor can monitor such use to protect intellectual property. A new type of license that is emerging is known as a currency-based license. This type of license works on the basis that it provides to the end user a specified dollar amount of software licenses. This allows licenses to cover different business application software, so long as the total value in use at a given time is less than the amount stipulated in the license. Another type of license emerging is known as a platform-independent licensing. Which permits software to be used on a variety of different computer systems within a business, instead of buying a different license for each version of the same software used by different systems. The most common type of licensing is known as shrink-wrap, the concept behind this that the licenses terms are deemed accepted once the end user breaks a shrink-wrap seal or opens a sealed envelope containing the software. A reason for these new types of licensing is that when software licensing was first introduced, the software development firms assumed that most businesses would use the software for a 8 to 10 hour period. Yet, did not take into consideration that with the advancement of technology, more businesses would want a floating license across the world for 24 hours. This made it so it was not cost effective for the software development firm. A floating license is a license that is made available to anyone on a network. The licenses are not locked to particular workstations, instead they float to modes on the network. Shareware, freeware and public domain are different types of software available to the end user, and are distinguished by different rules about how programs may be distributed, copied, used and modified. The term shareware refers to software that is distributed at a low cost, but which usually requires a payment after a certain time period and registration for full use. Copies of this software are offered on a trial basis, the end user is free to try a scaled down version of the program. If the end user wants the shareware program, included in the program is information specifying how to register the program and what fee is required. Once registered the end user will typically receive a printed manual, an updated copy of the software (often with additional features), and the legal right to use the program in their home or business. The advantage that shareware has is that it lets the end user thoroughly test a program to see if it's useful before making a purchase. The ! authors of shareware programs retain their copyright on the contents, and as other copyrighted software should not be pirated. Freeware is also distributed at a very low cost and like shareware is found mainly on the Internet. The authors of the freeware program do not expect payment for their software. Typically, freeware programs are small utilities or incomplete programs that are released by authors for the potential benefit to others, but the drawback to this is that there is no technical support. Public domain software is generally found on the Internet and is released without any condition upon its use. It may be copied, modified and distributed as the end user wishes to do. A license manager is a system utility-like application that controls or monitors the use of another end-user application. It is generally implemented to protect intellectual property (meaning to stop illegal copying) and/or to become more competitive by offering new ways in which to evaluate, purchase and pay for software. Since the license manager controls the number of application users, there is not a need to control the number of application copies. This process lets the end user run one or more applications between machines, without violating the terms of the license agreement. SPA has created a program that companies can use to help discover and correct problems before they result in legal actions, fines and also negative publicity. The eight point program is as follows: 1. Appoint a software manager to implement and monitor all aspects of company software policy. 2. Implement a software codes of ethics for everyone to adhere to. The ethics should state that copyrighted software, except for backup and archival purposes, is a violation of the law. 3. Establish a procedure for acquiring and registering software. Determine your companies software needs, evaluate software packages, and also have supervisors approve the plans. Keep the lines of communication open. 4. Establish and maintain a software log. The log should state the date of when the software was acquired, the registration of it, serial number, network version, location of where the software is in use, where the original is, licensing agreement and the location of the original disks. 5. Conduct periodic audits or on an as needed basis comparing the software log and/or other purchase records. 6. Establish a program to educate and train your employees about every aspect of software and its uses. 7. Maintain a library of software licenses and provide users with copies of the agreement. 8. Having done the above seven points, the company can benefit by having obtained software legally, receive full documentation, technical support when needed and also upgrade notices. Patents do not cover specific systems, instead they cover particular techniques that can be used to build systems or particular features that systems can offer. Patent grants the inventor a 17 year monopoly on its use. Once a technique or feature is patented, it may not be used in a system without the permission of the patent-holder even if it is implemented in a different way. Since a computer program usually uses several techniques and provides many features, it can infringe many patents at once. A computer program is built out of ideal mathematical objects whose behavior is defined, not modeled approximately, by abstract rules. An example of this is when Borland International, Inc. complained that a federal court decision gave Lotus Development Corp. the benefit of patent protection to Lotus 1-2-3 menu commands and their order, but failed to require Lotus to meet the requirements of patent law, including novelty, examination and contribution to the prior art. The Supreme Court sided with the decision that one entity cannot own the user interface to programs. This would include such components as file formats, menu structures and programming languages. Software license agreements emerged as the most popular means of protection of proprietary rights in computer software. They coexist with other forms of intellectual property rights as patent and copyright. Software license agreements serve several functions in transactions involving the transfer of computer technology. One of the most important legal functions is the protection of the proprietary rights of the licenser in the transferred software. Other functions include controlling the revenue generated by licensed software and determining the rights and responsibilities of the parties regarding the performance of the licensed technology. Issues related to these functions include the applicability of Article 2 of the Uniform Commercial Code, including offer and disclaimer of warranties, determining the appropriate types of licenses to utilize, such as single users/CPU licenses, Site/enterprise licenses and network/concurrent licenses. Trade secret, copyright and patent law are static forms of protection in the sense that they may exist independently of any underlying business transactions and do not necessarily require any transfer of intellectual property from one party to another. Whereas, the need for a license agreement usually arises as one of the contractual forms of protection when the underlying business transaction involves the transfer of intellectual property, such as computer software. Transactions involving the transfer of computer software are subject to both federal and provincial laws. Generally, provincial law governs contractual and trade secrets aspects of the transaction, while federal law governs aspects related to patent, copyright and antitrust issues. Each province has its own version of a trade secret, the common thread through these province-specific laws is that if you show that you are seriously treated information as confidential and that the confidential information helped your competitive position, you can stop others from using it if the information was improperly acquired by them, and even collect damages from the wrongdoers. A computer is useless without software. The two types of software typically found on a computer are operating systems software and application software. Operating system software provides an interface that makes it easier to develop programs for the system by reducing the amount of code that must be written. The operating system acts as an interface between the computer hardware, application programs and the end user. Application software consists of one or more computer programs that fulfill a specific function for the user like word processing, bookkeeping or financial analysis. Two legal cases recently within the last few years has brought to light the controversy regarding the copyright protection of software elements. Until 1992, most of the federal courts followed the decision in Whenlan v Jaslow Dental Laboratory as a precedent for similar cases. Whenlan, a small software company wrote a accounting program for Jaslow Dental Laboratory company. Jaslow rewrote the software to run on personal computers and proceeded to sell the product. The software was identical to Whenlans in the data structures, logic, and the program structure, except for the source code. Jaslow argued that the duplicated elements were part by the of the idea - not the expression. The court in response felt that the data structures, logic, and the program structure comprised to make a single function of a computer program, therefore copyright protection should be given to those elements also. In 1992, this protection was weakened by Computer Associates v. Altai, Inc. , when Altai a software developer was accused of copying various modules of a software package developed by Computer Associates which controlled the running of applications on IBM mainframes. The court rejected Whelan's premise that a computer program embodies one function because programs are made up of sub-routines that contain their own idea. The court recognized that this would narrow the scope of software copyright protection and found this in accordance with the Government's intent of computer programs with copyright. This is why currently software copyright is not as broad as it once was. All the above mentioned licenses and anti-piracy precautions cost billions of dollars each year, in both direct and opportunity costs. These costs are shared by anybody that is involved with any aspect of the software industry. As the future of approaches, more and more people are gaining experience with technology. That experience doesn't come without a price. That price is the power to manipulate technology for personal gain which usually results in a detriment -typically financial-to others. Bibliography: Brandel, William, "Licensing stymies users," URL:"http://www.viman.com/license/license.html#policy", Viman Software, Inc., 1994. Business Software Alliance, "Software Piracy and the Law," URL:"http://www.bsa.org/bsa/docs/soft_pl.html", Business Software Alliance, 1995. Software Publishers Association, "SPA Anti-Piracy Backgrounder," URL:"http://www.spa.org/piracy/pi_back.htm", Software Publishers Association, 1995. Business Software Alliance, "Did You Know?," URL:"http://www.bsa.org/cgi-bin-bsa.org/seconds.cgi?", Business Software Alliance, 1997. The Economist, "Slipping A Disk" URL: "http://www.economist.com/issue/27-07-96/wbsfl.gif", The Economist, 1994. Business Software Alliance, "Software Piracy," URL: "http://www.bsa.org/privacy/privacy.html", Business Software Alliance, 1997. f:\12000 essays\business & economics (632)\Economic Development in Zimbabwe 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Development in Zimbabwe The country of Zimbabwe is one of the most economically developed on the African continent1. A fairly young political entity, Zimbabwe has only enjoyed recognized autonomy since 1980, the year in which the United Kingdom repealed its imperialistic claims to the African nation2. Despite its youth the country has achieved a level of economic development uncharacteristic of sub-Saharan African nations. Second only to South Africa in economic development, Zimbabwe's economic system is one indicative of a transitional country, a country making the transition from dependency underdevelopment to self-reliant industrialization. The purpose of this essay is to make a cursory but adequate examination of Zimbabwean socio-economic and political system, as means to analyzing the countries economic development. The ultimate purpose of this study is to provide a model of the structure necessary to achieve economic development where none previously existed. Zimbabwe is an appropriate model because the dynamics of underdevelopment to development in this country are readily apparent. This model can be useful in understanding underdevelopment in other so called "third-world" countries and in determining what is necessary for these countries to make the transition to industrialization. Geography Zimbabwe is a landlocked country in the southern, sub-Saharan area of the African continent bordered by South Africa to the South, Botswana to the West, Mozambique to the East and Zambia to the North. With an area of 391,090 km2 Zimbabwe is only slightly larger than the state of Colorado. Harare is Zimbabwe's capital and largest city with a population of 1,100,000. Containing vast amounts of rare mineralogical resources and possessing a favorable growing climate Zimbabwe's economy is drawn almost equally between the mining of minerals ($2.2 billion) and the production of staples and cash crops ($2.1 billion)3. People Zimbabweans are comprised of two primary ethnic groups, the Shona, comprising 74% of the population and the Ndebele comprising 20%. Other ethnic black groups and Asians make up 4% of the population while whites make up just over 1% of the population. Zimbabwe has a population of 10.35 million people with a population density of 24 persons per km2. 1992 census figures estimate Zimbabwe's growth at 3.0% with 90% of this growth rate within the Shona group. This 3.0% growth is quite rapid given its relation to the countries declining annual growth rate of -15%4. History Zimbabwe's history dates back to the 9th century A.D., the believed period in which many great buildings were built, buildings clearly indicative of an early and great civilization. Of the many sites the most impressive is the Great Stone House or Great Zimbabwe the source of the countries name. Despite the impressive nature of the Great Zimbabwe and the other building sites, it is believed that the civilization that created them did not survive to see the new millennium5. Some 900 years after the construction of the Great Zimbabwe many other sights were built as Zimbabwe became the object of British colonialism in 1888. It was in this year that John Cecil Rhodes obtained mineral rights for the British throne and began the process of bringing Zimbabwe home to Great Britain. Pleased with his accomplishment the throne honored Rhodes by lending his name to the area, now calling it Rhodesia. Headed by Rhodes the British South Africa Company (BSA) was chartered in 1889 with the responsibility of colonizing the areas of Northern and Southern Rhodesia and bringing back to the Kingdom the vast mineralogical resources Rhodesia had to offer6. Although a colony, throughout the existence of its charter Rhodesia enjoyed self-governing and perceived autonomy. The United Kingdom reserved the right to intervene in the policies of Rhodesia at any prompting, but this right was rarely employed leaving Rhodesia's autonomy all but assumed. The perceived autonomy the nation enjoyed allowed for the emergence of factions interested in developing Rhodesia's mineralogical and agricultural potential for the purpose of stimulating domestic growth only. Although growth would benefit the country as a whole, it would benefit whites specifically by design. An apartheid-type land apportionment act passed in 1934 allotted key resource rich areas to whites only. The perceived autonomy and racists nature of Rhodesia would have great implications late in the countries political future. Politics By 1960 Rhodesia was a country of two factions: the ruling white minority who wanted complete independence from the United Kingdom and the indigenous African majority who wanted greater control of their country and an end to institutional racism. On November 11, 1965 in a step to hasten along political change white progressives announced the Unilateral Declaration of Independence (UDI) thereby declaring their independence from Great Britain7. The British government was not hostile to the UDI but did insist that the Rhodesian government demonstrate its intention to move toward free and democratic majority rule. Considering the majority of Rhodesia was African the ruling whites were diametrically opposed to any such form of majority rule government and refused to meet Great Britain's conditions of independence. On December 16, 1966 Rhodesia made history by being the first country subject to United Nations economic sanctions, suffering a complete embargo on key exports and imports8. With a dilapidating economy and African discontent with the white ruling minority Rhodesia fell into a period of economic and political turmoil breeding uncertainty and general political instability. In 1974 Rhodesia's two primary black nationalists parties combined to form a front against Rhodesia's governing policy. Robert Mugabe's Zimbabwe African National Union (ZANU) and Joshua Nkomo's Zimbabwe African People's Union (ZAPU) united together to form a "Patriotic Front" against the segregationist regime of Prime Minister Ian Smith9. In 1976, under great political, economic, and social pressure Smith ceded to foreign and domestic demands and agreed to majority rule in principle. Through diplomatic channels and under British auspices Rhodesia made the transition to majority rule and on December 21, 1979 political reforms were unofficially agreed upon. As a condition of this agreement Rhodesia was granted independence from the Commonwealth, and all U.N. sanctions were lifted with a decree that Rhodesia was to be internationally recognized as a political state10. In late February, 1980 free democratic election were held in Rhodesia for the first time with Mugabe's ZANU(PF) achieving an absolute majority. Upon the victory of his party Mugabe was asked to form the first government of the country of Zimbabwe. On April 18, 1980 the British Government formally granted independence to the former Rhodesia and four months later Zimbabwe was indoctrinated as a member of the United Nations11. Zimbabwe's political system exists to this day as democratic and majoritarian all implemented through a parliamentary system. Robert Mugabe remains as President and utilizes a foreign policy of non-alignment. Despite this Zimbabwe is a member of the Organization of African Unity (OAU) and performs primary trade with its neighboring African state South Africa. It is the period from 1980 to the present that is most fundamental in understanding Zimbabwe's economic system because it is in this period that Zimbabwe's economic structure best reveals itself. Economics Zimbabwe's economic structure is one of great potential. In the years prior to its independence Zimbabwe put great emphasis in developing its mining industry and as a result it is one of the most developed in Africa. The mining of such minerals as copper, nickel, gold, and metallurgical-grade ferrochromite is responsible for nearly half the countries $4.9 billion Gross Domestic Product (GDP)12. The other half of Zimbabwe's GDP is generated primarily in the agricultural sector with the majority of this produced at subsistence levels by most of the population. Zimbabwe clearly has the potential to generate agriculture beyond the subsistence level and thereby eliminate any degree of shortage. In any event subsistence would be sufficient to eliminate shortage if not for recent devastating droughts. Zimbabwe's mineral export industry is key to the nations developmental success. Although small, the countries mining industry is modernized and strategically developed toward exports. Many paved roads link mines and other industries together that complement mining such as heavy machinery. Also, the areas within the vicinity of the mines are highly developed and urbanized to ensure an adequate and able workforce. Finally, Zimbabwe participates in non-aligned trade for non-strategic products such as textiles. This greatly reduces the countries chance of becoming dependent on a trade partner. Conclusion In many ways Zimbabwe is a model for third-world economic development. Although not yet fully developed Zimbabwe clearly has the potential to be a full fledged developed nation. Beyond its vast resources Zimbabwe is structured in a way to promote development. This fact in and of itself distinguishes Zimbabwe from most other Lesser Developed Countries (LDC). Zimbabwe's economic structure is one in which they are essentially self-sufficient and trade only for profit or for consumer goods. Also they perform trade with many partners with no single partner comprising garnering more than 15% of import or export goods. By structuring the Zimbabwe's economic system in a way that keeps its partners diversified and its imports non-strategic, Mugabe has successfully led his nation to the path of development. The barriers left to full development are quite minimal compared to the ones already dominated, The structure of Zimbabwe's economic system is truly a model of economic development. f:\12000 essays\business & economics (632)\Economic Development in Zimbabwe 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Development in Zimbabwe The country of Zimbabwe is one of the most economically developed on the African continent . A fairly young political entity, Zimbabwe has only enjoyed recognized autonomy since 1980, the year in which the United Kingdom repealed its imperialistic claims to the African nation . Despite its youth the country has achieved a level of economic development uncharacteristic of sub-Saharan African nations. Second only to South Africa in economic development, Zimbabwe's economic system is one indicative of a transitional country, a country making the transition from dependency underdevelopment to self-reliant industrialization. The purpose of this essay is to make a cursory but adequate examination of Zimbabwean socio-economic and political system, as means to analyzing the countries economic development. The ultimate purpose of this study is to provide a model of the structure necessary to achieve economic development where none previously existed. Zimbabwe is an appropriate model because the dynamics of underdevelopment to development in this country are readily apparent. This model can be useful in understanding underdevelopment in other so called "third-world" countries and in determining what is necessary for these countries to make the transition to industrialization. Geography Zimbabwe is a landlocked country in the southern, sub-Saharan area of the African continent bordered by South Africa to the South, Botswana to the West, Mozambique to the East and Zambia to the North. With an area of 391,090 km2 Zimbabwe is only slightly larger than the state of Colorado. Harare is Zimbabwe's capital and largest city with a population of 1,100,000. Containing vast amounts of rare mineralogical resources and possessing a favorable growing climate Zimbabwe's economy is drawn almost equally between the mining of minerals ($2.2 billion) and the production of staples and cash crops ($2.1 billion) . People Zimbabweans are comprised of two primary ethnic groups, the Shona, comprising 74% of the population and the Ndebele comprising 20%. Other ethnic black groups and Asians make up 4% of the population while whites make up just over 1% of the population. Zimbabwe has a population of 10.35 million people with a population density of 24 persons per km2. 1992 census figures estimate Zimbabwe's growth at 3.0% with 90% of this growth rate within the Shona group. This 3.0% growth is quite rapid given its relation to the countries declining annual growth rate of -15% . History Zimbabwe's history dates back to the 9th century A.D., the believed period in which many great buildings were built, buildings clearly indicative of an early and great civilization. Of the many sites the most impressive is the Great Stone House or Great Zimbabwe the source of the countries name. Despite the impressive nature of the Great Zimbabwe and the other building sites, it is believed that the civilization that created them did not survive to see the new millennium . Some 900 years after the construction of the Great Zimbabwe many other sights were built as Zimbabwe became the object of British colonialism in 1888. It was in this year that John Cecil Rhodes obtained mineral rights for the British throne and began the process of bringing Zimbabwe home to Great Britain. Pleased with his accomplishment the throne honored Rhodes by lending his name to the area, now calling it Rhodesia. Headed by Rhodes the British South Africa Company (BSA) was chartered in 1889 with the responsibility of colonizing the areas of Northern and Southern Rhodesia and bringing back to the Kingdom the vast mineralogical resources Rhodesia had to offer . Although a colony, throughout the existence of its charter Rhodesia enjoyed self-governing and perceived autonomy. The United Kingdom reserved the right to intervene in the policies of Rhodesia at any prompting, but this right was rarely employed leaving Rhodesia's autonomy all but assumed. The perceived autonomy the nation enjoyed allowed for the emergence of factions interested in developing Rhodesia's mineralogical and agricultural potential for the purpose of stimulating domestic growth only. Although growth would benefit the country as a whole, it would benefit whites specifically by design. An apartheid-type land apportionment act passed in 1934 allotted key resource rich areas to whites only. The perceived autonomy and racists nature of Rhodesia would have great implications late in the countries political future. Politics By 1960 Rhodesia was a country of two factions: the ruling white minority who wanted complete independence from the United Kingdom and the indigenous African majority who wanted greater control of their country and an end to institutional racism. On November 11, 1965 in a step to hasten along political change white progressives announced the Unilateral Declaration of Independence (UDI) thereby declaring their independence from Great Britain . The British government was not hostile to the UDI but did insist that the Rhodesian government demonstrate its intention to move toward free and democratic majority rule. Considering the majority of Rhodesia was African the ruling whites were diametrically opposed to any such form of majority rule government and refused to meet Great Britain's conditions of independence. On December 16, 1966 Rhodesia made history by being the first country subject to United Nations economic sanctions, suffering a complete embargo on key exports and imports . With a dilapidating economy and African discontent with the white ruling minority Rhodesia fell into a period of economic and political turmoil breeding uncertainty and general political instability. In 1974 Rhodesia's two primary black nationalists parties combined to form a front against Rhodesia's governing policy. Robert Mugabe's Zimbabwe African National Union (ZANU) and Joshua Nkomo's Zimbabwe African People's Union (ZAPU) united together to form a "Patriotic Front" against the segregationist regime of Prime Minister Ian Smith . In 1976, under great political, economic, and social pressure Smith ceded to foreign and domestic demands and agreed to majority rule in principle. Through diplomatic channels and under British auspices Rhodesia made the transition to majority rule and on December 21, 1979 political reforms were unofficially agreed upon. As a condition of this agreement Rhodesia was granted independence from the Commonwealth, and all U.N. sanctions were lifted with a decree that Rhodesia was to be internationally recognized as a political state . In late February, 1980 free democratic election were held in Rhodesia for the first time with Mugabe's ZANU(PF) achieving an absolute majority. Upon the victory of his party Mugabe was asked to form the first government of the country of Zimbabwe. On April 18, 1980 the British Government formally granted independence to the former Rhodesia and four months later Zimbabwe was indoctrinated as a member of the United Nations . Zimbabwe's political system exists to this day as democratic and majoritarian all implemented through a parliamentary system. Robert Mugabe remains as President and utilizes a foreign policy of non-alignment. Despite this Zimbabwe is a member of the Organization of African Unity (OAU) and performs primary trade with its neighboring African state South Africa. It is the period from 1980 to the present that is most fundamental in understanding Zimbabwe's economic system because it is in this period that Zimbabwe's economic structure best reveals itself. Economics Zimbabwe's economic structure is one of great potential. In the years prior to its independence Zimbabwe put great emphasis in developing its mining industry and as a result it is one of the most developed in Africa. The mining of such minerals as copper, nickel, gold, and metallurgical-grade ferrochromite is responsible for nearly half the countries $4.9 billion Gross Domestic Product (GDP) . The other half of Zimbabwe's GDP is generated primarily in the agricultural sector with the majority of this produced at subsistence levels by most of the population. Zimbabwe clearly has the potential to generate agriculture beyond the subsistence level and thereby eliminate any degree of shortage. In any event subsistence would be sufficient to eliminate shortage if not for recent devastating droughts. Zimbabwe's mineral export industry is key to the nations developmental success. Although small, the countries mining industry is modernized and strategically developed toward exports. Many paved roads link mines and other industries together that complement mining such as heavy machinery. Also, the areas within the vicinity of the mines are highly developed and urbanized to ensure an adequate and able workforce. Finally, Zimbabwe participates in non-aligned trade for non-strategic products such as textiles. This greatly reduces the countries chance of becoming dependent on a trade partner. Conclusion In many ways Zimbabwe is a model for third-world economic development. Although not yet fully developed Zimbabwe clearly has the potential to be a full fledged developed nation. Beyond its vast resources Zimbabwe is structured in a way to promote development. This fact in and of itself distinguishes Zimbabwe from most other Lesser Developed Countries (LDC). Zimbabwe's economic structure is one in which they are essentially self-sufficient and trade only for profit or for consumer goods. Also they perform trade with many partners with no single partner comprising garnering more than 15% of import or export goods. By structuring the Zimbabwe's economic system in a way that keeps its partners diversified and its imports non-strategic, Mugabe has successfully led his nation to the path of development. The barriers left to full development are quite minimal compared to the ones already dominated, The structure of Zimbabwe's economic system is truly a model of economic development. f:\12000 essays\business & economics (632)\Economic Development in Zimbabwe.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Development in Zimbabwe The country of Zimbabwe is one of the most economically developed on the African continent . A fairly young political entity, Zimbabwe has only enjoyed recognized autonomy since 1980, the year in which the United Kingdom repealed its imperialistic claims to the African nation . Despite its youth the country has achieved a level of economic development uncharacteristic of sub-Saharan African nations. Second only to South Africa in economic development, Zimbabwe's economic system is one indicative of a transitional country, a country making the transition from dependency underdevelopment to self-reliant industrialization. The purpose of this essay is to make a cursory but adequate examination of Zimbabwean socio-economic and political system, as means to analyzing the countries economic development. The ultimate purpose of this study is to provide a model of the structure necessary to achieve economic development where none previously existed. Zimbabwe is an appropriate model because the dynamics of underdevelopment to development in this country are readily apparent. This model can be useful in understanding underdevelopment in other so called "third-world" countries and in determining what is necessary for these countries to make the transition to industrialization. Geography Zimbabwe is a landlocked country in the southern, sub-Saharan area of the African continent bordered by South Africa to the South, Botswana to the West, Mozambique to the East and Zambia to the North. With an area of 391,090 km2 Zimbabwe is only slightly larger than the state of Colorado. Harare is Zimbabwe's capital and largest city with a population of 1,100,000. Containing vast amounts of rare mineralogical resources and possessing a favorable growing climate Zimbabwe's economy is drawn almost equally between the mining of minerals ($2.2 billion) and the production of staples and cash crops ($2.1 billion) . People Zimbabweans are comprised of two primary ethnic groups, the Shona, comprising 74% of the population and the Ndebele comprising 20%. Other ethnic black groups and Asians make up 4% of the population while whites make up just over 1% of the population. Zimbabwe has a population of 10.35 million people with a population density of 24 persons per km2. 1992 census figures estimate Zimbabwe's growth at 3.0% with 90% of this growth rate within the Shona group. This 3.0% growth is quite rapid given its relation to the countries declining annual growth rate of -15% . History Zimbabwe's history dates back to the 9th century A.D., the believed period in which many great buildings were built, buildings clearly indicative of an early and great civilization. Of the many sites the most impressive is the Great Stone House or Great Zimbabwe the source of the countries name. Despite the impressive nature of the Great Zimbabwe and the other building sites, it is believed that the civilization that created them did not survive to see the new millennium . Some 900 years after the construction of the Great Zimbabwe many other sights were built as Zimbabwe became the object of British colonialism in 1888. It was in this year that John Cecil Rhodes obtained mineral rights for the British throne and began the process of bringing Zimbabwe home to Great Britain. Pleased with his accomplishment the throne honored Rhodes by lending his name to the area, now calling it Rhodesia. Headed by Rhodes the British South Africa Company (BSA) was chartered in 1889 with the responsibility of colonizing the areas of Northern and Southern Rhodesia and bringing back to the Kingdom the vast mineralogical resources Rhodesia had to offer . Although a colony, throughout the existence of its charter Rhodesia enjoyed self-governing and perceived autonomy. The United Kingdom reserved the right to intervene in the policies of Rhodesia at any prompting, but this right was rarely employed leaving Rhodesia's autonomy all but assumed. The perceived autonomy the nation enjoyed allowed for the emergence of factions interested in developing Rhodesia's mineralogical and agricultural potential for the purpose of stimulating domestic growth only. Although growth would benefit the country as a whole, it would benefit whites specifically by design. An apartheid-type land apportionment act passed in 1934 allotted key resource rich areas to whites only. The perceived autonomy and racists nature of Rhodesia would have great implications late in the countries political future. Politics By 1960 Rhodesia was a country of two factions: the ruling white minority who wanted complete independence from the United Kingdom and the indigenous African majority who wanted greater control of their country and an end to institutional racism. On November 11, 1965 in a step to hasten along political change white progressives announced the Unilateral Declaration of Independence (UDI) thereby declaring their independence from Great Britain . The British government was not hostile to the UDI but did insist that the Rhodesian government demonstrate its intention to move toward free and democratic majority rule. Considering the majority of Rhodesia was African the ruling whites were diametrically opposed to any such form of majority rule government and refused to meet Great Britain's conditions of independence. On December 16, 1966 Rhodesia made history by being the first country subject to United Nations economic sanctions, suffering a complete embargo on key exports and imports . With a dilapidating economy and African discontent with the white ruling minority Rhodesia fell into a period of economic and political turmoil breeding uncertainty and general political instability. In 1974 Rhodesia's two primary black nationalists parties combined to form a front against Rhodesia's governing policy. Robert Mugabe's Zimbabwe African National Union (ZANU) and Joshua Nkomo's Zimbabwe African People's Union (ZAPU) united together to form a "Patriotic Front" against the segregationist regime of Prime Minister Ian Smith . In 1976, under great political, economic, and social pressure Smith ceded to foreign and domestic demands and agreed to majority rule in principle. Through diplomatic channels and under British auspices Rhodesia made the transition to majority rule and on December 21, 1979 political reforms were unofficially agreed upon. As a condition of this agreement Rhodesia was granted independence from the Commonwealth, and all U.N. sanctions were lifted with a decree that Rhodesia was to be internationally recognized as a political state . In late February, 1980 free democratic election were held in Rhodesia for the first time with Mugabe's ZANU(PF) achieving an absolute majority. Upon the victory of his party Mugabe was asked to form the first government of the country of Zimbabwe. On April 18, 1980 the British Government formally granted independence to the former Rhodesia and four months later Zimbabwe was indoctrinated as a member of the United Nations . Zimbabwe's political system exists to this day as democratic and majoritarian all implemented through a parliamentary system. Robert Mugabe remains as President and utilizes a foreign policy of non-alignment. Despite this Zimbabwe is a member of the Organization of African Unity (OAU) and performs primary trade with its neighboring African state South Africa. It is the period from 1980 to the present that is most fundamental in understanding Zimbabwe's economic system because it is in this period that Zimbabwe's economic structure best reveals itself. Economics Zimbabwe's economic structure is one of great potential. In the years prior to its independence Zimbabwe put great emphasis in developing its mining industry and as a result it is one of the most developed in Africa. The mining of such minerals as copper, nickel, gold, and metallurgical-grade ferrochromite is responsible for nearly half the countries $4.9 billion Gross Domestic Product (GDP) . The other half of Zimbabwe's GDP is generated primarily in the agricultural sector with the majority of this produced at subsistence levels by most of the population. Zimbabwe clearly has the potential to generate agriculture beyond the subsistence level and thereby eliminate any degree of shortage. In any event subsistence would be sufficient to eliminate shortage if not for recent devastating droughts. Zimbabwe's mineral export industry is key to the nations developmental success. Although small, the countries mining industry is modernized and strategically developed toward exports. Many paved roads link mines and other industries together that complement mining such as heavy machinery. Also, the areas within the vicinity of the mines are highly developed and urbanized to ensure an adequate and able workforce. Finally, Zimbabwe participates in non-aligned trade for non-strategic products such as textiles. This greatly reduces the countries chance of becoming dependent on a trade partner. Conclusion In many ways Zimbabwe is a model for third-world economic development. Although not yet fully developed Zimbabwe clearly has the potential to be a full fledged developed nation. Beyond its vast resources Zimbabwe is structured in a way to promote development. This fact in and of itself distinguishes Zimbabwe from most other Lesser Developed Countries (LDC). Zimbabwe's economic structure is one in which they are essentially self-sufficient and trade only for profit or for consumer goods. Also they perform trade with many partners with no single partner comprising garnering more than 15% of import or export goods. By structuring the Zimbabwe's economic system in a way that keeps its partners diversified and its imports non-strategic, Mugabe has successfully led his nation to the path of development. The barriers left to full development are quite minimal compared to the ones already dominated, The structure of Zimbabwe's economic system is truly a model of economic development. f:\12000 essays\business & economics (632)\ECONOMIC POLICIES.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Chad Stigall Econ 100 11/26/96 Economic Policy The new economic policy of the united states should include cutting taxes, reducing governmental waste, and balance the budget by having a smaller more efficient federal government. It should include equal opportunity for financial security but not through a government sponsored redistribution of wealth program. Cutting taxes across the board including income tax rates, capital gains and estate taxes among others should provide a growth spurt for the economy. Allowing people and businesses to keep more of their hard earned money would enable them to spend more money. People would be able to buy more cars, refrigerators, homes etc. The businesses would be able to build new factories with better more efficient high tech equipment. These new factories and expanded businesses would employee more highly paid workers which would expand the tax base and allow us to be more competitive in the world marketplace. Reducing the taxes would also motivate people to work harder and save more. The way things are now people can not seem to get ahead no matter how hard they work. The harder they work the more the government takes while others who choose not to work hard or have not developed the skills to earn a decent wage reap the same and in many cases more benefits. For example student loans and grants for college board and tuition fees are largely unavailable to lower middle class families let alone middle and upper middle class people. Reducing taxes on businesses would also allow them to invert more on new product development and research which in many instances the federal government now subsidizes which requires management. This government management bureaucracy cost tax payers money and is unnecessary because free market demands and the extra money they would save from tax cuts would motivate businesses to fund these programs themselves. This is just an example of what a smaller more efficient federal government. "Citizens in the united states today pay 38.2 percent of there income in taxes every year" (RNC Talking Points). This is way to much money for Americans to be paying. "Cutting everyone's taxes by 15 percent and giving them a 500 dollar per child tax credit would cut a typical families tax bill in half, allowing them to keep an average of $1,600 more of its hard- earned money"(RNC Talking Points). The question is often asked as it was in the recent presidential election, how can we balance the budget and have significant tax cuts? There are several ways in which the government can cut taxes while maintaining worthwhile government subsidized programs, which will be discussed in this paper. To have funded tax cuts the government will have to cut spending by eliminating waste and by reforming while preserving needed entitlement programs such as Welfare, Social Security and Medicare though slowing the rate of growth in spending on them. As quoted in a Business Week editorial "Cutting the growth in Medicare spending by $150 billion would help open the way for a truly balanced budget, lower interest rates and higher economic growth" (A Vote for a Sensible Center 194). To eliminate waste the government will have to cut programs that are no longer needed and programs that overlap each other. "The federal government today has 163 separate job training programs, 26 food programs and 180 educational programs. The government needs to eliminate some, consolidate some and change others" (The Balance Sheet). The government can also cut waste by cutting the amount of money that some of the governmental agencies receive for example the "Republicans want to cut funding for the Commerce Department and the department of Urban Development budget by $715 million, Foreign Aid by 11.5 percent, Defense budget by $6 billion and the congresses budget by $205 million" (The Balance Sheet). They can also reduce waste by spending money more wisely which can be accomplished by reforming some of the government agencies such as welfare, Social Security and Head Start. One proposal inparticular seems fair and powerful "New York senator Daniel Patrick Moynihan has been pushing for several years- a recalculation of the consumer price index so that it no longer triggers a higher-than-necessary cost of living adjustment in Social Security checks and other entitlement. That fix along with companion reduction in other programs tied to the consumer price index would save $1 trillion over the next twelve years" (A Very Good Place to Start 70). By reducing waste the government will be able to increase funding for programs that are needed, and put our hard earned tax dollars to good use. There are many programs that need to be increased, the first is Social Security because our senior citizens need money to live on when they retire. Second is Medicare because its important to the health care of our seniors. Third, Student Loans because young people need higher education to get good jobs and compete with the rest of the world. Fourth is Law enforcement, law enforcement is an essential part of modern society. Fifth, Medical research And Health to make life better and find cures to deadly diseases. Sixth the Job Training because it helps to get people job which reduces the number of people on welfare. Next, Food and Nutrition will help women, infant and children program (WIC), and the school lunch program. Last the National Parks we need to save the wonders of our beautiful country. The Republican national committee says "the government needs to pass a balance the budget amendment to the constitution ensuring that the federal budget stays balanced and that Washington no longer continue to pile more and more debt on our children and grandchildren, mortgaging their future" (RNC Talking Points 1). At one time our country had a very small debt and "no other currency on earth was as 'Sound As The Dollar'" (The National Debt 1). Now the national debt is five trillion dollars and climbing and the dollar is not nearly as strong. To keep inflation and interest rates from rising the government needs to balance the budget; "As seen during the Carter presidency when inflation skyrocketed and interest rates hovered near 20%" (The National Debt 2). If the inflation increases and interest rates rises it will slow the economy down because no one will be able to afford to buy anything or barrow money. Cutting taxes across the board will not just give people more money but will benefit the economy. By cutting taxes citizens as well as business will be able to keep more of their money they worked so hard to get. By cutting taxes this will also allow people to buy things that they can not afford now because taxes are so high. The business will not only have more money from tax cuts but they will have more money from citizens buying more highly priced items. With this money the business will be able to invest in building new factories and new products, which will in turn make more high paying jobs for the for the hard working American people. By cutting governmental waste they will be able to spend more on the entitlement programs that are truly needed. Cutting waste will also ease the task of Balancing the budget which will ensure that the debt does not continue to grow at an unsubstainable rate. Balancing the budget will help ensure that inflation and interest rates remain at an affordable rate. Works Cited Kramer, Micheal. "A Very Good Place to Start." Time 18 Nov. 1996: 70. "Review and Outlook Dole and Taxes." The Wall Street Journal 29 July 1996: A12 Sepp, Peter J. "Are Republicans Serious About Cutting Fat?" New York Times 30 Aug. 1995: A17 "Dole Hopes Tax-Cut Move Will Energize His Campaign, but Which taxes to Cut?" The Wall Street Journal 15 may 1996: A16 "A Vote for a Sensible Center." Business Week 18 Nov. 1996: 194 "The National Debt. It's Eating Us Alive!" Internet http://www.europa.com/~blugene/deficit/debt.html "The Balance Sheet -- August 11, 1995." Internet http://www.rnc.ogr/news/balance/bal-950815.html "RNC Talking Points Cutting Taxes and Balancing the Budget Bill Clinton's Dirty Little Secret: A $64 Billion Tax Increase" Internet http://www.rnc.org/news/talking/tp-960913.html f:\12000 essays\business & economics (632)\Economic Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Policy Chad Stigall Econ 100 11/26/96 The new economic policy of the united states should include cutting taxes, reducing governmental waste, and balance the budget by having a smaller more efficient federal government. It should include equal opportunity for financial security but not through a government sponsored redistribution of wealth program. Cutting taxes across the board including income tax rates, capital gains and estate taxes among others should provide a growth spurt for the economy. Allowing people and businesses to keep more of their hard earned money would enable them to spend more money. People would be able to buy more cars, refrigerators, homes etc. The businesses would be able to build new factories with better more efficient high tech equipment. These new factories and expanded businesses would employee more highly paid workers which would expand the tax base and allow us to be more competitive in the world marketplace. Reducing the taxes would also motivate people to work harder and save more. The way things are now people can not seem to get ahead no matter how hard they work. The harder they work the more the government takes while others who choose not to work hard or have not developed the skills to earn a decent wage reap the same and in many cases more benefits. For example student loans and grants for college board and tuition fees are largely unavailable to lower middle class families let alone middle and upper middle class people. Reducing taxes on businesses would also allow them to invert more on new product development and research which in many instances the federal government now subsidizes which requires management. This government management bureaucracy cost tax payers money and is unnecessary because free market demands and the extra money they would save from tax cuts would motivate businesses to fund these programs themselves. This is just an example of what a smaller more efficient federal government. "Citizens in the united states today pay 38.2 percent of there income in taxes every year" (RNC Talking Points). This is way to much money for Americans to be paying. "Cutting everyone's taxes by 15 percent and giving them a 500 dollar per child tax credit would cut a typical families tax bill in half, allowing them to keep an average of $1,600 more of its hard-earned money"(RNC Talking Points). The question is often asked as it was in the recent presidential election, how can we balance the budget and have significant tax cuts? There are several ways in which the government can cut taxes while maintaining worthwhile government subsidized programs, which will be discussed in this paper. To have funded tax cuts the government will have to cut spending by eliminating waste and by reforming while preserving needed entitlement programs such as Welfare, Social Security and Medicare though slowing the rate of growth in spending on them. As quoted in a Business Week editorial "Cutting the growth in Medicare spending by $150 billion would help open the way for a truly balanced budget, lower interest rates and higher economic growth" (A Vote for a Sensible Center 194). To eliminate waste the government will have to cut programs that are no longer needed and programs that overlap each other. "The federal government today has 163 separate job training programs, 26 food programs and 180 educational programs. The government needs to eliminate some, consolidate some and change others" (The Balance Sheet). The government can also cut waste by cutting the amount of money that some of the governmental agencies receive for example the "Republicans want to cut funding for the Commerce Department and the department of Urban Development budget by $715 million, Foreign Aid by 11.5 percent, Defense budget by $6 billion and the congresses budget by $205 million" (The Balance Sheet). They can also reduce waste by spending money more wisely which can be accomplished by reforming some of the government agencies such as welfare, Social Security and Head Start. One proposal inparticular seems fair and powerful "New York senator Daniel Patrick Moynihan has been pushing for several years- a recalculation of the consumer price index so that it no longer triggers a higher-than-necessary cost of living adjustment in Social Security checks and other entitlement. That fix along with companion reduction in other programs tied to the consumer price index would save $1 trillion over the next twelve years" (A Very Good Place to Start 70). By reducing waste the government will be able to increase funding for programs that are needed, and put our hard earned tax dollars to good use. There are many programs that need to be increased, the first is Social Security because our senior citizens need money to live on when they retire. Second is Medicare because its important to the health care of our seniors. Third, Student Loans because young people need higher education to get good jobs and compete with the rest of the world. Fourth is Law enforcement, law enforcement is an essential part of modern society. Fifth, Medical research And Health to make life better and find cures to deadly diseases. Sixth the Job Training because it helps to get people job which reduces the number of people on welfare. Next, Food and Nutrition will help women, infant and children program (WIC), and the school lunch program. Last the National Parks we need to save the wonders of our beautiful country. The Republican national committee says "the government needs to pass a balance the budget amendment to the constitution ensuring that the federal budget stays balanced and that Washington no longer continue to pile more and more debt on our children and grandchildren, mortgaging their future" (RNC Talking Points 1). At one time our country had a very small debt and "no other currency on earth was as 'Sound As The Dollar'" (The National Debt 1). Now the national debt is five trillion dollars and climbing and the dollar is not nearly as strong. To keep inflation and interest rates from rising the government needs to balance the budget; "As seen during the Carter presidency when inflation skyrocketed and interest rates hovered near 20%" (The National Debt 2). If the inflation increases and interest rates rises it will slow the economy down because no one will be able to afford to buy anything or barrow money. Cutting taxes across the board will not just give people more money but will benefit the economy. By cutting taxes citizens as well as business will be able to keep more of their money they worked so hard to get. By cutting taxes this will also allow people to buy things that they can not afford now because taxes are so high. The business will not only have more money from tax cuts but they will have more money from citizens buying more highly priced items. With this money the business will be able to invest in building new factories and new products, which will in turn make more high paying jobs for the for the hard working American people. By cutting governmental waste they will be able to spend more on the entitlement programs that are truly needed. Cutting waste will also ease the task of Balancing the budget which will ensure that the debt does not continue to grow at an unsubstainable rate. Balancing the budget will help ensure that inflation and interest rates remain at an affordable rate. Works Cited Kramer, Micheal. "A Very Good Place to Start." Time 18 Nov. 1996: 70. "Review and Outlook Dole and Taxes." The Wall Street Journal 29 July 1996: A12 Sepp, Peter J. "Are Republicans Serious About Cutting Fat?" New York Times 30 Aug. 1995: A17 "Dole Hopes Tax-Cut Move Will Energize His Campaign, but Which taxes to Cut?" The Wall Street Journal 15 may 1996: A16 "A Vote for a Sensible Center." Business Week 18 Nov. 1996: 194 "The National Debt. It's Eating Us Alive!" Internet http://www.europa.com/~blugene/deficit/debt.html "The Balance Sheet -- August 11, 1995." Internet http://www.rnc.ogr/news/balance/bal-950815.html "RNC Talking Points Cutting Taxes and Balancing the Budget Bill Clinton's Dirty Little Secret: A $64 Billion Tax Increase" Internet http://www.rnc.org/news/talking/tp-960913.html f:\12000 essays\business & economics (632)\Economic ReformPolicy Mix.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Question: What role do governments have in modern mixed economies such as Australia? Using appropriate indicators (macro economic aggregates) outline the present state of the economy. In what ways is the Commonwealth government using fiscal and monetary policies to influence the Australian economy? What are the main features of the government's micro economic policy? Why is the government concerned about microeconomic reform? Synopsis: The role of government in Australia today has less influence on the market than they did a decade ago. It function now is to provide a stable internal and external balance under which the market can function. This is achieved through the use of fiscal, monetary and microeconomic reform. Australia currently operates under a mixed economic system. This means that the government has partial control over the economy and has the ability to influence the markets. Recent moves by the government that shows the government's role in the economy to be shrinking includes the privatisation of government business enterprises (GBE) and deregulation of the financial market. The main roles that the Australian government plays today are to ensure: 1) The efficient and even distribution of income (though CSSB, tax) 2) Provide a limited range of goods and services (Aust post) 3) General economic management through macro and micro economic policies. In 96/97 the CAD fell to $20.9bn from the $27bn blowout during 95/96. This was largely due to a fall in domestic spending which lead to a slight rise in national savings. Inflation remained low and fell between the RBA's 2-3% target. This gave way to the RBA's 3 consecutive drops in interest rates to stimulate the economy. Economic growth has stabilised between 3-4%. Although this is a reasonable figure, a higher growth rate is required if unemployment is to fall from the 8.6% is has averaged for the past year. Overall economic performance has been reasonable but current figures show the problems with our external balance and unemployment will not be solved any time soon. Fiscal policy is the government's use of the Budget to achieve its economic management goals. This is done through revenue collection and government spending. In recent years there has been a shift away from the Keynesian view that fiscal policy is used to stabilise short-term fluctuations in demand. This refers to a contractionary stance during a boom period to dampen economy and an expansionary stance during a bust period to stimulate the economy. Current fiscal policies are aimed at the medium and long-term goals of resource allocation, income distribution and external balance. This is because fiscal policy is relatively inflexible and is adjusted on an annual basis. One of the government's objectives in using fiscal policy is to reduce the Public Sector Borrowing Requirement (PSBR). To do this the government has had a $3.9bn cut in discretionary spending during the 96/97 budget. This cut may be the first of several in a bid to achieve a budget surplus. One reason behind this goal is to maintain external stability. For the past decade (except for the late 80's boom) the public debt has been on a continual rise. This was largely due to a succession of budget deficits. The result of this was a large increase in net income as a component of the current account, which in turn became a burden on the next budget. A surplus budget can be used to pay of the public debt thereby easing interest obligations. At the same time a reduction in the deficit will increase national savings. By reducing the deficit, the government does not need as much national savings in order to finance the budget. This will leave a larger pool of savings to fund investment. Although a contractionary fiscal stance will increase public saving, they may decrease private savings. Cuts in government spending to programs aimed at increasing private savings (such as Austudy) have meant that the private sector must cover the costs, forgoing saving opportunities. This will mean a lower level of private savings but not enough to offset the increase in public saving. On the whole national saving increases. Due to the multiplier effect, a reduction in government spending will impact the level of economic activity. The recent cut in government spending has dampened aggregate demand. This in turn produced low levels of inflation and economic growth. By reducing the amount of government participation in the market, it hopes to achieve the 'crowding in' effect. This means that the private sector will invest in functions that the government once provided (CES facilities). Monetary policy is the raising or lowering of interest rates to dampen or stimulate the economy. It is concerned with internal balance (ie. economic activity, employment and price stability). Unlike fiscal policy, monetary policies influence the economy indirectly through changes in financial conditions. This follows the belief that the level of financial activity plays a major role in determining the level of economic activity. The main indicator of monetary policy stance is the level of short-term interest rates. The government is currently using monetary policy to boost the level of economic activity. By easing interest rates the private sector will be more inclined to borrow money for investment. Small businesses will expand and this should lead to an increase in employment opportunities and a decreasing unemployment rate. A fall in interest rates will also increase the level of spending in the economy. This is due to the increase in the availability of credit. A boost in spending increases aggregate demand followed by an increase in retail sales but will also fuel inflation. Interest rate drops in the latter half of the year has not had much effect on the economy. Economic growth slowed to 3%, investment dell from 17% to 10% between 94/95 and 95/96, profit growth fell from 16% to 3%, unemployment rose from 8.4% to 8.8%, the growth of retail sales has slowed and both business sentiment and consumer confidence has fallen. This poor performance may be attributed to the reduction of government spending during the 96/97 budget. Only inflation managed to drop to the RBA's target of 2-3% underlying inflation. New figures released in early March 97 show an increase in retail sales and economic activity. This may be a response to the drop in interest rates from the previous year. Microeconomic reforms (MER) are initiatives taken by the government to improve resource allocation and efficiency. By doing so they improve productivity, international competitiveness, economic efficiency and long-run economic growth. A growing economy provides an environment in which the success of MER is high. The government uses macroeconomic policies to provide this type of environment. There are three main objectives to MER, they are: 1) To raise the supply potential of the economy. This will lead to higher economic growth, domestic demand and living standards. 2) Reduction in interference with price signals in the labour and product markets to enhance economic efficiency, competition and lower inflationary pressures. 3) To facilitate the stabilisation of external debt and to reduce the demand for domestic savings without lowering living standards. The government currently aims to internationalise the domestic economy. Their aim is to promote greater competition by exposing businesses to the international market and to encourage innovation and flexibility. Tariff reforms are a part of this process. These programs are to reduce protection to industries that are deemed inefficient and to allocate funds to other causes. The Garnaut Report released in 1989 proposed that all tariffs should be gradually eliminated. This will allow enterprises to take advantage of economies of scale. There have been plans to provide long term solutions to the trade imbalance. The government now place emphases on producing manufactured tradeable that provide a more stable export base to replace the volatile commodity markets. Greater diversification of products and more productive rather than speculative capital inflow have also been emphasised. Before internationalising the economy, there must first be an efficient domestic market structure in Australia. MER has been introduced to the domestic economy to increase the international competitiveness of our industries and its workers. Fiscal reform seeks to reduce the budget deficit to 1 percent of GDP. To do this, tax reforms were introduced. These were aimed at increasing economic incentives and creating a better environment for business investment. GBEs were also targeted for their inefficiencies. The aim was to ensure cost effective production of goods and services and that prices charged reflected the cost of supply. It is estimated that a $9bn increase in GDP would occur if GBE inefficiencies were eliminated. Part of the Hilmer Report is based on reforming GBEs at a national level. The proposals included: - Placing GBEs under the Trade Practice Act. - Structural reform of public monopolies. - Regulation of pricing. - Competition neutrality between GBEs and the private sector pricing structure. These reforms are paying off with lowered costs, improved productivity, and improved returns but the reform process has been slow. Problems such as a low level of labour productivity and high domestic cost structure have seen labour market reform to be focusing on enterprise bargaining. This process allows for individual workplace agreements and wage increases are more in line with economic circumstances and productivity improvements. Enterprise bargaining is seen by the government as the key to labour productivity improvements. MER has had significant achievements in the economy. Significant improvements have been made in particular areas such as maintaining a highly skilled future workforce, and productivity improvements in the waterfront and shipping industry. There is a down side to MER. Job loss has risen as reforms are implemented; displaced workers usually lack the skills required for employment in other industries. This leads to a growth in the rate of structurally unemployed. Reforms will also increase inequalities in income distribution; workers relying on safety net wage rises will be disadvantaged to those who have formal agreements. The government is concerned about these factors but believe that MER was not designed to fix social issues. They believe its function is to improve productivity in key industries that will benefit the economy as a whole. In the 90's, the government's role in the economy is shrinking. Its main function is to provide a stable environment in which the market can function. To achieve this, the government uses a policy mix containing fiscal, monetary and MER which implemented in conjunction with one another will provide a platform where Australian firms can compete successfully in the international market. f:\12000 essays\business & economics (632)\Economic Systems of Different Countries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economic Systems of Different Countries Canada: The Government of Canada is a Federal Parliamentary Democracy and a member of the Common Wealth. The Prime Minister of Canada is the Honorable Jean Chretien. The Deputy Prime Minister is Sheila Copps and the Governor General is Romeo LeBlanc. There are five major political parties in Canada they are; the Progressive Conservatives, the Liberal Party, New Democratic Party, the Reform Party, and the Bloc Quebecois. The GNP per capita (1991) was $19,934 (in millions). The annual GNP growth was 3.4%. The amount of GNP for defence was 2.2%. The majority of workers in Canada are in the Service field (73%), Industry has 23% of the workers, and Agriculture has the remaining 4% of the labour workforce. Canada has an unemployment rate of 9.5% and an inflation rate of 2.3%. Canada's top three natural resources are Nickel, Zinc and Copper. Canada's top three agricultural products include Wheat, Barley, and Corn. The three major Canadian industries are automobile manufacturing, lumber industry, and petroleum products. Canada has a healthy trading market with major partners such as the United States, Mexico, and Japan. The top three imported products are vehicles, foodstuffs, and animal feed, while the three major exports include vehicles, petroleum products and natural gas. Canada's exports vastly outweigh their imports. The balance of trade is $9,823,000,000 (more exports than imports). Canada's economy is a market economy based on free enterprise and the ideology of capitalism. As a Canadian citizen you are free to buy and sell as you please on the open market, so long as you are within the law. Since Canada is a democratic state we are guaranteed these rights and freedoms. Canada has a very efficient economy. We have an unemployment rate of only 9.5% and a reasonably small inflation rate. Canada has been rated as one of the best countries in the world - Coincidence? Niger: The Government in Niger is a republic in which there is a President and a Prime Minister. The President of the Republic of Niger is Mahamane Ousmane. The Prime Minister is Hama Amadou. There are five major political parties. They are; The National Movement for the Developing Society, The Democratic and Social Convention, Nigerian Party for Democracy and Socialism, The Nigerian Alliance for Democracy and Progress, and The Union of Progressive Patriots and Democrats. Niger has a Gross National Product per capita of $550 (in millions). There is an annual GNP growth of 1.4%, 0.1% more then the allotted funds for defence. The majority of the labour force works in agriculture (45%), the service field represents 39% of the workers, and the remaining 16% are employed in the industrial field, which is declining at a rate of 2.7% per year. Niger relies on its three top natural resources, which are; Uranium, Coal, and Iron/Ore. The three main agricultural products are; Millet, Sorgum, and Pulses. Niger's "major" industries are based in the fields of Cement, Beverages, and Beer. Niger is a country in which there are many more imports than exports. The three main imports are; foodstuffs, cereal, and sugar, while the three major exports are; Uranium, Foodstuffs, and Livestock. Niger is one of the world's poorest countries. Their economy is centered on subsistence farming. Uranium, their major export through the 1970's and 1980's, revenue has dropped by 50% between 1983 and 1990 (end of cold war). Niger's balance of trade is $-58,000,000 and they carry a debt of $1.2 billion. One U.S. dollar is equal to $529 of their currency the Communaute Financiere Africane Francs. Niger has a traditional economy similar to many other 3rd World Nations. Recent studies would suggest that 4/5 of their major exports relate to livestock and agriculture (hides and skins, vegetables). Their economy is very inefficient because of the fact that they import more than they export, although that is not always negative, a third world nation which remains in debt will never prosper. Japan: Japan is a Constitutional Monarchy with a figure head of Emperor Akihito (son of Hirohito). Japan's Prime Minister goes by the name of Tomiichi Murayame. There are three major political parties within Japan. These parties include the Liberal Democratic Party, the Japan Socialist Party, and the Democratic Socialist Party. The GNP per capita for Japan is $25,469 (in millions), while having an annual GNP growth of 4%. Japan's spends a limited amount on defence equaling only 1% of their GNP. Japan is a country which provides many services to its people. Sixty percent of the labour force is dedicated to serving the people. An additional 35% of Japan's workers are involved in the Industrial market, the remaining 5% are employed in Agriculture. Japan is an island in which level ground is a scarcity and as a result, so is agriculture. Japan is a country with limited Natural Resources. Japan imports raw materials and then transforms them into finished products which it then exports around the world. Japan's only natural resources are Fish and Limestone. The three main Agricultural products grown are rice, potatoes, and sugar beets. Japan's major industries include Iron/Steel, Cement, and Paper. Since fish is a major part of the Japanese diet it is also one of their largest imports along with foodstuffs, and machinery. The three top Japanese exports include vehicles, office equipment (computers, photocopiers, etc.), and Scientific Equipment. Japan has a remarkable balance of trade even though their imports outweigh their exports. Their balance of trade is $63,580,000,000. Japan is a market economy, much like Canada and the United States. Fifty years ago Japan was virtually invisible on the economic scene due to Japan's demise in WWII. Japan has overcome its adversities and risen from the ashes to become an economic superpower in the 90's. Japanese citizens have the opportunity to make large profits through hard work in their desired fields. Japan has one of the most effective and efficient economies in the world. Unemployment is at a minimum and labourers are well taken care of by the corporations which promise lifetime employment (a happy worker is a productive worker). China: The People's Republic of China is based on the Communist system of Government initiated by Mao Tse-tung in the previous decades. The current President of China is Yang Shangkun. The Premier of China is Li Peng and the Central Military Commander Chairman is Jiong Zemin. There are only two key political parties which reside in China. They are the Chinese Communist Party, and the China Democratic League. The GNP per capita in China is $460 (in millions). Their GNP is growing at a rate of 10.5% per annum. China spends a fair amount of its GNP on defence (3.9%). The bulk of the Chinese labour force is involved in Industry (53%). Thirty-four percent work in Agriculture and the remaining 13% are involved in services for the people. China's three major natural resources consist of Coal, Iron/Ore, and Petroleum. Chinese agriculture is based largely on their own diet of rice, wheat and corn. The major Chinese industries are Iron/Steel, Cement and Fertilizers. China exports considerably more than they important, their balance of trade is $9,165,000,000. Their top exports include textiles, metal products, and rubber products, while importing machinery, vehicles, and textiles. The economy in China is a Command economy in which a central authority owns Natural and Capital resources. The government decides what to produce, how to produce it and whom to produce it for. As a result initiative and morale is low among the people as there is no incentive for hard work. Lack of freedom for the people results in goods being produced inefficiently. The idea of a few men planning an economy is very complex and could not possibly fulfill the Production Possibility Curve (PPC). f:\12000 essays\business & economics (632)\Economic Systems.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ECONOMIC SYSTEMS ASSIGNMENT Canada: The Government of Canada is a Federal Parliamentary Democracy and a member of the Common Wealth. The Prime Minister of Canada is the Honorable Jean Chretien. The Deputy Prime Minister is Sheila Copps and the Governor General is Romeo LeBlanc. There are five major political parties in Canada they are; the Progressive Conservatives, the Liberal Party, New Democratic Party, the Reform Party, and the Bloc Quebecois. The GNP per capita (1991) was $19,934 (in millions). The annual GNP growth was 3.4%. The amount of GNP for defence was 2.2%. The majority of workers in Canada are in the Service field (73%), Industry has 23% of the workers, and Agriculture has the remaining 4% of the labour workforce. Canada has an unemployment rate of 9.5% and an inflation rate of 2.3%. Canada's top three natural resources are Nickel, Zinc and Copper. Canada's top three agricultural products include Wheat, Barley, and Corn. The three major Canadian industries are automobile manufacturing, lumber industry, and petroleum products. Canada has a healthy trading market with major partners such as the United States, Mexico, and Japan. The top three imported products are vehicles, foodstuffs, and animal feed, while the three major exports include vehicles, petroleum products and natural gas. Canada's exports vastly outweigh their imports. The balance of trade is $9,823,000,000 (more exports than imports). Canada's economy is a market economy based on free enterprise and the ideology of capitalism. As a Canadian citizen you are free to buy and sell as you please on the open market, so long as you are within the law. Since Canada is a democratic state we are guaranteed these rights and freedoms. Canada has a very efficient economy. We have an unemployment rate of only 9.5% and a reasonably small inflation rate. Canada has been rated as one of the best countries in the world - Coincidence? Niger: The Government in Niger is a republic in which there is a President and a Prime Minister. The President of the Republic of Niger is Mahamane Ousmane. The Prime Minister is Hama Amadou. There are five major political parties. They are; The National Movement for the Developing Society, The Democratic and Social Convention, Nigerian Party for Democracy and Socialism, The Nigerian Alliance for Democracy and Progress, and The Union of Progressive Patriots and Democrats. Niger has a Gross National Product per capita of $550 (in millions). There is an annual GNP growth of 1.4%, 0.1% more then the allotted funds for defence. The majority of the labour force works in agriculture (45%), the service field represents 39% of the workers, and the remaining 16% are employed in the industrial field, which is declining at a rate of 2.7% per year. Niger relies on its three top natural resources, which are; Uranium, Coal, and Iron/Ore. The three main agricultural products are; Millet, Sorgum, and Pulses. Niger's "major" industries are based in the fields of Cement, Beverages, and Beer. Niger is a country in which there are many more imports than exports. The three main imports are; foodstuffs, cereal, and sugar, while the three major exports are; Uranium, Foodstuffs, and Livestock. Niger is one of the world's poorest countries. Their economy is centered on subsistence farming. Uranium, their major export through the 1970's and 1980's, revenue has dropped by 50% between 1983 and 1990 (end of cold war). Niger's balance of trade is $-58,000,000 and they carry a debt of $1.2 billion. One U.S. dollar is equal to $529 of their currency the Communaute Financiere Africane Francs. Niger has a traditional economy similar to many other 3rd World Nations. Recent studies would suggest that 4/5 of their major exports relate to livestock and agriculture (hides and skins, vegetables). Their economy is very inefficient because of the fact that they import more than they export, although that is not always negative, a third world nation which remains in debt will never prosper. Japan: Japan is a Constitutional Monarchy with a figure head of Emperor Akihito (son of Hirohito). Japan's Prime Minister goes by the name of Tomiichi Murayame. There are three major political parties within Japan. These parties include the Liberal Democratic Party, the Japan Socialist Party, and the Democratic Socialist Party. The GNP per capita for Japan is $25,469 (in millions), while having an annual GNP growth of 4%. Japan's spends a limited amount on defence equaling only 1% of their GNP. Japan is a country which provides many services to its people. Sixty percent of the labour force is dedicated to serving the people. An additional 35% of Japan's workers are involved in the Industrial market, the remaining 5% are employed in Agriculture. Japan is an island in which level ground is a scarcity and as a result, so is agriculture. Japan is a country with limited Natural Resources. Japan imports raw materials and then transforms them into finished products which it then exports around the world. Japan's only natural resources are Fish and Limestone. The three main Agricultural products grown are rice, potatoes, and sugar beets. Japan's major industries include Iron/Steel, Cement, and Paper. Since fish is a major part of the Japanese diet it is also one of their largest imports along with foodstuffs, and machinery. The three top Japanese exports include vehicles, office equipment (computers, photocopiers, etc.), and Scientific Equipment. Japan has a remarkable balance of trade even though their imports outweigh their exports. Their balance of trade is $63,580,000,000. Japan is a market economy, much like Canada and the United States. Fifty years ago Japan was virtually invisible on the economic scene due to Japan's demise in WWII. Japan has overcome its adversities and risen from the ashes to become an economic superpower in the 90's. Japanese citizens have the opportunity to make large profits through hard work in their desired fields. Japan has one of the most effective and efficient economies in the world. Unemployment is at a minimum and labourers are well taken care of by the corporations which promise lifetime employment (a happy worker is a productive worker). China: The People's Republic of China is based on the Communist system of Government initiated by Mao Tse-tung in the previous decades. The current President of China is Yang Shangkun. The Premier of China is Li Peng and the Central Military Commander Chairman is Jiong Zemin. There are only two key political parties which reside in China. They are the Chinese Communist Party, and the China Democratic League. The GNP per capita in China is $460 (in millions). Their GNP is growing at a rate of 10.5% per annum. China spends a fair amount of its GNP on defence (3.9%). The bulk of the Chinese labour force is involved in Industry (53%). Thirty-four percent work in Agriculture and the remaining 13% are involved in services for the people. China's three major natural resources consist of Coal, Iron/Ore, and Petroleum. Chinese agriculture is based largely on their own diet of rice, wheat and corn. The major Chinese industries are Iron/Steel, Cement and Fertilizers. China exports considerably more than they important, their balance of trade is $9,165,000,000. Their top exports include textiles, metal products, and rubber products, while importing machinery, vehicles, and textiles. The economy in China is a Command economy in which a central authority owns Natural and Capital resources. The government decides what to produce, how to produce it and whom to produce it for. As a result initiative and morale is low among the people as there is no incentive for hard work. Lack of freedom for the people results in goods being produced inefficiently. The idea of a few men planning an economy is very complex and could not possibly fulfill the Production Possibility Curve (PPC). f:\12000 essays\business & economics (632)\Economics 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics Economics and Healthcare Delivery Systems has a direct affect on society; because health, like any other good or service, is desired because it generates utility. The Health Production Theory explains the role of the making, or production, of health and its influence by a variety of factors, including the amount of medical care consumed. Also, there's a direct relationship between healthcare economics and societies access to health insurance. Rising incomes mean more disposable income for health services, both basic and optional. Because health insurance continues to offer narrow ranges of benefits for small monthly fees, many people pay directly for optional health services. The first to notice this trend are entrepreneurs, both physicians and businessmen who come from the resource side. These entrepreneurs have led in the most noticeable physical and organizational restructuring of health care: the decentralization of hospital and physician services to single-specialty or single-patient-type "institutes" that offer all services in an integrated form. Institutes now house women and children's services, cancer, orthopedics, eye, diabetes, renal and stroke services, asthma and allergies, heart and fitness, along the lines of existing infertility institutes. The task of tying these disparate institutes together falls to the regional health care system where the links are financial and information systems, not geographic or facility. Physicians, many of whom prove to be not only surplus under managed care but whose skills have not kept up with advances in medical science. At the same time, doctors trained in genetics find they cannot afford to practice independently, since health plans are reluctant to open the gate to what they perceive as expensive services that will not prove out for years. Manpower surplus gives the advantage to health plans, which can pick and choose. IPA's are a low-involvement framework for physicians who only want to contract together. Medical groups can not only contract but enhance the practice experience, and health plans tend to like them. Health Insurance: As the country enjoys the "long boom" produced by the leveraging of knowledge into wealth, there are actually two pathways emerging in payment:  One pathway is mediated by insurance, still related to individuals through work or through government. Mandates have stair-stepped most employers into mandated coverage, leaving out small rural businesses where no managed care plan exists, or certain other exceptions. Unfortunately, Congress has been unable to reduce fully the 17 percent of the population without insurance, since small business growth, immigration and premium increases offset any gain. Universal coverage mandates await the political maturation of minority groups into both elected leadership positions, and voter participation.  The second pathway is payment arranged outside of insurance. This is the fastest-growing form at present. Direct consumer payment covers most self-care, alternative health services, "nutraceuticals," cosmetic surgery, much nonorganic mental health, non-Medicaid long-term care and physical therapy past approved limits. For seniors and even families, some health services are built into housing costs. Foundations and not-for-profits cover problems not easily handled by insurance, such as migrant worker care or open-door clinics for the inner city. Health insurance depresses innovation, as providers tend to give only the care that is, in fact, "covered." It does so by excluding "experimental" procedures, by underpaying for new services so providers are reluctant to commit the resources, and by restricting by underpaying for new services so providers are reluctant to commit the resources, and by restricting patients' access on a per-case basis. (Examples: bone marrow transplants for third-stage breast cancer, testing of family members at risk for cancer, etc.) Prevention efforts are artificially limited as they can be paid for only if delivered to covered individuals in their role as patients, when prevention at the family or community levels may be called for.  Insurance related to individuals does not work for people who lack the competence to manage it or their health care. Open-access services, instead, should be subsidized. Note the untenable economics of emergency rooms, the safety net for people who are outside the formal system. Insurers, particularly government plans, could stimulate such innovation by offering budget subsidies for services that are meant to reach the uninsurable. f:\12000 essays\business & economics (632)\Economics 3.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics: Turn Around is Fair Game America's size and prosperity have made it the largest consumer of imported products in the world. Brightly lit shopping malls adorned with the latest foreign-made apparel, gadgets and trinkets, testify to the vast selection of goods available for purchase. There is a dark side to this enormous quantity of choices: a hefty price tag - the federal deficit. Unfair trade agreements, and, predatory pricing strategies and practices from abroad, placed those goods on the store's shelves. The United States Trade Representative (USTR), who is directly responsible to the President and Congress for trade negotiations; is forecasting a two hundred billion-dollar trade deficit for fiscal year 1996. The American people must demand reciprocal trade agreements for overseas business competitors. Complimentary trading would; put an end to subsidized dumping, curb the loss of manufacturing jobs, and, tear down the barriers associated with free trade. The practice of selling items at a price less than what it costs to make them is called dumping. Foreign governments subsidize the manufacturing processes of certain industries so their companies can displace the competition's industry. The television industry is a perfect example of subsidized dumping. The post World War II infusion of subsidized Japanese-made televisions, terminated the United States(U.S.) television manufacturing industry. In the late 1950's, half a million units crossed our borders, tax and tariff free. These television sets were made using cheaper components and cheaper labor. However, the cost of transportation, which would normally escalate each individual price, was paid for by the Japanese government. The pioneering inventors of the electronic marvel were forced out. No longer able to compete by meeting rapidly declining prices, companies had to stop production, liquidate all available assets, and release their entire work force. Unemployment figures for 1996 are predicted to be at seven percent (USTR, 1996.) This equates to nearly twenty million skilled American workers without jobs. The math is simple; imports cost an economy jobs, exports produce jobs. Reciprocal trading contracts would definitely curb the exponential loss of manufacturing jobs. Trade barriers are the largest problems facing American companies in overseas markets. The obstructions are sometimes overt, sometimes hidden and usually extremely complex. Deals are covertly impeded with complicated licensing and import procedures. Regulations concerning special specification standards and testing of American goods are hurdles deliberately enacted to block fair trade. If foreign governments were mandated to treat American businesses the same way native companies were treated, free commerce would truly be achieved. The U.S. has used an arsenal of tools to try to mitigate unfair trade practices and enhance U.S. access to overseas markets. These include: Section 301 of the 1974 Trade Act - Section 301 serves as the flagship of the President's fleet of trade remedies aimed at unfair trade practices. It calls on the USTR, subject to the specific direction (if any) of the President, to enforce U.S. rights under any trade agreement. It also allows the USTR to respond to any act, policy, or practice of a foreign country or instrumentality that is unjustifiable, unreasonable, or discriminatory and that burdens or restricts U.S. commerce. Under Section 301's broad mandate, the USTR may take any appropriate and feasible action to enforce U.S. trade agreement rights or eliminate trade practices unfairly burdening U.S. commerce. If the foreign country does not modify its practices, the USTR may deny it U.S. trade benefits or impose duties, fees, or other import restrictions upon that nation's goods or services. Under Section 301, retaliatory action has been taken by the U.S. to eliminate unfair trade activities of countries such as Japan as well as European Community countries. In other cases, its credible threat has been sufficient to achieve market-opening, trade-liberalizing results without imposing sanctions. Unfortunately, it is seldomly used. In most instances, Section 301 is used only as a last resort when all other available remedies have been exhausted. Often, bilateral negotiations and dispute-settlement procedures under the General Agreements on Tariffs and Trade (GATT) are used to resolve trade disagreements without resorting to Section 301. For example, bilateral negotiations have been successful in improving access to Japan's market for U.S. products, resolving South Korean unfair trade practices affecting intellectual property rights and insurance, and eliminating tariffs and import bans on several U.S. items in Taiwan. Economic principle tells us that free trade or freer trade will mean lower consumer prices, and, in the long term, job security in a stable, competitive economy. However, in the real world, the short term world, jobs are threatened by competition from abroad - no matter how fair that competition may be. The only way to achieve freer trade in the complex and delicate world of global business, is for the elected officials of America, to decree reciprocal trade agreements at the international bargaining table. These agreements will open doors for new economic opportunities in all nations. The agreements could eliminate all tariffs, reduce or eliminate most nontariff barriers, liberalize investment practices, cover trade in services, and support efforts at multilateral trade liberalization. As a result all nations' international competitiveness and living standards should markedly increase. f:\12000 essays\business & economics (632)\economics of at&t.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The AT+T Corporation, formerly known as The American Telephone and Telegraph Company, was incorporated on March 3, 1885 in New York as a wholly owned subsidiary of The American Bell Telephone Company. Its original purpose was to manage and expand the burgeoning toll (long distance) business of American Bell and its licensees. It continued as the long distance company until December 30, 1899 when it assumed the business and property of American Bell and became the parent company of the Bell System. For most of its history, the company functioned as a legally sanctioned, regulated monopoly. No competition was apparent until the 1970's. Since the break up in 1984, AT+T has become the largest telecommunications company in the United States, and a world wide leader in communications services. Its main businesses include long distance services, AT+T Wireless Services, AT+T World Net services, AT+T Solutions consulting services and the AT+T Universal Card. AT+T has a very strong global presence that dates back to 1882 when it opened a plant in Antwerp ,Belgium. AT+T has approximately 51,000 employees based outside of the United States.In 1994, International revenues alone were 25 percent. You can see why AT+T has a presence in nearly 100 countries around the world, and does business in about 200 countries. In the last fifteen months AT+T has split into three separate companies. They are AT+T, a global communications company; Lucent Technologies, a technological company; NCR Corporation, a computer company. The new AT+T is committed to making the most of its leadership position in the dynamic global market for communications and information services. With 2.3 million share owners, AT+T is the most widely held stock in the United States. AT+T has an Environmental Responsibility and they follow through on it. They take precautions and do not want to mess up the environment any more than it has already been. AT+T's strong commitment to have good environmental performance has to start with environmental goals that call for phaseout of CFC emissions from manufacturing operations. Also, they would like to eliminate reportable toxic air emissions. They have already increased recycling of waste paper and in the use of paper. Their progress is a key to their responsibility. The figures I found are as follows. The factories have virtually eliminated all CFC emissions. They have reduced reportable toxic air emissions by 92 percent. Also, they have reduced manufacturing waste by 49 percent. The company is recycling 63 percent of its wastepaper that computes to forty-eight billion pounds annually and has increased its use of recycled paper significantly. It has been reducing paper consumption by 25 percent since 1990. AT+T is also responsible for their employees' conditions in the workplace. In reviewing information about the company, I feel they do an excellent job. They provide something called E,H&S. This is an Environment, Health & Safety organization dedicated to creating a safe and healthy workplace for the employees of AT+T. This is supporting the business, protecting the environment and maintaining AT+T's strong reputation as one of the top corporate environmental champions. E,H&S is currently working to provide guidance regarding compliance with regulatory policies world wide. Also they commit resources to legislative and regulatory analysis activities and performance monitoring which is how they evaluate the persons overall work presense,attitude, self ateem and overall performance. Finally they implement an environmental management system based on ISO 14001 principles that are the global environmental management systems standards. One other interesting area of AT+T is their Social Responsibility. They are mediocre with this. I feel they lay off too many people. They think profit before they think about what the effect will be on their employees. When AT+T announced in January of this year that it would be laying-off 40,000 workers or 13 percent of its workforce, people began to say that AT+T was another example of Corporational Greed. This is a failure of the social responsibility by the corporation. The flip side to the down sizing is that the new competitors have job openings for the people who have been layed-off. AT+T has also offered packages such as one years salary if they would leave so that they were protecting their employees for at least a year. This compensation package depended upon your seniority. What I do feel is right is that they want to be involved with the community. They have the AT&T Foundation that supports projects in education, health, social action and the arts. They also care about the employees. They have work and family programs that they fund. These include child care and elder care that both have been commended by the United States Department of Labor. One last program is the Total Life Concept Program which addresses employee health, nutrition and stress management. AT+T is committed to the development and growth of its employees. That is why they want to build their employees capabilities so they can connect with the future. Environmental and social responsibilities are traditions that have been embedded to the company since the very first day. AT+T wants to keep up on the modernizing and look toward the future. If they continue to keep on making the advances that they are, they will be by far the strongest company in America. Their downfall will be there downsizing. To gain respect of their employees and their customers, they will need to remain as is. f:\12000 essays\business & economics (632)\Economics of India.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In every region of the world there are culture and social differences that set countries apart. Each with an economic, social and political outlooks on the future that determine the way people live. These endless arrays, even occur in different parts of a particular of every country including one of the worlds most diverse, India. India is separated into 25 states and 7 territories which create 16 major languages and 1,000 minor languages and dialects. This diversity in language creates somewhat of a barrier for India to become one of the foremost leaders in world because of the lack of unity. Although, in the past, the India government has taken steps to correct this matter with promoting Hindi as the national language. However, Indians who cannot speak Hindi frowned upon this notion. They believed the best jobs would go to Indians who spoke Hindi and with their pride of their regional languages kept them from accepting this unity, thus government decided against this idea. Now, the India government recognizes 13 regional languages as official languages. Children in schools learn Hindi as their second language, with English being used primary in higher education. Education has become the most recognizable forms of advancing one's country, India has exploded in schools and enrollment in these schools. As we can see by page 2, both chart's, the difference in a little more then 10 years is considerable. Both school enrollment and the number of educational institutions have increased by an average of 63%, however do not get fooled by these numbers. The Indian's school system are extremely overcrowded and many children drop out to get a job to help support their families. This problem with India's educational system falls in two parts, the first being that children who do drop out to find a job, is part of the social problem that India has been trying to correct. The Indian government started this quest to eliminate child labor in 1986 with a whole section in the United Nations' convention on the Rights of the Child. Additionally, in 1986 they passed the Child Labor Act that intended to ban the employment of children in occupations that are considered hazardous and to regulate conditions of work for children employed in occupations where child labor is not actually banned. However, as we can see by the summery of this act it does not make the necessary changes to the social conditions in which children have to work to ensure that the family has money. The second problem with the educational system in India is the overcrowding. However this occurrence has more to do with the situation of population increasing steadily over the past 20 years. As we can see by the 1st page the population will enter into the billions by the year 2001, which will also have a direct impact on the density of India. If the figures for the year 2001 are correct the density per sq. km should be around 422 which close to twice as crowed in 1991. This in turn again will have a direct effect on the overcrowding of schools unless the Indian government starts to build more schools. As we can see the educational system has its flaws not to mention the fact that most of the population lives in the rural area of India, which we can see on page 1, where modern development like schools are very few in number in the urban area. These alterations of the system must come from the top i.e. the government, however, they have gone through many changes themselves. In the past year the Indian government elected their new prime minister H.D. Deve Gowda. One of the main goals of prime minister Gowda is to carry on the economic reforms and increasing social spending to the lower and middle class. This would included India becoming more open to global investment and building up relations with almost all countries especially their neighbors Pakistan and China. Additionally, this would included more government allocation of funds including medical care, and other social reforms. As we just illustrated the Indian government is in directed command of India's future in turns of economic development since all new reforms come from the prime minister Gowda. Another step within the government that has aided India in becoming an economic power is the time period which it takes to create new regulations and laws. In the past it was a few years now it is a few weeks. As we can see by page 3, these reforms by the government has been taking its effect because of the increase trend of these numbers. The difference from 1981 to 1991 is staggering which is especially shown in both charts. In these past ten years all aspects of the Indian economy has nearly tripled in number and size. This is in part again from the government forcing economic changes but also in part from the expanding wealth of India. The problem of India is that the poverty is a high factor however this country has a large GNP. Although this value can not be compared to America since because if its large population they have one of the lowest per capita GNP's. This low ranking is strictly why the India is still a developing country. The India economy is split up into nine basic parts with the four on page three being the main ingredients. The main one is considered to be agriculture since it provides the nation with the third of its income. This economy also has been increasing and less imports are coming into India because of improved farming techniques, with in turn has enlarged the economy. Service is another economic activity however, because of huge rural population this less important in India. Although, due to the expanding population all over India this has become more important in the past 10 years as seen in the charts on page 3. Manufacturing also has become a leader in expansion in India. This is in part from the gaining of Independence in which India received from Britain in the 1950's. Thus India became more free to pursue, and have control their own manufacturing which in turn gain them their own economy. India's economic success as a country is strictly from gaining independence India. However, just like ever developing country India has had trouble in the social aspect. In the upcoming years this corrections will have to be addressed since the India economy is expanding at an idea rate however, the social conditions are staying somewhat behind of other countries. f:\12000 essays\business & economics (632)\Economics The American Government.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics: The American Government Most of the problems of the United states are related to the economy. One of the major issues facing the country today is social security. The United States was one of the last major industrialized nations to establish a social security system. In 1911, Wisconsin passed the first state workers compensation law to be held constitutional. At that time, most Americans believed the government should not have to care for the aged, disabled or needy. But such attitudes changed during the Great Depression in the 1930's. In 1935, Congress passed the Social Security Act. This law became the basis of the U.S. social insurance system. It provided cash benefits to only retired workers in commerce or industry. In 1939, Congress amended the act to benefit and dependent children of retired workers and widows and children of deceased workers . In 1950, the act began to cover many farm and domestic workers, non professional self employed workers, and many state and municipal employees. Coverage became nearly universal in 1956, when lawyers and other professional workers came under the system. Social security is a government program that helps workers and retired workers and their families achieve a degree of economic security. Social security also called social insurance (Robertson p. 33), provides cash payments to help replace income lost as a result of retirement, unemployment, disability, or death. The program also helps pay the cost of medical care for people age 65 or older and for some disabled workers. About one-sixth of the people in the United States receive social security benefits. People become eligible to receive benefits by working in a certain period in a job covered by social security. Employers and workers finance the program through payroll taxes. Participation in the social security system is required for about 95 percent of all U.S. workers. Social security differs from public assistance. Social security pays benefits to individuals, and their families, largely on the basis of work histories. Public assistance, or welfare, aids the needy, regardless of their work records. All industrialized countries as well as many developing nations have a social security system. The social security program in the United states has three main parts. They are (1) old-aged, survivors, disability, and hospital insurance (OASDHI), (2) unemployment insurance; and (3) workers' compensation. THE SOCIAL SECURITY PAYROLL TAX This tax was to be taken from the payrolls of the nation's employers and employees. The government felt that, like unemployment benefits, the social security should be financed by those who got the greatest benefit, those who worked, and were liable to need those benefits in the future. A plan that would affect those only who had paid such a tax for a number of years would have done those who were currently suffering under the Depression no good at all. As a result, the social security plan began paying out benefits almost immediately to those who had been retired, or elderly and out of work, and who were unable, primarily because of the depressed economic conditions, to retire comfortably. In this way, the government was able to accomplish two objectives: first, it helped the economy pull out of the depression, by providing a means by which old people could support themselves and, by buying goods and services, support others in the community ; and second, it showed the younger workers of that time that they no longer had to fear living out their retirement years in fear of poverty. Therefore, the social security payroll tax has been used to provide benefits to those who otherwise would have little means of support, and as of this writing, there has never been a year when Social Security benefits were not paid due to lack of Social Security income. (Boskin p.122) PAYING OUT BENEFITS Social Security benefits increased 142% in the period between 1950-1972. not only the elderly, but many of the survivers, the widows and children, of those who paid into the Social Security system, have received social security checks. These checks have paid for the food shelters, and in many instances the college education of the recipients. Unlike private insurance firms, the United States Government does not have to worry about financial failure. Government bonds are considered the safest investment money can buy-so safe, they are considered "risk free" by many financial scholars. (Stein p. 198) The ability of the United States Government to raise money to meet the requirements of the social security should be no more in doubt than the governments ability to finance the national defense, the housing programs, the State Department, or any of the other activities that the federal government gets involved in. By paying out benefits equally to all participate in Social Security- that is by not relying so heavily on total payments in making the decision to pay out benefits, the system is able to pay benefits to people who otherwise may not be able to afford an insurance program that would provide them with as much protection. One of the main reasons for the government's involvement in this program, is its ability and its desire to provide insurance benefits for the poor and widowed, who under the private market, might not be able to acquire the insurance to continue on a financially steady course. The government, then, is in a totally unique position to pay out benefits that would be out of the reach of many American families. Another great advantage of this system, is the ability of the government to adjust the benefits for the effects of inflation(Robertson p.134) INFLATION AND SOCIAL SECURITY Private insurance plans are totally unable to adjust for the effects of inflation with complete accuracy. In order for an insurance company to make this adjustment, they would have to be able to see forty-five years into the future, with twenty-twenty vision. When a private pension plan currently insures the twenty-year-old worker, it can only guarantee a fixed income when the worker reaches sixty-five and a fixed income is a prime victim of inflation (Robertson p.332) In order to adjust for that inflation, the private insurance firm would have to be able to predict what the inflation rate will be from the moment the worker is insured until the day he dies, and then make the complex adjustments necessary to reflect this in the pension plan. An inflation estimate that is too small will result in the erosion of the workers retirement benefits. Because the government, unlike the private insurance firm, can guarantee that it will exist well into the future, and will have the continued income of the Social Security tax to draw upon, it can make on-the-spot adjustments for changes in the inflation rate. Some adjustments, in fact, have been automatic in the recent years, therefore relieving the pensioners of the periodic worry of whether this years benefits would be adjusted, or whether the level of payments would remain stable, thereby, relative to the cost of living, making them poorer that ever before(Stein p.28). In the face of the government's ability to make those necessary adjustments and to continually finance the Social Security program, many opponents of the system argue that the government programs are driving out the private insurance industry. The statistics remain otherwise. SOCIAL SECURITY FINANCING The social security tax is one of the fewest taxes in the United States, and the only federal tax in the country, that is given for a specific purpose. All other taxes are put into another fund, so that welfare programs, defense, space projects, and the other categories of government spending are all financed from one giant, uncategorized bowl of tax revenues(boskin p.62). When the Social Security system was first established, it was felt that a direct payroll tax, based on the pay of the worker and paid both by employer and employee, would be the fairest way for the people that were currently working to pay benefits to those who weren't working, as well as to provide for some future requirements and disabilities. Therefore, a specially constructed payroll tax was used to fund the program. By measuring the amount taken in by the tax to the amount, not only that is taken out, but to the amount that will be taken out in future years, opponents of the Social Security system make the case that the system will be unable to keep itself in such a manner indefinitely. And, if Social Security were a private insurance program, it wouldn't. But the fact is that Social Security is not a private program. it is funded by the government. Further, the government is in a unique position to change the laws of commerce and contract to adjust the system, making it more responsive to the needs of the retired, which, in turn, would reduce their need for the Social Security benefits. For example, the United states Government should raise the mandatory retirement age. By raising the age to sixty-eight, the Social Security System could delay paying out benefits for several years to thousands of people, saving the system a significant amount of money in benefits. For these reasons, the government is in a position which cannot be compared to private industry. In this sense, looking at social security as an insurance program and comparing it to other insurance programs in the private system could easily give the impression that the system is gong bankrupt, when in the reality it isn't. THE FUTURE OF SOCIAL SECURITY The thing to keep in mind about the Social Security system, then, is this: the system itself is in no fundamental danger of collapse. There is only temporary, cash flow situation that must be carefully looked at. The federal government pays out 4.5 billion more in Social Security benefits as it collects in taxes every year. In fact, $4.5 billion is a small price, compared to the other programs the federal government now finances from general revenue. Besides tapping the general revenue fund and raising the retirement limit to 68 or even 70,the government has the option of raising the Social Security tax or even reducing the benefits slightly. The government has so many options with regard to financing the benefits that the question becomes of the cash management, not quite as significant as the huge deficits that the Social Security has been accused of having. The government is already under way to help alleviate this cash flow problem. Public officials have debated which of the various ways would help best serve the public interest, and legislative action has been taken that would ultimately result of the Social Security system to a positive cash base. This shift would provide the workers of America with the same benefits they have been guaranteed since 1935- and have been paid, and expanded ever since. The social security system has withstood forty years of changing economic conditions and greater concern of public welfare. What would replace the system, if the critics had their way? SOCIAL SECURITY PERSPECTIVES The social security system has saved an untold number of people from disaster throughout many years. Many of the nations old people- some as young as sixty- two, a few over a hundred, live from Social Security paycheck to Social security paycheck, with this government program as their livelihood. There can be no doubt that social security has made a tremendous effort to alleviate a lot of suffering that has occurred, even in recent times. The Social Security act was one of the cornerstones of Roosevelt's new deal program, and it is one of who's necessity has been proven, and whose usefulness has allowed it to live. Like all the other new deal projects, Social Security was never meant to show a financial profit, It was meant to show a profit only in the amount of human suffering, It was able to lift. The social security program cannot be measured in the same manner that a private program can be evaluated in, because it is a governmental welfare program. which doesn't mean that it acts in competition with private programs, that was never its intent. The social security administration has written: "Today the American economic system has produced relatively full employment, widespread ownership property, and a rapidly increasing standard of living for the majority of Americans. It has developed a threefold structure to prevent economic insecurity: a public social objectives, mutual protection through private employee-benefit plans to bring the added strength of voluntary of group action: and private savings and other individual action to achieve the greatest range of choice". One only has to look at the number of people, and the amount of money, that those who are recipients of Social security effect, and the advantages of Social Security become obvious: it has taken a group of people who have traditionally been a financial burden on society, and provided a program that they have contributed a little to their own financial well being. the amount of dignity and self respect these people have gained cannot be measured in dollars. f:\12000 essays\business & economics (632)\Economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics The study of economics is helpful in several ways . Some of these I will comment on . First of all , technology levels affect a societies economy , so by learning what products are produced and how they are produced , you can see how technologically advanced a society is . By examining where the produced goods are sent/used you can get a better idea of what type of government the society is run by . By studying an economy and seeing how the economy uses resources , you can learn what resources the society controls and which ones the society needs . Tied in with this factor of resources you can get an idea of which countries have leverage over other countries . An economist how a society or government meets the needs and wants of the populace , either through production or commerce . Economists see the world as a) profitable b) unprofitable c) and they see opportunity costs . By viewing the world in such a manner they are able to help in the decision making involved with money and industry . They can help to save money , resources , labor, and time . Microeconomics is the study of an overall economy . In studying microeconomics you study a wider range of services , productions , exchanges . While not as discriminate as macroeconomics , you can get a broader picture and grasp the basic concepts of an economy . Macroeconomics studies the study a single aspect of an economy , lets say the mining of coal . You don't research the delivery , the 'market' ; all you study is the actual mining process . While this may be more limited in scale , you can learn more about that specific process . You don't see the whole picture but you can find the specifics on that subject . Personally I don't think that the physiocrats theory would work . I think that if we tried to follow there theory and have the government abstain from interference , many of the smaller businesses would quickly be closed down . I think that a great many monopolies would be created and we would have the ' railroad barons' problem that we had in the 20th century . I feel that the government is hindering at many times , and still they seem to be helpful in some areas . The business that I chose to depict was the custodial division at Chico State University . Both of my parents work there so I chose this area of business . The factors of production pertaining to this field of work would include people/labor , cleaning liquids ( such as disinfectants and Windex ) , and dirty rooms (joke) . For the land I would have to put down electricity , water , large amount of goods manufactured using plastics which in turn uses oil . As for the capital of the business I will say that the cleaning machines , and large supplies of cleaning materials would fill this category . The entrepreneurship of the custodial business is the tricky part . I guess that you could say that the custodians risk there social lives ( because they work graveyard shifts ) in exchange for making a decent salary . As in the case of my parents , it paid off . The way that I see it , our largest problem has to do with the natural resources . People will always want and need things , but if we do not limit and reserve the resources that we have , we are not always going to have our resources . Demands cannot be met when there is nothing to meet them with. You can't artificially make everything . You need to start somewhere . f:\12000 essays\business & economics (632)\Econonmics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics 1 The study of economics is helpful in several ways . Some of these I will comment on . First of all , technology levels affect a societies economy , so by learning what products are produced and how they are produced , you can see how technologically advanced a society is . By examining where the produced goods are sent/used you can get a better idea of what type of government the society is run by . By studying an economy and seeing how the economy uses resources , you can learn what resources the society controls and which ones the society needs . Tied in with this factor of resources you can get an idea of which countries have leverage over other countries . 2 An economist how a society or government meets the needs and wants of the populace , either through production or commerce . Economists see the world as a) profitable b) unprofitable c) and they see opportunity costs . By viewing the world in such a manner they are able to help in the decision making involved with money and industry . They can help to save money , resources , labor, and time . 3 Microeconomics is the study of an overall economy . In studying microeconomics you study a wider range of services , productions , exchanges . While not as discriminate as macroeconomics , you can get a broader picture and grasp the basic concepts of an economy . Macroeconomics studies the study a single aspect of an economy , lets say the mining of coal . You don't research the delivery , the 'market' ; all you study is the actual mining process . While this may be more limited in scale , you can learn more about that specific process . You don't see the whole picture but you can find the specifics on that subject . 4 Personally I don't think that the physiocrats theory would work . I think that if we tried to follow there theory and have the government abstain from interference , many of the smaller businesses would quickly be closed down . I think that a great many monopolies would be created and we would have the 'railroad barons' problem that we had in the 20th century . I feel that the government is hindering at many times , and still they seem to be helpful in some areas . 5 The business that I chose to depict was the custodial division at Chico State University . Both of my parents work there so I chose this area of business . The factors of production pertaining to this field of work would include people/labor , cleaning liquids ( such as disinfectants and Windex ) , and dirty rooms (joke) . For the land I would have to put down electricity , water , large amount of goods manufactured using plastics which in turn uses oil . As for the capital of the business I will say that the cleaning machines , and large supplies of cleaning materials would fill this category . The entrepreneurship of the custodial business is the tricky part . I guess that you could say that the custodians risk there social lives ( because they work graveyard shifts ) in exchange for making a decent salary . As in the case of my parents , it paid off . 6 The way that I see it , our largest problem has to do with the natural resources . People will always want and need things , but if we do not limit and reserve the resources that we have , we are not always going to have our resources . Demands cannot be met when there is nothing to meet them with . You can't artificially make everything . You need to start somewhere . f:\12000 essays\business & economics (632)\EDPA 792 Dissertation Analysis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Alicia Lindheim EDPA 792 7/11/04 An Analysis of the Dissertation Entitled, "Correlates Influencing Job Satisfaction" The purpose of this paper is to discuss and analyze the components of a dissertation with specific emphasis on Rita Spanier Wolenik's paper entitled, "Correlates Influencing Job Satisfaction." Her dissertation is written in the traditional five-chapter style and includes an introduction, a literature review, a section on methodology, results, and a concluding discussion chapter. The content of the paper is book-ended by an abstract at the beginning and appendices at the end. Also, a table of contents at the front of the paper allows the reader to logically and methodically peruse through the work, thus being able to understand how the author constructed his/her research in order to prepare the results and discussion sections. In the Introduction, Ms. Wolenik seeks present a problem in education as well as a larger justification for her study. The chapter opens with an almost anecdotal account of the problem of teacher shortage in America. Though some statistics are included, the somewhat informal nature of this beginning piece tells a bold story of inequality in terms of both funding and teacher satisfaction as if the reader were looking at the landscape of the teaching profession through the eyes of a teacher. This initially loose style immediately tightens with the focused and academic tone of the "Statement of the Problem" section. Rather than storytelling, the tone of this section foreshadows the serious research and findings that will be produced around the problem that, "Working conditions, including influence over professional decisions, play an important role in determining who stays in teaching." (p. 3) In the Purpose of the Study and Importance of the Study sections, the author justifies the research study by stating in various forms that if one assumes that teacher quality is an essential component of successful schools, then it is critical that educational leaders understand what it takes to recruit, prepare, and retain quality professionals. More specifically, it is here that the author makes the first link between teacher quality and job satisfaction, suggesting that teachers who are unhappy are less likely to stay in the profession. Thus the chapter ends with the three research questions that the author believes must be answered in order to illuminate the internal and external issues for teachers surrounding job satisfaction, highlighting individual attitudes, personal characteristics, and school characteristics. The purpose of Chapter 2, the Literature Review, is to construct a thorough picture of all of the research that has been done on the topic and/or related topics thus far, with the intention that the author's dissertation will be the next addition to the existing body of research. Because the research questions speak to individual characteristics and attitudes of teachers as well as contextual characteristics of the workplace, Ms. Wolenik's literature review pulls together research in each of these areas. In the first section entitled, "Personal Characteristics of Teachers," she presents research around topics such as: self-efficacy, teacher morale, and personality characteristics. Similarly, in the "Contextual Characteristics" section, the author examines research in areas like shared decision-making, teacher-administrator relationships, levels of teacher autonomy. Unlike the other chapters, the Methodology section, a chapter dedicated to discussing how the research study presented in this paper was conducted, is far more compact. For instrumentation, Ms. Wolenik created a series of surveys for a sample of 300 elementary school teachers working in the Long Beach Unified School District. The surveys were then linked to personal characteristic scales created by Baker, Grayson, and Colyar and school effectiveness scales developed by Baker and Matakovich. Another component of this section was the author description of the statistical tests used to determine reliability and statistical significance. For this research, Ms. Wolenik relied on Analysis of Variance, regression, and intercorrelation procedures. The Results chapter is the part of the dissertation where the outcomes of the research are presented. With this particular dissertation being highly quantitative in nature, Chapter 4 is very numerical, with the author presenting the statistical outcomes of each statistical procedure utilized. Ironically, despite the fact that Chapter 4 does allow the author to present the findings of the research, it does not afford him/her the opportunity to comment on the results. For example, Ms. Wolenik does include short a "Summary of Findings" section at the end in which she gives a brief synopsis of what pieces of the research proved to be statistically significant (e.g. teachers who perceived their schools as effective were satisfied with their jobs and tended to stay in the profession, etc.). However, it is not until Chapter 5 that the author may comment on the findings and make recommendations. The author uses the Discussion section to elaborate on the findings of Chapter 4: * Teachers who perceived their schools as effective were satisfied with their jobs and tended to stay in the profession. * Teachers who left the profession after two years were younger teachers who were not satisfied with teaching and did not fit the personality characteristics that were studied in this research: collaborative and supportive, conscientious and responsible, and efficacious and confident. * Teachers going into administration were generally between the ages of 21 to 30, tended to be more efficacious and confident, were more critical of their schools' effectiveness factors, and sought opportunities to be leaders among their peers. This then provides Ms. Wolenik the opportunity to make recommendations and suggest implications based on her findings. For example, since the findings suggest that young teachers are most vulnerable for leaving the profession either for administration or out of education altogether, the author believes that it is incumbent upon support personnel to facilitate self-evaluations of those young professional in order to provide them the support they may need in order to commit to successful teaching long-term. She also goes on to discuss similar implications for teacher induction programs, teacher selection, school culture and climate, and professional development. In a sense, the traditional format of a dissertation such as Ms. Wolenik's is to methodically move a reader from the identification of a serious academic problem to a series of research-based solutions that may help to either clarify the causes of the problem and/or present possible answers, all with opportunities for further study. The writing style is expository, thus suggesting that the focus of the completed work will be both serious and regarded highly enough by scholars of the profession to be added to the already existing body of research developed within the discipline. f:\12000 essays\business & economics (632)\Effective Meetings.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 426 While effective meetings are essential to any organization and to getting work done, most of the meetings I attend leave me looking for a decision. These meetings also leave me tired and somewhat disillusioned on the vision of the company. I think a good meeting is not dissimilar to a football teams huddle. It should bring people together, facilitate decision making, assist people in taking responsibility, energize the participants, and contribute to building team effort within the organization. From attending and running more than my share of meetings I feel successful meetings are ones where attention is paid to three areas; content, design and process. Selection of content is crucial. At a meeting I recently attended we discussed issues which would have been better resolved with a couple of phone calls. At the same time core issues remained unmentioned. I felt the meeting would have been more productive if it was focused around key issues, the ones that motivate the attendees and let the meeting participants identify the priority of items to be addressed. I felt the second thing that went wrong with this meeting was there was no design. This hindered the decision making, problem solving, and the informational task at hand. If I were running that particular meeting I would have paid close attention and designed a method of idea generation methods, such as brainstorming. I would of also had decision processes, a clear agenda, with clearly defined time frames and problem solving steps. The third thing that went wrong with this particular meeting was the facilitator did not make sure the individual needs of the meeting participants were met. I would have made sure people were participating, included in the discussions, and made them feel there was room for their ideas and that their ideas were welcome. I also felt that dysfunctional behaviors were not dealt with properly and there was no positive energy in the group. Overall I did not feel people were committed to the task at hand. We must insure people are enthused about the way the group is working to complete the task. As you can see this meeting was a disaster. It was our first all hands meeting with the new venture group I am currently working in. After the meeting several of us discussed the meeting and all agreed to take our concerns to the boss. Surprisingly, he received us well. As a matter of fact we are getting ready to have another all hands meeting and my boss has hired a consultant to organize the meeting. The consultant is in the process of interviewing all of the attendees and asking them for their input on how to make this meeting a success. I felt very good about this process and hope this meeting is a great success. f:\12000 essays\business & economics (632)\Employee Assistance Programs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Employee Assistance Programs This being the day of the great downsize many managers are hurrying to make the cut's and in doing so closely examining their Employee-Assistance Programs for effectiveness. What are they? How do they help? How do they work? Are they worth the hassle? What are they? By definition employee-assistance programs (EAP's) give a business the means for identifying employees whose job performance is negatively affected by personal problems. EAP's should arrange for structured assistance to solve those problems with the goal of reestablishing the employee's job performance. Three ways they help the employer and the employee: First, EAP's should help in identifying a troubled worker. The two largest problems in the workplace today are drug/alcohol abuse and the stressful effects of downsizing. Many researchers today believe that drug/alcohol abuse is responsible for most modern-day EAP's. According to The National Council on Alcoholism and Drug Dependance, 25 percent of all hospitalized patients have alcohol related problems. Alcohol is involved in 47 percent of all industrial accidents and half of all auto fatalities. The cost totals 86 billion dollars per year due to decreased productivity, treatment programs, accidents, crime and law enforcement. Although it is most costly at the top alcoholism/drug abuse affects employees at every level of an organization. One company found that in the pervious five years each worker with an alcohol/drug related problem missed 113 days of work and filed $23,000 more in medical claims than the average employee. However, recovered alcohol/drug abusers will frequently credit their EAP for literally saving their lives. By reclaiming highly experienced employees the company also can recover some of their losses. One of the most painful aspects of a human resource professional's job is downsizing and it probably won't be going away soon. Layoffs affected 1.1 million workers in 1995 and are not expected to improve. EAP's are a resource that can often help managers smooth the transition for outgoing employees and for those who remain. When a company severs its ties with an employee, the emotional reaction can be intense. Most laid-off workers will react with anger then fade into denial and finally acceptance. This emotional roller coaster is not unlike those experienced by people diagnosed with a serious illness. They generally make the EAP available for up to six months after termination. This "after termination counseling" will help a company by removing the possible threat of retaliation in the form of sabotage or bad mouthing the company in the public's eye (which can be as damaging as sabotage). Second, through orientation and job leverage the EAP should motivate the employee to get the help they need. The job leverage comes from the Quality Assurance in Drug Testing Act, SEC. 2707.Employer Practices which says: "Nothing in this title shall be construed to prohibit an employer from taking action necessary, up to and including termination, in the case of an applicant or employee who tests positive for drugs or who refuses to take a drug test authorized under this title." This act has not yet passed but it will provide the perfect motivation and release the employer from any lawsuits that might come about from employees who think they have the right to do drugs. The purpose of orientation is to educate employees about EAP policies, procedures and services. Although it's not financially practical to spend an enormous amount of time on this topic, it is important that an organized effort be made to inform all employees of what the EAP is, How it works and for whom it is intended. Obviously, having a program is wasteful if employees fail to use it. Orientation should be done in a series of informal discussions like the half hour before the end of the work day. Combining orientation with written hand outs, posters and pay envelope enclosures may be most effective method. Third, the EAP should help the troubled employee in getting help. This requires the people involved in the EAP to be extremely knowledgeable of the resources available in the community. EAP's come in many shapes and sizes generally dependant on the size of the company. Some EAP's are simply a hotline in which employees are encouraged to call a particular number and ask for help. The person on the other end will provide names and numbers of local public service agencies. This is considered to be an external program and is very effective due to its confidentiality, however, the biggest problem is trying to get the person to pick up the phone. The most adaptable model for an EAP is one in which posters, cards, brochures, supervisors and trained volunteers refer employees to an off site councilor. Using this "broad approach" a company can probably reduce the cost and provide the best help their employees can find. Supervisor interaction and education on the services available are the keys to a successful EAP. Are they worth the hassle? Although EAP's are here to stay and not many studies are being done to show their worth or effectiveness. Most evaluation studies have assumed that a "balance" exists between the activities in the workplace and activities in the treatment facilities. This assumption is only valid for the EAP's of the 1970's that focused almost entirely on alcoholism. The major difference between the early programs and the modern is in the training of the supervisor. In the early programs they trained supervisors to identify problem drinkers based on their symptoms and to refer them to the company's medical department. Today, EAP's train supervisors to manage the problems affecting job performance and to refer poorly performing employees to the EAP for diagnosis and treatment of the "underlying" personal problems. This assumption leads to studies being purely derived from the outcome and generally state that employees who use the program show an increase in job performance. A most recent study surveyed 508 human-resource professionals, used several statistics that were not based on the "balance." Released in April of 1995 the study shows that replacing workers who have behavioral health problems or not treating them will cost companies much more than it costs to finance the treatment. On the average it costs more that $7,000 to replace one salaried worker, $10,000 for a mid-level employee and $40,000 for a senior executive. For every dollar invested in an EAP, a loss of $5 to $7 is avoided. Time missed from work will decrease by 66%, and about 12 percent of employees at one time or another will use the program if it is available. Employees who were closely involved with their companies EAP found them to be effective and said the program resulted in a better work attitude and increased lob performance. Since the beginning of time people have been trying to help people. This idea never occurred to the corporations until alcohol and drug abuse began to run wild during the Industrial Revolution. Large companies were formed and people turned to alcohol for a release. The big companies began to see the decrease in productivity and that meant lost money. As in any company the true goal is to make money and only recently in the fields of Human Resource Management with the study of behavioral sciences have corporations decided to address employees as people. Believing employee behavior is not only due to human relationships but due to changes in the organization too. Things like Downsizing and changes in technology will influence employee's behavior in mostly negative ways. The corporation is no longer a force that cannot be beaten. EAP's are a very important part of the new world company. They are an effective and worthwhile ventures on any scale. Every company from three to 3,000 employees needs to have some sort of EAP. With the overwhelming self- serving attitudes people have today getting a person to commit him/herself to the company is almost impossible unless they feel as though the company has committed its self to them. A well designed and maintained EAP will do just that. Like anything there are some parts of an EAP that are most important. No matter how well thought through the best EAP could fail and that is what must be avoided. Sinking money into a program that will not give any sort of payback is wasteful. This being the time of the Downsize when companies are trying to get the most bang for the buck you must be careful not to cut your EAP to the bare minimum, don't get caught up in the statistics. The only way to truly tell if you have an effective program is to count the uses. If the program is being used then the chances are extremely good that it is working. EAP's are not self installing /self running programs. As supervisors we must keep our ears open to new ideas and suggestions, constantly trying to improve the system. This is why having dedicated personnel or good volunteers is so important. In conclusion Employee Assistance Programs are definitely worth the hassle. There is overwhelming evidence supporting the need for these programs in every company. We must strive to help our employees help themselves as much as possible. Happy employees' and a cohesive work group are the most important quality's a business could possibly have. If you don't think it is working then fix it. Cutting back on an EAP is the key to your businesses' end. f:\12000 essays\business & economics (632)\employees to get involved in a wellness program.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1040 There are many reasons for the employees to get involved in a wellness program. Whether they like it or not overall wellness will affect their everyday life, at home as well as at work. The fact of the matter is that people that are in good health are usually more coherent and are able to enjoy more out of life. With more incentive going towards corporations paying subsidies to encourage employee participation there is increasing demand by employees to have a wellness program implemented. A study of health risk data and medical insurance claims at a paper mill in Canton, North Carolina, revealed that the Canton employees who had taken part in a health and fitness programs spent an average of 30% less on medical claims than non-participants. Having established a clear link between health and fitness activities and lower health care costs, the Canton study led to refine and expand wellness programs. The company took a closer look at all the issues that could affect job performance and determined that the company needed to broaden the concept of wellness to include mental and emotional health as well as physical well being. In short, the company began to recognize that each employee is a whole person who brings much more than job skills to work every day. The company also began to understand that efforts at wellness promotion could only succeed by taking the needs of the whole person into account. Fitness programs can reduce absenteeism. There are many documented situations of fitness and wellness programs are effective. In a one-year study of over 500 employees, each took part in a work place fitness program. The for each employee that worked out as little one day a week, cut their average number of sick days in half, from over ten sick days on average in the previous year without any activity to less than five in the following year. The report also showed that the employees that did not maintain a workout load of at least once a week did not reduce any sick-days. (Journal of Occupational and Environmental Medicine, 1997; 39:827-831) Each of the participants followed a one-hour supervised workout consisting of a warm-up, stretching, calisthenics, cardiovascular and strength-building program. Later in the study Dr. Lilian Lechner, M.P.H. stated, "While previous studies have found that employees most likely to partake in workplace fitness programs are those who already get the most regular exercise and tend to be in better health, the current show that work-based fitness offers added health benefits for employees regardless of their fitness level." The objective of an in-house fitness program is primarily to stimulate employees to start participating in the program and secondarily to keep them exercising at a level of at least one-week. This report focused on the benefits to the company but mentioned that there were unmeasurable in the employee's personal quality of life. The report mentioned the fact that not only the employees respond to the benefits of the physical fitness but they also responded to the fact that the company spent time and money recognizing the efforts of the individual made as a psychological difference in the employee. Thousands of new gyms and physical fitness centers have opened in the past decade, providing a number of options for pursuing an exercise regimen. Although exercising on your own is less costly and time-consuming, a gym does offer some advantages. Companies are now offering the financial incentive to use the gym often by helping pay for a membership. If employees have a sociable bent, they'll probably find the camaraderie another reason to return regularly. Many gyms also offer convenient places to change and shower, a wide range of modern exercise equipment, and guided instruction. Wellness is a multi-faceted approach to life that fosters a sense of good health and the competency to creatively manage life's challenges. Sometimes the employee becomes "stuck" on our journey to fully develop themselves, their relationships, and their lifestyle. During these times it may be helpful to explore concerns with professional assistance so that a bridge may be created between what the employee is and how the employee wants to be. That is why many wellness programs implement employee assistant programs in conjunction with a fitness program. Wellness is an ongoing process that develops and integrates mind, body, and spirit. Overall, wellness is a choice - a decision to cross the bridge that leads toward optimal health. The strongest effect of a wellness program reaches far beyond the boundaries and confines of the workplace or a gymnasium, it is most commonly found in the home life and the employee's family notices the effects. All the premier programs in the world deal with the home life as a primary focus. This is done through the available councilors that a company may provide free or at a reduced cost to the employee. Along with counseling childcare and family atmosphere are being addressed by today's larger and more successful companies. If the employee is not content at home he or she will transpose these feelings to the workplace and that could be detrimental to the work environment and the employee's own mental health. One sector of the workforce that is commonly overlooked by corporate executives and human resource managers this sector is the elderly. This sector being the baby-boom generation is rapidly aging in the workforce, increasing the need for attention to the company's investment in human capitol. Early assessment programs deal with assessment of risk factors, including smoking, high blood pressure, diabetes, obesity, a sedentary lifestyle, that is known to be associated with heart disease. The early assessment program consists of a full day of individualized assessment and counseling by several health care professionals. This program would provide older employees with a detailed plan to reduce their risk of developing heart disease, and other complications that are commonly associated with aging. Early assessment programs gives employees the tools to change your lifestyle and reduce their chances of developing heart disease and other complications that are associated with aging. What we have discusses previous has been a growing concern for both organizations and employees alike. The statistics are overwhelmingly proving that there is a correlation between personal wellness and on the job performance. f:\12000 essays\business & economics (632)\Enterprise Entrepreneuralism.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Enterprise & Entrepreneuralism Bridgetown Newsagents - A Small Business Case Study Introduction Dillons newsagents is a late closing local shop with a 'Mini-Mart' service. The 'Mini-Mart' side of the business is franchised from Dillons to a registered partnership: Mr Charles Pettifer and Mr Marc Devis. Full services are provided in the shop, a paper delivery service is also available along with the full complement of groceries, fresh sandwiches, confectionery, videos, cigarettes and alcohol etc.. The newsagents is located in Stratford upon Avon, on the Birmingham road, approximately half a mile from the town centre and situated within a very residential area. Tesco's are the immediate traders to the newsagents. Nine years ago, the newsagents was expanded with the intention of providing the local inhabitants with a friendly convenient service. Lack of competition at the time provided excellent stability and potential for expansion which was enjoyed until two years ago when a superstore was opened nearby offering a major threat to business. Business growth, structure, strategies and competition are to be addressed in the following document. Entirety of information sources and research are obtained from two year's part-time employment at Dillon's newsagents. Growth of Dillons: In 1988, Dillons employed Mr Charles Pettifer as the operational manager, from this date the shop solely provided newspapers and magazines for approximately eighteen months. During this period Dillons were developing their own 'Mini- Mart' theme and as such decided to expand the facilities to supply a range of groceries and other common consumer goods as well as the usual news literature. The shop opening hours were also increased from the regular evening licensing hours of 5:30pm, to a more substantial one of 11pm. At this point, Mr Pettifer decided to take on the shop franchise offered by Dillons with the help of a silent partner Mr Devis. Mr Devis has shares in the business, but does not have authority to make unsupported decisions. The franchise resulted in Mr Pettifer being able to obtain many goods for the newsagents at discounted prices. The entirety of the shop was responsibility of Mr Pettifer provided that Dillons' standards were not infringed. At the stage of development outline here, it can be seen that Dillons newsagents is akin to stage one of the business growth cycle. Key Issues: Mr Pettifer strongly believed in providing a personal and friendly service to all customers and from the outset instigated this within the shop environment. Recognition within the local community and attraction of regular customers resulted from this and thus so did a modest, small shop turnover. Management Styles: The style of management was very individualistic; only Mr Pettifer's wife, Fatima was employed initially in running the shop (issues in employing family friends and relatives are recapitulated later). Because of this, only limited professional management skills were required. Market Research: This was initially achieved by close relationships with the regular local customers, providing key information to a number of customer needs, although no formal research was carried out. Systems and Controls: Due to Dillons' requirements, the accountancy was in advance of a role model stage-1 business, providing efficient systems and controls for Dillons' auditing. All secondary audits were made into a fully computerised relational-database system. Sources of finance: A great boost for the business was the initial investment by Dillons, this was followed by continued investments by the silent partner, Mr Devis, to enable increased expansion of the store. Major Investments: At this stage, no further investments were made due to the limited product range and turnover within the shop. Major investment here was therefore not justified. Products: The product range was initially limited due to floor space, and the occupying range purchased, in bulk, at a recommended cash and carry outlet. Dillons had now become a very stable stage-1 business due mainly to the support and expertise of Dillons' management. Also, the newsagent's position was integral to the initial success it achieved, being the sole organisation providing the previously mentioned services in the local area. ((Both businesses in the area also added tremendously to the custom in the shop.)) After one year, Mr Pettifer decided that there simply wasn't enough room to expand the shop product range to the domains revealed by his marketing strategy (albeit a very limited one!). A proposal was made to Dillons' management to expand the shop premises approximately by four-fold. After the initial success of the shop and the predicted potential, Dillons agreed to finance the expansion and also improve the presentation of the shop. Again, the improved video services aided to further boost the custom to the shop. The shop now had the space to dramatically increase the product range as desired, although with this expansion, stage 2/3 considerations of the growth cycle were required at the very least to re-establish the business. Key Issues: Now, maintaining original customers and expanding the customer base was imperative to ensure maximum stock turnover. Further resources could now be exploited due to the expansion. Increased size and stock suggests that further staff are needed. Management Styles: Due to employing more staff, a professional style of management should have been adopted. 'Friends' were employed thus keeping the managerial position an informal one. Market Research: Research techniques had not improved in any way from the original methods and because of this (see later) a product stagnation was induced. Sales representatives suggested leads and ideas, however, these ideas were instigated for other reasons. Systems and Controls: The book keeping and control records were now of a very high standard with full accounting systems in operation. The entire business system was professionally audited by Dillons on a bi-yearly basis. Suppliers also checked control and display systems on their relevant products. Products: The entire product range was now entering an established market in itself. Each product was purchased from the main suppliers on a sale or return agreement (this agreement was a key principle to Mr Pettifer entering a new product into his range). The shop had an impressive product range at this stage, the customer base was well established and supplier relations were improving all the time. Bridgetown newsagents now enjoyed economic success. Personnel Structure and Culture The following tree structure demonstrates the personnel hierarchy throughout the newsagents: [diagram of management hierarchy goes here] Explanation of the company hierarchy: Dillons enforce company policies on all sides of the business. They deal with all supervision of goods delivered and provide regular audits. Visits from the area management are frequent and always stringent. Dillons also provide major investments throughout the Bridgetown store. Mr Pettifer works a typical day between 9am and 5pm, provided there are no anomalies. He is solely responsible for book keeping, reports, control systems and ordering of tobacco, alcohol and video supplies. Being the operational manager, Mr Pettifer is continually managing and assessing the store. Fatima Pettifer works similar hours to her husband and is responsible for all stock orders except the above mentioned. General shop maintenance is also an ongoing task. There are shifts designated to each of the workers: 5am - 11am 11am - 5pm 5pm - 11pm The above shifts were maintained so that someone was constantly available to man the shop. Employees are expected to work beyond their shift time occaisionally in the event of a subsequent shift worker not being on time. Each shift is covered seven days a week, with the exception of Christmas day. The labour involves till-operation, re-stacking shelves, petroleum regulatory checks and general shop duties. Shelf stackers are generally employed together to ensure that all stock is efficiently replaced. Both work six evenings per week and are responsible for re-stacking the enirety of the shop. Due to the individualistic style of management, problems arose when Mr Pettifer was not present within the shop (anytime between 10am and 5pm daily) since no management issues could be delegated to anyone else. Any sick or holiday leave would result in a further backlog of paper work and reduced stock in the areas for which he was concerned. As previously stated, all the personnel employed were family or friends. This greatly helped in promoting a friendly shop environment for the customers; good working relationships prevailed and common interest in the success of the business was reflected in the workers' attitudes. Although this method of employment assisted in creating a friendly atmosphere, the following internal management problems soon became apparent: Exploitations of relationships between manager and personnel was intrinsic in many staff related issues, e.g., salaries, hours worked, holidays etc.. Till and cashing-up procedures were informal due to the trust between employees. This may have proved to be a dangerous operation because of the liberation of that trust, i.e., opportunities were made available to all employees disregarding their status. Overlapping the boundaries between personal life within the family and business life were often perceivable since husband and wife were working within the same environment. Although this situation was occaisionally embarrassing and no doubt detremental, the shop definitely benefitted overall by the traditionality and local friendliness. No formal business strategies were evident to cater for family integrations and because of this a unique, informal shopping environment was created but it was inefficient and poorly structured; small problems continuously plagued Mr Pettifer, drawing him away from managerial responsibilities that were consequently not being dealt with effectively. Competition: Although the above problems prevailed since the expansion of the shop, Bridgetown newsagents were still economically successful until the introduction of competition in the local market. As Dillons was the sole convenience store within the local area, prices tended to be expensive because of the lack of price wars with competition. This proved to be an almost fatal error when the competition entered as they were able to effectively compete with all of Dillons' price range. In the early stages of 1996 a Tesco superstore opened less than a mile along the same stretch of road as Dillons. Since Tesco is an extremely large shopping chain (and not a small business), large financial backing was employed and the product range was undoubtedly greater. Prices considerably undercut those presented by Mr Pettifer, drawing away regular shoppers and leaving mainly those who frequented the store even before it was expanded. Tesco opened during Dillons' most profitable times (i.e., 7-10am and 4-7pm), and this reduced a high percentage of custom from the shop, threatening the profit margins that had been developed. Within six months of operation, major recruitment of captial was required by Dillons just to help the business survive. Mr Pettifer was forced to reduce all staff salaries (including his own) dramatically. Business Life Cycle: Applying the business life-cycle to Dillons newsagents, it can be seen that progression from the Inception stage to the Expansion stage was unnaturally ??? and only certain key elements of the life cycle were addressed or implemented. During Inception, Dillons was actually similar to the life cycle model, with products tending towards expensive so the company would gain more profit. This point is re-enforced seeing that the business opening hours were 5am to 11pm during all days of the week; not taking into account 'overtime', it is obvious that the newsagents is already a very large commitment for Mr Pettifer. Dillons soon drifts from the business theory since there was very little time spent in the survival stage. Here, the business structure should be improved and strengthened, but as no survival issues were presented to Dillons, this vital stage of the life cycle was missed presenting future problems. Even as Dillons grew and expanded into new markets, no new competition was encountered thus diverging further from the life cycle and making the organisation even more fragile and vulnerable. Management did not develop at all throughout the life cycle and remained individualistic and supervisory instead of developing towards a more distanced and decentralised managerial operation. Conclusion: Currently Dillons is still under major financial threat and business is not returning since the introduction of the Tesco store. In analysing the structure of the business it can be seen that very little long term strategies were employed and no foresight of major competition was predicted, although this seemed inevitable. The original success of the business seems to be largely due to the major investments made by Dillons management, location of the shop and the lack of any similar shops in the local environment. At all stages of the business life cycle it appears that there is never a great financial threat to Mr Pettifer. During expansion, nearly all the risk involved was presented to Dillons management and Mr Devis in their capital investments. After expansion, good trading and a good relationship with the priciple supplier of the shop's products enabled a sale or return method on all products (within a reasonable time period). This method proved ideal since it diminished any anxieties in regard to development of the shop's product range and ensured that there would be no profit loss on over ordering of goods, reduced slaes or changes in the market culture. Pricing strategy was governed by the motivation of increasing the profit margins. Short term risks such as the time to acheive profit on turnover were reduced whilst the risk of being dramatically undercut and pushed out of the market was increased exponentially. Ironically, this risk factor being the single largest reason for crisis was not recognised. External issues exasperated Dillons due to the neglect of any long term planning. f:\12000 essays\business & economics (632)\Entrepreneur Observation Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1519 This report outlines a very small business of my brother's. It describes his business, target market, financial plans, and marketing plans. I have tried to keep a neutral opinion about his opinions as much as possible. I have tried to keep my inputs and thoughts in the conclusion only. The whole idea of my brother, insert name here, owning a business started in early March of 1998 when one of the neighbors jokingly suggested he should raise chickens and sell them to people. A few days later he realized it could be easily done, and with a profit. From mid-March to September, he and I raised, and easily sold 600+ chickens, we only wished we could have raised more. When March of 1999 rolled around we were contemplating how many chickens to buy, when the person we bought the chickens from told us about the possibilities of rabbits. Because rabbits are a yearlong project, and we knew I would be leaving in the fall, it became his decision and ultimately his project. He started out with 20 baby doe (females), 3 baby bucks (males), and a small-borrowed hutch (cage) with all 23 rabbits jammed in tight. His investment in rabbits, although considerable, was still to be outdone by the ones in hutches and feed. He essentially spent all profits from chickens the year before and then some. His project now consists of 20 mature doe, 3 mature bucks, and approximately 60 babies. He has taken over a section of a large barn and turned it into a 30+ hutch rabbitry system with a circulating automatic watering system., and recently acquired a large weaning cage. I asked him how he felt when he was getting started and he said he didn't like spending all that money but he knew he would get it all back someday. I then asked him if he was afraid of competition, or of there not being a big enough market. He said he knew of nobody else selling rabbit meat in the area on any scale, and that because rabbit meat is practically thee healthiest meat, he couldn't see any problems in the market. He then said that if personal selling fails he can sell them through his "chicken provider" on a per pound basis. One thing I have always known about my brother and his rabbit business is that he is very confident in its success and that even though he knows there will be small problems he is very sure of overall success. When I asked him who he sees as his typical customer he said that first he would talk to people that bought chickens last year, and then possibly put an add in the Kearney Hub (an area newspaper). He then said that because rabbit meat is so healthy he saw the health conscience as his primary customers he also said that because it wouldn't be real cheap, they would be people with money to spend on special health food. He didn't have any demographics, Psychographics, or Geographics, but that he knew there the supply and that all demand would be his. I asked him if he saw any reason for his market to shrink, and he said he didn't see any reason for it not to grow. Most of the funding for his business came from our chicken profits, from me (expecting to be paid back plus some) and from his savings. While he did not have a business plan set in concrete he had some basic numbers that he thought would be attainable and some ideas on how to attain them. He did not receive funding from a bank. Profit margins for his business are somewhat unpredictable the number of kits (baby rabbits) a doe has a year can greatly effect the business. He tries to conservatively figure his profits. Here I will try to give you a little info on the possible income of a 20 doe rabbitry. If the average doe has 12 kits a litter and has a litter every 1 3/4 month or 9 litters a year, then each doe averages 108 babies a year. Take this number times the number of doe or 20 and you get 2160 babies a year. If each baby weighs 4-6 pounds (we'll use 4) when sold on a per-pound rate you are selling 8640 pounds of rabbit a year. Take this number times $.95, (a conservative price for rabbit meat per live pound) and you're bringing in $8,200.00 a year. Subtract the estimated $900.00 a year in feed and $500.00 for any other expenses and you're left with $6,800.00. This only for 20 doe, because it only takes 6 months for a rabbit to mature he could, in theory increase his number of mature breeding stock by a power of 10 in 6 months giving him ten times the income. However he would have to buy that many more cages. As you can see though the business definitely has possibilities for expansion. There is also the prospect of composting rabbit droppings, bagging it and selling it at the farmer's market. This would nearly cancel out the cost of feed. Rabbit compost is renowned among gardeners as the best fertilizer because of the super efficient digestive system of rabbits. He hasn't been able to figure the profit percentage yet, but says it will be quite a while before he pays for all of his expenses as doe often need to have a few litters before they become good mothers. He does do all of his own accounting, and book keeping of rabbit due dates weaning dates etc. In four years he plans on going to college, but he said his business has great growth potential and could be quite large by then. He also went on to say that he could sell the business to our youngest sister who has raised and shown pet rabbits before, thus letting the business continue for a few more years. He is not currently marketing any rabbits he does have several baby rabbits but they aren't quite at the age to be sold. He will initially use personal selling, for this he will call people we sold chickens to last year as well as other people that have shown interest in acquiring chickens. The price for a rabbit won't be much different than it was for a chicken. Though many people might hesitate at buying a rabbit instead of a chicken, he believes this is only because they are uninformed about rabbits. He is also considering the idea of putting an ad in the local paper to increase his direct sales. He knows that he will produce more rabbits than he will be able to sell directly so he also has permanent buyer lined up that will come pick them up and pay by the live pound. This buyer could do many things with the rabbits, most will probably go to processing plants, but some could go to research facilities. This situation is what he calls a no lose situation. He has read several books on raising rabbits, which suggest talking with local Supermarkets about buying your rabbit meat for them to resell, this is something to look into. While he plans on using the farmer's market to sell his composted rabbit droppings to home gardeners, he also plans on using this as an opportunity to advertise his rabbits. Because his rabbits will be used for food and possibly research, his product is for both the consumer market and the industrial market, though the consumer market is much bigger. The fact that he will sell a rabbit for roughly the same price as a chicken the year before I consider the price of his rabbits to be low to medium. Due to the fact that last year we charged a little more per chicken than the supermarket it will be a great price for a rabbit which usually goes for a little more than a chicken. He is able to price the rabbits this low because he is producing them compared to buying each chicken as a chick and raising it from there like we did last year. His lack of competition is a key factor to any success he experiences through his limited marketing methods. It also makes his rural location less relevant. I do believe that he is more of an entrepreneur than a small business owner, manager, or technician, because he is always looking for a way to advance his business. He is the owner, manager, and technician, though he doesn't have anybody to manage he does have to manage his time around the rabbits. Sometimes he can expect ten or more rabbits to have babies within a couple days and must check them constantly to make sure every think is ok. He plays the role of technician when he builds cages, and maintains cleanliness. I don't think this business could ever become a franchise although it could become a very large company with thousands of rabbits, and several employees. If it were to become a franchise I think it would best be managed by the franchisees. I think this would eliminate any hierarchy or bureaucracy involved in most franchises. Of course there would be a main office to coordinate advertising and to offer help to franchisees with questions or problems. I don't have too many suggestions except to attempt all of the plans he has thought of. I also think that he needs to make a profit before he starts expanding any more. Once he gets into the cycle of raising and selling the rabbits he can then begin to expand, but not before then. This is really a business that has a lot of potential, and had a lot of things going for it. It is proof to me that the only successful entrepreneur is the guy that gets the idea and does it, not the guy that just thinks it would be a good idea for someone else to do. f:\12000 essays\business & economics (632)\Equal Employment Opportunity & Civ~425.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Relationships Between Equal Employment Opportunity & Civil Rights Acts and Biblical Values part 2 EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974: The Employment Retirement Income Security Act of 1974 created government protection of pensions for all employees with company pension plans and regulated vesting rights. The Bible states that we should exhort our elders as if they were our parents and provide for them in their old age. As stated earlier, we have a Christian requirement to help others who are less fortunate. The Bible states the following: Do not rebuke an older man harshly, but exhort him as if he were your father. Treat younger men as brothers, older women as mothers, and younger women as sisters, with absolute purity. Give proper recognition to those widows who are really in need. The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching. For the Scripture says, "Do not muzzle the ox while it is treading out grain," and "the worker deserves his wages." People often find it easy to dismiss the opinions of the elderly and avoid taking time to visit with them. The fact that God commanded the Israelites to honor the elderly shows how seriously we should take the responsibility of respecting those older than we. Their wisdom gained from experience can save us from many pitfalls. CHAPTER TITLE VII OF THE 1964 CIVIL RIGHTS ACT: The Title VII of the 1964 Civil Rights Act made it unlawful for an employer to discriminate on the basis of race, color, religion, sex, or national origin with respect to employment. The Bible states that God does not show favoritism toward any nation or person who accepts Christ as his or her Savior. 'Then Peter began to speak: "I now realize how true it is that God does not show favoritism but accepts men from every nation who fear him and do what is right."' Jesus stated the following: You have heard that it was said, "Love your neighbor and hate your enemy. But I tell you: Love your enemies and pray for those who persecute you that you may be sons of your Father in heaven. He causes his sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous. If you love those who love you, what reward will you get? Are not even the tax collectors doing that? And if you greet only your brothers, what are you doing more than others? Do not even pagans do that? Be perfect, therefore, as your heavenly Father is perfect." The Apostle Paul stated the following: Perhaps the reason he was separated from you for a little while was that you might have him back for good - no longer as a slave, but better than a slave, as a dear brother. He is very dear to me but even dearer to you, both as a man and as a brother in the Lord. You, my brothers, were called to be free. But do not use your freedom to indulge the sinful nature, rather, serve one another in love. The entire law is summed up in a single command: Love your neighbor as yourself. If you keep on biting and devouring each other, watch out or you will be destroyed by each other. CHAPTER CONCLUSION: The EEO and Civil Rights movement are supported by Biblical guidance with exception to the areas of homosexuality and abortion. However, there has been an unfortunate and dramatic increase in the need for support of things such as; single parent families, sexually transmitted diseases, protection from violent crime, and drug abuse. It is extremely important that we tailor our programs in the previous areas so we don't encourage ungodly behavior and social acceptance. I feel that the increase in the above-mentioned areas is a result of our Nation's declining sense of Biblical values. There has been a legal shift in our Country's laws away from the intent of its original foundation and from the expectations of our founding fathers. The result has been a less effective EEO and Civil Rights movement, due to a lack of continued and consistent guidance of Biblical values in our Government's decisions. John Adams, our second President said, "Our Constitution was made for a moral and religious people. It is wholly inadequate for the Government of any other." We cannot effectively police proper behavior, to be effective as a Nation. We must be united with a baseline of unwavering moral values. This will create a Nation of individuals who have a desire to police themselves and guide themselves based on the greatest Commandments: Jesus replied: "'Love the Lord your God with all your heart and with all your soul and with all your mind.' This is the first and greatest commandment. And the second is like it: 'Love your neighbor as yourself.' All the Law and the Prophets hang on these two commandments." I leave you with this thought. The Bible provides us with prophecies concerning the Last Days which include; extreme materialism, increase in speed and knowledge, departure from the Christian faith, widespread violence, and rapid advances in technology. The Apostle Paul wrote to Timothy: "There will be terrible times in the last days. People will be lovers of themselves, lovers of money, boastful, proud, abusive, disobedient to their parents, ungrateful, unholy, without love, unforgiving, slanderous, lovers of pleasure rather than lovers of God - having a form of godliness but denying its power. REFERENCES CITED Barton, David. America's Godly Heritage. Aledo: Wall Builders, 1992. Dessler, Gary. Human Resource Management. 7th ed. Upper Saddle River: Prentice-Hall, 1997. Dornan Hot Issue. Affirmative Action. July 1998. [On-Line]. Available Internet: http://www.bobdornan.com/issues/affactio.html. Dornan Hot Issue. The Right to Life Act. July 1998. [On-Line]. Available Internet: http://www.bobdornan.com/issues/rttolife.html. Freedom To Marry. Baehr v. Miike: History of the Law Suit. July 1998. [On-Line]. Available Internet: http://www.ftm.org/overview/history.html. Kennedy, James. What if the Bible Had Never Been Written?. Nashville: Thomas Nelson, 1998. Martin, W. & Hanegraaff, H. The Kingdom of the Cults. Minneapolis: Bethany House, 1997. Minnery, Tom. "The Relationship Between Church, Family and Government." Focus On The Family July 1998, 10-12. Riddiough, C. Employment Non-Discrimination Act. July 1998. [On-Line]. Available Internet: http://www.igc.org/lbg/enda.html. The Bible Promise Book. New International Version. Westwood: Barbour, 1990. The Life Application Bible. New International Version. Grand Rapids: Zondervan, 1991. Walk Thru The Promises. King James Version. Dallas: C&D International, 1988. Willmington, H.L. The Complete Book of Bible Lists. Wheaton: Tyndale House, 1987. Word Count: 1074 f:\12000 essays\business & economics (632)\Equal Pay.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1060 Mike K. Essay on equal pay in the work place. In 1963, President Kennedy signed the Equal Pay Act into law, making it unlawful to discriminate against a worker on the basis of sex. Since that time, the wage gap between men and women in the United States has narrowed by just 15 cents, now being 74 cents, as reported by the U.S. Census Bureau. Pay equality is most prevalent for the 16 to 24 age group, in which women earn more than 90 percent of what men do; however, the gap becomes 75 percent in the 25 to 54 year old group - those at the height of their careers and life responsibilities. A number of factors have contributed to the gap between men's and women's wages. These include: occupational segregation of women into low paying jobs; lower levels of unionization for women and attitudinal barriers that have kept women from achieving equality in the workplace and undervaluation for women's work. The Equal Pay Act (part of the Fair Labor Standards Act), forbids employers to compensate women differently for jobs that are "substantially equal", that is, almost identical. Traditionally, women have worked in different occupations than men; these occupations tend to be substantially different, pay less and confer less authority. Equity means fairness and justice. Pay equity programs throughout the world attempt to legislate and regulate the elimination of systemic gender-based wage discrimination and to ensure ongoing systems that will maintain equitable wage relationships over time. Pay equity programs attempt to address the undervaluation for work traditionally or historically done by women. Pay equity (also referred to as "comparable worth") programs require a gender-neutral analysis of comparative work. A variety of very different jobs are compared based on a composite of the skill, effort and responsibility of a job and the conditions under which the job is generally done. The comparison determines the relative worth of those jobs to the achievement of a firm's objectives, under the proposition that equal contribution merits equal compensation. Where female-dominated jobs in the workplace are found to be of equal or comparable value to male-dominated jobs but paid below the level of the male jobs or payline, then all employees in those female-dominated jobs are entitled to receive pay equity adjustments. But how are these adjustments to be determined in a workplace that already subjectively undervalues the effort and contribution of women and minorities? Over the past decade, under-recognition of jobs and skills attributed to women, their lower human capital attributes and a historical concentration in a culturally-confined range of jobs combined with direct discrimination has produced continuing inequities in pay. It is doubted by those concerned with this issue throughout the world that anti-discrimination and equal opportunity laws relying on the successful legal action of individuals seeking redress cannot address systemic problems due to the undervaluation of feminized work. Equality means equivalent, or equal in value, measures force, significance, etc. The idea of "equal pay for equal work" refers to men and women in the same job, under the same circumstances, ability, seniority, performing equally well but being paid differently. Opponents of pay equity base their criticism on economic theory; stating that the labor market establishes an employee's worth. But Pincus and Shaw argue that this economic argument disregards the historical and cultural bases for the differential. Many studies show that predominately female jobs pay less, on average, than predominantly male jobs. Debates over "comparable worth" policies come from the findings that the sex composition of an occupation exerts a net effect on the wages earned, even after all other factors, which may influence the outcome, are withdrawn. Studies done in North Carolina showed that the higher percentage of female workers in an occupation had a negative impact on total pay. Thomas R. Tudor points out in "The Complex Issues of Pay Equity" (Journal of Compensation and Benefits, Jan-Feb 1997 v12 n4 p.34) that what employers perceive as fair pay or even what is legislated may not be perceived as such by current employees. Many employers attempt to achieve internal pay policies by standardizing pay ranges for a given position. Influencing factors may include firm size, profitability, growth and market share; however, most companies want to set compensation at whatever level they feel necessary to obtain the highest efforts and results from their employees. Some of these factors can be subjective and lead, not only to defacto discrimination, but employee dissatisfaction in general, as they compare job responsibilities and relative productivity between the people on site. Currently, in all methods of job evaluation, it is the requirements of the job itself that are evaluated, not individual performance, and equity is not the goal. Advocates of pay equity want to legislate that gender composition of jobs not affect the resultant pay. Systems could be set up to establish rating scales on the basis of job evaluations where it is the requirements of the job and not the performance of a given individual within the job that are determinant factors in compensation. This could include educational factors, how much time are spent on different tasks and the sphere of responsibility incumbent upon the employee. Current plans most commonly use skill, effort responsibility and working conditions as factors. Critics of pay equity argue it could never achieve its goal, and even if it did, it would have the undesirable side effects of the misemployment of women and hurt the economy of the enforcing government. The fact is that pay disparity for men and women has a serious effect on the economy, diminishing each woman's purchasing power in a society in which most marketing is done toward women, and also has adverse effects on families with single mothers or other female head of household situations. Critics also point out that women or minorities come to the market with productivity shortfalls. Conclusions of research done by Neumark in 1999 are that minority workers are paid lower starting wages, which are thought to reflect discriminations based on taste and lower expectations. Will the wage gap ever be solved for good? It is expected that with all the momentum from legislative efforts, individual lawsuits, and well-intentioned proponents, hopes are high that the pay gap will be long gone by mid-century. f:\12000 essays\business & economics (632)\Ergonomics in Clerical Environments.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ERGONOMICS IN OFFICE AND CLERICAL ENVIRONMENTS ADMINISTRATIVE MANAGEMENT 200 GROUP PROJECT WRITTEN ASSIGNMENT Ergonomics is becoming one of the most important aspects of administrative management. Since the introduction of computers, offices are becoming more technologically based. Employees are spending greater amounts of time in the office and therefore must be comfortable to remain productive. Workers that feel stressed and do not like their work environments lose morale and spend more time away from the office than usual. Furniture, climate, training procedures, lighting and many more aspects are related to ergonomics in the office and clerical based environments. Keeling and Kallaus (1996;384) says that office furniture and equipment has traditionally been manufactured and used with a view of using efficient office space and cost saving. Although these factors are vital to work within the budget, managers fails to consider the ergonomics need of the employees. Sleeth (1996;10) defines ergonomics as a study of the office environment to allows employees to work productively. Ergonomically designed work environment that takes into consideration both psychological and physical needs increases job satisfaction and prevents injuries (Hess:1996;28). Troyer (1996;20) says that employers have become extremely concerned about potential discomforts associated with extended use of repetitive duty on computers and other office equipment. These discomforts can cause serious bodily injuries and force organisation to lose millions of dollars in loss hours of work, hospital cost and workers' compensation claim. Organisation became aware of the high cost associated with injuries therefore ergonomic furniture and equipment became an important issue in the work place. Ergonomic furniture and equipment is an important issue that management should consider because it decreases the medical cost, insurance cost associated with injuries and also increases worker's efficiency in the workplace (Allie;1996;20). Keeling and Kallaus (1996;384) says that in order to consider the ergonomic furniture and equipment for the office, the manager must firstly understand the type of work being performed and the ergonomics needs of the employees. Allie (1996) argues that it is also vital to educate employees about ergonomics, provide proper adjustable furniture and equipment. Managers should also understand employees needs and ways to help them work more safely. Troyer (1996;20) states that it is difficult to really determine which furniture and equipment will provide the ergonomic needs for the employees. The author suggests that when evaluating whether certain furniture and equipment can provide the necessary ergonomic need, it is important to find out how the manufacturer design their products. It is important to consider whether the manufacturers uses ergonomics expert, is the product adjustable, does the product provide comforts for the eyes, neck, wrist and back. It is also vital to find out how the manufacturer test the claims they make for their products and the manufactures reputation for making ergonomics product. When buying office furniture and equipment, the purchases that gets the most investigation and examination are usually the one that will last longer. Keeling and Kallaus (1996;386) suggests that when selecting office furniture the following must be taken into consideration, firstly, it should provide adequate safety and comforts to the employees. Secondly, it should be made of good quality materials, build strongly and provide ease for the work to be done. Thirdly the furniture should be adjustable and can be used for different purposes. Finally it should meet the preferences of all the employees who are going to use them. For example when the organisation is looking for chairs for its employees, the key factors management should consider is adjustability. Marston (1996;39) mentions that an ergonomic chairs should able to be adjusted up and down according to the desired height, should have lumbar and arms support, comfortable cushioning, provide backward or forward tilt and the adjustment can be easily made by anyone using the chairs. Beside providing ergonomically design furniture, a variety of office equipment are also required. Equipment such as photocopying, telephones, facsimile and computers. These office equipment facilitate the office task in less time and with greater accuracy (Keeling and Kallaus:1996;391). The guideline provided by Keeling and Kallaus for selecting office equipment, is firstly, the equipment should be made available to employees if it makes their job more efficient. For example in selecting between a typewriter and a computer, the computer will be more faster and efficient than the typewriter but the cost would be higher. In the long term the computer will save the organisation in hours of working time. Secondly, equipment should be considered when they are simple to operate, flexible to use in different situations, easy to move around and be able to adapt to existing office. Thirdly, the equipment that are less expensive and the availability of reliable maintenance service should be selected in place of other equipment. Fourthly, the rates of accuracy that the equipment will provide must also be taken into consideration. Finally the things that the equipment can do and also its limitations also need to be considered. THE AIR ENVIRONMENT The air environment refers to the total atmosphere created in the office by the principal air factors. They are temperature, humidity, circulation (ventilation) and cleanliness. It is used the term air-conditioned office literally. it is an office where the air has been carefully conditioned for human comfort, including the control of temperature, humidity and cleanliness. Workers consider the air environment, especially air circulation and the right temperature as very important to their jobs. It properly maintained air environment improves mental activity. boosts efficiency, increase productivity and decreases absenteeism. On the other hand, stale, dry and dusty air dulls the mind and reduces the output of work. Moreover, according to Labar, most indoor air problems involve the heating, ventilation and air conditioning (HVAC) system. Due to it was not designed and installed properly, is not being adequately maintained or is simply wearing out. According to a survey of 4300 workers in 47 buildings performed by Building Use Studies, 34 per cent of the workers described the air in their offices as uncomfortably dry, hot or stuffy, over 50 per cent reported symptoms such as lethargy, headaches or eye, nose or throat irritation while at work, and 25 per cent felt that the working condition reduced their productivity over 20 per cent. (Journal of General Management, 1992) Temperature Temperature refers to the relative hotness or coolness of the air measured in degrees Fahrenheit or Celsius. If the temperature too hot or too cold in a office environment this can interfere with productivity thorough sickness of the worker. the American Society of Heating, Air Conditioning and Refrigeration Engineers suggest that the most comfortable and healthful temperature for work is below 70° F. With normal office activities, such as lighting, heat from computers, body temperature increase discomfort to the operators. The heating or thermal environment is the result of a proper balance in temperature, humidity and air motion. Humidity Relative humidity refers to the percentage of moisture in the air. Air conditioning equipment removes moisture form the air (dehumidifies) during the summer months and may add moisture to the air (humidify) during the winder months. A high relative humidity makes us feel colder on a cold day and warmer on a hot day. Furthermore, too little humidity causes magnetic tapes and disks to stick during processing operations and brings about errors. Too much humidity also produces condensation on the electronic parts of the equipment and causes short-circuiting. Circulation The air most be circulated to ensure that we do not become surrounded by air that approaches skin temperature and saturation point. In general, we should be provided 12 to 15 cubic meters of outside air per person per hour (L. Keeling & N. Kallaus, 1996). Even though the temperature is high, this type of circulated air feels cool because it speeds up the evaporation of body moisture. Common methods of keeping air in motion are vent fans and blowers. Cleanliness The complete air-conditioning system cleans the air of undesirable pollutants. Health problems associated with indoor air pollution make up what is known as the sick building syndrome (SBS). Some of the symptoms of SBS are headaches, eye, nose or throat irritation, dry or itchy skin, dizziness and nausea, fatigue, sensitivity to odours, memory and cognitive lapses and Legionnaire's disease. Over the years, there have been a couple of serious outbreaks of building related-illness, including 29 deaths from Legionnaire's disease in Philadelphia hotel in 1976. There are also instances where poor ventilation and/or specific environmental contaminants have resulted in lesser but nonetheless adverse health effects. (G. Labar, 1992 Oct.) According to the EPA, Indoor air pollution results in at least $60 billion in losses nationally from missed workdays ever year. (J. P. Zmirak, 1993) Scientific measurements of the air confirmed an 80 percent reduction in the number of lung-damaging airborne particulate. Forty percent of the workers felt their productivity would be enhanced by the air-quality improvements and absenteeism has dropped 3 percent. (J. P. Zmirak, 1993) Most offices are tightly sealed and don not allow fresh air in or stale air out. Computers heat the place up and act as dust magnets, while the fumes of chemical glues seep out of carpeting and walls to create a stuffy, toxic atmosphere like inorganic pea soup. (J. P. Zmirak, 1993) An HVAC system inspection should include checking filters, drip pans, drainage piping, heating and cooling coils, outdoor air intakes, supply diffusers, return grilles, humidifiers and controls. The inside of air ducts and plenums should be checked periodically for signs of rust, microbial growth or other contamination. (G. Labar, 1992 Oct.) Lighting An important part of creating an ergonomically sound work environment is to provide adequate and appropriate levels of lighting. This is due to the fact that good lighting lead to happier employees, greater levels of efficiency and ultimately increased profits. According to Andrew S. Nicholson, lighting is a common source of complaint in the modern office. Poor lighting can lead to discomfort as a result of poor posture and eye strain, which in turn can lead to other problems such as irritability and tension. These problems however are not caused by dim lighting alone. Whilst poor lighting does lead to eye strain, light that is too bright may also cause a number of problems due to reflection off screens and so forth. In order to combat the problem of reflection, ambient lighting can be used. This is where uplights are used to direct light up and reflect it off the ceiling and onto other areas. Therefore it is important to provide the most appropriate level of light for the situation. Whilst maintaining effective lighting one must also consider the costs involved. An important part of lighting the office is to use natural light (sunlight) as effectively as possible. It is necessary to let as much light as possible whilst blocking sunlight. According to Keeling and Kallaus, this can be achieved through the use of tinted windows, adjustable blinds and window screens that deflect sunlight and reduce glare. Studies show that workers prefer daylight to artificial light on the job. There are three types of artificial lighting that are used in office lighting. These are incandescent light, fluorescent light and high-intensity discharge lamps (Keeling and Kallaus p368). Incandescent light is a type of light that is commonly used in the home. It involves the use of a light bulb. This type of light is less expensive than the fluorescent light however they are not as efficient in providing the appropriate levels of lighting. Fluorescent lights are usually produced by long tube lamps. They only use a third of the electricity used by incandescent lights. They provide a more even distribution of light. High discharge lamps are the type of lights that are used in stadiums and streets. They allow for the intensity of light produced to be controlled for use in office lighting. The types of activities that require the most amount of lighting are drafting, charting and photographic work. Those areas that require a lower level of lighting are lobbies, reception areas and libraries. Hearing Environment The controlling of noise levels in the office environment is important in creating an environment that is ergonomically sound. There are two main facets to controlling noise levels in the office. The first of these is to reduce noise levels in environments where noise levels are too high. The other is too create a certain level of 'noise' where the office is completely is quiet. "A certain level of sound creates a healthy background and helps to set a tempo for the work to be accomplished" (Keeling p371). This should be audible enough to allow people to be productive while not being loud enough to distract them from their tasks. In the article "Here Ye Hear Ye Noise Guidelines Needed", Walt Clawson offer ten guidelines for managing office noise: · Examine the layout of the Workstation - For example, position telephones in a way that there is no direct path between two workstations. This allows for quieter telephone conversations thus reducing office noise. · Taller panels offer more privacy - It also helps to manage office acoustics. · Invest in a masking sound system - These speakers generate a sound resembling moving air in order to reduce the high pitches in speech and provide more privacy. · Examine the quality of the acoustical ceiling tiles in the space - Tiles can absorb sound waves thus reducing noise. · Blocking sound is paramount - This is of greater importance than absorbing sound. · Carpeting has little impact - Carpet only absorbs little office sound, concentrate on the ceiling. · If there is a way for sound to creep through, it will - Make sure that all openings between rooms are sealed in order to prevent sound travelling too far. · Panel construction can make a difference - Find panels that are able to block noise efficiently. · Don't clutter you panel - The placement of notes on panels can greatly reduce the sound blocking qualities that make the office louder. · Office workers need a bit of din - Workers need some noise in order to be productive. This can be provided in the way of soft music. Ergonomics does not just involve computers, furniture and office equipment, it includes aspects such as employee age, time spent working with computers, training in ergonomics procedures and actual office design. Most valuable employees are relatively older than employees in training and as such are often overlooked. When designing an office, it is important to take into account the effects of aging and the increased care needed by such individuals. According to (Materials Handling Engineering, Jun 1996) stature begins to decline after thirty years of age and flexibility and strength are significantly reduced after the age of forty five years. Lower back pains and hand problems are the main symptoms of a poorly designed office. A typist spends most of the day using a keyboard and therefore will experience hand problems in their lifetime. "Loss of hand function is the number one reason that a person enters a nursing home" (Materials Handling Engineering, Jun 1996). Experts say that people that spend more than four hours at a keyboard each day are most likely to suffer from some kind of repetitive strain injury, (Managing Office Technology, Jul 1996). A natural straight posture during keying with the wrist laying horizontal is the best way to avoid such RSI's. The mouse has to be kept as close to the keyboard as possible and can be rotated to each side of the keyboard to minimise dominant hand overuse. The introduction of computers into the workplace has reduced the need to move constantly and often leads to a more sedentary employee. This in turn produces higher levels of discomfort and reduces worker productivity. Sun Microsystems has mostly eliminated this problem with a series of training programs and employee inclusion when selecting furniture and computer components. Such training programs increased ergonomic awareness and resulted in three times as many symptom reports, (HE Solutions, Jun 1996). This program has reduced injury rates, allowed for employee feedback, created a greater respect for management and generally increased employee productivity. Video display terminals are found in almost every office throughout the world and therefore must be examined when discussing ergonomics. Many older offices have considerably older computer desks that are dangerous for the eyes. The terminal is often placed too high and can result in eye strain and muscular complaints. Ideally the monitor should be placed 15 to 20 degrees above the horizontal line of sight and angled so the employees eyes are closer to the bottom of the screen than the top. The actual monitor should also be placed about 18 to 24 inches away from the user, (Electrical Apparatus, Nov 1996). Another cause of eye strain is the placement of reference material in conjunction to the computer terminal. Books and reports that are placed to the side force the employee to constantly turn their head and may result in stiffness of the back and neck muscles. One aspect often overlooked when using a computer is the position of the legs. If the legs are allowed to dangle, they can often 'fall asleep', which can lead to circulation problems in the future. Foot rests are a god way to resolve such a complaint. When designing a workstation, there are many aspects that must be considered if ergonomics is to be a contributing factor (HR Magazine, Aug 1996). Adjustable furniture is an absolute must to allow for the difference in employee stature. A light dimmer system helps to reduce glare and eye strain. Bright carpets are considered by most to be ergonomically correct. A well cleaned ventilation system that brings in a plentiful supply of oxygen to eliminate 'sick building syndrome'. Flexible ergonomic chairs that insist on a correct posture to reduce back and neck complaints. All such systems are likely to improve employee morale and increase productivity levels. Sick days will undoubtedly decline and employee enthusiasm will begin to climb. It is for these reasons that we consider ergonomics to be an essential factor when examining office and clerical environments. REFERENCES Keeling B.L, Kallaus N.F 1996 Administrative Office Management 11th Ed USA South West Publishing Sleeth J.E. 1996 Ergonomics can prevent injuries, Save money. Canadian Banker V103 Number 6 pp10. The perils of video display terminals Electrical-Apparatus.Nov 1996; v49n11, pp. 44-45 Building a better ergonomics program Facilities-Design-and-Management.Nov 1996; v15n11, p. 28 Design a safe workstation HRMagazine-.Aug 1996; v41n8, p. 71 Adopting an integrated approach to ergonomics implementation HE-Solutions.Jun 1996; v28n6, pp. 18-23 Healthy keyboarding: What you should know Managing-Office-Technology.Jul 1996; v41n7, pp. 27-28 Integrating ergonomics into great office design Managing-Office-Technology.May 1996; v41n5, pp. 21-26 The ergonomics of aging Material-Handling-Engineering.Jun 1996; v51n6, p. 34 Marston C.B. 1996 Make Yourself look comfortable Office Systems V13 Number 6 pp38-40 Furniture: Increasing productivity and the bottom line Telemarketing-and-Call-Center-Solutions.Sep 1996; v15n3, pp. 20,134+ Troyer C. 1996 Sorting out the confusion about Ergonomic Products, Telemarketing and Call Centre Solutions V15 Number 5 pp20. f:\12000 essays\business & economics (632)\Essay 1.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ IBM Software Base This folder contains file bases containing Shareware Software. Shareware files are public files for public use. Many Shareware files ask for small contributions to the author for use of the file, users can choose to follow any instructions contained in the files themsleves, although users are under no obligation. With that out of the way, users can download any files in any of these bases free of charge. Users can also upload files to the Firstclass System. FIles that are uploaded must be non-copyrighted Shareware or Freeware. FIles that are uploaded will be reviewed and approved for download by other useres only if they pass the following rules: 1. Shareware or Freeware 2. Non-copyrighted 3. Appropriate for a school atmosphere * The uploading of copyrighted software will not be tolerated and be deleted immediately. Downloading & Uploading Downloading and Uploading on FirstClass in very simple and easy to learn. You can Download and Upload from the system at Vanguard or using a modem from your home. To download a file first find the file you want by looking through the various file descriptions. Next place an IBM formated disk in the drive and doubleclick on the attachment file. The computer will then download the file to you disk. To download a file from home you simply call using a modem and doubleclick on the attachment file. The FIrstClass system here at Vanguard will then automaticlly send the file to your computer. Its that easy! To upload a file simply compose a messege to "IBM SOFTWARE." Next write a file description and then attach the file you wan tto upload by goign to the file menu, and select attach file. Next select the fiel you want to upload. When the transfer is complete simply close the messege like regualr E-MAIL and the fiel will be submitted for approval. f:\12000 essays\business & economics (632)\Essence of Empowerment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Essence of Empowerment Empowerment is certainly not a new idea within the business arena. In fact, its concept has been around since the 1960's when American car manufactures suddenly realized that they were losing their butts to the Japanese producers. An extensive and extremely well-funded investigation for answers to the recurrent question, how do I get more out of my employees while simultaneously lowering my costs, did produce some implementable and constructive results. The topic I have chosen to investigate is the application of employee empowerment and how to get the most out of this HR "buzzword." Within my scope of discussions are topics which include effective implementation, the role of the organization, and incentives to achieve and sustain actuation. Employee empowerment, in its most basic definition, is effective delegation. The new twist that upper management has been trying desperately to achieve, is to involve the lowest level of employees in the decision-making process while making them responsible for the results of their decisions. There have been many documented examples of anxiety, mistrust and complacency in employees when this wave of "new-and-improved, successful management strategies" have been suddenly thrown upon them. Change of any kind will usually inspire resistance, especially when you are talking about extracting power from management to place in the hands of "subordinates." There are obvious methods to achieving the results that the stakeholders of an organization demand through empowerment. Increases in profitability, productivity, creativity, and a shorter time-to-market are all feasible results of empowerment. In fact, "empowerment is an extremely cost-effective means of bringing about desired changes in performance and operational effectiveness." It takes only a stout devotion of the entire organization, from the top levels downward. That's all. There are, however, key factors to its success. One of the most important key elements to take into account is the need for extensive organizational preparation to achieve effective implementation. By preparation, I mean an organizational-wide commitment to preparing both management and its staff for the changes that are about to take place. Education is one of the most effective tools in preparing for change. Remember that psychological studies determined that individuals are inherently resistant to change when they don't know the results and consequences of that change. Education of all levels within an organization will help eradicate some of the fear that's associated with change. It will also help define everyone's role after the changes are established. Additionally, this becomes an opportunity for upper management to align employees with corporate direction by disseminating vital information. One such change that must occur is the flattening of the organizational chart, whether that entails the redefining or elimination of jobs. Flattening the levels of bureaucracy eliminates the hierarchical chain of command and brings all individuals closer to the actual end product. This has its advantages since all members of the organization, then, have a feel for what it is they are actually doing. Since the utopian result of empowerment is the transference "of decision making and ownership to those individuals [at the lowest possible levels] who have the knowledge and ability to make the most appropriate decision, " these individuals are, therefore, most familiar with their end of the value chain. They theoretically can recognize what it is, exactly, that can be done more efficiently and productively to bring this product to market at lower costs. They are also able to "refine" the product since they have hands-on experience. This transference of responsibility to the employee inherently leaves more time for creative brainstorming by management to search for more proficient processes and products. Open, multilateral communication between management and staff is another vital requirement for effective implementation. Expectations must be communicated from top levels of management and vice versa for empowerment to work. These channels are one of the ways for management to offer support and direction. It is imperative for them to remain open and available to all employees. One of the largest impediments to empowerment that must be addressed in the preparation phase of implementation is corporate culture. As competition is changing rapidly to a global market economy, organizations need to realize that they too, must change to remain competitive. While culture remains one of the strongest influences on individual and organizational behavior, it also becomes one of the hardest aspects to change. Reward systems must adapt from its previous structure to one that fosters the desire to accept this necessary shift. Yet another impediment to gaining the appropriate culture within an organization is the issue of trust. In researching whether empowerment was right for Viking Glass, they discovered that many attempts at its institution had failed. The instances in which it did succeed, they noted, " . . . a distinctive atmosphere of mutual trust between employees and management . . . in the instances of less than satisfactory results, the atmosphere was noticeably less trusting." Since mistrust, at all levels, between employee and supervisor is commonplace, this must be eliminated from the culture before continuing to implement. Empowerment is potentially a very rewarding concept to business, but it requires unanimous "buy-in." To attain organizational buy-in, there must be proper motivational forces and incentives to move people in that desired direction. In addition, the reward structure must be set so that you're are compensating the appropriate actions. Incentive systems are difficult enough to design without having to worry about these additional pressures. Monetary and financial compensations are not necessarily the most important form of incentive to all people. There is abundant evidence which suggests that the most motivating of rewards tend to be nonfinancial. Studies conducted by Lawrence Lindahl in the 1940's identified the primary reasons why employees worked, "[were] 'good wages,' 'job security', and 'promotional/growth opportunities.'" Of those studied, they also reported such intangibles as "full appreciation for work done," and "feeling 'in' on things" to be what they most wanted from their jobs. Frederick Herzberg, from his research, identified money as a "maintenance" factor, or a necessity to one's job. He did conclude, however, that having it did not motivate people to do a better job. What then, does it take to get employees motivated to take responsibility and react like the owner of the company? Stock-based forms of compensation have been implemented, but to little avail. To understand how to convert the workforce into responsible "owners," one must realize that several factors do work against us. First is the issue that: "Economic research indicates that individuals are risk averse, loss averse, and tend to 'satisfice' rather than maximize- and taking cash now is safer than long-term stock ownership. Research also suggests that the value of a possession is perceived as greater than what is not possessed." Secondly, research indicates that: "...employees must see a clear link between effort and performance, performance and reward, and between the form of the reward and what they value. These links are very difficult to achieve with equity-based plans, leading to further avoidance of ownership." It's because of this research that we understand that the organization faces difficult restructuring dilemmas. They are caught in a Catch 22. They have to link rewards to achieve desired behavior, but the behavior that they desire is not identified with that reward. So, in designing effective compensation systems, one must congruently remove old incentives while adding behavior-guiding now ones. Suggested, are several strategies to accomplish an ownership perspective by rewarding with equity-based compensation. First, all activities such as goal-setting, coaching, performance evaluations, and all form of reinforcement must center on ownership. By tying an employee's understanding of how individual actions affect the whole organization through rewards, one can develop an environment which fosters empowered thinking. Second, make it a requirement of employment that all individuals take a stake in the company. Introduce the investment as part of retirement plans and pre-retirement financial planning. Lastly, thoroughly educate the employee how his or her individual actions can provide a lucrative return by explaining the swings of the market in relation to the company. While global change is driving companies to empowerment, and similar philosophies like self- managed team-based arrangements, total quality management, it is important to note that no one philosophy is entirely correct, or incorrect. By combining the best of what these philosophies have to offer and adjusting, to the best of your ability, you corporate culture to facilitate them, you are able to reap the rewards of currently suggested management ideologies. To expect them to work over night is ludicrous, however. These things do take time, because remember, you dealing with human beings here who don't like change. Be patient, persevere; it will be worth the effort. In sum, through cooperation, perseverance, and much patience, you might be able to develop an empowered atmosphere at your company. Change dictates that old philosophies are no longer valid. Through thorough preparation, education, communication, and absolute commitment you might be able to develop empowerment techniques, but to truly reap empowerment's rewards, you must remember that employee motivation is the product of your reward system. Bibliography f:\12000 essays\business & economics (632)\Establishing and Maintaining Good Client Relations.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1203 Total Quality Management, customer satisfaction index, zero defects, client service - all are buzzwords of management in the 1990s. Yet what is all this about anyway? After all, lawyers and law firms successfully made it through the '80s without all the commotion about quality and service. Why all the fuss now? Is this just another fad, some passing fancy that will come and go like Hula-Hoops, disco dancing or designer jeans? Hardly. While the jargon may change over the balance of the decade, a fundamental change is taking place in client service, and the attorneys who realize this and change with it will be the attorneys who will be successful in the '90s and beyond. All structures are built upon a foundation. A high-rise is built upon a foundation of concrete and steel. The taller the building, the deeper and stronger the foundation required to support it. Similarly, a legal practice is built upon a foundation, specifically upon the foundation of relationships with people. Like the high-rise, the greater the intended accomplishment and productivity of the firm, the deeper and stronger these bedrock relationships must be. In fact, the limits of accomplishment, productivity and satisfaction within the firm are all a function of the nature and quality of the relationships the members of the firm have developed with the firm's clients. Jimmy Johnson, the only coach in football history to win both the National Collegiate Championship and the Super Bowl, understood the critical importance of personal relationships when he grabbed the reins of the Dallas Cowboys' franchise. In just three years, he took the league's worst team to the pinnacle of professional success. In the locker room following the team's stunning Super Bowl victory, Johnson poignantly told his team that, more than anything else about the day, they would remember the love they had for each other. The team's success was built upon a foundation of strong relationships, deep appreciation for one another and, yes, even love. Likewise, truly successful lawyers have always built their practices upon a foundation of strong client relationships. However, during the '80s, when a seller's market existed for legal practitioners, many lawyers were able to build successful practices without this fundamental component. The tide has turned though, and purchasers of legal services can now afford to be much more selective in their choice of attorneys. As with every other purchase decision, individuals prefer to do business with people they like, with people who seem genuinely interested in them and with people who really care about their concerns. Today, it is more important than ever that lawyers recognize and appreciate that they must build rich, quality relationships with their clients and must orient their firms around assuring outstanding client service. This process starts with the initial interview. The worst mistake an attorney can make is to get right down to business when first meeting a prospective client. The most critical result to be produced during the first meeting is to begin to build a strong relationship of trust. The attorney should thank the individual for coming to the firm and to out of his or her way to be warm and friendly. The lawyer should never sit behind a desk. Instead, the attorney and potential clients should meet in a comfortable neutral area and spend 10 to 15 minutes just getting to know one another. Business shouldn't be discussed until the attorney is satisfied that he or she is comfortable with the prospective client and, more importantly, that the client is comfortable with the attorney and the firm. As the particular case is discussed, counsel must be sensitive to the developing relationship with the potential client. If during the initial conversation the attorney doesn't feel that he or she will enjoy working with this individual, if a sense of mutual admiration, respect and trust is absent, the attorney should refer the client to a colleague. This may sound crazy, but should the client retain this attorney, everyone will regret it later. Consider your experience. Every really disgruntled client, every client you later regretted having worked with, you suspected from the very beginning. Don't do it to yourself or the firm. Life is too short. Only when both parties are satisfied that they enjoy working together and that the firm is appropriate to handle the matter should an offer of representation be extended. The importance of personal relationships is also true of requests for proposals. In-house counsel sends the same RFP to many law firms, and everyone sends back pieces of paper. Unfortunately, this prevents your firm's attorneys from demonstrating their warmth, friendliness and genuine care and concern for the client, limiting your competitive advantage to your reputation and perhaps you pricing structure. Before a proposal is ever requested or sent, research your potential clients and begin to develop relationships with them in advance. Telephone counsel and find out what he or she might be looking for in a firm. The call presents a great opportunity to begin building a long-term relationship. Even better, schedule a personal appointment or invite counsel to lunch. Nothing makes a stronger impression than a face-to-face meeting. The smart lawyer knows this. Don't rely solely on paper. Go see counsel and ask lots of questions. Then, authentically look to see what would be in the client's best interest and make recommendations based upon it. Even recommend a member of another firm if it's appropriate. One successful Seattle lawyer always directs clients to attorneys whom he feels are best-suited to the particular client and circumstances of the case. As a result, he is one of the most highly respected attorneys in the city and consistently receives referrals in his own specialty. Finally, throughout your firm's representation, don't forget to work on what built the relationship in the first place. Maintain frequent communication with the client and continue to check on how he or she is doing. This is the essence of service. Rather than assuming you're doing a good job taking care of the client, ask the client if you are. Find out if he or she is getting what was expected. It's my experience that most lawyers specifically don't ask the client if everything is satisfactory because they don't want to find out that it isn't. This is a mistake. If the client is indeed dissatisfied, it's far better that you know about it so you can at least have a chance to do something about it. If you don't ask, on the other hand, the client will eventually let you know anyway, either by leaving, not paying their bill or complaining about you to others. None of these alternatives are very desireable. Periodically, ask the client if anything additional can be done for him or her. No customer satisfaction survey can take the place of personal contact, old-fashioned courtesy and genuine concern. No matter what you've heard, clients don't hire law firms or even lawyers, they hire people. Though important, quality work and a result favorable to the client are no guarantee of continued client loyalty, repeat business or the referral of friends and family. What makes clients come back and sent their friends to you is that they like you, and only you can see to that. SUMMARY As with every other purchase decision, individuals prefer to do business with people they like, with people who seem genuinely interested in them and with people who really care about their concerns. Today, it is more important than ever that lawyers recognize and appreciate that they must build rich, quality relationships with their clients and must orient their firms around assuring outstanding client service. f:\12000 essays\business & economics (632)\Ethical Economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 908 Nicholas Grosz Mr. Burke Econ 3/1/00 ETHICAL ECONOMICS? The term ethical and economics should never be put into the same sentance. They are almost oxymoronic in the sense that in order for one to succeed on an economic level, ethics are usually never involved. America as we have come to know it is a world full of mice and snakes. The mice are those in society who voluntarily choose to live off of the prosperous, as the snakes go out and get their prey. The capitalistic society we live in known as America is truly what we make of it. The standards and principles of America's capitalism are truly ethical and fair. One is reminded of the Darwinian theory of evolution that only the strong survive. Those who do not provide for themselves will be left to "die" in American society. The American economic society that we have come to know and love is truly fair and equal on all levels. Since the end of Feudalism, America has lived up to it's reputation as a Capitalistic society. The True Market System kick-started the freedom of possibilities of capitalism. The right to private property, choice, voluntary exchange, comptetition, and economic incentives are what we thrive towards every day. With the incorporation of voluntary exchange and competition, American's were forced to go out into the world and produce in order to survive and make a profit, much different than traditional economics when a child would inherit his father's work. Economic Incentives, better known as profit, lead to a broader array of choices that we are able to make as free-minded Americans. The comparison between Socialist and Free Market economies show us how truly eithical and fair America's economic system truly is. Resources in a Socialistic Economic system are government owned and regulated, which in turn, the government determines what and how much of "what" will be produced. The capital from the government owned goods is then distributed among the general population, thus totally eliminating inequality and Capitalism. So no matter how talented/gifted one is, he is just as valuable to his family and friends as the guy that makes my French Fries at McDonald's. A wide disparity exists among people in the United States. Our free market economy provides us with the ability to prosper and soar above our competitors. Resources are privately owned which clears the way for voluntary exchange. The role of the government in America's Free Market economy is to help ensure that everything runs smoothly with minimal interference. The fair economic system that we live in provides for a wide disparity among the rich and the poor, which in turn provides for a better trade market among the customer and consumer. The circular flow model is a perfect example as to how the American economic system flows among different levels in society. Land, labor, and capital are equally distributed and fairly regualted among the Factor market, households, businesses, products, and the government. The sytem of Economics in the United States of America is balanced and geared towards the citizen, not the government. Hamilton's development of the U.S. Economic system served as a blueprint for America to follow for the coming years. The national bank, taxes, debt, and loans are all perfect examples of how the people choose their own paths in life. They were/are responsible for their finances, rather than allowing them to be regulated by the government. The incorporation of Specialization allowed for a more service oriented society. Those who are qualified to perform a certain task are able to thrive in America's economic system. Absolute advantage and monopolies play a huge role in free market economics, allowing the seller to control his/her own destiny. The widespread availability of goods alotted the customer to shop around. The disparity of prices among the buyer and seller are constantly being regulated by Adam Smith's theory of the Invisible Hand-the idea that prices are automatically regulated among sellers and consumers from a supply and demand standpoint. America's truly Capitalistic nature is thrown into question by the alarming difference between the have's and the have not's. The status quo in U.S. economics is quite off-balance, but no one is to blame for it. Darwin's theory of evolution again comes into play. Adaption in such a case as our financial imbalance is not an option. Poverty among single parents is steadily on the rise. However, the choices that they make like unprotected premarital sex are totally up to it's participants. 66.6% of poverty-stricken people are single parents. The Free Trade economic system in which we live provided these people with the resources and opportunities to prosper. Because these people are financially unable to educate themelves at a higher level, is no one's fault but their own. People have the ability to choose their own paths in the walk of life, nobody is forcing anyone to be ingorant. To say that America's economic system is fair and ethical, would be an understatement. Living in an independant country full of freedoms and choices, we are more than apt to provide for ourselves. The chances for prosperity are out there at arm's reach, some people are just too lazy to get up and take care of business. f:\12000 essays\business & economics (632)\Ethics In Business 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2291 From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Bibliography Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing Sawyer, George. 1979. Business and Society: Managing Corporate Social Impact. Boston Houghton Mifflin Publishing Schuyten, Peter. To Clone A Computer. New York Times February 4, 1979. Pg. 1 Velazquez, Manuel. 1992. Business Ethics: Concepts and Cases. New Jersey Prentice Hall Publishing f:\12000 essays\business & economics (632)\Ethics in Business 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ethics in Business >From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Bibliography Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing Sawyer, George. 1979. Business and Society: Managing Corporate Social Impact. Boston Houghton Mifflin Publishing Schuyten, Peter. To Clone A Computer. New York Times February 4, 1979. Pg. 1 Velazquez, Manuel. 1992. Business Ethics: Concepts and Cases. New Jersey Prentice Hall Publishing f:\12000 essays\business & economics (632)\Ethics in Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ethics in Business >From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Bibliography Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing Sawyer, George. 1979. Business and Society: Managing Corporate Social Impact. Boston Houghton Mifflin Publishing Schuyten, Peter. To Clone A Computer. New York Times February 4, 1979. Pg. 1 Velazquez, Manuel. 1992. Business Ethics: Concepts and Cases. New Jersey Prentice Hall Publishing Please send feedback on this paper to: dsalguer@gwis2.circ.gwu.edu f:\12000 essays\business & economics (632)\ethics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ethics in Business >From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Bibliography Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing Sawyer, George. 1979. Business and Society: Managing Corporate Social Impact. Boston Houghton Mifflin Publishing Schuyten, Peter. To Clone A Computer. New York Times February 4, 1979. Pg. 1 Velazquez, Manuel. 1992. Business Ethics: Concepts and Cases. New Jersey Prentice Hall Publishing Please send feedback on this paper to: dsalguer@gwis2.circ.gwu.edu f:\12000 essays\business & economics (632)\EVALUATING NORTH AMERICAN HEALTH SYSTEMS.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1693 INTRODUCTION Compensating the affairs of economic efficiency with the demands of sociopolitical rights is a constant source of tension in Canada and the United States alike. In no other element is this tension more apparent than in the group of complex markets we call the health care system. Canadians have been fortunate enough to receive a universal health care system for nearly forty years. This is a single-payer system funded by the governments, both provincial and federal, but at what costs? Is health care not unlike any other commodity, or is it the privilege of every citizen? Health care has elements of common economic behavior, however, there are also certain social values associated with it. It is this struggle of defining what health care is that causes such anxiety among economists. The Canadian health care system is slowly crippling the economy, and reforms must be devised to preserve the pride of Canada; our health care system itself. The pluralistic health care scheme of the United States, as well, has serious socioeconomic implications, and American policy makers are looking toward the model of the Canadian system for answers. Both the United States and Canada must reform health care policy, but to what extent? Obviously these questions cannot necessarily yield clear, concise answers, however they will provide insight into analyzing the current and proposed systems of health care. Certainly if Canada is to maintain a high standard of care it must adopt an economically efficient, revenue generating system. Moreover the United States must adopt the single-payer system of Canada while still retaining a strong revenue base. This paper will discuss the strengths and shortcomings of the Canadian health care system, and how health care is a sociopolitical enigma. Furthermore, how the single-payer system is the only realistic response to the growing inadequacies within the American socioeconomic status. CANADIAN HEALTH CARE STRUCTURE Serving as a general background in its appraisal, it is necessary to outline the history and the ambient factors of the Canada health care that is so sought after by the United States. The Canadian health-insurance program, called Medicare, is administered by provincial governments and regulated and partly financed by the national government. Medicare pays basic medical and hospital bills for all Canadians, where the governments determine the criterion of basic care, to insure and maintain a standard level of service. As early as 1919, Canada's Liberal party promised national health insurance, but the first real step was taken in Saskatchewan, where in 1947 province wide hospital insurance was introduced. A national hospital-insurance act followed in 1958, and by 1960, 99% of Canadians were covered by government run hospital insurance. Saskatchewan was again the first in 1961 to introduce medical-care insurance which covered doctors' services as well. However, this was not an easy transformation. In 1962 when the medical insurance act was implemented, the doctors of Saskatchewan went on strike. As a part of the settlement the government agreed to a modified plan that addressed some of the doctors' grievances. Despite the opposition from provinces, doctors and insurance companies, national Medicare legislation was in place by 1967, and today health care is a constitutional right. The arrangement reached by all provinces by 1972 was that the federal government paid half the cost of the provincial plans, provided the plans met five principles: accessibility, universality of coverage, portability from province to province, comprehensiveness of service, and government administration. Under the system the health care provider bills the provincial plan directly. The Canadian Health Act, effective in 1984, clarified the national standards and may penalize provinces that allow doctors to bill for more than the Medicare rate. The Canadian provinces spend a third of their budgets on health and hospitals. High-tech medicine and an aging population have caused Canada's medical costs to rise significantly over the past decade. Increasingly, governments attempt to control costs by promoting personal fitness, cutting back the number of hospital beds and establishing caps on doctors' earnings. The costs have become so overwhelming some provinces have considered revoking coverage of prescription drugs for seniors, optometry, physiotherapy, and chiropractic treatments. There are no doubt different views regarding spending for health care, however, few wish to revert to a free market system. In fact, most Canadians consider the health care program the pride of Canada and that they have an advantage over the United States system that costs Americans more. "Canada spends $1000 less per capita on health care than the U.S., but delivers more care and greater choice for patients." The Canadian health care system has gone through extensive transitions and is a part of an evolutionary process. AMERICAN HEALTH CARE STRUCTURE Over the past several years, the provision of medical services has increasingly become the responsibility of the state in developed nations, except for in the United States. "Unlike the rest of the world's systems, the United States medical care system remains largely private and entrepreneurial." The popularity of free market health care systems was fueled by its successes in technological and pharmaceutical inventions that followed the wartime experiences. This reinforced the American public to resist government interference in health matters. Nevertheless, public funds have been used, and there has been a certain degree, public administration in the health system. "The inability of millions of citizens to obtain or to pay for even minimal levels of care forced the federal government to intervene." It was not until the early 1960's the United States government passed the Medicare and Medicaid laws that established the federal government as an integral part of the health system. The U.S. medical care system is primarily based on the private practice of medicine and job related health insurance programs. American health care is essentially entrepreneurial, with physicians earning their income through a variety of reimbursement mechanisms other than salary, such as the following: fee-for-service, capitation, and per-session. However, this structure is changing as more and more doctors are employed by health maintenance organizations (HMOs). These organizations offer comprehensive service and maintain a certain level of control of spending by regulating doctors' billing. Costs have risen enormously forcing the government to raise more and more funds to accommodate the needs of the public. The following pie graphs illustrate the economic scope of the American health care system of 1990 and that of the dawn of the 21 century. FIGURE 1. FIGURE 2. Laborious efforts have been made to contain and control costs, without limiting access and the availability of service for the poor, aged, and debilitated. Consequently, the mixture of private and public health care systems is characterized by maldistribution of resources and serious inadequacies of access. The current health care system of the U.S. is laden with deficiencies. To illustrate these shortcomings; 17% of the population, some 40 million people, are not covered at all, and another 40 million are only partially covered. Some HMOs make it a condition of a physician's salary that he or she not overstep the boundaries of insurance costs. This raises questions of whether the doctor may be tempted to limit needed services or fail to take adequate steps to establish a diagnosis, and may discharge a patient prematurely. In the early 1990's the United States was in a state of uncertainty. Despite highly trained staff and stock piles of high technology, the United States health care system was a statistical failure. It ranked 16th in the world for infant mortality rates, and life expectancies fell short of that of most industrialized countries. President Clinton has made the most visible attempt to reform the health care program in the United States. Both he and his spouse, Hillary Rodham Clinton, have developed a strategy to prepare and propose a health reform program that the public would understand and accept, and that would neutralize opposition from pharmaceutical manufacturers and the health insurance industry. This illustrates the necessity not only for the evaluation, but the development of alternatives to attain greater economical and social efficiency. The current system is clearly inadequate, the problems are evident: a large percentage of the population cannot access sufficient medical care, and is not covered or protected against the climbing costs. A system whose costs are out of control, and a growing national deficit that the health care system heavily contributes. Unmistakably, the United States health care system is grossly incompetent in providing the public with a standard level of care, and reforms must be taken to contain the swelling costs. CONSTITUTIONAL RIGHT TO HEALTH CARE, FOR BETTER OR FOR WORSE? Economic efficiency and sociopolitical rights consistently clash in a capitalist democracy, and this tension is prevalent in the health care system. A basic economic concern is whether health care is like any other commodity. The health care industry can be analyzed with economic frames of reference: wealth, risk aversion, efficient transfers, and utility. However, there are certain symbolic elements of health care that cannot be easily measured. Cultures have fundamental beliefs that encompass the valuation of life and health. Bearing this in mind, it would only seem realistic that there is some sort of right to health care. Nowhere in the American Constitution is it stated that an individual has the right to some basic set of health care services, however, there are certain undefined responsibilities the government has. It can be argued that the Declaration of Independence supports the right for each and every citizen to have the basic care needed to sustain life so as to exercise one's liberty and to allow the pursuit of happiness. It has been argued that there is a common-law right to equal services, a right of equal access to basic services: such as drinking water. Furthermore this right extends to all citizens and is beyond the reac f:\12000 essays\business & economics (632)\EXECUTIVE SUMMARY HarleyDavidson.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2896 EXECUTIVE SUMMARY Harley-Davidson is the largest market share holder of motorcycles over 750cc in the United States. After the expansion of our production and distribution capacity, we will be in the position to meet the increasing demand for our motorcycles and other products. Growth potential appears very good especially in the overseas market. Gaining a larger market share in these area may require a further increase in production and distribution capacities. We must plan for expansion now and continue to grow as a company. COMPANY DESCRIPTION In Milwaukee, William Harley, 21, and Arthur Davidson, 20, began experiments on taking the work out of bicycling. They were soon joined by Arthur's brothers, Walter and William. Many changes were made to the engine design before its builders were satisfied. After the new looped from was finalized, they were ready to begin production. In 1903 they produced three motorcycles. Harley-Davidson erected its first building the current Juneau avenue site in 1906 and incorporated in 1907. In 1907 Harley-Davidson produced 150 motorcycles. SITUATION ANALYSIS The motorcycle market over 750cc has been increasing over the last five years. The Harley-Davidson 1996 model year production line, sold though a world wide network of more than 1,000 dealers, includes 20 cruiser, factory custom and touring motorcycles, as well as police motorcycles. Harley-Davidson benefits form having one of the world's most recognized and respected brand names and our motorcycle model names are among the best known in the industry: The Competition and Market share This chart shows the competition and market share for 1995 in the United States: Current Market Situation Overall Net sales for 1995 of $1.4 billion were $191.6 million, or 16.5%, higher than net sales for 1994. Net income and earnings per share from continuing operations were $111.1 million and $1.48, for 1995 as compared with $96.2 million and $1.26, for 1994. Net income and earnings per share from discontinued operations were $1.4 million and $.02, for 1995 as compared with $8.0 million and $.11, for 1994, which included a $4.6 million, or $.06 per-share, one-time tax benefit related to the legal reorganization of Holiday Rambler. On January 22, 1996, the Company announced its strategic decision to discontinue the operations of the Transportation Vehicles segment in order to concentrate its financial and human resources on its core motorcycle business. The Company does not anticipate a loss on the discontinuance of the Transportation Vehicles segment. The results of the Transportation Vehicles segment have been reported separately as discontinued operations for each year presented. On November 14, 1995, the Company acquired substantially all of the common stock and common stock equivalents of Eaglemark Financial Services, Inc. that it did not already own. The purchase price was approximately $45 million, which was paid from internally generated funds and short-term borrowings. The Company has included the results of operations of the Financial Services segment ($3.6 million) in its statement of operations for the year ended December 31, 1995 as though it had been acquired at the beginning of the year and deducted the preacquisition earnings as part of non-operating expense. The Company increased its quarterly dividend in September from $.04 per share to $.05 per share which resulted in a total year pay out of $.18 per share. Units Shipped and Net Sales The Motorcycles and Related Products (Motorcycles) segment's net sales increased 16.5% over 1994 due primarily to a 9,293 unit (9.7%) increase in motorcycle shipments, as well as a 14.0% increase in its Parts and Accessories business. The increase in motorcycle shipments is the result of ongoing implementation of the Company's manufacturing strategy and efforts to satisfy demand. The manufacturing strategy is designed to increase capacity, adjust to changes in the market place and further improve product quality while reducing costs. Sales of Buell motorcycles (which are distributed through select Harley-Davidson dealers) increased to $14 million in 1995 as compared to $6 million in 1994. The Company began 1995 at a scheduled motorcycle production rate of 395 units per day. As the implementation of the manufacturing strategy continued, the rate increased to 470 units per day by the end of the year. The Company exceeded its production goal of 100,000 units in 1995 and anticipates 1996 production will reach at least 115,000 units. The Company is currently reviewing alternative sites for the construction of a new manufacturing facility to enable it to achieve its long-term goal of doubling motorcycle production by 2003. Year-end data indicates that the domestic (United States) motorcycle market continued to grow throughout 1995. Compared to 1994, industry registrations of domestic heavyweight (engine displacements in excess of 751cc) motorcycles were up 11.3% . The Company ended 1995 with a domestic market share of 55.8% compared to 56.1% in 1994. This decrease is a reflection of the Company's constrained production capacity in a growing heavyweight motorcycle market. Demand for the Company's motorcycles continues to exceed supply with nearly all of the Company's independent domestic dealers reporting retail orders on all of their remaining 1996 model year motorcycle allocations (production through June, 1996). Export revenues totaled $394.8 million during 1995, an increase of approximately $63.6 million (19.2%) over 1994. The Company has exported approximately 30% of its motorcycle unit shipments since 1990 and expects to maintain approximately the same percentage during 1996. The Company distributes approximately one-half of its exported units through its wholly owned subsidiaries in Germany, Japan and the United Kingdom, which allows the Company flexibility in responding to changing economic conditions in a variety of foreign markets. While definitive market share information (engine displacements in excess of 751cc) is not available in many foreign countries, the Company believes it holds an approximate 11% market share in the European markets in which it competes and a 22% market share in the Pacific Rim. During 1995, the Parts and Accessories business generated $292.3 million in revenues, an increase of 14.0% over 1994. The rate of increase is lower than experienced in recent years, however, management believes the 1995 increase is more indicative of the long-term growth potential of the Parts and Accessories business. The Motorclothes business, which accounted for approximately $100 million of Parts and Accessories sales in 1995, is expected to remain stable in 1996, while the Motor Parts and Motor Accessories businesses are expected to increase. The Parts and Accessories business is expected to grow at an annual rate similar to the annual growth rate in motorcycle shipments. The Company is developing an improved system to better monitor domestic dealer inventories and retail traffic. In addition, the Company initiated several promotional programs in the fourth quarter of 1995 to increase dealer floor traffic and plans to continue this promotional strategy in 1996. To further strengthen its ability to process and fill orders for the Parts and Accessories business, the Company plans to construct a new distribution center (at an approximate cost of $17 million). Construction is scheduled to begin in the second quarter of 1996, and the facility should be fully operational by the first quarter of 1997. Gross Profit Gross profit increased $53.1 million, or 14.8%, in 1995 as compared with 1994 primarily due to an increase in volume. The gross profit margin was 30.5% in 1995 as compared with 30.9% in 1994. The gross profit margin was negatively affected by the overtime incurred to produce additional motorcycle units and make up for production time lost because production employees were involved in numerous strategic planning sessions during 1995. Internal & External Analysis Strengths ¨ Customer Loyalty and Following ¨ Very High Product Demand ¨ Profitable Product Line and Market Mix ¨ Highest Market Share for Motorcycles over 750cc in the United States ¨ Union Contract That is beneficial to both the Firm and the Employees ¨ Significant opportunities in the growing worldwide motorcycle market ¨ A proven management team that's committed to build a beneficial relationship with all of the stakeholders for the long term ¨ Increased capacity with the construction of new plant and distribution center Weaknesses ¨ Inefficiency due to Large Production Level ¨ More Demand than Supply ¨ Lower Than expected Sales in Motor Clothes ¨ Lingering biker image MARKETING PLAN OBJECTIVES Harley-Davidson, Inc. is an action-oriented, international company-a leader in its commitment to continuously improve the quality of mutually beneficial relationships with stakeholders (customers, dealers, employees, suppliers, investors, governments and society). Harley-Davidson believes the key to success is to balance stakeholders' interests through the empowerment of all employees to focus on value-added activities. This value added mentality helps us to improve our product quality. It important to us to offer the highest quality product possible. In addition to quality we have also been focusing on service. Many of our dealers are continuing to make major investments in the future growth of their businesses-such as converting their dealerships into world-class retail sales establishments through our Designer Store program, building larger dealerships, expanding their existing service areas or opening alternate 'satellite" stores in high traffic areas. Both we and our dealers are investing in training and education, to better serve the motorcycling community. We will also be focusing more strongly than ever before on new product development. With worldwide motorcycle market growth expected to continue, we're dedicated to maintaining leadership in our traditional motorcycle segments and gaining further penetration into the performance market through our joint venture with Buell. We want to ensure that while our competitors are busy copying our past work, we're re-defining the market with exciting new products. Our new Product Development Center, expected to be completed by year-end '96 in Milwaukee, should give our staff the room and tools they need to maintain our market leadership. Organization Goals ¨ By the year 2003, we will produce 200,000 motorcycles annually ¨ Complete the production of our Product Development Center in Milwaukee by the end of 1996 ¨ Meet the demand by expanding our existing distribution and manufacturing capacity, and where necessary, adding new production and retail distribution points ¨ Grow Parts and Accessories sales volume, as a percent of total revenue, for both new and used vehicle customers ¨ Drive financial results to the levels achieved by acknowledged high performing companies TARGET MARKETS THE HARLEY OWNERS GROUP The Harley Owners Group, or H.O.G., is the world's largest factory-sponsored motorcycle organization, with more than 300,000 members and 900 local chapters located around the globe. Besides the H.O.G. pin and patch, membership card and H.O.G. atlas, members get treated to benefits that are as helpful as the suspension under a Softail seat. There's Hog Tales magazine to keep you up on club events. If you're off to certain far flung spots, our Fly & Ride program can get you aboard a rental Harley. The owners of Harley-Davidson motorcycles are among the most diverse group of consumers in any industry. They range from blue collar factory workers to Doctors and Layers. Recently our target market has shifted more toward the upper end of the buyer market, but we will never forget where we came from. Harleys are not just for men. Over the last decade women have become a significant purchaser of motorcycles, especially Harley-Davidsons. MARKETING STRATEGY The Americas Our top priority in the United States is to grow primarily through our existing dealers. Plans for 1996 include analysis of dealer five-year plans and local market variables to establish priorities for implementation of dealership improvements and additions. We'll also begin to bring more consistency to our dealer network by helping dealers improve their businesses based on a "best practice" model that incorporates local market data and customer input with characteristics of our most successful dealerships. Our second priority is to grow through new dealers on an as-needed basis, while adding new "satellite" outlets where necessary to increase customer convenience and satisfaction. These outlets, typically located in high traffic areas, are smaller, dealer-owned motorcycle service facilities or stores carrying mostly MotorClothes, Genuine Motor Accessories and Genuine Motor Parts. Although still in the developmental stages, we're allocating more resources to future growth of South and Central America, Mexico and the Caribbean. In 1995, new dealerships opened in the major market cities of Bogota, Colombia and Lima, Peru. We are currently considering new markets in which to open additional dealerships in 1996 and beyond. Europe Although our European presence goes back over 80 years, we consider this to be a market that is ripe with new opportunities. Our emphasis in 1995 was simply to "focus on the basics" by establishing Harley-Davidson Europe headquarters in the United Kingdom and creating an in-country management team dedicated to improving the bond between Harley-Davidson and our distributors, dealers and customers there. The start-up of a European Distribution Center in Rotterdam has consolidated our motorcycle and P&A distribution under one roof, allowing us to improve service levels and develop a stronger competitive advantage in the marketplace. To further bolster Harley-Davidson's brand image, we've opened two flagship stores in major markets-North London and Central Paris-and are currently studying the feasibility of opening similar stores in other markets. Going forward, our short-term focus will remain on improving customer satisfaction through gradual expansion of our dealer network, conversion of more existing dealerships into Designer Stores, improved management information systems, better product availability and consistent pricing, enhanced technical service training, expansion of Harley Owners Group activities and development of new markets. Asia/Pacific This evolving market is one we're watching very closely. The infrastructure and strategies that we've put in place will provide a solid foundation for continued success as the heavyweight motorcycle market grows and develops here. Findings of an intensive market study, the early stages of which were completed in 1995, show that short-term growth opportunities will come from existing markets in this region-led by Japan and Australia-with long-term growth coming from developing new markets. Like Europe, we'll also be focused intensely on "the basics" to ensure consistency among our dealer network, but with special emphasis on increasing technical service competencies. We'll also work to enhance customer relationship-building activities through Harley Owners Group and cohesive direct marketing and brand image-building initiatives. MARKETING MIX The sportster, First introduced in 1957, the Sportster is Harley-Davidson in its purest form. It is an uncompromising exercise in getting power to pavement. As it turns forty, the Sportster certainly isn't experiencing a mid-life crisis. It just keeps getting better. The Softtail The Softails offer a retro look, inspired by the classic hardtail frame, brought up-to-date with the reliability of modern technology. These bikes move you ahead by moving you back in time. Dyna There is a place where the past and future mingle, taking on each other's qualities until they become a new incarnation of the here and now. This is the land of the Dyna Glides - with a smooth ride dictated by computer-aided engineering and a look inspired by classic Harley-Davidson styling. Touring Harley-Davidson touring motorcycles offer a lot more than meets the eye. Like small town coffee shops and historic landmarks. Distant rallies and forgotten highways. Campgrounds, sunsets, burger joints and national parks. Even thunderstorms. And now it's all available with electronic sequential port fuel injection on most models. Racing In his first year of superbike racing, Chris Carr won rookie-of-the-year honors and finished twelfth in overall points, while still winning dirt-track races. This year, he is committed full- time to road racing and his poll position at Laguna Seca proved it. This year, he is joined on the VR 1000 racing team by Thomas Wilson, fresh from tremendous success in the 600 and 750 Supersport classes. On the dirt track, Scott Parker, coming off his record sixth AMA Grand National Championship, continues to dominate aboard his XR 750. Other Segments Eaglemark Eaglemark began in 1993 as an independent company with Harley-Davidson holding a minority stake. Following Eaglemark's success in achieving our initial goals, Harley-Davidson acquired essentially full ownership in November of 1995 to fully benefit from future growth and value creation. Eaglemark was established to better meet the financial needs of Harley dealers and owners, while producing attractive returns. We use the name Harley Credit and Insurance, rather than Eaglemark, to build on the loyalty customers have for the Harley-Davidson brand. Consistent with the brand's image, our services aim to provide real value to customers through one-stop shopping, fast personal service, competitive terms and a thorough knowledge of the products we finance and insure. Parts and Accessories As successful as our P&A business has been over the last several years, we took some major steps in 1995-including repositioning our replacement parts and mechanical accessories lines-to re-energize our approach and maintain our market leadership. To address dealer and customer dissatisfaction with backorders on popular items, we're establishing closer ties with our suppliers, to ensure they have adequate capacity to handle demand. And the new P&A distribution center, when it comes on stream, will help speed the flow of parts to dealers. Ninety percent of our MotorClothes revenue comes from the domestic market, which has become a very tough environment for apparel sales. And we've found that our international markets have very specific needs for fit, styling and pricing that our current broad-based line doesn't adequately support. From these challenges come opportunities. In 1996, we're creating a global, unified MotorClothes product line, developed by a centralized styling department. This group will develop overall concepts, then work with regional MotorClothes managers to produce market-specific products. We're also increasing our promotional efforts toward the non-riding public, to attract them into our dealerships. Buell Although still a start-up operation- approximately 1,400 Buell units were shipped in 1995-the Buell team is continuing to explore and evaluate new opportunities in the sport/performance market. While traditional sportbikes utilize complex technology with the sole purpose of increasing speed, Buell's mission is to develop and employ innovative technology to enhance "the ride" and give Buell owners a motorcycling experience that no other brand can provide. Buell expanded its 1996 model year product line by adding two new models, the S1 Lightning and S2 Touring, to support its flagship S2 Thunderbolt. Buell also added more than 100 new dealers in 1995 (Buells are distributed only through select U.S. Harley-Davidson dealerships), bringing the year-end total to approximately 150. In 1996, the Buell team will complete its study of the European sport/performance market, which is four times larger than its U.S. counterpart, to prepare for a possible future launch there. Promotion The majority of our advertising comes from bike rallies and special events that are held that are held across the United States. Our Rallies draw between 5,000 and 200,000 people. The majority of the attendants are Harley owners. Harley Davidson as an organization does very little mainstream advertising. BUDGETS CONTROL AND ACCOUNTABILITY Standards should be specified in terms of sales, and production. Costs should be identified and target cost levels specified to facilitate their control. Standards should be established in terms of consumer's attitudes. Attitude standards, in terms of perceptions, and desires should be specified. Controls should be implemented and monitored by appropriate administrators. The president, vice-president, administrators, and other individuals should be responsible for controlling the marketing mix implemented. f:\12000 essays\business & economics (632)\Executive Summary of Pepsico Finance.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ EXECUTIVE SUMMARY OF PEPSICO Through my research of Pepsico, I have calculated the cost of capital. A firm's cost of capital is imperative because it represents the funds used to finance the firm's assets and operations. First you have to estimate the cost of capital in order to minimize it. In estimating the cost of capital, you first have to find the cost of each capital component and then combine the component costs to find the weighted average cost of capital. First, I calculated the cost of debt. Pepsico's bond consisted of 7 5/8 coupon rate, maturing in 1998 at a price of $1023.80. I figured the payments to be $38.15(.0763*1000/2). I then used my financial calculator to find the bond yield of 5.16% by entering in 1023.80=PV, 1000=FV, 2=N, 38.15=PMT. The bond was calculated semi-annually, therefore I multiplied the answer for I/Y times 2 to get 5.16%. The next step would be to calculate the preferred stock, however my stock had none. I then went to the third step of calculating cost of retained earnings. First I found the three growth rates which were historical, forecast, and sustainable growth. The historical and forecast annual rates I simply pulled directly from Value Line under Past 10 years and estimated years of the dividends. They both were 14.0%. The sustainable growth is calculated by taking the retention rate (b) and multiplying it by the return on equity (r ). To find b, I first calculated the dividends payout ratio which is DPS/EPS. I pulled DPS and EPS from value line under 1997. Then to find the retention rate, I subtracted the ratio from 1. Next, I calculated r, by taking net income and dividing it by net worth. These figures I also pulled from Value Line. My b=.352, and r=28.68%. Then the third growth rate was 10.10(.352*28.68). Still calculating the cost of retained earnings, I then calculated my cash flows by the discounted cash flow approach. For the first three cash flows, I took the dividend of the stock over the price of the stock, and then added the growth rate to it. My first cash flow equaled to 15.38%, second was also 15.38%, and the third one was 11.45%. To find the cash flow four, I used the CAPM approach. This formula is Ks=Krf + (Km-Krf)bs. I found beta on Value Line which was .95. The risk free rate was found by obtaining the current yield on a 20yr. T-bond from the Wall Street Journal. It equaled 6.60%. The Km-Krf was found in the book, and equaled 7.1%. After plugging those numbers into the formula, I came up with 13.35%. The last calculating was the weighted average cost of capital. The formula for this is: WACC=WdKd(1-tax rate) + WpKpf + WsKs. I found the weights of debt and equity on Value Line, and they were: Wd=55%, and Ws=45%. The cost of debt and equity were already calculated, and the tax rate of 40% was given to us. There was no preferred stock, so I did not use those numbers in my calculation. After plugging in the values, my WACC came out to be 7.71%. This number can be interpreted as the weighted average cost of each new dollar of capital raised at the margin. The capital is basically the entire right hand side of the balance sheet, and the cost of capital must be minimized in order to maximize the value of the firm. f:\12000 essays\business & economics (632)\Executive Summary of Pepsico.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Executive Summary of Pepsico Through my research of Pepsico, I have calculated the cost of capital. A firm's cost of capital is imperative because it represents the funds used to finance the firm's assets and operations. First you have to estimate the cost of capital in order to minimize it. In estimating the cost of capital, you first have to find the cost of each capital component and then combine the component costs to find the weighted average cost of capital. First, I calculated the cost of debt. Pepsico's bond consisted of 7 5/8 coupon rate, maturing in 1998 at a price of $1023.80. I figured the payments to be $38.15(.0763*1000/2). I then used my financial calculator to find the bond yield of 5.16% by entering in 1023.80=PV, 1000=FV, 2= N, 38.15=PMT. The bond was calculated semi-annually, therefore I multiplied the answer for I/Y times 2 to get 5.16%. The next step would be to calculate the preferred stock, however my stock had none. I then went to the third step of calculating cost of retained earnings. First I found the three growth rates which were historical, forecast, and sustainable growth. The historical and forecast annual rates I simply pulled directly from Value Line under Past 10 years and estimated years of the dividends. They both were 14.0%. The sustainable growth is calculated by taking the retention rate (b) and multiplying it by the return on equity (r ). To find b, I first calculated the dividends payout ratio which is DPS/EPS. I pulled DPS and EPS from value line under 1997. Then to find the retention rate, I subtracted the ratio from 1. Next, I calculated r, by taking net income and dividing it by net worth. These figures I also pulled from Value Line. My b= .352, and r=28.68%. Then the third growth rate was 10.10(.352*28.68). Still calculating the cost of retained earnings, I then calculated my cash flows by the discounted cash flow approach. For the first three cash flows, I took the dividend of the stock over the price of the stock, and then added the growth rate to it. My first cash flow equaled to 15.38%, second was also 15.38%, and the third one was 11.45%. To find the cash flow four, I used the CAPM approach. This formula is Ks=Krf + (Km-Krf)bs. I found beta on Value Line which was .95. The risk free rate was found by obtaining the current yield on a 20yr. T-bond from the Wall Street Journal. It equaled 6.60%. The Km-Krf was found in the book, and equaled 7.1%. After plugging those numbers into the formula, I came up with 13.35%. The last calculating was the weighted average cost of capital. The formula for this is: WACC=WdKd(1-tax rate) + WpKpf + WsKs. I found the weights of debt and equity on Value Line, and they were: Wd=55%, and Ws=45%. The cost of debt and equity were already calculated, and the tax rate of 40% was given to us. There was no preferred stock, so I did not use those numbers in my calculation. After plugging in the values, my WACC came out to be 7.71%. This number can be interpreted as the weighted average cost of each new dollar of capital raised at the margin. The capital is basically the entire right hand side of the balance sheet, and the cost of capital must be minimized in order to maximize the value of the firm. f:\12000 essays\business & economics (632)\Explain and Evaluate Critically Malthus Population Theory.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Explain and Evaluate Critically Malthus's Population Theory. In 1798 Thomas Robert Malthus, a British clergyman and professor, wrote an essay showing the way to modern demography. In 1824 he wrote a shorter final version, the article on population for that year's Encyclopedia Britannica. Malthus has been criticized for his lack of scientific foresight-he did not foresee modern advances leading to increased life expectancy, food production and birth control. He has been criticized for his politics-he thought welfare immorally increased population and hunger. He has been criticized for pessimism- the adjective Malthusian is associated with a gloomy outlook for humanity. But he showed the way for the study of human population. People. To learn how fast people might reproduce, Malthus examined the United States census. Conveniently, that count was required each decade, starting in 1790, by the Constitution of the former British colonies. Land was so fertile and uncrowded that food production seemed not to limit population growth. Immigration counts were available to subtract from natural rates of population growth, thus revealing net reproductive growth. Malthus observed that under such ideal conditions, during each 25 years the human population tends to double. So if world population is represented by 1, then after each 25 years it would be 2, 4, 8, 16, 32 and so on, provided there were no limits on such "natural" rates of population increase. Food. To learn how fast people might produce food, Malthus examined agriculture in several countries, and made a rough estimate: all food produced could increase each 25 years by at most the prior 25 years' increase. So if food production is represented by 1, then after each 25 years it would be 2, 3, 4, 5, 6, and so on. In other words, food could only increase arithmetically, whereas the population if otherwise left unfettered would tend to increase geometrically. Checks on Population. Malthus concluded that, since food is necessary to human life, world population will necessarily grow slower than its natural trend. Malthus postulated two types of checks on human population growth--- positive and negative. Positive checks are increases in the death rate as a result of wars, famines, disease, and similar disasters. A negative check is the lowering of the birth rate, which is best accomplished by the postponement of marriage. However, given his moral code, Malthus was forced to conclude that the postponement of marriage could only result in vice, misery, and degradation of character, because premarital sexual relations would occur. In other words, his core conclusion was that unless people stopped multiplying, there would not be enough food, regardless of how hard they worked to produce it. Maltus's fearful prediction has not yet been fulfilled world wide, although it is a reasonable description so some countries, past and present. Although the world's population has continued to increase at a phenomenal rate, the overall food supply generally has kept pace. Scientists in many disciplines and a sizable proportion of the general public have identified the "population explosion" and the "ecological crisis" as critical problems requiring immediate attention. Some have suggested, and these views have been well received, that population size is "causing" the ecological imbalance. But the impact of human population growth on the problems mentioned above depends upon a vast number of factors, including the level of technology in a society, the nature of its social organization, its power relative to other human societies, its marital and reproductive practices, and its institutions of socialization. Economists point to four stages in the "demographic transition." In preindustrial societies high death rates balance high birthrates, ensuring steady population. In the second stage---early industrial development---better health lowers death rates, so birthrates appear excessive, and population spurts upward. Since Malthus collected his data in such an era, he did not and probably could not have seen what would come next. In the third stage, the security derived from urbanization, education, and affluence persuade many people to have fewer children. Thus the death rate continues falling but so does the birthrate, which flattens the population curve. Finally, in a mature society, with successful birth control and often with both spouses gainfully employed, couples seem to desire between one and three children, and the population stabilizes. Another "fact" accepted without question in many quarters is that high human density is bad. A few animal studies on crowding (of questionable generality for other animal species, let alone for human population) are quoted repeated to make the point that overcrowding produces pathological behavior. Nevertheless, people crowd to the cities, because on balance they find life there more rewarding than in other locales. In fact, there is evidence that from a number of points of view, urban life-high density living-is good for people. f:\12000 essays\business & economics (632)\Explain why it has proved impossible to derive an analytical .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Explain why it has proved impossible to derive an analytical formula for valuing American Puts, and outline the main techniques that are used to produce approximate valuations for such securities Investing in stock options is a way used by investors to hedge against risk. It is simply because all the investors could lose if the option is not exercised before the expiration rate is just the option price (that is the premium) that he or she has paid earlier. Call options give the investor the right to buy the underlying stock at the exercise price, X; while the put options give the investor the right to sell the underlying security at X. However only America options can be exercised at any time during the life of the option if the holder sees fit while European options can only be exercised at the expiration rate, and this is the reason why American put options are normally valued higher than European options. Nonetheless it has been proved by academics that it is impossible to derive an analytical formula for valuing American put options and the reason why will be discussed in this paper as well as some main suggested techniques that are used to value them. According to Hull, exercising an American put option on a non-dividend-paying stock early if it is sufficiently deeply in the money can be an optimal practice. For example, suppose that the strike price of an American option is $20 and the stock price is virtually zero. By exercising early at this point of time, an investor makes an immediate gain of $20. On the contrary, if the investor waits, he might not be able to get as much as $20 gain since negative stock prices are impossible. Therefore it implies that if the share price was zero, the put would have reached its highest possible value so the investor should exercise the option early at this point of time. Additionally, in general, the early exerices of a put option becomes more attractive as S, the stock price, decreases; as r, the risk-free interest rate, increases; and as , the volatility, decreases. Since the value of a put is always positive as the worst can happen to it is that it expires worthless so this can be expressed as where X is the strike price Therefore for an American put with price P, , must always hold since the investor can execute immediate exercise any time prior to the expiry date. As shown in Figure 1, Here provided that r > 0, exercising an American put immediately always seems to be optimal when the stock price is sufficiently low which means that the value of the option is X - S. The graph representing the value of the put therefore merges into the put's intrinsic value, X - S, for a sufficiently small value of S which is shown as point A in the graph. When volatility and time to expiration increase, the value of the put moves in the direction indicated by the arrows. In other words, according to Cox and Rubinstein, there must always be some critical value, S`(z), for every time instant z between time t and time T, at which the investor will exercise the put option if that critical value, S(z), falls to or below this value (this is when the investor thinks it is the optimal decision to follow). More importantly, this critical value, S`(z) will depend on the time left to expiry which therefore also implies that S`(z) is actually a function of the time to expiry. This function is referred to, according to Walker, as the Optimum Exercise Boundary (OEB). However in order to be able to value an American put option, we need to solve for the put valuation foundation and then optimum exercise boundary at the same time. Yet up to now, no one has managed to produce an analytical solution to this problem so we have to depend on numerical solutions and some techniques which are considered to be good enough for all practical purposes. (Walker, 1996) There are basically three main techniques in use for American put option valuations, which are known as the Binomial Trees, Finite Difference Methods, and the Analytical Approximations in Option Pricing. These three techniques will be discussed in turns as follows. Cox et al claim that a more realistic model for option valuation is one that assumes stock price movements are composed of a large number of small binomial movements, which is the so-called Binomial Trees (Hull, p343, 3rd Ed). Binomial trees assume that in each short interval of time, , over the life of the option a stock price either moves "up" from its initial value of S to , or moves "down" to . In general, > 1 and < 1. The probability of an up movement will be denoted by thus, the probability for a down movement is . The basic model of this simple binomial tree is shown in Figure 2. Furthermore, the risk-neutral valuation principle is also in use when using a binomial tree, which states that any security dependent on a stock price can be valued on the assumption that the world is risk neutral. Therefore the risk-free interest rate is the expected return from all traded securities and future cash flows can be valued by discounting their expected values at the risk-free interest rate. The parameters p, u, and d must give correct values for the mean and variance of stock price changes during a time interval of length . By using the binomial tree, options are evaluated by starting at the end of the tree (that is time T) and working backward. The value of the option is known at time T. As a risk-neutral world is being assumed, the value at each node at time T - can be calculated as the expected value at time T discounted at rate r for a time period . Similarly the value at each node at time T - can be calculated as the expected value at time T - discounted for a time period at rate r, and so on. When we are dealing with American options, it is necessary to check at each node to see if early exercise is optimal rather than holding the option for a longer while. Therefore by working the binomial backward through all the nodes, the value of the option at time zero is obtained. For example, consider a five-month American put option on a non-dividend-paying stock when the stock price is $50, the strike price is $50, the risk-free interest rate is 10% per annum, and the volatility is 40% per annum. With our usual notation, this means that S = 50, X = 50, r = 0.10, = 0.40, and T = 0.4167. Suppose that we break the life of the option into five intervals of length one month (= 0.0833 year) for the purposes of constructing a binomial tree. Then = 0.0833 and using the formulas, The top value in the tree diagram above shows the stock price at the node while the lower one shows the value of the option at the node. The probability of an up movement is always 0.5076; the probability of a down movement is always 0.4924. Here the stock price at the jth node (j = 0, 1, ..., i) at time is calculated as . Also the option prices at the penultimate nodes are calculated from the option prices at the first final nodes. First we assume no exercise of the option at the nodes. This means that the option price is calculated as the present value of expected option price in time . For example at node E the option price is calculated as while at node A it is calculated as Then it is possible to check if early exercise of the option is worthwhile. At node E, the option has a value of zero as both the stock price and strike price are $50. Thus it is best to wait and the correct value at node E is $2.66. Yet the option should be exercised at node A if it is reached because the option would be worth $50.00 - $39.69 or $10.31, which is obviously higher than $9.90. Options in earlier nodes are calculated in a similar way. As we keep on calculating backward, we find the value of the option at the initial node to be $4.48, which is the numerical estimate for the option's current value. However in practice, a smaller value of would be used by which the true value of the option would be $4.29. (Hull, p347, 3rd Ed) The second technique that is commonly used is the so-called Finite Difference Methods. These methods value a derivative by solving the differential equation that the derivative satisfies. The differential equation is converted into a set of difference equations and the difference equations are solved repeatedly. For instance, in order to value an American put option on a non-dividend-paying stock by using this method, the differential equation that the option must satisfy is The Finite Difference Methods are similar to tree approaches in that the computations work back from the end of the life of the derivative to the beginning. There are two different methods involved; one is called the Explicit Finite Difference Method and the other is the Implicit Finite Difference Method. The former is functionally the same as using a trinomial tree. The latter is more complicated but has the advantage that the user does not have to take any special precautions to ensure convergence. The main drawback of these methods is they cannot easily be used in situations where the pay-off from a derivative depends on the past history of the underlying variable. Finally there is also an alternative to the numerical procedures which is known as a number of analytic approximations to the valuation of American options. The best known of these is a quadratic approximation approach proposed by MacMillan and then extended by Barone-Adesi and Whalley. This method involves estimating the difference, v, between the European option price and the American option price since v must satisfy the differential equation for both. They then show that when an approximation is made, the differential equation can be solved using standard methods. The techniques mentioned in this paper are those commonly used in practise. Although they are not perfect, they are still considered good enough for practical purposes. So far no one has managed to create a direct analytical valuation method for valuing American put options. f:\12000 essays\business & economics (632)\Explain Why It Is Impossible to Derive An Analytical Formula For Valuing American.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Explain Why It Is Impossible to Derive An Analytical Formula For Valuing American Puts. Explain why it has proved impossible to derive an analytical formula for valuing American Puts, and outline the main techniques that are used to produce approximate valuations for such securities Investing in stock options is a way used by investors to hedge against risk. It is simply because all the investors could lose if the option is not exercised before the expiration rate is just the option price (that is the premium) that he or she has paid earlier. Call options give the investor the right to buy the underlying stock at the exercise price, X; while the put options give the investor the right to sell the underlying security at X. However only America options can be exercised at any time during the life of the option if the holder sees fit while European options can only be exercised at the expiration rate, and this is the reason why American put options are normally valued higher than European options. Nonetheless it has been proved by academics that it is impossible to derive an analytical formula for valuing American put options and the reason why will be discussed in this paper as well as some main suggested techniques that are used to value them. According to Hull, exercising an American put option on a non-dividend-paying stock early if it is sufficiently deeply in the money can be an optimal practice. For example, suppose that the strike price of an American option is $20 and the stock price is virtually zero. By exercising early at this point of time, an investor makes an immediate gain of $20. On the contrary, if the investor waits, he might not be able to get as much as $20 gain since negative stock prices are impossible. Therefore it implies that if the share price was zero, the put would have reached its highest possible value so the investor should exercise the option early at this point of time. Additionally, in general, the early exerices of a put option becomes more attractive as S, the stock price, decreases; as r, the risk-free interest rate, increases; and as , the volatility, decreases. Since the value of a put is always positive as the worst can happen to it is that it expires worthless so this can be expressed as where X is the strike price Therefore for an American put with price P, , must always hold since the investor can execute immediate exercise any time prior to the expiry date. As shown in Figure 1, Here provided that r > 0, exercising an American put immediately always seems to be optimal when the stock price is sufficiently low which means that the value of the option is X - S. The graph representing the value of the put therefore merges into the put's intrinsic value, X - S, for a sufficiently small value of S which is shown as point A in the graph. When volatility and time to expiration increase, the value of the put moves in the direction indicated by the arrows. In other words, according to Cox and Rubinstein, there must always be some critical value, S`(z), for every time instant z between time t and time T, at which the investor will exercise the put option if that critical value, S(z), falls to or below this value (this is when the investor thinks it is the optimal decision to follow). More importantly, this critical value, S`(z) will depend on the time left to expiry which therefore also implies that S`(z) is actually a function of the time to expiry. This function is referred to, according to Walker, as the Optimum Exercise Boundary (OEB). However in order to be able to value an American put option, we need to solve for the put valuation foundation and then optimum exercise boundary at the same time. Yet up to now, no one has managed to produce an analytical solution to this problem so we have to depend on numerical solutions and some techniques which are considered to be good enough for all practical purposes. (Walker, 1996) There are basically three main techniques in use for American put option valuations, which are known as the Binomial Trees, Finite Difference Methods, and the Analytical Approximations in Option Pricing. These three techniques will be discussed in turns as follows. Cox et al claim that a more realistic model for option valuation is one that assumes stock price movements are composed of a large number of small binomial movements, which is the so-called Binomial Trees (Hull, p343, 3rd Ed). Binomial trees assume that in each short interval of time, , over the life of the option a stock price either moves "up" from its initial value of S to , or moves "down" to . In general, > 1 and<1. The probability of an up movement will be denoted by thus, the probability for a down movement is . The basic model of this simple binomial tree is shown in Figure 2. Furthermore, the risk- neutral valuation principle is also in use when using a binomial tree, which states that any security dependent on a stock price can be valued on the assumption that the world is risk neutral. Therefore the risk-free interest rate is the expected return from all traded securities and future cash flows can be valued by discounting their expected values at the risk-free interest rate. The parameters p, u, and d must give correct values for the mean and variance of stock price changes during a time interval of length . By using the binomial tree, options are evaluated by starting at the end of the tree (that is time T) and working backward. The value of the option is known at time T. As a risk-neutral world is being assumed, the value at each node at time T - can be calculated as the expected value at time T discounted at rate r for a time period . Similarly the value at each node at time T - can be calculated as the expected value at time T - discounted for a time period at rate r, and so on. When we are dealing with American options, it is necessary to check at each node to see if early exercise is optimal rather than holding the option for a longer while. Therefore by working the binomial backward through all the nodes, the value of the option at time zero is obtained. For example, consider a five-month American put option on a non-dividend-paying stock when the stock price is $50, the strike price is $50, the risk-free interest rate is 10% per annum, and the volatility is 40% per annum. With our usual notation, this means that S = 50, X = 50, r = 0.10, = 0.40, and T = 0.4167. Suppose that we break the life of the option into five intervals of length one month (= 0.0833 year) for the purposes of constructing a binomial tree. Then = 0.0833 and using the formulas, The top value in the tree diagram above shows the stock price at the node while the lower one shows the value of the option at the node. The probability of an up movement is always 0.5076; the probability of a down movement is always 0.4924. Here the stock price at the jth node (j = 0, 1, ..., i) at time is calculated as . Also the option prices at the penultimate nodes are calculated from the option prices at the first final nodes. First we assume no exercise of the option at the nodes. This means that the option price is calculated as the present value of expected option price in time . For example at node E the option price is calculated as while at node A it is calculated as Then it is possible to check if early exercise of the option is worthwhile. At node E, the option has a value of zero as both the stock price and strike price are $50. Thus it is best to wait and the correct value at node E is $2.66. Yet the option should be exercised at node A if it is reached because the option would be worth $50.00 - $39.69 or $10.31, which is obviously higher than $9.90. Options in earlier nodes are calculated in a similar way. As we keep on calculating backward, we find the value of the option at the initial node to be $4.48, which is the numerical estimate for the option's current value. However in practice, a smaller value of would be used by which the true value of the option would be $4.29. (Hull, p347, 3rd Ed) The second technique that is commonly used is the so-called Finite Difference Methods. These methods value a derivative by solving the differential equation that the derivative satisfies. The differential equation is converted into a set of difference equations and the difference equations are solved repeatedly. For instance, in order to value an American put option on a non-dividend-paying stock by using this method, the differential equation that the option must satisfy is The Finite Difference Methods are similar to tree approaches in that the computations work back from the end of the life of the derivative to the beginning. There are two different methods involved; one is called the Explicit Finite Difference Method and the other is the Implicit Finite Difference Method. The former is functionally the same as using a trinomial tree. The latter is more complicated but has the advantage that the user does not have to take any special precautions to ensure convergence. The main drawback of these methods is they cannot easily be used in situations where the pay-off from a derivative depends on the past history of the underlying variable. Finally there is also an alternative to the numerical procedures which is known as a number of analytic approximations to the valuation of American options. The best known of these is a quadratic approximation approach proposed by MacMillan and then extended by Barone-Adesi and Whalley. This method involves estimating the difference, v, between the European option price and the American option price since v must satisfy the differential equation for both. They then show that when an approximation is made, the differential equation can be solved using standard methods. The techniques mentioned in this paper are those commonly used in practise. Although they are not perfect, they are still considered good enough for practical purposes. So far no one has managed to create a direct analytical valuation method for valuing American put options. f:\12000 essays\business & economics (632)\Exporters Financial Assistance.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ADVANCED EXPORT MARKETING MAJOR ASSIGNMENT There are already many federal programs that assist exporters in various ways including Progam for Export Market Development (P.E.M.D.), Canadian International Development Association (C.I.D.A.) and Canadian Commercial Corporations (C.C.C.). These programs help exporters secure and enhance access for Canadian goods and services in world markets. They also strengthen Canada's international marketing effectiveness and help promote awareness of export markets and opportunities. These exporting programs also promote Canada's economic, political, security and other interests, both bilaterally and through international institutions. They advise the government on international developments and on the international implications on the domestic policies. There is alot of help out there for exporters but new programs should be introduced and old programs should be updated. I will introduce a new program where anybody can apply for help in exporting which will be called " A FOOT AHEAD "(A.F.A.). A.F.A. will be fully examined and explained in the following report and Iwill also show some very interesting improvements to the existing government exporting program called P.E.M.D. A FOOT AHEAD (A.F.A) There are many problems facing Canadian companies in gaining export competiveness. A.F.A. wants to reduce these problems and make it much easier for the exporters to crack the foreign markets. These problems consist of: 1) Lack of market analysis 2) Lack of market strategy 3) Pricing problems - Labour - Transportation cost - Economics of scale - Outdated manufacturing facilities 4) Distance from market (serviceability aspects) 5) Lack of management initiative (no long range plans - lack of know how) 6) Subsidiary relations (affects marketing and research and development) 7) Risk takers - lack of - (companies and banks) A.F.A. knows these problems exist and wants to take care of them for the exporter who may be to confused and/or unsure of themself to become involved in foreign investment. A.F.A. consists of 7 graduates from the Sir Sanford Fleming College International Trade Program. Each of its staff are fully capable of helping any exporter in the above problems. With the quality of education learned from the profs at Fleming no solution is unatainable. For each of the above problems, people will be assigned to fully understand the exporters situation and apply there capabilities in helping them out. The first employee, we will refer to him as Das Fut, will be responsible for finding business's that look as though they are capable of creating a profit from exporting there service or good that don't already do so. So instead of companies coming to us, we will go looking for them to export. Das Fut will obtain documents (balnce sheets and company profiles) and statistics on domestic markets and if they look promissing he will then suggest back to headquarters that these companies should export. Advantages of export include: 1) Increased sales 2) Higher profits 3) Lower unit costs of production 4) Greater utilization of plant capacity 5) Offset cycllical downturn. (economical and seasonal) 6) Market dependence avoidance 7) Extended life of your products 8) New knowledge and experience Our people at A.F.A. will assess the information given to us about the company in question. If we all agree that the business will be successful in exporting, the next step will be taken. Someone will be sent to foreign well populated markets where people have money to spend to find out if there product or service will sell. But before this step is taken the company will be contacted. We will explain to them why we think there company will be successful and how we can help them in exporting. Since many powerful people know how successful S.S.F.C. International Trade graduates usually become, we have had no problems in finding investors in A.F.A. Our expensives may be a little out of hand but the return will be tremendous. Our people will scour the world looking to find places to sell these business's products. They will complete preliminary surveys and find out the potential markets. Our people are aware of all foreiegn cultures and communicate in a number of languages. Success is a given. Once our field placement consultants send us the information necessary for A.F.A. on the most successful country to export to we will continue to our next step. Footing the bill. This is where the big bucks are made for A.F.A. and the companies. A.F.A. tends to look at the business's that have great domestic shares of the market but cannot penetrate foreign markets because of capital problems. These business's may or may not know that they could be successful in other markets but don't bother with it because they don't have enough cash or are afraid to get a bank loan. A.F.A. will support the investment needed to export to other countries. This is not a loan but more like a partnership. A.F.A. is so confident in its employees that they are willing to foot all of the exporting costs with no risk to the company. This is when negotiations will take place with the companies and A.F.A. to come to an understanding on how profits will be divided. Both will benefit but A.F.A. will stop investing money when the company is able to do there own marketing, administration and shipping. But in the negotiations there will always be a clause saying that A.F.A. will receive a percentage of monies after our help is no longer needed. This is why A.F.A. will always be finacially stable. A.F.A. is willing to do all the work in finding a company that should be exporting but can't, doing the preliminary surveys, finding the potential markets and investing all the money in the project. In return there will be huge capital gains for both the business's and for that ingenious program " A Foot Ahead " IMPROVEMENTS TO P.E.M.D. It is understood that P.E.M.D. is to increase Canadian prosperity and competiveness in the international marketplace but not all business's are able to apply for it. I believe some moderate changes should be made to the program so that it will be easier for more companies to enjoy their benefits. Canada has hundreds of thousands of companies out there and all should be aware of the P.E.M.D. program. P.E.M.D. has helped 25,000 Canadian businesses in marketing their products and services abroad and has supported activities that exceeds 11.5 billion dollars but there is always room for improvement. P.E.M.D. annual contribution per application is a minimum of five thousand dollars and a maximum of fifty thousand dollars which I agree with but the company elgibility is what I disagree with. It says in P.E.M.D. that elgible companies that have sales annually greater than 250,000 dollars and less than 10 million dollars, and or less than 100 employees for a firm in the manufacturing sector and 50 in the service industry will be given preference. I believe that annual sales of 50 thousand dollars should be able to get P.E.M.D. assistance. These smaller companies deserve the same treatment as the rest. If say a company of annual sales of 50,000 dollars can't export because of inaccess of funds for a new venture they could be losing money. They may know that their product or service will sell abroad but are unable to take a shot. With the help from P.E.M.D. this smaller company may one day turn into a multinational enterprise. One other way I believe P.E.M.D. could change to help out exporters even more so is to advertise. Of all the businesses in Canada that we have I'm sure only a minimal amount of them know P.E.M.D. exists. The Canadian government should either send out pamplets, or create a web site, or advertise on television; some how they have to let every Canadian company know about this beneficial program. The Canadian government has only so many resources to work with and money really isn't one of them. The financial assistant programs for exporters do truly help. I believe that we as the Canadian public should stand behind these programs because the return will be beneficial to us and the rest of the world. We help out Canadians trying to sell their products or service to different parts of the world. In return different countries are able to buy and use and enjoy our products and services for thier benefits. Therefore money spent on our products in foreign countries brings money into our country creating higher employment and more life satisfation. f:\12000 essays\business & economics (632)\facts of the great depression.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ To my amazement the Great Depression serves as a natural debating point that "justifies" or "refutes" various economic policies. The Great Depression and the New Deal are complex topics that are open to many interpretations. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. Seeing the order in which events actually occurred dispels many myths about the Great Depression. One of the greatest of these myths is that government intervention was responsible for its onset. Truly massive intervention began only under the presidency of Franklin Roosevelt in 1933, who was sworn in after the worst had already hit. Although his New Deal did not cure it, all the leading economic indicators improved during his tenure. To understand the Great Depression, it is important to know the theories of John Maynard Keynes. Keynes is known as the "father of modern economics" because he was the first to accurately describe some of the causes and cures for recessions and depressions. In a normal economy, Keynes said, there is a circular flow of money. My spending becomes part of your earnings, and your spending becomes part of my earnings. For various reasons, however, this circular flow can falter. People start hoarding money when times become tough; but times become tougher when everyone starts hoarding money. This breakdown results in a recession. To get the circular flow of money started again, Keynes suggested that the central bank, the Federal Reserve System, should expand the money supply. This would put more money in people's hands (through the multiplier effect), inspire consumer confidence, and compel them to start spending again. A depression, Keynes believed, is an especially severe recession in which people hoard money no matter how much the central bank tries to expand the money supply. In that case, he suggested that government should do what the people were not: start spending money. He called this "priming the pump" of the economy. I think that most economists believe that only massive U.S. defense spending in preparation for World War II cured the Great Depression. After the success of Keyne's economic beliefs were proven, almost all free governments around the world became Keynesian. These policies have dramatically reduced the severity of recessions since then, and appear to have completely eliminated the depression from those who follow such economic beliefs throughout the world. Events of the 1920s The Roaring Twenties were an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire ("leave it alone"), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form, and inequality of wealth and income reached record levels. The country was on the preferred gold standard, and the Federal Reserve was not allowed to significantly change the money supply. Many try to blame the worsening of the Depression on Hoover, for supposedly betraying the laissez-faire beliefs. As this time line will show, almost all of Hoover's government action occurred during his last year in office, long after the worst of the Depression had hit. In fact, he was voted out of office for doing "too little too late." The only notable exception to his earlier idleness was the Smoot-Hawley tariff of 1930. But much more important, the economy was clearly turning downward even before Hoover took office in 1929. Entire sectors of the economy were depressed throughout the decade, such as: agriculture, energy and mining. Even the two industries with the most spectacular growth - construction and automobile manufacturing - were contracting in the year before the stock market crash of 1929. About 600 banks a year were failing. Half the American people lived at or below the minimum subsistence level. By the time the stock market crashed, there was a excessive amount of goods on the market, and inventories were three times their normal size. The fact that all this occurred even before the first act of government intervention is a major refutation of laissez-faire ideology. TIMELINE OF GENERAL EVENTS 1920s •During World War I, federal spending grows three times larger than tax collections. When the government cuts back spending to balance the budget in 1920, a severe recession results. However, the war economy invested heavily in the manufacturing sector, and the next decade will see an explosion of productivity... although only for certain sectors of the economy. •An average of 600 banks fail each year. •Agricultural, energy and coal mining sectors are continually depressed. Textiles, shoes, shipbuilding and railroads continually decline. •The value of farmland falls 30 to 40 percent between 1920 and 1929. •Organized labor declines throughout the decade. The United Mine Workers Union will see its membership fall from 500,000 in 1920 to 75,000 in 1928. The American Federation of Labor would fall from 5.1 million in 1920 to 3.4 million in 1929. •"Structural unemployment" enters the nation's vocabulary; as many as 200,000 workers a year are replaced by automatic or semi-automatic machinery. •Over the decade, about 1,200 mergers will swallow up more than 6,000 previously independent companies; by 1929, only 200 corporations will control over half of all American industry. •By the end of the decade, the bottom 80 percent of all income-earners will be removed from the tax rolls completely. Taxes on the rich will fall throughout the decade. •By 1929, the richest 1 percent will own 40 percent of the nation's wealth. The bottom 93 percent will have experienced a 4 percent drop in real disposable per-capita income between 1923 and 1929. •The middle class comprises only 15 to 20 percent of all Americans. •Individual worker productivity rises an astonishing 43 percent from 1919 to 1929. But the rewards are being funneled to the top: the number of people reporting half-million dollar incomes grows from 156 to 1,489 between 1920 and 1929, a phenomenal rise compared to other decades. But it is still less than 1 percent of all income-earners. 1922 •The conservative Supreme Court strikes down federal child labor legislation. 1923 •President Warren Harding dies in office; his administration seemed to me, to be one of the most corrupt in American history. Calvin Coolidge, who is squeaky clean by comparison, becomes president. Coolidge is no less committed to laissez-faire and a non-interventionist government. He announces to the American people: "The business of America is business." •Supreme Court nullifies minimum wage for women in District of Columbia. 1924 •The Ku Klux Klan reaches the height of its influence in America: by the end of the year it will claim 9 million members. It will decline drastically in 1925, however, after financial and moral scandals rock its leadership. •The stock market begins its spectacular rise. Bears little relation to the rest of the economy. 1925 •The top tax rate is lowered to 25 percent - the lowest top rate in the eight decades since World War I. •Supreme Court rules that trade organizations do not violate anti-trust laws as long as some competition survives. 1928 •The construction boom is over. •Farmers' share of the national income has dropped from 15 to 9 percent since 1920. •Between May 1928 and September 1929, the average prices of stocks will rise 40 percent. Trading will mushroom from 2-3 million shares per day to over 5 million. The boom is largely artificial. 1929 •Herbert Hoover becomes President. Hoover is not as committed to laissez-faire ideology as Coolidge. •More than half of all Americans are living below a minimum subsistence level. •Annual per-capita income is $750; for farm people, it is only $273. •Backlog of business inventories grows three times larger than the year before. Public consumption seems to be markedly down. •Freight carloads and manufacturing fall. •Automobile sales decline by a third in the nine months before the crash. •Construction down $2 billion since 1926. •Recession begins in August, two months before the stock market crash. During this two month period, production will decline at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent. •Stock market crash begins October 24. Investors call October 29 "Black Tuesday." Losses for the month will total $16 billion, an astronomical sum in those days. •Congress passes Agricultural Marketing Act to support farmers until they can get back on their feet. 1930 •By February, the Federal Reserve has cut the prime interest rate from 6 to 4 percent. Expands the money supply with a major purchase of U.S. securities. However, for the next year and a half, the Fed will add very little money to the shrinking economy. (At no time does it actually pull money out of the system.) Treasury Secretary Andrew Mellon announces that the Fed will stand by as the market works itself out: "Liquidate labor, liquidate stocks, liquidate real estate... values will be adjusted, and enterprising people will pick up the wreck from less-competent people." •The Smoot-Hawley Tariff passes on June 17. •The first bank panic occurs later this year; a public run on banks results in a wave of bankruptcies. Bank failures and deposit losses are responsible for the contracting money supply. •Supreme Court rules that the monopoly U.S. Steel does not violate anti-trust laws as long as competition exists, no matter how negligible. •Democrats gain in Congressional elections, but still do not have a majority. •The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent. 1931 •No major legislation is passed yet addressing the Depression. •A second banking panic occurs in the spring. •The GNP falls another 8.5 percent; unemployment rises to 15.9 percent. 1932 •This and the next year are the worst years of the Great Depression. For 1932, GNP falls a record 13.4 percent; unemployment rises to 23.6 percent. •Industrial stocks have lost 80 percent of their value since 1930. •10,000 banks have failed since 1929, or 40 percent of the 1929 total. •About $2 billion in deposits have been lost since 1929. •Money supply has contracted 31 percent since 1929. •GNP has also fallen 31 percent since 1929. •Over f:\12000 essays\business & economics (632)\Farmland Industries Inc.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 3137 Introduction Today, when we hear the slogans "better farming, better food," or "proud to be farmer owned" one company comes to mind, Farmland Industries. We may think of this of this fortune 500 company as a leading agricultural powerhouse, which it is, however, it was not always that way. Background Farmland Industries Inc. was founded by Howard A. Cowden, who was born and raised in Southwestern Missouri. Cowden started young in the cooperative business by working for the Missouri Farmers Association (MFA). However; in October of 1927, he had resigned from the position of secretary for the MFA and started out on his own. Immediately following, Cowden received the MFA oil contract that previously had been held with Standard Oil Company, and Cowden was now in the wholesale oil business. On January 27, 1928, Cowden Oil Company was founded. This business was moved to Kansas City, Missouri in late 1928. In January of 1929, Cowden Oil Company was dissolved and Union Oil Company (Cooperative) was formed. It was clear that Cowden had planned to do more than just buy and sell oil to local cooperatives. A board of directors was created to run the company, yet Cowden retained full control over the company that he had created. Cowden started recruiting smaller companies to join their cooperative by signing contracts to sell certain amounts of Union's products. In 1929, Union Oil Company had purchased its first land. "The Two Car Garage," as it is referred to, was the building that they had purchase to become their new home. In 1935, Union Oil Company changed its name to Consumers Cooperative Association (CCA). CO-OP was decided to be its official logo. In October of 1956, CCA moved to their new home on North Oak Trafficway, in Kansas City, and the company was ready for major business. In June of 1961, Howard A. Cowden retired as President of CCA and Homer Young stepped in to fill his shoes. In early to mid 1966, CCA changed its name again. This time to Farmland Industries, Inc., however; they still kept that CO-OP symbol for a trademark. CCA now emphasized much of its business to fertilizer, petroleum and commercial feed. This business only grew and grew for them. "By 1967, Farmland Industries had manufacturing facilities for various kinds of fertilizer at Lawrence, Kansas; Hastings, Nebraska; Green Bay, Florida; Fort Dodge, Iowa; Joplin, Missouri, and a plant under construction in Dodge City" (Fite 281). From here, Farmland Industries only increased its size, sales, and dividends, not to mention popularity. Some of the major lines include: Food Marketing, Feed, Crop Production, Grain, Beef, and Pork. Of course, there are many, many other lines that the company has produced throughout the years. Some of these things include: Ful-O-Pep (Union Oil Company's "Antiknock" gas designed to compete with ethyl), CO-OP tires, Batteries, Groceries, Canning and Dehydration, Tractors, Paint, Twine, Steel buildings, and many other successful ventures, along with many other flops. "We've been working to improve margins-by lowering costs, by implementing shared margin programs, by offering prebooking, and contracting programs in fuel, crop production, products, & feed-and by increasing our emphasis on providing timely information and other services" (Annual 94 2). Organizational Culture Today, Farmland is the largest farmer-owned agricultural input cooperative in the United States. Its mission is: To be a producer-driven, customer-focused and profitable "ag supply to consumer foods" cooperative system (The Farmland Cooperative System 6). The people of Farmland Industries believe in American agriculture. They believe that everyone involved in progressive agriculture in America today is entitled to a return on their investments. Farmland's world headquarters are located in Kansas City, Missouri. The city is located on the banks of the Missouri river in western Missouri. The metropolitan area itself includes four counties in the state of Kansas which helps make up its population of 1.65 million people (U.S. Bureau of the Census 1). According to the U.S. Census Bureau, 82.2 percent of this population are White, 12.7 percent are Black, 3.1 percent are Hispanic, and 1.9 percent include various other Races (1). In 1995, the estimated Kansas City median household income was $37,841. Thirty-eight percent of the households in the metro area have an effective buying power (this is the discretionary income households have after paying off all debts) of more than $50,000 per year (U.S. Bureau of the Census). Kansas City also boasts one of the lowest cost of living in major metropolitan areas. It ranked third among 25 cities with populations above 1.5 million people (U.S. Bureau of the Census). There are many exciting things to do once you're in Kansas City. If gambling is what you are looking for, the metro area offers five river boat gambling establishments (Alm 61). In addition to the casinos, year-around dog racing and seasonal horse racing is offered at The Woodlands in Kansas City, KS. Kansas City also offers sporting excitement. The Kansas City Blades for the hockey fans, the Kansas City Royals, a major league baseball team and the Kansas City Chiefs, a professional football team, in which Farmland Industries is a major supporter. Approximately 500,000 farmers and ranchers across the Midwest own the Farmland Cooperative system. The cooperative system was built to serve these people. Their economic benefit is why it continues to exist and evolve (The Farmland Cooperative System 1). These producers own more than 1,400 farmer-cooperative associations which, in turn, own Farmland Industries, Inc., their regional agricultural cooperative (The Farmland Cooperative System 17). More than 13,000 livestock producers also own the regional co-op directly, since it is through this entity that they market and add value to their hogs and cattle. It is this network of farmers, farmer-cooperatives and regional-and the many people who work for them--that make up the Farmland Cooperative System. Each member of this network has important roles in ensuring its total, long-term profitability. Farmland is the largest farmer-owned regional co-op in America, with sales in 1995, totaling $7.3 billion and it does business in all 50 states and over 70 countries (The Farmland Cooperative System 17). Its owners, who represent 22 Midwestern states account for 80% of U.S. grain and livestock production, set the policies and direction for their regional through elected representatives to their local association and regional boards of directors (The Farmland Cooperative System 17). Their locally based farmer-cooperative associations function as central links between the farmer and their regional in designing the system's products, services, and information to meet their individual needs. The flexibility and responsiveness of these associations give them an advantage over other agricultural input suppliers (The Farmland Cooperative System 12). Farmland and the thousands of people it employs are compelled by one common purpose: to help its farmer-owners accomplish long-term success in agriculture by positioning them and their system as competitive forces in global agribusiness. To be competitive in the world marketplace, the system's producer-owners must continue to find ways to lower their unit production costs, increase their market access, and secure higher returns from their farm products-that is, increase their revenues from the "farm gate to consumer" sector of the food chain. Helping them do that is the primary focus of their locally based and regional cooperatives. Lowering their production costs, increasing markets for their farm products, and improving the quality of their grains and livestock through technology are key functions their Cooperative system performs for its owners to help them improve their profitability. Expanded markets and better quality often translate into higher prices for their farm commodities. Naturally, the successes Farmland has enjoyed and the products and services they provide their patrons have not come overnight or by reckless leadership. It has been a long process led by men and women dedicated to the advancement of agriculture. Management Style As with any major corporation, a competent management staff is critical to the well being of the company. The management staff acts as the infrastructure of the company, making sure that orders are handed down and initiated. Farmland Industries Inc. is governed by 21 Board of Directors that consist of "prominent farmers, ranchers, and managers of farmer co-ops throughout the Midwest" (Tolley 1). Each of the members of the Board of Directors is elected to a three-year term (Farmland 23). President and chief executive officer Harry Cleberg is the leader of the Farmland team and is also a member of the Board of Directors. He has been with the company for 37 years and named CEO in April 1991 and recently been named Agri-Marketer of the year (Hartke C). As CEO, Cleberg must create a motivational factor for Farmland's employees. He does not do this by sitting in his office all day as one would think, but he actually goes into the work areas and meets with many of the 14,000 employees (Hartke C). He enjoys making unannounced visits to various areas, and even sits in "small-group meetings that he calls 'listening posts,'" covering all 22 state trade areas every 18 months. (Hartke C). These listening posts which Cleberg speaks with consist of employees and managers ranging in size from 10 to 100 people. According to Harry Cleberg, he spends about 70 percent of his time outside his office actively communicating with other people in their offices (Hartke D). He has a seven member senior management staff that he meets with for about four hours once a week. The senior management staff and council "are made up of highly skilled individuals" (Farmland 23). In addition to this, he also meets with staff directors every week for about three hours (Hartke D). This man did not get to the top if Kansas City's largest private company (Kansas City Business Journal 20) by sitting in board rooms and talking on the telephone, but he makes it a point to communicate one on one with the employees and managers of Farmland. Farmland has a traditional management style, with three Executive Vice Presidents directly under Cleberg that are responsible for a major core business area. There are well-defined lines of authority and ordinary layers of management (Tolley 1). Farmland evokes a "family feeling" by implicating the use of teams in decision making processes (Tolley 1). According to Warren Tolley, Director of Employee and Organizational Development, "It is not unusual to find employees that have been here 20 to 30 years, and most of them with Agricultural roots" (1). Farmland focuses on employee satisfaction, making employee feedback necessary if improvements are to be initiated. According to Cleberg, "If you don't have some form of regularly scheduled communication, you'll communicate just after you should have communicated" (Hartke D). By this statement, Farmland's CEO stresses the importance of employees' appropriate communication within an organization. At Farmland management focus on "total utilization of all assets of the division" (Farmland 16). Their main focus is to generate higher margins, reduce costs, and improve the competitive position. In today's market, management plays a bigger role than it has in the past. Competition is greater, meaning that having current information, better and more advanced management skills, and access to financing are very critical to the bottom line of the company (Farmland 16). Education & Training Early into Farmland's history, few educational meetings had been held. However, they suddenly realized how important the education process was for the cooperation movement. Sessions held for managers and other officials affiliated with what was then Union Oil company, were held as far north as Aberdeen, South Dakota, and as far south as McPherson, Kansas. According to Homer Young, "Education is the chief problem of the cooperative movement" (Fite 104). In 1936-37, Farmland cooperated with Kansas State college to offer a seven week training course to train Farmland's leaders. They immediately hired four of the thirty students that graduated from the course. By the 1970's Farmland had several training techniques. Some of these were located at the School of Cooperation, named the Farmland Training Center in 1975, while others were carried on out in the fields. By 1977 the center had 18 professional instructors on staff. There were training programs for cooperative members, board members, sales representatives, cooperative accountants, those handling special products such as petroleum and other chemicals, and many others (Fite 105). Today, there is a tremendous amount of training going on at Farmland. "Each year, through an agreement with Rockhurst College in Kansas City, about 12 of the top executives are nominated and sent to an Executive MBA program, which lasts two years, with classes held on alternate Fridays and Saturdays" (Tolley 2). "When they are through," says John Eller, director of IS Planning, "these employees can pretty much write their own career tickets" (Computerworld 43). Each and every employee gets to go through training, not just top executives. Everyone takes classes on such things as time-management, problem solving, sexual harassment, and even team-building assignments. International As stated earlier, Farmland Industries Inc. does business in over 70 countries around the world. The largest international office is in Mexico City, Mexico. This branch office is used in this section as an example of an international office. In the Mexico City office, all of the Farmland employees are trained so they have an idea of the size of the company and how each section of the company works. By allowing employees to understand this process, potential customers can be brought to the company and referred to the pertinent departments. During the training, all the personnel are taught about the cooperative decision making process. Consequently, they will learn about the philosophy and operational process of each division (Cabrera). The Farmland office in Mexico City is a subsidiary for the offices in Kansas City. Their function is to introduce Farmland into the Latin American countries, look for investors, find new distributors, learn about other countries' credit system, laws and regulation from their departments of agriculture, and most important of all, learn about the cultures and identify all products that will be successful in their market (Cabrera). Farmland is selling feed, meat, and pet food to the Mexican and Latin American consumers. Also, they are beginning to introduce oil in form of lubricants, gasoline, and other oil based products. They have products being sold in some European countries and Asian countries. All offices in these countries are considered distributors for Farmland, therefore; they the capacity to import and make sales separately from the Kansas City offices. On the contrary, the office in Mexico is in charge of developing new customers for the cooperative and making the sales. All orders are send back to Kansas City where they will take care of delivering the products. In Mexico city, Farmland has about 100 customers and at least one or two in each Latin American country. Farmland is a cooperative that tries to maintain a cultural diversity. In most cases, the personnel working abroad are originally from the country where Farmland or the subsidiary is based. Although being native of the country is not a requirement, it is important to be fluent with that particular language and know the customs of the country (Cabrera). If we look at the Farmland office in Mexico City, we see that the sales personnel must have a good understanding of the Latin American culture, how well they accept new product ideas, what is their lifestyle like, credit system, and most important of all, how is the business environment like (Cabrera). One big problem a salesperson faces in Latin American countries is the credit issue. Considering that Farmland has been working abroad for over a decade, it has not fully developed trust on the foreign economies. In Latin American countries, credit is very difficult to obtain and even if you get the credit approved by a bank or other entities, Farmland acts rather conservatively and makes this process difficult for some companies. This is one of the problems salespeople encounter as they seek potential customers. The salaries that Farmland offers abroad are very competitive, and they basically match the salaries offered by other leading companies. Income is also based on education and experience. There are two different ways you will be paid when working for Farmland in a foreign country. If you are working in the US. and then you are transfer to a foreign country, your salary will not change once you are in the other office. In addition to regular salary, you will be given a percentage extra on the currency of the country where you are going to live called expatriation allowance. This money is supposed to help pay bills, such as house, food, and other basic necessities (Cabrera). The other way you can get paid is in 100% the currency of the country you are living in. This case is only applicable to the people who have been hired by the subsidiary in a specific country (Cabrera). As part of the training, we let people know performance will be measured in a yearly bases. When you are hired, you are requested to set some performance goals, where you will distribute your time given to the company, given to the customers and to yourself. At the end of the year you will meet with the supervisor for your division, and you both will analyze your performance and determine how productive you have been for the company (Cabrera). When the Mexico City office has people coming from the Kansas City office, they try to explain some cultural differences such as business, lunch hours, and working hours. In the business aspect, people must understand that the Latin Americans rely a lot in the relationship that is developed between the salesperson and the buyer. A written contract is not as valuable as the trust that emerges from knowing one another as individuals. In Mexico, people work from 9am. to 6pm., and their lunch break is around 4:00pm. In some cases, people working in Mexico are suggested to start the day a little bit earlier, because in this way they will be able to contact everyone in Mexico and Kansas City. From Monday trough Thursday, all people are required to dress suit and tie, and Fridays everyone can dress more informal (Cabrera). These are some of the problems and experiences that Farmland must face to do business abroad. This is just one example of the cultural diversity, and every country will have different situations. Conclusion In the agriculture industry today, just as anything else, things change rapidly. The American farmer and rancher need somebody to inform them of the changes that need to be made, then help them implement the changes. They also need not only to market his/her product on a local or national level, but on a global scale to remain competitive. The American consumer as well as the international consumer needs to be confident that they are getting excellent product at a competitive price. Farmland Industries is the crucial link between these two segments of the market. It is a system that has proven strong for many decades and promises to be strong for many more. WORKS CITED Alm, Rick. "Gamblin' on the River." The Kansas City Star Almanac. 1996. Cabrera, Mario. Telephone interview. 20 Nov. 1996. Fite, Gilbert C. Beyond the Fence Rows. University of Missouri Press, Columbia, Missouri, 1978. Fite, Gilbert C. Farm to Factory. University of Missouri Press, Columbia, Missouri, 1965. Hartke, Debby. "Farmland's Harry Cleberg: Agri-marketer of the year." Agri Marketing June 1996: A-D. Tolley, Warren D. E-mail to the author. 8 October, 1996. "Top 125 Area Private Companies-Part I." Kansas City Business Journal 14 June 1996: 20-24. Appendix 1992 Annual Report. The Farmland Cooperative System, 1993. 1994 Annual Report. The Farmland Cooperative System, 1995. 1995 Annual Report. The Farmland Cooperative System, 1996. "We Bring Quality to the Table" The Farmland Cooperative System. 1996: 61 U.S. Bureau of the Census 1995. f:\12000 essays\business & economics (632)\Fieldwork Study.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 502 On Wednesday March 8th, a meeting was held in the city of Los Angeles regarding a small community and a private school. The issue was about the community and their loss of privacy when a private Jewish day school moved its campus into the neighborhood. The main concern was about the traffic around the neighborhood being that there is a public school that is right across the street from it. This particular neighborhood can be classified as being a well- to- do, upper- middle- class residency. The school happens to be classified along the same lines as well. The players in the meeting that was held on this night were L.A. city council members and A Sergeant from the police along with representatives from the school and neighborhood. The meeting convened at 8pm at the school itself in an auditorium. The Council Members and representatives from the school sat at a long table facing the numerous neighbors and parents. The meeting began with a brief introduction about the school and how the traffic issue was handled in the last neighborhood. The meeting was conducted in a very orderly and maintained fashion, allowing everyone the chance to speak and be heard. A hot issue arose about a particular street by the name of McCadden. This street is a very expensive and well-maintained street where neighbors are quite concerned with the upkeep of their homes. The idea that more traffic was to be brought onto the street thereby disturbing the peace and maybe even the neighborhood was something that the residence did not want to see happen. At one point during the meeting there were loud outbursts by the residence about not allowing the school to move into the neighborhood at all. The Councilmen and the sergeant settled these outbursts. The meeting was over at about 10pm when guidelines were settled upon about the traffic the school would have to follow. The guidelines were that the school must have the kids dropped off and picked up in a half- hours time between the hours of 7:30am and 4:30pm. Any child that has been left at school past the half- hour will result in the school receiving a fine. During the pick up and drop off peak hours the street McCadden may not be used and anyone caught driving on the street will receive a fine from the city. This experience was extremely interesting to me because it allowed me to see how residents and citizens react in a time of turmoil however small it may be. It allowed me to see on some level how guidelines can have the same affect as laws when given by the city. It also allowed me to participate in something that I had a particular interest in being that my siblings attend that school and are driven by my mother. All in all it was an insightful experience. f:\12000 essays\business & economics (632)\Finance.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1) Arithmetic mean Standard Deviation 1. Intermediate T-Bond 2.15592593 7.08417535 2. T-bond 2.74185185 12.7163729 3. EAFE Index 7.49074074 23.4421382 4. S&P 500 5.31518519 16.8600115 5. Small Stock Index 8.01444444 24.8112222 2) Payoff per $1.00 Invested 1. Intermediate T-bond $10.05447301 2. T-bond $10.47833304 3. EAFE Index $23.11274502 4. S&P Index $15.0826532 5. Small Stock Index $22.6971407 The EAFE Index would have had the biggest payoff if $1.00 was invested. 3) Payoff Inflation Increase in purchasing power S&P : 15.08265 / 4.324340574 3.49 increase from holding S&P. 1-month T-bill: 6.146689 / 4.324340574 1.42 increase from holding T-bill. 4) Reward to variability 1. Intermediate T-bond 0.30433 2. T-bond 0.215616 3. EAFE Index 0.319542 4. S&P Index 0.315254 5. Small Stock Index 0.323017 The small stock index gives us the best tradeoff during the 27 year period with a reward to variability of 0.323017, the highest of all of the assets in this sample. 5) Arithmetic Average Std. Dev. Reward to Var. Passive International Portfolio : 4.976556 12.87484 0.386533 The reward to variability is higher for this portfolio than any other portfolios we calculated thus far. 6) Portfolio of 40% Long-term Bonds and 60% S&P 500 : Arithmetic Average : 4.285851852 Standard deviation : 13.5640429 Reward to Var. : 0.315971564 The Reward to variability ratio for the passive international portfolio exceeds that of the portfolio of 40% Long-term Bonds and 60% S&P 500 Index. 8) The estimated beta for Chrysler Corporation was 1.70288964 for the period 1987 - 1990. For a portfolio of Utility stocks for the same time period, the beta was 0.62188145. These betas were derives from using the S&P excess return index. f:\12000 essays\business & economics (632)\Financial Analysis of Company.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Loewen Group Inc. was founded in 1969. The company has two major headquarters in North America, one in Burnaby, British Colombia and a second in Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services enterprise in Canada and is the second largest company in the North American Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and also engages in the pre-need selling of funeral services including cemetery and cremation services. The company strives on respecting its Eagle Principle, which is displayed on the first page of its 1995 Annual Report: "To soar to heights of possibilities one needs two equally healthy, strong wings - one being that of people or service concerns, the other that of responsible planning and fiscal management. It is the balance of these wings that enables the eagle to soar beyond all heights"1 In 1995, the company defended itself against two major lawsuits, as well as continued to negotiate acquisition agreements. The Loewen Group Inc. stresses that once an acquisition has been completed, local management is encouraged to remain and offers long term contracts to its key employees, rarely dismissing the other employees. L.G.I. provides many services to its acquired companies including offering training to new employees on its management information systems and covering costs for any renovations which are needed on the acquired locations. Each funeral home and cemetery is operated as a distinct profit centre, with monthly and annual financial performance monitored by regional and corporate management in accordance with budgeted projections. This report includes a study of The Canadian Funeral Services Industry practices, a review of the take-over attempt by Service Corporation International, an analysis of the Loewen Group Inc. 1995 Annual Report for the period ending December 31, 1995, and examination of the revenue recognition practices used by L.G.I.. The Funeral Services Industry According to a paper issued in August 1995, by Statistics Canada's Services, Science and technology Division Final Purchase, Growing Demand: The Canadian Funeral Services Industry, the funeral services industry, in comparison to other industries, has historically been considered a low risk industry. The Funeral service industry is not significantly affected by economic cycles. The stability of the industry is increased by future demographic trends. Individuals from the "baby boomer" generation are now entering their fifties and the death rate is growing slowly at 1.5% per year, compounded, as demonstrated in Appendix A: Deaths, Actual and Projected. The industry is characterised by above-average profitability and revenue growth. Public Health issues and consumer protection issues are primarily regulated at the provincial level of government. These regulations are implemented to protect the dignity of the deceased as well as his or her estate. These regulations are described in detail in the revenue recognition section. Loewen Group Inc. Strategies The Provident America Corporation lawsuit was settled in February, 1995 for US $19 million. On November 2nd, 1995, a jury in Jackson, Mississippi, awarded US $500 million in Breach-of-contract lawsuit brought by Gulf National. This amount is almost twenty-six times high than what was originally asked for. In order to appeal, Loewen was required to post a US $625 million bond, which was later reduced to US $125 million with the condition that there would be no significant change in assets or increases in dividends without prior notification to the court and the other party. No provision on was made on the financial statement at this point since the result was hard to predict on the appeal. On January 29th, 1996, Loewen settled the lawsuit for US $175 million and recorded US $135 million, present value of $175 million. Loewen decided to settle because of two reasons: the first is that the appeal would have a financial impact on the company's income and the second reason is that prolonging the lawsuits would create uncertainty and speculation amongst the company's shareholders. S.C.I. Take-over Attempt On September 17, 1996 Service Corporation International (S.C.I.), the largest Funeral Service Company in the world, placed a $ 2.5. billion take-over bid for Loewen Group Inc. The bid's share value is equivalent to US $ 43 each. Houston based S.C.I.'s bid was considered to be fair by many analysts like Todd Richter of Dean Witter Reynolds Inc. (New York) and Ivar Leipens of Moss, Lawson & Co. (Toronto). Another analyst, Dean Martin of TD securities Inc. (Toronto), stated that the bid was too low and that the a bid of US $ 50 would be fair. He noted that Chairman Ray Loewen and his management team retain 20 % (15 % + 5 % respectively) of the company's stock. Canadian institutional holders of the company's stock would be more likely to support the company because they must follow constraints such as a cap of 20 % on foreign holdings in regards to Canadian Pension funds. Therefore S.C.I. will has had a difficult time gaining the support of 75 % of Loewen Group Inc. shareholders needed as per the Canadian securities law. In the week following the announcement of the take-over bid, the fourth largest company in the industry, Equity Corp. International, based in Lufkin, Texas had contacted the Federal Trade Commission in regards to how to become eligible to bid for divested properties if the take-over took place. Equity Corp. International is 40 % owned by Service Corp. International. Another company, Continua LLC, offered Loewen Group Inc. $ 500 million in exchange for some of Loewen's southern US holdings. On September 27, 1996 the State of Florida launched an antitrust probe into the take-over bid. The state was worried about the impact it would have on Medicare issues, pricing and other areas. S.C.I. would raise the bid to US $ 45 per share before Loewen rejected the bid on October 10, 1996, while at the same time launching an antitrust lawsuit against S.C.I. and Equity Corp. International. The lawsuit accused the two companies of conspiring to eliminate L.G.I. from the industry. All companies in the Funeral Service Industry are continuing to reposition themselves as the industry continues to expand. If successful, S.C.I. would be able to monopolise the North American market. S.C.I.'s take-over proposal is intended to eliminate the competition in North America. S.C.I. wanted to buy cheap after the one time event with the jury. By taking over Loewen, S.C.I. would become the preferred buyer in the industry. Loewen rejected their offer because of the following reasons: 1) inadequate proposal which has a potential anti-competition effect in the commonwealth of the industry. 2) Although both companies encourage the integration of new acquisitions in their structures, Loewen felt that its structure would not be preserved. 3) Loewen is considered as the preferred acquirer in the industry after the acquisition of two of its key assets: Prime Succession, and Ross Hill Memorial Park, two major cemeteries in the United States of America. Loewen decided that it is best to continue implementing the company's long term business plan as an independent company. Loewen has created a good corporate culture and has a record for caring for its employees, customers, and communities it serves. Annual Report Analysis The Loewen Group Incorporated 1995 Annual Report covers the period beginning January 1, 1994 and ending December 31st, 1995. This analysis will cover the following items: the report to the company's shareholders, the "Striking a Balance" section of the report and the operational highlights. The operational highlights analysis will include Management's Statement of Responsibility, the Auditor's report to the Shareholders, a ratio analysis of the financial statements disclosed in the report as well as the pertinence of the notes regarding the financial statements. The annual report stresses the company's belief in its Eagle Principle. In the report to the company's shareholders, The chairman and chief executive officer, Ray Loewen stresses that the company showed 'outstanding growth' despite the inflicting costs associated with the two major lawsuits it dealt with. He thanked the shareholders for their support, then stated promising figures that were overshadowed by the above for mentioned events. He continued with the aspect of growth by discussing the company's acquisitions. Mr. Loewen concluded by promising to continue to uphold the company's standards in 1996. The "Striking a Balance" section of the annual report's purpose is to provide answers from management and executive members about questions shareholders might have about the Loewen Group Inc. beliefs, operations and structure. The topics ranged from the effect of the Gulf National lawsuit to how the services provided by Loewen benefit the communities it serves. This section does not disclose monetary figures, its responsibility lies in creating or restoring the trust of its potential shareholders and current shareholders before they analyse the financial statements in the following section of the annual report, by demonstrating the personal accountability of its staff . Operational Highlights The management's statement of responsibility states that management has presented fairly the financial position of the company while respecting the generally accepted accounting principles in Canada. Management also states that it maintains its control systems to assure that also transactions are completed and recorded properly. The letter conclusion indicates that the auditors selected are independent. The auditor's report to the shareholders notes that the audits made by KPMG Peat Marwick Thorne (independent auditors) were based on the generally accepted auditing standards and summarises its criterion: finding evidence of amounts and disclosure policies and the manner in which the company adopted the generally accepted accounting principles. The auditors concluded upon the completion of the audits that the information provided in the consolidated financial statements to be presented fairly because the company applied generally accepted accounting principles consistently. Ratio Analysis of Financial Statements All ratios presented show 1995 in the first column and 1994 in the second column. As shown with the return on equity ratio. The dollar figures in the annual report are in American currency. Performance Ratios 1995 1994 Return on equity (76684)/614682 = (0.125) 38494/411139 = 0.094 Return on equity based on the Scott formula (Please refer to Appendix E: for complete figures) ROE = SR * AT + [ ROA - IN ] * D/E 1995 (0.125) = (0.011) * 0.265 + [(0.003) - 0.043] * 2.682 1994 0.094 = 0.146 * 0.315 + [0.046 - 0.025] * 2.226 In 1995, $50 million of cash and 1.5 million Common shares are paid off to Gulf National. The settlement decreases Loewen's 1995 net income and retained earnings while increasing their owner's equity. Therefore the shareholders lost 12.5 % on their initial investment, compared to a gain of 9.4 % in 1994. Return on equity, calculated without the lawsuit settlement, shows a smaller decrease of 7.8 % from the previous year. This is primarily due to the increase in share capital of $210 million made by the company to cover the debts incurred through the litigation proceedings. Based on the Scott formula results, the decrease on the return on equity ratio was caused by a loss on overall operating return before interest cost and a high leverage return. Return on assets (72949)/2262980 = (0.032) 95113/1326275 = 0.0717 Total assets increased by 70.6 % however, the costs associated with the legal settlements ($165 million) resulted in a net loss. These occurrences resulted in a negative return on assets. The negative return on assets normally indicates trouble in ability to pay interests. Only $53 million of $165 million was paid in cash and the remainder was recorded as a long term liability without interest. We can also relate these figures to the decrease in credit ratings of Loewen Group Inc. by the following credit facilities: Duff & Phelps Credit Rating, Standard & Poor's Rating Group and Moody's Investor Services as stated in the 'Current Credit Facilities and Credit Ratings' section of the 1995 annual report. Sales return (76684)/599939 = (0.128) 38494/417328 = 0.092 In 1994, 9.2 % of all revenues ended up as profit, while in 1995, 12.8 % of all revenues were recorded as a loss. 0.080 If the company would not have had to incur the costs relating to the lawsuit, 8 % of its revenues would have been profit. The costs relating to funeral homes and cemeteries expenditures exceeded the revenues they generated, because their revenues were not considered revenues of L.G.I. until the acquisitions were completed. Gross margin [599939-373131]/599939 = 0.378 [417328-258474]/417328 = 0.381 Average interest rate 50913/1648298 = 0.031 34203/91536 = 0.037 The gross margin and the average interest rate both remained steady. Cash flow to total assets 39454/2262980 = 0.017 11649/1326275 = 0.009 Cash flow to total assets ratio shows an increase, because the new acquisitions generated more revenues. The majority of the costs related to the Gulf National lawsuit were not included in the ratio, since a large percentage of the costs were recorded as long term liabilities. These liabilities did not involve a cash transaction. Earnings per share (1.690) 0.970 Book value per share 614682000/48167765 = $12.761 per share 411139000/41015447 = $10.024 per share Price-earning ratio 34.380/(1.690) = (20.343) 36.750/0.970 = 37.887 Dividend payout ratio 0.050/(1.69) = (0.030) 0.070/0.970 = 0.072 Earnings per share shows a large decrease in percentage, since the company issued US $ 210 million dollars worth of new shares. Therefore the dividends were distributed to a larger number of shares. The value of shareholders equity per share increased from US $ 10.02 in 1994 to US $ 12.76 in 1995. The dividend payout ratio decreased because earnings per share decreased. The price earning ratio lowered due to the decrease in earnings per share, as well as the current market price per share. Activity Ratios Total asset turnover 599939/2262980 = 0.265 417328/1326275 = 0.315 The total asset turnover remained steady because of the new acquisitions off balanced the legal settlements and litigation cost. One American dollar of total assets generated US $ 0.27 in 1995, whereas in 1994, it generated US $ 0.32. Inventory turnover 373131/[[27489+19673]/2]= 15.800 210471/[[19673+15952]/2]= 11.820 Collection ratio 115953/[599939/365] = 70.500 70547/[417328/365] = 61.700 The inventory turnover was 15.8 times in 1995, an increase from 11.8 times in 1994. In 1995, it took 70.5 days to collect accounts receivables compared to 61.7 days in 1994. This has a negative impact on the company's liquidity. Financing Ratios Debt-equity ratio 1648298/614682 = 2.682 915136/411139 = 2.200 Long-term debt-equity 934509/614682 = 1.520 516654/411139 = 1.260 Debt to assets ratio 1648298/2262980 = 0.728 915136/1326275 = 0.690 The company's reliance on debt increased because the costs it had to incur relating to the Gulf National lawsuit as well as the insurance liabilities incurred created by the two insurance companies it received during the acquisition of S.I. Acquisitions Associates, L.P. Liquidity and Solvency Warning Ratio Working capital ratio 191081/241275 = 0.790 109868/97665 = 1.125 The working capital ratio lowered to 0.790 from 1.125 in 1994. This means that their current liabilities increased at a faster rate than their current assets in 1995. This is cause for concern because ideally this ratio should be at $ 2 of assets to $ 1 of liabilities. Acid test ratio [39454+115953]/241275 = 0.644 [15349+70547]/97665 = 0.880 Interest coverage ratio [72949-47178]/50913 = 0.506 [24029+19738]/34203 = 1.280 Both the acid test ratio and the interest coverage ratio both fell from last year. The acid test ratio decrease was caused by larger increase in liabilities than assets. The interest coverage ratio decreased below to 0.506 which is below the ideal target of 1. The company is not generating sufficient income to cover its obligations as they become due. Revenue Recognition This analysis of the revenue recognition practices by Loewen Group Inc. is divided into two sections. The first section will concentrate on revenue recognition practices relating to funeral services and the second section will develop those relating to the cemetery operations of this company. We have included three Appendixes, Appendix B: Average Funeral Costs, Appendix C: Revenue by Source in the Funeral Service Industry and Appendix D: Total Revenue of the Funeral Service Industry by Sector for additional references . Funeral homes offer services, which include everything from the actual service and registration of the death of an individual to the sale of a casket. These services can be purchased "at-need", which is considered as a purchase at the time of death, or "pre-need", which is a prearranged contract established while the deceased is still living. Provincial regulations in Ontario protect the consumer with respect to pre-need funeral and cemetery services. In general, the regulations require a specific percentage of pre-paid funds to be deposited in trust. Ontario requires 100% deposits in trust on the sale of pre-arranged funeral services. This is required in order to protect the consumer from service non-delivery due to the closure or failure of the firm where they purchased the funeral services. Firms within the province of Ontario can not take the fullest financial advantage of pre-need services due to regulatory restrictions on the funds in question. However the firms still benefit, in that they are gaining control of future market share, and can be certain of future revenue flows. "Payments made for pre-need contracts are either placed in trust by the company or are used on behalf of the purchaser of the pre-need contract to pay premiums on life insurance policies under which the company is the designated beneficiary. At the date of performance of a pre-arranged service, the company records as a funeral revenue the amount originally trusted or the insurance contract amount, together with all related insurance contract amount, together with all related accrued trust earnings and increased insurance benefits"2 Pre-arranged funeral services are included in other assets and amortised over a period of ten years approximating the period the benefits are expected to be realised. The regulations regarding cemeteries focus on public health aspects and the care and maintenance of cemetery grounds. Funeral home companies are required to deposit a certain percentage from the proceeds of sales of interment rights (ie: the lot, crypt or riches for the final disposition of the remains). These perpetual care funds are held in perpetuity and is not considered an asset to the firm. The firm does however have the right to the interest earned on the funds in order to provide the care and maintenance of their cemeteries. The percentage required to be deposited into the perpetual care fund varies from 5% to 40%, depending on the area. In the event that the firm suspends its operation these funds can be made available through the province or municipality. "The pre-need sale of interment rights and other related products is recorded as revenue when customer contracts are signed and, concurrently, related costs are recorded and an allowance is established for customers cancellations and refunds based on management's estimated of expected cancellations."3 1995, was a controversial year for The Loewen Group Inc. The company showed its desire to expand within the funeral industry by acquiring funeral homes and cemeteries from Osiris Holding Corp., MHI Group as well as other companies. The speed in which they attempted to acquire new holdings made the company vulnerable to lawsuits. The company stated in its annual report that it has become more aware of this issue after the Gulf National incident. Although the company was severely affected financially by the settlement as demonstrated by the financing and liquidity ratios, the company showed its potential to maintain its position in the industry, as shown by the relative unchanged gross margin. The company now finds itself highly leveraged (as demonstrated by the Scott Formula calculations) and therefore has the potential for big earnings for shareholders. This has also made the company vulnerable to outsiders, as demonstrated by the Service Corporation International's attempt to take-over the company. If Loewen Group Incorporated is able to stop the take-over attempt, it will prove its stability. REFERENCES 1. Loewen Group Incorporated, "The Loewen Group Inc. 1995 Annual Report", H. MacDonald Printing.,1996, 1. 2. Loewen Group International Inc., [online] Available @ http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96-003953.txt. 3. Ibid. BIBLIOGRAPHY Freiedman, Jack P., Dictionary of Business Terms, New York, Barron's Educational Series Inc., 1994. Gibbins, Michael, Financial Accounting: An Integrated Approach, 2nd Edition, Scarborough, Nelson Canada, 1995. Heimbecker, John, Final Purchase, Growing Demand, The Canadian Funeral Services Industry, Ottawa, Statistics Canada, 1995. The Loewen Group Inc., The Loewen Group Inc. 1995 Annual Report, Burnaby B.C.: H. MacDonald Printing, 1996. The Loewen Group International Inc., [online] Available @ http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96-003953.txt. Milner, Brian. "Loewen board rejects SCI takeover bid", The Globe and Mail, 11 October 1996, B13. Milner, Brian. "Rivals target Loewen assets", The Globe and Mail, 23 Sepetember 1996, B1, B10. Schreiner, John. "Loewen won't concede defeat without exacting a high price" The Financial Post 19 September 1996: 1-2. Schreiner, John. "U.S. giant bids for Loewen" The Financial Post 18 September 1996: 1-2. APPENDIX A: Death, Actual and Projected Source: p.18 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX B: Average Funeral Costs Source: p.13 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX C: Revenue by Source in the Funeral Services Industry Source: p.6 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX D: Total Revenue of the Funeral Services Industry by Sector Source: p.4 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX E: The Scott Formula (Expressed in thousands of U.S. Dollars) 1995 1994 Symbols Total assets 2262980 1326275 A Total liabilities 1648298 915136 L Total equity 614682 411139 E Total revenue 599939 417328 REV Net income (76684) 38494 NI Interest expense 50913 34203 INT Income tax rate (38.1) % 33.9 % TR After-tax interest expense 50913 * 1.381 = 70311 34203 * .661 = 22608 ATI = INT (1 - TR) ROE (return on equity) (76684) / 614682 = (0.125) 38494 / 411139 = 0.094 NI / E SR (sales return before interest) [(76684) + 70311] / 599939 = (0.011) [38494 + 22608] / 417328 = 0.146 [NI + ATI] / REV AT (asset turnover) 599939 / 2262980 = 0.265 417328 / 1326275 = 0.315 REV / A ROA (return on assets) [(76684) + 70311] / 2262980 = (0.003) [38494 + 22608] / 1326275 = 0.046 [NI + ATI] / A IN (average interest rate after tax) 70311 / 1648298 = 0.043 22608 / 915136 = 0.025 ATI / L D / E (debt-equity ratio) 1648298 / 614682 = 2.682 915136 / 411139 = 2.226 L / E f:\12000 essays\business & economics (632)\Financial Instability.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Financial Instability The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability. This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and that financial instability is likely to be transmitted globally with far reaching implications on real sector performance. I conclude the paper with the argument that a global transaction tax would be the most effective policy to curb financial instability and that other proposed policies, such as target zones and the creation of a supranational institution, are either unfeasible or unattainable. INSTABILITY IN FINANCIAL MARKETS In this section I examine four interpretations of how financial instability arises. The first interpretation deals with speculation and the subsequent "bandwagoning" in financial markets. The second is a political interpretation dealing with the declining status of a hegemonic anchor of the financial system. The question of whether regulation causes or mitigates financial instability is raised by the third interpretation; while the fourth view deals with the "trigger point" phenomena. To fully comprehend these interpretations we must first understand and differentiate between a "currency" and "contagion" crisis. A currency crisis refers to a situation is which a loss of confidence in a country's currency provokes capital flight. Conversely, a contagion crisis refers to a loss of confidence in the assets denominated in a particular currency and the subsequent global transmission of this shock. One of the more paramount readings of financial instability pertains to speculation. Speculation is exhibited in a situation where a government monetary or fiscal policy (or action) leads investors to believe that the currency of that particular nation will either appreciate or depreciate in terms relative to those of other countries. Closely associated with these speculative attacks is what is coined the "bandwagon" effect. Say for example, that a country's central bank decides to undertake an expansionary monetary policy. A neoclassical interpretation tells us that this will lower the domestic interest rates, thus lowering the rate of return in the foreign exchange market and bringing about a currency depreciation. As investors foresee this happening they will likely pull out before the perceived depreciation. "Efforts to get out would accelerate the loss of reserves, provoking an earlier collapse, speculators would therefore try to get out still earlier, and so on" (Krugman, 1991:93). This "herding" or "bandwagon" effect naturally cause wild swings in exchange rates and volatility in markets. Another argument for the evolution of financial market instability is closely related to hegemonic stability theory. This political explanation predicts a circumstance (i.e. a decline of a hegemon's status) in which a loss of confidence in a particular countries currency may lead to capital flight away from that currency. This flight in turn not only depreciates the currency of the former hegemon but more importantly undermines its role as the international financial anchor and is said to ultimately lead to instability. The trigger point phenomena may also be used as an instrument to explain financial instability. Similar to the speculative cycles described above, this refers to a situation where a group of investors commits to buy or sell a currency when that currency reaches a certain price level. If that particular currency were to rise or fall to that specified level, whether by real or speculative reasons, the precommited investors buy or sell that currency or assets. This results in a cascade effect that, like speculative cycles, increases or decreases the value of the currency to remarkably higher or lower levels. Country after country has deregulated its financial markets and institutions. The neoclassical interpretation asserts that regulation is thought to create incentives for risk taking and hence instability. It is said to bring about what are called "moral hazards." Proponents of deregulation argue that when people are insured, they are more apt to take greater risks with their investments in financial markets. The riskier the investment activity, the more volatile the markets tend to be. A closer look suggests that perhaps only two of these explanations are valid when thinking about the origins of financial instability. The trigger point explanation seems to be a misreading of the origins of instability. It is unlikely that a large number of investors would have the incentive or operational ability in order to simultaneously coordinate the buying or selling of a currency or assets denominated in that currency. If even there is such unlikely coordination, the "existence of even a very large group of investors with trigger points need not create a crisis if other investors know they are there" (Krugman, 1991:96). The theory of hegemonic stability also overlooks a number of factors that can provide useful insights in explaining the emergence of financial instability. Historical precedence supports this assertion. For instance, Britains role as international economic manager was very minor in the stability experienced under the gold standard. The success of the standard can be attributed to endogenous factors such as the self adjusting market mechanism and the informal discipline maintained by its rules. The destabilization of the gold standard can be attributed to the extreme domestic economic and financial pressures brought on nation states by World War I, and not solely on the industrial and economic demise of Britain. A valid explanation for the origins of financial instability are the speculative attacks brought on by investors. Although similar in function to trigger points, these speculative cycles cannot be mitigated simply by pure recognition. Rather than acting on the value of the currency itself, speculators act on occurrences or policies that will alter the value of the currency. Instability arises from the fact that these speculative cycles induce capital flight and therefore a change in the value of that particular currency, whether or not the decisions of these investors are based on market " fundamentals." Futures, options, swaps and other financial instruments "have given investors and speculators an unheard of capacity to leverage financial markets. The greater the leverage, the greater the instability" (McCallum, 1995:12). If we examine the deregulatory process closely, it becomes clear that there is a perverse relationship between deregulation and financial stability. Say for example, investors suffer from a profit squeeze. This causes the investors to lobby politicians for deregulation. The resulting wave of deregulation fosters instability and wide swings in exchange rates which in turn cause loan defaults and subsequent banking crisis. The resulting financial instability thus begs calls regulation, likely placing the investors in the original position with an unsolved problem. We can see that the dialectic of the regulatory process undermines anticipated stability and will eventually lead to financial instability and collapse. In this environment, there arises calls for new forms of financial regulation. These policies and proposals are of critical importance and will therefore be discussed later in the paper. THE TRANSMISSION AND EFFECTS OF FINANCIAL INSTABILITY There are three contending albeit interrelated views on how financial instability may be transmitted globally. These include equity markets, multiplier effects and monetary reverberations. Say for example, a movement of stock prices generates a recession in one country. This is turn leads to a reduce in imports from abroad. The lower aggregate demand for foreign imports will generate a contraction in other country's output markets. The resulting contraction in the foreign countries will then induce a contraction in the originating country. As seen, the multiplier effect begins to take place that in turn leads to a global recession. If an asset crash leads to a monetary crises, the money crisis could be transmitted worldwide. The Mundell-Flemming model assumes that under a fixed exchange rate system, such as that under the gold standard, a worldwide monetary contraction will result from a contraction in any one particular country because "a monetary contraction in one country, which raises interest rates in that country, must be matched by an equal rise in rates elsewhere" (Krugman, 1991:103). However, under a flexible exchange rate system, such as the one in operation today, the model predicts that monetary shocks will be transmitted perversely, that is, a monetary contraction in one country will produce expansion elsewhere. Herring and Litan (1995) advance this argument by concluding that the transmission of crisis creates a "systemic risk." This view states that continuous losses in financial markets has adverse effects on the real economy because "significant losses can occur if there is a significant disruption in the payments system or the mechanism through which transactions for goods, services, and assets are cleared" (Herring and Litan, 1995:51) . While it may be accepted that financial crises can be transmitted globally, there is debate on its ramifications on the real sector of the economy. Krugman (1991:97) states that a currency depreciation "will produce an improvement in competitiveness that will increase net exports and thus have an expansionary effect on the domestic economy." He also asserts that policy responses may help to curb real sectors effects. When currencies depreciate, government officials and central bankers raise interest rates to discourage capital flight. The recessionary effects of tight monetary and fiscal policies, it is argued, dilute the inflationary repercussions of the currency crisis. Citing historical evidence of the US stock market crash, Kapstein (1996:6) goes so far as to say that the real economy is "shockproof" from transmission of financial instability and even in the face of financial crisis "continues to function normally." The assumption that swings in financial markets do not influence real sector performance is inattentive to many factors. Advocates of this view use what is percieved as relatively small repercussions felt worldwide after the US stock market crash in 1929 where "in general the slump was mild" (Krugman 1991:91). The empirical data of the slump underscores this argument. Between December 1929 and December 1932, for example, Germany experienced a 30.% percent stock market decline, France 38.5 percent and Canada 37.5% (Kindleberger, 1973). If we keep in mind that the percentage swing in the US stock during that same period was 37.3 percent, we see that the slump was only slightly "milder" but by no means "mild." The real sector ramifications were just as remarkable. Germany saw a 58 percent decline in industrial production, France 74 percent and Canada 68 percent, all comparably higher declines than in the United States (Yeager, 1976). It is obvious that financial crises do have global spillover effects and consequences on real sector performance. However, recognition of these adverse effects does not solve the problem. In the next section I present contending policies and proposals designed to curb international financial instability and its repugnant ramifications. CONTENDING VIEWS AND POLICY PROPOSALS Three main policies have been introduced to curb international financial instability. A global transaction tax, which is a tax on short term financial investments, a target zone approach, where nations exchange rates would be allowed to fluctuate within a specific band and a supranational or regional institution aimed at coordinating global financial reform. Proposed by economists and Nobel Laureate James Tobin in 1978, a global transaction tax (STT) would act to "throw some sand in the well greased wheels of the global financial markets." The STT is predicted to slow the short term financial excursions into other currencies, yet at the same time it would have a lighter impact on trade and long-term investments with higher percentage yields. Speculators, now carrying the burden of a tax woul therefore have less " leverage" with which to exploit exchange volatility while long-term investment would be encouraged. Another benefit of the tax is that it would reduce wasted financial resources and increase government revenues. While proponents of the STT say the policy will reduce wasted financial resources, others argue that there would be an adjustment problem because of the fact that "goods and the price of labor moved in response to international price signals much more sluggishly than fluid funds, and prices in goods and labor markets moved more sluggishly than prices of financial assets."(McCallum, 1995:16) Others attack the view that excess volatility would be eliminated because "deciding whether volatility is excessive is complicated by difficulty of determining the fundamental value of a security" (Hakkio, 1994:22). Opponents of the tax argue that it could be avoided by product substitution and regulatory arbitrage and that the government revenue created would be overestimated because "the tax base would decline as security prices and the volume of trading decline" (Hakkio 1994: 26). Advocates of the "efficient market hypothesis" argue that if financial markets are allowed to freely operate, there will be a revaluation of asset values that will produce the most accurate price signals on which to base long- term resource allocations. They say that a STT would be detrimental to less developed countries so reliant on short term investment. Another highly noted policy aimed at curbing international financial instability is the adoption of a targeted exchange rate system. A sort of " hybrid" regime, target zones allows currencies to fluctuate within predetermined and set bands, thus allowing a "float" but at the same time keeping a "fix." Since "the main sources of conflict have been the unpredictability of exchange rates" (Frenkel, 1990:318) a target zone approach would in theory alleviate this unpredictability, while keeping the appealing attributes of a floating system. Seen to be the optimal answer for coordinated exchange rate stabilization, " target zones would involve the determination of an international consensus regarding an appropriate and globally feasible range around which currency values could fluctuate" (Grabel, 1993:77). The adoption of a target zone system would not be universally beneficial. Naturally, the size, status and sector of the economy play an important role in its desirability. Government officials and central bankers will likely oppose the adoption of a targeted exchange rate due to the fact that it would hurt their ability to change the value of their currency in the face of high capital mobility. With a targeted exchange rate, it is argued that there is limited room for fluctuation which infringes on the effectiveness of domestic policies. On the other hand, the fixity of the target zone would in theory stabilize purchasing power of wage earners in both developed and less developed. The overriding problem of the adoption of a target zone regime is that there is no clear way in which target zones could be calculated. If they were to be calculated what would be the ramifications if a country was to fluctuate out of the specific bands? Would the target zones be global or regional? If global, how could the less developed countries be able to stay in the same bands as the developed countries? If a target zone was adopted, what is to say the maldistribution of wealth would not remain idle? There seems to be little, if any, evidence that a fixed, stabilized exchange rate leads to higher or lower interest rates. If the value of a currency is not able to adapt to high tendencies of capital mobility, then it is only rational to say that the developed countries would continue to sap the wealth of less developed countries. The last major policy aimed at quelling financial instability is the creation of a supranational institution aimed at coordinating financial reform and adopting a system of "regulatory supervision." Processing along the lines of a Bretton Woods architecture, this would in a sense institutionalize the role of a hegemon with "a creation of a common currency for all of the industrial democracies" and "a joint Bank of Issue to determine monetary [and financial] policies" (Cooper, 1984:166). This policy proposal endorses the adoption of an global financial institution managing the operation of coordinated supervision. Experience shows us that coordinated supervision is not possible in international financial markets. For instance, the Basel Concordant was never able to reach organizational level to properly respond to a crisis. Additionally, "the BCCI affair demonstrated the limitations of international bank supervision when confronted by unscrupulous operators intent on exploiting the gaps in national bank supervisory systems" (Herring and Litan, 1995:105). Proponents of re-creating a Bretton Woods-type system are unaware of the lessons to be learned from that period. The theoretical brethren of hegemonic stability advocates, proponents of this policy seek too place "the direction of world monetary policy in the hands of a single country" or institution that would have "great influence over the economic destiny of others" (Williamson, 1977:37). As seen under the Bretton Woods system the "destiny" of others was in the hands of a country that was unable to maintain stability. It is yet to be demonstrated how an institutional framework would sidestep the same faultlines and management problems experienced by the United States under the Bretton Woods regime. The organizational barriers to creating such cooperation and coordination would be insurmountable. Secondly, whose view would most likely be presented in the supranational forum? Experience in international organizations shows us that it will probably be the powerful, industrialized nations. The voice and needs of the less developed countries is likely to be marginalized and situations such as the Latin American debt crisis would continue to occur. When looking at the progress of the European Monetary Union we see that the completion of a single market is far too radical for today's international financial climate. Just as "the costs of qualifying for the EMU has become too high" it becomes "unrealistic to hope that the major industrial countries can make comparable strides toward political [much less financial] unification in our lifetime" (Eichengreen and Tobin, 1995:170). Ideally, the best policy for stemming financial instability and spillover effects would be one that extinguishes the problem at its roots. If deregulation in itself causes instability in financial markets, then regulation would be appealing. "Even when the benefits of financial deregulation are apparent, there is a role for regulatory policy" that would "leave the world economy less vulnerable to financial collapse" (Eichengreen and Portes, 1987:51). . If we also hold true the conclusion that the best explanation for financial instability is speculation, then a global securities transaction tax such as the one proposed by Tobin would be optimal. The discouragement of short term speculative excursions and the endorsement of long-term investment will eliminate the problem of volatility based on speculative attacks that so often stray from market "fundamentals." Critics are quite correct when they argue that the tax could induce financial arbitrage and substitution. However this problem would be solved as long as the tax was globally adopted. Secondly, the tax would be applied to goods, services, and financial instruments that had few or no substitutes. The view that the creation of new government revenues is overestimated and that Third World countries would carry the financial burden is nullified when we see that "a .5 percent tax on exchange transaction would augment government revenues globally by as much as $300 to $400 billion per anum" and "devoting merely 10-20 percent of that revenue to a revolving fund for long-term lending to Third World countries would be a healthy substitute for the hot money on which some have become disastrously overdependent" (McCallum, 1995:16). The recognition and ceasing of financial instability and its global transmission is becoming more and more universally endorsed. To decide on a prudent and practical policy will prove to be a major hurdle of international financial leaders around the world. However, if we look closely, we will find the locus of instability in financial markets to be deregulation and speculative attacks. Government and central bankers can no longer adopt an attitude of " benign neglect" toward international financial instability as it becomes increasingly apparent that there are far reaching consequences on real sectors. We can see that there is one policy that supersedes the rest. If the world financial system hopes to curb these real sector ramifications of speculative attacks and financial liberalization, then it becomes indisputable that the STT is an idea whose time has come. BIBLIOGRAPHY Richard N. Cooper, "A Monetary System for the Future" Foreign Affairs Fall, 1984. Barry Eichengreen and Richard Portes, "The Anatomy of Financial Crisis," in Richard Portes and Alexander Swoboda, Threats to International Financial Stability, (Cambridege University Press, 1987). Barry Eichengreen, James Tobin and Charles Wyplosz, "Two Cases for Sand in the Whells of International Finance" Economic Journal, 1995. Jacob Frenkel, "The International Monetary System: Should It Be Reformed" in Philip King, editor, International Economics and International Economic Policy (McGraw-Hill,1990). Ilene Grabel, "Crossing Borders: A Case for Cooperation in International Financial Markets," in Gerald Epstein, Julie Graham, Jessica Nembard (eds.), Creating a New World Economy: Forces of Change and Plans of Action (Temple University Press, 1993). Charles Hakkio, "Should we Throw Sand in the Gears of Financial Markets?" Federal Reserve Bank of Kansas City Economic Review, 1994. Richard Herring and Robert Litan, Financial Regulation in the Global Economy (Brookings Institution, 1995). Ethan Kapstein, "Shockproof: The End of Financial Crisis" Foreign Affairs, January/February 1996. Charles P. Kindleberger, The World in Depression (London: Penguin 1973). Paul Krugman, "International Aspects of Financial Crises" in Martin Feldstein, ed., The Risk of Economic Crisis (Chicago: University of Chicago Press, 1991). John McCallum, "Managers and Unstable Financial Markets" Business Quarterly January 1, 1995. James Tobin, "A proposal for international monetary reform" Eastern Economic Journal 1978, volume 4. John Williamson, The Failure of World Monetary Reform 1971-1974) (NY:NYU Press, 1977) L.B. Yeager, International Monetary Relations: Theory, History, and Policy 1976. . f:\12000 essays\business & economics (632)\financial measures .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ To : The Board of Directors, GENERAL ELECTRIC COMPANY Subject : NEW FINANCIAL AND STATISTICAL MEASURES TO MONITOR THE SUCCESS OF GENERAL ELECTRIC COMPANY After Mr. Weltch announced my new assignment, I pondered how I could go about guaranteeing the best possible result: a creditable and well organized work that is going to help you, the Board of Directors, plan for the future of the company in a better way. Before starting my analysis, I must specify that my target is not to abolish the traditionally used financial and statistical measures but to develop new ones to be used as guidance for the corporation¹s future development. Our Chairman recently wrote that ³the hottest trend in business in 1995 -- and the one that hit closest to home -- is the rush toward breaking up multi-business companies and spinning off their components, under the theory that their size and diversity inhibited their competitiveness ... breaking up is the right answer for some big companies ... for us it is the wrong answer.²1 For us the new trend is the entrance into the service industry. The question must then be: is this the right answer? GE is expecting to increase its revenue by the year 2000 to $120 billion compared with $58 billion in 1990. In other words, if the forecast proves to be correct, it will obtain an average annual rate of growth of 7.5%. This high rate is mainly attributed to the expansion of the services sector of the company, which is estimated to increase by an average annual rate of 13% compared with a corresponding one of 2.1% for manufacturing. Today nearly 60% of GE¹s profits comes from services -- up from 16.4% in 1980.2 This is our new direction and therefore my target is to find these measures that are going to help us understand how the business is going to perform in that particular field. I also consider that our attempt to expand internationally is extremely important and in a way is something new for us. International operating profit was $3.0 billion for 1995 compared with $2.3 billion in 1993.3 This extremely rapid expansion hides a lot of dangers, and at the same time shows another new ³trend² of our corporation. In my analysis I will include the international sector. I will also narrow in on employees, stockholders, goodwill and on potential investors. 1) MIEC (Manufacturing Industry Expenses Comparison) As we know, the basic organization of the company Œs continuing operations consists of 12 key businesses, which contain management units of different sizes.4 From these only three are specified in the service field, including: (a) Capital Service, (b) NBC, and (c) Information Service. On the other hand, the manufacturing industry is divided into nine different segments, some of which will be mentioned later. Although it is not our main concern, the manufacturing segment of GE can be used as the yardstick for the success of the service industry. This is so because this sector of General Electric has been extremely successful and very well established during the past few years. Almost $40,000 million in revenue and almost $9,110 million in profit came this year from manufacturing operations.5 We know that what we have achieved in manufacturing is success. So the question that arises is why should we stop investing in ³success² and enter a completely different field. The first measure which we are going to analyze in this part of the discussion attempts to answer that question. MIEC, the manufacturing industry expenses comparison, compares the amount of money spent for the service industry to the expenses made for the manufacturing industry. Thus it is equal to : Expenses made for the service industry MIEC = -------------------- Expenses made for the manufacturing industry Therefore, according to the financial statements of the previous years we would have6: MIEC 1992 = 15842/29991= 0.52 MIEC 1993 = 18560/30657= 0.60 MIEC 1994 = 19787/30890= 0.64 MIEC 1995 = 26156/33152= 0.78 By establishing the MIEC, we can see the relationship between the amount of money spent on service and the amount of money spent on manufacturing. MIEC is a simple number that is does not seem to have a very important use on its one. However, if this ratio is combined with other facts we can come to several conclusions about what the company¹s future decisions should be. For example, if we combine MIEC with the return on assets,7 we can see that the return on assets is higher for the service industry than it is for the manufacturing industry, and thus are able to infer that a good decision would be to increase the ratio by spending more money on the service industry. On the other hand, if the return on assets is lower for the service industry than it is for the manufacturing segment, then we should decrease this ratio by investing more in the latter. What we want to create by using this measure is some sort of equilibrium between the two main parts of our corporation. Mr. Welch has recently said that he would have wished for the percentage of profit coming from the service industry to have attained a staggering 80% instead of 60%, today¹s figure.8 In order to achieve this, we should invest more in the service industry, thereby increasing the MIEC ratio. The question for the future would be: by how much should we increase this ratio? From what we have said up to this point, we should adjust the MIEC ratio up to the point where: return on assets from the service industry = return on assets from the manufacturing industry. Of course, this equilibrium cannot really occur, but it can only be approached; however, it can help us make future decisions in the best possible way. To give an example, let us suppose that : Return on assets from the service industry =15%, and Return on assets from manufacturing industry =12%. From the above we can conclude that more investments should be made to strengthen the service industry. However after a certain point the ³good ideas² would be eliminated. The firm would have to invest in less profitable areas and the return on assets from the service industry would fall, then begin approaching the return on assets of the manufacturing industry, which is already satiated. At this point we should stop increasing MIEC, and we should keep it stable, ceteris paribus. To expand the share of the services GE had to transform its assets form buildings, machinery and equipment into well trained intelligent employees, software experts, service networks, etc. This transition will cost a lot to the company, and the MIEC shows us just how much it will cost in comparison to the well-established manufacturing industry. It also helps us estimate if this ratio has the value that it should really have for our corporation to be efficient. 2) EC = The Employees Comparison The EC (Employees comparison) has to do with the profit that each employee brings to the corporation. This ratio is equal to : Net Income EC = ----------------------------------------------------- Number of Employees in the Firm For this year EC= $6.6 billion / 222,000 =$30,000.9 In a way, EC shows how much profit is generated by each employee. That measure can be used in a lot of different ways. First it can be used to judge if the average salary in the company is settled in the right way. If for example we find out that during the year 199x the average salary was $60,000, and our other expenses were equal to $250,000 (if divided per employee) then the return on our investment would be less than 9%, which is not good enough due to our goal -- double digit earnings. If we find out that our other expenses are reasonable, then we can suppose that either salaries should be decreased or the firm might have to reduce the total number of employees. During the 1980s, General Electric had to pare payrolls for most of its departments because the salaries where considered to be too high for the income generated.10 But as the corporation is getting bigger and stronger, there might be people working in the newly purchased companies that the corporation controls whose salaries are higher than the actual service that they offer to the company. In order to avoid that, we should find the EC for each of the companies individually and compare them. We could also compare the EC between the two industries, the service and the manufacturing industries. Since the manufacturing industry is older, many changes have been taken place in difficult times for the company.11. Thus, we can suppose that the number of employees was adjusted during the years in such a way that the corporation could function efficiently. Therefore, a good target for the newly bought service firms would be managing to reach the EC of the manufacturing firms that belong to General Electric. The same can happen with firms in the USA and international firms, the majority of which have been acquired during recent years. For example in 1995 we would expect that the 72,000 employees working abroad12 would bring in approximately: 72000 x 30000 = $2,160 billion (as mentioned above $30,000 was the value EC for 1995). On the other hand we can see if the measures to increase the profits of an organization are too harsh for the employees, or are not rewarding the employees well enough. For example, if an outsider can describe a salary of $80,000 as high, no one can say if this salary is high enough unless he/she takes the EC into account. So by using the EC we can estimate the correct amount of bonus that an employee can receive for performing well, or even the bonus for the entire firm that performed well. We should not forget that salaries considered to be too harsh will lead valuable employees to quit in order to find better paying jobs. To summarize, we can say that the salary level should be well balanced so that it does not disappoint employees by paying them less then they believe that they should to be paid, nor should it reach levels that would cause losses or sizable reductions in investment, as this might bring future losses as a result. The EC measure can help us create this balance more accurately. 3) In the third part of our analysis, I am going to discuss dividends. As we all know, it is very important to keep our stockholders satisfied. Until today, there have been measures that have been gauging what stockholders receive only in a mathematical way. For example, we could say that in 1995 the dividend declared was $1.69. But what does this really mean? Let us take another example. Some would say that if for example we offer the 50% or more of the corporation¹s profit to the stockholders, they will be satisfied. Can we be certain that this is true? How can we judge? With the new measure that I am going to introduce, we are going to be able at any time to estimate the utility that each of our stockholders receives by the dollar amount of the dividend that we pay to him/her. In order to create such a measure, we have to take many factors under consideration. First, we must clarify that when we talk about stockholders, we are not referring to people who are just investing in the stock market for the purpose of gaining money from the short term ups and downs of GE¹s common stock market price. We are referring to the people that in some part of their lives wanted to invest their accumulated wealth and decided to buy shares of GE. In order to see if the investors are satisfied in choosing our stock, we must take into consideration what their situations would be if they had chosen another form of investment or another corporation in which to invest their money.13 I will suppose that the closest investment, for a household, to buying shares of GE is buying bonds. Bonds certainly do not have a great potential for very large profits. In addition the risk when buying a bond is very low. Therefore the new measure should combine these two characteristics of buying a bond and compare them with the profits from buying shares of stock that have the same value as one bond. I will name the new measure: Stockholders Comparable Utility = profit from buying shares of the company / profit from buying a bond.14 As you see in the above ratio, risk is not taken into consideration. This may not be correct for another corporation, but it is the correct choice for GE. If we wanted to take risk into consideration, we could create an index where: risk from buying a bond = 1, risk of buying shares of stock of the same value = X. We would have to examine the financial position of the company and we would assign a value to the risk of buying the shares. Then we would multiply that value with the SCU ratio. However, in the case of GE the risk of buying shares of the company is as low as the risk of buying a bond (from the company or from the government). Hence, for GE the SCU ratio depends only on the profits (or losses which will be calculated as negative numbers in the SCU ratio) derived from the two possible investments. To close we have to say that since: RISKbond = RISK shares of GE = 1 any SCU > 1, any dividend that would give higher return than a return that a bond should satisfy our long term stockholders. However, if for any reason during the next few years we find that the above equation is not correct, we should make the appropriate changes. 4) Besides the long term investors there are a lot of people that closely watch GE¹s performance, such as creditors and short term investors. All of these read our annual reports but at the same time try to find any sort of information about the actions that we take. We know how important it is to show to the indirect users of the financial information that we are doing well and that we should never cause any suspicions of fraudulent financial reporting. That can be partially achieved if we use creditable and conservative financial procedures, but that is usually not enough. We can take for example a newly formed corporation that creates its first financial reports by using the commonly accepted accounting methods. At the same time lets suppose that this company reports huge earnings for the first year which are real. What is the reaction of the market going to be? Certainly not as substantial as if General Motors, or Unilever reported a huge increase in profits. There will be mistrust. In my opinion what could make the investors and the creditors trust a corporation ³ blindly ³ is the company¹s prestige. Of course these two huge corporations may have achieved much respect but they should definitely make anything possible to keep up with that good name that they have created. One can say the effort to do that is only related to an attempt, for example, not to create pollution or not to be guilty of any kind of racist attitude in the company. Of course, it is true that if we were guilty of any of these actions we would probably be humiliated in the eyes of the consumers. Many of them would not prefer us any longer and we would therefore be a weaker company. Thus we would loose a lot of our potential creditors or investors. However, we can see that the above have only an indirect connection to what the investors would feel about our firm and it is related to what the financial statements show about GE. If we report lower earnings, banks will not give us as many loans as the are giving us now. With the new ratio that I am going to introduce I am making an attempt to help eliminating any kind of mistrust to the company due to reasons which are not related to the financial statements and have a direct connection to the investors. That mean that there are several actions that we should consider making that are not actually going to increase our earnings by satisfying our customers but are going to increase our ³prestige² -- our goodwill. I will focus on one of them, the ability to participate in bids, and to be the preferred company. Therefore the new ratio equals: Goodwill Creating Ability (GCA) = number contracts signed / number offers made. The number of offers made refers to the number of bids at which the company participated. If we manage to be the preferred company in a lot of bids then it will be commonly known that we have the power not only to show good past and present financial data but also to continue in doing so through the next years. The question that arises is how this measure is going to affect our movements for the following years. In my opinion the idea of this measure and its effect on the creditability of the company will first of all affect the way we think before entering a bid. We often try to make a deal for which there are great doubts if it is going to offer any earnings in the future and at the same time our chances to be preferred are quite limited. If we do not take the above ratio under consideration the only risk related to our entrance to the bid would be the chance not to make enough earnings to cover our expenses after actually being the preferred company. However the GCA shows that the actual risk is much higher and therefore we should possibly reconsider entering into several risky bids (that can be lost easily). There are some times, however, when our estimations were not correct and although we entered the bid, yet other rival firms appear to have strong chances of actually being the ³preferred ones.² For example lets suppose that local CHANNEL X enters an auction to buy a studio in the Providence area. NBC, on the other hand, the huge broadcasting company which we recently acquired wishes to buy the same studio so it enters the bid. After a few days, secret information are offered to GE which reveal that CHANNEL X is going to offer the price of $10,000,000 to buy the studio. We also know that the maximum revenues that this studio can create for the next 20 years are $9,000,000. That is a good indicator that it is not a smart move for us to make a higher offer. Someone would think that the best thing to do would be to make a lower offer and hope that the information given to the company is incorrect. This choice does not seem to be irrational, because of the commonly accepted cost benefit analysis. But in this case, is this the right answer? Lets suppose that we do give a lower offer. The following day we see that CHANNEL X, offered $10,000,000 to buy the studio. The result would be losing from a channel that hardly anyone knows and that is much weaker than NBC. How is this going to sound to all these that on a daily base watch the actions that we take? Channel X reported operating profit of $2,000,000 for the financial period ending December 1995. For the same period NBC reported operating profit equal to 738 million dollars.15 What could someone think then about the creditability of our financial statement? I am not suggesting that nobody is going to realize what has actually happened but can we be sure that nobody who is very important to us will think differently? How can a multi-million dollars firm loose by an unknown company? Our prestige would not be so high any longer. That is why, in several cases, we should reconsider offering a price that might give us profits if we win, but it does not guarantee that we will actually do so. In some cases we might have to lose money in order to make our company prestigious. To prove why this is correct take under consideration all the expenses that we make and that are made only because we want to create a better name and consequently to receive the benefits of that. A good example is advertising. In my opinion as long as we realize that a firm is not only buildings and equipment but also a name we can realize why the GCA ratio is very important as a new way of thinking. We should make sure that this ratio only increases. 5) I have already referred to a measure that is affiliated with stockholders, the Stockholders Comparable Utility. I justified the creation of this measure by saying that it is very important to monitor on a constant basis the utility of our stockholders which derives from the dividend that we give to them. The question that can arise out of this statement and could be partially answered by the creation of the last measure is, ³how much power do the stockholders actually have over the corporation -- or put another way, how important is it to keep them happy?² It can be said that the larger our need to find cash in order to expand the larger the importance of investors for us. However, such a measure would refer to future investors and not to the ones that already have claims over the assets of the business. In order to see the actual power that the latter have over the corporation we have to consider the Claims of the Stockholders Ratio which is equal to: Number of Shares Outstanding / Number of Shares Issued. For example for 1993 the CSR was equal to: 1,707,302 / 1,853,128 = 92.1%, for 1994: 1,705,967 / 1,857,013 = 91 % and for 1995: 1,666,512 / 1,857,013 = 89.7%.16 From the above facts it is obvious that the stockholders¹ equity is decreasing over the years and, consequently, so is the control that they have over the corporation. The question that arises is what is going to be affected because of that and how is it going to be affected. The answer is given in the following hypothesis. As we know the corporation issues shares of stock if the cash available for investments is not enough for the planned expansion of the company. If GE manages to have better cash flow results, then it will not have the need to issue a many shares of stock as before. At the same time GE will be able to buy some portion of its outstanding common stock (as mentioned in footnote 16, GE does not have any preferred stock) and, therefore, reduces the stockholders¹ equity over the assets of the company. If this procedure continues successfully during the next few years, then it will be obvious that GE does not ³need² its stockholders or the potential investors that much. On the other hand, we know that when a company wants to attract more investment has to offer a high dividend to its stockholders. Thus, if the corporation does not need to attract as much investment, and can rely more on its own power to invest, then the amount of money given to the stockholders should be decreased. To close we can say that if the CSR is a simple measure based on the simple supply - demand convention. I hope that the five measures that I have created will be useful to you, Members of the Board of Directors, in planning for the future of GE. I have confidence that the firm is going to continue putting forth its best efforts towards growth and expansion, which will bring outstanding results. I believe that the measures that I have suggested will help in that direction, and will be crucial in attaining our future goals. Thank you. f:\12000 essays\business & economics (632)\Financial Report of Loewen Group Inc.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Financial Report of Loewen Group Inc. The Loewen Group Inc. was founded in 1969. The company has two major headquarters in North America, one in Burnaby, British Colombia and a second in Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services enterprise in Canada and is the second largest company in the North American Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and also engages in the pre-need selling of funeral services including cemetery and cremation services. The company strives on respecting its Eagle Principle, which is displayed on the first page of its 1995 Annual Report: "To soar to heights of possibilities one needs two equally healthy, strong wings - one being that of people or service concerns, the other that of responsible planning and fiscal management. It is the balance of these wings that enables the eagle to soar beyond all heights"1 In 1995, the company defended itself against two major lawsuits, as well as continued to negotiate acquisition agreements. The Loewen Group Inc. stresses that once an acquisition has been completed, local management is encouraged to remain and offers long term contracts to its key employees, rarely dismissing the other employees. L.G.I. provides many services to its acquired companies including offering training to new employees on its management information systems and covering costs for any renovations which are needed on the acquired locations. Each funeral home and cemetery is operated as a distinct profit centre, with monthly and annual financial performance monitored by regional and corporate management in accordance with budgeted projections. This report includes a study of The Canadian Funeral Services Industry practices, a review of the take-over attempt by Service Corporation International, an analysis of the Loewen Group Inc. 1995 Annual Report for the period ending December 31, 1995, and examination of the revenue recognition practices used by L.G.I.. The Funeral Services Industry According to a paper issued in August 1995, by Statistics Canada's Services, Science and technology Division Final Purchase, Growing Demand: The Canadian Funeral Services Industry, the funeral services industry, in comparison to other industries, has historically been considered a low risk industry. The Funeral service industry is not significantly affected by economic cycles. The stability of the industry is increased by future demographic trends. Individuals from the "baby boomer" generation are now entering their fifties and the death rate is growing slowly at 1.5% per year, compounded, as demonstrated in Appendix A: Deaths, Actual and Projected. The industry is characterised by above-average profitability and revenue growth. Public Health issues and consumer protection issues are primarily regulated at the provincial level of government. These regulations are implemented to protect the dignity of the deceased as well as his or her estate. These regulations are described in detail in the revenue recognition section. Loewen Group Inc. Strategies The Provident America Corporation lawsuit was settled in February, 1995 for US $19 million. On November 2nd, 1995, a jury in Jackson, Mississippi, awarded US $500 million in Breach-of-contract lawsuit brought by Gulf National. This amount is almost twenty-six times high than what was originally asked for. In order to appeal, Loewen was required to post a US $625 million bond, which was later reduced to US $125 million with the condition that there would be no significant change in assets or increases in dividends without prior notification to the court and the other party. No provision on was made on the financial statement at this point since the result was hard to predict on the appeal. On January 29th, 1996, Loewen settled the lawsuit for US $175 million and recorded US $135 million, present value of $175 million. Loewen decided to settle because of two reasons: the first is that the appeal would have a financial impact on the company's income and the second reason is that prolonging the lawsuits would create uncertainty and speculation amongst the company's shareholders. S.C.I. Take-over Attempt On September 17, 1996 Service Corporation International (S.C.I.), the largest Funeral Service Company in the world, placed a $ 2.5. billion take-over bid for Loewen Group Inc. The bid's share value is equivalent to US $ 43 each. Houston based S.C.I.'s bid was considered to be fair by many analysts like Todd Richter of Dean Witter Reynolds Inc. (New York) and Ivar Leipens of Moss, Lawson & Co. (Toronto). Another analyst, Dean Martin of TD securities Inc. (Toronto), stated that the bid was too low and that the a bid of US $ 50 would be fair. He noted that Chairman Ray Loewen and his management team retain 20 % (15 % + 5 % respectively) of the company's stock. Canadian institutional holders of the company's stock would be more likely to support the company because they must follow constraints such as a cap of 20 % on foreign holdings in regards to Canadian Pension funds. Therefore S.C.I. will has had a difficult time gaining the support of 75 % of Loewen Group Inc. shareholders needed as per the Canadian securities law. In the week following the announcement of the take-over bid, the fourth largest company in the industry, Equity Corp. International, based in Lufkin, Texas had contacted the Federal Trade Commission in regards to how to become eligible to bid for divested properties if the take-over took place. Equity Corp. International is 40 % owned by Service Corp. International. Another company, Continua LLC, offered Loewen Group Inc. $ 500 million in exchange for some of Loewen's southern US holdings. On September 27, 1996 the State of Florida launched an antitrust probe into the take-over bid. The state was worried about the impact it would have on Medicare issues, pricing and other areas. S.C.I. would raise the bid to US $ 45 per share before Loewen rejected the bid on October 10, 1996, while at the same time launching an antitrust lawsuit against S.C.I. and Equity Corp. International. The lawsuit accused the two companies of conspiring to eliminate L.G.I. from the industry. All companies in the Funeral Service Industry are continuing to reposition themselves as the industry continues to expand. If successful, S.C.I. would be able to monopolise the North American market. S.C.I.'s take-over proposal is intended to eliminate the competition in North America. S.C.I. wanted to buy cheap after the one time event with the jury. By taking over Loewen, S.C.I. would become the preferred buyer in the industry. Loewen rejected their offer because of the following reasons: 1) inadequate proposal which has a potential anti-competition effect in the commonwealth of the industry. 2) Although both companies encourage the integration of new acquisitions in their structures, Loewen felt that its structure would not be preserved. 3) Loewen is considered as the preferred acquirer in the industry after the acquisition of two of its key assets: Prime Succession, and Ross Hill Memorial Park, two major cemeteries in the United States of America. Loewen decided that it is best to continue implementing the company's long term business plan as an independent company. Loewen has created a good corporate culture and has a record for caring for its employees, customers, and communities it serves. Annual Report Analysis The Loewen Group Incorporated 1995 Annual Report covers the period beginning January 1, 1994 and ending December 31st, 1995. This analysis will cover the following items: the report to the company's shareholders, the "Striking a Balance" section of the report and the operational highlights. The operational highlights analysis will include Management's Statement of Responsibility, the Auditor's report to the Shareholders, a ratio analysis of the financial statements disclosed in the report as well as the pertinence of the notes regarding the financial statements. The annual report stresses the company's belief in its Eagle Principle. In the report to the company's shareholders, The chairman and chief executive officer, Ray Loewen stresses that the company showed 'outstanding growth' despite the inflicting costs associated with the two major lawsuits it dealt with. He thanked the shareholders for their support, then stated promising figures that were overshadowed by the above for mentioned events. He continued with the aspect of growth by discussing the company's acquisitions. Mr. Loewen concluded by promising to continue to uphold the company's standards in 1996. The "Striking a Balance" section of the annual report's purpose is to provide answers from management and executive members about questions shareholders might have about the Loewen Group Inc. beliefs, operations and structure. The topics ranged from the effect of the Gulf National lawsuit to how the services provided by Loewen benefit the communities it serves. This section does not disclose monetary figures, its responsibility lies in creating or restoring the trust of its potential shareholders and current shareholders before they analyse the financial statements in the following section of the annual report, by demonstrating the personal accountability of its staff . Operational Highlights The management's statement of responsibility states that management has presented fairly the financial position of the company while respecting the generally accepted accounting principles in Canada. Management also states that it maintains its control systems to assure that also transactions are completed and recorded properly. The letter conclusion indicates that the auditors selected are independent. The auditor's report to the shareholders notes that the audits made by KPMG Peat Marwick Thorne (independent auditors) were based on the generally accepted auditing standards and summarises its criterion: finding evidence of amounts and disclosure policies and the manner in which the company adopted the generally accepted accounting principles. The auditors concluded upon the completion of the audits that the information provided in the consolidated financial statements to be presented fairly because the company applied generally accepted accounting principles consistently. Ratio Analysis of Financial Statements All ratios presented show 1995 in the first column and 1994 in the second column. As shown with the return on equity ratio. The dollar figures in the annual report are in American currency. Performance Ratios 1995 1994 Return on equity (76684)/614682 = (0.125) 38494/411139 = 0.094 Return on equity based on the Scott formula (Please refer to Appendix E: for complete figures) ROE = SR * AT + [ ROA - IN ] * D/E 1995 (0.125) = (0.011) * 0.265 + [(0.003) - 0.043] * 2.682 1994 0.094 = 0.146 * 0.315 + [0.046 - 0.025] * 2.226 In 1995, $50 million of cash and 1.5 million Common shares are paid off to Gulf National. The settlement decreases Loewen's 1995 net income and retained earnings while increasing their owner's equity. Therefore the shareholders lost 12.5 % on their initial investment, compared to a gain of 9.4 % in 1994. Return on equity, calculated without the lawsuit settlement, shows a smaller decrease of 7.8 % from the previous year. This is primarily due to the increase in share capital of $210 million made by the company to cover the debts incurred through the litigation proceedings. Based on the Scott formula results, the decrease on the return on equity ratio was caused by a loss on overall operating return before interest cost and a high leverage return. Return on assets (72949)/2262980 = (0.032) 95113/1326275 = 0.0717 Total assets increased by 70.6 % however, the costs associated with the legal settlements ($165 million) resulted in a net loss. These occurrences resulted in a negative return on assets. The negative return on assets normally indicates trouble in ability to pay interests. Only $53 million of $165 million was paid in cash and the remainder was recorded as a long term liability without interest. We can also relate these figures to the decrease in credit ratings of Loewen Group Inc. by the following credit facilities: Duff & Phelps Credit Rating, Standard & Poor's Rating Group and Moody's Investor Services as stated in the 'Current Credit Facilities and Credit Ratings' section of the 1995 annual report. Sales return (76684)/599939 = (0.128) 38494/417328 = 0.092 In 1994, 9.2 % of all revenues ended up as profit, while in 1995, 12.8 % of all revenues were recorded as a loss. 0.080 If the company would not have had to incur the costs relating to the lawsuit, 8 % of its revenues would have been profit. The costs relating to funeral homes and cemeteries expenditures exceeded the revenues they generated, because their revenues were not considered revenues of L.G.I. until the acquisitions were completed. Gross margin [599939-373131]/599939 = 0.378 [417328-258474]/417328 = 0.381 Average interest rate 50913/1648298 = 0.031 34203/91536 = 0.037 The gross margin and the average interest rate both remained steady. Cash flow to total assets 39454/2262980 = 0.017 11649/1326275 = 0.009 Cash flow to total assets ratio shows an increase, because the new acquisitions generated more revenues. The majority of the costs related to the Gulf National lawsuit were not included in the ratio, since a large percentage of the costs were recorded as long term liabilities. These liabilities did not involve a cash transaction. Earnings per share (1.690) 0.970 Book value per share 614682000/48167765 = $12.761 per share 411139000/41015447 = $10.024 per share Price-earning ratio 34.380/(1.690) = (20.343) 36.750/0.970 = 37.887 Dividend payout ratio 0.050/(1.69) = (0.030) 0.070/0.970 = 0.072 Earnings per share shows a large decrease in percentage, since the company issued US $ 210 million dollars worth of new shares. Therefore the dividends were distributed to a larger number of shares. The value of shareholders equity per share increased from US $ 10.02 in 1994 to US $ 12.76 in 1995. The dividend payout ratio decreased because earnings per share decreased. The price earning ratio lowered due to the decrease in earnings per share, as well as the current market price per share. Activity Ratios Total asset turnover 599939/2262980 = 0.265 417328/1326275 = 0.315 The total asset turnover remained steady because of the new acquisitions off balanced the legal settlements and litigation cost. One American dollar of total assets generated US $ 0.27 in 1995, whereas in 1994, it generated US $ 0.32. Inventory turnover 373131/[[27489+19673]/2]= 15.800 210471/[[19673+15952]/2]= 11.820 Collection ratio 115953/[599939/365] = 70.500 70547/[417328/365] = 61.700 The inventory turnover was 15.8 times in 1995, an increase from 11.8 times in 1994. In 1995, it took 70.5 days to collect accounts receivables compared to 61.7 days in 1994. This has a negative impact on the company's liquidity. Financing Ratios Debt-equity ratio 1648298/614682 = 2.682 915136/411139 = 2.200 Long- term debt-equity 934509/614682 = 1.520 516654/411139 = 1.260 Debt to assets ratio 1648298/2262980 = 0.728 915136/1326275 = 0.690 The company's reliance on debt increased because the costs it had to incur relating to the Gulf National lawsuit as well as the insurance liabilities incurred created by the two insurance companies it received during the acquisition of S.I. Acquisitions Associates, L.P. Liquidity and Solvency Warning Ratio Working capital ratio 191081/241275 = 0.790 109868/97665 = 1.125 The working capital ratio lowered to 0.790 from 1.125 in 1994. This means that their current liabilities increased at a faster rate than their current assets in 1995. This is cause for concern because ideally this ratio should be at $ 2 of assets to $ 1 of liabilities. Acid test ratio [39454+115953]/241275 = 0.644 [15349+70547]/97665 = 0.880 Interest coverage ratio [72949- 47178]/50913 = 0.506 [24029+19738]/34203 = 1.280 Both the acid test ratio and the interest coverage ratio both fell from last year. The acid test ratio decrease was caused by larger increase in liabilities than assets. The interest coverage ratio decreased below to 0.506 which is below the ideal target of 1. The company is not generating sufficient income to cover its obligations as they become due. Revenue Recognition This analysis of the revenue recognition practices by Loewen Group Inc. is divided into two sections. The first section will concentrate on revenue recognition practices relating to funeral services and the second section will develop those relating to the cemetery operations of this company. We have included three Appendixes, Appendix B: Average Funeral Costs, Appendix C: Revenue by Source in the Funeral Service Industry and Appendix D: Total Revenue of the Funeral Service Industry by Sector for additional references . Funeral homes offer services, which include everything from the actual service and registration of the death of an individual to the sale of a casket. These services can be purchased "at-need", which is considered as a purchase at the time of death, or "pre-need", which is a prearranged contract established while the deceased is still living. Provincial regulations in Ontario protect the consumer with respect to pre-need funeral and cemetery services. In general, the regulations require a specific percentage of pre-paid funds to be deposited in trust. Ontario requires 100% deposits in trust on the sale of pre-arranged funeral services. This is required in order to protect the consumer from service non-delivery due to the closure or failure of the firm where they purchased the funeral services. Firms within the province of Ontario can not take the fullest financial advantage of pre-need services due to regulatory restrictions on the funds in question. However the firms still benefit, in that they are gaining control of future market share, and can be certain of future revenue flows. "Payments made for pre-need contracts are either placed in trust by the company or are used on behalf of the purchaser of the pre-need contract to pay premiums on life insurance policies under which the company is the designated beneficiary. At the date of performance of a pre-arranged service, the company records as a funeral revenue the amount originally trusted or the insurance contract amount, together with all related insurance contract amount, together with all related accrued trust earnings and increased insurance benefits"2 Pre-arranged funeral services are included in other assets and amortised over a period of ten years approximating the period the benefits are expected to be realised. The regulations regarding cemeteries focus on public health aspects and the care and maintenance of cemetery grounds. Funeral home companies are required to deposit a certain percentage from the proceeds of sales of interment rights (ie: the lot, crypt or riches for the final disposition of the remains). These perpetual care funds are held in perpetuity and is not considered an asset to the firm. The firm does however have the right to the interest earned on the funds in order to provide the care and maintenance of their cemeteries. The percentage required to be deposited into the perpetual care fund varies from 5% to 40%, depending on the area. In the event that the firm suspends its operation these funds can be made available through the province or municipality. "The pre-need sale of interment rights and other related products is recorded as revenue when customer contracts are signed and, concurrently, related costs are recorded and an allowance is established for customers cancellations and refunds based on management's estimated of expected cancellations."3 1995, was a controversial year for The Loewen Group Inc. The company showed its desire to expand within the funeral industry by acquiring funeral homes and cemeteries from Osiris Holding Corp., MHI Group as well as other companies. The speed in which they attempted to acquire new holdings made the company vulnerable to lawsuits. The company stated in its annual report that it has become more aware of this issue after the Gulf National incident. Although the company was severely affected financially by the settlement as demonstrated by the financing and liquidity ratios, the company showed its potential to maintain its position in the industry, as shown by the relative unchanged gross margin. The company now finds itself highly leveraged (as demonstrated by the Scott Formula calculations) and therefore has the potential for big earnings for shareholders. This has also made the company vulnerable to outsiders, as demonstrated by the Service Corporation International's attempt to take-over the company. If Loewen Group Incorporated is able to stop the take-over attempt, it will prove its stability. REFERENCES 1. Loewen Group Incorporated, "The Loewen Group Inc. 1995 Annual Report", H. MacDonald Printing.,1996, 1. 2. Loewen Group International Inc., [online] Available @ http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96- 003953.txt. 3. Ibid. BIBLIOGRAPHY Freiedman, Jack P., Dictionary of Business Terms, New York, Barron's Educational Series Inc., 1994. Gibbins, Michael, Financial Accounting: An Integrated Approach, 2nd Edition, Scarborough, Nelson Canada, 1995. Heimbecker, John, Final Purchase, Growing Demand, The Canadian Funeral Services Industry, Ottawa, Statistics Canada, 1995. The Loewen Group Inc., The Loewen Group Inc. 1995 Annual Report, Burnaby B.C.: H. MacDonald Printing, 1996. The Loewen Group International Inc., [online] Available @ http://www.sec.gov/archives/edgar/data/845577/0000950109/09-96- 003953.txt. Milner, Brian. "Loewen board rejects SCI takeover bid", The Globe and Mail, 11 October 1996, B13. Milner, Brian. "Rivals target Loewen assets", The Globe and Mail, 23 Sepetember 1996, B1, B10. Schreiner, John. "Loewen won't concede defeat without exacting a high price" The Financial Post 19 September 1996: 1-2. Schreiner, John. "U.S. giant bids for Loewen" The Financial Post 18 September 1996: 1-2. APPENDIX A: Death, Actual and Projected Source: p.18 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX B: Average Funeral Costs Source: p.13 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX C: Revenue by Source in the Funeral Services Industry Source: p.6 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX D: Total Revenue of the Funeral Services Industry by Sector Source: p.4 of Final Purchase, Growing Demand The Canadian Funeral Services Industry. APPENDIX E: The Scott Formula (Expressed in thousands of U.S. Dollars) 1995 1994 Symbols Total assets 2262980 1326275 A Total liabilities 1648298 915136 L Total equity 614682 411139 E Total revenue 599939 417328 REV Net income (76684) 38494 NI Interest expense 50913 34203 INT Income tax rate (38.1) % 33.9 % TR After-tax interest expense 50913 * 1.381 = 70311 34203 * .661 = 22608 ATI = INT (1 - TR) ROE (return on equity) (76684) / 614682 = (0.125) 38494 / 411139 = 0.094 NI / E SR (sales return before interest) [(76684) + 70311] / 599939 = (0.011) [38494 + 22608] / 417328 = 0.146 [NI + ATI] / REV AT (asset turnover) 599939 / 2262980 = 0.265 417328 / 1326275 = 0.315 REV / A ROA (return on assets) [(76684) + 70311] / 2262980 = (0.003) [38494 + 22608] / 1326275 = 0.046 [NI + ATI] / A IN (average interest rate after tax) 70311 / 1648298 = 0.043 22608 / 915136 = 0.025 ATI / L D / E (debt-equity ratio) 1648298 / 614682 = 2.682 915136 / 411139 = 2.226 L / E f:\12000 essays\business & economics (632)\Financial Transaction Tax.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability. This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and that financial instability is likely to be transmitted globally with far reaching implications on real sector performance. I conclude the paper with the argument that a global transaction tax would be the most effective policy to curb financial instability and that other proposed policies, such as target zones and the creation of a supranational institution, are either unfeasible or unattainable. INSTABILITY IN FINANCIAL MARKETS In this section I examine four interpretations of how financial instability arises. The first interpretation deals with speculation and the subsequent "bandwagoning" in financial markets. The second is a political interpretation dealing with the declining status of a hegemonic anchor of the financial system. The question of whether regulation causes or mitigates financial instability is raised by the third interpretation; while the fourth view deals with the "trigger point" phenomena. To fully comprehend these interpretations we must first understand and differentiate between a "currency" and "contagion" crisis. A currency crisis refers to a situation is which a loss of confidence in a country's currency provokes capital flight. Conversely, a contagion crisis refers to a loss of confidence in the assets denominated in a particular currency and the subsequent global transmission of this shock. One of the more paramount readings of financial instability pertains to speculation. Speculation is exhibited in a situation where a government monetary or fiscal policy (or action) leads investors to believe that the currency of that particular nation will either appreciate or depreciate in terms relative to those of other countries. Closely associated with these speculative attacks is what is coined the "bandwagon" effect. Say for example, that a country's central bank decides to undertake an expansionary monetary policy. A neoclassical interpretation tells us that this will lower the domestic interest rates, thus lowering the rate of return in the foreign exchange market and bringing about a currency depreciation. As investors foresee this happening they will likely pull out before the perceived depreciation. "Efforts to get out would accelerate the loss of reserves, provoking an earlier collapse, speculators would therefore try to get out still earlier, and so on" (Krugman, 1991:93). This "herding" or "bandwagon" effect naturally cause wild swings in exchange rates and volatility in markets. Another argument for the evolution of financial market instability is closely related to hegemonic stability theory. This political explanation predicts a circumstance (i.e. a decline of a hegemon's status) in which a loss of confidence in a particular countries currency may lead to capital flight away from that currency. This flight in turn not only depreciates the currency of the former hegemon but more importantly undermines its role as the international financial anchor and is said to ultimately lead to instability. The trigger point phenomena may also be used as an instrument to explain financial instability. Similar to the speculative cycles described above, this refers to a situation where a group of investors commits to buy or sell a currency when that currency reaches a certain price level. If that particular currency were to rise or fall to that specified level, whether by real or speculative reasons, the precommited investors buy or sell that currency or assets. This results in a cascade effect that, like speculative cycles, increases or decreases the value of the currency to remarkably higher or lower levels. Country after country has deregulated its financial markets and institutions. The neoclassical interpretation asserts that regulation is thought to create incentives for risk taking and hence instability. It is said to bring about what are called "moral hazards." Proponents of deregulation argue that when people are insured, they are more apt to take greater risks with their investments in financial markets. The riskier the investment activity, the more volatile the markets tend to be. A closer look suggests that perhaps only two of these explanations are valid when thinking about the origins of financial instability. The trigger point explanation seems to be a misreading of the origins of instability. It is unlikely that a large number of investors would have the incentive or operational ability in order to simultaneously coordinate the buying or selling of a currency or assets denominated in that currency. If even there is such unlikely coordination, the "existence of even a very large group of investors with trigger points need not create a crisis if other investors know they are there" (Krugman, 1991:96). The theory of hegemonic stability also overlooks a number of factors that can provide useful insights in explaining the emergence of financial instability. Historical precedence supports this assertion. For instance, Britains role as international economic manager was very minor in the stability experienced under the gold standard. The success of the standard can be attributed to endogenous factors such as the self adjusting market mechanism and the informal discipline maintained by its rules. The destabilization of the gold standard can be attributed to the extreme domestic economic and financial pressures brought on nation states by World War I, and not solely on the industrial and economic demise of Britain. A valid explanation for the origins of financial instability are the speculative attacks brought on by investors. Although similar in function to trigger points, these speculative cycles cannot be mitigated simply by pure recognition. Rather than acting on the value of the currency itself, speculators act on occurrences or policies that will alter the value of the currency. Instability arises from the fact that these speculative cycles induce capital flight and therefore a change in the value of that particular currency, whether or not the decisions of these investors are based on market "fundamentals." Futures, options, swaps and other financial instruments "have given investors and speculators an unheard of capacity to leverage financial markets. The greater the leverage, the greater the instability" (McCallum, 1995:12). If we examine the deregulatory process closely, it becomes clear that there is a perverse relationship between deregulation and financial stability. Say for example, investors suffer from a profit squeeze. This causes the investors to lobby politicians for deregulation. The resulting wave of deregulation fosters instability and wide swings in exchange rates which in turn cause loan defaults and subsequent banking crisis. The resulting financial instability thus begs calls regulation, likely placing the investors in the original position with an unsolved problem. We can see that the dialectic of the regulatory process undermines anticipated stability and will eventually lead to financial instability and collapse. In this environment, there arises calls for new forms of financial regulation. These policies and proposals are of critical importance and will therefore be discussed later in the paper. THE TRANSMISSION AND EFFECTS OF FINANCIAL INSTABILITY There are three contending albeit interrelated views on how financial instability may be transmitted globally. These include equity markets, multiplier effects and monetary reverberations. Say for example, a movement of stock prices generates a recession in one country. This is turn leads to a reduce in imports from abroad. The lower aggregate demand for foreign imports will generate a contraction in other country's output markets. The resulting contraction in the foreign countries will then induce a contraction in the originating country. As seen, the multiplier effect begins to take place that in turn leads to a global recession. If an asset crash leads to a monetary crises, the money crisis could be transmitted worldwide. The Mundell-Flemming model assumes that under a fixed exchange rate system, such as that under the gold standard, a worldwide monetary contraction will result from a contraction in any one particular country because "a monetary contraction in one country, which raises interest rates in that country, must be matched by an equal rise in rates elsewhere" (Krugman, 1991:103). However, under a flexible exchange rate system, such as the one in operation today, the model predicts that monetary shocks will be transmitted perversely, that is, a monetary contraction in one country will produce expansion elsewhere. Herring and Litan (1995) advance this argument by concluding that the transmission of crisis creates a "systemic risk." This view states that continuous losses in financial markets has adverse effects on the real economy because "significant losses can occur if there is a significant disruption in the payments system or the mechanism through which transactions for goods, services, and assets are cleared" (Herring and Litan, 1995:51) . While it may be accepted that financial crises can be transmitted globally, there is debate on its ramifications on the real sector of the economy. Krugman (1991:97) states that a currency depreciation "will produce an improvement in competitiveness that will increase net exports and thus have an expansionary effect on the domestic economy." He also asserts that policy responses may help to curb real sectors effects. When currencies depreciate, government officials and central bankers raise interest rates to discourage capital flight. The recessionary effects of tight monetary and fiscal policies, it is argued, dilute the inflationary repercussions of the currency crisis. Citing historical evidence of the US stock market crash, Kapstein (1996:6) goes so far as to say that the real economy is "shockproof" from transmission of financial instability and even in the face of financial crisis "continues to function normally." The assumption that swings in financial markets do not influence real sector performance is inattentive to many factors. Advocates of this view use what is percieved as relatively small repercussions felt worldwide after the US stock market crash in 1929 where "in general the slump was mild" (Krugman 1991:91). The empirical data of the slump underscores this argument. Between December 1929 and December 1932, for example, Germany experienced a 30.% percent stock market decline, France 38.5 percent and Canada 37.5% (Kindleberger, 1973). If we keep in mind that the percentage swing in the US stock during that same period was 37.3 percent, we see that the slump was only slightly "milder" but by no means "mild." The real sector ramifications were just as remarkable. Germany saw a 58 percent decline in industrial production, France 74 percent and Canada 68 percent, all comparably higher declines than in the United States (Yeager, 1976). It is obvious that financial crises do have global spillover effects and consequences on real sector performance. However, recognition of these adverse effects does not solve the problem. In the next section I present contending policies and proposals designed to curb international financial instability and its repugnant ramifications. CONTENDING VIEWS AND POLICY PROPOSALS Three main policies have been introduced to curb international financial instability. A global transaction tax, which is a tax on short term financial investments, a target zone approach, where nations exchange rates would be allowed to fluctuate within a specific band and a supranational or regional institution aimed at coordinating global financial reform. Proposed by economists and Nobel Laureate James Tobin in 1978, a global transaction tax (STT) would act to "throw some sand in the well greased wheels of the global financial markets." The STT is predicted to slow the short term financial excursions into other currencies, yet at the same time it would have a lighter impact on trade and long-term investments with higher percentage yields. Speculators, now carrying the burden of a tax woul therefore have less "leverage" with which to exploit exchange volatility while long-term investment would be encouraged. Another benefit of the tax is that it would reduce wasted financial resources and increase government revenues. While proponents of the STT say the policy will reduce wasted financial resources, others argue that there would be an adjustment problem because of the fact that "goods and the price of labor moved in response to international price signals much more sluggishly than fluid funds, and prices in goods and labor markets moved more sluggishly than prices of financial assets."(McCallum, 1995:16) Others attack the view that excess volatility would be eliminated because "deciding whether volatility is excessive is complicated by difficulty of determining the fundamental value of a security" (Hakkio, 1994:22). Opponents of the tax argue that it could be avoided by product substitution and regulatory arbitrage and that the government revenue created would be overestimated because "the tax base would decline as security prices and the volume of trading decline" (Hakkio 1994: 26). Advocates of the "efficient market hypothesis" argue that if financial markets are allowed to freely operate, there will be a revaluation of asset values that will produce the most accurate price signals on which to base long-term resource allocations. They say that a STT would be detrimental to less developed countries so reliant on short term investment. Another highly noted policy aimed at curbing international financial instability is the adoption of a targeted exchange rate system. A sort of "hybrid" regime, target zones allows currencies to fluctuate within predetermined and set bands, thus allowing a "float" but at the same time keeping a "fix." Since "the main sources of conflict have been the unpredictability of exchange rates" (Frenkel, 1990:318) a target zone approach would in theory alleviate this unpredictability, while keeping the appealing attributes of a floating system. Seen to be the optimal answer for coordinated exchange rate stabilization, "target zones would involve the determination of an international consensus regarding an appropriate and globally feasible range around which currency values could fluctuate" (Grabel, 1993:77). The adoption of a target zone system would not be universally beneficial. Naturally, the size, status and sector of the economy play an important role in its desirability. Government officials and central bankers will likely oppose the adoption of a targeted exchange rate due to the fact that it would hurt their ability to change the value of their currency in the face of high capital mobility. With a targeted exchange rate, it is argued that there is limited room for fluctuation which infringes on the effectiveness of domestic policies. On the other hand, the fixity of the target zone would in theory stabilize purchasing power of wage earners in both developed and less developed. The overriding problem of the adoption of a target zone regime is that there is no clear way in which target zones could be calculated. If they were to be calculated what would be the ramifications if a country was to fluctuate out of the specific bands? Would the target zones be global or regional? If global, how could the less developed countries be able to stay in the same bands as the developed countries? If a target zone was adopted, what is to say the maldistribution of wealth would not remain idle? There seems to be little, if any, evidence that a fixed, stabilized exchange rate leads to higher or lower interest rates. If the value of a currency is not able to adapt to high tendencies of capital mobility, then it is only rational to say that the developed countries would continue to sap the wealth of less developed countries. The last major policy aimed at quelling financial instability is the creation of a supranational institution aimed at coordinating financial reform and adopting a system of "regulatory supervision." Processing along the lines of a Bretton Woods architecture, this would in a sense institutionalize the role of a hegemon with "a creation of a common currency for all of the industrial democracies" and "a joint Bank of Issue to determine monetary [and financial] policies" (Cooper, 1984:166). This policy proposal endorses the adoption of an global financial institution managing the operation of coordinated supervision. Experience shows us that coordinated supervision is not possible in international financial markets. For instance, the Basel Concordant was never able to reach organizational level to properly respond to a crisis. Additionally, "the BCCI affair demonstrated the limitations of international bank supervision when confronted by unscrupulous operators intent on exploiting the gaps in national bank supervisory systems" (Herring and Litan, 1995:105). Proponents of re-creating a Bretton Woods-type system are unaware of the lessons to be learned from that period. The theoretical brethren of hegemonic stability advocates, proponents of this policy seek too place "the direction of world monetary policy in the hands of a single country" or institution that would have "great influence over the economic destiny of others" (Williamson, 1977:37). As seen under the Bretton Woods system the "destiny" of others was in the hands of a country that was unable to maintain stability. It is yet to be demonstrated how an institutional framework would sidestep the same faultlines and management problems experienced by the United States under the Bretton Woods regime. The organizational barriers to creating such cooperation and coordination would be insurmountable. Secondly, whose view would most likely be presented in the supranational forum? Experience in international organizations shows us that it will probably be the powerful, industrialized nations. The voice and needs of the less developed countries is likely to be marginalized and situations such as the Latin American debt crisis would continue to occur. When looking at the progress of the European Monetary Union we see that the completion of a single market is far too radical for today's international financial climate. Just as "the costs of qualifying for the EMU has become too high" it becomes "unrealistic to hope that the major industrial countries can make comparable strides toward political [much less financial] unification in our lifetime" (Eichengreen and Tobin, 1995:170). Ideally, the best policy for stemming financial instability and spillover effects would be one that extinguishes the problem at its roots. If deregulation in itself causes instability in financial markets, then regulation would be appealing. "Even when the benefits of financial deregulation are apparent, there is a role for regulatory policy" that would "leave the world economy less vulnerable to financial collapse" (Eichengreen and Portes, 1987:51). . If we also hold true the conclusion that the best explanation for financial instability is speculation, then a global securities transaction tax such as the one proposed by Tobin would be optimal. The discouragement of short term speculative excursions and the endorsement of long-term investment will eliminate the problem of volatility based on speculative attacks that so often stray from market "fundamentals." Critics are quite correct when they argue that the tax could induce financial arbitrage and substitution. However this problem would be solved as long as the tax was globally adopted. Secondly, the tax would be applied to goods, services, and financial instruments that had few or no substitutes. The view that the creation of new government revenues is overestimated and that Third World countries would carry the financial burden is nullified when we see that "a .5 percent tax on exchange transaction would augment government revenues globally by as much as $300 to $400 billion per anum" and "devoting merely 10-20 percent of that revenue to a revolving fund for long-term lending to Third World countries would be a healthy substitute for the hot money on which some have become disastrously overdependent" (McCallum, 1995:16). The recognition and ceasing of financial instability and its global transmission is becoming more and more universally endorsed. To decide on a prudent and practical policy will prove to be a major hurdle of international financial leaders around the world. However, if we look closely, we will find the locus of instability in financial markets to be deregulation and speculative attacks. Government and central bankers can no longer adopt an attitude of "benign neglect" toward international financial instability as it becomes increasingly apparent that there are far reaching consequences on real sectors. We can see that there is one policy that supersedes the rest. If the world financial system hopes to curb these real sector ramifications of speculative attacks and financial liberalization, then it becomes indisputable that the STT is an idea whose time has come. BIBLIOGRAPHY Richard N. Cooper, "A Monetary System for the Future" Foreign Affairs Fall, 1984. Barry Eichengreen and Richard Portes, "The Anatomy of Financial Crisis," in Richard Portes and Alexander Swoboda, Threats to International Financial Stability, (Cambridege University Press, 1987). Barry Eichengreen, James Tobin and Charles Wyplosz, "Two Cases for Sand in the Whells of International Finance" Economic Journal, 1995. Jacob Frenkel, "The International Monetary System: Should It Be Reformed" in Philip King, editor, International Economics and International Economic Policy (McGraw-Hill,1990). Ilene Grabel, "Crossing Borders: A Case for Cooperation in International Financial Markets," in Gerald Epstein, Julie Graham, Jessica Nembard (eds.), Creating a New World Economy: Forces of Change and Plans of Action (Temple University Press, 1993). Charles Hakkio, "Should we Throw Sand in the Gears of Financial Markets?" Federal Reserve Bank of Kansas City Economic Review, 1994. Richard Herring and Robert Litan, Financial Regulation in the Global Economy (Brookings Institution, 1995). Ethan Kapstein, "Shockproof: The End of Financial Crisis" Foreign Affairs, January/February 1996. Charles P. Kindleberger, The World in Depression (London: Penguin 1973). Paul Krugman, "International Aspects of Financial Crises" in Martin Feldstein, ed., The Risk of Economic Crisis (Chicago: University of Chicago Press, 1991). John McCallum, "Managers and Unstable Financial Markets" Business Quarterly January 1, 1995. James Tobin, "A proposal for international monetary reform" Eastern Economic Journal 1978, volume 4. John Williamson, The Failure of World Monetary Reform 1971-1974) (NY:NYU Press, 1977) L.B. Yeager, International Monetary Relations: Theory, History, and Policy 1976. f:\12000 essays\business & economics (632)\Flat Tax 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ECONOMICS MARCH 24,1996 TITLE: THE WRONG WAY TO SELL A NEW IDEA FROM: FORTUNE MAGAZINE FEBRUARY 19,1996 Many people would like you to believe that flat tax is so named because it will flatten your finances. That at the least is the intended conclusion. By eliminating personal deductions like mortgagee interest payments, the study claims, the flat tax would reduce housing values in this country by upwards of 10 percent. The study's methodology is shaky at best, and the jury on housing values is still o ut. Despite the forces allied against the flat tax, tax reform has grown steadily because the current tax system is so unpopular and the alternatives promise so much. But in addition to the possibility of lower housing values, the flat tax poses several oth er serious problems too easily dismissed by its advocates. Businesses may be the flat tax's second biggest obstacle. By reducing the cost of compliance with the tax laws and removing uncertainties about the tax situation, the flat tax would eventually benefit businesses. However, they would see their tax burde n rise by about two-thirds, on average, from 31 percent of the total tax burden to around 50 percent. This tax increase on businesses would result from the loss of deductions for state and local taxes and for employee fringe benefits, among other things. Though businesses will try to pass on these costs to consumers and employees-by raising prices and trimming fringe benefits, for example-shifting the nations tax burden to the business community will not produce successful tax reform. Next, the flat tax initially would raise taxes on the middle class by 20 percent. On average, a family with between $40,000 and $50,000 in adjusted gross income would see there taxes rise about $700 to about $7.500. The flat tax also appears to have a major fairness problem. For example consider two families. The Jones have a combined salary of $50,000 in wages. Under the flat tax, a 20 percent rate would cost this family $3,700. Now consider the Smiths, who in r etirement consume every dollar of their $1 million in dividend income. Under the flat tax, the Smiths owe no tax at all because capital income is excluded from the tax base. To be sure, their dividend income was taxed at least once at the business level before they received it. But the perception would persist that a high income family would pay no tax. Will tax fairness be defined so that individuals consuming significant amounts of capital income would pay little or no tax? Though difficult issues, they are not impossible to resolve. Moreover, the system's advantage could well outweigh it's drawbacks. The flat tax could prove a boon for the economy by eliminating a passel of convoluted tax disincentives to saving and inve sting. Economists will quibble over exact estimates, but there can be no question that savings and investment will improve in both the short and long run under a flat tax. Advocates are correct to insist that the flat tax would be much simpler than the current tax system. The new system would tax only the income derived from individual labor, after allowing for personal exemptions. There would be no deductions. The fla t tax would tax businesses' net cash income at the same rate that applies to individual income, while eliminating all the apical tax provisions that penalize some businesses while benefiting others. One big problem with the current system is that it costs from $150 billion to $300 billion annually to operate. The flat tax, by contrast, would cost about 1/5th as much once fully phased in. These cost savings are equivalent to more than a $100 bil lion tax cut for the American people. No tax system is perfect, and no tax reform proposal is without flaws. In the end, the flat tax's greatest strength is that it would remove the current tax system's depressing effect on the economy. This over time, could make up for all the problems me ntioned above. But before it can pass the problems must be addressed. f:\12000 essays\business & economics (632)\Flat Tax.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Flat Tax Many people would like you to believe that flat tax is so named because it will flatten your finances. That at the least is the intended conclusion. By eliminating personal deductions like mortgagee interest payments, the study claims, the flat tax would reduce housing values in this country by upwards of 10 percent. The study's methodology is shaky at best, and the jury on housing values is still out. Despite the forces allied against the flat tax, tax reform has grown steadily because the current tax system is so unpopular and the alternatives promise so much. But in addition to the possibility of lower housing values, the flat tax poses several other serious problems too easily dismissed by its advocates. Businesses may be the flat tax's second biggest obstacle. By reducing the cost of compliance with the tax laws and removing uncertainties about the tax situation, the flat tax would eventually benefit businesses. However, they would see their tax burden rise by about two-thirds, on average, from 31 percent of the total tax burden to around 50 percent. This tax increase on businesses would result from the loss of deductions for state and local taxes and for employee fringe benefits, among other things. Though businesses will try to pass on these costs to consumers and employees-by raising prices and trimming fringe benefits, for example-shifting the nations tax burden to the business community will not produce successful tax reform. Next, the flat tax initially would raise taxes on the middle class by 20 percent. On average, a family with between $40,000 and $50,000 in adjusted gross income would see there taxes rise about $700 to about $7.500. The flat tax also appears to have a major fairness problem. For example consider two families. The Jones have a combined salary of $50,000 in wages. Under the flat tax, a 20 percent rate would cost this family $3,700. Now consider the Smiths, who in retirement consume every dollar of their $1 million in dividend income. Under the flat tax, the Smiths owe no tax at all because capital income is excluded from the tax base. To be sure, their dividend income was taxed at least once at the business level before they received it. But the perception would persist that a high income family would pay no tax. Will tax fairness be defined so that individuals consuming significant amounts of capital income would pay little or no tax? Though difficult issues, they are not impossible to resolve. Moreover, the system's advantage could well outweigh it's drawbacks. The flat tax could prove a boon for the economy by eliminating a passel of convoluted tax disincentives to saving and investing. Economists will quibble over exact estimates, but there can be no question that savings and investment will improve in both the short and long run under a flat tax. Advocates are correct to insist that the flat tax would be much simpler than the current tax system. The new system would tax only the income derived from individual labor, after allowing for personal exemptions. There would be no deductions. The flat tax would tax businesses' net cash income at the same rate that applies to individual income, while eliminating all the apical tax provisions that penalize some businesses while benefiting others. One big problem with the current system is that it costs from $150 billion to $300 billion annually to operate. The flat tax, by contrast, would cost about 1/5th as much once fully phased in. These cost savings are equivalent to more than a $100 billion tax cut for the American people. No tax system is perfect, and no tax reform proposal is without flaws. In the end, the flat tax's greatest strength is that it would remove the current tax system's depressing effect on the economy. This over time, could make up for all the problems mentioned above. But before it can pass the problems must be addressed. f:\12000 essays\business & economics (632)\Flint Shit Town.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A strong culture is one that has dependency upon itself along with outside resources. The economy is hard if nearly impossible to predict, and this puts severe strain on a community that is dependent on one employer. Cleveland, Pittsburgh, and Flint are examples of these types of communities. When a manufacturing process or company pulls out of a city, many problems arise. Flint is a city which has had a significant portion of an industry leave. GM used to be the heart of Flint, until the decision to downsize was made. This caused approximately 40 thousand of the 80 thousand GM employees to loose their jobs. Recently there was a debate pitting two sides of an issue. The question consisted of the decline of General Motors in Flint. Is it a catastrophe or does it provide an opportunity for the community. Members of the panel included Bill Donahue (pro-opportunity), Larry Thompson (pro-opportunity), Dorothy Reynolds (catastrophe supporter) and Ruben Burks (catastrophe supporter). In the beginning, there were many advantages of having GM as the dominate employer in Flint. The quantity of GM jobs in Flint provided for an economic boom town in the 1960's and 1970's. Money from General Motors trickled down from the workers to every part of the economy of Genesse county. The population was on the rise which meant more homes, roads, and businesses. It was all to good to be true. When Roger Smith (then President of GM) decided to relocate numerous jobs from the Buick City, it was time for Flint to pay the piper. The large dependency on GM brought upon a rapid decline in the economy unparalleled by any city in United States history. The removal of jobs from GM caused many problems in Flint. Dororthy Reynolds gave many statistics which proved how much the decline of GM hurt Flint. She pointed out that since the removal of GM jobs, Flint has become the 2nd most dangerous city in America while being the 6th most segregated. The lack of economic development since the early 1980's has also had a terrible impact on the children of Flint and Genesse county. Thirty percent of the children in Genesse county live at or below the poverty level where the graduation rate in the schools has shrunk to 57%. Mrs. Reynolds also pointed out the fact that only three new home developments have been started in the last 18 months. Ruben Burks was also invited to share his opinions on the catastrophe surrounding Flint. Unfortunately for the audience, his relationship with the United Auto Workers was at a level to where he couldn't expand on his negative GM opinions. The other side of the issue brought Bill Donahue and Larry Thompson to the podium. First to speak was Mr. Donahue. He brought several points of opportunity for Flint. The first point concentrated on the stabilization of GM employment in Genesse county. Secondly, he pointed out the need to diversify the economy. His third point was to align the schools, colleges, and churches to work together for the common goal. Larry Thompson also had several points of his own on the opportunity that Flint possess. Again, the need to diversify the economy was a major point. He pointed out that the finger pointing between the two sides is not productive and is actually inhibiting Flint from looking past what happened in the early 1980's. Mr. Thompson's quote of "Growing as a person is when you suffer some sort of loss" provides the opportunistic attitude that is lacking in the Flint. Both sides presented arguments that supported their respective feelings. It would be great if the majority of the citizens of the county possessed some sort of opportunistic attitude. For instance, the diversification of the economy will be very difficult as many of the former GM workers will not be willing to work for less than $18 dollars an hour. Unfortunately, many of the new jobs, when and if they come to Flint, will pay quite a bit less than General Motors. The inclusion of the poor community will also take time as many of the lower class would prefer to milk the welfare and public assistance programs. Perhaps the only sure thing about Flint is that it will take time to heal the wounds left by the General Motors Corporation. f:\12000 essays\business & economics (632)\Floating Exchange Rates The Only Viable Solution 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Floating Exchange Rates: The Only Viable Solution Stentor Smith For some, the collapse of Mexico's economy proves that floating exchange rates and markets without capital controls are deadly. Others find the crash of the European exchange-rate mechanism (ERM) in 1993 to be proof that targeted rates will always be overturned by the free market. Many see the breakup of Bretton Woods as the failure of fixed rates. Yet others believe monetary unification in Europe is the only way to achieve economic and political stability. Many others hold still different beliefs. There are, however, four main proposals for the management of international currency exchange rates: monetary unification, fixed rates, floating rates maintained within certain "reasonable" limits of variability and freely floating rates. Both fixed exchange rates and rates based on either explicit or unwritten targeting are impossible to maintain, especially in an era of free trade. Complete monetary unification would be impossible to bring about without extensive integration and unification of international governments and economies, a task so vast that it is unlikely ever to be accomplished. Thus, the only option central banks have is to allow exchange rates to float freely. The European Monetary System, which virtually collapsed in 1993, was an attempt to fix exchange rates within certain tight bands, to coordinate monetary policy between member nations and to have central banks intervene to keep exchange rates within the bands when necessary. The reasons for the collapse were myriad, but, simply put, it happened because Germany, dealing with financial problems in part arising from its reunification, refused to lower its high interest rates. This meant other European countries either had to keep their rates equally high and allow themselves to fall into recession as a result, or devalue their currency against the mark, a move viewed by many as a political embarrassment. The possibility of a devaluation caused speculators to bolt from the lira, the pound, the franc and other currencies, sending the markets into chaos and destroying all semblance of stability. In the end, the ERM was adjusted to allow currencies to fluctuate within 15 percent on either side of their assigned level, up from (in most cases) a limitation of 2.25 percent. The bands became too wide to be meaningful or stabilizing, and the system remained alive "in name only" (Whitney 19). Many saw this collapse as inevitable and say all attempts at government-imposed stability will fail: Governments both will not and cannot stick to pegged or fixed rates. First, maintaining targeted or fixed rates requires a consistent and fairly uniform monetary policy among nations. There are many reasons that national governments will not consent to this, the foremost being that different countries want different things, different economies have different needs and different governments have different policies. For example, it is thought that Europe and Japan are more willing to tolerate recession than inflation, while the United States prefers to keep interest rates low and the economy growing, even if prices do increase (Whitt 11). In addition, many nations are in different stages of their overall economic cycles ("Gold Standard" 79). Many countries thus cannot afford to subscribe to uniform monetary policy. For a country that would otherwise have had low interest rates, for example, raising them could be both economically counterproductive (what good is exchange rate stability if recession is its cost?) and politically disastrous (more people notice high interest rates and unemployment than care about currency stability). Even if the government were willing to bow to international standards, nationalism is strong in the world today and most people do not look fondly upon consolidated global power--witness the problems of the United Nations. People would not widely support what would effectively be international control of their country's economic policies and money supply. Speculators, unfortunately, know that governments today are likely to put their self-interest ahead of the nebulous common good and to eventually choose the monetary policy that is best for their individual economy (as it could be argued happened in the collapse of the ERM). Speculators will act on this suspicion, dumping uncertain currencies and running to the strongest (in the case of the 1993 debacle, the Deutsche mark). So, that is why governments will not stick to targeted rates and what happens as a result. There are also reasons they cannot. First, there is the decline of capital controls and the resulting ease with which speculation occurs. With the growing popularity and reality of free markets and with the advent of the "Information Age," control over the international money supply is both unwanted and impossible. The slightest hint of a devaluation can be self-fulfilling as uncountable amounts of money change hands at a whim. Some people argue that making realignments less predictable would stalemate destructive speculation ("The Way Ahead" 22), but most people realize that by the time central banks know to devaluate, the smart speculators--reading the same economic signs as the bankers--will know the same thing, especially if devaluation continues to be seen as a fairly drastic undertaking. Spain, for example, tried in 1993 to catch speculators off guard by realigning in the middle of the trading day, but that can only be done once before speculators catch on (Eichengreen and Wyplosz 89). In the case of a completely fixed system, devaluation is necessarily an extreme measure and thus there is no question: Speculators will have no trouble seeing it coming and will run from the market. These situations could hypothetically be avoided if central banks could intervene to prevent devaluation from ever becoming necessary. Some currencies, however, probably do not deserve to be propped up even if doing so were possible, because their real value is so far from their nominal value that it would be counterproductive to perpetuate the inaccuracy. Second, it can also be argued that central banks simply do not have the power to control the market, both because they don't have enough money (Germany spent 44 billion marks to prop up the pound and the lira in 1993 with very little success) and because their short-sighted attempts at circumventing the "invisible hand" fail. In the 1980s, governments joined several times to change the value of the dollar relative to the yen (the Plaza and Louvre agreements), an undertaking whose long-term success is dubious. Some people even blame the subsequent volatility in the market and the severe problems in the Japanese economy on the machinations of those governments (Friedman, "Anxiety" 34; Wood 8). There are also other problems with fixed or targeted rates. Even if the system could be maintained, the economies of the world are probably not integrated enough to deal with a fixed rate system and to correct imbalances of trade. Capital is free to flow from country to country, but labor is not and neither are many businesses. The comparison of the states of the USA to the countries of the world is specious: Not only do the states share a central government and have virtually no economic sovereignty or identity, and not only is everybody certain that the situation will never change and thus there is no speculation, but, most importantly, everything flows freely over every border ("Interview"). The balance of the free market, of supply and demand, is easily maintained. That is not the case in the world at large. Finally, the last problem with fixed or targeted exchange rates is that confidence in the system has to be absolute or else pessimistic, self-fulfilling speculation will cause the collapse of the system. Unfortunately, the system isn't perfect. Again and again people write that as soon as this or that crisis passes over (Germany's reunification, for example), we will have economic and political peace and be able to fix exchange rates. But crises in Europe and elsewhere haven't ceased just because Hitler is no longer alive and the Berlin Wall has fallen. Overwhelming problems will at some point strike the system--we haven't advanced beyond war, mayhem and natural disasters--and there will be no solution but to leave the monetary regime, as has happened before (notably in World War II). People with money in the currency market know this, and knowing this, help to make it inevitable. One misconception about fixed exchange rates ought to be noted here: the difference between real and nominal values of money. With fixed rates, nominal exchange rates may be stable but real exchange rates vary. Prices of imports and exports still change relative to each other; this is how the system balances itself. As a country's money supply contracts and expands by the actions of foreigners, the price level within the country changes. (Theoretically, it would go both up and down, but the tendency of prices to "stick" high hinders the balancing mechanism by making deflation rare.) As one author put it, the attractiveness of fixed rates depends partially on the answer to the question, "How stupid is your labour force?" ("Currency Reform" 18) And how stupid are all the business people? Is not the fluctuation in the nominal and real values of the currency under a floating system similar to the fluctuation in the real value of fixed currency? The changes in floating exchange rates have proved to be much more volatile than the (real) changes in fixed rates, but it ought to be noted that real values still change under both systems, in both cases to remedy balance of payments problems. Since we would have to sacrifice in order to maintain nominal stability through fixed rates, we ought to remember to ask exactly how much real stability we would be getting in return. The third major proposal for a monetary system is that of monetary unification. This poses some of the same problems as a fixed or targeted rate system. Most people don't support it because, essentially, it unifies too much. It takes too much power out of the hands of nations and puts it somewhere else. It would, like a free market, increase harmonization (competition) in taxation, another trend which threatens the autonomy of nations (Hornblower 41). Governments would, as in the other two systems, give up a great deal of control over their domestic economies, and the problems of individual country's business cycles would be ignored and unregulated. Even if monetary unification were wanted--and it would remove the problems currency volatility poses for international trade--its institution would be virtually impossible in the current political climate. "Jealousies, allegiances, the bases of political support remain firmly national; that fact cannot be wished away by a coin" ("To Phrase a Coin" 14). The governments of countries and their populations are further from integration than the economies themselves; it would be impossible to achieve the amount of political coordination--one could even call it union--that would be necessary to create and sustain complete monetary unification. So, what is the answer? Obviously, currency volatility is a problem. Unfortunately, all other alternatives seem worse. There are, at least, some advantages to freely floating rates aside from their existence as the only viable system. First, they can act as "shock absorbers" and moderate the exportation of one country's problems (inflation, for example) to its neighbors ("Fixed and Floating Voters" 64; Friedman, "Introduction" xxiii). Second, the free market punishes incompetent governments for bad fiscal policies. Mexico's monetary policy was woefully irresponsible; thus, it's hardly a surprise its entire economy collapsed. Competition in the currency market, as in all other things, drives people and governments to be responsible (Becker 34). The system is also, in some ways, fair. As Paul Magnusson posits, it "arguably reflects the fair value of nations' legal tender based on the fundamentals of growth, inflation, and interest rates." He goes on to add that "currency volatility is the price of a free market, not a condition to be cured" (108). Just as, for example, it's widely believed that price and rent controls hurt more than they help, so too do government interventions in the currency market. As mentioned above, many even blame government intervention for volatility in the first place, as in the case of the Plaza and Louvre agreements. Some people also argue that volatility may be temporary until the system settles down (Friedman, "Introduction" xxiii), but this bears some of the marks of the unrealistic optimism of people who seem to believe Europe and the world will be (after we resolve just one more crisis) forever peaceful and ready for unification. The biggest advantage of floating exchange rates is that they give each country control over its domestic affairs. Presumably, it knows best how to handle them, and it is to be hoped that knowledge of the workings of the free market will keep it from doing so irresponsibly. Speculation can be a stabilizing force that demands responsible fiscal policy and money management. The cost of economic stability and prosperity may in fact be exchange rate instability: $6.5 billion to $39 billion was estimated to have been spent on hedging in 1989 (Rolnick and Weber 33), but how much money would be lost each year by sacrificing individual economies to the international "good" (as in the case of the European nations that fell into recession during the ERM crisis)? Besides, as the president of the New York Federal Reserve Bank said, "low inflation is the best assurance of exchange rate stability" (Lewis A24). Theoretically, intelligent domestic control of national economies will dampen currency volatility as well as improving the health of the economy itself. For all these reasons, floating exchange rates are the best system available to central banks at this time. The mechanism is certainly not without flaws, but it is the only truly feasible choice. Governments will always desert a fixed or targeted rate system, either when their reserves run out or when domestic inflation or recession becomes too severe. The real values of currencies do fluctuate--that is the problem. Sooner or later a gross imbalance will arise and it will be fixed either by the nation voluntarily leaving the system or by speculators foreseeing its demise and forcing it out. The solution to that problem, monetary union--fixed rates with no devaluation or "leaving the system" allowed--would be impossible to institute and maintain even if it were economically advantageous to all involved. The only realistic and economically sound solution, problematic though it may be, is to have exchange rates float freely and without restriction. Bibliography Becker, Gary S. "Forget Monetary Union--Let Europe's Currencies Compete." Business Week 13 November 1995: 34. Brooks, David. "A First Class Eurocrat." The American Spectator March 1992: 46-47. "Currency Reform: A Brief History of Funny Money." The Economist 6 January 1990: 21-24. Dowd, Kevin. "European Monetary Reform: Pitfalls of Central Planning." USA Today March 1995: 70-73. Eichengreen, Barry and Charles Wyplosz. "Mending Europe's Currency System." The Economist 5 June 1993: 89. "Europe's Currency Tangle." The Economist 30 January 1993: 21-23. "Europe's Totem Pole." The Economist 23 September 1995: 14-15. "Fixed and Floating Voters." The Economist 1 April 1995: 64. Frenkel, Jacob A. and Morris Goldstein. "Europe's Emerging Economic and Monetary Union." Finance & Development March 1991: 2-5. Friedman, Milton. "Free-Floating Anxiety." National Review 12 September 1994: 32-36. _________,"Introduction." The Merits Of Flexible Exchange Rates. Ed. Leo Melamed. Fairfax, Virginia: George Mason University Press, 1988. xix-xxv. Habermeier, Karl and Horst & Ungerer. "A Single Currency for the European Community." Finance & Development September 1992: 26-29. Hoffman, Ellen. "One World, One Currency?" Omni June 1991: 51+. Hornblower, Margot. "No One Ever Said It Would Be Easy." Time 1 March 1993: 32+. "Interview with Alan S. Blinder." The Region December 1994. Online. Kimberely. Javetski, Bill and Patrick Oster. "Europe: Unification for the Favored Few." Business Week 19 September 1994: 54. Krugman, Paul R. "Europe's Fatal Monetary Vision." U.S. News And World Report 16 August 1993: 45. Lawday, David and Warren Cohen. "Capsizing Currencies." U.S. News And World Report 16 August 1993: 43-45. Lewis, Flora, et al. "Is Monetary Union a German Racket?" New Perspectives Quarterly Winter 1993: 26-38. Lewis, Paul. "Role Shifts for Central Bankers." The New York Times 15 November 1994: D1. Magnusson, Paul. "The IMF Should Look Forward, Not Back." Business Week 3 October 1994: 108. f:\12000 essays\business & economics (632)\Floating Exchange Rates The Only Viable Solution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Floating Exchange Rates The Only Viable Solution Stentor Smith For some, the collapse of Mexico's economy proves that floating exchange rates and markets without capital controls are deadly. Others find the crash of the European exchange-rate mechanism (ERM) in 1993 to be proof that targeted rates will always be overturned by the free market. Many see the breakup of Bretton Woods as the failure of fixed rates. Yet others believe monetary unification in Europe is the only way to achieve economic and political stability. Many others hold still different beliefs. There are, however, four main proposals for the management of international currency exchange rates: monetary unification, fixed rates, floating rates maintained within certain "reasonable" limits of variability and freely floating rates. Both fixed exchange rates and rates based on either explicit or unwritten targeting are impossible to maintain, especially in an era of free trade. Complete monetary unification would be impossible to bring about without extensive integration and unification of international governments and economies, a task so vast that it is unlikely ever to be accomplished. Thus, the only option central banks have is to allow exchange rates to float freely. The European Monetary System, which virtually collapsed in 1993, was an attempt to fix exchange rates within certain tight bands, to coordinate monetary policy between member nations and to have central banks intervene to keep exchange rates within the bands when necessary. The reasons for the collapse were myriad, but, simply put, it happened because Germany, dealing with financial problems in part arising from its reunification, refused to lower its high interest rates. This meant other European countries either had to keep their rates equally high and allow themselves to fall into recession as a result, or devalue their currency against the mark, a move viewed by many as a political embarrassment. The possibility of a devaluation caused speculators to bolt from the lira, the pound, the franc and other currencies, sending the markets into chaos and destroying all semblance of stability. In the end, the ERM was adjusted to allow currencies to fluctuate within 15 percent on either side of their assigned level, up from (in most cases) a limitation of 2.25 percent. The bands became too wide to be meaningful or stabilizing, and the system remained alive "in name only" (Whitney 19). Many saw this collapse as inevitable and say all attempts at government-imposed stability will fail: Governments both will not and cannot stick to pegged or fixed rates. First, maintaining targeted or fixed rates requires a consistent and fairly uniform monetary policy among nations. There are many reasons that national governments will not consent to this, the foremost being that different countries want different things, different economies have different needs and different governments have different policies. For example, it is thought that Europe and Japan are more willing to tolerate recession than inflation, while the United States prefers to keep interest rates low and the economy growing, even if prices do increase (Whitt 11). In addition, many nations are in different stages of their overall economic cycles ("Gold Standard" 79). Many countries thus cannot afford to subscribe to uniform monetary policy. For a country that would otherwise have had low interest rates, for example, raising them could be both economically counterproductive (what good is exchange rate stability if recession is its cost?) and politically disastrous (more people notice high interest rates and unemployment than care about currency stability). Even if the government were willing to bow to international standards, nationalism is strong in the world today and most people do not look fondly upon consolidated global power--witness the problems of the United Nations. People would not widely support what would effectively be international control of their country's economic policies and money supply. Speculators, unfortunately, know that governments today are likely to put their self-interest ahead of the nebulous common good and to eventually choose the monetary policy that is best for their individual economy (as it could be argued happened in the collapse of the ERM). Speculators will act on this suspicion, dumping uncertain currencies and running to the strongest (in the case of the 1993 debacle, the Deutsche mark). So, that is why governments will not stick to targeted rates and what happens as a result. There are also reasons they cannot. First, there is the decline of capital controls and the resulting ease with which speculation occurs. With the growing popularity and reality of free markets and with the advent of the "Information Age," control over the international money supply is both unwanted and impossible. The slightest hint of a devaluation can be self-fulfilling as uncountable amounts of money change hands at a whim. Some people argue that making realignments less predictable would stalemate destructive speculation ("The Way Ahead" 22), but most people realize that by the time central banks know to devaluate, the smart speculators--reading the same economic signs as the bankers--will know the same thing, especially if devaluation continues to be seen as a fairly drastic undertaking. Spain, for example, tried in 1993 to catch speculators off guard by realigning in the middle of the trading day, but that can only be done once before speculators catch on (Eichengreen and Wyplosz 89). In the case of a completely fixed system, devaluation is necessarily an extreme measure and thus there is no question: Speculators will have no trouble seeing it coming and will run from the market. These situations could hypothetically be avoided if central banks could intervene to prevent devaluation from ever becoming necessary. Some currencies, however, probably do not deserve to be propped up even if doing so were possible, because their real value is so far from their nominal value that it would be counterproductive to perpetuate the inaccuracy. Second, it can also be argued that central banks simply do not have the power to control the market, both because they don't have enough money (Germany spent 44 billion marks to prop up the pound and the lira in 1993 with very little success) and because their short-sighted attempts at circumventing the "invisible hand" fail. In the 1980s, governments joined several times to change the value of the dollar relative to the yen (the Plaza and Louvre agreements), an undertaking whose long-term success is dubious. Some people even blame the subsequent volatility in the market and the severe problems in the Japanese economy on the machinations of those governments (Friedman, "Anxiety" 34; Wood 8). There are also other problems with fixed or targeted rates. Even if the system could be maintained, the economies of the world are probably not integrated enough to deal with a fixed rate system and to correct imbalances of trade. Capital is free to flow from country to country, but labor is not and neither are many businesses. The comparison of the states of the USA to the countries of the world is specious: Not only do the states share a central government and have virtually no economic sovereignty or identity, and not only is everybody certain that the situation will never change and thus there is no speculation, but, most importantly, everything flows freely over every border ("Interview"). The balance of the free market, of supply and demand, is easily maintained. That is not the case in the world at large. Finally, the last problem with fixed or targeted exchange rates is that confidence in the system has to be absolute or else pessimistic, self-fulfilling speculation will cause the collapse of the system. Unfortunately, the system isn't perfect. Again and again people write that as soon as this or that crisis passes over (Germany's reunification, for example), we will have economic and political peace and be able to fix exchange rates. But crises in Europe and elsewhere haven't ceased just because Hitler is no longer alive and the Berlin Wall has fallen. Overwhelming problems will at some point strike the system--we haven't advanced beyond war, mayhem and natural disasters--and there will be no solution but to leave the monetary regime, as has happened before (notably in World War II). People with money in the currency market know this, and knowing this, help to make it inevitable. One misconception about fixed exchange rates ought to be noted here: the difference between real and nominal values of money. With fixed rates, nominal exchange rates may be stable but real exchange rates vary. Prices of imports and exports still change relative to each other; this is how the system balances itself. As a country's money supply contracts and expands by the actions of foreigners, the price level within the country changes. (Theoretically, it would go both up and down, but the tendency of prices to "stick" high hinders the balancing mechanism by making deflation rare.) As one author put it, the attractiveness of fixed rates depends partially on the answer to the question, "How stupid is your labour force?" ("Currency Reform" 18) And how stupid are all the business people? Is not the fluctuation in the nominal and real values of the currency under a floating system similar to the fluctuation in the real value of fixed currency? The changes in floating exchange rates have proved to be much more volatile than the (real) changes in fixed rates, but it ought to be noted that real values still change under both systems, in both cases to remedy balance of payments problems. Since we would have to sacrifice in order to maintain nominal stability through fixed rates, we ought to remember to ask exactly how much real stability we would be getting in return. The third major proposal for a monetary system is that of monetary unification. This poses some of the same problems as a fixed or targeted rate system. Most people don't support it because, essentially, it unifies too much. It takes too much power out of the hands of nations and puts it somewhere else. It would, like a free market, increase harmonization (competition) in taxation, another trend which threatens the autonomy of nations (Hornblower 41). Governments would, as in the other two systems, give up a great deal of control over their domestic economies, and the problems of individual country's business cycles would be ignored and unregulated. Even if monetary unification were wanted--and it would remove the problems currency volatility poses for international trade--its institution would be virtually impossible in the current political climate. "Jealousies, allegiances, the bases of political support remain firmly national; that fact cannot be wished away by a coin" ("To Phrase a Coin" 14). The governments of countries and their populations are further from integration than the economies themselves; it would be impossible to achieve the amount of political coordination--one could even call it union--that would be necessary to create and sustain complete monetary unification. So, what is the answer? Obviously, currency volatility is a problem. Unfortunately, all other alternatives seem worse. There are, at least, some advantages to freely floating rates aside from their existence as the only viable system. First, they can act as "shock absorbers" and moderate the exportation of one country's problems (inflation, for example) to its neighbors ("Fixed and Floating Voters" 64; Friedman, "Introduction" xxiii). Second, the free market punishes incompetent governments for bad fiscal policies. Mexico's monetary policy was woefully irresponsible; thus, it's hardly a surprise its entire economy collapsed. Competition in the currency market, as in all other things, drives people and governments to be responsible (Becker 34). The system is also, in some ways, fair. As Paul Magnusson posits, it "arguably reflects the fair value of nations' legal tender based on the fundamentals of growth, inflation, and interest rates." He goes on to add that "currency volatility is the price of a free market, not a condition to be cured" (108). Just as, for example, it's widely believed that price and rent controls hurt more than they help, so too do government interventions in the currency market. As mentioned above, many even blame government intervention for volatility in the first place, as in the case of the Plaza and Louvre agreements. Some people also argue that volatility may be temporary until the system settles down (Friedman, "Introduction" xxiii), but this bears some of the marks of the unrealistic optimism of people who seem to believe Europe and the world will be (after we resolve just one more crisis) forever peaceful and ready for unification. The biggest advantage of floating exchange rates is that they give each country control over its domestic affairs. Presumably, it knows best how to handle them, and it is to be hoped that knowledge of the workings of the free market will keep it from doing so irresponsibly. Speculation can be a stabilizing force that demands responsible fiscal policy and money management. The cost of economic stability and prosperity may in fact be exchange rate instability: $6.5 billion to $39 billion was estimated to have been spent on hedging in 1989 (Rolnick and Weber 33), but how much money would be lost each year by sacrificing individual economies to the international "good" (as in the case of the European nations that fell into recession during the ERM crisis)? Besides, as the president of the New York Federal Reserve Bank said, "low inflation is the best assurance of exchange rate stability" (Lewis A24). Theoretically, intelligent domestic control of national economies will dampen currency volatility as well as improving the health of the economy itself. For all these reasons, floating exchange rates are the best system available to central banks at this time. The mechanism is certainly not without flaws, but it is the only truly feasible choice. Governments will always desert a fixed or targeted rate system, either when their reserves run out or when domestic inflation or recession becomes too severe. The real values of currencies do fluctuate--that is the problem. Sooner or later a gross imbalance will arise and it will be fixed either by the nation voluntarily leaving the system or by speculators foreseeing its demise and forcing it out. The solution to that problem, monetary union--fixed rates with no devaluation or "leaving the system" allowed--would be impossible to institute and maintain even if it were economically advantageous to all involved. The only realistic and economically sound solution, problematic though it may be, is to have exchange rates float freely and without restriction. Bibliography Becker, Gary S. "Forget Monetary Union--Let Europe's Currencies Compete." Business Week 13 November 1995: 34. Brooks, David. "A First Class Eurocrat." The American Spectator March 1992: 46- 47. "Currency Reform: A Brief History of Funny Money." The Economist 6 January 1990: 21-24. Dowd, Kevin. "European Monetary Reform: Pitfalls of Central Planning." USA Today March 1995: 70-73. Eichengreen, Barry and Charles Wyplosz. "Mending Europe's Currency System." The Economist 5 June 1993: 89. "Europe's Currency Tangle." The Economist 30 January 1993: 21-23. "Europe's Totem Pole." The Economist 23 September 1995: 14-15. "Fixed and Floating Voters." The Economist 1 April 1995: 64. Frenkel, Jacob A. and Morris Goldstein. "Europe's Emerging Economic and Monetary Union." Finance & Development March 1991: 2-5. Friedman, Milton. "Free-Floating Anxiety." National Review 12 September 1994: 32-36. _________,"Introduction." The Merits Of Flexible Exchange Rates. Ed. Leo Melamed. Fairfax, Virginia: George Mason University Press, 1988. xix-xxv. Habermeier, Karl and Horst & Ungerer. "A Single Currency for the European Community." Finance & Development September 1992: 26-29. Hoffman, Ellen. "One World, One Currency?" Omni June 1991: 51+. Hornblower, Margot. "No One Ever Said It Would Be Easy." Time 1 March 1993: 32+. "Interview with Alan S. Blinder." The Region December 1994. Online. Kimberely. Javetski, Bill and Patrick Oster. "Europe: Unification for the Favored Few." Business Week 19 September 1994: 54. Krugman, Paul R. "Europe's Fatal Monetary Vision." U.S. News And World Report 16 August 1993: 45. Lawday, David and Warren Cohen. "Capsizing Currencies." U.S. News And World Report 16 August 1993: 43-45. Lewis, Flora, et al. "Is Monetary Union a German Racket?" New Perspectives Quarterly Winter 1993: 26-38. Lewis, Paul. "Role Shifts for Central Bankers." The New York Times 15 November 1994: D1. Magnusson, Paul. "The IMF Should Look Forward, Not Back." Business Week 3 October 1994: 108. f:\12000 essays\business & economics (632)\Ford Motor Company 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ford Motor Company Ford Motor Company is the world's largest producer of trucks, and the second largest producer of cars and trucks combined. Ford has manufacturing, assembly or sales affiliates in 34 countries and Ford companies employed 337,800 people world-wide in 1996. Ford has manufacturing facilities in 22 countries on 5 continents, with 87 plants in North America and 41 in Europe. In Europe, in 1995, Ford's combined vehicle market share, at 12.2%, was the highest for eleven years, with three of the eight best-selling cars. In 1995, in the United States, five of the ten top- selling vehicles were Ford, including the best-selling car (Ford Taurus) and best-selling truck (F-series). On January 1, 1995, Ford merged its North American Automotive Operations and its European Automotive Operations into a single organization, Ford Automotive Operations. Instead of being organized by geographic regions, the Company is now realigned by product line, with five Vehicle Centers, each responsible for one group of products worldwide. At the same time, Ford is reducing the time taken to develop a new vehicle from 48 to 24 months and reducing engines, transmissions, and basic vehicle platforms by 30% worldwide. Ford hopes that by pooling global skills and resources will result in more variations on each vehicle platform, increasing the number of vehicles introduced over the next five years by 50%. One of the key strategies behind the realignment has been growth. Ford has launched a variety of new initiatives throughout the world, with joint ventures for the assembly of vehicles in countries as diverse as China, India, Thailand and Vietnam. In China, Ford expects to begin production of light trucks with a company named Jiangling Motors in the near future. In India, Mahindra Ford India Ltd. will begin manufacture and distribution of Ford products, beginning with the Ford Escort, in mid-1996 and Fiesta in 1998. In Thailand, Ford has a joint venture to produce pick-up trucks and in Vietnam, Ford plans to build a vehicle assembly plant at Hanoi, together with partners Song Cong Diesel. In Poland, the Plonsk plant has begun to build Escorts and Transits. Joint ventures are establishing a presence for Ford all over the globe. Ford is working with two companies in Korea, one to supply automotive air conditioning units and the second as a new joint venture to produce electronic components later this year. In addition to the 20% of Jiangling Motors, China, acquired by Ford in 1995, four further manufacturing joint ventures in China have been set up to produce radiators, glass, plastic and electronic components. Ford has also acquired a 45% equity in South African company, Samcor, for the assembly of Ford vehicles. The sale of Ford vehicles in markets all over the world carries the Ford badge into more places than ever before. The European Mondeo is currently on sale in 52 countries, with sister cars, the US Ford Contour and Mercury Mystique, bringing the total up to 78. (Ford Fiesta is currently on sale in 42 world markets) Ford Motor Company was founded in 1903 and within ten years had vehicles on sale throughout Europe, South America and Asia. The Company's first European sales branch was opened in France in 1908 and the first regional company and assembly plant outside North America were established in Britain in 1911. Ford of Europe Incorporated was established in 1967, bringing together the various nations within Europe as one organization - an important step towards the single worldwide organization that Ford will have become by the turn of the century. The Ford Taurus has proven to be one of Ford's most successful models. It has been the car of choice for those who want functional, affordable and stylish transportation. The Taurus SHO also offers performance for those who seek extra driving excitement from their sedan. The Taurus has a heritage of staying at the sales forefront by meeting the needs of family-oriented customers. Advertisement #1 This advertisement was found in Smart Money magazine. Smart Money is "The Wall Street Journal of Personal Business". It is targeted at individuals who seek financial security and/or financial independence. Many of the articles in this magazine are on the subject of money management (i.e., car buying/leasing tips) and investment opportunities. The average reader of this magazine pays close attention to their monetary affairs and look for good buys and quality products. Ford used this article to appeal to these readers emotional and rational buying habits. This Ford advertisement message is "Quality Service" which is designed to appeal to the readers rational buying behaviors. Consumers not only want a quality vehicles, but need to be assured they can receive quality care and service for their car. Ford is saying once you've purchase a Ford vehicle, you can be assured of receiving the best service from highly trained technicians who use high-tech equipment for the modern electronics in today's cars. The ad also is designed to appeal to our more irrational buying behaviors. In the center of the ad is a reflection of a mother and daughter peering through the rear view mirror of a Ford vehicle. Smart Money's primary reading audience is men and this ad attempts to strike at the male reader's concern for their families safety. If your wife drives around in a Ford Taurus with the children in the back seat, don't you want to be assured the car is cared for and maintained to ensure their safety? At the top of the ad is a picture of a home, with the words "Come Home" in bold letters. Ford is conveying the message that you can belong to the "Ford family" and be assured of Quality Care for any type of maintenance or repair. It's like having a mechanic in the family! Ford not only has the most highly trained technicians, but these technicians are equipped with "high-tech equipment" (and we know how much men love their high- tech equipment!) needed to maintain the modern electronics found in cars today. In other words, if you buy a Ford, not only can you be assured of quality service, but your also buying a car that's technologically advanced. In the upper-right hand corner of the ad, Ford has placed a picture of the reader on the gas pump with the words "Happy?" on the display. Ford is saying that their quality standards were developed to ensure you, as the customer, will be happy when you pick up your car after of day of being serviced by their service technicians...because you deserve it. In the lower right hand corner, the ad is demonstrating their personalized service. You'll be greeted by a Service Advisor. The title alone makes you feel that he or she will be someone who will be knowledgeable and assures you that your car will be in good hands. The lower left hand of the ad shows a wrench wrapped around a computer chip. Ford is effective is showing that todays cars have changed. They are built with modern electronics, and therefore, require high skilled technicians and tools to service them. The overall layout of the ad centers around the rear view mirror. When you first look at the ad, you are drawn to the rear view mirror. It is the largest picture in the ad and it is centered on the page with the text "Look at you car in a whole new way" just below it in large bold lettering. With this layout, Ford is first appealing to the readers irrational buying habits. Ford is saying don't just look us as a car manufacturer who provides a means of transportation for your family. Our "Quality Care Standards" provided by our service department make sure your car is safe and reliable for your family. Advertisement #2 This advertisement was found in Car and Driver magazine. Car and Driver's primary reading audience is male. The ad was a two page ad which was placed one page past the table of contents in the magazine and is an advertisement for Ford's new anti-theft device. Ford is appealing to the readers rational buyer habits by directing the ad at safety and security. There is a picture of a Ford vehicle surrounded by Doberman Pinschers standing at attention. Doberman Pinschers are loyal, dependable and intelligent protectors. They serve as watch dogs and protectors of homes and are often trained by the police and military as guard dogs and war dogs. Ford's message is that by owning a ford vehicle with their new anti-theft key, it is just like having a pack of Dobermans surrounding your car for protection. Ford is clever in their use of these dogs. The dogs are not simply sitting or lying around the car, they are all standing attentively and waiting for someone to approach. At the top of the ad Ford has included the following text in large bold text: "A simple yet accurate demonstration of how our anit-theft key works." The words "simple", "accurate" and "anti-theft key" appear in a font larger than the rest of the text in order to make them stand out. Ford wants the consumer to know that their anti-theft device is not complicated. It is easy to use, but it is also very accurate. When you look at the add the phrase "simple, accurate anti-theft key" jumps out at you even though what the sentence is really saying is "here's a demonstration of how the device works". The reader receives two messages from the same sentence. At the bottom of the advertisement there is additional text in a much smaller font. In the first sentence: "Finally, there's a car protection device whose bite is worse than its bark.", Ford is telling the consumer that their anti- theft device is effective. It's not just a deterrent, it is true protection for your car. In the next couple of sentences, Ford mentions the "remarkable computer chip" that is at the heart of their anti-theft device. It conveys the message that Ford is a technologically advanced manufacturer who is concerned with providing the best quality products for their consumers. And finally, in the last two sentences the ad says: "Because we believe your car should always be there for you. Like a best friend." Here Ford is saying...just like the Dobermans who represent man's best friend, our new anti-theft device will also be there for you protecting your car. If you stand back and look at the block of text at the bottom of the page, the words "CAR PROTECTION", "ANTI-THEFT", "ELECTRONIC SIGNAL", "FORD MOTOR COMPANY", "WORLD", "CUSTOMERS" are in all capital letters to make them stand out. Ford wants the consumer to focus on what they feel is important. The WORLD-wide FORD MOTOR COMPANY provides their CUSTOMERS CAR PROTECTION with their new ANTI-THEFT device which uses a distinct ELECTRONIC SIGNAL. Although this ad was not for a specific Ford car model, it portrayed Ford as a manufacturer of quality cars with luxury. The car portrayed in the ad had stylish wheels and was painted a pleasing golden metallic color. The car was then displayed on a white carpet. Also, the font used for the text appeared to be a Times New Roman which has a more elegant appearance than a block text font. The bottom right hand corner displayed Ford's quality logo in large bold lettering: "QUALITY IS JOB 1" to further emphasize Ford's commitment to quality. Advertisement #3 This advertisement was found in Cosmopolitan magazine. Cosmopolitan is primarily read by woman between the ages of 18 and 35. The two-page Ford advertisement in this issue of Cosmo was placed several pages past the table of contents and was for their Escort model. Overall, the ad was very unstructured and portrayed the Escort as a "fun" car. The car is portrayed as "fun" through the use of bright colors in the ad. Some of the text appears in red, some in blue, some in grean and finally some in black. There are many different fonts used in the add as well. Each word or phrase appears in a different color, size and font. The word "NEW" appears with a green background and white lettering and an a green arrow leads you to the word "STYLE" which appears in blue Times New Roman font. From this the consumer is given the message "new style" even though this doesn't appear as one phrase in the ad. This ad was designed specifically to appeal to Cosmo's reading audience. This is demonstrated by the fact they use a young woman to represent the Escort car owner. This young woman appears wearing a graduation cap sitting on top of her Ford Escort. The new car appears to have been her graduation gift. On the left hand page of the ad, the young woman is shown again. This time, however, she appears with her hand on her face with an expression of awe or amazement as she looks at the "new AM/FM stereo with premium speakers" in the new Escort. The color, green, Ford chose for the Escort in this ad is also significant. Ford had consulted with a psychologist who bases his product color advice on the theory that certain colors and shades appeal to woman more than men. This psychologist concluded that woman prefer cooler colors shades and Ford has used the recommendations provided by this consultant. On the top right-hand page of the ad there is a picture of the upper body of a muscular man holding himself in a handstand on top of the "T" in the word "BUILT". This portrays the image of Escort as a well built vehicle, thereby appealing to the buyers rational buying behaviors. On each page of the add there appears a phrase that is written in rolling letters which further portrays the image of the Escort as a young, fun car. The message in these phrases appeal to both the buyers rational and emotional buying behaviors. The first phrase reads: "It's new and it's smart with a story to tell." and the second phrase reads: "It's priced really nice and it's built oh-so well.". The first phrase appeals to consumers emotional buying behaviors by portraying the Escort as a stylish, fun car. The second phrase appeals to the buyers rational buying behaviors. It portrays the Escort an affordable, durable, quality vehicle. The add continues to target the buyers rational buying by listing features of the product such as "Improved safety cell construction" and "Standard dual air bags". Ford also hangs a price tag of $11,430 from the Escort name associating Escort with a reasonable price. Also, in the left hand lower corner of the ad, the 'Ford Credit' logo is displayed. Ford included it here because their target audience in this magazine is younger and recognize they are likely to need financial assistance in their purchase. Advertisement #4 This advertisement for the Ford Taurus SHO was found in Smart Money magazine. This ad appeals primarily to the buyers emotional buying behaviors. The top of the add has the following text: "High-Performance Praise. Full-Throttle Accolades." These two phrases are intended to appeal to a drivers desire for a high performance vehicle. Just below the text there is a picture of a red SHO with bright alloy wheels rounding a corner. The SHO is given the appearance of going at a very high speed because the car is somewhat blurred and the background is also blurred. Ford has targeted this advertisement at Smart Money's male readers who may have a family, but also have a love for fast cars. Ford has used a hot, red, sporty looking Taurus SHO. Ford uses bright red sporty vehicles when targeting male consumers. Below the picture of the SHO are quotes from various reviews that have been done on the car. Obviously, all of the reviews were positive and Ford uses them to convey the message that the SHO is not only a fast sports car, but is also reasonably priced, and a great family car too. The first quote is from Automobile Magazine. Their quote starts out by talking about how fast the car is and how well it handles. They then go on to say: "And it sure doesn't cost much, does it?" Through this one quote, the SHO is portrayed as a reasonably priced, fast car which is both sporty and luxurious. Road and Track go on to tout the SHO's fast engine quoting engine specifications which are intended to appeal to the consumers rational buying behaviors as well as their emotional buying behaviors. It's a quality engine that "makes 235 BHP with little strain". The Car and Driver quote concentrates on the fact that the SHO is not only a sports car, but it is also a refined luxury car at a fair price. AutoWeek, on the other hand, is appealing the consumer's concern for safety as well as their love for speed. "Back-road passing is never a concern, and escaping the truck races on the interstate takes just a touch of the toe". In other words, you NEED to have the power of an SHO to allow you to pass safely on the back roads and to stay away from the truck races on the highway...with just a touch of the toe. And finally, USA Today's quote appeals to the family man who loves a sporty, fast car, but wants a vehicle large enough to cart around the whole family. Advertisement #5 This advertisement was found in Cooking Light magazine on the inside of the front cover. This magazine's reading audience is primarily females and this ad is directed at them. The advertisement is for the Ford Taurus Wagon and consists of a two page picture of the wagon in a light blue color. This cool blue color was chosen to appeal to the female reader audience that Cooking Light attracts. Through this advertisement, Ford tries to leverage the reputation of their "best selling sedan" to promote their Taurus Wagon. At the top of the advertisement Ford included the following phrase: "Everything you like about Taurus Sedan. And then some." In other words, the Wagon has all the features you loved about our best selling sedan, but it offers more room for your whole family and all the things they can't leave home without. The photo of the Taurus wagon is taken from behind, but at an angle. This allows the consumer to see that it is in fact a station wagon, but it shares many of the same lines and features of the Taurus Sedan. At the bottom of the advertisement, Ford includes a couple of paragraphs of text. The message Ford is conveying appeals to the readers rational buying behaviors by pointing out the Wagon's safety and security features. Most of the buyers of these vehicles are families and Ford recognizes their concern for the safety of themselves and their children. They have intentionally capitalized the phrase "A SENSE OF SECURITY" and "FORD ROADSIZE ASSISTANCE". As a Ford car owner, you can feel safe with its dual air bags, anti-lock brakes and remote keyless entry. Also, if you happen to be on the road and run into car trouble, Ford's roadside assistance is simply a phone call away. Also embedded in the text of the ad, Ford mentions the Wagon's handling abilities, sleek lines and curved angles...just like the Ford Taurus. By comparing the handling and looks of this car, Ford is appealing to the consumer's love for a car that's not only appealing to look at, but also fun to drive. Conclusion The underlying theme or message carried throughout all of Ford's ad has been Quality and Safety. Ford, as a company, has devoted a significant amount of time and money in improving quality within their operations as well as their products. They recognized the foreign car makers were perceived to be much more technologically advanced and had achieved a level of quality that American car makers had not. Ford also realized they were unable to keep up with the quickly changing technologies and unable to meet the demand for new and innovative car designs. By focusing on Quality, Ford is now able to react more quickly to consumer demands because they can produce their product more efficiently without sacrificing product standards. Ford is very effective at targeting their advertisements for their viewing audience. When developing advertisements for the Ford Probe, Ford consulted with a psychologist who bases product color advice on the theory that certain colors and shades appeal to woman more than men. Based on the recommendations offered by the psychologist, Ford ran advertisements with hot red colored cars for men and cooler colored cars for woman. Through their advertisements, Ford is announcing that they have achieved a high level of quality and their products are technologically advanced. They are running advertisements which don't necessary focus on a specific make or model of a Ford vehicle. They are running ads which tout their quality service and high-tech anti-theft devices. Many of the advertisements which are run by Ford are focused on promoting Ford as a company. When they do run ads to promote a specific model, they still carry through each and every ad the common thread of "Quality is Job 1". f:\12000 essays\business & economics (632)\Ford Motor Company 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ford Motor Company is the world's largest producer of trucks, and the second largest producer of cars and trucks combined. Ford has manufacturing, assembly or sales affiliates in 34 countries and Ford companies employed 337,800 people world-wide in 1996. Ford has manufacturing facilities in 22 countries on 5 continents, with 87 plants in North America and 41 in Europe. In Europe, in 1995, Ford's combined vehicle market share, at 12.2%, was the highest for eleven years, with three of the eight best-selling cars. In 1995, in the United States, five of the ten top-selling vehicles were Ford, including the best-selling car (Ford Taurus) and best-selling truck (F-series). On January 1, 1995, Ford merged its North American Automotive Operations and its European Automotive Operations into a single organization, Ford Automotive Operations. Instead of being organized by geographic regions, the Company is now realigned by product line, with five Vehicle Centers, each responsible for one group of products worldwide. At the same time, Ford is reducing the time taken to develop a new vehicle from 48 to 24 months and reducing engines, transmissions, and basic vehicle platforms by 30% worldwide. Ford hopes that by pooling global skills and resources will result in more variations on each vehicle platform, increasing the number of vehicles introduced over the next five years by 50%. One of the key strategies behind the realignment has been growth. Ford has launched a variety of new initiatives throughout the world, with joint ventures for the assembly of vehicles in countries as diverse as China, India, Thailand and Vietnam. In China, Ford expects to begin production of light trucks with a company named Jiangling Motors in the near future. In India, Mahindra Ford India Ltd. will begin manufacture and distribution of Ford products, beginning with the Ford Escort, in mid-1996 and Fiesta in 1998. In Thailand, Ford has a joint venture to produce pick-up trucks and in Vietnam, Ford plans to build a vehicle assembly plant at Hanoi, together with partners Song Cong Diesel. In Poland, the Plonsk plant has begun to build Escorts and Transits. Joint ventures are establishing a presence for Ford all over the globe. Ford is working with two companies in Korea, one to supply automotive air conditioning units and the second as a new joint venture to produce electronic components later this year. In addition to the 20% of Jiangling Motors, China, acquired by Ford in 1995, four further manufacturing joint ventures in China have been set up to produce radiators, glass, plastic and electronic components. Ford has also acquired a 45% equity in South African company, Samcor, for the assembly of Ford vehicles. The sale of Ford vehicles in markets all over the world carries the Ford badge into more places than ever before. The European Mondeo is currently on sale in 52 countries, with sister cars, the US Ford Contour and Mercury Mystique, bringing the total up to 78. (Ford Fiesta is currently on sale in 42 world markets) Ford Motor Company was founded in 1903 and within ten years had vehicles on sale throughout Europe, South America and Asia. The Company's first European sales branch was opened in France in 1908 and the first regional company and assembly plant outside North America were established in Britain in 1911. Ford of Europe Incorporated was established in 1967, bringing together the various nations within Europe as one organization - an important step towards the single worldwide organization that Ford will have become by the turn of the century. The Ford Taurus has proven to be one of Ford's most successful models. It has been the car of choice for those who want functional, affordable and stylish transportation. The Taurus SHO also offers performance for those who seek extra driving excitement from their sedan. The Taurus has a heritage of staying at the sales forefront by meeting the needs of family-oriented customers. Advertisement #1 This advertisement was found in Smart Money magazine. Smart Money is "The Wall Street Journal of Personal Business". It is targeted at individuals who seek financial security and/or financial independence. Many of the articles in this magazine are on the subject of money management (i.e., car buying/leasing tips) and investment opportunities. The average reader of this magazine pays close attention to their monetary affairs and look for good buys and quality products. Ford used this article to appeal to these readers emotional and rational buying habits. This Ford advertisement message is "Quality Service" which is designed to appeal to the readers rational buying behaviors. Consumers not only want a quality vehicles, but need to be assured they can receive quality care and service for their car. Ford is saying once you've purchase a Ford vehicle, you can be assured of receiving the best service from highly trained technicians who use high-tech equipment for the modern electronics in today's cars. The ad also is designed to appeal to our more irrational buying behaviors. In the center of the ad is a reflection of a mother and daughter peering through the rear view mirror of a Ford vehicle. Smart Money's primary reading audience is men and this ad attempts to strike at the male reader's concern for their families safety. If your wife drives around in a Ford Taurus with the children in the back seat, don't you want to be assured the car is cared for and maintained to ensure their safety? At the top of the ad is a picture of a home, with the words "Come Home" in bold letters. Ford is conveying the message that you can belong to the "Ford family" and be assured of Quality Care for any type of maintenance or repair. It's like having a mechanic in the family! Ford not only has the most highly trained technicians, but these technicians are equipped with "high-tech equipment" (and we know how much men love their high-tech equipment!) needed to maintain the modern electronics found in cars today. In other words, if you buy a Ford, not only can you be assured of quality service, but your also buying a car that's technologically advanced. In the upper-right hand corner of the ad, Ford has placed a picture of the reader on the gas pump with the words "Happy?" on the display. Ford is saying that their quality standards were developed to ensure you, as the customer, will be happy when you pick up your car after of day of being serviced by their service technicians...because you deserve it. In the lower right hand corner, the ad is demonstrating their personalized service. You'll be greeted by a Service Advisor. The title alone makes you feel that he or she will be someone who will be knowledgeable and assures you that your car will be in good hands. The lower left hand of the ad shows a wrench wrapped around a computer chip. Ford is effective is showing that todays cars have changed. They are built with modern electronics, and therefore, require high skilled technicians and tools to service them. The overall layout of the ad centers around the rear view mirror. When you first look at the ad, you are drawn to the rear view mirror. It is the largest picture in the ad and it is centered on the page with the text "Look at you car in a whole new way" just below it in large bold lettering. With this layout, Ford is first appealing to the readers irrational buying habits. Ford is saying don't just look us as a car manufacturer who provides a means of transportation for your family. Our "Quality Care Standards" provided by our service department make sure your car is safe and reliable for your family. Advertisement #2 This advertisement was found in Car and Driver magazine. Car and Driver's primary reading audience is male. The ad was a two page ad which was placed one page past the table of contents in the magazine and is an advertisement for Ford's new anti-theft device. Ford is appealing to the readers rational buyer habits by directing the ad at safety and security. There is a picture of a Ford vehicle surrounded by Doberman Pinschers standing at attention. Doberman Pinschers are loyal, dependable and intelligent protectors. They serve as watch dogs and protectors of homes and are often trained by the police and military as guard dogs and war dogs. Ford's message is that by owning a ford vehicle with their new anti-theft key, it is just like having a pack of Dobermans surrounding your car for protection. Ford is clever in their use of these dogs. The dogs are not simply sitting or lying around the car, they are all standing attentively and waiting for someone to approach. At the top of the ad Ford has included the following text in large bold text: "A simple yet accurate demonstration of how our anit-theft key works." The words "simple", "accurate" and "anti-theft key" appear in a font larger than the rest of the text in order to make them stand out. Ford wants the consumer to know that their anti-theft device is not complicated. It is easy to use, but it is also very accurate. When you look at the add the phrase "simple, accurate anti-theft key" jumps out at you even though what the sentence is really saying is "here's a demonstration of how the device works". The reader receives two messages from the same sentence. At the bottom of the advertisement there is additional text in a much smaller font. In the first sentence: "Finally, there's a car protection device whose bite is worse than its bark.", Ford is telling the consumer that their anti-theft device is effective. It's not just a deterrent, it is true protection for your car. In the next couple of sentences, Ford mentions the "remarkable computer chip" that is at the heart of their anti-theft device. It conveys the message that Ford is a technologically advanced manufacturer who is concerned with providing the best quality products for their consumers. And finally, in the last two sentences the ad says: "Because we believe your car should always be there for you. Like a best friend." Here Ford is saying...just like the Dobermans who represent man's best friend, our new anti-theft device will also be there for you protecting your car. If you stand back and look at the block of text at the bottom of the page, the words "CAR PROTECTION", "ANTI-THEFT", "ELECTRONIC SIGNAL", "FORD MOTOR COMPANY", "WORLD", "CUSTOMERS" are in all capital letters to make them stand out. Ford wants the consumer to focus on what they feel is important. The WORLD-wide FORD MOTOR COMPANY provides their CUSTOMERS CAR PROTECTION with their new ANTI-THEFT device which uses a distinct ELECTRONIC SIGNAL. Although this ad was not for a specific Ford car model, it portrayed Ford as a manufacturer of quality cars with luxury. The car portrayed in the ad had stylish wheels and was painted a pleasing golden metallic color. The car was then displayed on a white carpet. Also, the font used for the text appeared to be a Times New Roman which has a more elegant appearance than a block text font. The bottom right hand corner displayed Ford's quality logo in large bold lettering: "QUALITY IS JOB 1" to further emphasize Ford's commitment to quality. Advertisement #3 This advertisement was found in Cosmopolitan magazine. Cosmopolitan is primarily read by woman between the ages of 18 and 35. The two-page Ford advertisement in this issue of Cosmo was placed several pages past the table of contents and was for their Escort model. Overall, the ad was very unstructured and portrayed the Escort as a "fun" car. The car is portrayed as "fun" through the use of bright colors in the ad. Some of the text appears in red, some in blue, some in grean and finally some in black. There are many different fonts used in the add as well. Each word or phrase appears in a different color, size and font. The word "NEW" appears with a green background and white lettering and an a green arrow leads you to the word "STYLE" which appears in blue Times New Roman font. From this the consumer is given the message "new style" even though this doesn't appear as one phrase in the ad. This ad was designed specifically to appeal to Cosmo's reading audience. This is demonstrated by the fact they use a young woman to represent the Escort car owner. This young woman appears wearing a graduation cap sitting on top of her Ford Escort. The new car appears to have been her graduation gift. On the left hand page of the ad, the young woman is shown again. This time, however, she appears with her hand on her face with an expression of awe or amazement as she looks at the "new AM/FM stereo with premium speakers" in the new Escort. The color, green, Ford chose for the Escort in this ad is also significant. Ford had consulted with a psychologist who bases his product color advice on the theory that certain colors and shades appeal to woman more than men. This psychologist concluded that woman prefer cooler colors shades and Ford has used the recommendations provided by this consultant. On the top right-hand page of the ad there is a picture of the upper body of a muscular man holding himself in a handstand on top of the "T" in the word "BUILT". This portrays the image of Escort as a well built vehicle, thereby appealing to the buyers rational buying behaviors. On each page of the add there appears a phrase that is written in rolling letters which further portrays the image of the Escort as a young, fun car. The message in these phrases appeal to both the buyers rational and emotional buying behaviors. The first phrase reads: "It's new and it's smart with a story to tell." and the second phrase reads: "It's priced really nice and it's built oh-so well.". The first phrase appeals to consumers emotional buying behaviors by portraying the Escort as a stylish, fun car. The second phrase appeals to the buyers rational buying behaviors. It portrays the Escort an affordable, durable, quality vehicle. The add continues to target the buyers rational buying by listing features of the product such as "Improved safety cell construction" and "Standard dual air bags". Ford also hangs a price tag of $11,430 from the Escort name associating Escort with a reasonable price. Also, in the left hand lower corner of the ad, the 'Ford Credit' logo is displayed. Ford included it here because their target audience in this magazine is younger and recognize they are likely to need financial assistance in their purchase. Advertisement #4 This advertisement for the Ford Taurus SHO was found in Smart Money magazine. This ad appeals primarily to the buyers emotional buying behaviors. The top of the add has the following text: "High-Performance Praise. Full-Throttle Accolades." These two phrases are intended to appeal to a drivers desire for a high performance vehicle. Just below the text there is a picture of a red SHO with bright alloy wheels rounding a corner. The SHO is given the appearance of going at a very high speed because the car is somewhat blurred and the background is also blurred. Ford has targeted this advertisement at Smart Money's male readers who may have a family, but also have a love for fast cars. Ford has used a hot, red, sporty looking Taurus SHO. Ford uses bright red sporty vehicles when targeting male consumers. Below the picture of the SHO are quotes from various reviews that have been done on the car. Obviously, all of the reviews were positive and Ford uses them to convey the message that the SHO is not only a fast sports car, but is also reasonably priced, and a great family car too. The first quote is from Automobile Magazine. Their quote starts out by talking about how fast the car is and how well it handles. They then go on to say: "And it sure doesn't cost much, does it?" Through this one quote, the SHO is portrayed as a reasonably priced, fast car which is both sporty and luxurious. Road and Track go on to tout the SHO's fast engine quoting engine specifications which are intended to appeal to the consumers rational buying behaviors as well as their emotional buying behaviors. It's a quality engine that "makes 235 BHP with little strain". The Car and Driver quote concentrates on the fact that the SHO is not only a sports car, but it is also a refined luxury car at a fair price. AutoWeek, on the other hand, is appealing the consumer's concern for safety as well as their love for speed. "Back-road passing is never a concern, and escaping the truck races on the interstate takes just a touch of the toe". In other words, you NEED to have the power of an SHO to allow you to pass safely on the back roads and to stay away from the truck races on the highway...with just a touch of the toe. And finally, USA Today's quote appeals to the family man who loves a sporty, fast car, but wants a vehicle large enough to cart around the whole family. Advertisement #5 This advertisement was found in Cooking Light magazine on the inside of the front cover. This magazine's reading audience is primarily females and this ad is directed at them. The advertisement is for the Ford Taurus Wagon and consists of a two page picture of the wagon in a light blue color. This cool blue color was chosen to appeal to the female reader audience that Cooking Light attracts. Through this advertisement, Ford tries to leverage the reputation of their "best selling sedan" to promote their Taurus Wagon. At the top of the advertisement Ford included the following phrase: "Everything you like about Taurus Sedan. And then some." In other words, the Wagon has all the features you loved about our best selling sedan, but it offers more room for your whole family and all the things they can't leave home without. The photo of the Taurus wagon is taken from behind, but at an angle. This allows the consumer to see that it is in fact a station wagon, but it shares many of the same lines and features of the Taurus Sedan. At the bottom of the advertisement, Ford includes a couple of paragraphs of text. The message Ford is conveying appeals to the readers rational buying behaviors by pointing out the Wagon's safety and security features. Most of the buyers of these vehicles are families and Ford recognizes their concern for the safety of themselves and their children. They have intentionally capitalized the phrase "A SENSE OF SECURITY" and "FORD ROADSIZE ASSISTANCE". As a Ford car owner, you can feel safe with its dual air bags, anti-lock brakes and remote keyless entry. Also, if you happen to be on the road and run into car trouble, Ford's roadside assistance is simply a phone call away. Also embedded in the text of the ad, Ford mentions the Wagon's handling abilities, sleek lines and curved angles...just like the Ford Taurus. By comparing the handling and looks of this car, Ford is appealing to the consumer's love for a car that's not only appealing to look at, but also fun to drive. Conclusion The underlying theme or message carried throughout all of Ford's ad has been Quality and Safety. Ford, as a company, has devoted a significant amount of time and money in improving quality within their operations as well as their products. They recognized the foreign car makers were perceived to be much more technologically advanced and had achieved a level of quality that American car makers had not. Ford also realized they were unable to keep up with the quickly changing technologies and unable to meet the demand for new and innovative car designs. By focusing on Quality, Ford is now able to react more quickly to consumer demands because they can produce their product more efficiently without sacrificing product standards. Ford is very effective at targeting their advertisements for their viewing audience. When developing advertisements for the Ford Probe, Ford consulted with a psychologist who bases product color advice on the theory that certain colors and shades appeal to woman more than men. Based on the recommendations offered by the psychologist, Ford ran advertisements with hot red colored cars for men and cooler colored cars for woman. Through their advertisements, Ford is announcing that they have achieved a high level of quality and their products are technologically advanced. They are running advertisements which don't necessary focus on a specific make or model of a Ford vehicle. They are running ads which tout their quality service and high-tech anti-theft devices. Many of the advertisements which are run by Ford are focused on promoting Ford as a company. When they do run ads to promote a specific model, they still carry through each and every ad the common thread of "Quality is Job 1". f:\12000 essays\business & economics (632)\Ford Motor Company.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ford Motor Company GROUP PROJECT ACC 505 - FINANCIAL ACCOUNTING 12/01/96 TABLE OF CONTENTS DESCRIPTION PAGE INTRODUCTION........................................................1 LIQUIDITY...........................................................1-3 Working Capital...................................................1 Current Ratio & Quick Ratio.......................................2 Receivable Turnover & Average Days' Sales Uncollected.............2-3 Inventory Turnover & Average Days' Inventory on Hand..............3 PROFITABILITY.......................................................3-7 Profit Margin.....................................................3-4 Asset Turnover....................................................4-5 Return on Assets..................................................5 Debt to Equity....................................................5-6 Return on Equity..................................................6-7 CONCLUSION..........................................................7-8 APPENDIX............................................................9 INTRODUCTION Ford Motor Company, a large United States automotive corporation, strives for success each and every year. The success of Ford Motor Company, as well as other corporations, can be measured by analyzing the two most important goals of management, maintaining adequate liquidity and achieving satisfactory profitability. Liquidity can be defined as having enough money on hand to pay bills when they are due and to take care of unexpected needs for cash, while profitability refers to the ability of business to earn a satisfactory income. To enable investors and creditors to analyze these goals, Ford Motor Company distributes annual financial statements. With these financial statements, liquidity of Ford Motor Company is measured by analyzing factors such as working capitol, current ratio, quick ratio, receivable turnover, average days' sales uncollected, inventory turnover and average days' inventory on hand; whereas profitability analyzes the profit margin, asset turnover, return on assets, debt to equity, and return on equity factors. LIQUIDITY Working Capital Ford Motor Company's working capital fluctuated significantly in the years 1991-1995. This phenomenon is directly attributable to the fact that Financial Services current assets and current liabilities are not included in the total company current asset and current liability accounts. For example, the fluctuation from 1994 ($1.4 billion) to 1995 (-$1.5 billion) of $2.5 billion would suggest that Ford would be unable to pay liabilities during the current period. However, examination of the Financial Services side of the business reveals that surpluses of $13.6 billion existed in both 1994 and 1995, convincingly mitigating the figures indicating negative working capital. Current Ratio & Quick Ratio The current ratio in the years 1991-1995 has remained stable, fluctuating between 0.9 and 1.1. The quick ratio has also remained stable, fluctuating between 0.5 and 0.6. The larger fluctuation in the current ratio versus the quick ratio is caused by inventories being included in the asset side of the equation. Although inventories were significantly higher in both 1994 and 1995, current liabilities were also higher. In addition, marketable securities decreased substantially in 1994 and 1995. These factors resulted in the stability of both the current ratio and quick ratio. Receivable Turnover & Average Days' Sales Uncollected An examination of trends in Ford Motor Company's receivable turnover and average days' sales uncollected ratios reveal positive indicators of Ford's liquidity position. The receivable turnover, a function of net sales and average accounts receivable, has nearly doubled in the years 1993-1995 versus 1991-1992. This trend indicates an extensive increase of net sales in relation to accounts receivable. Receivables were relatively higher in 1994 than in any other of the five years, affecting the ratio for both 1994 and 1995. However, net sales increased 30% in 1994 and 34% in 1995 over the average net sales of 1991-1993. The average days' sales uncollected ratio has decreased significantly over the same period, from 16.9 days in 1991 to 9.7 days in 1995. The substantial decrease in average days' sales uncollected ratio coupled with the near doubling of the receivable turnover ratio is a reflection of Ford's strong sales and effective credit policies in years 1993-1995. Inventory Turnover & Average Days' Inventory on Hand An examination of trends in the inventory turnover and average days' inventory on hand ratios also reveal positive indicators of Ford's liquidity position. Inventory turnover, a function of cost of goods sold and inventories, has remained stable between 14.0 and 16.0 times from 1992-1995. The average ratio over these four years (15.1 times) is 40% higher than that of 1991. The average days' inventory on hand, a derivative of the inventory turnover, has conversely decreased to stable level fluctuating between 23.5 and 26.0 days in the years 1992-1995. The operating cycle of Ford Motor Company has decreased significantly as the table below indicates. 1991 1992 1993 1994 1995 Days: 50.8 29.0 33.8 31.1 34.3 PROFITABILITY Profit Margin Profit margin, which is net income divided by net sales, is a measure of how many dollars of net income is produced by each dollar of sales. As you can see in Appendix 12, Ford Motor Company had a substantial 4 year rise in profit margin. Using horizontal analysis, the profit margin increased 98% from 1991 to 1992, 566% from 1992 to 1993 and then 79% from 1993 to 1994. Although the profit margin from 1994 to 1995 decreased 26%, that is more than acceptable when you look at the substantial increases in the past few years. In the first year, Ford had a profit margin of -3.1%. That means for every dollar of sales, Ford lost $3.10. This is obviously not a good position to be in. During 1991and then carried over into 1992, it cost Ford more money to make sales than it did when it recorded the income for those sales. They realized at this time it was important for them to keep things such as selling and administrative expenses lower, as well as the cost of sales, which included their production, manufacturing, and warehousing costs. By following a plan more complex than I can describe here, Ford steadily increased it's sales while it lowered it's expenses and it's cost of sales. This directly increased Ford's profit margin at a substantial rate within the next three years. Asset Turnover Asset turnover involves Ford's net sales divided by their average total assets. This ratio demonstrates the efficiency of assets used in producing sales. A company like Ford Motor Company has an enormous amount of assets. Computers to heavy equipment to buildings. All of those assets, plus many more, are all taken into consideration when figuring asset turnover. For example, Ford would like to know that if it decides to purchase 20 new computer-aided engineering stations for a cost of about $2,400,000, they would like to see a higher asset turnover to give them the proof that the investment is being used at maximum efficiency. Ford's asset turnover steadily increased in incremental amounts between the years of 1991-1995 (see appendix 12), but on average it was about . 43 for the entire 5 year period. Using trend analysis to understand this ratio would give you a pretty good idea that the asset turnover of Ford Motor Company is stable. Trend analysis would give you an index number for 1992 of 100, while the index number for 1995 would be 112. These index numbers would result in a slightly positive but relatively straight line across the page. As a prospective investor this would probably cause you to investigate more deeply as to why Ford can't more efficiently use their assets to produce sales. As a current stockholder, this trend over the past five years may give you some comfort because of the incremental increases (at least it isn't going down). Return on Assets Return on assets is a very good profitability ratio. It is comprehensive when compared to profit margin and asset turnover. Return on assets overcomes the deficiency of profit margin by relating the assets necessary to produce income and it overcomes the deficiency of asset turnover by taking into account the amount of income produced. Mathematically, return on assets is equal to net income divided by average total assets, or more simply put, profit margin times asset turnover. Ford can improve it's overall profitability by increasing it's profit margin, the asset turnover, or both. Looking at the numbers, it was actually Ford's increase in profit margin that really gave it the boost it needed to raise the return on assets from the black to the red. A steady increase in return on assets from -1.3% in 1991 to an acceptable 2.2% in 1994 is a good sign to investors. This steady climb of 169% resulted in an overall increase in the earning power of Ford Motor Company. Ford's increase in profitability shows satisfactory earning power which results in investors continuing to provide capital to it. Debt to Equity The debt to equity ratio shows the portion of the company financed by creditors in comparison to that financed by the stockholders. It is total liabilities divided by stockholder's equity. Ford's debt to equity ratio is relatively high (see appendix 12). When measuring profitability, a high debt to equity ratio means the company has high debt and must earn more profit to protect the payment of interest to it's creditors. This high debt to equity ratio would also interest stockholders because it shows what part of the business is financed through borrowing or in other words, is debt financed. Of the five years we analyzed, the lowest debt to equity ratio was during 1991 (6.65) and the highest was in 1993 (11.71). In comparison to return on assets, a higher creditor financed year such as 1991 did not have an positive effect on profitability. It seemed that through increased borrowing in 1993, a higher debt to equity ratio was produced, but overall profitability also went up. Debt to equity is only one part in a full profitability analysis. The only real information that the debt to equity ratio can produce is it can show how much expansion is possible through the borrowing of long term funds; basically it show's a company's long- term solvency. A higher debt to equity ratio essentially means that the company will be able to borrow less money. The company must rely more on stockholder investment. Ford was able to lower it's borrowing of funds from 1993 through 1994 and into 1995, while still effectively increasing it's profit margin and return on assets. This means Ford was able to use stockholder's investments to increase it's profitability rather than borrow the funds to do it. Return on Equity Return on equity is the ratio of net income divided by the average stockholder's equity. This ratio is of great interest to stockholders because it shows how much they have earned on their investment in the business. In the years of 1991 and 1992, stockholders lost money on their investment in Ford Motor Company (see appendix 12). No one likes to lose money, even if it is a couple of cents on the dollar. A major stockholder could incur quite a loss because of this. In the next three years, return on equity was on the positive side, the peak being in 1994 when stockholders earned about 28% on every dollar invested. Quite a good return considering some investors are happy with a steady 8% return. Considering the previous years, the return on equity for Ford seems to be positive. Common knowledge dictates that most companies experience a downturn every now and then. Ford's investors are able to remain invested in the company because it's overall 5 year return on equity is high enough to give investors the high returns they seek. A return on equity consistently above 16% with a few negative years mixed in is certainly lucrative enough to maintain a strong profitability measurement and project a positive image to the investors of Ford Motor Company. CONCLUSION Although Ford Motor Company is one of the largest companies in the world, we can still attribute accounting trends to some of the key events in Ford's history. In 1990, Ford acquired Jaguar Cars, Ltd. Jaguar was a company suffering terrible loses due to poor quality, and lack of sales. Jaguar has been in the black since Ford purchased them until 1994. It is important to note that Ford's net income trend from 1991 to 1995 illustrates this. In 1992, the Ford Taurus became the number one selling car in the United States, which helped increase 1992 net earnings, and in 1994 the Ford Falcon was the top selling car in Australia, helping maintain the trend of increasing net income. It is important to note that Ford's net income has increased from 1991 to 1994, and then decreased in 1995. There are several possible causes for this change in the trend. In 1995, Ford acquired 20% equity in a major Chinese truck manufacturer, and launched several new vehicles; including the Ford Contour, Ford Mondeo, Mercury Mystique, Ford F-150, and Ford Taurus. These additional investments and expenses help explain the decrease in net income in 1995. Overall, the company has done well, and with reorganization in 1996 to decrease spending and increase efficiency, Ford is striving for future periods of growth. OTHER KEY EVENTS: 1992 - Ford Citi-bank Mastercard introduced, customer 5% discount on purchases 1994 - Ford acquires 100% of Hertz Corporation, the world's largest car rental company APPENDIX DESCRIPTION PAGE Consolidated Income Statements...................................Appendix 1-2 Spreadsheets..................................................Appendix 1 Graphical Representation......................................Appendix 2 Consolidated Balance Sheets......................................Appendix 3-5 Spreadsheets.................................................Appendix 3-4 Graphical Representation.....................................Appendix 5 Consolidated Retained Earnings Statement.........................Appendix 6-7 Spreadsheets.................................................Appendix 6 Graphical Representation.....................................Appendix 7 Consolidated Statement of Cash Flows.............................Appendix 8-9 Spreadsheets.................................................Appendix 8 Graphical Representation.....................................Appendix 9 Evaluation of Liquidity..........................................Appendix 10-11 Evaluation of Profitability......................................Appendix 12-13 Liquidity & Profitability Formulas...............................Appendix 14 f:\12000 essays\business & economics (632)\Foreign aid 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ There are two words that many politicians like to shy away , and those two words are, "foreign aid." Taking a firm stand on either side of this topic is usually side stepped by decision makers. Their opinions are usually based on a case by case analysis. This extremely controversial topic involves whether or not to support the policy of foreign aid to needy or sometimes not so needy countries. What benefits does foreign aid have for the countries that receive it, and does it have any benefits for the countries who give? Some may say that instead of spending money on foreign aid, money should be spent on domestic aid. Those who argue in favor of foreign aid say that it is an investment in the future of both countries that will eventually pay off. There is also another factor to consider when discussing foreign aid: what kind of foreign aid is being offered. There are three different types of foreign aid: first, there is military foreign aid; second, there is foreign aid for the advancement of business; third, there is emergency foreign aid for food and medicine. Foreign aid to countries can help in many ways. It can be used as a tool in bargaining. For instance a country that has just received foreign aid or is expecting to get their regular installment of foreign aid will be more likely to listen to new ideas. Because some countries are so dependent on their regular installments of foreign aid, they are willing to appease countries such as the U.S who are giving it. When looked at closely, foreign aid may be considered an elaborate system of legal bribery. This becomes evident when countries do what they would normally not consider doing in order to continue receiving foreign aid. The U.S supplies financial foreign aid to many different countries; sometimes this foreign aid is in a form of a loan. For example, recently the U.S. supplied Mexico with a loan in order to save the falling value of the Peso. This loan was denigrated by much of the U.S. population because many people don't understand why the U.S. should care about the falling value of the Mexican Peso. First of all, deflation of the Peso means a loss of jobs in Mexico which would in turn send an influx of illeagal immigrants from Mexico to the United States. In addition, Mexico is a large economy that imports American goods. If the Peso's value were to drop, it would mean less buying power for the Mexican public, and that in itself would hurt American business. Some people would still be against this type of aid, and their argument would be that if money that goes to Mexico was invested in helping small business get started, America would be less dependent on other countries for their goods or services. In this case the nay-sayers were proven wrong because Mexico recently repaid the United States in full, plus interest, and a year in advance. Another form of foreign aid is a certain amount of credit is given to the receiving country in order to buy American made goods only. This form of aid not only helps the country in need, but it also pumps money into the US economy. Still some may wonder why should we care about a country such as Russia, to whom the U.S. has recently given aid to recently. The U.S. can't afford to have an ex-superpower unstable economically because of their nuclear capabilities. Because Russia is in the unstable beginnings of a democracy the U.S. wants to keep Russia on the right track. If that includes giving them aid in order to help feed their people, then that is what the U.S must do. Because reinstatement of the old regime would result in turmoil throughout the world. After communism was overthrown in the former Soviet Union the world went through big changes. There was no longer two world super powers, and all of a sudden a 40 year cold war ended. As stated the U.S. uses foreign aid as a tool to implement their political views in other countries. In January of 1996 Robert Dole, the speaker of the House, commented that if Russia didn't pull out of Chechnya the U.S. would rethink the up coming aid package to Russia. In 1997 the U.S. has over 800 million budgeted for aid to Russia and other former Soviet republics. This is an excellent example of how the U.S. uses its economic prowess to influence the politics of other countries. A few days later Mr. Clinton defended Boris Yelstin and his government for their actions in Chechnya . He criticized the attack on the women and children but defended the overall effort. President Clinton has clear goals and although he can't defend the carnage that went on in Chechnya, he still must defend Yelstin and Russia because he needs them to complete his goals. "Now more than ever, it is important to help Russia dismantle its nuclear arsenal;" Secretary of State Warren Christopher reminded everyone, it is in the US's best interest to see to it that Russia no longer has nuclear capabilities. This shows that the U.S. and other countries will overlook bloodshed of innocent woman and children in order to keep their' political goals intact. There is also another type of foreign aid that not many people know about: is military foreign aid; the U.S. spends by far more money on this type of foreign aid then on any other. Military foreign aid consists of two elements: either the U.S gives the weapons, and troops for defense or it awards straight cash payment. Many may wonder why the U.S. would supply other countries with military foreign aid. The answer to this question is not a simple one. As with other types of foreign aid the U.S. usually has more than one objective in mind. Sometimes the U.S. will supply troops as a form of military foreign aid; Other times the U.S will supply retired U.S. arms to countries. The primary recipient of military foreign aid is Israel. The U.S. budgets over three billion dollars every year in military and other types of foreign aid to Israel. Many see no reason for supplying Israel with money. The U.S. justifies the contribution with many different reasons. First and foremost, Israel sits in the middle of a hotbed of political unrest. Surrounding Israel are countries such as Lybia, Lebanon, Iraq, and Iran, and these are just a few countries in which the U.S. has no a political foothold. By supplying Israel with military aid the US expanded their sphere of influence in an area where they are disliked and where they have little political clout. In addition to having a foothold in the Middle East by preserving Israel as an ally the US has a friend in a centralized location in the Middle East which can be used for such things as intelligence. The Gulf War is an excellent example of how the US used its political clout to influence Israel in their decision making processes. Sadaam Hussein, the leader of Iraq, decided to use Scud missiles against Israel who had no part in the Gulf War until the Scud attacks started. Sadaam intended to drive Israel into the war in order to stir up controversy with the coalition of forces gathered to defeat Sadaam and drive Sadaam out of Kuwait. Israel's military reputation is an intimidating one. They have never been attacked without retaliating, but the US convinced Israel not to retaliate. They accomplished this by promising to supply them with patriot missiles in order to protect themselves against future attacks, they reminded Israel of the hefty amount of foreign aid that comes their way every year. If Israel had retaliated it might have disrupted the coalition and, if that had happened, it would have been played into the hands of Sadaam Hussein. America's small investment in Israel turned out to be crucial in the Gulf War. This is just one example of how military foreign aid benefits to the US. Emergency foreign aid is another type of aid, not many people argue against emergency aid. When U.S. citizens see hunger or horrible living conditions their heart goes out to those people in need. Many people want to help with their own checkbooks. When such emergency aid is needed the US usually comes through very quickly. Emergency foreign aid to feed and/or give medical attention to those who need it was once thought to be a purely altruistic form of foreign aid. It can longer be considered this. Recently the US tried to help a country full of starving people who were dying because of poor medical facilities. The US tried to step in and deliver food and medical supplies, but because of warring factions the food and supplies were either being stolen or they lay dormant in warehouses. The relief workers could not do there job for fear of being killed. The decision was made to bring in US forces to Somalia to help protect the relief workers and to distribute the goods. Soon it seemed that the US was not wanted in Somalia, and it seemed as if they were biting the hand that feeds them. With such negative feelings about the US troops staying in Somalia, an ethical decision had to be made. Do we help these starving people, or do we leave to protect ourselves. Somalia was supposed to be a strictly humanitarian effort, but it turned out to be a military effort when the US had to fight against all sides. When every aspect of foreign aid is looked at, a decision about who is right or wrong by each individual on their own. Foreign aid is most likely a necessary evil for a superpower such as the United States. The US, just because of the sheer size and strength of its economy and military might has to watch over the rest of the world in order to keep balance and peace around the world. When considered, it turns out to be that all the foreign aid combined is such a small percentage of the United States GDP that we really have little to complain about. I believe that foreign aid is blown out of proportion by the media. It is hot topic that generates controversy and kicks up the ratings. f:\12000 essays\business & economics (632)\Foreign Aid.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Foreign Aid There are two words that many politicians like to shy away , and those two words are, "foreign aid." Taking a firm stand on either side of this topic is usually side stepped by decision makers. Their opinions are usually based on a case by case analysis. This extremely controversial topic involves whether or not to support the policy of foreign aid to needy or sometimes not so needy countries. What benefits does foreign aid have for the countries that receive it, and does it have any benefits for the countries who give? Some may say that instead of spending money on foreign aid, money should be spent on domestic aid. Those who argue in favor of foreign aid say that it is an investment in the future of both countries that will eventually pay off. There is also another factor to consider when discussing foreign aid: what kind of foreign aid is being offered. There are three different types of foreign aid: first, there is military foreign aid; second, there is foreign aid for the advancement of business; third, there is emergency foreign aid for food and medicine. Foreign aid to countries can help in many ways. It can be used as a tool in bargaining. For instance a country that has just received foreign aid or is expecting to get their regular installment of foreign aid will be more likely to listen to new ideas. Because some countries are so dependent on their regular installments of foreign aid, they are willing to appease countries such as the U.S who are giving it. When looked at closely, foreign aid may be considered an elaborate system of legal bribery. This becomes evident when countries do what they would normally not consider doing in order to continue receiving foreign aid. The U.S supplies financial foreign aid to many different countries; sometimes this foreign aid is in a form of a loan. For example, recently the U.S. supplied Mexico with a loan in order to save the falling value of the Peso. This loan was denigrated by much of the U.S. population because many people don't understand why the U.S. should care about the falling value of the Mexican Peso. First of all, deflation of the Peso means a loss of jobs in Mexico which would in turn send an influx of illeagal immigrants from Mexico to the United States. In addition, Mexico is a large economy that imports American goods. If the Peso's value were to drop, it would mean less buying power for the Mexican public, and that in itself would hurt American business. Some people would still be against this type of aid, and their argument would be that if money that goes to Mexico was invested in helping small business get started, America would be less dependent on other countries for their goods or services. In this case the nay-sayers were proven wrong because Mexico recently repaid the United States in full, plus interest, and a year in advance. Another form of foreign aid is a certain amount of credit is given to the receiving country in order to buy American made goods only. This form of aid not only helps the country in need, but it also pumps money into the US economy. Still some may wonder why should we care about a country such as Russia, to whom the U.S. has recently given aid to recently. The U.S. can't afford to have an ex-superpower unstable economically because of their nuclear capabilities. Because Russia is in the unstable beginnings of a democracy the U.S. wants to keep Russia on the right track. If that includes giving them aid in order to help feed their people, then that is what the U.S must do. Because reinstatement of the old regime would result in turmoil throughout the world. After communism was overthrown in the former Soviet Union the world went through big changes. There was no longer two world super powers, and all of a sudden a 40 year cold war ended. As stated the U.S. uses foreign aid as a tool to implement their political views in other countries. In January of 1996 Robert Dole, the speaker of the House, commented that if Russia didn't pull out of Chechnya the U.S. would rethink the up coming aid package to Russia. In 1997 the U.S. has over 800 million budgeted for aid to Russia and other former Soviet republics. This is an excellent example of how the U.S. uses its economic prowess to influence the politics of other countries. A few days later Mr. Clinton defended Boris Yelstin and his government for their actions in Chechnya . He criticized the attack on the women and children but defended the overall effort. President Clinton has clear goals and although he can't defend the carnage that went on in Chechnya, he still must defend Yelstin and Russia because he needs them to complete his goals. "Now more than ever, it is important to help Russia dismantle its nuclear arsenal;" Secretary of State Warren Christopher reminded everyone, it is in the US's best interest to see to it that Russia no longer has nuclear capabilities. This shows that the U.S. and other countries will overlook bloodshed of innocent woman and children in order to keep their' political goals intact. There is also another type of foreign aid that not many people know about: is military foreign aid; the U.S. spends by far more money on this type of foreign aid then on any other. Military foreign aid consists of two elements: either the U.S gives the weapons, and troops for defense or it awards straight cash payment. Many may wonder why the U.S. would supply other countries with military foreign aid. The answer to this question is not a simple one. As with other types of foreign aid the U.S. usually has more than one objective in mind. Sometimes the U.S. will supply troops as a form of military foreign aid; Other times the U.S will supply retired U.S. arms to countries. The primary recipient of military foreign aid is Israel. The U.S. budgets over three billion dollars every year in military and other types of foreign aid to Israel. Many see no reason for supplying Israel with money. The U.S. justifies the contribution with many different reasons. First and foremost, Israel sits in the middle of a hotbed of political unrest. Surrounding Israel are countries such as Lybia, Lebanon, Iraq, and Iran, and these are just a few countries in which the U.S. has no a political foothold. By supplying Israel with military aid the US expanded their sphere of influence in an area where they are disliked and where they have little political clout. In addition to having a foothold in the Middle East by preserving Israel as an ally the US has a friend in a centralized location in the Middle East which can be used for such things as intelligence. The Gulf War is an excellent example of how the US used its political clout to influence Israel in their decision making processes. Sadaam Hussein, the leader of Iraq, decided to use Scud missiles against Israel who had no part in the Gulf War until the Scud attacks started. Sadaam intended to drive Israel into the war in order to stir up controversy with the coalition of forces gathered to defeat Sadaam and drive Sadaam out of Kuwait. Israel's military reputation is an intimidating one. They have never been attacked without retaliating, but the US convinced Israel not to retaliate. They accomplished this by promising to supply them with patriot missiles in order to protect themselves against future attacks, they reminded Israel of the hefty amount of foreign aid that comes their way every year. If Israel had retaliated it might have disrupted the coalition and, if that had happened, it would have been played into the hands of Sadaam Hussein. America's small investment in Israel turned out to be crucial in the Gulf War. This is just one example of how military foreign aid benefits to the US. Emergency foreign aid is another type of aid, not many people argue against emergency aid. When U.S. citizens see hunger or horrible living conditions their heart goes out to those people in need. Many people want to help with their own checkbooks. When such emergency aid is needed the US usually comes through very quickly. Emergency foreign aid to feed and/or give medical attention to those who need it was once thought to be a purely altruistic form of foreign aid. It can longer be considered this. Recently the US tried to help a country full of starving people who were dying because of poor medical facilities. The US tried to step in and deliver food and medical supplies, but because of warring factions the food and supplies were either being stolen or they lay dormant in warehouses. The relief workers could not do there job for fear of being killed. The decision was made to bring in US forces to Somalia to help protect the relief workers and to distribute the goods. Soon it seemed that the US was not wanted in Somalia, and it seemed as if they were biting the hand that feeds them. With such negative feelings about the US troops staying in Somalia, an ethical decision had to be made. Do we help these starving people, or do we leave to protect ourselves. Somalia was supposed to be a strictly humanitarian effort, but it turned out to be a military effort when the US had to fight against all sides. When every aspect of foreign aid is looked at, a decision about who is right or wrong by each individual on their own. Foreign aid is most likely a necessary evil for a superpower such as the United States. The US, just because of the sheer size and strength of its economy and military might has to watch over the rest of the world in order to keep balance and peace around the world. When considered, it turns out to be that all the foreign aid combined is such a small percentage of the United States GDP that we really have little to complain about. I believe that foreign aid is blown out of proportion by the media. It is hot topic that generates controversy and kicks up the ratings. f:\12000 essays\business & economics (632)\Frederick Winslow Taylor Business Management.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Frederick Winslow Taylor: Business Management Lenoir Community College Frederick Winslow Taylor Business Management David Mercer Tuesday, February 04, 1997 CONTENTS I. Introduction......................6 II. The Younger Years.................7 III Midvale Steel Company.............n IV Inventions........................n V. Pig-Iron Handling Experiments.....n VI. Shoveling Experiments ............n VII. Conclusion .......................n APPENDI................................n SELECTED BIBLIOGRAPHY..................n LIST OF ILLUSTRATIONS 1. Illustration 1.................n 2. Illustration 2.................n 3. Illustration 3.................n 4. Illustration 4.................n 5. Illustration 5.................n LIST OF TABLES 1. Differential Piece Rate Wages..n 2. Table 2........................n 3. Table 3........................n 4. Table 4........................n 5. Table 5........................n Introduction This paper is in response to the assignment for a paper and short speech concerning a person with relevant contributions to the world of management. Frederick Taylor is affectionately referred to as the "Father of Scientific Management." The modern systems of manufacturing and management would not be the examples of efficiency that they are today, without the work of Taylor. Frederick Taylor was instrumental in bringing industry out of the dark ages by beginning to revolutionize the way work was approached. Taylor was able to increase wages, productivity and reduce per piece costs at the same time. Taylor's work was eventually adopted in a wide array of applications. Taylor's ideas had a significant influence on the industrial life of all modernized countries. Even Lenin went as far as to publish an article in Pravda , "Raising the Productivity of Labour," based on the writings of Taylor. Thus Taylor changed the way the world conducted business. Taylor's work was an extension of technology. It was a marriage of human work and technology. His Priniciples of Scientifiic Management was conceived to be free of value judgement. The Younger Years Frederick W. Taylor was born into a well-to-do family in Philadelphia in 1856 . His family was not wealthy , but they were well exposed to the high culture of the local society. Growing up it was expected that Taylor would study to become an attorney. Taylor attended Phillips-Exeter Academy. He was a devout student, doing very well with his studies. To achieve good grades, Taylor studied many long hours. It was quite unfortunate that Taylor was to miss Harvard Law School due to bad eyes that doctors attrributed to studying in the poor light of a kerosene lamp. In later years it was realized that his eye problem was actually caused by stress, as it improved after he left Phillips. Taylor moved back home after graduating from Phillips. He realized that he should take up a trade and got a job as an apprentice machinist and pattern maker. Having spent four years learning his trade, Taylor got a job as a yard laborer at Midvale Steel Company. Taylor realized that at this point he needed to continue his education. He convinced the people at Stevens Institute of Technology to allow him to attend classes long distance. He would study in his spare time in Philadelphia and go to the school in New Jersey to take his exams. In June of 1883, Taylor graduated with a Mechanical Engineering degree. He subsequently joined the American Society of Mechanical Engineers (ASME). Midvale Steel Company The Midvale Steel Company was part of the post Civil War expansion of industrialized Philadelphia. They made steel railroad tires. Due to poor management, Midvale failed in 1873. Fortunately for Taylor, the company was sold and prospered under the direction of the new owners. There were two reasons for the success of the company. The first was that the company was able to improve their scientific processes. The second reason was they were to receive contracts to manufacture Naval gun forgings. By the 1890's, Midvale was one of the countries largest defense contracters. The company was in period of rapid growth. Taylor advanced quickly at Midvale. In eight years he would be promoted from ordinary laborer through the ranks of time keeper, machinist, gang boss, foreman, assistant engineer to chief engineer of the plant. Taylor was promoted to gang boss due to the business turn around and the subsequent influx of orders. As gang boss Taylor was well aware that the workers could be producing at much higher levels than they were. As Taylor tried to increase production, he met a lot of resistance from the workers. This fight to increase production gave Frederick Taylor his first look at the unsystemized managerial methods commonplace in industry. Typically the fly by the seat of the pants approach was used to manage manufacturing facilities. Taylor realized that there was a scientific approach to technical problems. Yet, the current approach to dealing with production problems such as worker behavior was destructive. There needed to be a way to combine scientific techniques with constructive management. Conditions were favorable for Taylor to begin his studies in management. First, his chief, William Sellers, was an engineer who supported research. The second beneficial condition was that the machines his men were using worked on heavy locomotive parts. The operating times on these machines were long, distinct and easily measured. After his appointment to gang boss, Taylor began to put pressure on the men to increase production. The ensuing struggle caused Taylor to realize that the basis for the conflict was that management did not understand a proper day's work. Thus Taylor set out to evaluate a "fair day's work." By 1885 Taylor had devise a sysyem of production controls. He had introduced stopwatch time studies, that he conducted to set production standards. Adifferential piece rate system was set up to mandate that men increase production. In order to get the men to increase their production and be happy about it, Taylor devised an incentive wage. This scientific piecework system reconciled the managers desire for increased production and the workers desire for a higher wage. Taylor found that on a task where production should have been 10 per day, when a worker was paid 50 cents per unit that the worker finished only 4 or 5 pieces each day. Taylor set a new per piece pay rate of 35 cents if the worker made 10 or more pieces. If the worker produced 9 pieces or less, his piece rate was only 25 cents. Anyone who refused to cooperate was terminated. For two or three years, Frederick Taylor discharged some workers and lowered the wages of others. All through this period, he always had the support of upper management. This differential piece rate system was applied to every task from unloading pig iron and sand, white washing walls, painting, and even changing light bulbs. This system waas the answer to the inefficiencies of workers performing manual tasks. The company was able to pick the best workers available, since the worker would be earning a higher than average wage. Taylor was also conducting a trial and error search for a set of laws governing the application of cutting tools. He was experimenting with different combvinations of material,speed and angles, the rate of feed and the power required. The results of ths study had management hooked. Taylor was allowed to hire Henry L. Gantt, a classmate at Stevens, as an assistant. There were three significant results of the combined efforts of Taylor and Gantt. 1883- The starting of a set of experiments on belting 1884- Construction of a room for storing and issuing tools already ground to the men. 1885-1889- The making of a series of practical tables for a number of machines...[by] which it was possible to give definite tasks each day to the machinists who were running machines. Taylor."Art of Cutting Metals," p38 Taylor writes of four steps to utilize standard information. The first basic satep is to experiment. The initial managerial procedure is to continually measure, classify and file standards related information. The second step is the formulation of manufacturing laws of economy, standards. These standards would include: _Specifications of Materials _Material Handling _Machines _Machine Setup _Tools,Dies, Cutters, etc. _Proper Opreation Times _Properly Trained Operator The use of standards removes all variability from the process and the need for guesswork. The third step is to plan the work. One must establish Standard Operating Procedures (SOPs). This step will eliminate idle times and miapplied efforts. Teh fourth step is to maintain the standards. To achieve this one would establish a system of control. These controls would establish procedures for inspection of conditions and performance and compare them to the standards. Experiments Until 1885, Frederick Taylor's experiments were conducted only as a gang boss trying to improve his crew's performance. He would study problems as they arose. At this time Taylor was promoted to chief engineer and he became more familiar with the machinery in other departments. He began to develop a broader perspective and to study and experiment in different departments. Most of Taylor's inventions involved metal cutting. He devised a tool grinder, a machine tool table, a chuck, a tool-feeding devise for lathes, a work carrier for lathes, a boring-bar puppet, and two boring and turning mills. The most impressive of his invemtions was an elaborate set of forging equipment. This made use of a powerful and reliable steam hammer. In designing this hammer, he studied the strengths and weaknesses of other hammers. He incorporated the best parts, using flexible components. BIBLIOGRAPHY Kaker, Sudhir. Frederick Taylor: A Study in Personality and Innovation. MIT: Cambridge,1970. Nelson, Daniel. Frederick W. Taylor and The Rise of Scientific Management. U Wisconsin P: Madison,1980. Person, H.S.,ed. Scientific Management in American Industry. Hive P: Easton,1972. Taylor, Frederick W. Scientific Management. Greenwood Press: Westport, 1947. Thompson, Clarence Bertrand. Scientific Management: A Collection of the More Significant Articles Describing the Taylor System of Management. Hue P: Easton. 1972. Wrege. Charles D. and Ronald G. Greenwood. Frederick W Taylor. The Father of Scientific Management: Myth and Reality. Business One Irwin: Homewood, 1991. f:\12000 essays\business & economics (632)\Frederick Winslow Taylor.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Lenoir Community College Frederick Winslow Taylor ? Business Management David Mercer Tuesday, February 04, 1997 CONTENTS I. Introduction 6 II. The Younger Years 7 III Midvale Steel Company n IV Inventions n V. Pig-Iron Handling Experiments n VI. Shoveling Experiments .....................................................n VII. Conclusion .....................................................................n APPENDIX n SELECTED BIBLIOGRAPHY n LIST OF ILLUSTRATIONS 1. Illustration 1 n 2. Illustration 2 n 3. Illustration 3 n 4. Illustration 4 n 5. Illustration 5 n LIST OF TABLES 1. Differential Piece Rate Wages n 2. Table 2 n 3. Table 3 n 4. Table 4 n 5. Table 5 n Introduction This paper is in response to the assignment for a paper and short speech concerning a person with relevant contributions to the world of management. Frederick Taylor is affectionately referred to as the "Father of Scientific Management." The modern systems of manufacturing and management would not be the examples of efficiency that they are today, without the work of Taylor. Frederick Taylor was instrumental in bringing industry out of the dark ages by beginning to revolutionize the way work was approached. Taylor was able to increase wages, productivity and reduce per piece costs at the same time. Taylor's work was eventually adopted in a wide array of applications. Taylor's ideas had a significant influence on the industrial life of all modernized countries. Even Lenin went as far as to publish an article in Pravda , "Raising the Productivity of Labour," based on the writings of Taylor. Thus Taylor changed the way the world conducted business. Taylor's work was an extension of technology. It was a marriage of human work and technology. His Priniciples of Scientifiic Management was conceived to be free of value judgement. The Younger Years Frederick W. Taylor was born into a well-to-do family in Philadelphia in 1856 . His family was not wealthy , but they were well exposed to the high culture of the local society. Growing up it was expected that Taylor would study to become an attorney. Taylor attended Phillips-Exeter Academy. He was a devout student, doing very well with his studies. To achieve good grades, Taylor studied many long hours. It was quite unfortunate that Taylor was to miss Harvard Law School due to bad eyes that doctors attrributed to studying in the poor light of a kerosene lamp. In later years it was realized that his eye problem was actually caused by stress, as it improved after he left Phillips. Taylor moved back home after graduating from Phillips. He realized that he should take up a trade and got a job as an apprentice machinist and pattern maker. Having spent four years learning his trade, Taylor got a job as a yard laborer at Midvale Steel Company. Taylor realized that at this point he needed to continue his education. He convinced the people at Stevens Institute of Technology to allow him to attend classes long distance. He would study in his spare time in Philadelphia and go to the school in New Jersey to take his exams. In June of 1883, Taylor graduated with a Mechanical Engineering degree. He subsequently joined the American Society of Mechanical Engineers (ASME). Midvale Steel Company The Midvale Steel Company was part of the post Civil War expansion of industrialized Philadelphia. They made steel railroad tires. Due to poor management, Midvale failed in 1873. Fortunately for Taylor, the company was sold and prospered under the direction of the new owners. There were two reasons for the success of the company. The first was that the company was able to improve their scientific processes. The second reason was they were to receive contracts to manufacture Naval gun forgings. By the 1890's, Midvale was one of the countries largest defense contracters. The company was in period of rapid growth. Taylor advanced quickly at Midvale. In eight years he would be promoted from ordinary laborer through the ranks of time keeper, machinist, gang boss, foreman, assistant engineer to chief engineer of the plant. Taylor was promoted to gang boss due to the business turn around and the subsequent influx of orders. As gang boss Taylor was well aware that the workers could be producing at much higher levels than they were. As Taylor tried to increase production, he met a lot of resistance from the workers. This fight to increase production gave Frederick Taylor his first look at the unsystemized managerial methods commonplace in industry. Typically the fly by the seat of the pants approach was used to manage manufacturing facilities. Taylor realized that there was a scientific approach to technical problems. Yet, the current approach to dealing with production problems such as worker behavior was destructive. There needed to be a way to combine scientific techniques with constructive management. Conditions were favorable for Taylor to begin his studies in management. First, his chief, William Sellers, was an engineer who supported research. The second beneficial condition was that the machines his men were using worked on heavy locomotive parts. The operating times on these machines were long, distinct and easily measured. After his appointment to gang boss, Taylor began to put pressure on the men to increase production. The ensuing struggle caused Taylor to realize that the basis for the conflict was that management did not understand a proper day's work. Thus Taylor set out to evaluate a "fair day's work." By 1885 Taylor had devise a sysyem of production controls. He had introduced stopwatch time studies, that he conducted to set production standards. Adifferential piece rate system was set up to mandate that men increase production. In order to get the men to increase their production and be happy about it, Taylor devised an incentive wage. This scientific piecework system reconciled the managers desire for increased production and the workers desire for a higher wage. Taylor found that on a task where production should have been 10 per day, when a worker was paid 50 cents per unit that the worker finished only 4 or 5 pieces each day. Taylor set a new per piece pay rate of 35 cents if the worker made 10 or more pieces. If the worker produced 9 pieces or less, his piece rate was only 25 cents. Anyone who refused to cooperate was terminated. For two or three years, Frederick Taylor discharged some workers and lowered the wages of others. All through this period, he always had the support of upper management. This differential piece rate system was applied to every task from unloading pig iron and sand, white washing walls, painting, and even changing light bulbs. This system waas the answer to the inefficiencies of workers performing manual tasks. The company was able to pick the best workers available, since the worker would be earning a higher than average wage. Taylor was also conducting a trial and error search for a set of laws governing the application of cutting tools. He was experimenting with different combvinations of material,speed and angles, the rate of feed and the power required. The results of ths study had management hooked. Taylor was allowed to hire Henry L. Gantt, a classmate at Stevens, as an assistant. There were three significant results of the combined efforts of Taylor and Gantt. 1883- The starting of a set of experiments on belting 1884- Construction of a room for storing and issuing tools already ground to the men. 1885-1889- The making of a series of practical tables for a number of machines...[by] which it was possible to give definite tasks each day to the machinists who were running machines. Taylor."Art of Cutting Metals," p38 Taylor writes of four steps to utilize standard information. The first basic satep is to experiment. The initial managerial procedure is to continually measure, classify and file standards related information. The second step is the formulation of manufacturing laws of economy, standards. These standards would include: _Specifications of Materials _Material Handling _Machines _Machine Setup _Tools,Dies, Cutters, etc. _Proper Opreation Times _Properly Trained Operator The use of standards removes all variability from the process and the need for guesswork. The third step is to plan the work. One must establish Standard Operating Procedures (SOPs). This step will eliminate idle times and miapplied efforts. Teh fourth step is to maintain the standards. To achieve this one would establish a system of control. These controls would establish procedures for inspection of conditions and performance and compare them to the standards. Experiments Until 1885, Frederick Taylor's experiments were conducted only as a gang boss trying to improve his crew's performance. He would study problems as they arose. At this time Taylor was promoted to chief engineer and he became more familiar with the machinery in other departments. He began to develop a broader perspective and to study and experiment in different departments. Most of Taylor's inventions involved metal cutting. He devised a tool grinder, a machine tool table, a chuck, a tool-feeding devise for lathes, a work carrier for lathes, a boring-bar puppet, and two boring and turning mills. The most impressive of his invemtions was an elaborate set of forging equipment. This made use of a powerful and reliable steam hammer. In designing this hammer, he studied the strengths and weaknesses of other hammers. He incorporated the best parts, using flexible components. BIBLIOGRAPHY Kaker, Sudhir. Frederick Taylor: A Study in Personality and Innovation. MIT: Cambridge,1970. Nelson, Daniel. Frederick W. Taylor and The Rise of Scientific Management. U Wisconsin P: Madison,1980. Person, H.S.,ed. Scientific Management in American Industry. Hive P: Easton,1972. Taylor, Frederick W. Scientific Management. Greenwood Press: Westport, 1947. Thompson, Clarence Bertrand. Scientific Management: A Collection of the More Significant Articles Describing the Taylor System of Management. Hue P: Easton. 1972. Wrege. Charles D. and Ronald G. Greenwood. Frederick W Taylor. The Father of Scientific Management: Myth and Reality. Business One Irwin: Homewood, 1991. f:\12000 essays\business & economics (632)\French Revolution 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ French Revolution There were many factors that contributed to the French Revolution. First of all was the greatest percent of the population, the commoners, had the least amount of power and land. This laid the foundation for social unrest which is necessary for a revolution. Second, the French economy was very weak due to France's involvement in the American Revolution. In addition to the economic problems that the American Revolution caused, it also put Enlightenment ideas into the minds of the French people. Last, weak leadership was provided under Louis XVI. He called the Estates General into session to raise taxes to pay debts incurred due to the American Revolution. Once in session, the Third Estate, the commoners, demanded a representative National Assembly and a Constitution. When Louis XVI denied their request, they sat on the tennis court and swore not to leave until their demands were met. This is known as the "Tennis Court Oath." This stalemate was broken by the storming of the Bastille (a debtor's prison) on July 14, 1789. Louis XVI agreed to their demands. This revolution resulted in the end of the old paradigm and the beginning of the Enlightenment paradigm. The Declaration of the Rights of Man and the Constitution of 1791 were written. Some of these changes include freedom of speech , due process under law, equality under law. It also enabled the creation of a laissez-fairre economic policy, with a free market and free trade. I believe that this revolution was inevitable due to the conditions that the majority of the population was living under. It will also have a lasting impact because the Constitution will protect these rights. f:\12000 essays\business & economics (632)\French Revolution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ French Revolution There were many factors that contributed to the French Revolution. First of all was the greatest percent of the population, the commoners, had the least amount of power and land. This laid the foundation for social unrest which is necessary for a revolution. Second, the French economy was very weak due to France's involvement in the American Revolution. In addition to the economic problems that the American Revolution caused, it also put Enlightenment ideas into the minds of the French people. Last, weak leadership was provided under Louis XVI. He called the Estates General into session to raise taxes to pay debts incurred due to the American Revolution. Once in session, the Third Estate, the commoners, demanded a representative National Assembly and a Constitution. When Louis XVI denied their request, they sat on the tennis court and swore not to leave until their demands were met. This is known as the "Tennis Court Oath." This stalemate was broken by the storming of the Bastille (a debtor's prison) on July 14, 1789. Louis XVI agreed to their demands. This revolution resulted in the end of the old paradigm and the beginning of the Enlightenment paradigm. The Declaration of the Rights of Man and the Constitution of 1791 were written. Some of these changes include freedom of speech , due process under law, equality under law. It also enabled the creation of a laissez-fairre economic policy, with a free market and free trade. I believe that this revolution was inevitable due to the conditions that the majority of the population was living under. It will also have a lasting impact because the Constitution will protect these rights. f:\12000 essays\business & economics (632)\Fuel cost.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Fuel cost As the country gets bigger and more people make their residency here the demand for fuel increases, thus, causing higher prices for fuel. Gas prices have been increasing at alarming rates over the last five years. As long as our fossil fuel supplies continue to vanish, the price for gas will climb. Fossil fuel supplies are decreasing everyday. The United States is responsible for nearly one third of the world's fossil fuel consumption every year. Millions of gallons of gasoline are burned every day. In today's society combustion engines are relied on for the majority of our transportation needs. Some people might blame the Gulf War for a loss of fuel supplies. The truth is that we just use too much of natures precious resources. There are several reasons for the increased gas prices. One reason is the cut back on the refining of crude oil. The major oil companies regulate the output of oil to drive the price either up or down. Another reason the gas prices have stayed so high is the fact that times are good, and people have the extra money to burn. Further more, it doesn't help that the federal EPA took back the regulations on big city gas, which now allows big cities to purchase the same gas as small cities. When thought about cars really haven't been around for that long and scientist are already talking about fossil fuel depleting very rapidly. Folks need to learn how to be conservative and use only what they need and recycle what they don't use. Instead of driving everywhere, try to use other means of transportation when possible. Just remember the more fuels that are used, the less there are and the less there are the more that they cost. Gas prices are going to continue to rise unless the people and the government do something about the problem. The government needs to reinstate the gas regulations, because an illegal cash pay off is not an acceptable reason for destroying our ecosystem. The American people need to stop paying at the pump and boycott the oil companies. As long as our supplies of fossil fuels continues to deplete prices will go up. People can do many things that will help to keep the supplies from decreasing so fast. But as long as things continue to go the way that they are it is sad to say that it is looking pretty smoggy in the future. f:\12000 essays\business & economics (632)\Game Theory 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Game Theory (Strategic Thinking in Everyday Life) Have you ever been faced with having to live with a decision you made knowing that had you taken the time to analyze the outcomes you may have made a more intelligible choice? Most likely the answer to that question was "yes". After all that is more - or - less is what life is about, a series of choices and the outcomes we are faced to live with as a result of our decisions. Well your probably asking yourself "What does this obvious statement have to do with me?". I'll begin by telling you it has everything to do with you and everything to do with any situation you may confront from this day forward. After - all life is but a game and it is our goal to win. The fundamentals of the "Game Theory will provide us with the basic tools we need to succeed at this game. What is Game Theory? Simply put, it is the study of rational behavior in situations requiring interdependence. Wow! That seems like a pretty heavy statement. Actually it is pretty straight - forward. What is meant by "rational behavior or interdependance?" Rational behavior in game theory is the assumption that moral critique aside, the players in the game will act in a way which provides them with the greatest benefits.. Interdependence is the idea that what one player does will directly affect the other and vice -versa. By players I am talking about any two interdependant variables, whether they be people, countries, animals etc. Game theorist take apart a situation involving two players and systematically analyze their objectives and their potential outcomes. In doing so they are able to create models which replicate the basic motives each player has and diagram the outcomes.. Game theory is something that to some extent all of us have experience in. Dealing with spouse, co-workers, business partners, car sales people all involve some sort of relationship of give and take. So you see, we are not immune to the concepts of game theory. The theory requires us to understand and practice the art of strategy, and strategic thinking. Sounds like something we use in chess? Well you are absolutely right, but these same concepts are used in everday decision making. f:\12000 essays\business & economics (632)\Game Theory.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Game Theory (Strategic Thinking in Everyday Life) Have you ever been faced with having to live with a decision you made knowing that had you taken the time to analyze the outcomes you may have made a more intelligible choice? Most likely the answer to that question was "yes". After all that is more - or - less is what life is about, a series of choices and the outcomes we are faced to live with as a result of our decisions. Well your probably asking yourself "What does this obvious statement have to do with me?". I'll begin by telling you it has everything to do with you and everything to do with any situation you may confront from this day forward. After - all life is but a game and it is our goal to win. The fundamentals of the "Game Theory will provide us with the basic tools we need to succeed at this game. What is Game Theory? Simply put, it is the study of rational behavior in situations requiring interdependence. Wow! That seems like a pretty heavy statement. Actually it is pretty straight - forward. What is meant by "rational behavior or interdependance?" Rational behavior in game theory is the assumption that moral critique aside, the players in the game will act in a way which provides them with the greatest benefits.. Interdependence is the idea that what one player does will directly affect the other and vice -versa. By players I am talking about any two interdependant variables, whether they be people, countries, animals etc. Game theorist take apart a situation involving two players and systematically analyze their objectives and their potential outcomes. In doing so they are able to create models which replicate the basic motives each player has and diagram the outcomes.. Game theory is something that to some extent all of us have experience in. Dealing with spouse, co-workers, business partners, car sales people all involve some sort of relationship of give and take. So you see, we are not immune to the concepts of game theory. The theory requires us to understand and practice the art of strategy, and strategic thinking. Sounds like something we use in chess? Well you are absolutely right, but these same concepts are used in everday decision making. f:\12000 essays\business & economics (632)\Gangs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ GANGS Gangs are a violent reality that people have to deal with in today's cities. What has made these groups come about? Why do kids feel that being in a gang is both an acceptable and prestigious way to live? The long range answer to these questions can only be speculated upon, but in the short term the answers are much easier to find. On the surface, gangs are a direct result of human beings' personal wants and peer pressure. To determine how to effectively end gang violence we must find the way that these morals are given to the individual. Unfortunately, these can only be hypothesized. However, by looking at the way humans are influenced in society, I believe there is good evidence to point the blame at several institutions. These include the forces of the media, the government, theatre, drugs and our economic system. On the surface, gangs are caused by peer pressure and greed. Many teens in gangs will pressure peers into becoming part of a gang by making it all sound glamorous. Money is also an crucial factor. A kid (a 6-10 year old, who is not yet a member) is shown that s/he could make $200 to $400 for small part time gang jobs. Although these are important factors they are not strong enough to make kids do things that are strongly against their morals. One of the ways that kids morals are bent so that gang violence becomes more acceptable is the influence of television and movies. The average child spends more time at a TV than she/he spends in a classroom. Since nobody can completely turn off their minds, kids must be learning something while watching the TV. Very few hours of television watched by children are educational, so other ideas are being absorbed during this period of time. Many shows on television today are extremely violent and are often shown this from a gang's perspective. A normal adult can see that this is showing how foully that gangs are living. However, to a child this portrays a violent gang existance as acceptable. 'The Ends Justifies the Means' mentality is also taught through many shows where the "goody guy" captures the "bad guy" through violence and is then being commended. A young child sees this a perfectly acceptable because he knows that the "bad guy" was wrong but has no idea of what acceptable apprehension techniques are. Gore in television also takes a big part in influencing young minds. Children see gory scenes and are fascinated by these things that they have not seen before. Older viewers see gore and are not concerned with the blood but rather with the pain the victim must feel. A younger mind doesn't make this connection. Thus a gore fascination is formed, and has been seen in several of my peers. Unfortunately kids raised with this sort of television end up growing up with a stronger propensity to becoming a violent gang member or 'violent- acceptant' person. "Gangs bring the delinquent norms of society into intimate contact with the individual."1, (Marshall B Clinard, 1963). So, as you can see if TV leads a child to believe that violence is the norm this will manifest itself in the actions of the child quite, often in a gang situation. This is especially the case when parents don't spend a lot of time with their kids at the TV explaining what is right and what is wrong. Quite often newer books and some types of music will enforce this type of thought and ideas. Once this mentality is installed in youngsters they become increasingly prone to being easily pushed into a gang situation by any problem at home or elsewhere. For instance, in poor families with many children or upper-middle class families where parents are always working, the children will often feel deprived of love. Parents can often feel that putting food on the table is enough love. Children of these families may often go to the gang firstly out of boredom and to belong somewhere. As time goes on, a form of love or kinship develops between the gang members and the child. It is then that the bond between the kid and the gang is completed because the gang has effectively taken the place of the family. The new anti social structure of cities also effects the ease in which a boy/girl can join a gang. " The formation of gangs in cities, and most recently in suburbs, is facilitated by the same lack of community among parents. The parents do not know what their children are doing for two reasons: First, much of the parents' lives is outside the local community, while the children's lives are lived almost totally within it. Second, in a fully developed community, the network of relations gives every parent, in a sense, a community of sentries who can keep him informed of his child's activities. In modern living-places (city or suburban), where such a network is attenuated, he no longer has such sentries."2, (Merton Nisbet, 1971). In male gangs problems occur as each is the members tries to be the most manly. This often leads to all members participating in "one-up-manship". Quite often this will then lead to each member trying to commit a bigger and more violent crime or simply more crimes than the others. With all members participating in this sort of activity it makes for a never ending unorganized violence spree (A sort of Clockwork Orange mentality). In gangs with more intellegent members these feelings end up making each member want to be the star when the groups commit a crime. This makes the gang much more organized and improves the morale of members which in turn makes them more dangerous and very hard for the police to deal with and catch (There is nothing harder to find and deal with than organized teens that are dedicated to the group). This sort of gang is usually common of middle or upper class people although it can happen in gangs in the projects and other low rent districts too. This "one-up-manship" is often the reason between rival gangs fighting. All gangs feel powerful and they want to be feared. To do this they try to establish themselves as the only gang in a certain neighborhood. After a few gang fights hatred forms and gang murders and drive-by's begin to take place. When two gangs are at war it makes life very dangerous for citizens in the area. Less that 40% of drive-by's kill their intended victim yet over 60% do kill someone. This gang application is one of the many reasons that sexual sterotypes and pressure to conform to the same must be stopped. Lastly one of the great factors in joining a gang is for protection. Although from an objective point of view, we can see joining a gang brings more danger than it saves you from, this is not always the way it is seen by kids. In slums such as the Bronx or the very worst case, Compton, children will no doubt be beaten and robbed if they do not join a gang. Of course they can probably get the same treatment from rivals when in a gang. The gang also provides some money for these children who quite often need to feed their families. The reason kids think that the gang will keep them safe is from propoganda from the gangs. Gang members will say that no one will get hurt and make a public show of revenge if a member is hurt or killed. People in low rent areas are most often being repressed due to poverty and most importantly, race. This often results in an attitude that motivates the person to base his/her life on doing what the system that oppresses them doesn't want. Although this accomplishes little it is a big factor in gang enrollment. So, as you have seen gangs are a product of the environment we have created for ourselves. Some of these factors include: oppression, the media, greed, violence and other gangs. There seems to be no way to end the problem of gangs without totally restructuring the modern economy and value system. Since the chance of this happening is minimal, we must learn to cope with gangs and try to keep their following to a minimum. Unfortunately there is no real organized force to help fight gangs. Of course the police are supposed to do this but this situation quite often deals with racial issues also and the police forces regularly display their increasing inability to deal fairly with these issues. What we need are more people to form organizations like the "Guardian Angels" a gang-like group that makes life very tough for street gangs that are breaking laws. Bibliography Margot Webb, Coping with Street Gangs. Rosen Publishing Group, New York, 1990. William Foote Whyte, Street Corner Society. University of Chicago, Chicago, 1955. Peter Carroll, South-Central. Hoyte and Williams, L. A., 1987. 1 Marshall B. Clinard, Sociology of Deviant Behavior. University of Wisconsin, Wisconsin, 1963, Page 179. 2 Merton Nisbet, Contempory Social Problems. Harcourt, Brace & World, New York, 1971, Page 588. f:\12000 essays\business & economics (632)\Gasoline.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Title : Gasoline Description : 7page paper for Economics The price of gasoline is a major interest to almost everyone in the country and almost everywhere in the world. It seems that every month or even more frequently, gas prices are either rising or dropping but never staying stable. Gasoline prices are affected by many factors, including the price of crude oil in the world market, supply and demand for gasoline, local market competition, temporary supply interruptions, government regulations, or taxes. Gasoline is produced by a distillation process where crude oil is heated and fumes are captured and converted into many products such as kerosene, jet fuel, and gasoline to name a few. Therefore the price of crude oil, which is extracted from oil wells beneath the earth's surface, is a major factor in gas prices. The five leading oil producing countries and their approximate shares of the world supply of oil are: Soviet Union 21%, Saudi Arabia 17%, The United States 15%, Venezuela 4%, and Mexico 4%. These five countries made up 61% of the worlds oil production back in 1980. Even though the United States is a major producer of oil, it does not make them self-sufficient. The United States uses more oil than they can produce and must look toward foreign countries. Therefore, the United States is forced to deal with an organization called O.P.E.C. The reason the United States goes through O.P.E.C., is not only in its own interests, but also in the interests of its allies and in the interest of maintaining world peace. O.P.E.C. which stands for Organization of Petroleum Exporting Countries, is made up of 13 countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon. It controls approximately four fifths of the worlds oil reserves in the non-Communist world. O.P.E.C. was founded in Baghdad, Iraq in September of 1960. The headquarters were initially set in Geneva, but were later moved to Vienna in 1965. O.P.E.C. was organized in response to oil producing countries that did not consult with the Middle Eastern oil states before lowering their crude oil prices. The producers feared that other countries would establish monopolies. The aim of O.P.E.C. was to create a universal price between the countries, in order to ensure peace between oil producers throughout the world. O.P.E.C. also wanted to provide its members with technical and economic support in times of need, since not all the countries were completely stable. Even though the goal of O.P.E.C. was to establish firmly unified prices among their members, the organization was not always successful. In their quest for control over the world market of oil production, they have run into several obstacles and setbacks. O.P.E.C. has barely survived due to internal conflicts among its members. Since O.P.E.C. almost has a complete hold on the worlds oil supply, the United States is extremely concerned with the areas instability. The Middle East and the Persian Gulf area, where most of the members are located, are extremely prone to wars, both civil and cross borders. They are often plagued by religious battles and positions of power are frequently overthrown, making it hard for any stability to come out of the area. Anytime there is chaos in the Middle East, the United States thinks back on "... memories of other troubles in the Persian Gulf area: the Arab oil embargo in 197374, the Iranian revolution in 197980 and Saddam Hussein's invasion of Kuwait in 1990" (Hancock 53). The area is also vital to our allies, who would be crippled without Gulf oil, whose livelihood we are dependent on. In 1973, O.P.E.C. raised oil prices 70%. "The dominant Middle Eastern members of O.P.E.C. used succeeding price increases as a political weapon. They aimed it at Western nations in retaliation for their support of Israel against its Arab neighbors in the so-called Yom Kippur War of October 1973. They accordingly raised prices another 130% at the Tehran Conference of December 1973, and a temporary embargo was placed on the United States and the Netherlands simultaneously. "Other price increases followed in 1975, 1977, 1979, and 1980, which ultimately raised the price of a barrel of crude oil in The United States from $3.00 in 1973 to $30.00 in 1980" (Glasner 107). Almost every college student has heard stories from friends or relatives about the gas crunch in the 1970's. People waited in lines that stretched for miles, and could only get gas on certain days depending on the first letter of your last name. O.P.E.C. used the money they raised to invest in other countries, placed in foreign banks, currency markets, and to help their own economies through inner development. O.P.E.C. is also extremely interested in maximizing profits, but in such a cartel, finding a price that will maximize profits is impossible. O.P.E.C. has attempted to raise prices several times by cutting production. According to economic theory, a decrease in supply will yield higher prices. These are some of the reasons the United States must offer stability and continue to have troops in the area. They must intervene when the worlds oil and its prices are in jeopardy. Currently crude oil prices are rising due to the bombings in Saudi Arabia. "It has continued to soar, to more than $24 a barrel, up 34% from one year ago, the highest level since the 1991 Persian Gulf War" (Borenstein 49). O.P.E.C. has contributed this increase to several factors: first, the rising demand of crude oil throughout the world. Second, the tight inventories because of the belief that supplies are going to run low. Third, the current turmoil that exists in the area and fourth, the heating demands of the abnormally cold winter. These factors have already raised the prices of diesel fuel, jet fuel, and home heating oil. This is of major concern to truckers, airlines, and home heating oil companies. Because of these price increases, airline ticket prices will also increase. These are just a few of the elements that affect prices, but none of them have enough power to greatly change the prices that exist at the pumps. The demand of crude oil is always cyclical. The United States demands more gasoline in spring and summer months than in the fall or winter, due to people driving more. The current trend in vehicles has moved to larger sport utility vehicles from small economy cars of the past. These large sport utility vehicles consumes more gas and gets fewer miles per gallon. The country is constantly searching for new and more efficient forms of energy. More importantly the country is searching for means of energy that will not make Americans poorer. Another interruption of the U.S. production of oil came during the spring of 1990 when Iraq accused Kuwait and the United Arab Emirates of limiting oil production. This severely depressed world oil prices and cost Iraq billions of dollars in annual revenue. On August 2, 1990, the president of Iraq, Saddam Hussein, invaded and occupied the small Arab state of Kuwait. Hussein set afire 730 of Kuwait's oil wells that spilled giant pools of oil and killed all surrounding animal life. Even though Hussein burned and spilled Kuwait's oil, it did not directly affect the price of gasoline in the U.S. This little crisis, which is known as the Gulf War, cost Iraq countries buying their oil and wasted a valuable natural resource that could someday be gone from the earth. Recently, Saddam Hussein has threatened fuel resources again. Hussein does not approve of the United Nations investigating his private palaces for chemical warfare weapons, so he has made it even harder to buy fuel from Iraq. Supposedly he has landmines around the oil wells so no one can go near them. Several interruptions in the United States production of oil have staggered the country's production. The United States is the only major oil producing country where the land owner has owned oil producing grounds and not property of the government. This makes for inefficient drilling since one party is not completely responsible for gathering all the oil. Average productions per well are only 15 barrels per day, far less than any other oil producing countries. Alaska has the best oil producing land, but due to the land and harsh climate, it makes it hard to gather. Developing methods of transportation which slows gathering of the oil is also very expensive. "Several refineries; on the West Coast, in the East and on the Gulf Coast, have experienced operational difficulties which affected product supplies in the marketplace" (Goulder 187) It is rumored that there are supply tanks buried somewhere near the Gulf of Mexico that could support the country for 66 days if anything were to happen. The United States and other countries have been looking into alternative forms of energy to lower their dependency toward foreign oil. Money is being spent into researching solar, hydro, nuclear, and alternate forms of energy. Government regulations also create changes in gas prices. California has recently gone through price increases at the pumps due to new legislation. The state is heavily overpopulated and has the worst smog of all the states. California gas stations are changing to a cleaner gas that will cause less air pollution, but will be more expensive. The increase is approximately 1012 cents. That is the price Californians are going to have to pay for cleaner air. This is another government regulation which they aim toward the refiners of the oil. The government is putting pressure to change from their winter grades which they oxygenate, to summer grades that have lower evaporability, helping the environment. The cost to switch fuels shows up at the pumps and the public has to pay for governmental research and environmental precautions. Even with the increase in prices, the United States doesn't have it as bad as other countries. The U.S. pays an average of $1.21 per gallon of gasoline. Japan pays $5.35 per gallon, Germany pays $4.04 per gallon, The United Kingdom pays $3.38 per gallon and Mexico pays $1.55 per gallon. All four are greater than what the United States pays. Taxes are the largest component of the prices we pay at the pumps. "Taxes were the single largest component cost of gasoline, amounting to 42.4 cents per gallon, including 18.4 cents per gallon in federal taxes, 22 cents per gallon in weighted average state taxes and an estimated two cents per gallon in local taxes" (Goulder 49). The President of The United States of America, Bill Clinton, has on several occasions proposed to increase the taxes put on gas. In 1993 Clinton proposed a gas tax that raised the prices at the pumps by 7.5 cents per gallon, a 6% increase of the price. Then in 1996, Bill Clinton proposed to raise gas taxes by an additional 2.5%. Clinton wanted to raise prices 10 cents per gallon overall in his four years in office, all part of his "deficit reduction plan." Clinton's entire campaign was based around not hurting the American people with taxes, but once in the White House, he has made the record books with the highest amount of gasoline taxes ever. Taxes are so much a part of the prices we pay that "1/4in 1981 when pump prices where at an all time high of $2.27 per gallon, the taxes were just 27.7 cents per gallon. The real cost of motor gasoline to consumers fell by a dollar per gallon between 1981 and 1995, but over the same period federal, state and local motor gasoline taxes increased by nearly 15 cents per gallon" (Chandler 1). Taxes in the United states have increased an average of 15.6% in the last three years. Many factors influence the prices of gasoline. The price of crude oil affects gasoline prices in the world market, supply and demand for gasoline, local market competition, temporary supply interruptions, government regulations, or taxes. Every day new things can happen to change the prices that American consumers pay at the pumps. The United States is dependent on foreign oil and must continue to ensure stability in the Middle East, or until we have found alternate sources of energy. Taxes will continue to climb due to the rise of government control. Regulations will continue to become stricter until gasoline usage is more environmentally friendly. It looks as if gas prices will continue to fluctuate, but over time will rise. f:\12000 essays\business & economics (632)\GDP As a Measure of the Economy 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ GDP As a Measure of the Economy The GDP is not a sufficient gauge of how the nation's economy is doing. The GDP is a sum of the monetary value of what has been produced in the nation in the past year. The formula for calculating the GDP ignores a large percentage of the activities that transpire in the nation's economy. The formula ignores several things as work done in the home and activities in the underground economy. In general, the GDP includes several items that in reality do not indicate the nation's economic level while excluding a large proportion of the activities of the nation. The GDP does not include several things that greatly affect the nation's economic standings. The formula does not consider these things simply because they cannot be measured with any accuracy. The work done in the home affects the welfare of the economy because it takes time to care for a house, time that an individual could be working. So in essence, an individual pays themselves to for housework. Also, the underground economy encompasses a considerable amount of the transactions in the economy. This underground economy consists of illicit transactions and the legal ones that cannot be traced. GDP does not include the ecological damage rendered every day by humanity. The pollution caused by everyday life such as trash and the pollution caused by factories and such all damper the economic standings of a nation. While several immeasurable items are left out of the calculation of GDP, a few things are included that do not necessarily need top be. When a disaster strikes a community, the costs of rebuilding are counted in the GDP. The should be counted because it causes work for some but it also is hurting others. In summation, GDP is not a competent ranking of the nation's economic standings. In the determine of GDP, there are too many items left out of the formula and one too many to give a accurate description of the economy's well-being. f:\12000 essays\business & economics (632)\GDP As a Measure of the Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ GDP As a Measure of the Economy The GDP is not a sufficient gauge of how the nation's economy is doing. The GDP is a sum of the monetary value of what has been produced in the nation in the past year. The formula for calculating the GDP ignores a large percentage of the activities that transpire in the nation's economy. The formula ignores several things as work done in the home and activities in the underground economy. In general, the GDP includes several items that in reality do not indicate the nation's economic level while excluding a large proportion of the activities of the nation. The GDP does not include several things that greatly affect the nation's economic standings. The formula does not consider these things simply because they cannot be measured with any accuracy. The work done in the home affects the welfare of the economy because it takes time to care for a house, time that an individual could be working. So in essence, an individual pays themselves to for housework. Also, the underground economy encompasses a considerable amount of the transactions in the economy. This underground economy consists of illicit transactions and the legal ones that cannot be traced. GDP does not include the ecological damage rendered every day by humanity. The pollution caused by everyday life such as trash and the pollution caused by factories and such all damper the economic standings of a nation. While several immeasurable items are left out of the calculation of GDP, a few things are included that do not necessarily need top be. When a disaster strikes a community, the costs of rebuilding are counted in the GDP. The should be counted because it causes work for some but it also is hurting others. In summation, GDP is not a competent ranking of the nation's economic standings. In the determine of GDP, there are too many items left out of the formula and one too many to give a accurate description of the economy's well- -being. f:\12000 essays\business & economics (632)\General Motors Financial Analysis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ General Motors - Financial Ratio Analysis I. General Motors History Highlights In its early years the automobile industry consisted of hundreds of firms, each producing a few models. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that if several automobile makers would unite, it would increase the protection for the group. He formed the General Motors Company in Flint, Michigan, in 1908. Durant had bought 17 companies (including Oldsmobile, Cadillac, and Pontiac) by 1910, the year a bankers' syndicate forced him to step down. In a 1915 stock swap, he regained control through Chevrolet, a company he had formed with race car driver Louis Chevrolet. GM created the GM Acceptance Corporation (auto financing) and acquired a number of businesses, including Fisher Body, Frigidaire (sold in 1979), and a small bearing company, Hyatt Roller Bearing. With the Hyatt acquisition came Alfred Sloan, an administrative genius who would build GM into a corporate colossus. Sloan, president from 1923 to 1937, implemented a decentralized management system, now emulated worldwide. The auto maker competed by offering models ranging from luxury to economy, colors besides black, and yearly style modifications. By 1927 it had become the industry leader. GM introduced a line of front-wheel-drive compacts in 1979. Under Roger Smith, CEO from 1981 to 1990, GM laid off thousands of workers as part of a massive companywide restructuring and cost cutting program. In 1984 GM formed NUMMI with Toyota as an experiment to see if Toyota's manufacturing techniques would work in the US. The joint venture's first car was the Chevy Nova. GM bought Ross Perot's Electronic Data Systems (1984) and Hughes Aircraft (1986). In 1989 the company bought 50% of Saab Automobile. In 1990 GM launched Saturn, its first new nameplate since 1926, reflecting a new companywide emphasis on quality. Two years later it made the largest stock offering in US history, raising $2.2 billion. Culminating a period of boardroom coups (relating to the company's lagging effort to reduce costs) in the early 1990s, John Smith replaced Robert Stempel as CEO. NBC apologized in 1993 for improprieties in its expose alleging that GM pickups equipped with "sidesaddle" gas tanks tended to explode upon side impact. The government nonetheless asked the company to recall 4.7 million trucks. A unanimous federal appeals court in 1995 overturned the settlement of a national class action suit involving the pickups. That year GM sold its National Car Rental business to a group of investors led by former Chrysler executive William Lobeck. In 1996 the United Auto Workers struck at 2 GM plants in Ohio over the company's increasing its outsourcing of brake parts. The strike lasted 17 days, idling 24 of the automaker's 29 North American plants (reflecting the vulnerability of just-in-time supply chains), and ended with neither side satisfied. GM sued Volkswagen in 1996, alleging the German automaker encouraged former GM executive Ignacio Lopez to defect to Volkswagen with boxes of proprietary company information. The bitter dispute led to Lopez's resignation from Volkswagen and was resolved in early 1997 when VW agreed to pay GM $100 million and purchase $1 billion of parts from GM over 7 years. In 1996 GM spun off EDS (with a market value of $27 billion) to shareholders. Also that year GM agreed to sell 4 of its parts plants to Peregrine Inc. (formed by investment firm Joseph Littlejohn & Levy) for an undisclosed amount. In late 1996 GM began producing Chevrolet Blazers in Russia. II. General Information Competitors BMW, British Aerospace, Chrysler, Daimler-Benz, Fiat, Ford, Honda, Hyundai, Kia, Motors, Mazda, Mitsubishi, Nissan, PSA Peugeot Citroen, Renault, Suzuki, Toyota, Volkswagen and Volvo. Nameplates Buick, Cadillac, Chevrolet, Geo, GMC, Oldsmobile, Opel/Vauxhall, Pontiac and Saturn. Other Operations Delphi Automotive Systems (vehicle components) General Motors Acceptance Corporation (financing and insurance) Hughes Electronics Corporation (electronic systems) International Operations (autos for foreign markets) North American Operations (autos for North America) III. Statistics & Financial Summary Products/Services 1995 Sales $ mil. % of total Manufactured products 143,666 85 Financial services 11,664 7 Computer systems services 8,531 5 Other 4,968 3 Total 168,829 100 1995 Vehicle Unit Deliveries No. (000's) % of total US 4,895 59 Europe 1,725 21 Latin America, Africa & the Middle East 647 8 Asia & Pacific 624 7 Canada 385 5 Mexico 48 0 Total 8,324 100 Financial 1993 1994 1995 Sales ($ mil.) 133,622 150,592 163,861 Net income ($ mil.) 2,466 5,659 6,933 Income as % of sales 1.8% 3.8% 4.2% Earnings per share ($) 2.13 6.20 7.28 Stock price - high ($) 57.13 65.38 53.13 Stock price - low ($) 32.00 36.13 37.25 Stock price - close ($) 54.88 42.13 52.88 P/E - high 27 11 7 P/E - low 15 6 5 Dividends per share ($) 0.80 0.80 1.10 Book value per share ($) 5.28 11.64 18.05 Employees 750,000 692,800 709,000 1995 Year End * Debt ratio: 61.1% * Return on equity: 29.7% * Cash ($ mil.): 11,044 * Current ratio: 1.70 * Long-term debt ($ mil.): 36,675 * No. of shares (mil.): 753 * Dividend yield: 2.1% * Dividend pay out: 15.1% * Market value ($ mil.): 39,819 IV. Financial Ratios Ratio 95 94 93 Formula LIQUIDITY Net Working Capital (000's) 8,730 11,805 1,415 Current Assets - Current Liabilities Current Ratio 1.13 1.19 1.01 Current Assets / Current Liabilities Quick Ratio 0.92 0.99 0.91 (Current Assets - Inventory) / Current Liabilities ACTIVITY Inventory Turnover 9.04 9.45 12.35 Cost of Goods Sold / Inventory Average Collection Period 48.69 46.91 52.94 Accounts Receivable / Avg Sales Per Day Average Payment Period N/A N/A N/A Fixed Asset Turnover 2.50 2.75 3.90 Sales / Net Fixed Assets Total Asset Turnover 0.83 0.84 0.79 Sales / Total Assets DEBT Debt Ratio 0.88 0.92 0.96 Total Liabilities / Total Assets Debt Equity Ratio 1.59 2.97 6.16 Long Term Debt / Stock Holders Equity Times Interest Earned Ratio 1.78 1.49 0.48 Earnings before interest & Taxes / Interest Fixed Payment Coverage Ratio N/A N/A N/A PROFITABILITY Gross Profit Margin 0.25 0.22 0.20 (Sales - Cost of Goods Sold) / Sales Operating Profit Margin 0.07 0.07 0.04 Operating Profits / Sales Net Profit Margin 0.04 0.03 0.02 Net Profits After Taxes / Total Assets Return on Total Assets (ROA) 0.03 0.03 0.01 Net Profits After Taxes / Stockholders Equity Return on Equity (ROE) 0.29 0.38 0.44 Net Profits after Taxes / Stockholders Equity Earnings per Share 7.21 5.15 2.13 Market Price P/ Share of Common Stock / EPS Price/Earnings Ratio (P/E) N/A N/A N/A Note : Financial Statements are attached V. Ratio Analysis Liquidity General Motors overall liquidity has decreased when compared to 1994, but is still at a much higher level when compared to 1993. Their net working capital has increased 516% compared to 1993. Their ability to meet short term obligations is also higher than 1993 by 12 basis points, but is lower than 1994 mainly because their current liabilities increased in a higher pace than their current assets. The Quick Ratio otherwise did not follow the same trend as the previous ratios, where the difference to 1993 is of only 1 basis point. The difference here is mainly because of the higher amount in inventories that may indicate an increase in inventory prices or volume. Activity The inventory liquidity has been declining for the last two years, while the cost of goods sold increased during the same period. This trend indicates that the inventory cost or volume has increased. The accounts receivable has improved when compared to 1993, where it decreased from 53 to 49 days. The fixed asset turnover has decreased from 3.90 in 1993 to 2.50 in 1995, which may indicate a higher investment in fixed assets which are not being maximized in productivity. The Total Asset Turnover has been improving for the last two years because of the better management of current assets.. Debt The Debt Ratio has decreased for the last two years going from 0.96 to 0.88 mainly due to the reduction of the total liabilities, indicating that the level of creditor financing has improved. The stock holders equity has increased dramatically indicating the better management of the companies equity. The EBIT has improved for the last two year mainly because the level of interest paid has decreased due to the reduction of liabilities. Profitability The Gross Profit Margin has increased from 1993 to 1994 as the cost of goods sold did not increase at the same level that the sales increased. The Operating Profit Margin ratio was stable in 1995 when compared to 1994 and the Net Profit Margin has also been improving for the last two years. The Return on Total Assets has increased due the increase in the companies profitability, while Return on Equity has decreased on the last two years as the stockholders equity increased Overall It is clear that the profitability of the company has been increasing for the last 2 years, mainly due to the decrease in liabilities, improvement in accounts receivable and better management of the company debt.. The company also demonstrates that the profitability can be improved even further by having better inventory management and productivity maximization on their fixed assets. ATTACHEMENTS Financial Statements (America On Line) Last Quote (America On Line) Stock Graph (2 Years - America On Line) f:\12000 essays\business & economics (632)\General Motors.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ General Motors - Financial Ratio Analysis I. General Motors History Highlights In its early years the automobile industry consisted of hundreds of firms, each producing a few models. William Durant, who bought and reorganized a failing Buick Motors in 1904, determined that if several automobile makers would unite, it would increase the protection for the group. He formed the General Motors Company in Flint, Michigan, in 1908. Durant had bought 17 companies (including Oldsmobile, Cadillac, and Pontiac) by 1910, the year a bankers' syndicate forced him to step down. In a 1915 stock swap, he regained control through Chevrolet, a company he had formed with race car driver Louis Chevrolet. GM created the GM Acceptance Corporation (auto financing) and acquired a number of businesses, including Fisher Body, Frigidaire (sold in 1979), and a small bearing company, Hyatt Roller Bearing. With the Hyatt acquisition came Alfred Sloan, an administrative genius who would build GM into a corporate colossus. Sloan, president from 1923 to 1937, implemented a decentralized management system, now emulated worldwide. The auto maker competed by offering models ranging from luxury to economy, colors besides black, and yearly style modifications. By 1927 it had become the industry leader. GM introduced a line of front-wheel-drive compacts in 1979. Under Roger Smith, CEO from 1981 to 1990, GM laid off thousands of workers as part of a massive companywide restructuring and cost cutting program. In 1984 GM formed NUMMI with Toyota as an experiment to see if Toyota's manufacturing techniques would work in the US. The joint venture's first car was the Chevy Nova. GM bought Ross Perot's Electronic Data Systems (1984) and Hughes Aircraft (1986). In 1989 the company bought 50% of Saab Automobile. In 1990 GM launched Saturn, its first new nameplate since 1926, reflecting a new companywide emphasis on quality. Two years later it made the largest stock offering in US history, raising $2.2 billion. Culminating a period of boardroom coups (relating to the company's lagging effort to reduce costs) in the early 1990s, John Smith replaced Robert Stempel as CEO. NBC apologized in 1993 for improprieties in its expose alleging that GM pickups equipped with "sidesaddle" gas tanks tended to explode upon side impact. The government nonetheless asked the company to recall 4.7 million trucks. A unanimous federal appeals court in 1995 overturned the settlement of a national class action suit involving the pickups. That year GM sold its National Car Rental business to a group of investors led by former Chrysler executive William Lobeck. In 1996 the United Auto Workers struck at 2 GM plants in Ohio over the company's increasing its outsourcing of brake parts. The strike lasted 17 days, idling 24 of the automaker's 29 North American plants (reflecting the vulnerability of just-in-time supply chains), and ended with neither side satisfied. GM sued Volkswagen in 1996, alleging the German automaker encouraged former GM executive Ignacio Lopez to defect to Volkswagen with boxes of proprietary company information. The bitter dispute led to Lopez's resignation from Volkswagen and was resolved in early 1997 when VW agreed to pay GM $100 million and purchase $1 billion of parts from GM over 7 years. In 1996 GM spun off EDS (with a market value of $27 billion) to shareholders. Also that year GM agreed to sell 4 of its parts plants to Peregrine Inc. (formed by investment firm Joseph Littlejohn & Levy) for an undisclosed amount. In late 1996 GM began producing Chevrolet Blazers in Russia. II. General Information Competitors BMW, British Aerospace, Chrysler, Daimler-Benz, Fiat, Ford, Honda, Hyundai, Kia, Motors, Mazda, Mitsubishi, Nissan, PSA Peugeot Citroen, Renault, Suzuki, Toyota, Volkswagen and Volvo. Nameplates Buick, Cadillac, Chevrolet, Geo, GMC, Oldsmobile, Opel/Vauxhall, Pontiac and Saturn. Other Operations Delphi Automotive Systems (vehicle components) General Motors Acceptance Corporation (financing and insurance) Hughes Electronics Corporation (electronic systems) International Operations (autos for foreign markets) North American Operations (autos for North America) III. Statistics & Financial Summary Products/Services 1995 Sales $ mil. % of total Manufactured products 143,666 85 Financial services 11,664 7 Computer systems services 8,531 5 Other 4,968 3 Total 168,829 100 1995 Vehicle Unit Deliveries No. (000's) % of total US 4,895 59 Europe 1,725 21 Latin America, Africa & the Middle East 647 8 Asia & Pacific 624 7 Canada 385 5 Mexico 48 0 Total 8,324 100 Financial 1993 1994 1995 Sales ($ mil.) 133,622 150,592 163,861 Net income ($ mil.) 2,466 5,659 6,933 Income as % of sales 1.8% 3.8% 4.2% Earnings per share ($) 2.13 6.20 7.28 Stock price - high ($) 57.13 65.38 53.13 Stock price - low ($) 32.00 36.13 37.25 Stock price - close ($) 54.88 42.13 52.88 P/E - high 27 11 7 P/E - low 15 6 5 Dividends per share ($) 0.80 0.80 1.10 Book value per share ($) 5.28 11.64 18.05 Employees 750,000 692,800 709,000 1995 Year End * Debt ratio: 61.1% * Return on equity: 29.7% * Cash ($ mil.): 11,044 * Current ratio: 1.70 * Long-term debt ($ mil.): 36,675 * No. of shares (mil.): 753 * Dividend yield: 2.1% * Dividend pay out: 15.1% * Market value ($ mil.): 39,819 IV. Financial Ratios Ratio 95 94 93 Formula LIQUIDITY Net Working Capital (000's) 8,730 11,805 1,415 Current Assets - Current Liabilities Current Ratio 1.13 1.19 1.01 Current Assets / Current Liabilities Quick Ratio 0.92 0.99 0.91 (Current Assets - Inventory) / Current Liabilities ACTIVITY Inventory Turnover 9.04 9.45 12.35 Cost of Goods Sold / Inventory Average Collection Period 48.69 46.91 52.94 Accounts Receivable / Avg Sales Per Day Average Payment Period N/A N/A N/A Fixed Asset Turnover 2.50 2.75 3.90 Sales / Net Fixed Assets Total Asset Turnover 0.83 0.84 0.79 Sales / Total Assets DEBT Debt Ratio 0.88 0.92 0.96 Total Liabilities / Total Assets Debt Equity Ratio 1.59 2.97 6.16 Long Term Debt / Stock Holders Equity Times Interest Earned Ratio 1.78 1.49 0.48 Earnings before interest & Taxes / Interest Fixed Payment Coverage Ratio N/A N/A N/A PROFITABILITY Gross Profit Margin 0.25 0.22 0.20 (Sales - Cost of Goods Sold) / Sales Operating Profit Margin 0.07 0.07 0.04 Operating Profits / Sales Net Profit Margin 0.04 0.03 0.02 Net Profits After Taxes / Total Assets Return on Total Assets (ROA) 0.03 0.03 0.01 Net Profits After Taxes / Stockholders Equity Return on Equity (ROE) 0.29 0.38 0.44 Net Profits after Taxes / Stockholders Equity Earnings per Share 7.21 5.15 2.13 Market Price P/ Share of Common Stock / EPS Price/Earnings Ratio (P/E) N/A N/A N/A Note : Financial Statements are attached V. Ratio Analysis Liquidity General Motors overall liquidity has decreased when compared to 1994, but is still at a much higher level when compared to 1993. Their net working capital has increased 516% compared to 1993. Their ability to meet short term obligations is also higher than 1993 by 12 basis points, but is lower than 1994 mainly because their current liabilities increased in a higher pace than their current assets. The Quick Ratio otherwise did not follow the same trend as the previous ratios, where the difference to 1993 is of only 1 basis point. The difference here is mainly because of the higher amount in inventories that may indicate an increase in inventory prices or volume. Activity The inventory liquidity has been declining for the last two years, while the cost of goods sold increased during the same period. This trend indicates that the inventory cost or volume has increased. The accounts receivable has improved when compared to 1993, where it decreased from 53 to 49 days. The fixed asset turnover has decreased from 3.90 in 1993 to 2.50 in 1995, which may indicate a higher investment in fixed assets which are not being maximized in productivity. The Total Asset Turnover has been improving for the last two years because of the better management of current assets.. Debt The Debt Ratio has decreased for the last two years going from 0.96 to 0.88 mainly due to the reduction of the total liabilities, indicating that the level of creditor financing has improved. The stock holders equity has increased dramatically indicating the better management of the companies equity. The EBIT has improved for the last two year mainly because the level of interest paid has decreased due to the reduction of liabilities. Profitability The Gross Profit Margin has increased from 1993 to 1994 as the cost of goods sold did not increase at the same level that the sales increased. The Operating Profit Margin ratio was stable in 1995 when compared to 1994 and the Net Profit Margin has also been improving for the last two years. The Return on Total Assets has increased due the increase in the companies profitability, while Return on Equity has decreased on the last two years as the stockholders equity increased Overall It is clear that the profitability of the company has been increasing for the last 2 years, mainly due to the decrease in liabilities, improvement in accounts receivable and better management of the company debt.. The company also demonstrates that the profitability can be improved even further by having better inventory management and productivity maximization on their fixed assets. ATTACHEMENTS Financial Statements (America On Line) Last Quote (America On Line) Stock Graph (2 Years - America On Line) f:\12000 essays\business & economics (632)\germany 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ On October 3, 1990, the states of the German Democratic Republic (East Germany) shed their last ties to their Soviet created structure and joined the Federal Republic of Germany (West Germany). The 23rd article of West Germany's 1949 constitution, the Basic Law, had been drafted specifically to allow for such an arrival from the East. But as the 1980s drew to a close, few Germans on either side of the border expected it to be used in their lifetime. Yet, in less than a year the beginning of an upsurge of popular protest came together against the communist regime in East Germany and the formal unification of Germany on West German terms. At a simple level, the constitution may be seen as a representation of the traditional German desire for clarity and order, applied to the rights and duties of the individual. It can also be described as a way of ensuring that the events of the 1930s, particularly the rise of facism and dictatorship, will never recur. As a result of historical roots in West Germany and past abuses by central government, Germany is a federation. The powers of the states cannot be reduced. Each of the federal states and Berlin has its own constitution, a democratically elected Parliament, a government, administrative agencies and independant courts. However, states are binding to the federal constitution, the federal constitution is binding upon the states and the federal parliament is responsible for major legislation and policy. The state parliaments main responsibility is in two major policy areas: education, and law and order. Administration of federal legislation is mainly the responsibility of the states, allowing for greater consideration of local needs and issues. This system of government ia also intended to bring government closer to the people. In many cases, state powers are delegated further to local authorities. A further area of responsibility for the states arives from the parliamentary structure. The legislative body is the Bundestag, but the Bundesrat (anupper house representing )the states must approve most legislation. Each state has between three and five votes in the Bundesrat, depending on the size of its population. Members of the Bundesrat are appointed by the state governments for their duration within the state government. Since state elections are held continually during the term of federal parliament, the members of the upper house may alter during the life of a federal government. The approval of the Bundesrat is required for certain types of legislation, Particularly the budget and those affecting the states. Differences are usually overcome by a joint committee from the two houses. The lower house, or the Bundestag, consists of a minimum of 656 deputies. The Bundestag has a speaker, or president, usually elected from among the largest parliamentary group. It has three main tasks: to act as the legislative body, to elect the federal chancellor, and to control government activity. Any changes to the Basic Law requires a two-thirds majority in both houses of parliament. Thus the opposition parties can prevent amendments to the constitution through their representation in either the Bundestag or Bundesrat. The electoral system, finalized in 1956, is designed to both provide a government representing the wishes of the people and proportional representation. Candidates are elected by a majority vote in 328 constituencies of roughly equal size. Each state is allocated a quota of MPs for each party, derived from the second, or party vote. The difference between these numbers and the numbers of directly elected representatives is then made up from party lists. A party can win more seats on the directly elected segment of the vote than the number given by the party list results, in which event the size of the lower house is enlarged. This provision was used in 1990, with the addition of six seats. To prevent fragmentation, a party must secure either three direct mandates or 5% of the total vote to be represented in parliament. This results in a barrier to the development of new parties, which must fullfill the 5% criteria without the help of representation in parliament. Also, when the practice of vacancies exist in parliament the positions are filled from the party list of the previous election rather than by a by-election, hampering new or small party formation. In the 1990 elections the small, and largely new, East German parties were allowed, for on time only, to form umbrella groups, side-stepping this constraint. However, state elections occur almost always once a year allowing parties to try and gain representation in a state parliament, often by concentrating their efforts. The lower house is elected for a fixed term of four years and early elections may only be called in specific circumstances. The chancellor (head of government) is elected by the Bundestag on the proposal of the federal president. In practice each of the main parties announces its chancellor candidate before the election, making the task of the president somewhat of a formality. Once elected, the chancellor nominates his or her cabinet for presidential approval, but is still personally responsible to parliament. Individual ministers cannot initiate a vote of no-confidence. A government can only be voted out if the opposition can establish a majority for what is known as a constructive vote of no confidence. In other words, the opposition must be able to provide a working majority in favour of a new government. This occurred in late 1982, when the small Free Democrat Party changed itsfollowing from the ruling Social Democrats to the Christian Democrats, enabling the Christian Democrats to form a coalition. The ability of a government to resign in order to call early elections is also restricted to cirtain circumstances. When the new government of the Christian Democrats and Free Democrats formed after the events of 1982 they decided early elections would be appropriate. However, this decision was forced to be brought up before the constitutional court, and only because it was the parties only tactic was it allowed. Although the federal president performs some of the usual formal functions of a head of state, including signing treaties and following the procedures for appointing the chancellor, the role is basically ceremonial. All presidential orders require the counter-signature of the chancellor or relevant minister. This obligation is concerned with the alleviating a number of the problems which arose under Germany's constitution of 1919 which gave the president too much power and not enough to the parliament. The president is elected for a five-year term by the full Bundestag and an equal number of delegates from state parliaments. In the past the election has usually been a formality. Richard von Weizsacker, formerly Christian Democrat mayor of West Berlin, was elected president in 1984 and re-elected in 1989. His second, and final, term comes to an end in May 1994. Although usually a former politician, the president is expected to stand above party politics. In the summer of 1989 the German Bundestag passed the so-called Stage one Postal Reform which came into effect on January 1, 1990. The reforms included a division between jurisdictional and regulatory functions and entrepreneurial functions. The reform also resulted in associated business sectors making up telecommunications, postal services and postal banking. The aim of these reforms was to allow for more competition, hoping this would lead to more innovation and development in the telecommunication sector. The reforms represented to many in Europe a tremendous liberalization of the German telecommunications market. Under the new structure, the Telekom branch of Deutsche Bundespost (DBT) was granted a network monopoly. All other sectors of the telecommunications market, including mobile and satelite communications, which both legally belong to the monopoly were liberalized. Gradually, licences were sold to private enterprises in these small and limiting areas of the monopoly. Within the framework of its economic capabilities, Telekom is legally bound to provide both the infrastructure and the infrastructure services. As the new Telecommunication structure was being omplemented the unification of Germany began, delaying the objectives of the postal reform. Many Ministers used the successfull expansion of Telekom as a means of recognition, while postponing a rapid seperation of the political and entrepreneurial functions. At the beginning of 1990 Telekom had only just started changing from a public administration to an undertaking based on entrepreneurial based organization. Telekoms actions during and immediately following unification were still largely focused on the objectives and procedures of the old Germany. Therefore, there has been no real debate between Telekom and the Federal Minister of Posts and Telecommunications (BMPT) on what gudelines Telekom should follow when investing in the new federal states of the East. Telekomfrom must decide whether it should follow its original political standpoint or its new entrepreneurial approach, or whether the two even differ. Such a judgement is not only desirable, but necessary to determine where the responsibilities of Telekom lie. In principle, the regulatory political and organizational structure set upvalid in the Western German telecommunications sector was also binding in the new federal states of the East on October3, 1990. This was decided even though the conditions were very different in the former GDR due to the poor state of development of telecommunications.The rapid installation of a basic infrastructure was the priority in the East, while the emphasis in the West was promoting network and service innovations. Nevertheless the BMPT did little after unification to change the regulatory political framework in this sectorregarding the circumstances existing in Eastern Germany. The monopoly on terminal equipment which had been abandoned in the middle of 1990 in Western Germany was maintained in Eastern Germany until the end of 1991. The ban on private agencies offering satelite communication services was eased in mid-1990. At first, certain conditions were attached to issuing these special permits, but they were lifted in March 1991. These exceptions to the voice telephone service monopoly are limited until 1997, and have not had any major influence on accelerating the expansion of the telecommunication service offered. Only a few private satellite service firms have offered appropriate services as a result. In connection with the rapid improvements in the possibilities for East-West communication, considerations of cost and quality control have created the major obstacle to a larger range of services offered by private investors. In June 1991 the BMPT also extended the licence of Mannesmann Mobilfunk, the second cellular mobile radio operator chosen for Western Germany in December 1989, to cover the whole of Germany. At the same time it ordered that Mannesmann was to provide access to the D2 network for 90% of the population and 75% of the area in the new states in the East by the end of 1994. The two mobile telephone networks in the 900 MHz band, D2 and D1, which were in the process of being developed just after the political turning point, were in well suited to providing a considerable expansion in the services offered in Eastern Germany. With respect to the problems encountered by the federal government in financing German unification, a special contribution to the federal treasury of approximately DM 3 billion was imposed on Telekom. The BMPT was able to save Telekom and its customers from a greater financial burden that had originally been planned. In reality, however, this special contribution imposes an additional financial burden on Telekom and makes the telecommunication services it offers in Germany more expensive. After the fall of the Berlin Wall and of the Communist regime at the turn of 1989-90, it was not to clear if the developments would end in a rapid unification of the two Germanies. Only months before the summer of 1990, when Germany was to be officially united, a many decisions were taken in East and West Germany that greatly affected the German telecommunication sector. Immediately following the political turning point, as early as the beginning of 1990, joint committees were set up between the BMPT and the GDR ministry responsible, and between DBT Telekom in the West and Deutsche Post Telekom in the East. The main purpose of the committees was to ensure the rapid development of the telecommunications infrastructure in the GDR and guide a compatible merger of the two organizations' regulatory bodies. By March of 1990 (long before German unification had been decided) the two business enterprises had completed the Telekom 2000 program to develop infrastructure in the GDR, allowing Deutsche Post Telekom to start on the expansion of infrastructure in the GDR with the financial support from DBT Telekom. During the period of the political turning point the forces supporting German unification gained the upper hand at an early stage within the post and telecommunication sector of the GDR. They stematically reorganized structures inside the GDR telecommunication sector with this in mind. They anticipated Western German restructuring by seperating the GDR Post Ministry from Deutsche Post and by splitting up the business underytaking into three divisions. These same forces also prevented different regulatory political structures from developing during these hectic months. It is a fact that foreign network operators are known to have made offers to the GDR Minister of Posts during this time, and for a short period the minister actually did consider licensing a further (third) digital cellular mobile radio network operator in the GDR. However, it was decided that ensuring optimum conditions for the smooth union of telecommunications branches in East and West was their priority. Their strategy was to achieve this by creating regulatory political by creating regulatory political and organizational structures which were as uniform as possible. For this reason the sectoral structures of the Western German telecommunication sector were adopted in the new states of the East with practically no modification. In this respect, developments in the telecommunication sector following the political turning point do not differ from developments in other branches of society, such as the sciences, the health service and others. It is debated whether the structures introduced by the postal reform were really suited to the rapid developments in telecommunications in Eastern Germany, or whether it might not have been better to choose a regulatory political structure that better matched the situation they faced. With a few exceptions, no such discussions were ever undertaken. Because of the unexpected speed with which of German unification took place, and the enormous public pressure for immediate noticeable improvements in the industry, it was common to spend hours of unsuccessful attempts to dial numbers in East-West communication. Frequencies would have been available in the 1800 MHz band. However, this idea was not pursued any further. Presumably the lack of any standardization of DCS 1800 at this time and respect for the financial stability of DBT Telekom, which had just launched a DM 60 billion expansion program for the new federal states in the East, played a major role in this respect. The new federal states continued to play a role with the later licensing of a private E1 network operator on the basis of DCS1800 in the spring of 1993, insofar as E-Plus has undertaken to start developing its network in the East. Also in the autumn and winter of 1990, the Monopolkommission (Monopolies Commission) entered the debate, issuing a statement backed by a report advocating a competitive market, or at least strengthening the competitive elements, in the process of developing infrastructure in the East. None of these ideas were followed up, all mainly because of the belief that no real dramatic change in developments could be expected from such a major change in regulatory policy. Development of private investment in the new federal states of Eastern Germany could best be described as hesitant. Companies were largely skeptical of the industry structure.Because of Telekoms merger with Deutsche Post and its ownership of existing buildings and land it was only minimally affected by the problems of ownership to private companies and administrative procedures. The primary objective of all development was to improve the telecommunications infrastructure as soon as possible. Telecommunications was seen as playing a leading role in the process of economic recovery and its significance for the growing together of East and West. There was not enough time for additional basic experimentation, either on the political or on the technological level. Another important political objective behind the process of unification, was the intention of creating a uniform standard of living in the East and West. The importance of this objective and of its implications within the political process has an enormous influence on overall economic developments in Eastern Germany and the telecommunication sector. In view of the huge excess demand for telephone connections and telecommunication services, there were economic arguments in favor of a sharp increase in tariffs above those in the West. However, such a policy could never have been implemented at the political level. Telephone tariffs in the East were brought in line with those in the West as soon as was technically possible, regardless of the different conditions in Eastern and Western Germany. Uniform charges were considered politically to be more important than an economically efficient distribution of the short supply of telephone connections. Like in many other economic sectors, goals of economic efficiency have lost out to of just distribution when fixing telephone tarriffs in the new states in the East. As a public service, the West German telecommunications system is run by the federal counties. The legal basis of this state monopoly is found in Article 87 of West German basic law, which states that the West German PTT has to be conducted by a direct federal administration with its lower level of administrative offices. The right of legislation on postal and telecommunication matters falls exclusively on the federal county, according to Article 73 of the basic law. The federal minister for postal and telecommunication services is the head of the West German PTT. According to Article 65 of West German basic law the federal minister for postal and telecommunication services, shall conduct the affairs of the West German PTT autonomously and on his own responsibility. Telecommunication policy formation as well as the management of administration is the responsability of the federal minister for postal and telecommunication services,. However, his power is is restricted and controlled by the Postal Administration Council (Para 1, Art 1 of the postal administration law). The members include the West German Bundestag, the West German Bundesrat and representatives of the different areas of the economy as well as seven members of the West German PTT trade union, the Deutsche Postgewerkschaft (DPG), and experts from the fields of broadcasting and finance (Para 5, Art 2). All 24 members of the Postal Administration Council are appointed by their national councils or by the minister for postal and telecommunication services (expert from the field of broadcasting) and the minister for finance (expert from the field of finance). According to Para 12 of the postal administration law, the council decides on the budget of the West German PTT. Further executive rights extend to conditions on the use of postal and telecomunication systems, including pricing (ara 12, Art 4), decisions on the field of activities (Para 12, Art 5), as well as changes in the technical telecommunication infrastructure (Para 12, Art 6). As an important control body, the Postal Administration Council has to approve all regulations proposed by the federal minister for postal and telecommunication services.However, the minister for postal and telecommunication services has the power to annul decisions of the postal administration council (Para 13, Art 1,2). Despite this kind of veto right, the federal government as well as the Bundestag have no direct control over the West German policies of telecommunication. Yet the West German PTT is obliged to respect the principles of the politics of West Germany, according to Para 2, Art 1 of the postal administration law. However, the principles defined by the federal government are so vague that they cannot properly act as a stern basis for engaging in telecommunication policies. The influence of the Bundestag is even weaker since the budget of the West German PTT forms a special fund (Para 3, Art 1 of the postal administration law), over which the West German PTT exercises its own budgetary rights. The influence of parliament is only by the participation of members of parliament in the postal administration council as well as in political positions in the federal postal and telecommunication administration. The result is that West German telecommunication policy is designed and implemented around the postal administration council and the postal administration. In spite of occasional accusations of opportunism aimed at the postal administration council, it's believable that the post administration has adjusted itself to the potential compromises in the council. This can be backed up by the strong clashes in the council, and by that overruling the postal administration council too often would likely lead to harmful campaigns against the council. The development of the telecommunication infrastructure within this political and institutional framework became more and more criticized in the 1970s. Finally it caused the demand for reform within the institutional and political framework. The origins of the criticism came from the rapid technological developments of the 1960s and 1970s. Spectacular developments in the realms of microelectronics and transmission technology as well as the continuing digitalization made merging telecommunication and data-processing possible. This resulted in new quantitative and qualitative demands on the telecommunication infrastructure. According to critics, the West German PTT, by not allowing competition, had not been in a position to complete these demands. This criticism, mainly forwarded by the Liberal Democratic Party, was mostly concerned with the international competitiveness of West Germany. Further demands for the opening of markets were created by those countries which have already deregulated their telecommunication systems, for example the UK, USA, and Japan. Germany has eight main political paries: Christian Democratic Union (CDU), Christian Social Union (CSU), Free Democrat Party (FDP), Social Democrat Party (SDP), The Greens, The Party of Democratic Socialism (PDS), The Republicans, and the Deutsche Volksunion. Christian Democratic Union The CDU, combining Catholics abd Protestants, has been the most important single party in the development of post-war Germany. Its foreign policy was forged by Konrad Adenauer and is based on the Atlantic alliance. Although it also accepted the opening to the east initiated in the late 1960s and early 1970s by Willy Brandt and it is currently concerned with stability in post-communist Eastern Europe. Its leader, Helmut Kohl, has been chancellor since 1982 and still exercises a powerful personal control over the party. The CDU's domestic policy is based on the concept of the social market as developed by Ludwig Erhard in the 1950s. Christian Social Union The CSU is a sister party of the CDU. It is Catholic and operates only in Bavaria where it is not challenged by the CDU. Under the leadership of the late Franz Josef Strauss, it was more openly assertive in the pursuance of German interests than the CDU. Its present leader is the finance minister, Theo Waigel. Howevere, Edmund Stoiber, the prime minister of Bavaria, as a more aggressive politician in the tradition of Franz Josef Strauss, is equally important. Free Democrat Party The free democrats are basically a liberal party in the European rather than the American sense; they believe in limiting government interference in all walks of life, including both questions like divorce and abortion, and the economy. On the latter they are generally to the right of the CDU. However, the FDP's most dominant personality in the second half of the 1970s, and until his resignation in 1992, was Hans-Dietrich Genscher, who made his name as foreign minister. The present leader, Klaus Kinkel, is also foreign minister. Social Democrat Party Once Marxist (though always democratic), the Social Democrats established a programme of pragmatic reform known as the Bad Godesberg program at the end of the 1950s. This paved the way for Helmut Schmidt, two of Germany's most influential post-war politicians. The difference between their economic philosophy and the Christian Democrats' social market is not fundamental. At present, however, the SPD believes the CDU has failed to face up to the need to pay for unification, and advocates higher taxes, especially on the better off. The SPD's foreign policy has always emphasized openings to the east, but not at the expense of the Atlantic alliance or the EU. There is a strong pacifist element which currently opposes any German military activity outside Germany, including participation in UN peacekeeping operations; however, it should be said that there are pacifists in all major parties. The Greens The Greens had a major influence on German policies of all major parties during the 1980s, having surmounted the 5% threshold needed to be represented in parliament in the 1983 elections. However, in December 1990 they just failed to meet this threshold in western Germany, partly because of an internal division between realists and purists. They are represented in the Bundestag because in eastern Germany, where a seperate threshold was provided, they won more than 5% in alliance with Bundnis 90, a group of protest parties from the former East Germany. They also participate in governing coalitions in some state parliaments. The Party of Democratic Socialism This is the former SED or ruling party of East Germany. Under a moderate leader, Gregor Gysi, who was never closely associated with the Honecker regime, it has attracted the support of some of those who have lost their jobs or homes as a result of unification. The Republicans and Deutsche Volksunion The Republicans and Deutsche Volksunion represent nationalist forces on the far right of German politics. They have played on the immigration issue. f:\12000 essays\business & economics (632)\Germany.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Germany On October 3, 1990, the states of the German Democratic Republic (East Germany) shed their last ties to their Soviet created structure and joined the Federal Republic of Germany (West Germany). The 23rd article of West Germany's 1949 constitution, the Basic Law, had been drafted specifically to allow for such an arrival from the East. But as the 1980s drew to a close, few Germans on either side of the border expected it to be used in their lifetime. Yet, in less than a year the beginning of an upsurge of popular protest came together against the communist regime in East Germany and the formal unification of Germany on West German terms. At a simple level, the constitution may be seen as a representation of the traditional German desire for clarity and order, applied to the rights and duties of the individual. It can also be described as a way of ensuring that the events of the 1930s, particularly the rise of facism and dictatorship, will never recur. As a result of historical roots in West Germany and past abuses by central government, Germany is a federation. The powers of the states cannot be reduced. Each of the federal states and Berlin has its own constitution, a democratically elected Parliament, a government, administrative agencies and independant courts. However, states are binding to the federal constitution, the federal constitution is binding upon the states and the federal parliament is responsible for major legislation and policy. The state parliaments main responsibility is in two major policy areas: education, and law and order. Administration of federal legislation is mainly the responsibility of the states, allowing for greater consideration of local needs and issues. This system of government ia also intended to bring government closer to the people. In many cases, state powers are delegated further to local authorities. A further area of responsibility for the states arives from the parliamentary structure. The legislative body is the Bundestag, but the Bundesrat (anupper house representing )the states must approve most legislation. Each state has between three and five votes in the Bundesrat, depending on the size of its population. Members of the Bundesrat are appointed by the state governments for their duration within the state government. Since state elections are held continually during the term of federal parliament, the members of the upper house may alter during the life of a federal government. The approval of the Bundesrat is required for certain types of legislation, Particularly the budget and those affecting the states. Differences are usually overcome by a joint committee from the two houses. The lower house, or the Bundestag, consists of a minimum of 656 deputies. The Bundestag has a speaker, or president, usually elected from among the largest parliamentary group. It has three main tasks: to act as the legislative body, to elect the federal chancellor, and to control government activity. Any changes to the Basic Law requires a two-thirds majority in both houses of parliament. Thus the opposition parties can prevent amendments to the constitution through their representation in either the Bundestag or Bundesrat. The electoral system, finalized in 1956, is designed to both provide a government representing the wishes of the people and proportional representation. Candidates are elected by a majority vote in 328 constituencies of roughly equal size. Each state is allocated a quota of MPs for each party, derived from the second, or party vote. The difference between these numbers and the numbers of directly elected representatives is then made up from party lists. A party can win more seats on the directly elected segment of the vote than the number given by the party list results, in which event the size of the lower house is enlarged. This provision was used in 1990, with the addition of six seats. To prevent fragmentation, a party must secure either three direct mandates or 5% of the total vote to be represented in parliament. This results in a barrier to the development of new parties, which must fullfill the 5% criteria without the help of representation in parliament. Also, when the practice of vacancies exist in parliament the positions are filled from the party list of the previous election rather than by a by-election, hampering new or small party formation. In the 1990 elections the small, and largely new, East German parties were allowed, for on time only, to form umbrella groups, side- stepping this constraint. However, state elections occur almost always once a year allowing parties to try and gain representation in a state parliament, often by concentrating their efforts. The lower house is elected for a fixed term of four years and early elections may only be called in specific circumstances. The chancellor (head of government) is elected by the Bundestag on the proposal of the federal president. In practice each of the main parties announces its chancellor candidate before the election, making the task of the president somewhat of a formality. Once elected, the chancellor nominates his or her cabinet for presidential approval, but is still personally responsible to parliament. Individual ministers cannot initiate a vote of no-confidence. A government can only be voted out if the opposition can establish a majority for what is known as a constructive vote of no confidence. In other words, the opposition must be able to provide a working majority in favour of a new government. This occurred in late 1982, when the small Free Democrat Party changed itsfollowing from the ruling Social Democrats to the Christian Democrats, enabling the Christian Democrats to form a coalition. The ability of a government to resign in order to call early elections is also restricted to cirtain circumstances. When the new government of the Christian Democrats and Free Democrats formed after the events of 1982 they decided early elections would be appropriate. However, this decision was forced to be brought up before the constitutional court, and only because it was the parties only tactic was it allowed. Although the federal president performs some of the usual formal functions of a head of state, including signing treaties and following the procedures for appointing the chancellor, the role is basically ceremonial. All presidential orders require the counter-signature of the chancellor or relevant minister. This obligation is concerned with the alleviating a number of the problems which arose under Germany's constitution of 1919 which gave the president too much power and not enough to the parliament. The president is elected for a five-year term by the full Bundestag and an equal number of delegates from state parliaments. In the past the election has usually been a formality. Richard von Weizsacker, formerly Christian Democrat mayor of West Berlin, was elected president in 1984 and re-elected in 1989. His second, and final, term comes to an end in May 1994. Although usually a former politician, the president is expected to stand above party politics. In the summer of 1989 the German Bundestag passed the so-called Stage one Postal Reform which came into effect on January 1, 1990. The reforms included a division between jurisdictional and regulatory functions and entrepreneurial functions. The reform also resulted in associated business sectors making up telecommunications, postal services and postal banking. The aim of these reforms was to allow for more competition, hoping this would lead to more innovation and development in the telecommunication sector. The reforms represented to many in Europe a tremendous liberalization of the German telecommunications market. Under the new structure, the Telekom branch of Deutsche Bundespost (DBT) was granted a network monopoly. All other sectors of the telecommunications market, including mobile and satelite communications, which both legally belong to the monopoly were liberalized. Gradually, licences were sold to private enterprises in these small and limiting areas of the monopoly. Within the framework of its economic capabilities, Telekom is legally bound to provide both the infrastructure and the infrastructure services. As the new Telecommunication structure was being omplemented the unification of Germany began, delaying the objectives of the postal reform. Many Ministers used the successfull expansion of Telekom as a means of recognition, while postponing a rapid seperation of the political and entrepreneurial functions. At the beginning of 1990 Telekom had only just started changing from a public administration to an undertaking based on entrepreneurial based organization. Telekoms actions during and immediately following unification were still largely focused on the objectives and procedures of the old Germany. Therefore, there has been no real debate between Telekom and the Federal Minister of Posts and Telecommunications (BMPT) on what gudelines Telekom should follow when investing in the new federal states of the East. Telekomfrom must decide whether it should follow its original political standpoint or its new entrepreneurial approach, or whether the two even differ. Such a judgement is not only desirable, but necessary to determine where the responsibilities of Telekom lie. In principle, the regulatory political and organizational structure set upvalid in the Western German telecommunications sector was also binding in the new federal states of the East on October3, 1990. This was decided even though the conditions were very different in the former GDR due to the poor state of development of telecommunications.The rapid installation of a basic infrastructure was the priority in the East, while the emphasis in the West was promoting network and service innovations. Nevertheless the BMPT did little after unification to change the regulatory political framework in this sectorregarding the circumstances existing in Eastern Germany. The monopoly on terminal equipment which had been abandoned in the middle of 1990 in Western Germany was maintained in Eastern Germany until the end of 1991. The ban on private agencies offering satelite communication services was eased in mid-1990. At first, certain conditions were attached to issuing these special permits, but they were lifted in March 1991. These exceptions to the voice telephone service monopoly are limited until 1997, and have not had any major influence on accelerating the expansion of the telecommunication service offered. Only a few private satellite service firms have offered appropriate services as a result. In connection with the rapid improvements in the possibilities for East-West communication, considerations of cost and quality control have created the major obstacle to a larger range of services offered by private investors. In June 1991 the BMPT also extended the licence of Mannesmann Mobilfunk, the second cellular mobile radio operator chosen for Western Germany in December 1989, to cover the whole of Germany. At the same time it ordered that Mannesmann was to provide access to the D2 network for 90% of the population and 75% of the area in the new states in the East by the end of 1994. The two mobile telephone networks in the 900 MHz band, D2 and D1, which were in the process of being developed just after the political turning point, were in well suited to providing a considerable expansion in the services offered in Eastern Germany. With respect to the problems encountered by the federal government in financing German unification, a special contribution to the federal treasury of approximately DM 3 billion was imposed on Telekom. The BMPT was able to save Telekom and its customers from a greater financial burden that had originally been planned. In reality, however, this special contribution imposes an additional financial burden on Telekom and makes the telecommunication services it offers in Germany more expensive. After the fall of the Berlin Wall and of the Communist regime at the turn of 1989-90, it was not to clear if the developments would end in a rapid unification of the two Germanies. Only months before the summer of 1990, when Germany was to be officially united, a many decisions were taken in East and West Germany that greatly affected the German telecommunication sector. Immediately following the political turning point, as early as the beginning of 1990, joint committees were set up between the BMPT and the GDR ministry responsible, and between DBT Telekom in the West and Deutsche Post Telekom in the East. The main purpose of the committees was to ensure the rapid development of the telecommunications infrastructure in the GDR and guide a compatible merger of the two organizations' regulatory bodies. By March of 1990 (long before German unification had been decided) the two business enterprises had completed the Telekom 2000 program to develop infrastructure in the GDR, allowing Deutsche Post Telekom to start on the expansion of infrastructure in the GDR with the financial support from DBT Telekom. During the period of the political turning point the forces supporting German unification gained the upper hand at an early stage within the post and telecommunication sector of the GDR. They stematically reorganized structures inside the GDR telecommunication sector with this in mind. They anticipated Western German restructuring by seperating the GDR Post Ministry from Deutsche Post and by splitting up the business underytaking into three divisions. These same forces also prevented different regulatory political structures from developing during these hectic months. It is a fact that foreign network operators are known to have made offers to the GDR Minister of Posts during this time, and for a short period the minister actually did consider licensing a further (third) digital cellular mobile radio network operator in the GDR. However, it was decided that ensuring optimum conditions for the smooth union of telecommunications branches in East and West was their priority. Their strategy was to achieve this by creating regulatory political by creating regulatory political and organizational structures which were as uniform as possible. For this reason the sectoral structures of the Western German telecommunication sector were adopted in the new states of the East with practically no modification. In this respect, developments in the telecommunication sector following the political turning point do not differ from developments in other branches of society, such as the sciences, the health service and others. It is debated whether the structures introduced by the postal reform were really suited to the rapid developments in telecommunications in Eastern Germany, or whether it might not have been better to choose a regulatory political structure that better matched the situation they faced. With a few exceptions, no such discussions were ever undertaken. Because of the unexpected speed with which of German unification took place, and the enormous public pressure for immediate noticeable improvements in the industry, it was common to spend hours of unsuccessful attempts to dial numbers in East-West communication. Frequencies would have been available in the 1800 MHz band. However, this idea was not pursued any further. Presumably the lack of any standardization of DCS 1800 at this time and respect for the financial stability of DBT Telekom, which had just launched a DM 60 billion expansion program for the new federal states in the East, played a major role in this respect. The new federal states continued to play a role with the later licensing of a private E1 network operator on the basis of DCS1800 in the spring of 1993, insofar as E-Plus has undertaken to start developing its network in the East. Also in the autumn and winter of 1990, the Monopolkommission (Monopolies Commission) entered the debate, issuing a statement backed by a report advocating a competitive market, or at least strengthening the competitive elements, in the process of developing infrastructure in the East. None of these ideas were followed up, all mainly because of the belief that no real dramatic change in developments could be expected from such a major change in regulatory policy. Development of private investment in the new federal states of Eastern Germany could best be described as hesitant. Companies were largely skeptical of the industry structure.Because of Telekoms merger with Deutsche Post and its ownership of existing buildings and land it was only minimally affected by the problems of ownership to private companies and administrative procedures. The primary objective of all development was to improve the telecommunications infrastructure as soon as possible. Telecommunications was seen as playing a leading role in the process of economic recovery and its significance for the growing together of East and West. There was not enough time for additional basic experimentation, either on the political or on the technological level. Another important political objective behind the process of unification, was the intention of creating a uniform standard of living in the East and West. The importance of this objective and of its implications within the political process has an enormous influence on overall economic developments in Eastern Germany and the telecommunication sector. In view of the huge excess demand for telephone connections and telecommunication services, there were economic arguments in favor of a sharp increase in tariffs above those in the West. However, such a policy could never have been implemented at the political level. Telephone tariffs in the East were brought in line with those in the West as soon as was technically possible, regardless of the different conditions in Eastern and Western Germany. Uniform charges were considered politically to be more important than an economically efficient distribution of the short supply of telephone connections. Like in many other economic sectors, goals of economic efficiency have lost out to of just distribution when fixing telephone tarriffs in the new states in the East. As a public service, the West German telecommunications system is run by the federal counties. The legal basis of this state monopoly is found in Article 87 of West German basic law, which states that the West German PTT has to be conducted by a direct federal administration with its lower level of administrative offices. The right of legislation on postal and telecommunication matters falls exclusively on the federal county, according to Article 73 of the basic law. The federal minister for postal and telecommunication services is the head of the West German PTT. According to Article 65 of West German basic law the federal minister for postal and telecommunication services, shall conduct the affairs of the West German PTT autonomously and on his own responsibility. Telecommunication policy formation as well as the management of administration is the responsability of the federal minister for postal and telecommunication services,. However, his power is is restricted and controlled by the Postal Administration Council (Para 1, Art 1 of the postal administration law). The members include the West German Bundestag, the West German Bundesrat and representatives of the different areas of the economy as well as seven members of the West German PTT trade union, the Deutsche Postgewerkschaft (DPG), and experts from the fields of broadcasting and finance (Para 5, Art 2). All 24 members of the Postal Administration Council are appointed by their national councils or by the minister for postal and telecommunication services (expert from the field of broadcasting) and the minister for finance (expert from the field of finance). According to Para 12 of the postal administration law, the council decides on the budget of the West German PTT. Further executive rights extend to conditions on the use of postal and telecomunication systems, including pricing (ara 12, Art 4), decisions on the field of activities (Para 12, Art 5), as well as changes in the technical telecommunication infrastructure (Para 12, Art 6). As an important control body, the Postal Administration Council has to approve all regulations proposed by the federal minister for postal and telecommunication services.However, the minister for postal and telecommunication services has the power to annul decisions of the postal administration council (Para 13, Art 1,2). Despite this kind of veto right, the federal government as well as the Bundestag have no direct control over the West German policies of telecommunication. Yet the West German PTT is obliged to respect the principles of the politics of West Germany, according to Para 2, Art 1 of the postal administration law. However, the principles defined by the federal government are so vague that they cannot properly act as a stern basis for engaging in telecommunication policies. The influence of the Bundestag is even weaker since the budget of the West German PTT forms a special fund (Para 3, Art 1 of the postal administration law), over which the West German PTT exercises its own budgetary rights. The influence of parliament is only by the participation of members of parliament in the postal administration council as well as in political positions in the federal postal and telecommunication administration. The result is that West German telecommunication policy is designed and implemented around the postal administration council and the postal administration. In spite of occasional accusations of opportunism aimed at the postal administration council, it's believable that the post administration has adjusted itself to the potential compromises in the council. This can be backed up by the strong clashes in the council, and by that overruling the postal administration council too often would likely lead to harmful campaigns against the council. The development of the telecommunication infrastructure within this political and institutional framework became more and more criticized in the 1970s. Finally it caused the demand for reform within the institutional and political framework. The origins of the criticism came from the rapid technological developments of the 1960s and 1970s. Spectacular developments in the realms of microelectronics and transmission technology as well as the continuing digitalization made merging telecommunication and data-processing possible. This resulted in new quantitative and qualitative demands on the telecommunication infrastructure. According to critics, the West German PTT, by not allowing competition, had not been in a position to complete these demands. This criticism, mainly forwarded by the Liberal Democratic Party, was mostly concerned with the international competitiveness of West Germany. Further demands for the opening of markets were created by those countries which have already deregulated their telecommunication systems, for example the UK, USA, and Japan. Germany has eight main political paries: Christian Democratic Union (CDU), Christian Social Union (CSU), Free Democrat Party (FDP), Social Democrat Party (SDP), The Greens, The Party of Democratic Socialism (PDS), The Republicans, and the Deutsche Volksunion. Christian Democratic Union The CDU, combining Catholics abd Protestants, has been the most important single party in the development of post-war Germany. Its foreign policy was forged by Konrad Adenauer and is based on the Atlantic alliance. Although it also accepted the opening to the east initiated in the late 1960s and early 1970s by Willy Brandt and it is currently concerned with stability in post-communist Eastern Europe. Its leader, Helmut Kohl, has been chancellor since 1982 and still exercises a powerful personal control over the party. The CDU's domestic policy is based on the concept of the social market as developed by Ludwig Erhard in the 1950s. Christian Social Union The CSU is a sister party of the CDU. It is Catholic and operates only in Bavaria where it is not challenged by the CDU. Under the leadership of the late Franz Josef Strauss, it was more openly assertive in the pursuance of German interests than the CDU. Its present leader is the finance minister, Theo Waigel. Howevere, Edmund Stoiber, the prime minister of Bavaria, as a more aggressive politician in the tradition of Franz Josef Strauss, is equally important. Free Democrat Party The free democrats are basically a liberal party in the European rather than the American sense; they believe in limiting government interference in all walks of life, including both questions like divorce and abortion, and the economy. On the latter they are generally to the right of the CDU. However, the FDP's most dominant personality in the second half of the 1970s, and until his resignation in 1992, was Hans-Dietrich Genscher, who made his name as foreign minister. The present leader, Klaus Kinkel, is also foreign minister. Social Democrat Party Once Marxist (though always democratic), the Social Democrats established a programme of pragmatic reform known as the Bad Godesberg program at the end of the 1950s. This paved the way for Helmut Schmidt, two of Germany's most influential post-war politicians. The difference between their economic philosophy and the Christian Democrats' social market is not fundamental. At present, however, the SPD believes the CDU has failed to face up to the need to pay for unification, and advocates higher taxes, especially on the better off. The SPD's foreign policy has always emphasized openings to the east, but not at the expense of the Atlantic alliance or the EU. There is a strong pacifist element which currently opposes any German military activity outside Germany, including participation in UN peacekeeping operations; however, it should be said that there are pacifists in all major parties. The Greens The Greens had a major influence on German policies of all major parties during the 1980s, having surmounted the 5% threshold needed to be represented in parliament in the 1983 elections. However, in December 1990 they just failed to meet this threshold in western Germany, partly because of an internal division between realists and purists. They are represented in the Bundestag because in eastern Germany, where a seperate threshold was provided, they won more than 5% in alliance with Bundnis 90, a group of protest parties from the former East Germany. They also participate in governing coalitions in some state parliaments. The Party of Democratic Socialism This is the former SED or ruling party of East Germany. Under a moderate leader, Gregor Gysi, who was never closely associated with the Honecker regime, it has attracted the support of some of those who have lost their jobs or homes as a result of unification. The Republicans and Deutsche Volksunion The Republicans and Deutsche Volksunion represent nationalist forces on the far right of German politics. They have played on the immigration issue. f:\12000 essays\business & economics (632)\Gillette is leading worldwide home applicants.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1165 Gillette is leading worldwide home applicants, such as razor, battery, electronic and manual toothbrush, manufacturing company. On April 14, 1998, the company introduced the world's first triple blades razor and begun to sell July 1, 1998 in the United States and September in the Western Europe. Since Gillette launched new razor in 1998, the company expected high returns in short-term; however, the result of the new product has been defined yet. SWOT ANALYSIS - Key Learning The areas of the internal factors are Finance, Management, Manufacturing, Market position, Personnel, and Research & Development. All these factors can be defined as either strengths or weakness or both. First of all, the company as a whole gained net sales amount of 10.1 billion dollars and net income of 1.4 billion dollars for the 1997 due to acquire leading battery company "Duracel" in 1996 and grow of "Sensor Excel" razor. As a result, company could spend 1 billion dollars to invent "Mach 3" which is triple blades razor. Even though Gillette had sufficient fund to invent the new product, the company took high risk of financial side that if the new product's sale does not reach to company's expectation, the company will face shortage of capital resources and can be lead to bankruptcy. But if Mach3 turn out to be a New Coke or McDonald's Arch Deluxe - much-hyped new products that were mostly duds and fizzle- the gloom will be heavy from Gillette's corporate headquarters in Boston's Back Bay to the South Boston factory that Gillette has overhauled to produce 600 million Mach3 blade cartridges per year, or about half of Gillette's annual target of 1.2 billion Mach3 blades. (Boston Globe, 4/15/98) Since Gillette introduced "Mach3" in April, the company changed its manufacturing tools to produce Mach3 South Boston's factory. Gillette already spent 300 million dollars for advertising and promotion worldwide for the year that company introduced new product. The amount is twice as much as the company put for advertising "Sensor Excel" in 1989. Gillette released the new product to retail stores on July 1, 1998, and starts to advertise on TV and the other media six weeks later; however, many people went to the company's web site to look at the new product. Even though company spent tremendous amount of fund for the advertising, some people from Asia did not recognize the product according to our group's survey. For customers, there are satisfaction and complaints for Mach3. People, who satisfied with Mach3 according to our survey, said there are less irritation and faster shaving time. Customers who complaint about Mach3 argue that they do not want to spend more money on better outlook. According to our survey, one hundred percent of surveyees, who does not satisfy with Mach3, say the price is too high for the product. Price is relatively higher than other products including "Sensor Excel" which was the most expensive one before "Mach3" came out. Its price is 6.99 dollars per razor with one blade included - currently, the company is selling for 7.29 dollars per Mach3. It is 4 percents increased from original price, and 40 percents higher price than other products. This may lead to decrease in sales and the company's total revenue. The company is trying to reach customers several different ways. Gillette offers Mach3 package product, which included Mach3 itself and couple of extra razors, Shaving cream and deodorant. This package product makes each items' unit price lower than sell separately. Also, the company offers sweepstakes on the company's web site, and there is no obligation. This is the one of the finest ways to reach and get involve the customers. The company give chance to people to win prize without any obligation; however, people will recognize the product automatically. Also, Gillette can acquire the Since Gillette is well-known global company, many retail stores are not offended to carry the company's product even though the product's price is high. Retail stores are assume that Mach3 will bring more customers. On the other hand, even more customers come to store, it is unpredictable for increasing store's sales revenue because price is too high so that consumers would not buy. External factors are Competitive, Economic, and Social. Gillette's major rival in the market is Shick. Since Gillette is the first company produce triple blades razor, the company will lead the market; however, rival company such as Shick will develop the same product with higher quality or lower price. Then the result will be unforeseen unless Gillette improve Mach3's weakness - "high price". For long time in the United States, people's income has been growing. As a result, customers purchasing power also increased. However, the company's market is not only the United States but also overseas, in fact, over sixty percents of sales are made from overseas. Consequently, the company has to consider the facts that poor countries' consumers are willing to use cheaper product; especially the countries in economic crisis. Recommendation There are 3 target groups in the market. The first group is disposal razor users that it's approximately more than half of the market. The advantages of this group are cleaner, cheaper and easy to use. On the other hand, it is less quality than other two razors. The second group is regular razor such as Mach3 about 40 percents. The last group is electronic shaver users which it takes remaining market share. The customers who use the electronic shaver satisfied with high technology, easy to use, saving time and safety compare to the other two products. The disadvantages of this product are high price and less cleanness when one shaves. The goal of Gillette is trying to acquire customers who use disposal and electronic shaver to Mach3. In order to persuade the customers to change to Mach3, the company should beat other product's weaknesses and add the improved the weakness of the other product to Mach3 and decreases of its weakness. Mach3 has several strengths; the first impression is fancy outlook that makes customers feel differentiated from other products. Second of all, men are challengers, always pursue new trend; especially on the tangible items with high technology. Although Mach3 has several strengths, it also has weaknesses. High price makes people think twice to purchase Mach3; the older generation of the Gillette razor is cheaper than Mach3, that makes people wonder if it is necessary to spend more money on the Mach3. The key purpose for Mach3 is to shave beard, but the older generation is also doing same job as Mach3; that makes no different between older and newer product. The next weakness is the advertisement. Gillette has spent 300 million dollars on the advertisement, but we did the survey with at least thirty people; 22 out of 30 surveyees know the brand from Television and magazine, but they have never uses it. This means the advertisement has preached the good news, but it has not reach people's life. The majority of men do not know why they should spend more money to buy same result. The marketing strategy did not fail the sale of the Mach3, it is price controller. The main point of the marketing is to opening a market for product. Since 73% of the men from the survey know the product, this mean the marketing strategy succeed its intention. The biggest mistake we found is the price. As I mentioned, "the majority of men do not know why they should spend more money to buy same result". I would recommend to the company, to lower the price and match the same price as older generation. Let public buys Mach3 as the same price as older generation, allow public to try out differences between Mach3 and older generation. After when market demand of the Mach3 is higher than older generation, then increases its price. f:\12000 essays\business & economics (632)\Got those OPEC Blues Again.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 796 "Got those OPEC Blues Again" and "Rational Exuberance" SUMMARY Since March of 1999, when the price of West Texas Intermediate crude oil was at $13 a barrel, we have seen a steady increase in prices in all phases of the economy. OPEC, the organization that is largely responsible for setting production goals in the Middle East, was under fire to find ways to increase prices. OPEC members at this time "pledged to cut back the supply of crude and push oil prices higher." (Business Week, 48) The results were better than most expected: crude oil prices were almost $27 a barrel on November 23, 1999, the highest price since the 1991 Gulf War. (Business Week, 48) The demand for oil is outpacing current supply by 2.8 million barrels, causing some in Congress to push for relief by tapping into the Strategic Petroleum Reserves. (Business Week, 49) The rapid increases in prices have had a welcome effect on "Big Oil", however. Companies such as BP Amoco, Chevron and Royal/Dutch Shell Group have posted 15% increases in earnings (Business Week, 49) This trend is expected to continue, with L Bruce Lanni, an analyst at CIBC World Markets Inc. noting, "I see clear sailing ahead for the next two to three years." (Business Week, 49) "Happy days are here again!" This quote, noted by Jodie Allen of U.S. News and World Report, refers to the booming U.S. economy. (Allen, 71) The stock market, as of November 8, 1999 was flying high, posting strong gains, prompting inflationary fears and a hard once-over of the situation by Federal Reserve Chairman Alan Greenspan. However, the numbers are extraordinary. The Gross Domestic product surged at an annual rate of 4.8% in the third quarter of 1999. The employment cost index, which measures total compensation paid to workers in a broad sampling of jobs, rose by 3.1 percent over the past 12 months. (Allen, 71) But, cautions Princeton economist Alan blinder, "this is a change in the measurement system, not in the reality." (Allen, 71) Still, he concedes, "the underlying reality was looking good even in the older data." (Allen, 71) Even in this seemingly booming economy, Greenspan warns "It is not clear" whether interest rate hikes the Federal Reserve has already made will suffice to prevent overheating of the economy (Allen, 71) APPLICATION In the case of OPEC's decision to cut supply to raise prices, it is clear that all sectors of the economy will be affected in some way. This decision causes a shift of the Aggregate Supply curve, because of the resulting increase of energy prices. Looking at Oil on a simple Supply/Demand curve, we see that the resulting decrease in supply and saying demand is equal, or ceteris paribus, results in the increase in prices that OPEC was looking for. See the following graph: Notice how the shift of the AS curve from AS1 to AS2 results in a price level adjustment from P1 to P2. The economy as a whole as suffered from this increase in oil prices, however, there is little reflection in the stock market. As unemployment stays low, we are in a "help wanted" economy-firms are looking for "warm bodies" to fill needed positions. We also have seen a tremendous rise in GDP and in personal spending. The combination of low unemployment and higher than normal GDP has Fed Chairman Alan Greenspan worrying about how to cool off the economy a bit to control inflation. Unfortunately for some of us, his "big stick" is raising interest rates, increasing the cost for both firms and individuals to borrow money. This will have the desired effect, as the shift in monetary policy will cause aggregate output to fall. But Greenspan will have achieved his goal: keeping inflation low. VIEWPOINT In my humble opinion, as a student, the gas prices do affect me, as the do everyone. There seems to be relief in the future, as OPEC may decide this week to increase production, helping lower costs to a more "reasonable" level. The one thing I find interesting, however, is that there has not be as much complaining about these gas price increases. This can be attributed to how the economy is performing as a whole. Also, although I may not like it, Alan Greenspan's monetary policy has been very sound and the resulting increases in interest rates will have the desired effect. It will be interesting to see how the upcoming Presidential elections help or hinder the economy. BIBLIOGRAPHY "Got those OPEC Blues Again," Business Week, December 6, 1999, 48-49. Allen, Jodie T., "Rational Exuberance," U.S. News and World Report, November 8, 1999, pp. 71. f:\12000 essays\business & economics (632)\Government Spending & Budget 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Government Spending & Budget As many Federal departments and agencies lurch into an era of running without funds, the leaders of both parties of Congress are spending less and less time searching for a compromise to balance the budget, and more and more time deciding how to use it to their advantage on the campaign trail. Meanwhile money is easily borrowed to pay for government overhead. In an attempt to change this, on June 29, Congress voted in favor of HConRes67 that called for a 7 year plan to balance the Federal Budget by the year 2002 (Hager 1899). This would be done by incorporating $894 billion in spending cuts by 2002, with a projected 7 year tax cut of $245 billion. If this plan were implemented, in the year 2002, the U.S. Government would have the first balanced budget since 1969. There is doubt by citizens that a balanced budget will become reality. A recent Gallop Poll from January, 1996 showed the budget as the #1 concern among taxpayers, but 4/5 of those interviewed said they doubt the GOP will do the job (Holding 14). Meanwhile, an ABC poll from November reported that over 70% of those polled disapprove of the current performance by Congress, and most blamed politicians for failure to take action (Cloud 3709). These accusations of failure to follow through come with historical proof that Congress and Clinton have failed to compromise and resolve the issue. After all, current budget plans are dependent on somewhat unrealistic predictions of avoiding such catastrophes as recession, national disasters, etc., and include minor loopholes. History has shown that every budget agreement that has failed was too lax. One might remember the Gramm-Rudman-Hollings bill that attempted to balance the budget, but left too many exemptions, and was finally abandoned in 1990 (Weinberger 33). So after a pain-staking trial for GOP Republicans to create, promote, and pass their budget, as promised on campaign trail 94, Clinton rejected the very bill he demanded. This essentially brought the federal budget back to square one. Clinton thought such a demand on Republicans to produce a budget would produce inner-party quarrels and cause the GOP to implode. Instead, they produced a fiscal budget that passed both houses of Congress, only to be stalemated by a stubborn Democratic President Clinton. Meanwhile, Clinton bounced back with a CBO scored plan with lighter, less risky cuts to politically sensitive areas like entitlements. Clinton's plan also saved dollars for education and did not include a tax increase, but most cuts would not take effect until he is out of office, in the year 2001. Although Clinton is sometimes criticized for producing a stalemate in budget talks, the White House points out that the debt has gone down since Clinton took office, with unemployment also falling. Republicans are quick to state that Clinton originally increased taxes in 1993 and cut defense programs, but his overall plan was for an increasing budget without deficit reduction. Startling Facts about the budget: As of 1996, the national debt was at an all time high of $5 trillion dollars, with interest running at a whopping $250 billion per year (Rau M-1). This equals out to an individual responsibility of more than $50,000 per taxpayer. Nearly 90% of that debt has accumulated since 1970, and between 1980 and 1995, the debt grew by 500%. Currently, the debt grows by more than $10,000 per second (Rau M-l), and at current rates, a baby born in 1992 will pay 71% of his or her income in net taxes. At current rates, our government is about to reach its breaking point. If that's not enough to scare a taxpayer, by 2002, 60% of government spending will be for entitlements, and by 2012, these programs are projected to take up all government revenue (Dentzer 32). Not only economic development, but also family income is hurt by debt. With the cost of living going up, it becomes harder to find a job. According to the Concord Coalition, real wages peaked in 1973 and have gone down ever since. If the economy grew as fast as it did in 1950, without a debt, the median family income would be $50,000, compared to the present median of $35,000 (Rau M-1). As of current fiscal year's budget, the United States government spends $1.64 trillion yearly. $500 billion of that, or 1/3 of the total, is for discretionary spending (Rau M- 1). This discretionary spending is the target for most cuts, and seems to be the easiest to make cuts in. Overall, the difference between the two parties budget plans is only $400 billion. This could easily be trimmed by eliminating tax cuts and adjusting the consumer price index to reality. Democrats say the GOP plan is too lopsided, and Republicans criticize the Democrat plan for being unrealistic. A study by the Urban Institute shows GOP cuts will be felt mainly by the bottom 1/5 of U.S. population. This should be more equally spread out across income brackets (Hosansky 1449). The GOP plan: By fulfilling campaign promises made by freshman Republican Congressmen to cut government spending, the GOP managed to pass a $1.6 trillion budget resolution by a party-line vote, in both houses of Congress (Hosansky 1450). This budget called for major cuts in education, environmental programs, discretionary spending, and the largest of all: entitlements. 70% of the money to balance the budget under the GOP plan would have come from entitlements. This is because entitlement programs currently take up $301 billion a year. Such cuts had already been partially implemented with the GOP cutting overall spending by 9.1% in 1996 alone. First, in an attempt to stop the projected bankruptcy of Medicare in 2002, Republicans cut $270 billion overall from the program, with hospital reimbursement cuts being the deepest (Hager 1283). Although stabilizing the fund is only expected to cost $130-$150 billion over 7 years, the GOP budget would reform the program to run better, and cheaper, by allowing it to grow at 6% yearly, instead of the current 10%. While both parties agree on premium hikes for beneficiaries, this is a touchy subject for the 38.1 Million elderly voters on Medicare in 1996 (Rubin 1221). Medicaid, another volatile program, would be cut $182 billion under the GOP proposal. This would entail placing a cap on the program's spending, and passing control of it to the individual state governments. For an estimated 39 million low-income people on Medicaid in 1996, the GOP plan cuts the program far more than Clinton's proposed $98 billion cut. Social Security is another program being cut. The government has already reduced the outlay for seniors 70 and younger who are on the program, but Republicans want more by increasing the eligibility for Social Security from 62 to 65 for early retirement, and 65 to 70 for standard retirement (Henderson 60). Smaller cuts included $11 billion in student loan reductions, $9.3 billion in labor cuts, $10 billion eliminated from public housing programs, and several other numerous disaster relief programs cut (Rubin 1222). The GOP also wants to eliminate programs initiated by Clinton like the National Service initiative, summer jobs, Goals 2000, and Americorps. Also, by terminating unnecessary farm programs, and cutting others by $12.3 billion, Republicans hope to cut the yearly $6 billion that the Federal Government spends on direct subsidies to farmers. Agricultural policies were also reformed and embedded into budget-reconciliation bills (Hosansky 3730). Clinton's Budget: Clinton's budget only surfaced after he vetoed the budget passed by Congress, and included shallower cuts, with little or no reform to entitlements. This plan was supported by most Democrats and was used as an alternate to a gutsy GOP budget. Clinton repeatedly trashed the Republican's efforts to make cuts on programs he feels important like student loans, agricultural programs, and entitlements. He accused Republicans of wanting to kill some all together. He has also threatened to veto a Republican plan to reform Medicare called Medical Savings Accounts, unless his programs are left intact (Hager 752). Under Federal law, the President is required to submit budget requests in 2 forms: Budget Authority (BA), the amount of new federal commitments for each fiscal year, and Outlays, the amount actually spent in the fiscal year (Rubin 1221). The plan that Clinton has presented is not only a budget resolution in the form of a campaign document, but also proof of how far the Republicans have moved him to compromise since the they took control of Congress. Most important, it does not readily translate into regular accounting principles used for government programming. This year's White House budget was a 2,196 page document that the GOP struck down immediately for not cutting taxes enough and neglecting to downsize the government (Hagar 752). "There is little or no change at all in this budget," said Pete Domenici (Senate Budget Committee Chairman), talking of Clinton's new budget. Among largest cuts within Clinton's plan was the downsizing of 1/5 to 1/3 of all programs that he felt were not a priority to present day government. In addition, he wanted to close loopholes presented to corporate taxation, that would save an estimated $28 billion. He vowed to keep programs like education, crime prevention, and research or environmental grants, while increasing the Pell Grant from $2,340 to $2,700. Attention was also placed on discretionary spending, with Clinton cutting a smaller $297 billion compared to GOP's $394 billion cut. According to the Office of Management and Budget, the President's plan cuts middle-income taxes by $107.5 billion in 7 years, small business by $7 billion, and cuts $3.4 billion from distressed urban and rural area relief (Rubin 1222). This was to be paid for by a $54.3 billion hike in corporate and wealthy- income taxes, and also in $2.3 billion of tighter EITC (Earned Income Tax Credit) adjustments. Although Clinton's plan was expected to cut a whopping $593 billion in 7 years to furthermore produce an $8 billion surplus in 2002, most cuts are long term without a clear goal. Clinton is sometimes criticized by Republicans for unwillingness to compromise. He has used vetoes and stubborn negotiations to protect personal priorities like education, job training, and environmental programs, but Republicans have also tried using domination to force him to comply. GOP Presidential candidate Bob Dole said if Clinton was serious about the budget, "we probably could have had an agreement on New Years Day," 1996 (Hosansky 1449). "The President is sitting on his hands while the federal debt keeps going up and up and up into the stratosphere," said Congressman Jesse Helms, Rep -North Carolina. But one must remember that President Clinton does have somewhat of an overwhelming power in this debate that Republicans can do nothing about. He is the single person that can veto laws sent to him, and also has the power to call Congress back into session if he is unhappy with the current situation. This was President Truman's "ace in the hole" back in 1948. A Neutral Proposal: As a neutral proposal, a group calling themselves the "Blue Dog's" have won support for their budget from both Republicans and Democrats. The group also known as the Concord Coalition includes many conservative Democrats that want to see shallower budget cuts with less reform to entitlements. They also believe a tax cut should be delayed until the budget is balanced. The Coalition believes that by reforming entitlement policy, rethinking government size, changing taxation methods, and consuming less, our budget can be balanced (Rau M-1). Defending Deficits: In defense of deficits, some may argue that the danger of the current situation is highly over rated. A budget deal has always had less to do with economics than with politics and morality. Budget deficits don't crowd out private investment, government spending does, and a large surplus may not be a sign of strength for a country. Some say it is impossible for every country to run either a surplus or a deficit. What matters is that a country can service its debts (Defense 68). During most of the 19th century, the United States borrowed from the world (a current-account deficit). By 1870, it was running a trade surplus, and by 1900 we had a current-account surplus. But in the early 2Oth century, the U.S. became the world's largest net creditor, and by 1970 it peaked by finally running into deficit in 1970. Finally, 1980 brought a deficit so large, that the government was a net debtor again (Bottom Line 14). Current Reductions: One of the ways we are currently reducing the deficit includes the introduction of "means testing." This means that people would get entitlements based on need. The government already has reduced Social Security for modest income seniors age 70 and younger, but budget cutters want to broaden that idea (Henderson 60). There are 2 major problems with means testing. First, it is considered inherently unfair. Some might argue that a person might blow all of their income before the entitlement reductions come into place. Second, it might reduce the incentive to work and encourage people to hide their income. For instance, beneficiaries of Social Security, ages 62-64, lose $1.00 yearly in benefits for every $2.00 they earn in income or wages above $8,160 per year (Henderson 60). Some say increasing eligibility requirements would solve some problems, and propose raising the age of early retirement from 62 to 65, and standard retirement from 65 to 70. Another touchy subject in budget reduction is the argument that the poor are being left out of savings. According to the Clinton Administration, the GOP budget would cause a family with income of $13,325 per year to lose 11% of their income (Whitman 42). United States Treasury Department studies say the bottom 1/5 income families would have net tax increase of an average $12 to $26 under the GOP plan. The top 1/5 income families would receive more than 60% of the tax relief. A HHS analysis states that the GOP plan would also boost child poverty rates from 14.5% to 16.1%, and poor families with children would loose 6% of their income. Conclusion: In the end, budget reduction is no easy task. "...fixing the National debt is like catching a train leaving the station. The longer we wait, the harder and farther we have to run," says the Concord Coalition (Rau M-1). "Both parties want the issue," instead of an agreement, said Representative Bill Orton. The center of attention for debate on budget cutting is politics, and whomever takes responsibility for reform gets left wide open to criticism. Although Congress and Clinton have spent the past year on debating the budget and the size of the Federal Government, most plans fall back on gimmicks, loopholes, and long-term plans. Even Democrats now agree to downsize the government, but the two parties disagree on how and where. As we trust our elected officials to make decisions in Washington on our behalf, we must show interest and aptitude on the end results. To accomplish a balanced budget deal, many suggest that we must not only balance spending, but reform entitlements, rethink government size, change tax methods, and depend less on Washington. Attendees of a conference on budget cutting in Jackson Hole, Wyoming suggested we deliver a budget that has a simple, quantifiable goal, that includes short term goals, and eliminated gimmicks. Countries like Sweden and Canada have successfully reformed fiscal policies. Sweden's government elected to abandon welfare, pensions, health insurance, unemployment programs, family assistance, and child allowances. Their deficit soon fell by 3.5% of GDP in one year alone (Urresta 51). Sweden's plan was three times as intense as Congress' current plan, while cutting spending in half the time. As for cuts, everyone must suffer. As entitlement debates continue, "the interests of older Americans are being protected at the expense of young people," says Neil Howe and Bill Strauss (Rau M- 1). Older Americans have good reason to protect programs that they have paid into for years, but those programs spend an overall per capita amount of 11 times as much on elderly than that spent on children altogether (Rau M-1). The youth are the future of America, and we should protect them too. Currently, poverty in US is 3 times as likely to affect the very young than the very old. By balancing the budget, "interest rates come down, the economy picks up - we will rebound," says Representative James Greenwood (Cloud 3709), and everyone should be happy with that. f:\12000 essays\business & economics (632)\Government Spending & Budget.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2744 Government Spending & Budget As many Federal departments and agencies lurch into an era of running without funds, the leaders of both parties of Congress are spending less and less time searching for a compromise to balance the budget, and more and more time deciding how to use it to their advantage on the campaign trail. Meanwhile money is easily borrowed to pay for government overhead. In an attempt to change this, on June 29, Congress voted in favor of HConRes67 that called for a 7 year plan to balance the Federal Budget by the year 2002 (Hager 1899). This would be done by incorporating $894 billion in spending cuts by 2002, with a projected 7 year tax cut of $245 billion. If this plan were implemented, in the year 2002, the U.S. Government would have the first balanced budget since 1969. There is doubt by citizens that a balanced budget will become reality. A recent Gallop Poll from January, 1996 showed the budget as the #1 concern among taxpayers, but 4/5 of those interviewed said they doubt the GOP will do the job (Holding 14). Meanwhile, an ABC poll from November reported that over 70% of those polled disapprove of the current performance by Congress, and most blamed politicians for failure to take action (Cloud 3709). These accusations of failure to follow through come with historical proof that Congress and Clinton have failed to compromise and resolve the issue. After all, current budget plans are dependent on somewhat unrealistic predictions of avoiding such catastrophes as recession, national disasters, etc., and include minor loopholes. History has shown that every budget agreement that has failed was too lax. One might remember the Gramm-Rudman-Hollings bill that attempted to balance the budget, but left too many exemptions, and was finally abandoned in 1990 (Weinberger 33). So after a pain-staking trial for GOP Republicans to create, promote, and pass their budget, as promised on campaign trail 94, Clinton rejected the very bill he demanded. This essentially brought the federal budget back to square one. Clinton thought such a demand on Republicans to produce a budget would produce inner-party quarrels and cause the GOP to implode. Instead, they produced a fiscal budget that passed both houses of Congress, only to be stalemated by a stubborn Democratic President Clinton. Meanwhile, Clinton bounced back with a CBO scored plan with lighter, less risky cuts to politically sensitive areas like entitlements. Clinton's plan also saved dollars for education and did not include a tax increase, but most cuts would not take effect until he is out of office, in the year 2001. Although Clinton is sometimes criticized for producing a stalemate in budget talks, the White House points out that the debt has gone down since Clinton took office, with unemployment also falling. Republicans are quick to state that Clinton originally increased taxes in 1993 and cut defense programs, but his overall plan was for an increasing budget without deficit reduction. Startling Facts about the budget: As of 1996, the national debt was at an all time high of $5 trillion dollars, with interest running at a whopping $250 billion per year (Rau M-1). This equals out to an individual responsibility of more than $50,000 per taxpayer. Nearly 90% of that debt has accumulated since 1970, and between 1980 and 1995, the debt grew by 500%. Currently, the debt grows by more than $10,000 per second (Rau M-l), and at current rates, a baby born in 1992 will pay 71% of his or her income in net taxes. At current rates, our government is about to reach its breaking point. If that's not enough to scare a taxpayer, by 2002, 60% of government spending will be for entitlements, and by 2012, these programs are projected to take up all government revenue (Dentzer 32). Not only economic development, but also family income is hurt by debt. With the cost of living going up, it becomes harder to find a job. According to the Concord Coalition, real wages peaked in 1973 and have gone down ever since. If the economy grew as fast as it did in 1950, without a debt, the median family income would be $50,000, compared to the present median of $35,000 (Rau M-1). As of current fiscal year's budget, the United States government spends $1.64 trillion yearly. $500 billion of that, or 1/3 of the total, is for discretionary spending (Rau M- 1). This discretionary spending is the target for most cuts, and seems to be the easiest to make cuts in. Overall, the difference between the two parties budget plans is only $400 billion. This could easily be trimmed by eliminating tax cuts and adjusting the consumer price index to reality. Democrats say the GOP plan is too lopsided, and Republicans criticize the Democrat plan for being unrealistic. A study by the Urban Institute shows GOP cuts will be felt mainly by the bottom 1/5 of U.S. population. This should be more equally spread out across income brackets (Hosansky 1449). The GOP plan: By fulfilling campaign promises made by freshman Republican Congressmen to cut government spending, the GOP managed to pass a $1.6 trillion budget resolution by a party-line vote, in both houses of Congress (Hosansky 1450). This budget called for major cuts in education, environmental programs, discretionary spending, and the largest of all: entitlements. 70% of the money to balance the budget under the GOP plan would have come from entitlements. This is because entitlement programs currently take up $301 billion a year. Such cuts had already been partially implemented with the GOP cutting overall spending by 9.1% in 1996 alone. First, in an attempt to stop the projected bankruptcy of Medicare in 2002, Republicans cut $270 billion overall from the program, with hospital reimbursement cuts being the deepest (Hager 1283). Although stabilizing the fund is only expected to cost $130-$150 billion over 7 years, the GOP budget would reform the program to run better, and cheaper, by allowing it to grow at 6% yearly, instead of the current 10%. While both parties agree on premium hikes for beneficiaries, this is a touchy subject for the 38.1 Million elderly voters on Medicare in 1996 (Rubin 1221). Medicaid, another volatile program, would be cut $182 billion under the GOP proposal. This would entail placing a cap on the program's spending, and passing control of it to the individual state governments. For an estimated 39 million low-income people on Medicaid in 1996, the GOP plan cuts the program far more than Clinton's proposed $98 billion cut. Social Security is another program being cut. The government has already reduced the outlay for seniors 70 and younger who are on the program, but Republicans want more by increasing the eligibility for Social Security from 62 to 65 for early retirement, and 65 to 70 for standard retirement (Henderson 60). Smaller cuts included $11 billion in student loan reductions, $9.3 billion in labor cuts, $10 billion eliminated from public housing programs, and several other numerous disaster relief programs cut (Rubin 1222). The GOP also wants to eliminate programs initiated by Clinton like the National Service initiative, summer jobs, Goals 2000, and Americorps. Also, by terminating unnecessary farm programs, and cutting others by $12.3 billion, Republicans hope to cut the yearly $6 billion that the Federal Government spends on direct subsidies to farmers. Agricultural policies were also reformed and embedded into budget-reconciliation bills (Hosansky 3730). Clinton's Budget: Clinton's budget only surfaced after he vetoed the budget passed by Congress, and included shallower cuts, with little or no reform to entitlements. This plan was supported by most Democrats and was used as an alternate to a gutsy GOP budget. Clinton repeatedly trashed the Republican's efforts to make cuts on programs he feels important like student loans, agricultural programs, and entitlements. He accused Republicans of wanting to kill some all together. He has also threatened to veto a Republican plan to reform Medicare called Medical Savings Accounts, unless his programs are left intact (Hager 752). Under Federal law, the President is required to submit budget requests in 2 forms: Budget Authority (BA), the amount of new federal commitments for each fiscal year, and Outlays, the amount actually spent in the fiscal year (Rubin 1221). The plan that Clinton has presented is not only a budget resolution in the form of a campaign document, but also proof of how far the Republicans have moved him to compromise since the they took control of Congress. Most important, it does not readily translate into regular accounting principles used for government programming. This year's White House budget was a 2,196 page document that the GOP struck down immediately for not cutting taxes enough and neglecting to downsize the government (Hagar 752). "There is little or no change at all in this budget," said Pete Domenici (Senate Budget Committee Chairman), talking of Clinton's new budget. Among largest cuts within Clinton's plan was the downsizing of 1/5 to 1/3 of all programs that he felt were not a priority to present day government. In addition, he wanted to close loopholes presented to corporate taxation, that would save an estimated $28 billion. He vowed to keep programs like education, crime prevention, and research or environmental grants, while increasing the Pell Grant from $2,340 to $2,700. Attention was also placed on discretionary spending, with Clinton cutting a smaller $297 billion compared to GOP's $394 billion cut. According to the Office of Management and Budget, the President's plan cuts middle-income taxes by $107.5 billion in 7 years, small business by $7 billion, and cuts $3.4 billion from distressed urban and rural area relief (Rubin 1222). This was to be paid for by a $54.3 billion hike in corporate and wealthy- income taxes, and also in $2.3 billion of tighter EITC (Earned Income Tax Credit) adjustments. Although Clinton's plan was expected to cut a whopping $593 billion in 7 years to furthermore produce an $8 billion surplus in 2002, most cuts are long term without a clear goal. Clinton is sometimes criticized by Republicans for unwillingness to compromise. He has used vetoes and stubborn negotiations to protect personal priorities like education, job training, and environmental programs, but Republicans have also tried using domination to force him to comply. GOP Presidential candidate Bob Dole said if Clinton was serious about the budget, "we probably could have had an agreement on New Years Day," 1996 (Hosansky 1449). "The President is sitting on his hands while the federal debt keeps going up and up and up into the stratosphere," said Congressman Jesse Helms, Rep -North Carolina. But one must remember that President Clinton does have somewhat of an overwhelming power in this debate that Republicans can do nothing about. He is the single person that can veto laws sent to him, and also has the power to call Congress back into session if he is unhappy with the current situation. This was President Truman's "ace in the hole" back in 1948. A Neutral Proposal: As a neutral proposal, a group calling themselves the "Blue Dog's" have won support for their budget from both Republicans and Democrats. The group also known as the Concord Coalition includes many conservative Democrats that want to see shallower budget cuts with less reform to entitlements. They also believe a tax cut should be delayed until the budget is balanced. The Coalition believes that by reforming entitlement policy, rethinking government size, changing taxation methods, and consuming less, our budget can be balanced (Rau M-1). Defending Deficits: In defense of deficits, some may argue that the danger of the current situation is highly over rated. A budget deal has always had less to do with economics than with politics and morality. Budget deficits don't crowd out private investment, government spending does, and a large surplus may not be a sign of strength for a country. Some say it is impossible for every country to run either a surplus or a deficit. What matters is that a country can service its debts (Defense 68). During most of the 19th century, the United States borrowed from the world (a current-account deficit). By 1870, it was running a trade surplus, and by 1900 we had a current-account surplus. But in the early 2Oth century, the U.S. became the world's largest net creditor, and by 1970 it peaked by finally running into deficit in 1970. Finally, 1980 brought a deficit so large, that the government was a net debtor again (Bottom Line 14). Current Reductions: One of the ways we are currently reducing the deficit includes the introduction of "means testing." This means that people would get entitlements based on need. The government already has reduced Social Security for modest income seniors age 70 and younger, but budget cutters want to broaden that idea (Henderson 60). There are 2 major problems with means testing. First, it is considered inherently unfair. Some might argue that a person might blow all of their income before the entitlement reductions come into place. Second, it might reduce the incentive to work and encourage people to hide their income. For instance, beneficiaries of Social Security, ages 62-64, lose $1.00 yearly in benefits for every $2.00 they earn in income or wages above $8,160 per year (Henderson 60). Some say increasing eligibility requirements would solve some problems, and propose raising the age of early retirement from 62 to 65, and standard retirement from 65 to 70. Another touchy subject in budget reduction is the argument that the poor are being left out of savings. According to the Clinton Administration, the GOP budget would cause a family with income of $13,325 per year to lose 11% of their income (Whitman 42). United States Treasury Department studies say the bottom 1/5 income families would have net tax increase of an average $12 to $26 under the GOP plan. The top 1/5 income families would receive more than 60% of the tax relief. A HHS analysis states that the GOP plan would also boost child poverty rates from 14.5% to 16.1%, and poor families with children would loose 6% of their income. Conclusion: In the end, budget reduction is no easy task. "...fixing the National debt is like catching a train leaving the station. The longer we wait, the harder and farther we have to run," says the Concord Coalition (Rau M-1). "Both parties want the issue," instead of an agreement, said Representative Bill Orton. The center of attention for debate on budget cutting is politics, and whomever takes responsibility for reform gets left wide open to criticism. Although Congress and Clinton have spent the past year on debating the budget and the size of the Federal Government, most plans fall back on gimmicks, loopholes, and long-term plans. Even Democrats now agree to downsize the government, but the two parties disagree on how and where. As we trust our elected officials to make decisions in Washington on our behalf, we must show interest and aptitude on the end results. To accomplish a balanced budget deal, many suggest that we must not only balance spending, but reform entitlements, rethink government size, change tax methods, and depend less on Washington. Attendees of a conference on budget cutting in Jackson Hole, Wyoming suggested we deliver a budget that has a simple, quantifiable goal, that includes short term goals, and eliminated gimmicks. Countries like Sweden and Canada have successfully reformed fiscal policies. Sweden's government elected to abandon welfare, pensions, health insurance, unemployment programs, family assistance, and child allowances. Their deficit soon fell by 3.5% of GDP in one year alone (Urresta 51). Sweden's plan was three times as intense as Congress' current plan, while cutting spending in half the time. As for cuts, everyone must suffer. As entitlement debates continue, "the interests of older Americans are being protected at the expense of young people," says Neil Howe and Bill Strauss (Rau M- 1). Older Americans have good reason to protect programs that they have paid into for years, but those programs spend an overall per capita amount of 11 times as much on elderly than that spent on children altogether (Rau M-1). The youth are the future of America, and we should protect them too. Currently, poverty in US is 3 times as likely to affect the very young than the very old. By balancing the budget, "interest rates come down, the economy picks up - we will rebound," says Representative James Greenwood (Cloud 3709), and everyone should be happy with that. _ f:\12000 essays\business & economics (632)\Great Places.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How to Have A Joyous Marriage! by Roderick C. Meredith Here are "keys' to help make your marriage special! These insights and tested principles will help you build your marriage into a precious relationship of joy and beauty. HJM4 Edition 1.3, May 1996 This booklet is not to be sold! It has been provided as a free public educational service by the Global Church of God (c) 1993 GLOBAL CHURCH OF GOD All rights reserved. Printed in the U.S.A. Editor in Chief Roderick C. Meredith Executive Editor Raymond F. McNair Managing Editor Jeffrey H. Patton Associate Editor Gary Foster Associate Editor Thomas E. Robinson Assistant to the Editor Bradley J. Mitchell Contributing Editor Ronald B. Nelson Art Director Karen Myers Art Assistant Donna Prejean Business Manager J. Edwin Pope Circulation Wayne Pyle Technical Advisor Eric T. Myers Information Systems Sanford Beattie Information Systems Rob Carrico With tears in their eyes, dozens and scores of women have told me how miserable their marriages were. They obviously wish with all their hearts that things were better, but they don't know what to do. "My husband won't really open up and talk with me about our problems", many women say. "My psychologist told me to go have an affair and I would feel better," one woman said. "But I know that's wrong and I just can't do that!" In our "now generation," most folks don't think of the long-term consequences of their actions, and our acceptance of "quickie" marriages and divorces only compounds the problem. Why try to work through all the problems in your marriage when you can just divorce and feel better right now? In an outstanding recent article, former Secretary of Education, William J. Bennett, made these insightful comments: "...but during the same recent 30-year period there has been a 560% increase in violent crime; a 419% increase in illegitimate births; a quadrupling in divorce rates; a tripling of the percentage of children living in single-parent homes; more than a 200% increase in the teenage suicide rate; and a drop of almost 80 points in SAT scores....!" If you wish to avoid the misery of this foolish generation, then read carefully and prayerfully the pages to follow. For we are going to discuss seven vital keys to building and enriching the very basis of all decent society--your marriage and your family. I. Commitment is basic The expression "till death do us part" may seem old fashioned or passé to many young people. But those same couples may be suffering loneliness, emptiness and misery if they leave that concept out of their marriages. Yet today, most people take for granted the modern option of leaving their mate and forsaking their marriage vows. Many couples plan for the eventuality of divorce by having a lawyer write up a prenuptial agreement. Then they promise to stay together for life, but insist on acting "prudently" to protect their assets in case the marriage doesn't last. This idea may seem wise and prudent, but is it really? No! The common acceptance of the "escape hatch" of an easy divorce creates a vicious cycle. The more some people divorce, the easier it seems for others to do likewise. And the breakdown of a society has begun! Nearly all thoughtful men and women realize that a stable home and family is basic for a decent society. As our homes and marriages come apart, so the wildness, ruthlessness and violence in our society will increase. It is vital that we all grasp that the basis for marriage itself is the supreme purpose of our Creator! That's right! If you leave the great God who made us male and female out of the picture, then human reason is the only basis for anything--and absolute chaos will ensue. It is God who said: "Let us make man in our image, according to Our likeness; let them have dominion over the fish of the sea, over the birds of the air, and over the cattle, over all the earth and over every creeping thing that creeps on the earth." So God created man in His own image; in the image of God He created him; male and female He created them. Then God blessed them, and God said to them, "Be fruitful and multiply; fill the earth and subdue it; have dominion over the fish of the sea, over the birds of the air, and over every living thing that moves on the earth" (Genesis 1:26-28). God instituted marriage We see here that it is God who made us male and female. And His first command to humans was to "multiply"--obviously implying marriage and home. God the Father is the Author of marriage. In Matthew 19, Jesus gave us some principles concerning marriage. The Pharisees tested His teaching on the subject by asking, "Is it lawful for a man to divorce his wife for just any reason?" (Matthew 19:3). In other words, can a man put away his wife for just any reason? They distorted what Moses had said in the Old Testament about putting a wife away, and would even use a pimple, a wart or almost anything as an excuse to put their wives away. And He answered and said to them, "Have you not read that He who made them at the beginning made them male and female," and said, "For this reason a man shall leave his father and mother and be joined to his wife, and the two shall become one flesh"? (verse 4-5). God made the man and the woman for each other. He created the man and his wife to complement one another physically, psychologically, emotionally and mentally so they could live a balanced and happy life together. Jesus taught that a man should leave his father and his mother and cleave to his wife! If you do have to bring senile or infirm in-laws to your home later, after the marriage is firmly established, then that's different. But at the beginning, and certainly for the first several years, normally, you're to leave relatives and cleave to your wife or your husband. Throughout your married life, always remember that it is GOD who made you "one." In a true marriage, a man and woman covenant before God to take each other as mates for life. Under all normal circumstances, you should stay together. If need be, you should pray and work to save your marriage. In Malachi 2:13-16, our Creator shows why He sometimes withholds His blessing: You cover the altar of the LORD with tears, with weeping and crying; so He does not regard the offering anymore, nor receive it with good will from your hands. Yet you say, "For what reason?" Because the LORD has been witness between you and the wife of your youth, with whom you have dealt treacherously; yet she is your companion and your wife by covenant. But did He not make them one, having a remnant of the Spirit? And why one? He seeks godly offspring. Therefore take heed to your spirit, and let none deal treacherously with the wife of his youth. "For the LORD God of Israel says that He hates divorce, for it covers one's garment with violence," says the LORD of hosts. "Therefore take heed to your spirit, that you do not deal treacherously." Notice that God says plainly that He hates divorce! So should you. That doesn't mean you hate divorced people. Neither does God. Rather, He pities them and wishes that we humans would quit fighting and arguing and learn to love one another. If we would truly do this--and make a real commitment when we marry--then we could work out any problems that might arise. We could learn the lessons of giving, sharing and forgiving in a way that only marriage can teach. Our faithfulness to our mates shows our Maker that our commitment to Him will also be lasting. II. Communication is vital One of the greatest shortcomings in literally millions of marriages is the lack of open and loving communication. Note that I said, "open and loving," not shouting, criticizing or threatening. This lack is especially discouraging to many wives. A young man will put his best foot forward during the courtship. He will walk and talk for hours with a pretty young woman he hopes to marry. His hormones are raging. So he will confide in her, encourage and flatter her, do almost anything to get this beautiful young woman to say "yes" and marry him. But, not too many days or weeks after the marriage, a man may begin to withdraw. He seems to forget that his sweetheart agreed to marry because she honestly thought she was liked and respected as a person. She expected and hoped to be a full partner in life with her future husband--sharing with him their mutual plans, hopes and dreams. However, when "hubby" starts coming home late with liquor on his breath and has nothing to say, or when he eats dinner quickly and silently and then plops himself in front of the TV, or when he spends most nights away from home playing pool with "the boys"--that hurts! So before you even become officially engaged, you had better become "best friends" with your future mate--and mean it. You had better find out if you truly have a whole range of interests in common--besides sex and romance! In a truly happy marriage, the two individuals are to become like one person. There is to be a oneness of mind, body, emotions, attitudes and a sharing in nearly every aspect of life. This doesn't mean that a man can never play basketball, handball, pool, or cards with other men occasionally. Good masculine companionship once in a while helps a husband to be more of a man. This gives him more confidence and more of a release for a particular part of his nature that ought to be expressed with other men. But if a husband is always playing cards, basketball, baseball, or pool with other men--or away from home trying to make it big on the job--then this takes him mentally, emotionally and physically away from his wife and children. A continuing practice of this is wrong! It is breaking the commandment of Christ that a man is to cleave to his wife. Every married man has the God-given responsibility to spend time at home with his wife and children. Is this where a considerable amount of your time and interest lies? Or is it always somewhere else, doing something else? Where is your "heart"? How and where do you spend your time? Spend time alone with your mate Husbands and wives need special time together--sometimes apart even from the children. Get a babysitter, if you can, and go out to dinner or to a concert once in a while. You can walk, hand in hand, as you used to do when you were courting and dating--dance together, talk together and love together. You can even take short trips together. Then you will appreciate the children more, because you've been away from them for a few days (not several weeks or months) perhaps once or twice a year. This doesn't hurt them at all, if they are properly trained and your family is emotionally close as it should be. Look at some examples in the Bible. You'll find that men like Abraham, Isaac and Jacob were away from their children far more than many of us today. It's a matter of correctly training the children while you're with them, and giving them a stable atmosphere and foundation for the remainder of their lives. Of course, many don't have much opportunity to go someplace together, or can't afford it. But there are other ways you can be alone together. You can begin by sending the children to bed by eight or eight-thirty in the evening. Then you will have an hour and a half or two hours together--before you go to bed. You can listen to music together, read the Bible together occasionally, and do other things together. Sometimes you can have a babysitter watch the children while you and your wife take a long walk together. A little thoughtfulness and tenderness can help a great deal! Many of you men who have marriage problems should court your wife as you used to. Practice the art of trying to cleave to her, and spend time together. Then you will really understand your wife, and she will feel close to you mentally and emotionally. Both of you will have more of the mutual understanding and affection you used to have when you were first married. But you do need to communicate in all those activities! Remember, love does not automatically make one a skilled mind reader. Men, be sure you don't let other things distract you--or create situations which excuse you--from talking openly and genuinely with your mate about your deepest interests and concerns in life. Let her know if you think something is missing in your relationship. And truly listen to her with your heart as well as your head when she talks to you about similar matters. If you love your mate, tell him or her--say it frequently. Open up. If you share your hopes and dreams with the love of your life, then your love will grow deeper and be even more meaningful. III. Set family goals together A truly meaningful home and marriage ought to have a number of goals in mind besides sexual fulfillment. Too often, young people are so consumed with sexual interest that they neglect to build a home, an enduring family and a meaningful life together. So when the sexual fireworks start to slow down after a few months or years of marriage, these people feel a sense of letdown or betrayal. God mentions one of the reasons He made man and woman one in marriage. Notice again the inspired words of Malachi, "But did He not make them one, having a remnant of the Spirit? And why one? He seeks godly offspring. Therefore take heed to your spirit, and let none deal treacherously with the wife of his youth" (Malachi 2:15). A young husband and wife normally ought to be planning for children, a real home, a sense of family, stability and all that this implies. If both husband and wife are working, they need to plan together to set aside money so she can stop working for several years, at least, in order to have and rear children. Couples should discuss what kind of home, education and family activities they feel will work out best for them. They should regularly set little goals to work on together. Then, as partners in their family enterprise, they should see that these smaller goals all fit in with and support the fulfillment of their major family goals. An illustration of working toward a smaller goal might include planning together a summer vacation trip. Each partner might wish to do some reading and research separately, talk to different friends, get ideas. Then, together, they can spend time discussing alternatives, planning a tentative trip budget, and finalizing plans. This type of goal-sharing and planning is obviously increased when as couple has children. Then they need to discuss regularly the childrens' health, development, education, friends, neighborhood problems and their respective goals in life. That is one reason, among many others, why having children often serves to give greater strength and stability to a marriage. Jesus Christ said to His disciples, "No longer do I call you servants, for a servant does not know what his master is doing; but I have called you friends, for all things that I heard from My Father I have made known to you" (John 15:15). Even the Son of God did not withhold from His friends the plans and programs He and the Father had in mind. So you men, especially, open up and bring your wives into the planning process of how and where you want to live in the future, where you hope your career may take you and the goals you have in mind for yourself and for the family as a whole. Make them feel like an integral part of the big programs in your life. IV. Marriage means giving One of the greatest joys in life that everyone ought to experience is the joy of giving: is seeing the deep appreciation, the radiant smiles and the joy of others because you thought of them. The Apostle Paul wrote, "I have shown in every way, by laboring like this, that you must support the weak. And remember the words of the Lord Jesus, that He said, 'It is more blessed to give than to receive'" (Acts 20:35). Marriage is certainly one of the best places to learn to give. For when you are constantly living with another person, when you are bound by God in marriage to that person, you desperately need to learn to give and give and give in order for that union to be as deeply happy and satisfying as it should be! As the one God intended to take the lead, a husband ought to take the lead in creating, in marriage, an atmosphere of giving and serving. Then the wife should surely follow this lead so that each party is trying to give a wonderful life and marriage to the other, to enrich their partner's life in every possible way. Otherwise, if both partners are immature, selfish and just trying to "get", then big trouble lies ahead! You husbands especially need to remember that Christ gave Himself for the Church: That He might sanctify and cleanse it with the washing of water by the word, that he might present it to himself a glorious church, not having spot, or wrinkle, or any such thing; but that it should be holy and without blemish. So ought men to love their wives as their own bodies. He that loves his wife loves himself (Ephesians 5:26-28). Authorized (King James) Version. Every right-minded man certainly desires to cherish and protect his wife. She is his sweetheart, his companion, the mother of his children. He ought to realize that she is part of him! "For no one ever hated his own flesh, but nourishes and cherishes it, just as the Lord does the church" (verse 29). Realizing that his wife is part of him, a man certainly ought to have a solicitous and protective feeling toward his wife and sweetheart. He should constantly be thinking of her welfare so that she does not strain or overdo; so that her grace and beauty may be preserved throughout all of their married life. A real man will notice when his wife is overworking and lighten her burdens whenever possible. He will leap to action to lift heavy things for her, scrub those burnt pans or vacuum for her when she is tired or over worked. He will help her when she is sick, and protectively and lovingly watch over her in many such ways! Of course, a man should not do this because he is nagged or henpecked into doing it! And no right-minded wife would knowingly do this. If a wife makes demands beyond reason upon her husband, it is his duty as the family's leader to set his foot down and restore a proper balance in their relationship--though, as much as possible, he still helps her out in sincere love and concern for their life together. The woman also has her responsibilities, her particular duties in the household, and she should gladly do them. But, help from her husband comes in as an act of love--freely and fully given when she is sick, downcast or is suddenly faced with an object too heavy to lift, a job too difficult for her to accomplish without the physically stronger partner of the marriage giving of his help and strength in love to his wife and sweetheart. Learn this lesson, men! Your wives will repay you in a thousand ways over the years to come if you learn to give this help when it is needed--and give it freely and in kindness. The Christian wife Certainly every Christian woman ought to think about serving her husband--about caring for his health and personal needs, about encouraging him, loving him and helping him grow as a husband and father in every way she can. One of the great tragedies of our inflationary society is that millions of young wives are virtually forced to work outside the home! Often, they come home tired and bedraggled at night. A wife in this situation lacks the zest and energy to cook special meals, keep the house as she would wish to--let alone be an enthusiastic sweetheart, companion and lover for her husband. Each of you who read this need to meditate deeply about the quality of life you desire. Think carefully about building a real family with children--and a wife that is able to stay home and rear that family as our Creator certainly intended! The apostle Paul was inspired to instruct the older women: That they may teach the young women to be sober, to love their husbands, to love their children, To be discrete, chaste, keepers at home, good, obedient to their own husbands, that the word of God be not blasphemed (Titus 2:4-5) Authorized (King James) Version. As Proverbs 31 tells us, a woman like this who gives herself to her family, to building a real home--will indeed be honored both by God and by man. "Her children rise up and call her blessed; her husband also, and he praises her" (Proverbs 31:28). If you can use your marriage and your family as a "training ground," to unreservedly love, share and give to others, you will develop the greatest characteristic of all. Then, from a strong, happy marriage as a base of strength, that love can flow out from you and your mate to the rest of your family, friends, neighbors and associates. In every aspect of your married life, learn to practice the way of give. You will not be sorry. V. The ART of FORGIVING To be happy and remain happy in marriage, you must not only give but also forgive. There have never been two perfect people on earth, and so no marriage has ever been truly perfect--as all long-married people understand. You knew full well when you married that your husband or wife was not perfect. So you must not hold them up to some unreasonable standard of perfection. If you do, you will both be perfectly miserable. When there are real misunderstandings and hurts--and there will be--you must learn to forgive. As a real Christian, you are commanded to forgive all men--so how much more your own mate! Jesus Christ, the One who shed His blood for us, stated, "For if you forgive men their trespasses, your heavenly Father will also forgive you. But if you do not forgive men their trespasses, neither will your Father forgive your trespasses" (Matthew 6:14-15). You must ask God in prayer to grant you the spirit of forgiveness--the ability to completely put away all resentment and animosity against others who have hurt you. And then you need to practice this. Do it regularly. Build the habit of forgiving others quickly, especially your own mate! There are those who carry grudges. They often brood and fume and smolder over little hurts and misunderstandings. Are you like this? If you are, you need to pray to God in heaven to help you get over this tendency--and to completely forgive your mate for the literally dozens of little hurts that can occur when two people live together. Do you really enjoy making yourself miserable, your mate miserable and everyone else miserable by carrying grudges around forever? If you really think about it, very few of us really want this result. So work on it. Change your pattern of thinking. Don't allow yourself to get hurt so easily. Pray your heart out to God who is called "the Father of mercies" (II Corinthians 1:3). As He forgives us again and again, so must we forgive others--including our mates. The apostle Peter commands Christian men to honor their wives, "as being heirs together of the grace of life, that your prayers may not be hindered" (I Peter 3:7). Peter then proceeds to give instructions that apply to all situations, but especially the "marriage situation": Finally, all of you be of one mind, having compassion for one another; love as brothers, be tenderhearted, be courteous; not returning evil for evil or reviling for reviling, but on the contrary blessing, knowing that you were called to this, that you may inherit a blessing (verses 8-9). Yes, we need to have compassion for our mates and forgive them regularly. We need to be courteous and tenderhearted in marriage. For marriage is a wonderful workshop for learning the art of giving, forgiving, kindness and mercy--if we will prayerfully and unselfishly use it to help us build these qualities into our character. The apostle Peter asked Jesus, "Lord, how often shall my brother sin against me, and I forgive him? Up to seven times?" (Matthew 18:21). Think about it! Sometimes your mate will offend you (though you probably shouldn't be so sensitive!) many times in one day! Jesus understood. He knew that we all need forgiveness from God and from each other again and again. So Jesus answered, "I do not say to you, up to seven times, but up to seventy times seven" (verse 22). So love your mate. Forgive your mate. Don't carry grudges. Remember how difficult it must be for him or her to live with you! If you were someone else, how would you like to have to put up with all the mistakes and foibles that you exhibit almost every week of your life? Remind yourself that you cannot be happy "hating" your mate. Learn to genuinely forgive, forget and move forward to a truly joyous and satisfying life. Which brings us to our next point. VI. Romance and fun Most courtships and marriages begin with romance and fun. The young couple spends a lot of time together. They go to the beach, the mountains or the park. They eat together. They go out dancing, or to the museum, libraries or movies. Above all, they have long, intimate talks with each other--looking into each other's eyes, exulting in the romance of love. And they have fun. In most cases, they laugh and kiss and kid around and really enjoy the getting-to-know-you stage of courtship. Life takes on a special glow because of their attraction to each other--and because they are using that attraction to enhance and make special the sharing of all their activities and intimate moments together. But all too often--a few weeks or months after the marriage--this fun and romance begins to leave the marriage. Often, life becomes hum-drum and dull and one or both marriage partners start asking themselves, "What went wrong?" Why? There are often a number of reasons, of course, but let's discuss two of the most common reasons why a marriage loses its romance and zest. f:\12000 essays\business & economics (632)\Greenspans ReNomination.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ When Alan Greenspan presented the Federal Reserve's semi-annual report on monetary policy to the Subcommittee on Domestic and International Monetary Policy, the Committee on Banking and Financial Services, and the U.S. House of Representatives on February, Dr. Greenspan touted a cautionary yet favorable view of the U.S. economy. He states that "With inflationary pressures apparently receding, the previous degree of restraint in monetary policy was no longer deemed necessary, and the FOMC consequently implemented a small reduction in reserve market pressures last July." (Greenspan, 1996, Speech) During the Summer and Fall of 1995, the economy experienced a strengthening of aggregate demand growth. According to Greenspan, this increase in aggregate demand brought finished goods inventories and sales into near equilibrium. The Fed's fine tuning of the economy seemed to be paying off. Greenspan had a positive outlook for the economy for the rest of 1995. He states "the economy, as hoped has moved onto a trajectory that could be maintained--one less steep than in 1994, when the rate of growth was clearly unsustainable, but one that nevertheless would imply continued significant growth and incomes." (Greenspan, 1996, Speech) Towards the end of the year, the economy showed signs of slowing. Fearing a prolonged slowdown or even a recession in the economy, and with inflationary expectations waning, Chairman Greenspan and the Federal Reserve cut rates again in December. (Greenspan, 1996, Speech) There are, of course, critics of 1995's monetary policy. Most of the criticism came in the early part of 1995 when the Fed raised rates again. In the article "Are We Losing Altitude Too Fast" from the May 1, 1995 issue of Time magazine written by John Greenwald, he explains that the economy might not be coming in for a "soft landing" like the fed predicts. Trying to sustain 2 to 3 percent growth might lead us into a recession. Mr. Greenwald explains how the Fed's actions in 1994 and early 1995 has hurt individuals and the economy as a whole. "Corporate layoffs are far from over," says Greenwald, "they generally accelerate when firms find themselves in an economy that is weakening." (Greenwald, Time, 5/1/95, p80) Unemployment and layoffs aren't the only thing to worry about according to Mr. Greenwald. The automobile industry and the housing markets are both getting hit in the pocket books. Paul Speigel, owner of a New York car dealership explains his woes by saying '"We're doing our best to keep up the volume by discounting, working on our customers, but the Fed's rate hikes have dampened the ability of many Chevrolet customers to buy that new vehicle."' John Tuccillo, chief economist for the National Association of Realtors states that the market (for new housing) "fell apart as mortgage rates rose above 9% last fall (1994), and still have not yet recovered." (Greenwald, Time, May 1, 1995. p81) Another outspoken, and cynical opponent to the Fed's monetary policy is Dr. Michael K. Evans, who is president of Evans Economics, Inc. and Evans Investment Advisors, Boca Roton, Fla. Dr. Evans wote an article in the Aug. 21, 1995 issue of Industry Week entitled "The Gang that Wouldn't Shoot Straight: Fed's Trample Over Their Own Rate Cut." Dr. Evans contends that lowering the federal funds rate in July was a mistake because the economy was already starting to recover without tampering by the Fed. He claims Greenspan knew full well that the economy was on the upswing, but cut rates anyway to try to ensure his reappointment come March 1996. Dr. Evans claims that vice-Chairman Alan Blinder also knew of the recovery but "he could not face his collegues at Princeton when he returned, unless he pushed for a rate cut." (Evans, Industry Week, Aug. 21, 1995. p122) Dr. Evans concludes that the Fed's actions in July were "purposely misleading, cravenly political, and just plain stupid." (Evans, Industry Week, Aug. 21, 1995. p122) Many people applauded the actions of the Fed in 1995, and defend them from the rampant "fed-bashing". One of the defenders of the Fed's monetary policy and Alan Greenspan is Rob Norton who wrote an article in the July 24, 1995 issue of Fortune entitled "The Blaming of Dr. Greenspan. (Federal Reserve Board Chairman Alan Greenspan Takes Blame for Economic Downturn)." Mr. Norton agrees with Greenspan that in February 1995 it was essential to raise interest rates because of an unsustainable rate of growth. He says that Greenspan was ahead of the game by doing this. "The conventional wisdom crowd claimed that here was no reason to fear that the economy was going to overheat," he goes on to say "By the fourth quarter of last year, real GDP was growing at a 5.1% rate--twice the average growth rate most economists consider sustainable in the U.S., given population growth and productivity increases." (Norton, Fortune, July 24, 1995. p39) Mr. Norton also does not believe that Alan Greenspan cut rates in July to ensure his re-nomination in March, 1996. He points out that during the 1988 Presidential campaign, with inflationary pressures present, many economists felt Greenspan would not raise rates because he is a loyal Republican, and he did not want to hurt the Republican's chances in the campaign. Chairman Greenspan went against most people's predictions and raised rates "just days before the Republican convention." (Norton, Fortune, July 24, 1995. p39) Another defender of the Fed's policies during 1995 is Michael Sivy, who is a chartered financial analyst and a former Wall Street research director, wrote an article titled "The Fed's Rate Cut Decision could Push The Dow to 4900 and Postpone a Recession," which appeared in the Aug. 1995 edition of Money magazine. He stated that Greenspan "decided to send businesses and consumers a clear signal: Interest rates won't go any higher." But Greenspan still was on the lookout for any inflationary pressures, so he reduced rates by a very small amount in July, which will be followed by more small rate cuts. Mr. Sivy states "With the Fed fine-tuning the economy like that, we think the Dow could tack on another 200 points to top 4900 by year-end." (Sivy, Money, Aug. 1995. p160) Through my research on 1995 monetary policy, I feel the Fed did a good job of monetary policy during 1995. During 1994 and early 1995 I believe the Federal Reserve were justified in their actions in stepping up interest rates. Inflationary pressures were definitely present at the time, and if the fed let the inflation occur, how high would they let it go? This might also mean going through disinflation in the future, which is a long and painful process. The Fed did the right thing by not even letting inflation "out of the bottle." As for the Fed's cutting of interest rates in the middle and latter parts of the year, I believe the data suggests the economy was slowing down, along with that, inflationary expectations were fading also. This made it relatively easy for the Fed to lower rates. But they made sure they watched inflationary pressures at the same time. I still haven't made up my mind whether Greenspan based part of his decision to cut rates on political reasons or not. Sure, he could probably make 10 times more in the private sector, but I believe more goes into it than that. Many people see the Chair of the Federal Reserve as the 2nd most powerful person in the U.S. right behind the President, this in itself could persuade Greenspan into pleasing the President who reappoints him. Another point would be going down in history. If Greenspan successfully obtains an unprecedented third term, he will probably be highly regarded in every history book yet to be made; it's doubtful that Greenspan would go down in history if he were the president of the Chase Manhattan Bank. As Rob Norton defended Greenspan in saying that he raised rates even though the Presidential election was just around the corner in 1988; Greenspan was only in the 2nd year of his 4 year term, so there wasn't any substantial political pressure, he still had about 3 years left of his term. At any rate, I believe that the Fed had a very successful year of monetary policy. The stock market soared, inflation and unemployment are both at respectable levels, so I just hope the Fed keeps it up, and President Clinton re-appoints Alan Greenspan. f:\12000 essays\business & economics (632)\Growth of NYS Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Growth of NYS Business April 17, 1996 For a number of reasons, business enterprise in New York grew by leaps and bounds between 1825 and 1860. New York's growth between the years 1825 and 1860 can be attributed to a number of factors. These include but cannot be limited to the construction of the Erie Canal, the invention of the telegraph, the developed of the railroads, the establishment of Wall Street and banking, the textile, shipping, agriculture and newpaper industries, the development of steam power and the use of iron products. On October 26, 1825 the Erie Canal was opened. The canal immediately became an important commercial route connecting the East with the Ohio and Mississippi Valleys. With tht time of travel cut to one-third and the cost of shipping freight cut to one-tenthof the previous figures, commerce via the canal soon made New York City the chief port of the Atlantic. The growing urban population and the contruction of canals, railroads and factories stimulated the demand for raw materials and food stuffs. In 1836 four-fifths of the tonnage over the Erie Canal came from western New York (North, 105). Much of this cargo was in the form of agriculture goods. The farmer become a shrewed businessaman of sorts as he tended to produce whatever products would leave him the greatest profit margin. The rise of the dairy industry was by far the most significant development in the agricultural history of the state between 1825 and 1860. Farmers discovered that cows were their most relliable money-makers, since both the domestic and foreign market kept demanding more dairy products (Ellis, 273). Price flucuations became increasingly important for the farming population between 1825 and 1860. Prices rose from the low level of the early 1820's until the middle 1830's and the farmer's shared in the general prosperity (271). Although the rapid industrialization and urbanization of New York had a great deal to do with the success of agricultural markets sporadic demand from aboard as a result of the Irish famine, the Crimean War and the repeal of the Corn Laws in England also contributed(North, 141). During this period Ohio, Pennsylvania, New York and Virginia, in that order were the leading wheat growing states. Between the years 1840 and 1850 New York ranked first in the production of beef. The absence of politic party differences on issues related to the the growth of democracy existed in regard to the foremost economic questions, there was absolutely no partisan division evident in the movement to incorporate new financial institutions; rather , the primary factors , which the legislators examined, concerned value, feasibility, profit and the location within the state. Dozens of turnpike proposals, most of which werebacked by the Republicans, passed the legislature; but the Federalists cooperated, seeing the chance for profits. Prominent Federalists like John Rutherfurd, John Neilson, William Paterson, John Bayard, and James Parker invested susstanial sums in the turnpike business. There were numerous Republicans who were also vitally interested in the turnpike business (Kass, 150). Bipartisan support also accompanied plans for the construction of bridges and canals. All of the parties contained a large number of adherents from from every level of economic well- being in society. This helps to expain the absence of any clear-cut party differences on the major economic issues of the such as the chartering of banks, the protestive tariff, internal improvements, the development of manufacturing, and the promotion of superior agricultural techniques. Each politcal faction had segments both pro and con on most of these questions, and, inall cases it was opprtunism, the desire for profits, which was decisive in determining one's political position on these economic issues(175). New York's economic growth can also be attributed to the invention of the cotton gin. Cotton had become a boom crop in the south, however, plantation owners were either too engrossed in the production of their crops or too unschooled in business techiniques to handle its distribution. Some just did not want to be bothered. This opened thee door for agents representing New York shipping firms who were only too happy to help them out - for a fee. This scheme not only earned the New York merchants a handsome profit but also solved the problem that without cotton the ship owner would be hards preesed to find adequate cargoes for their return voyages. And so it came about that New York in the nineteeth century became the nation's foremost shipper of cotton(Allen, 108-109). The cotton shipments entering New York harbor were brought to textile mills for processing. A group of New york capitalist estashlished the Harmony Cotton Manufacturing Company in Cohoes. A heavy investment of capital caused the rapid growth of the factory system, which was mass production with integration of processes and produced a high quality cotton cloth as well as other textiles(Ellis, 266). This set the scene for an industrial society by widening the market, manufacturing increased rapidly throughout this period, although development varied enormously from industry to industry. Often developments were due to improvements in technical processes such as the adoption of steam power and the use of anthracite coal instead of charcoal by the iron industry. The metallurgical industries emplyed thousands for skillful workers who produced a variety of iron and steel products, such as farm machinery, pistols, sewing machines, clocks and stoves. These products were being produced using standard parts and multiple quantities(267). The iron industry made rapid progress as a result of this processas well as the expansion of the railroad industry which created increased demand for iron products. It can therefore be surmized that often growth in a one industry would cause increased demand for another industry's product, hence the boom of both industries. The growth of manufacturing was the main impetus to expansion , the industrial base broadened during this period, reflecting the overall improvement in factor endowments for manufacturing. Equally important was the cost decline in transportation, which opened up new sites for manufacturing development and reduced transport costs for existing firms (North, 208). Production increases required a retail market. In November of 1858, R.H. Macy established a department store in New York City successfully implementing a fixed price policy on a large scale developed by small New York stores since 1840 establishing a n American retail sales custom (Spann, 125). Some additional elements that should mentioned include the founding of the New York Tribune by Horace Greely, the development of the telegraph by Samuel Morse, the colaboration of six New York newspapers who joined to pay telegragh costs of foreign news relayed from Boston, and the establishment of a New York clearinghouse to facilitate banking operations. Research reveals that the reasons for the success of New York's business enterprise between 1825 and 1860 were enumerous with no reason weighting more heavily than another with the exception of as Ellis states that, "Plank roads, railroads, canals, steamships-all had revolutionary effects on the economy of New York. The predominately self-sufficent farmer of pioneer days was gradually tramnsformed into a specialized commercial farmer sensitive to every shift in the markets. The isolation of many rural communities was breaking down as citzensand goods flowed freely in and out. Merchants in both the upstae and metropolitan region, recognizing the crucial role of canals and railroads, looked with satisfaction upon the finest and most actively expanding transportation network in the country. New York grew steadily in population, wealth, and trade largely to the splendid system of water and rail transportation promoted by its citizens in this period.", but all entwinding to create a boom of business expansion during this period. It appeared as if we were developing not only as a state but as a civilized nation whenever this development would be curtailed by the onsloat of a civil war. Works Cited Allen, Oliver E. New York, New York: A History of the World's Most Exhilarating and Challenging City. New York: Macmillan, 1990. Ellis, David M., et al. A History of New York State. Ithaca: Cornell UP, 1967. Kass, Alvin. Politics in New York State, 1800 -1830. Syracuse: Syracuse UP, 1965. North, Douglas C. The Economic Growth of the United States, 1790-1860. New York: Norton, 1966. Spann, Edward K. The New Metropolis: New York City, 1840-1857. New York: Columbia UP, 1981. f:\12000 essays\business & economics (632)\Hardin Lifeboat Ethics The Case Against.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Hardin's "Lifeboat Ethics: The Case Against the Poor" - No! You Cannot Come in Garrett Hardin writes about saving the poor in his essay"Lifeboat Ethics: The Case Against the Poor" found in The Blair Reader. Hardin writes about how the rich countries are in the lifeboat and the poor countries are swimming in the ocean. He also writes about how the United States helps other countries. Hardin feels that if the government keeps helping other countries and letting people in then America will also drown. "We must convince them if we wish to save at least part of the world form environmental ruin"(page 765). Why should I help the poor countries? Why should I let the immigrants in? I see no reason for helping someone that is not an American. These non Americans are taking my hard-working money that they did not earn. I am tired of the United States of America giving my money to the poor countries. The government is giving these people my money for which I worked hard. The government does not ask for my permission to give these people my money. By letting these people on our lifeboat the government is drowning us all. "If we do let an extra 10 people in our lifeboat, we will have lost our 'safety factor,' an engineering principle of critical importance" (page 757). I cannot take a chance in helping people if it is going to put me in risk. Instead of giving the money to non Americans it should be used only in America. The money used to help the poorer countries can be very useful in the United States. The middle class people in America get no help. More of that money can go toward the middle class families. The middle class families work had for their money. The government helps poor families with food, housing, education and many more things. The rich have more money than they need, but the middle class is left struggling. The middle class people cannot move up. The middle class cannot get ant help from the government. It makes me mad that the poor Americans do not take advantages of some of the opportunities available for them. The middle class people sometimes work two or three jobs to pay for their own or their children's college education. The government should use the money they are sending to other countries to help the taxpayers. In my family we have just enough money to get by. I do not see the government knocking on my door handing me food or money. Why should they give my money to other countries? The government will not help my family because our gross income is too high to receive any help. Well true maybe our gross income is high, but we do not take all that money home. The government is taking money out of my paycheck, money that I struggle for, and giving it to other countries. I have my own dependents to take care of. I should not have to take care of other people. It was my decision to have my children. If I wanted more dependents, I would have them. The government also tells me that if I had gotten a used car with cheap payments then I would have extra money left over. Why should I have to get a used car? If I get a used car, I will only be spending more money getting it fixed. I am tired of the government giving me excuses on why I do not need any help. The only reason the government cannot help me is because they do not have the money. The only reason the government does not have the money is because they are giving it to other countries. I am tired of the immigrants coming into this country. Hardin says "But aren't we all immigrants, or the descendants of immigrants?"(page 764). Well yes, I am a descendant of immigrants and I understand that. Nevertheless, what gives the immigrants the right to come in my boat and take my money? I have no objections to those immigrants who come here to work or bring work. What I do have a problem is with those that come here and take advantage of our welfare system. These new immigrants did not deposit money into the welfare system so why should they be allowed to withdrawal.If the immigrants were not taking our tax money then there would be more money for our people. Who is going to help me? No body is going to help me, not even my own country. The chances of me getting social security when I am old are slim. Meanwhile, these immigrants are getting my money. While my money is being spent on non Americans, I might be living in a shack going through Dumpsters to get by, when I am old. Garrett Hardin in "Lifeboat Ethics: The Case Against the Poor" writes that if America keeps trying to save other people from different countries then America will also drown. I do not want these people in my lifeboat. America is already starting to drown. I want my money to be used to help only American families. Leave American money in America! f:\12000 essays\business & economics (632)\Hawaii University.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Hawaii University MBA Department Term Project TQM & BPR Professor: Dr. Hassaane Saadeh Written by: Imad Atallah Date: 2\21\2002 The major new element in world market competition is quality. During the 1970's and 1980's, the Japanese and their U.S. companies demonstrated that high quality is achievable at lower costs and greater customer satisfaction. It was the result of using the management principles of total quality management (TQM). More and more U.S. companies have demonstrated that such achievements are possible Using TQM as a new way to manage. Such companies also found that they were recognized with everyone pulling in the same direction. Improvement had become a way of live. Improving competitive position and profit has always been the responsibility of management. Before the 1980's, U.S. management was broadly successful. Until then the dominant management model was that of the autocrat. Management, primly senior management, decided how the business was to operate, including what the policies and objectives were; how it was organized; what jobs were established; and how should they be done. It was an unquestioned axiom that if everyone did what the upper management required, the business would be successful. Organizations are composed of the people in them and the managers who lead them. People respond strongly to leadership expectations and rewards. If they are given little power in their jobs, they have little interest in improving them. If leaders exhort the members for better output but reward (promotions, bonuses, recognition) for mostly higher output, they get the behavior they reward. Quantity over quality has been a common management philosophy in the United States. The first step in implementing TQM requires that upper-management change in both philosophy and behavior. Managers must adopt the objectives of customer satisfaction and continuous improvement. They must implement the change to achieve these objectives through their personal and continuous involvement and in the reeducation of everyone in the organization in TQM principles and practices. The past philosophy of management can work reasonably well if a company dominates world markets. When markets become complex and worldwide with more and stronger competitors, a new model is needed. Asian companies and some in the United States have demonstrated that there is a more effective way to manage, quite different from the autocratic model: It is employee involvement in quality improvement. These companies also introduce high quality at lower cost as a competitive element, thereby changing the competitive equation for everyone. Total Quality Management (TQM) is an organizational process that actively involves every function and every employee in satisfying customer's needs, both internal and external. TQM works by continuously improving all aspect of work through structured control, improvement and planning activities that are carried out in concern with guiding ideology that focuses on Quality and Customer Satisfaction as the top priorities. TQM recognizes that the Customer is at the center of every activity. The customer may be external or internal. The key is to determine the gap between what the customer needs and what the system delivers. Once the gap is recognized, it would be systematically reduced and results in never-ending improvement in customer satisfaction at every level. TQM depends on and creates a culture in an organization which involves everybody in quality improvement. Everyone in the company can affect quality but must first realize this factor and have the techniques and tools which are appropriate for improving quality. Thus TQM includes the marketing and dissemination of quality and methods not only within the organization and customers but also to suppliers and other partners. The general view to achieve success in TQM could be summarized as below: * Quality as strength * Quality in all processes * The importance of management * The involvement, commitment and responsibility of everybody * Continuous improvement * Zero defects * Focus on prevention rather than inspection * Meeting the needs of target customers * Recovery * Benchmarking Quality is the most important and effective factor a company can use in the battle for customers." To be competitive, we must satisfy the customers. In order to be more competitive, we must delight the customers. Quality is here defined as the measure of customer delightment. The TQM perspective involves not only quality in relations with external customers but also quality in the internal service chains and in relation to suppliers and other partners. This "Quality Chain" involves everyone in the process and applied throughout the organization. Customer orientation and quality are not just a matter of ensuring that the contents of the product or services satisfies the customer needs. The manner in which the service is delivered and the customers' relations with the company must also meet the customer's expectation. Customers are satisfied with improvement in quality. The more quality improves, the faster sales will increase because customer satisfaction carries its own acceleration. When the quality reputation grows, marketing can emphasize increasing customer satisfaction as a major element in advertising and the other promotions. It is obvious that an unhappy customer will switch. Unfortunately a satisfied customer may also switch, on the theory that he could not lose much and might gain. Profit in business comes from repeat customers, customers that can boast about your product and service, and that bring friends with them. He further stated that we should stay ahead of the customers. This could be achieved through constant quality improvement and innovations. Why Do Companies Lose Customers: * * Death of Customer * * Customer Moving Residence * * Lower Price Elsewhere * * Unsatisfactory Handling of Complaints * * Suppliers' Lack of Interest TQM stress of the importance of zero defects and achieving the right target the first and every time. Variances in product are not acceptable. Zero defects is the result of an emphasis on prevention and diligent use of measurement, process control and the data driven elimination of waste and error. As Crosby said, "The purpose of quality management is to set up a system and a management discipline that prevents defects from happening in the company's performance cycle." Cost of Quality This is the cost incurred in achieving a quality product or services. These may be prevention cost, appraisal cost, internal failure cost, external failure cost, the cost of exceeding customer's requirement and the cost of lost opportunities. Competitive Benchmarking Comparing with competitors is another reflex of TQM. This is a continuous management process that helps firms access their competition and themselves and to use that knowledge in designing a practical plan to achieve market superiority. When done correctly, benchmarking produces the hard facts needed to plan and execute effective business strategies. Involvement of Everyone In TQM everyone is involved in the process of making the company a successful business. Everyone in the company is responsible for producing quality goods and services and reducing the cost of quality. Synergy in Team Work In Japan, there is no status difference as they believe in synergy. Therefore they consider themselves as partners depending on each other for effective management and success. Ownership and the Elements of Self-Management Total quality programmes are founded on the principal that people want to own the problems, the process, the solution and ultimately the success associated with the quality improvement. Psychologically, the ownership advocated by TQM ties in the development in organizational design away from traditional models of imposing management control over employees' behavior. Recognition and Rewards TQM system considers the rewards and recognition to be critical to a company's programmed, particularly when greater involvement of staff is required. Positive reinforcement through recognition and rewards is essential to maintain achievement and continuous improvement through participative problem-solving projects. The Quality Delivery Process TQM is not just the awareness of quality for the customers. It demands the implementation of a new system. The main objective of TQM may put the customer at the center of every activity and consider the process as customer driven, but all other factors which do not involve the customers have to be taken into consideration for the successful implementation of TQM. Furthermore, the Key features of a quality management system are the documented policy manuals and procedures on which the company could be audited. These policies and procedures should allow flexibility and adapt to change but always regain control. The objective of the quality management system ISO9000 "is to give purchasers an assurance that the quality of the products and/or services provided by a supplier meets their requirements" With this the company would seek to widen its customer base, as the customer is given an assurance of quality and the need for them to carry out their own audit is not required unless their own standards are higher than the requirements of ISO9000. "A number of major purchasers use this registration as the 'first-pass' over a supplier's quality system". ISO9000 can also be used as the foundation for the introduction of TQM. The application of the ISO9000 series of standards can be used in three ways: 1. To provide guidance to organizations, to assist them in developing their quality systems 2. As a purchasing standard (when specified in contracts) 3. As an assessment standard to be used by both second party and third party organizations. Finally, Total quality management (TQM) is a management philosophy that can provide organizations with the impetus for positive change, stimulating the workforce and creating an environment that gives a company the competitive edge. It is a system of dealing with quality at every stage of the production. TQM aims to improve the effectiveness and flexibility of the business as a whole and attempt to eliminate wasted effort. TQM pays constant attention to the needs of the customer and requires a continuing process of gathering relevant. (Environmental Management and Business Strategy, p.180) In summary, TQM has a number of key attributes. It: * Asks customers what they want and satisfies their requirements. * Attacks processes, not employees. * Instills teamwork and creates an atmosphere for innovation and continuous quality improvement. * Empowers people. * Strives for continuous organization-wide improvement. Business Process Redesign (BPR) or Reengineering is "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed. Since the BPR idea has surfaced it has been under constant ridicule by the popular press. They say it takes far too long, creates management headaches, fails 70% of the time, and it's only for big companies with big checkbooks (Hydrel...). However, I feel that with the right plan, the right people, and total commitment from those involved, Reengineering can work for any company. For years and years we've been putting Band-Aids on old work processes - more and more management layers, functional units, and automated traditional processes - in the search for percentage point of improvements in productivity. Reengineering says let's take a clean slate approach; designing the work and systems together to seek order of magnitude improvements in productivity, not incremental change. Think about that for a goal. Ten times greater productivity, not a few percentage points. And there are enough examples in the literature today to say that it can work. It may not be easy - minds dulled to the possibility of meaningful change, and an entrenched, threatened bureaucracy will work against you - but reengineering works. If you have ever waited in line at the grocery store, you can appreciate the need for process improvement. In this case, the "process" is called the check-out process, and the purpose of the process is to pay for and bag your groceries. The process begins with you stepping into line, and ends with you receiving your receipt and leaving the store. You are the customer (you have the money and you have come to buy food), and the store is the supplier. The process steps are the activities that you and the store personnel do to complete the transaction. In this simple example, we have described a business process. Imagine other business processes: ordering clothes from mail order companies, requesting new telephone service from your telephone company, developing new products, administering the social security process, building a new home, etc. Business processes are simply a set of activities that transform a set of inputs into a set of outputs (goods or services) for another person or process using people and tools. We all do them, and at one time or another play the role of customer or supplier. You may see business processes pictured as a set of triangles as shown below. The purpose of this model is to define the supplier and process inputs, your process, and the customer and associated outputs. Also shown is the feedback loop from customers. So why business process improvement? Improving business processes is paramount for businesses to stay competitive in today's marketplace. Over the last 10 to 15 years companies have been forced to improve their business processes because we, as customers, are demanding better and better products and services. And if we do not receive what we want from one supplier, we have many others to choose from (hence the competitive issue for businesses). Many companies began business process improvement with a continuous improvement model. This model attempts to understand and measure the current process, and make performance improvements accordingly. The figure below illustrates the basic steps. You begin by documenting what you do today, establish some way to measure the process based on what your customers want, do the process, measure the results, and then identify improvement opportunities based on the data you collected. You then implement process improvements, and measure the performance of the new process. This loop repeats over and over again, and is called continuous process improvement. You might also hear it called business process improvement, functional process improvement, etc. This method for improving business processes is effective to obtain gradual, incremental improvement. However, over the last 10 years several factors have accelerated the need to improve business processes. The most obvious is technology. New technologies (like the Internet) are rapidly bringing new capabilities to businesses, thereby raising the competitive bar and the need to improve business processes dramatically. Another apparent trend is the opening of world markets and increased free trade. Such changes bring more companies into the marketplace, and competing becomes harder and harder. In today's marketplace, major changes are required to just stay even. It has become a matter of survival for most companies. As a result, companies have sought out methods for faster business process improvement. Moreover, companies want breakthrough performance changes, not just incremental changes, and they want it now. Because the rate of change has increased for everyone, few businesses can afford a slow change process. One approach for rapid change and dramatic improvement that has emerged is Business Process Reengineering (BPR). Business Process Reengineering (BPR) BPR relies on a different school of thought than continuous process improvement. In the extreme, reengineering assumes the current process is irrelevant - it doesn't work, it's broke, forget it. Start over. Such a clean slate perspective enables the designers of business processes to disassociate themselves from today's process, and focus on a new process. In a manner of speaking, it is like projecting yourself into the future and asking yourself: what should the process look like? What do my customers want it to look like? What do other employees want it to look like? How do best-in-class companies do it? What might we be able to do with new technology? Such an approach is pictured below. It begins with defining the scope and objectives of your reengineering project, then going through a learning process (with your customers, your employees, your competitors and non-competitors, and with new technology). Given this knowledge base, you can create a vision for the future and design new business processes. Given the definition of the "to be" state, you can then create a plan of action based on the gap between your current processes, technologies and structures, and where you want to go. It is then a matter of implementing your solution. In summary, the extreme contrast between continuous process improvement and business process reengineering lies in where you start (with today's process, or with a clean slate), and with the magnitude and rate of resulting changes. Over time many derivatives of radical, breakthrough improvement and continuous improvement have emerged that attempt to address the difficulties of implementing major change in corporations. It is difficult to find a single approach exactly matched to a particular company's needs, and the challenge is to know what method to use when, and how to pull it off successfully such that bottom-line business results are achieved. Such are the topics for this module series. What are the most common mistakes made when beginning reengineering? One of the biggest mistakes manufacturers make is over-reliance on information technology solutions. Many are spending huge sums and taking giant leaps of faith without the proper foundation. Organizations must pay attention to all aspects of their operation, including people, products, processes and materials. In many cases, companies simply automate processes that are highly ineffective in the first place. This not only costs a lot of money, but the psychology of it all makes it hard to change once the investment is made. Another mistake is in assuming that BPR will be a quick and simple fix for manufacturing competitiveness. Competitive success in manufacturing results from doing the right things right. Initially, companies should conduct an assessment and planning step that results in an action plan designed to achieve breakthrough performance improvements in cycle time, quality, cost and customer satisfaction. Reengineering Success Factors More than half of early reengineering projects failed to be completed or did not achieve bottom-line business results, and for this reason business process reengineering "success factors" have become an important area of study. The success factors below are derived from benchmarking studies with more than 150 companies over a 24 month period. Success factors are a collection of lessons learned from reengineering projects. Reengineering team members and consultants that have struggled to make their projects successful often say, "If I had it to do over again, I would..." , and from these lessons common themes have emerged. In this module we examine these themes or success factors that lead to successful outcomes for reengineering projects. These include: * Top Management Sponsorship (strong and consistent involvement) * Strategic Alignment (with company strategic direction) * Compelling Business Case for Change (with measurable objectives) * Proven Methodology (that includes a vision process) * Effective Change Management (address cultural transformation) * Line Ownership (pair ownership with accountability) * Reengineering Team Composition (in both breadth and knowledge) Top Management Sponsorship Major business process change typically affects processes, technology, job roles and culture in the workplace. Significant changes to even one of these areas requires resources, money, and leadership. Changing them simultaneously is an extraordinary task. If top management does not provide strong and consistent support, most likely one of these three elements (money, resources, or leadership) will not be present over the life of the project, severely crippling your chances for success. It may be true that consultants and reengineering managers give this topic a lot of attention. Mostly because current models of re-designing business processes use staff functions and consultants as change agents, and often the targeted organizations are not inviting the change. Without top management sponsorship, implementation efforts can be strongly resisted and ineffective. Top management support for large companies with corporate staff organizations has another dimension. If the top management in the "line" organization and "staff" organization do not partner and become equal stakeholders in the change, AND you only have staff management support, you most likely are ill-prepared for a successful reengineering project (line management in this context are the top managers of the operation ultimately accountable for business performance -- P&L, customer service, etc.). Projects that result in major change in an organization rarely succeed without top management support in the line organization. Strategic Alignment You should be able to tie your reengineering project goals back to key business objectives and the overall strategic direction for the organization. This linkage should show the thread from the top down, so each person can easily connect the overall business direction with your reengineering effort. You should be able to demonstrate this alignment from the perspective of financial performance, customer service, associate (employee) value, and the vision for the organization. Reengineering projects not in alignment with the company's strategic direction can be counterproductive. It is not unthinkable that an organization may make significant investments in an area that is not a core competency for the company, and later this capability be outsourced. Such reengineering initiatives are wasteful and steal resources from other strategic projects. Moreover, without strategic alignment your key stakeholders and sponsors may find themselves unable to provide the level of support you need in terms of money and resources, especially if there are other projects more critical to the future of the business, and more aligned with the strategic direction. Business Case for Change In one page or less you must be able to communicate the business case for change. Less is preferred. If it requires more than this, you either don't understand the problem or you don't understand your customers. You may find your first attempt at the business case is 100 pages of text, with an associated presentation of another 50 view graphs (overhead slides). After giving the business case 20 times you find out that you can articulate the need for change in 2 minutes and 3 or 4 paragraphs. Stick with the shorter version. Why is this important? First, your project is not the center of the universe. People have other important things to do, too. Second, you must make this case over and over again throughout the project and during implementation - the simpler and shorter it is, the more understandable and compelling your case will be. Cover the few critical points. Talk to the current state, and what impact this condition has on customers, associates and business results. State the drivers that are causing this condition to occur. State what your going to do about it (vision and plan), and make specific commitments. Keep focusing on the customer. Connect this plan to specific, measurable objectives related to customers, associates, business results, and strategic direction. Show how much time and money you need and when you expect to get it back. Don't sell past the close. No matter how long you talk, you will get resistance from some, and support from others, so you might as well keep it short. The business case for change will remain the center piece that defines your project, and should be a living document that the reengineering team uses to demonstrate success. Financial pay back and real customer impact from major change initiatives are difficult to measure and more difficult to obtain; without a rigorous business case both are unlikely. Proven Methodology The previous module presented several BPR methodologies, and it is important to note that your methodology does matter. Seat-of-the-pants reengineering is just too risky given the size of the investment and impact these projects have on processes and people. Not only should your team members understand reengineering, they should know how to go about it. In short, you need an approach that will meet the needs of your project and one that the team understands and supports. Change Management One of the most overlooked obstacles to successful project implementation is resistance from those whom implementers believe will benefit the most. Most projects underestimate the cultural impact of major process and structural change, and as a result do not achieve the full potential of their change effort. Change is not an event, despite our many attempts to call folks together and have a meeting to make change happen. Change management is the discipline of managing change as a process, with due consideration that we are people, not programmable machines. It is about leadership with open, honest and frequent communication. It must be OK to show resistance, to surface issues, and to be afraid of change. Organizations do not change. People change, one at a time. The better you manage the change, the less pain you will have during the transition, and your impact on work productivity will be minimized. Line Ownership Many re-design teams are the SWAT type -- senior management responding to crisis in line operations with external consultants or their own staff. It's a rescue operation. Unfortunately the ability of external consultants to implement significant change in an organization is small. The chances are only slightly better for staff groups. Ultimately the solution and results come back to those accountable for day-to-day execution. That does not mean that consultants or staff are not valuable. What it does mean, though, is that the terms of engagement and accountability must be clear. The ownership must ultimately rest with the line operation, whether it be manufacturing, customer service, logistics, sales, etc. This is where it gets messy. Often those closest to the problem can't even see it. They seem hardly in a position to implement radical change. They are, in a matter of speaking, the reason you're in this fix to begin with. They lack objectivity, external focus, technical re-design knowledge, and money. On the other hand, they know today's processes, they know the gaps and issues, they have front-line, in-your-face experience. They are real. The customers work with them, not your consultants and staff personnel. Hence your dilemma. The line operation probably cannot heal itself when it comes to major business re-design. Staff and consultants have no lasting accountability for the solution, and never succeed at forcing solutions on line organizations. You need both. You need the line organization to have the awareness that they need help, to contribute their knowledge, and to own the solution and implementation. At the same time you need the expertise and objectivity from outside of the organization. Building this partnership is the responsibility of the line organization, stakeholders and re-design team. No group is off the hook. Reengineering Team Composition The reengineering team composition should be a mixed bag. For example, some members who don't know the process at all, some members that know the process inside-out, include customers if you can, some members representing impacted organizations, one or two technology gurus, each person your best and brightest, passionate and committed, and some members from outside of your company. Moreover, keep the team under 10 players. If you are finding this difficult, give back some of the "representative" members. Not every organization should or needs to be represented on the initial core team. If you fail to keep the team a manageable size, you will find the entire process much more difficult to execute effectively. Despite the agreement on some BPR characteristics, many of these elements overlap with other established methods, like Total Quality Management (TQM). Both TQM and BPR are customer-oriented. They both aim on improving the customer satisfaction. Also, they both suggest thinking outside in. On the other words, they both suggest to think from the customer's viewpoint. Also, both TQM and BPR are process-oriented. They both target to alter the processes, but not just on the product. Moreover, they both take team approach. Nearly all BPR projects are initiated by top-down approach. Since BPR would results great changes, staff resistance is obvious. Therefore, top management's support and commitment are very important. For TQM, both top-down approach and bottom-up approach are possible. The basic assumptions of TQM and BPR are different. TQM assumes that the existing practices or systems are principally right and useful. The target of TQM is to improve on the basis of the existing system. However, BPR takes an opposite assumption. BPR assumes the existing system is useless and suggests starting it over. Unlike TQM that aims on smoothly and incremental improvements, BPR aims on dramatic results. TQM emphasis on total involvement, including all the stakeholders. The involvement even extends to suppliers and customers. Also, TQM also suggests involving all the processes in the company, including human resources management, order fulfilling, manufacturing, marketing and customer management and others. However, for BPR, the project can be controlled to a specified area only. Standardization is one of the key points of TQM. TQM aims on standardize the practices, thus achieving a consistent performance. It also makes that there is a certain degree of documentation for TQM. However, BPR emphasis on flexibility and believes that standardization would increase the complexity of the process. Therefore, standardization is rare in BPR and the level of documentation is much lower. TQM emphasis on the use of statistical process control. However, there is no similar concern for BPR. On the other hand, BPR emphasis more on the enabling role of information technology. TQM is a cultural issue. Once the culture is built, TQM is absorbed in the daily operation. However, BPR is a project. It is with a clear target that should be achieved as soon as possible. In fact, BPR is a risky project that is suitable for organizations in deep trouble or facing great challenges. However, an organization cannot always be under BPR. TQM, on the other hand, can be treated as a consolidation approach for the organizations to maintain continuously improvements. As a conclusion, the approaches are also very different in the way they are practiced. BPR is clearly the most divergent as it is concerned with frame-braking change that attempts to create new systems rather than repairing old systems. For this reason, BPR may be the most suitable approach for an organisation that seeks dramatic changes. It is commonly used by organisations that have widespread problems or are close to bankruptcy, but it is also suitable as a way to stimulate innovation for improvement, rather than survival. TQM is clearly a suitable approach where the quality of the products or services is the major concern. I want to share some of my personal feeling on TQM and BPR. They just like Chinese Kung Fu. There are 'hard' school and 'soft' school of Kung Fu. They are with the same purpose. BPR is just like the 'hard' school of Kung Fu. It is efficient and looks attractive. However, if it is not used carefully, it may be harmful to the own health. TQM, on the other hand, is the 'soft' school of Kung Fu. It needs a long time to practice but it can make one's body healthy too. References: 1. 1. Maruca, Fasio. "The right way to go global"(p.135-145) 2. 2. Griffen Management fifth ed.: Mifflin Co., 1996, p. 75-80. 3. 3. The diversity factor, by Crosswhite. P.4-7 4. 4. Environmental management and business strategy, p. 180-183 5. 5. Internet. * * http://www.prosci.com/survey.htm * * http://www.organizedchange.com/tqmhome.htm * * http://www.organizedchange.com/isohome.htm * * http://bprc.warwick.ac.uk/ * * http://www.reengineering.net/ * * http://www.skyenet.net/~leg/tqm.htm * * http://www.tqe.com/tqm.html * * http://www.tqmpapers.com/ f:\12000 essays\business & economics (632)\Heating Commodities.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Heating Commodities Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr. Pryor November 25, 1996. Back in the middle of October, the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs. This impending shortage led to the decrease in prices for other heating commodities, as well as larger profits. The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead. The four commodities mentioned in this article, crude oil, heating oil, gasoline and natural gas are all substitutes for one another. This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity. In other words, the increase in demand for crude oil, gasoline, and heating oil was the outcome of the price increase in natural gas. As shown in the graph below, the cross elasticity of demand is direct (positive). As the price of natural increases, the quantity demanded for the three other energy commodities increase. The market system today functions on price. Consumers make their decision on what to buy by the price of their desired good. Naturally, consumers will choose the lower price of a commodity they wish to purchase. This is why consumers, wanting to heat their homes, chose to heat them with natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the natural-gas, the higher priced commodity. The commodity, energy, is something that people can not go without during the winter months. If their is a shortage, which means that consumers demand more than the available supply, it leads to an increase in price. As shown in the graph below, as the supply decreases, the price increases. This means that the price is inelastic. This is true because as the price of the commodity is increased, the total amount spent on the commodity will increase also. The price mechanism reflects scarcity, which is stated as the greater demand for a good, energy, (because of the desire to store it for the colder months ahead) with the same supply of that good becoming scarce resulting in a higher price. Consumer's demand for energy changes with the seasons. For example, the demand for energy in the summer is probably very low. The demand for energy in the fall will be higher because consumers begin storing it for the winter. And during the winter months the demand is high, where as during the spring months the demand decreases from the other months. This commodity is greatly influenced by the climate and the type of region consumers live in. For example, people in Florida do not have the same type of energy bill as the people in Pennsylvania do. The market of a commodity is determined by many things, one of those being the nature of the commodity's prices, which is influenced by the demand of that particular commodity. For the commodity, energy consumers can see that the quantity demanded is very sensitive to changes in prices. And factors such as climate and the region in which they live underlie the market demand curve for this commodity. f:\12000 essays\business & economics (632)\Hiring Minorities.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Hiring Minorities In recent years preferential hiring has become an issue of great interest. Preferential hiring, which was devised to create harmony between the different races and sexes, has divided the lines even more. Supporters on both sides seem fixed in their positions and often refuse to listen to the other group's platform. In this essay, the recipients of preferential hiring will be either black or female, and the position in question will be a professorship on the university level. The hirings in question are cases that involve several candidates, all roughly equal in their qualifications (including experience, education, people skills, etc.), with the only difference being race and/or sex. What we have here is a case of predetermined preference. The two candidates in question are equal in all ways, except race. The black applicant is selected, not because of skills or qualifications (in that case the white man would have provided the same result), but for his skin color. This seems to be blatant discrimination, but many believe it is justified. Some feel retribution for years of discrimination is reason enough, but that issue will be discussed later. First, lets focus on why this is not a solution to creating an unbiased society. Martin Luther King Jr. had a dream: "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character." He desired a world without discrimination, without prejudice, and without stereotypes. The fundamental lesson years of discrimination should have taught is that to give anyone preference based on skin color, sex, or religious beliefs is, in one word, wrong. As Martin Luther King Jr. stated, judgment based on skin color must not exist. All preferential hiring does is keep judgments based on skin color alive. Race and sex should not be issues in today's society, yet preferential hiring continues to make these factors issues by treating minorities as a group rather than as individuals. More importantly preferential hiring may actually fuel, rather than extinguish, feelings of racial hostility. Applying the concept of preferential hiring to another situation may help elucidate its shortcomings. A party of white men and a party of black men both arrive at a restaurant at the same time and only one table is free. The headwaiter can only seat one party and must make a decision. According to preferential hiring theory it is necessary to seat the black party first, since historically blacks have been discriminated against when seated in restaurants. In another situation, a white man and a black man are both equidistant from the last seat on the bus. Both men are the same age, have no medical problems, and are equal in all ways except skin color. Should the black man get the seat since in the past black men have been discriminated against? We could continue this practice for several centuries before the debt we owe for depriving blacks of a seat on the bus would be paid. Perhaps these examples are invalid. It could be said that jobs are a different issue. They help define social status and provide economic well-being. They might even boost self-confidence, something that discrimination has stolen. Two points must be considered before moving any further. First, blacks may learn better from a black, and women may learn better from a woman. Second, hiring women and blacks will provide role models for others. The first point Thomson quickly concedes as likely to be false. Discussion about the second point however is required, and will, in effect, serve to negate the first point as well. First, lets create a character, Bill. Bill is grossly overweight and unattractive. Studies have shown that many employers discriminate (whether subconsciously or not), against both overweight and unattractive individuals. Unfortunately for Bill, he fits into both categories. His inability to land a job reflective of his abilities, coupled with years of public humiliation through jokes made at his expense, has destroyed his self-esteem. This has caused him to accept as fact the notion that he will never be able to reach his goals. Few "Bill" success stories exist, only further plummeting his self- confidence. This example sounds strikingly similar to a common argument for preferential hiring. I have been discriminated against, which has caused my self esteem to fall, and now I am stuck, with few role models to follow. Bill's success has probably been thwarted by more sources than the today's average black or female, but there is no provision in preferential hiring for him. Just like no one can control their race or skin color, Bill's obesity is caused by a medical problem beyond treatment. Selective preferential hiring won't work. Even if one doesn't accept the fact that preferential hiring discriminates against the white male, one must accept the fact that preferential hiring discriminates against Bill. Now let's assume that this argumentation is invalid for one reason or another. Let's assume the lack of self-confidence and self-respect that today's blacks and women are suffering from may deserve some compensation. But before continuing, it seems necessary to narrow the range of who qualifies for compensation for suffering. The issue at hand concerns today's blacks and today's women. Today's society is not responsible for incidents preceding its own existence. Other opinions may not coincide with this belief, but I do not feel any responsibility for the positive or negative actions of my grandfather or my father. However, as a member of society I will take responsibility for the positive or negative actions of society today. For example, today's society is not responsible for blacks or women's lack of voting rights years ago. If for some reason we were responsible, how could this possibly be repaid? Make a black or female vote count two or three times? No, this is preposterous. We have canceled our debts, simply by giving them a right to vote and a say in the election of their representatives. Now that is not to say that today's society is not responsible for the discrimination of blacks and women in recent years. But, even prior to the lifetime of those that would be most affected by preferential hiring: both blacks and women have had the right to vote; discrimination based on race, color, religion, or sex has been illegal; segregation has ended; and the civil rights movement has taken place. Clearly, we live in a different United States than out predecessors. Today's blacks and women may still experience some repercussions of discrimination, but for decades laws have been enforced prohibiting discrimination. If someone discriminates against a black today, charges could be filed against that person and that person will be punished. That is the bottom line. Preferential treatment cannot be given to victims of all crimes. It would become chaotic trying pin the level of preference a victim should get for different crimes. For a moment let's digress to the case of Judy. Judy was raped. All society can offer her is the punishment of her rapist, if her rapist is found guilty. Sure, Judy will probably suffer for the rest of her life believing that it was her fault; she will lose self-respect and self-confidence. But is Judy going to receive preferential treatment when she walks into an office and applies for a job? There is no space on a job application for Judy to say: "I should receive special consideration, because several years ago I was raped. This rape has caused me years of anguish, and now I lack the self-confidence I once had. All this has cause me to underachieve in school and in life. Please consider this when you review my application." If Judy, who lost her self- confidence and self-respect through the violation of her rights by a member of society, is given no compensation for her trauma, why should blacks or women? All society owes the victim of a crime is that the criminal be punished if in fact a law was breached. Possibly their case is more powerful. Not all women (or men) are raped each year, but most blacks and women have been discriminated against at some point in their life. Could we possibly owe the victims of discrimination something? If, as Thomson claims, all blacks and females have, as a consequence of their past lack of rights, suffered a lack of self-confidence and self-respect, then why preferentially give them jobs? Jobs have no direct correlation to a lack of self-respect and self-confidence. Indirectly, yes, maybe many blacks and women have not been able to achieve their highest goals due to this lack of self-confidence and are therefore handicapped when they enter the job market. But it seems to me that if we were to solve the problem and provide repayment with the loosening of qualifications necessary, or even not the loosening but the offering of preferential treatment when hiring blacks and women, this does not solve the problem. It seems to make more sense to dig deeper; to find the root of the problem and change it. Since we can't go back and change history, eliminating the poor treatment blacks and women of the past, then the next best thing seems to be to reverse the effects of discrimination in the present. The lack of presence in the upper levels of the job market is not a direct effect of discrimination. It is, as Thomson states, a lack of self- confidence and self-respect that has kept toady's blacks and women down. So the logical solution would be to renew their self-respect, and to restore their self-confidence. It seems like too superficial of a solution to simply give blacks and women preference when it comes to hiring. Certainly it would not bolster my self-confidence to know that I received a job over another equally qualified individual, simply due to my skin color or sex. I would feel as if again race and sex were dominating decisions. Wasn't the original goal to eliminate the issue of skin color and sex from all decisions? Thomson, in her essay on preferential hiring, tells us that she is not happy with the solution of preferential hiring in its entirety: "If there were some appropriate way in which the community could make amends to its blacks and women, some way which did not require depriving anyone of anything he has a right to, then that would be the best course to take." There must be a better way. Psychological treatment would help give the victims of poor treatment renewed self-confidence, providing them the confidence to go out and try to earn a job, rather than get handed a job. The feeling of accomplishment that results from earning a job would help improve self-confidence. But now another issue arises. We would owe all victims of crime some sort of compensation. Maybe there is another way to elevate the status of minorities without bringing the issue of race or sex into the arena. If what is desired by preferential hiring is a jump-start to promote diversity in the workplace and in society, where race and sex are irrelevant, why not enact a plan where preferential hiring is not based on these factors? Instead, why not give preference to underrepresented towns or areas of town (possibly by zip code), to those that are financially burdened, and to those with handicaps. This would help relieve the pressure of race and sex in these issues. The underprivileged will still be given a jump-start, and diversity will still be promoted. However, this solution breaches another point that any form of categorization of people should not occur. The solutions presented are more acceptable than preferential hiring, though they still have their defects. Why not bury the issue of race? Discrimination is waning. It has become a crime to discriminate. Soon blacks and women will become full members of the job world. There are plenty of role model success stories available. There is no reason to believe that anyone, in today's society, cannot achieve whatever they wish. Hard work and diligence will pay off and eventually race and sex will no longer be issues. The goal is to make race and sex irrelevant, and preferential hiring only keeps these issues alive. Let's try to live in a society modeled after Martin Luther King Jr.'s dream, and I believe the issues of race and sex will disappear, leaving people to be judged solely on their character. f:\12000 essays\business & economics (632)\hiring.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Hiring Minorities In recent years preferential hiring has become an issue of great interest. Preferential hiring, which was devised to create harmony between the different races and sexes, has divided the lines even more. Supporters on both sides seem fixed in their positions and often refuse to listen to the other group's platform. In this essay, the recipients of preferential hiring will be either black or female, and the position in question will be a professorship on the university level. The hirings in question are cases that involve several candidates, all roughly equal in their qualifications (including experience, education, people skills, etc.), with the only difference being race and/or sex. What we have here is a case of predetermined preference. The two candidates in question are equal in all ways, except race. The black applicant is selected, not because of skills or qualifications (in that case the white man would have provided the same result), but for his skin color. This seems to be blatant discrimination, but many believe it is justified. Some feel retribution for years of discrimination is reason enough, but that issue will be discussed later. First, lets focus on why this is not a solution to creating an unbiased society. Martin Luther King Jr. had a dream: "I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character." He desired a world without discrimination, without prejudice, and without stereotypes. The fundamental lesson years of discrimination should have taught is that to give anyone preference based on skin color, sex, or religious beliefs is, in one word, wrong. As Martin Luther King Jr. stated, judgment based on skin color must not exist. All preferential hiring does is keep judgments based on skin color alive. Race and sex should not be issues in today's society, yet preferential hiring continues to make these factors issues by treating minorities as a group rather than as individuals. More importantly preferential hiring may actually fuel, rather than extinguish, feelings of racial hostility. Applying the concept of preferential hiring to another situation may help elucidate its shortcomings. A party of white men and a party of black men both arrive at a restaurant at the same time and only one table is free. The headwaiter can only seat one party and must make a decision. According to preferential hiring theory it is necessary to seat the black party first, since historically blacks have been discriminated against when seated in restaurants. In another situation, a white man and a black man are both equidistant from the last seat on the bus. Both men are the same age, have no medical problems, and are equal in all ways except skin color. Should the black man get the seat since in the past black men have been discriminated against? We could continue this practice for several centuries before the debt we owe for depriving blacks of a seat on the bus would be paid. Perhaps these examples are invalid. It could be said that jobs are a different issue. They help define social status and provide economic well-being. They might even boost self-confidence, something that discrimination has stolen. Two points must be considered before moving any further. First, blacks may learn better from a black, and women may learn better from a woman. Second, hiring women and blacks will provide role models for others. The first point Thomson quickly concedes as likely to be false. Discussion about the second point however is required, and will, in effect, serve to negate the first point as well. First, lets create a character, Bill. Bill is grossly overweight and unattractive. Studies have shown that many employers discriminate (whether subconsciously or not), against both overweight and unattractive individuals. Unfortunately for Bill, he fits into both categories. His inability to land a job reflective of his abilities, coupled with years of public humiliation through jokes made at his expense, has destroyed his self-esteem. This has caused him to accept as fact the notion that he will never be able to reach his goals. Few "Bill" success stories exist, only further plummeting his self-confidence. This example sounds strikingly similar to a common argument for preferential hiring. I have been discriminated against, which has caused my self esteem to fall, and now I am stuck, with few role models to follow. Bill's success has probably been thwarted by more sources than the today's average black or female, but there is no provision in preferential hiring for him. Just like no one can control their race or skin color, Bill's obesity is caused by a medical problem beyond treatment. Selective preferential hiring won't work. Even if one doesn't accept the fact that preferential hiring discriminates against the white male, one must accept the fact that preferential hiring discriminates against Bill. Now let's assume that this argumentation is invalid for one reason or another. Let's assume the lack of self-confidence and self-respect that today's blacks and women are suffering from may deserve some compensation. But before continuing, it seems necessary to narrow the range of who qualifies for compensation for suffering. The issue at hand concerns today's blacks and today's women. Today's society is not responsible for incidents preceding its own existence. Other opinions may not coincide with this belief, but I do not feel any responsibility for the positive or negative actions of my grandfather or my father. However, as a member of society I will take responsibility for the positive or negative actions of society today. For example, today's society is not responsible for blacks or women's lack of voting rights years ago. If for some reason we were responsible, how could this possibly be repaid? Make a black or female vote count two or three times? No, this is preposterous. We have canceled our debts, simply by giving them a right to vote and a say in the election of their representatives. Now that is not to say that today's society is not responsible for the discrimination of blacks and women in recent years. But, even prior to the lifetime of those that would be most affected by preferential hiring: both blacks and women have had the right to vote; discrimination based on race, color, religion, or sex has been illegal; segregation has ended; and the civil rights movement has taken place. Clearly, we live in a different United States than out predecessors. Today's blacks and women may still experience some repercussions of discrimination, but for decades laws have been enforced prohibiting discrimination. If someone discriminates against a black today, charges could be filed against that person and that person will be punished. That is the bottom line. Preferential treatment cannot be given to victims of all crimes. It would become chaotic trying pin the level of preference a victim should get for different crimes. For a moment let's digress to the case of Judy. Judy was raped. All society can offer her is the punishment of her rapist, if her rapist is found guilty. Sure, Judy will probably suffer for the rest of her life believing that it was her fault; she will lose self-respect and self-confidence. But is Judy going to receive preferential treatment when she walks into an office and applies for a job? There is no space on a job application for Judy to say: "I should receive special consideration, because several years ago I was raped. This rape has caused me years of anguish, and now I lack the self-confidence I once had. All this has cause me to underachieve in school and in life. Please consider this when you review my application." If Judy, who lost her self-confidence and self-respect through the violation of her rights by a member of society, is given no compensation for her trauma, why should blacks or women? All society owes the victim of a crime is that the criminal be punished if in fact a law was breached. Possibly their case is more powerful. Not all women (or men) are raped each year, but most blacks and women have been discriminated against at some point in their life. Could we possibly owe the victims of discrimination something? If, as Thomson claims, all blacks and females have, as a consequence of their past lack of rights, suffered a lack of self-confidence and self-respect, then why preferentially give them jobs? Jobs have no direct correlation to a lack of self-respect and self-confidence. Indirectly, yes, maybe many blacks and women have not been able to achieve their highest goals due to this lack of self-confidence and are therefore handicapped when they enter the job market. But it seems to me that if we were to solve the problem and provide repayment with the loosening of qualifications necessary, or even not the loosening but the offering of preferential treatment when hiring blacks and women, this does not solve the problem. It seems to make more sense to dig deeper; to find the root of the problem and change it. Since we can't go back and change history, eliminating the poor treatment blacks and women of the past, then the next best thing seems to be to reverse the effects of discrimination in the present. The lack of presence in the upper levels of the job market is not a direct effect of discrimination. It is, as Thomson states, a lack of self-confidence and self-respect that has kept toady's blacks and women down. So the logical solution would be to renew their self-respect, and to restore their self-confidence. It seems like too superficial of a solution to simply give blacks and women preference when it comes to hiring. Certainly it would not bolster my self-confidence to know that I received a job over another equally qualified individual, simply due to my skin color or sex. I would feel as if again race and sex were dominating decisions. Wasn't the original goal to eliminate the issue of skin color and sex from all decisions? Thomson, in her essay on preferential hiring, tells us that she is not happy with the solution of preferential hiring in its entirety: "If there were some appropriate way in which the community could make amends to its blacks and women, some way which did not require depriving anyone of anything he has a right to, then that would be the best course to take." There must be a better way. Psychological treatment would help give the victims of poor treatment renewed self-confidence, providing them the confidence to go out and try to earn a job, rather than get handed a job. The feeling of accomplishment that results from earning a job would help improve self-confidence. But now another issue arises. We would owe all victims of crime some sort of compensation. Maybe there is another way to elevate the status of minorities without bringing the issue of race or sex into the arena. If what is desired by preferential hiring is a jump-start to promote diversity in the workplace and in society, where race and sex are irrelevant, why not enact a plan where preferential hiring is not based on these factors? Instead, why not give preference to underrepresented towns or areas of town (possibly by zip code), to those that are financially burdened, and to those with handicaps. This would help relieve the pressure of race and sex in these issues. The underprivileged will still be given a jump-start, and diversity will still be promoted. However, this solution breaches another point that any form of categorization of people should not occur. The solutions presented are more acceptable than preferential hiring, though they still have their defects. Why not bury the issue of race? Discrimination is waning. It has become a crime to discriminate. Soon blacks and women will become full members of the job world. There are plenty of role model success stories available. There is no reason to believe that anyone, in today's society, cannot achieve whatever they wish. Hard work and diligence will pay off and eventually race and sex will no longer be issues. The goal is to make race and sex irrelevant, and preferential hiring only keeps these issues alive. Let's try to live in a society modeled after Martin Luther King Jr.'s dream, and I believe the issues of race and sex will disappear, leaving people to be judged solely on their character. f:\12000 essays\business & economics (632)\History of Advertising 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ History of Advertising This Essay is for People that are in VCE up to Elderly People Advertising is dated back to the Christian Era. One of the first known methods of advertising was outdoor signs, they would be painted on the wall of a building and were usually very eye catching. Archaeologists have found signs in the ruins of ancient Rome and Pompeii which advertised travelers to go to a tavern situated in another town. In about the 1440's there was an invention of a movable-type of advertising which was a printing press. In the 16th century some companies had a trade mark which was a two or three dimensional picture or sign. In both volume and technique, advertising has made its greatest advances in the U.S. In the early stages of U.S. advertising it was hard and expensive to advertise nationally because the U.S. was still undeveloped and there was little of no means of transport, distribution or communication. Eventually certain type of manufactures thought of the idea of bypassing wholesalers, retailers and using catalogs. Mail orders and pamphlets appeared around the 1870's. Late in the 19th century many American firms began to market packaged goods under brand names. Previously consumers had not been aware of or influenced by brand names. The first product that had brand names were soap products. In the 1880's a few brands came out and they were Ivory, Pears, Sapolio, Colgate, Kirks American Family and Packer's. Not long after brands such as Royal baking powder, Quaker oats, Bakers chocolate, Hire's root beer, Regal shoes and Waterman's pens were nationally advertised. In the early 1900's America began to become aware of such brand names like Bon Ami, Wrigley and Coca-Cola. After World War 1 advertising developed into a business so big that it was almost a trademark of America itself through the eyes of the rest of the world. This was expanded by technical improvements which made transportation, communication and graphics work easier, cheaper and better. The invention of electricity led to the illuminated outdoor poster, photoengraving and other modern printing inventions helped both editorial and advertising departments of printed journals. In the 1920's the radio was invented and this developed a whole new technique of selling, by voice. During World War 2 the American advertising industry founded the war advertising council this used modern advertising to strengthen the American war effort. The organization still continued after the war was over as 'The Advertising Council' this was used to function for the publics interest. Printed and broadcasted media contributed millions of dollars worth of advertising time and space to such projects each year. The most significant Advertising development after the war was Television. Television forced the advertising industry to use better techniques of selling because they had to use visual and voice. Since VCR's have been invented Advertisers have been under threat because some viewers edit out the commercials when recording the program or they fast forward them. In all advertising has advanced a lot in the past and I believe that it will keep on getting more and more advanced with the needs of society. Bibliography- Encarta '96 Encyclopedia f:\12000 essays\business & economics (632)\History of Advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ History of Advertising This Essay is for People that are in VCE up to Elderly People Advertising is dated back to the Christian Era. One of the first known methods of advertising was outdoor signs, they would be painted on the wall of a building and were usually very eye catching. Archaeologists have found signs in the ruins of ancient Rome and Pompeii which advertised travelers to go to a tavern situated in another town. In about the 1440's there was an invention of a movable-type of advertising which was a printing press. In the 16th century some companies had a trade mark which was a two or three dimensional picture or sign. In both volume and technique, advertising has made its greatest advances in the U.S. In the early stages of U.S. advertising it was hard and expensive to advertise nationally because the U.S. was still undeveloped and there was little of no means of transport, distribution or communication. Eventually certain type of manufactures thought of the idea of bypassing wholesalers, retailers and using catalogs. Mail orders and pamphlets appeared around the 1870's. Late in the 19th century many American firms began to market packaged goods under brand names. Previously consumers had not been aware of or influenced by brand names. The first product that had brand names were soap products. In the 1880's a few brands came out and they were Ivory, Pears, Sapolio, Colgate, Kirks American Family and Packer's. Not long after brands such as Royal baking powder, Quaker oats, Bakers chocolate, Hire's root beer, Regal shoes and Waterman's pens were nationally advertised. In the early 1900's America began to become aware of such brand names like Bon Ami, Wrigley and Coca-Cola. After World War 1 advertising developed into a business so big that it was almost a trademark of America itself through the eyes of the rest of the world. This was expanded by technical improvements which made transportation, communication and graphics work easier, cheaper and better. The invention of electricity led to the illuminated outdoor poster, photoengraving and other modern printing inventions helped both editorial and advertising departments of printed journals. In the 1920's the radio was invented and this developed a whole new technique of selling, by voice. During World War 2 the American advertising industry founded the war advertising council this used modern advertising to strengthen the American war effort. The organization still continued after the war was over as 'The Advertising Council' this was used to function for the publics interest. Printed and broadcasted media contributed millions of dollars worth of advertising time and space to such projects each year. The most significant Advertising development after the war was Television. Television forced the advertising industry to use better techniques of selling because they had to use visual and voice. Since VCR's have been invented Advertisers have been under threat because some viewers edit out the commercials when recording the program or they fast forward them. In all advertising has advanced a lot in the past and I believe that it will keep on getting more and more advanced with the needs of society. Bibliography Encarta '96 Encyclopedia f:\12000 essays\business & economics (632)\How are automatic stabilizers used to combat inflation 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How are Automatic Stabilizers Used to Combat Inflation? In today's economy, there are devices present called automatic stabilizers. Automatic stabilizers, are mechanisms which aid in the correction of an economic problem without the interference of anyone or anything. They are perhaps most useful to combat demand - pull inflation. Demand - pull inflation, is when prices rise because the economy cannot produce enough goods to satiate the economy. An automatic stabilizer, that is beneficial to combat such a problem, is a progressive tax. A progressive tax, is a tax that becomes a higher rate for each increasing level of gross domestic product. If such a tax is present within the economy, when the society becomes more prosperous, such as in the situation with demand-pull inflation, the citizens are taxed more, therefore decreasing the marginal propensity to consume, and decreasing consumption. The marginal propensity to consume is the fraction of any change in disposable income spent for consumer goods. If this decreases, demand will not be as high above, or even above where the supply is, therefore reducing the demand - pull inflation. AS P2 C1 P1 A.D.2 C2 AD1 45 deg. The first graph shows the increase of price, due to the increase of demand in the vertical range of the aggregate supply curve, or demand pull inflation. The second graph shows the decrease of consumption due to the increase in the tax rate at the new higher income. Tax T2 Rate T1 G Income level The graph above shows 2 different progressive taxes. T2 is more progressive than T1 because the tax rate increases more rapidly as the income level increases. The more progressive tax, stabilizes the economy better. Another way to stabilize demand - pull inflation is to reduce government spendings. Government spendings, are the spending that the government make with the tax revenues, and they add to the gross domestic product. An automatic stabilizer that will lower gross domestic product is welfare. As income rises, there are less people who need welfare, therefore reducing the amount of government spending, and lowering the gross domestic product. Due to such automatic stabilizers as progressive tax rates and the decrease of government spending due to welfare, therefore a decrease in government borrowing, therefore a decrease in the demand for the dollar, therefore a decrease in the interest rate, which would cause a decrease in the foreign demand for dollar, which would cause the dollar to depreciate, therefore lowering inflation due to a less valuable dollar. Using automatic stabilizers causes the government to be able to put less work in the US fiscal policy. Also, it saves time in fixing an economic problem, because discretionary fiscal policy (policy in which the government must put into action themselves) would take the time of recognizing the problem, passing a bill to combat the problem, and then waiting for it to come into effect. With automatic stabilizers, the only time wasted is waiting for the effect to become noticeable. f:\12000 essays\business & economics (632)\How are Automatic Stabilizers Used to Combat Inflation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How are Automatic Stabilizers Used to Combat Inflation? In today's economy, there are devices present called automatic stabilizers. Automatic stabilizers, are mechanisms which aid in the correction of an economic problem without the interference of anyone or anything. They are perhaps most useful to combat demand - pull inflation. Demand - pull inflation, is when prices rise because the economy cannot produce enough goods to satiate the economy. An automatic stabilizer, that is beneficial to combat such a problem, is a progressive tax. A progressive tax, is a tax that becomes a higher rate for each increasing level of gross domestic product. If such a tax is present within the economy, when the society becomes more prosperous, such as in the situation with demand-pull inflation, the citizens are taxed more, therefore decreasing the marginal propensity to consume, and decreasing consumption. The marginal propensity to consume is the fraction of any change in disposable income spent for consumer goods. If this decreases, demand will not be as high above, or even above where the supply is, therefore reducing the demand - pull inflation. Another way to stabilize demand - pull inflation is to reduce government spendings. Government spendings, are the spending that the government make with the tax revenues, and they add to the gross domestic product. An automatic stabilizer that will lower gross domestic product is welfare. As income rises, there are less people who need welfare, therefore reducing the amount of government spending, and lowering the gross domestic product. Due to such automatic stabilizers as progressive tax rates and the decrease of government spending due to welfare, therefore a decrease in government borrowing, therefore a decrease in the demand for the dollar, therefore a decrease in the interest rate, which would cause a decrease in the foreign demand for dollar, which would cause the dollar to depreciate, therefore lowering inflation due to a less valuable dollar. Using automatic stabilizers causes the government to be able to put less work in the US fiscal policy. Also, it saves time in fixing an economic problem, because discretionary fiscal policy (policy in which the government must put into action themselves) would take the time of recognizing the problem, passing a bill to combat the problem, and then waiting for it to come into effect. With automatic stabilizers, the only time wasted is waiting for the effect to become noticeable. f:\12000 essays\business & economics (632)\How Do Dixons and Tandy Add Value To The Products They Sell.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How Do Dixons and Tandy Add Value To The Products They Sell? How do Dixons and Tandy add value to the products that they sell, and, in doing so, what benefits are passed on to the consumer? Do high street consumer electronics stores offer better value for money than their mail-order counterparts? The raw price figures show that, obviously, the high street stores cost more than the mail-order stores, but are the benefits that the high street stores bring worth the extra price? I took the prices of five types of products, a large stereo, a portable system, a small television, a video recorder, and a computer. The large stereo was an AIWA NSX-V710, the portable system was a Sanyo MCD 278, the small televisions that I chose were not available in both stores, and so I had to choose similar models. The models I chose were the Matsui 14" Remote from Tandy and the Nokia 14" Remote from Dixons. The models were both available from the mail-order supplier, at the same price. The video recorder that I chose to use was an AKAI VSG745, and was in fact available from both stores. The computer was the most difficult part of the system to match, as the Dixons systems came with some added bonuses such as extra multimedia software and Internet capability. I therefore reduced the price of the Dixons machine to account for these differences, by deducting the price that it would cost to upgrade on the Tandy machine. So, to give the Tandy computer Internet capability would cost £150, so that was deducted, and the multimedia software would have cost £50, so that was deducted. The computer specification I aimed to have as a common platform was an Intel Pentium 120MHz machine, with 8MB RAM, a 14" monitor, at least a 1 GB Hard Disk and MPC level 2 capability (i.e. be able to use CD-ROM Multimedia titles). The mail order supplier I chose to match these specifications with was Computer Trading, as they offered a system which was a close match to the Tandy and Dixons ones, while having a low price. The common factor with all the products is that they are all more expensive than their mail-order price counterparts. This means that the high street stores 'add value'. Adding value is taking one or more parts or products, combining, changing or adding to them, in such a way that the perceived value of the product is increased by more than the cost of the change. For example you might expect to pay £150 more than the cost of the parts when buying a hi-fi, but the cost of putting the hi-fi together is much less than £150. The price, however, must not be too high, as the customer has to perceive the value of the product to be that at which it is priced for a sale to take place. Within any company there will be some several 'departments', each adding value in their own particular way. How much value do Dixons and Tandy add? The only way in which this question can be answered is by looking at the figures themselves, and how much items cost from Dixons and Tandy as opposed to the mail order companies. The figures that I obtained by looking through the stores and magazines were as follows: Here we can see that every product is more expensive from the shops than in the mail-order catalogue. You can see that the products cost very much the same from both of the high street stores at roughly 125% of the cost of the mail-order price. This means that the stores make a 25% mark-up on every product that they sell. The fact that the figures from Tandy and Dixons are very similar show that there is another factor coming into play. This could be one of two things: The cost of supplying the services to the customer is a high proportion of the added cost, therefore meaning that different margins of profit make little or no difference to the price. There is competition, and each store is trying to match or beat the other one to attract more custom. Dixons and Tandy - Adding value in action Obviously, Dixons and Tandy are very similar in that they do not manufacture anything. However value is added in several ways, as a perception from the customer: The products are available instantly, they can be bought and taken straight out of the shop, as opposed to having to wait for delivery The products have financing deals available, such as 0% APR (Annual Percentage Rate) on a loan. For example this would mean that you get the product delivered, but pay by monthly instalments over two years. The products from Tandy, valued at £299 or over, come with a free Sky satellite system. You can try a product before you buy it. You receive sales and after sales support, and advice is not really given over the phone. Also the shop is close to the home, so it is easy to get the product repaired or serviced. Free gifts are often supplied, or complementary products discounted when a product is purchased. There is a range of products available because the people who would order from a mail order catalogue are likely to know what they want, whereas those who go into a shop may need advice on which product is best for them. If we split these perceptions into categories, we can see that each perception is a product of different type of adding value: Points 1, 5 & 7 are because of the company moving all the products into one place, ready for sale. Points 2, 3, 4 & 6 are because of the company's marketing strategy and how the sell the products. This should therefore show where the value is added. In theory, this would show that value was added mainly in marketing, then in relocating the products. Also, shop staff will have to be paid, so some value would be added there. Conclusion From the evidence shown, we can state that high street stores, such as Dixons and Tandy add value in two main ways. These two ways are 'convenience options' and Marketing. Of these two, Marketing is approximately twice the size of Consolidation. Therefore we can say that Dixons and Tandy add value primarily through 'convenience options' and marketing. Also, in answer to the question 'are the benefits that the high street stores bring worth the extra price?' we can say that, apart from quicker delivery and financing options available, all of the services given are pre-sales services. This means in theory you could go into a Dixons or Tandy, receive advice from them, then buy the product from a mail-order company. Thus the answer to this question is probably 'no', in most cases. f:\12000 essays\business & economics (632)\How do high street consumer electronics stores such as Dixon.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How do Dixons and Tandy add value to the products that they sell, and, in doing so, what benefits are passed on to the consumer? Do high street consumer electronics stores offer better value for money than their mail-order counterparts? The raw price figures show that, obviously, the high street stores cost more than the mail-order stores, but are the benefits that the high street stores bring worth the extra price? I took the prices of five types of products, a large stereo, a portable system, a small television, a video recorder, and a computer. The large stereo was an AIWA NSX-V710, the portable system was a Sanyo MCD 278, the small televisions that I chose were not available in both stores, and so I had to choose similar models. The models I chose were the Matsui 14" Remote from Tandy and the Nokia 14" Remote from Dixons. The models were both available from the mail-order supplier, at the same price. The video recorder that I chose to use was an AKAI VSG745, and was in fact available from both stores. The computer was the most difficult part of the system to match, as the Dixons systems came with some added bonuses such as extra multimedia software and Internet capability. I therefore reduced the price of the Dixons machine to account for these differences, by deducting the price that it would cost to upgrade on the Tandy machine. So, to give the Tandy computer Internet capability would cost £150, so that was deducted, and the multimedia software would have cost £50, so that was deducted. The computer specification I aimed to have as a common platform was an Intel Pentium 120MHz machine, with 8MB RAM, a 14" monitor, at least a 1 GB Hard Disk and MPC level 2 capability (i.e. be able to use CD-ROM Multimedia titles). The mail order supplier I chose to match these specifications with was Computer Trading, as they offered a system which was a close match to the Tandy and Dixons ones, while having a low price. The common factor with all the products is that they are all more expensive than their mail-order price counterparts. This means that the high street stores 'add value'. Adding value is taking one or more parts or products, combining, changing or adding to them, in such a way that the perceived value of the product is increased by more than the cost of the change. For example you might expect to pay £150 more than the cost of the parts when buying a hi-fi, but the cost of putting the hi-fi together is much less than £150. The price, however, must not be too high, as the customer has to perceive the value of the product to be that at which it is priced for a sale to take place. Within any company there will be some several 'departments', each adding value in their own particular way. How much value do Dixons and Tandy add? The only way in which this question can be answered is by looking at the figures themselves, and how much items cost from Dixons and Tandy as opposed to the mail order companies. The figures that I obtained by looking through the stores and magazines were as follows: Here we can see that every product is more expensive from the shops than in the mail-order catalogue. You can see that the products cost very much the same from both of the high street stores at roughly 125% of the cost of the mail-order price. This means that the stores make a 25% mark-up on every product that they sell. The fact that the figures from Tandy and Dixons are very similar show that there is another factor coming into play. This could be one of two things: The cost of supplying the services to the customer is a high proportion of the added cost, therefore meaning that different margins of profit make little or no difference to the price. There is competition, and each store is trying to match or beat the other one to attract more custom. Dixons and Tandy - Adding value in action Obviously, Dixons and Tandy are very similar in that they do not manufacture anything. However value is added in several ways, as a perception from the customer: The products are available instantly, they can be bought and taken straight out of the shop, as opposed to having to wait for delivery The products have financing deals available, such as 0% APR (Annual Percentage Rate) on a loan. For example this would mean that you get the product delivered, but pay by monthly instalments over two years. The products from Tandy, valued at £299 or over, come with a free Sky satellite system. You can try a product before you buy it. You receive sales and after sales support, and advice is not really given over the phone. Also the shop is close to the home, so it is easy to get the product repaired or serviced. Free gifts are often supplied, or complementary products discounted when a product is purchased. There is a range of products available because the people who would order from a mail order catalogue are likely to know what they want, whereas those who go into a shop may need advice on which product is best for them. If we split these perceptions into categories, we can see that each perception is a product of different type of adding value: Points 1, 5 & 7 are because of the company moving all the products into one place, ready for sale. Points 2, 3, 4 & 6 are because of the company's marketing strategy and how the sell the products. This should therefore show where the value is added. In theory, this would show that value was added mainly in marketing, then in relocating the products. Also, shop staff will have to be paid, so some value would be added there. Conclusion From the evidence shown, we can state that high street stores, such as Dixons and Tandy add value in two main ways. These two ways are 'convenience options' and Marketing. Of these two, Marketing is approximately twice the size of Consolidation. Therefore we can say that Dixons and Tandy add value primarily through 'convenience options' and marketing. Also, in answer to the question 'are the benefits that the high street stores bring worth the extra price?' we can say that, apart from quicker delivery and financing options available, all of the services given are pre-sales services. This means in theory you could go into a Dixons or Tandy, receive advice from them, then buy the product from a mail-order company. Thus the answer to this question is probably 'no', in most cases. f:\12000 essays\business & economics (632)\How does Japan do it.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Japan has performed a miracle. The country's economic performance following its crushing defeat in World War II is nothing short of astounding. The economic expansion of Japan is second to none. All of the elements are in place for Japan to continue increasing its share of the world's wealth as America's gradually declines. The country is on track to becoming the world's largest economy. How did Japan do it? There are many theories and studies that have traced the Japanese miracle without success. The answer to the mystery can be found by examining Japan's culture, education, and employment system. Japan's success is not just a case of good technique and technology in business, but a real recognition and development of the necessary human skills. A better understanding of the Japanese society provides the framework to understanding the workings of Japanese business (and possibly the Japanese mind.) The ways of the Japanese provide a foundation for their economic adaptability in modern times. Japan is a culture where human relations and preservation of harmony are the most important elements in society. "It is their sense of identity and destiny which gives their industrial machine its effectiveness."1 "Among the Japanese, there exists an instinctive respect for institutions and government, for the rules of etiquette and service, for social functions and their rituals of business. Japan is a traditionally crowded island, the people are forced to share the limited space with each other and to live in harmony.. The Japanese are very protective of their culture. They are very conservative to outside intrusion. Their distinctive ways are a source of pride and national strength."2 Japan's striving for purity is very different form a North American idea of open doors and diversity as strength. Japan is relatively closed to immigration to outside countries. However, this feeling of superiority does not stop them from being careful. "This is probably because the Japanese know their economic house is on shaky ground, literally. Japan is eternally at nature's mercy, vulnerable to the sea that surrounds it, to earthquakes of the soil beneath it and a real shortage of raw materials, particularly food and fuel."3 A period of extended isolation could be disastrous to the country. Japan's trade surplus is its only generator of wealth. This is a fact of life that is preached through the media and taught constantly to Japanese throughout their lives in school, from parents, and when they enter the working world. The message is clear: Japan is always vulnerable, we must protect her. "Obsessed with national character, the Japanese are proud and ambitious, constantly measuring themselves against the world's best and biggest. Accordingly, one of the main sources of Japan's strength is its people's willingness to sacrifice, to be regimented and homogenized, and to subordinate personal desires to the harmony of the working group."4 The Japanese people have had to become a group-oriented society. While in the western world, individuality and independence are highly valued, Japanese society emphasizes group activity and organization. The people accept that they will belong to one social group and work for one company for life. The crowded island conditions have driven society to value conformity. "The highest priority is placed on WA, or harmony."5 The Japanese have learned to share their limited space and value the precious distance between themselves and others. The culture that Japanese people are brought up in causes them to recognize that they have to work together to succeed. Only harmony will provide improvement. This development of the human nature and attitude relates directly to Japan's business practice and provides a basis for good business relations. Japan's education system has grabbed the world's attention as it is specifically designed to teach the children skills and aptitudes to give them an edge in the business world. "The educational system, based on the principle of full equality of educational opportunity, is widely recognized as having greatly contributed to the prosperity of Japan by providing a highly qualified work force supplemented by extensive intraining programs by many of the major employers."6 "The primary and secondary educational system is probably the most comprehensive and most disciplined in the world."7 Where North American students attend school 175 days a year, Japanese students attend 240 days. . Japanese students attend elementary and secondary school six days a week and for two months longer each year than North American students. In addition, they have long hours of homework. A large majority of Japanese students attend juku, or preparatory schools, in the evenings and on Sundays. In higher education, while lacking the strong University system which exists in North America, the curriculum is equally rigorous, and "Japan is graduating 75 000 engineers per year, 3 000 more than the U.S., from a University population one fifth the size."8 "The education system itself is a unifying force. It molds children into group oriented beings by demanding uniformity and conformity form the earliest ages. The attainment of excellence within this complex environment, and the importance it holds for one's future is stressed early."9 This emphasis places a great burden on the young to perform well in school an to earn admittance to high status universities. The public school system not only produces good, obedient citizens, it produces good workers. A willingness to give oneself to the corporation's best interest, to arrive early and stay late, and to produce good work are attributes learned in the Japanese schools. Those who cannot learn these skills do not do well in school or do not rise in the ranks of the corporate world. The education system is an excellent example of how the Japanese recognize and develop the necessary human skills that are needed in society and stressed in the business world.. One of the most important aspects of Japan's successful economics is the countries employment system. The system is very complex and has many hidden but powerful aspects that help Japan maximize its output. The system's three main principles of lifetime employment, company unions, and seniority pay, work together to form a system worthy of notice. "The system is based on comprehensive labour regulation, and it has been consciously invented as Japan's answer to a Western labour system that Japanese leaders have long believed is inappropriate for an advanced economy."10 "The whole system is based around a people-centered management. Japanese companies undertake their annual hiring of recent graduates expecting all the people they hire to work with them until retirement."11 Lifetime employment is often regarded as a key factor behind Japan's industrial success. Yet, "lifetime employment as practiced in Japan is no more than a general guiding principle. It is by no means a guarantee and only the large companies can afford to assure employment."12 The obvious value of such a system is the sense of stability it presents. But there are many advantages to such a system. "Consider how valuable the lifetime employment system is in winning worker cooperation for the introduction of productivity enhancing new technologies. Japanese workers see no downside risk in helping their employers improve productivity, they embrace new technology knowing it will enhance their company's future and their own jobs. Workers can then be reassigned to different work, typically making improved products."13 "The American hire-and-fire system sets works and managers against each other over new technology. American workers are suspicious of new technology because employers often use such technology to cut jobs. If a company is to innovate, it must train its workers to handle ever more sophisticated tasks."14 "Here again the Japanese labour system provides Japanese employers with a vital advantage in that they can undertake expensive training programs knowing they will enjoy a good return on the investment."15 By contrast, American employers see such training as a risk because the workers are free to take their skills to rival employers. Japanese management is also a major source of Japan's success. "A Japanese manager knows that the decisions he makes today remain permanently on his record and he may be asked to account for them many years down the road. He cannot simply sweep problems away. The company's long term success always has to be on the mind of the manager."16 "The lifetime employment system also enables Japanese corporations to groom prospective executives for many years." The managers know that the path to success is to dedicate themselves single- mindedly to the success of their companies. The lifetime employment system contributes greatly to raising employees' desire to work and to fostering loyalty and commitment to the company."17 The merits of the Japanese employment system are endless. The healthy relations provide a basis for growth. All the aspects of the employment system develop skills necessary for a stable company. Ever since the Tokyo stock market entered a period of decline in 1990, the Western press has attacked aspects of Japan's economics and portrayed Japan as in an economic slump. Westerners endlessly attack the Japanese employment system. It is true that the system was supposed to make workers fiercely dedicated to their employers, but it prevented Japanese companies from cutting the size of the work force in hard times. "While Canadian companies emerged from the recession leaner and more competitive, Japanese firms stagnated."18 The argument is always the same: as the world economy "globalizes", Japanese corporations are being drawn into increasingly head-to-head competition with Western counterparts and face extinction if they do not adopt the "more efficient" Western system of employment. This argument was "never more insistent than in the recession of the early 1990's"19, but, as on previous occasions, the Japan Employment system triumphantly silenced its critics by emerging from the recession as strong as ever. Westerners cut jobs to increase profits, the Japanese cut profits to increase jobs. Western critics also attack the Japanese education system. "Although often noted for their rigor and high test results, the school system is seen as presenting a dark side with conservatism and conformity."20 A modern economy is argued to "need creative thinkers willing to take risks, which Japan's schools are not producing."21 This may be true as Japan has a history of copying Western products detail by detail. The lack of creativity is dismissed by the Japanese. They feel that "copying is common sense. Relieved of the burden of having to come up with original designs, Japanese manufacturers can concentrate all their creative talents on the far more economically effective task of beating Western rivals in productivity."22 The school systems are producing thinkers and problem solvers. All of these attacks are underestimating the power of the Japanese. Is it an economic slump when "in the first four years of this decade, Japanese exports soared by 32 percent, the yen rose 27 percent, and Japanese employers created 3.2 million new jobs. Japan is not crumbling, it has now surpassed the U.S. to become the world's largest manufacturing economy and is ready to claim the lion's share of the world's growth."23 Attacks on Japan's ways are countless. Obviously there are many problems with the way they run their country. Yet, no one can ignore the economic success that Japan has had. The roots of the success can be traced back to the skills developed through culture and education, and the healthy attitudes developed by the Japanese employment system. The Western world could learn much from what makes the Japanese successful in business. It is not just a case of adopting Japanese techniques and technology but of recognizing and developing the necessary human skills. The East has borrowed heavily from the West in improving its business performance; the West could also take note of the lessons of Japanese history and culture and consider applying them in its own organizations. f:\12000 essays\business & economics (632)\HOW EMPLOYEES AFFECT CONSUMER BEHAVIOR 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Source: Personal experience Summary I am going to discuss how employees affect consumer behavior and what I believe are the best ways to improve their effectiveness. I will be drawing upon my experiences as a consumer and working in a retail environment. Comments No one fulfills your corporate philosophy or promotes your products and services more than your employees. They are like ambassadors representing the United States when the president can not be there in person. You need them to act on your behalf when dealing with customers. If the customers aren't treated well once in your store or business, what good does it do to use marketing to get them into your store or business. You also have the problem of each customer who was treated poorly, telling other people about their bad experience with your company. This might not seem like a big deal, but it is and it's even worse when people are telling others how great your competitor treated them. I've had a few experiences where I have felt that I haven't been treated properly or fairly by store employees. Most of the time I've been able to find another person to help solve my problem and I was able to walk away a satisfied customer. There are some instances when I have consciously went to a competing business, because of the way I was treated. I know I am not the only person who does this, so I feel it is very important to have a work force that helps market your products, by being friendly and knowledgeable. This will prevent customers from turning away from your products and services. Ask your workers if they would recommend your product or service to their family and friends. If your people lack confidence in your company, you need to find out why and fix it. You want them to be proud to use your product or service so they can convey this feeling to the customers. Some of the things that turn off consumers are long lines and employees who don't pay attention or just go through the motions. Rudeness, impatience, and judgmental remarks are very damaging to your company image. Workers who are poorly trained or don't know about your product or service serve no purpose and let down customers. Lies, dishonesty, and promises that are broken cost companies a lot of business when you look at the long run. Ask your workers if they would recommend your product or service to their family and friends. If your people lack confidence in your company, you need to find out why and fix it. The first thing you need to do is let your employees know what you expect of them, how much individual judgement they can use, and what the rewards will be. Giving employees some flexibility in handling problems lets them know that you trust them. Employees should know your companies products or services, the company philosophy, and your industry. Make it clear to your employees how important customer service is to everyone's future. Make sure that your employees have been trained properly and have all the resources they need to do their jobs. Include them in decision making and explain company policies. Assure them that the will be backed, when a quick response was needed to satisfy a customer. Explain to them the basics of social interaction, like smiling and eye contact. Most importantly be a good example. Have your best worker train the others in your organization and offer additional training and development. Seek out opinions and ideas and let them feel needed. You need to reward employees for their great service. If their behavior isn't supported and rewarded they will never change. Give them handwritten thank-yous and acknowledge them publicly when possible. When all else fails offer monetary bonuses. The concept of employees as marketers is a rather new one, but it is very import if you want to have a successful business. f:\12000 essays\business & economics (632)\How Employees Affect Consumer Behavior.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How Employees Affect Consumer Behavior Summary I am going to discuss how employees affect consumer behavior and what I believe are the best ways to improve their effectiveness. I will be drawing upon my experiences as a consumer and working in a retail environment. Comments No one fulfills your corporate philosophy or promotes your products and services more than your employees. They are like ambassadors representing the United States when the president can not be there in person. You need them to act on your behalf when dealing with customers. If the customers aren't treated well once in your store or business, what good does it do to use marketing to get them into your store or business. You also have the problem of each customer who was treated poorly, telling other people about their bad experience with your company. This might not seem like a big deal, but it is and it's even worse when people are telling others how great your competitor treated them. I've had a few experiences where I have felt that I haven't been treated properly or fairly by store employees. Most of the time I've been able to find another person to help solve my problem and I was able to walk away a satisfied customer. There are some instances when I have consciously went to a competing business, because of the way I was treated. I know I am not the only person who does this, so I feel it is very important to have a work force that helps market your products, by being friendly and knowledgeable. This will prevent customers from turning away from your products and services. Ask your workers if they would recommend your product or service to their family and friends. If your people lack confidence in your company, you need to find out why and fix it. You want them to be proud to use your product or service so they can convey this feeling to the customers. Some of the things that turn off consumers are long lines and employees who don't pay attention or just go through the motions. Rudeness, impatience, and judgmental remarks are very damaging to your company image. Workers who are poorly trained or don't know about your product or service serve no purpose and let down customers. Lies, dishonesty, and promises that are broken cost companies a lot of business when you look at the long run. Ask your workers if they would recommend your product or service to their family and friends. If your people lack confidence in your company, you need to find out why and fix it. The first thing you need to do is let your employees know what you expect of them, how much individual judgement they can use, and what the rewards will be. Giving employees some flexibility in handling problems lets them know that you trust them. Employees should know your companies products or services, the company philosophy, and your industry. Make it clear to your employees how important customer service is to everyone's future. Make sure that your employees have been trained properly and have all the resources they need to do their jobs. Include them in decision making and explain company policies. Assure them that the will be backed, when a quick response was needed to satisfy a customer. Explain to them the basics of social interaction, like smiling and eye contact. Most importantly be a good example. Have your best worker train the others in your organization and offer additional training and development. Seek out opinions and ideas and let them feel needed. You need to reward employees for their great service. If their behavior isn't supported and rewarded they will never change. Give them handwritten thank-yous and acknowledge them publicly when possible. When all else fails offer monetary bonuses. The concept of employees as marketers is a rather new one, but it is very import if you want to have a successful business. Source: Personal Experience f:\12000 essays\business & economics (632)\How to Have A Joyous Marriage.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How to Have A Joyous Marriage! by Roderick C. Meredith Here are "keys' to help make your marriage special! These insights and tested principles will help you build your marriage into a precious relationship of joy and beauty. HJM4 Edition 1.3, May 1996 This booklet is not to be sold! It has been provided as a free public educational service by the Global Church of God (c) 1993 GLOBAL CHURCH OF GOD All rights reserved. Printed in the U.S.A. Editor in Chief Roderick C. Meredith Executive Editor Raymond F. McNair Managing Editor Jeffrey H. Patton Associate Editor Gary Foster Associate Editor Thomas E. Robinson Assistant to the Editor Bradley J. Mitchell Contributing Editor Ronald B. Nelson Art Director Karen Myers Art Assistant Donna Prejean Business Manager J. Edwin Pope Circulation Wayne Pyle Technical Advisor Eric T. Myers Information Systems Sanford Beattie Information Systems Rob Carrico With tears in their eyes, dozens and scores of women have told me how miserable their marriages were. They obviously wish with all their hearts that things were better, but they don't know what to do. "My husband won't really open up and talk with me about our problems", many women say. "My psychologist told me to go have an affair and I would feel better," one woman said. "But I know that's wrong and I just can't do that!" In our "now generation," most folks don't think of the long-term consequences of their actions, and our acceptance of "quickie" marriages and divorces only compounds the problem. Why try to work through all the problems in your marriage when you can just divorce and feel better right now? In an outstanding recent article, former Secretary of Education, William J. Bennett, made these insightful comments: "...but during the same recent 30-year period there has been a 560% increase in violent crime; a 419% increase in illegitimate births; a quadrupling in divorce rates; a tripling of the percentage of children living in single-parent homes; more than a 200% increase in the teenage suicide rate; and a drop of almost 80 points in SAT scores....!" If you wish to avoid the misery of this foolish generation, then read carefully and prayerfully the pages to follow. For we are going to discuss seven vital keys to building and enriching the very basis of all decent society--your marriage and your family. I. Commitment is basic The expression "till death do us part" may seem old fashioned or passé to many young people. But those same couples may be suffering loneliness, emptiness and misery if they leave that concept out of their marriages. Yet today, most people take for granted the modern option of leaving their mate and forsaking their marriage vows. Many couples plan for the eventuality of divorce by having a lawyer write up a prenuptial agreement. Then they promise to stay together for life, but insist on acting "prudently" to protect their assets in case the marriage doesn't last. This idea may seem wise and prudent, but is it really? No! The common acceptance of the "escape hatch" of an easy divorce creates a vicious cycle. The more some people divorce, the easier it seems for others to do likewise. And the breakdown of a society has begun! Nearly all thoughtful men and women realize that a stable home and family is basic for a decent society. As our homes and marriages come apart, so the wildness, ruthlessness and violence in our society will increase. It is vital that we all grasp that the basis for marriage itself is the supreme purpose of our Creator! That's right! If you leave the great God who made us male and female out of the picture, then human reason is the only basis for anything--and absolute chaos will ensue. It is God who said: "Let us make man in our image, according to Our likeness; let them have dominion over the fish of the sea, over the birds of the air, and over the cattle, over all the earth and over every creeping thing that creeps on the earth." So God created man in His own image; in the image of God He created him; male and female He created them. Then God blessed them, and God said to them, "Be fruitful and multiply; fill the earth and subdue it; have dominion over the fish of the sea, over the birds of the air, and over every living thing that moves on the earth" (Genesis 1:26-28). God instituted marriage We see here that it is God who made us male and female. And His first command to humans was to "multiply"--obviously implying marriage and home. God the Father is the Author of marriage. In Matthew 19, Jesus gave us some principles concerning marriage. The Pharisees tested His teaching on the subject by asking, "Is it lawful for a man to divorce his wife for just any reason?" (Matthew 19:3). In other words, can a man put away his wife for just any reason? They distorted what Moses had said in the Old Testament about putting a wife away, and would even use a pimple, a wart or almost anything as an excuse to put their wives away. And He answered and said to them, "Have you not read that He who made them at the beginning made them male and female," and said, "For this reason a man shall leave his father and mother and be joined to his wife, and the two shall become one flesh"? (verse 4-5). God made the man and the woman for each other. He created the man and his wife to complement one another physically, psychologically, emotionally and mentally so they could live a balanced and happy life together. Jesus taught that a man should leave his father and his mother and cleave to his wife! If you do have to bring senile or infirm in-laws to your home later, after the marriage is firmly established, then that's different. But at the beginning, and certainly for the first several years, normally, you're to leave relatives and cleave to your wife or your husband. Throughout your married life, always remember that it is GOD who made you "one." In a true marriage, a man and woman covenant before God to take each other as mates for life. Under all normal circumstances, you should stay together. If need be, you should pray and work to save your marriage. In Malachi 2:13-16, our Creator shows why He sometimes withholds His blessing: You cover the altar of the LORD with tears, with weeping and crying; so He does not regard the offering anymore, nor receive it with good will from your hands. Yet you say, "For what reason?" Because the LORD has been witness between you and the wife of your youth, with whom you have dealt treacherously; yet she is your companion and your wife by covenant. But did He not make them one, having a remnant of the Spirit? And why one? He seeks godly offspring. Therefore take heed to your spirit, and let none deal treacherously with the wife of his youth. "For the LORD God of Israel says that He hates divorce, for it covers one's garment with violence," says the LORD of hosts. "Therefore take heed to your spirit, that you do not deal treacherously." Notice that God says plainly that He hates divorce! So should you. That doesn't mean you hate divorced people. Neither does God. Rather, He pities them and wishes that we humans would quit fighting and arguing and learn to love one another. If we would truly do this--and make a real commitment when we marry--then we could work out any problems that might arise. We could learn the lessons of giving, sharing and forgiving in a way that only marriage can teach. Our faithfulness to our mates shows our Maker that our commitment to Him will also be lasting. II. Communication is vital One of the greatest shortcomings in literally millions of marriages is the lack of open and loving communication. Note that I said, "open and loving," not shouting, criticizing or threatening. This lack is especially discouraging to many wives. A young man will put his best foot forward during the courtship. He will walk and talk for hours with a pretty young woman he hopes to marry. His hormones are raging. So he will confide in her, encourage and flatter her, do almost anything to get this beautiful young woman to say "yes" and marry him. But, not too many days or weeks after the marriage, a man may begin to withdraw. He seems to forget that his sweetheart agreed to marry because she honestly thought she was liked and respected as a person. She expected and hoped to be a full partner in life with her future husband--sharing with him their mutual plans, hopes and dreams. However, when "hubby" starts coming home late with liquor on his breath and has nothing to say, or when he eats dinner quickly and silently and then plops himself in front of the TV, or when he spends most nights away from home playing pool with "the boys"--that hurts! So before you even become officially engaged, you had better become "best friends" with your future mate--and mean it. You had better find out if you truly have a whole range of interests in common--besides sex and romance! In a truly happy marriage, the two individuals are to become like one person. There is to be a oneness of mind, body, emotions, attitudes and a sharing in nearly every aspect of life. This doesn't mean that a man can never play basketball, handball, pool, or cards with other men occasionally. Good masculine companionship once in a while helps a husband to be more of a man. This gives him more confidence and more of a release for a particular part of his nature that ought to be expressed with other men. But if a husband is always playing cards, basketball, baseball, or pool with other men--or away from home trying to make it big on the job--then this takes him mentally, emotionally and physically away from his wife and children. A continuing practice of this is wrong! It is breaking the commandment of Christ that a man is to cleave to his wife. Every married man has the God-given responsibility to spend time at home with his wife and children. Is this where a considerable amount of your time and interest lies? Or is it always somewhere else, doing something else? Where is your "heart"? How and where do you spend your time? Spend time alone with your mate Husbands and wives need special time together--sometimes apart even from the children. Get a babysitter, if you can, and go out to dinner or to a concert once in a while. You can walk, hand in hand, as you used to do when you were courting and dating--dance together, talk together and love together. You can even take short trips together. Then you will appreciate the children more, because you've been away from them for a few days (not several weeks or months) perhaps once or twice a year. This doesn't hurt them at all, if they are properly trained and your family is emotionally close as it should be. Look at some examples in the Bible. You'll find that men like Abraham, Isaac and Jacob were away from their children far more than many of us today. It's a matter of correctly training the children while you're with them, and giving them a stable atmosphere and foundation for the remainder of their lives. Of course, many don't have much opportunity to go someplace together, or can't afford it. But there are other ways you can be alone together. You can begin by sending the children to bed by eight or eight-thirty in the evening. Then you will have an hour and a half or two hours together--before you go to bed. You can listen to music together, read the Bible together occasionally, and do other things together. Sometimes you can have a babysitter watch the children while you and your wife take a long walk together. A little thoughtfulness and tenderness can help a great deal! Many of you men who have marriage problems should court your wife as you used to. Practice the art of trying to cleave to her, and spend time together. Then you will really understand your wife, and she will feel close to you mentally and emotionally. Both of you will have more of the mutual understanding and affection you used to have when you were first married. But you do need to communicate in all those activities! Remember, love does not automatically make one a skilled mind reader. Men, be sure you don't let other things distract you--or create situations which excuse you--from talking openly and genuinely with your mate about your deepest interests and concerns in life. Let her know if you think something is missing in your relationship. And truly listen to her with your heart as well as your head when she talks to you about similar matters. If you love your mate, tell him or her--say it frequently. Open up. If you share your hopes and dreams with the love of your life, then your love will grow deeper and be even more meaningful. III. Set family goals together A truly meaningful home and marriage ought to have a number of goals in mind besides sexual fulfillment. Too often, young people are so consumed with sexual interest that they neglect to build a home, an enduring family and a meaningful life together. So when the sexual fireworks start to slow down after a few months or years of marriage, these people feel a sense of letdown or betrayal. God mentions one of the reasons He made man and woman one in marriage. Notice again the inspired words of Malachi, "But did He not make them one, having a remnant of the Spirit? And why one? He seeks godly offspring. Therefore take heed to your spirit, and let none deal treacherously with the wife of his youth" (Malachi 2:15). A young husband and wife normally ought to be planning for children, a real home, a sense of family, stability and all that this implies. If both husband and wife are working, they need to plan together to set aside money so she can stop working for several years, at least, in order to have and rear children. Couples should discuss what kind of home, education and family activities they feel will work out best for them. They should regularly set little goals to work on together. Then, as partners in their family enterprise, they should see that these smaller goals all fit in with and support the fulfillment of their major family goals. An illustration of working toward a smaller goal might include planning together a summer vacation trip. Each partner might wish to do some reading and research separately, talk to different friends, get ideas. Then, together, they can spend time discussing alternatives, planning a tentative trip budget, and finalizing plans. This type of goal-sharing and planning is obviously increased when as couple has children. Then they need to discuss regularly the childrens' health, development, education, friends, neighborhood problems and their respective goals in life. That is one reason, among many others, why having children often serves to give greater strength and stability to a marriage. Jesus Christ said to His disciples, "No longer do I call you servants, for a servant does not know what his master is doing; but I have called you friends, for all things that I heard from My Father I have made known to you" (John 15:15). Even the Son of God did not withhold from His friends the plans and programs He and the Father had in mind. So you men, especially, open up and bring your wives into the planning process of how and where you want to live in the future, where you hope your career may take you and the goals you have in mind for yourself and for the family as a whole. Make them feel like an integral part of the big programs in your life. IV. Marriage means giving One of the greatest joys in life that everyone ought to experience is the joy of giving: is seeing the deep appreciation, the radiant smiles and the joy of others because you thought of them. The Apostle Paul wrote, "I have shown in every way, by laboring like this, that you must support the weak. And remember the words of the Lord Jesus, that He said, 'It is more blessed to give than to receive'" (Acts 20:35). Marriage is certainly one of the best places to learn to give. For when you are constantly living with another person, when you are bound by God in marriage to that person, you desperately need to learn to give and give and give in order for that union to be as deeply happy and satisfying as it should be! As the one God intended to take the lead, a husband ought to take the lead in creating, in marriage, an atmosphere of giving and serving. Then the wife should surely follow this lead so that each party is trying to give a wonderful life and marriage to the other, to enrich their partner's life in every possible way. Otherwise, if both partners are immature, selfish and just trying to "get", then big trouble lies ahead! You husbands especially need to remember that Christ gave Himself for the Church: That He might sanctify and cleanse it with the washing of water by the word, that he might present it to himself a glorious church, not having spot, or wrinkle, or any such thing; but that it should be holy and without blemish. So ought men to love their wives as their own bodies. He that loves his wife loves himself (Ephesians 5:26-28). Authorized (King James) Version. Every right-minded man certainly desires to cherish and protect his wife. She is his sweetheart, his companion, the mother of his children. He ought to realize that she is part of him! "For no one ever hated his own flesh, but nourishes and cherishes it, just as the Lord does the church" (verse 29). Realizing that his wife is part of him, a man certainly ought to have a solicitous and protective feeling toward his wife and sweetheart. He should constantly be thinking of her welfare so that she does not strain or overdo; so that her grace and beauty may be preserved throughout all of their married life. A real man will notice when his wife is overworking and lighten her burdens whenever possible. He will leap to action to lift heavy things for her, scrub those burnt pans or vacuum for her when she is tired or over worked. He will help her when she is sick, and protectively and lovingly watch over her in many such ways! Of course, a man should not do this because he is nagged or henpecked into doing it! And no right-minded wife would knowingly do this. If a wife makes demands beyond reason upon her husband, it is his duty as the family's leader to set his foot down and restore a proper balance in their relationship--though, as much as possible, he still helps her out in sincere love and concern for their life together. The woman also has her responsibilities, her particular duties in the household, and she should gladly do them. But, help from her husband comes in as an act of love--freely and fully given when she is sick, downcast or is suddenly faced with an object too heavy to lift, a job too difficult for her to accomplish without the physically stronger partner of the marriage giving of his help and strength in love to his wife and sweetheart. Learn this lesson, men! Your wives will repay you in a thousand ways over the years to come if you learn to give this help when it is needed--and give it freely and in kindness. The Christian wife Certainly every Christian woman ought to think about serving her husband--about caring for his health and personal needs, about encouraging him, loving him and helping him grow as a husband and father in every way she can. One of the great tragedies of our inflationary society is that millions of young wives are virtually forced to work outside the home! Often, they come home tired and bedraggled at night. A wife in this situation lacks the zest and energy to cook special meals, keep the house as she would wish to--let alone be an enthusiastic sweetheart, companion and lover for her husband. Each of you who read this need to meditate deeply about the quality of life you desire. Think carefully about building a real family with children--and a wife that is able to stay home and rear that family as our Creator certainly intended! The apostle Paul was inspired to instruct the older women: That they may teach the young women to be sober, to love their husbands, to love their children, To be discrete, chaste, keepers at home, good, obedient to their own husbands, that the word of God be not blasphemed (Titus 2:4-5) Authorized (King James) Version. As Proverbs 31 tells us, a woman like this who gives herself to her family, to building a real home--will indeed be honored both by God and by man. "Her children rise up and call her blessed; her husband also, and he praises her" (Proverbs 31:28). If you can use your marriage and your family as a "training ground," to unreservedly love, share and give to others, you will develop the greatest characteristic of all. Then, from a strong, happy marriage as a base of strength, that love can flow out from you and your mate to the rest of your family, friends, neighbors and associates. In every aspect of your married life, learn to practice the way of give. You will not be sorry. V. The ART of FORGIVING To be happy and remain happy in marriage, you must not only give but also forgive. There have never been two perfect people on earth, and so no marriage has ever been truly perfect--as all long-married people understand. You knew full well when you married that your husband or wife was not perfect. So you must not hold them up to some unreasonable standard of perfection. If you do, you will both be perfectly miserable. When there are real misunderstandings and hurts--and there will be--you must learn to forgive. As a real Christian, you are commanded to forgive all men--so how much more your own mate! Jesus Christ, the One who shed His blood for us, stated, "For if you forgive men their trespasses, your heavenly Father will also forgive you. But if you do not forgive men their trespasses, neither will your Father forgive your trespasses" (Matthew 6:14-15). You must ask God in prayer to grant you the spirit of forgiveness--the ability to completely put away all resentment and animosity against others who have hurt you. And then you need to practice this. Do it regularly. Build the habit of forgiving others quickly, especially your own mate! There are those who carry grudges. They often brood and fume and smolder over little hurts and misunderstandings. Are you like this? If you are, you need to pray to God in heaven to help you get over this tendency--and to completely forgive your mate for the literally dozens of little hurts that can occur when two people live together. Do you really enjoy making yourself miserable, your mate miserable and everyone else miserable by carrying grudges around forever? If you really think about it, very few of us really want this result. So work on it. Change your pattern of thinking. Don't allow yourself to get hurt so easily. Pray your heart out to God who is called "the Father of mercies" (II Corinthians 1:3). As He forgives us again and again, so must we forgive others--including our mates. The apostle Peter commands Christian men to honor their wives, "as being heirs together of the grace of life, that your prayers may not be hindered" (I Peter 3:7). Peter then proceeds to give instructions that apply to all situations, but especially the "marriage situation": Finally, all of you be of one mind, having compassion for one another; love as brothers, be tenderhearted, be courteous; not returning evil for evil or reviling for reviling, but on the contrary blessing, knowing that you were called to this, that you may inherit a blessing (verses 8-9). Yes, we need to have compassion for our mates and forgive them regularly. We need to be courteous and tenderhearted in marriage. For marriage is a wonderful workshop for learning the art of giving, forgiving, kindness and mercy--if we will prayerfully and unselfishly use it to help us build these qualities into our character. The apostle Peter asked Jesus, "Lord, how often shall my brother sin against me, and I forgive him? Up to seven times?" (Matthew 18:21). Think about it! Sometimes your mate will offend you (though you probably shouldn't be so sensitive!) many times in one day! Jesus understood. He knew that we all need forgiveness from God and from each other again and again. So Jesus answered, "I do not say to you, up to seven times, but up to seventy times seven" (verse 22). So love your mate. Forgive your mate. Don't carry grudges. Remember how difficult it must be for him or her to live with you! If you were someone else, how would you like to have to put up with all the mistakes and foibles that you exhibit almost every week of your life? Remind yourself that you cannot be happy "hating" your mate. Learn to genuinely forgive, forget and move forward to a truly joyous and satisfying life. Which brings us to our next point. VI. Romance and fun Most courtships and marriages begin with romance and fun. The young couple spends a lot of time together. They go to the beach, the mountains or the park. They eat together. They go out dancing, or to the museum, libraries or movies. Above all, they have long, intimate talks with each other--looking into each other's eyes, exulting in the romance of love. And they have fun. In most cases, they laugh and kiss and kid around and really enjoy the getting- to-know-you stage of courtship. Life takes on a special glow because of their attraction to each other--and because they are using that attraction to enhance and make special the sharing of all their activities and intimate moments together. But all too often--a few weeks or months after the marriage--this fun and romance begins to leave the marriage. Often, life becomes hum-drum and dull and one or both marriage partners start asking themselves, "What went wrong?" Why? There are often a number of reasons, of course, but let's discuss two of the most common reasons why a marriage loses its romance and zest. f:\12000 essays\business & economics (632)\How To Make A Sandblasted Sign.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How To Make Sandblasted Signs I am going to tell you how you can make a sandblasted sign. The only necessary tools you need are: bass wood, or red wood, rubber masking, spray glue, exacto knife, sand paper, paint (which most of these items you can find at your local hardware store). Also you need to know someone in your community who has a sandblasting machine to sandblast your sign. You will also need a design for your board. (It can be your name, or a symbol of what ever you want it to be NIKE, STARTER, etc.) Now that you know what you need, you can proceed on your sign. First thing you need to do is to get some bass or red wood. Cut the boards to the exact size you want by using a band saw or hand saw. Also, use the following methods such as gluing, planing, and squaring the boards to the exact length you want your sign to be. Once you have squared your board with the square, your sign will be even on each side. The next step will be to apply the rubber masking to your board. Now you are ready to put your design on the rubber masking. Apply the spray glue to the rubber masking. Once you have sprayed the glue (in a well ventilated area) to the masking you should wait for about 2 minutes for the adhesive to dry, and begin to cut out your design you have chosen. This is a very time consuming task so it is best to take your time. This is the time to start cutting on your masking. It is best to leave about one half of an inch around the outside edge of the board. Use your exacto knife to cut the masking. Make sure to center your design and that it is suitably sized to your board. It is important not to make the cuts too small or the sand will tear the rubber masking off. You need to find someone in the community that does sandblasting. This could be at a monument engraving service near by. They use a special sand that is very fine to cut the wood. Sandblasters also use an air compressor to shoot the air and sand out at a high rate of speed. This process will cost between $2-$5 and the time to complete is approximately two days. Once you get the sign back from the sandblasting service, you are ready to start painting the board. At this time you have the option to paint the background. (note: do not take off the rubber masking yet!) For painting the board all you will need is an aerosol spray can of paint that can be a color of your choice. After the paint on the background has dried you need to very carefully pull off the rubber masking that remains on the wood. Next you need to sand down the board with sand paper, preferably 220 grit. This will get off all the extra adhesive that was leftover by the rubber masking. This will leave a refined surface on your board, so you can paint. To complete your project purchase any craft paint of your color preference. It may be necessary to apply many different coats of paint on the sign to make it look the best you can. As you can see it is not difficult to make a sandblasted sign. It takes determination and little will power. Once your project is completed you will have a sign you are proud of. Since you see sandblasted signs everywhere, such as in restaurants and golf courses, perhaps you will choose a career in making signs. I hope this paper has given you inspiration to complete a sandblasting project. f:\12000 essays\business & economics (632)\How To Make Sandblasted Signs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ How To Make Sandblasted Signs I am going to tell you how you can make a sandblasted sign. The only necessary tools you need are: bass wood, or red wood, rubber masking, spray glue, exacto knife, sand paper, paint (which most of these items you can find at your local hardware store). Also you need to know someone in your community who has a sandblasting machine to sandblast your sign. You will also need a design for your board. (It can be your name, or a symbol of what ever you want it to be NIKE, STARTER, etc.) Now that you know what you need, you can proceed on your sign. First thing you need to do is to get some bass or red wood. Cut the boards to the exact size you want by using a band saw or hand saw. Also, use the following methods such as gluing, planing, and squaring the boards to the exact length you want your sign to be. Once you have squared your board with the square, your sign will be even on each side. The next step will be to apply the rubber masking to your board. Now you are ready to put your design on the rubber masking. Apply the spray glue to the rubber masking. Once you have sprayed the glue (in a well ventilated area) to the masking you should wait for about 2 minutes for the adhesive to dry, and begin to cut out your design you have chosen. This is a very time consuming task so it is best to take your time. This is the time to start cutting on your masking. It is best to leave about one half of an inch around the outside edge of the board. Use your exacto knife to cut the masking. Make sure to center your design and that it is suitably sized to your board. It is important not to make the cuts too small or the sand will tear the rubber masking off. You need to find someone in the community that does sandblasting. This could be at a monument engraving service near by. They use a special sand that is very fine to cut the wood. Sandblasters also use an air compressor to shoot the air and sand out at a high rate of speed. This process will cost between $2-$5 and the time to complete is approximately two days. Once you get the sign back from the sandblasting service, you are ready to start painting the board. At this time you have the option to paint the background. (note: do not take off the rubber masking yet!) For painting the board all you will need is an aerosol spray can of paint that can be a color of your choice. After the paint on the background has dried you need to very carefully pull off the rubber masking that remains on the wood. Next you need to sand down the board with sand paper, preferably 220 grit. This will get off all the extra adhesive that was leftover by the rubber masking. This will leave a refined surface on your board, so you can paint. To complete your project purchase any craft paint of your color preference. It may be necessary to apply many different coats of paint on the sign to make it look the best you can. As you can see it is not difficult to make a sandblasted sign. It takes determination and little will power. Once your project is completed you will have a sign you are proud of. Since you see sandblasted signs everywhere, such as in restaurants and golf courses, perhaps you will choose a career in making signs. I hope this paper has given you inspiration to complete a sandblasting project. f:\12000 essays\business & economics (632)\How To Start A Web Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1075 How To Start A Web Business By: 1 of 3 How To Start A Web Business One of the most popular Internet myths claim that building an online store is easy: All the customer has to do is point, click, and buy. But in reality, successful e-commerce is far more complex and unlike any other web site project you have tackled in the past. Before that first cyber buck finds it's way into your bank account, you need to do considerable research and planning. To get started you can begin thinking about all the issues that need to be addressed before you can even put together a successful online business plan. You can now imagine a real company that suddenly decides to regard the "welcome" announcement of e-commerce. Say you're working for the Ford Motor Company, the nation's leading supplier of heavy-duty trucks. Your CEO is catching up on the past several months of business journals and when the spark plugs start firing. Those screaming headlines cannot be ignored: "Consumer E-Commerce Will Jump To 26 Billion By 2002" and "U.S. Online Business Trade Will Soar to 1.3 Trillion By 2003". Most importantly, Chevy has rumored to begin its own e-business plan. So the big wig meets with the board of directors, and after an agonizing long deliberation, you are told that they want www.ford.com open in six weeks. Plenty of time they insist. After all there are millions of schmucks out there building award winning web sites and making a plethora of cash to pay for college. Immediately go register the domain name ford.com for the company and then make your plan. Planning ahead for the unexpected gotchas of e-commerce that can hit you unexpectedly. Planning ahead will not only save you redevelopment time down the road, but it will also help you make educated decisions as you choose the right e-business solution for your company. The Many Choices of Beginning Before your can select the right setup for your e-business, you must determine exactly what you need to be competitive online. Most likely you will need some software to help you manage your products, your promotions, your customers, and their orders. You may also need some additional programs to handle the tax, shipping, and payment processing of your orders. 2 of 3 A number of off the shelf solutions have grown over the past few years that give you these core features and allow you to plug-in other software modules to handle the complexities of taxation, the varieties of shipping options, and all the popular forms of payment. Solutions like Intershop's ePages, iCat's Lemonade Stand, or Yahoo's Stores provide pre-fabricated storefronts that are ready. Just pick a design and fill in your products and you are ready for business. Other applications, like Intershop 3.0 and iCat Professional, allow you to change the pre-made storefronts to your own personal look and feel. These programs also allow you to extend the html setups to even more alter the features and behaviors of the storefront. The above solutions rely on other e-commerce software from CyberCash or OpenMarket for payment processing, Taxware for tax calculations, and Tandata for up to date shipping information. Building Your Plans As soon as you are building your plans you should construct a requirements document. At this point it is a good time to get the attention of all the corporate departments involved. That way everyone's input is in at the beginning, instead of too late. All ideas and potential conflicts are confronted early. It is hard to know which technology solution is good for you, until you have a detailed list of requirements that you can compare the solutions against. Therefore, you can choose an e-commerce platform that will deliver your goals to the online customers. You should also take the chance to plan for where the company is going to be in 2, 5, and 10 years. If you set your solution up correctly now, when your company grows and expands its range for service, you can simply add to the original foundation and not throw out your work. More specifically your plan should answer the questions of how the products will be presented. The organization of how you would expect your customers to shop online, pretty cautiously when looking to order an automobile. The cars may be searched for through keywords or features. Prioritizing all the raw information to allow the most important information to be readily accessible. 3 of 3 The first version of the project concentrates on building up the company's online customer base from the promotion of the unique service. Then once a minimum monthly order volume is sustained, the company will commit to putting resources toward automating the back office and fulfillment systems. Until then the current employee's will just key in the orders. Requirements Document Displaying products: You will want the customers to tell us what kind of vehicle they are looking for and you can tell them what you have to fit their needs. You will need a tool that can make changes to the product you offer in real time. Order and transaction processing: At this point the Internet is not reliable enough to take this high of priced orders safely so consumers will only be able to compare features and make requests online. Attracting customers: Banner ads, registering with search engines, and sending direct email to get qualified customers to the site. Then you can figure out which tactic effectively brings the most customers and invest in the one that makes the most sense. Fulfillment and customer service Orders that arrive on the server need to be relayed to the fulfillment center quickly so that you can pick, pack and ship the product before the fed ex truck leaves the dock at 5:00pm. Also let customers know the status of their orders so they don't need to call the company. Software and hosting: A third party host may be a wise choice, as you don't want to stay with the orders around the clock. Individuals trying to make an easy fortune on web business beware of the task at hand, and do not start by patronizing the buy a plan sites already on the net. f:\12000 essays\business & economics (632)\HRM strategic approaches.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ HRM strategic approaches leads to improved organisational performance Staffordshire University Business School BA(Hons) Business Administration Level 3 - Top Up Module: Management Of People In Organisations Essay title: "Critically assess whether HRM strategic approaches leads to improved organisational performance". Date Submitted: Wednesday, 29th April 1997 --------------------------------------------------------------------------- The term "human resourcing" is used here to describe a key set of principles through which the strategic possibilities of an organization's workforce and employment structure are evaluated. The methodologies of human resourcing derive from two concerns: 1. The auditing of current human resources in relation to possible future product/service and labour market scenarios. 2. The promotion and maintenance of optimal human resource performance through the management of work patterns and organization structures. While human resourcing encompasses what has traditionally been termed manpower planning, it also involves another dimension: that of managing motivation and activity in support of enhanced performance. Manpower planning The basic idea of manpower planning as developed in the 1960s was to manage the headcount of an organization in such a way as to achieve compatibility with predicted trends in performance over time. The emphasis primarily was on the relationship between numbers employed (in various capacities) and the rate of growth or contraction of the organization. This approach rested on three sequential steps (Bennison 1984:4): 1. An estimation of the organization's future manpower needs in terms of numbers and skill composition. 2. An analysis of labour flows into, within and out of the organization, and the ability of relevant labour markets to supply existing or future demands. 3. The identification of gaps between supply and demand and the development of policies to 'close' these. In theory, this approach had the advantage of combining sophisticated mathematical modeling with a range of potentially innovative policy options (i.e., step 3 above) in practice, however, this promise frequently seems to have been incompletely realized. From the outset, the mathematical dimension tended to dominate, giving manpower planning the appearance of an esoteric activity accessible only to those with a high level of quantitative knowledge. According to Pearson (1991:18) the prioritization of statistical analysis also encouraged "an uncritical acceptance of existing categories of manpower and career structures, simply because they provided instant fodder for equations and computer databases", encouraging conservatism and myopia when innovation and clear-sightedness were necessary (see also Maloch 1988). In addition, there was another more serious problem: the inability of this type of planning technique effectively to "connect" with real organizational performance. As Bennison explains: The framework was logical, the techniques were well founded, and the idea of a manpower planning system seemed unassailable. Yet it failed to make the impact it should have done because it contained within it an immense practical difficulty. The notion that it is possible to estimate future manpower needs, with the precision necessary to match policies of supply, is quite fallacious. Demand is particularly susceptible to changes in the outside world; wars, commodity prices, and foreign exchange rates cause problems in managing economies, which, in turn, affect the growth rates of organizations. These external events are essentially unpredictable and so the ability to estimate the demand for an organization's manpower is suspect. (Bennison 1984:5) Such problems with traditional mathematical approaches to manpower planning led to moves away from forecasting and towards the auditing of organizational manpower. This 'practical' approach, following Benison's cartographic metaphor, is concerned not with planning detailed routes between destinations but with producing a 'map' of the organizational manpower 'configuration' and the general direction in which it is heading, an exercise that can be undertaken with the assistance of techniques such as flow charts, histograms and pie charts, rather than complex mathematical functions. Although these latter techniques have contributed significantly to contemporary human resourcing, there is another quantitatively orientated approach, human asset accounting, which has also exerted an influence. Human asset accounting and human resource audits The popularization of human asset accounting (or human resource accounting, as it is also known) is usually attributed to Likert (1967) although Flamholtz has beet, more influential in recent years. According to the latter: Human resource accounting may be defined as the measurement and reporting of the cost and value of people as organizational resources. It involves accounting for investment in people and their replacement costs as well economic values of people to an organization. (Flamholtz and Lacey 1981:57; emphasis added) This concern reflects a long-standing debate within accountancy about the precise nature of employees as assets: can something that is not owned by the company be regarded as an asset? (Hermanson 1964; for a useful overview see Gray and Maunders 1987: 161-7; also Giles and Robinson 1972). Historically, accounting conventions have treated employees as a (variable) cost of operation, with no value (Dawson 1989:6). Flamholtz's challenge to this 'accounting hegemony' suggested ways of measuring the value of an employee to the employing organization by means of the Stochastic Rewards Valuation Model (an accessible and brief account of which is provided by Dawson 1989). Although this relatively sophisticated tool failed to resolve satisfactorily either the practical problems of measurement or the dispute over accounting concepts, the general approach has attracted qualified support for its intentions. Tyson and Fell (1986:93), for example, suggest that it provides a major benefit by encouraging the perception of employees as assets: "The notion of "investing" in employees encourages a view that one is looking for the profit to be gained from the investment and therefore the focus is on the development of people for a purpose.' But, as with mathematical manpower planning, there has been a tendency for highly technical accounting principles to give rise to concepts with a lower level of technical specification and more general applicability. In this respect although what is now termed 'human resource auditing' borrows its title and rationale from accountancy, it also makes heavy use of the methodologies of the social and information sciences. An example of this approach is provided by the West Midlands and North-Western Regional Health Authorities' Human Resource Management Audit, which develops measures of human resource outputs and effectiveness derived mostly from diagnostic questionnaires and financial and productivity ratios. The underpinning rationale of this approach, significantly, is analytical rather than prescriptive: it aims to encourage managers to develop their own ways of measuring performance against targets and objectives developed from the experience and needs of their own particular units. Managers are encouraged to revise, adapt and apply the various diagnostic instruments in ways which are best suited to their own circumstances. (IRS 1992c:7) A related but more sophisticated development has been the modeling of cost-based financial manpower decisions on computer spreadsheets. Dawson (1990), for instance, uses a computer simulation model based on principles of stylized stock control (Dawson 1988:33) to provide a form of scenario analysis whereby different inputs and outputs can be compared. A key part of this analysis is that it organizes the numerical and cost dimensions of human resourcing decisions in a way, which emphasizes contingency and probability, rather than prescription and certainty. Importantly, this model also forces managers to engage in the prior processes of clarifying their own understanding of the ways in which employees are used and their value to the organization assessed. For example: The eight stages of the acquisition process [in Dowson's model] are broken down into 26 separate activities, for which the manager has to provide input data for both time and costs. Although some of these inputs may be given the value zero, it still requires the manager to go through the process of considering each. Moreover, if the manager feels that some time elapses whilst a particular activity takes place, there is a requirement to decide exactly how this is best expressed, by means of the choice of distribution and whether there are seasonal variations... it draws attention to the significance of the 'establishment level' and the convictions which lead to the setting of its particular size. The confrontation and subsequent thinking through of these issues, which are prompted by the use of the model, am potentially of considerable benefit. (Dawson 1988:36) This use of computerized systems as a way of challenging managers to confront the basis of their human resource thinking raises a number of issues about the role of information technology (IT) in this area, a role which has increased significantly over recent years. However, whereas Dawson's approach is very much in the tradition of 'action research', aimed not only at modeling specific processes but also at the development of new ways of conceptualizing basic human resourcing assumptions, the widespread adoption of computerized human resource 'systems' has focused more on the collection and processing of large amounts of information in a manner which provides 'pre-packaged' results. Having already noted the potential danger of an over-reliance on data processing encouraging analytical conservatism (Pemon 1991), it does seem that the growing sophistication of IT systems is also supporting a more innovative and creative dimension. IT and human resourcing The role of computers in personnel has been the subject of increased interest and scrutiny over the past decade. Over this period, both the quantity and sophistication of applications has increased, the latter especially since the late 1980s. The 1991 survey of computer use in personnel (IPM/IMS 1991) revealed that some 96 per cent of respondent companies were using computerized personnel information systems (CPIS), including 53 per cent of those with fewer than 1,000 people. These systems were utilized to provide electronic office facilities, recruitment administration, storing performance appraisal data, absence control and training administration. However, the full potential of CPIS is held to lie with the development of networked systems. 'Where, for example, a system can automatically drive the payroll, this may allow the remote input of overtime and absence data, abolishing the need for hard-copy time sheets and associated processes. Such a system provides a basis for a manpower costing system that can be interrogated by line managers on a 'need to know' basis. Thus, instead of sending large quantities of manpower reports through the post to line managers, they can have remote access to the CPIS where they activate pre-written programs to generate the reports they need (Richards-Carpenter 1992:36). This type of development has been projected into the future by Woodward and Winchurch (1991), who posit a 'molecular' human resourcing system as the next step in CPIS (see Figure 1). Figure 1 Molecular CPIS structure (Source: IPM/AMS 1991) Here, the nucleus of the system is composed of personnel records to which numerous other principal and subsidiary modules (in the form of specific software applications) are linked. Examples of the theoretical uses to which such a system, once operational, could be put are suggested by Woodward and Winchurch (1991:71) thus: Recruitment Production of detailed job/person profile Biodata analysis Psychometric testing Using data on current employees for comparison and profile building Job evaluation Production of printed interview guides Total analysis of all results to produce a shortlist Producing rejection letters automatically Cost analysis of the program and costs per individual Budgeting Succession planning Appraisal results analysis Matching of personal details to the job requirements Training and development needs 'What if, organization charting Projected costs Matching of competencies to projected job profile Team-role analysis. Salary management Payroll Salary modeling Absence Pension and benefit calculations Manpower planning costs. The implications of this type of system architecture within an HRM framework re potentially significant, it being highly congruent with decentralized and/or flat organization structures, allowing the devolution of human resource information to line managers as well as its escalation to senior executives and strategies. The logic of this type of information configuration places the human resource manager in the role of a facilitator or internal consultant, assisting other managers with the accessing and use of information and (expert) systems relevant to particular operational personnel practices (Richards-Carpenter 1992: 61) However, although a study by Torrington et al. (1991:73) put forward claims to have founds instances of this emergent role, the authors remained cautions about its rapid spread in the immediate future. Nevertheless, it is significant that many approaches to the use of CPIS give growing recognition to its applications in the socio-cultural dimensions of organization (see Legge 1989 for a comprehensive review) such as equal opportunities, appraisal and assessment, personal development, and planning organization structures. Securicor PLC, for example, has developed a computerized biodata/psychometric assessment package which is used to screen candidates and quickly provide hard copy reports (in less than two hours) which can be used as the basis for personal interviews (Selby 1991:123ff.). Similarly, Spencer (1990:331) gives details of a job analysis and evaluation package which serves as an expert system, not only defining jobs, skills and person specifications, but also extending into organization design and career and succession planning, involving the identification and prioritization of options for moving or replacing the holders of specified jobs. In these respects, therefore, there may be increasing opportunities for the integration of quantitative and qualitative human resource data, a prospect that appears especially propitious for the current concern to link human resourcing techniques to the management of performance at both individual and organizational levels. PERFORMANCE MANAGEMENT SYSTEMS Given the goal-directed nature of organizations, performance in terms of these goals is usually a central concern. To the extent that success in this respect can depend heavily on the effective deployment of human resources, one key aspect of human resourcing is to make the linkage between goals and performance explicit and manageable. A prime example of this type of endeavour is the strategy adopted by the computer company ICL and given voice in their company 'bible', The ICL Way: ICL is an achievement company. Recognition, rewards, promotion and opportunities for career and job development depend absolutely on results delivered. Performance is the way forward - for every individual and for the company as a whole. It is therefore vitally important that every individual has a clear understanding of his or her work objectives and responsibilities because performance will be measured against these. It is down to managers to make sure that these objectives and responsibilities provide maximum opportunities for the development of individual talent and to operate the company's recognition and reward systems on their achievement. (Cited in Williams 1991) The operational basis of this philosophy is a system of performance management involving 'a logical sequence of four steps linked with the cornpany's business strategies'. The four steps in the cycle are defined as follows: Step One. The determination and setting of individual objectives which support the achievement of the overall business strategies. Step Two. A formal appraisal centered on what was achieved against these prearranged objectives. This results in the joint determination of a personal/job improvement plan, a career development plan and a training plan, plus the allocation of performance rating by the manager. Step Three. A separate pay review in which the level of pay increase is based largely on the actual level of achievement made against the prearranged objectives. Step Four. An organization capability review which, as part of the normal business review process, focuses on the total Organizational capability of each part of the organization to achieve the future business strategies. (Neale 1991: 12) What can be seen from this example is the emphasis, which this type of approach to performance places upon the management process as this relates to human resources. In short, it takes a view which Is broader and more encompassing then that which focuses merely upon the 'results' or 'ends' of a given task. For this reason, models of performance management systems generally pay con-siderable attention both to the organizational 'climate' which the system presupposes, and to the motivation and development of the individual via the system. Thus, according to Armstrong and Murlis (1991:190), an effective perfor-mance management system (PMS) should include: ? A clear statement of mission and values. ? A procedure for establishing individual performance 'Contracts' (based upon psychological contract principles). ? A clear process for establishing individual improvement progranunes. ? Performance indicators and critical success factors. ? A performance appraisal mechanism. The result, they suggest, is a system, which works as a continuous cycle. A performance agreement is determined mutually between an individual and his /her manager which provides the reference point for the more formal performance plan In many ways, the agreement can be likened to a psychological contract to which the individual is committed through mutual and open agreement. Once committed in principle, performance plan provides the concrete details of what performance will be sough and what will need to be done (e.g., training/support) to reach this level. Achievement of the planned objectives is the subject of continuous assessment and changes/adaptations made in the light of this. The process is concluded by performance review, which serves both to take stock of what has been achieved and to start a new cycle of the process again. Initiatives such as PMS assume that the structure of employment within organization is already effectively established and that appropriate performance measures have been identified. Such an assumption, however, needs careful consideration. We have already seen that one function of human resource auditing techniques is to cause managers to question the often taken-for-granted value, which they put upon employees and their jobs. The same questioning needs to take place it, the area of performance management as here, too, conventional measures may hinder as much as help when it comes to evaluating cuffent practice and the nee for change or innovation. This problem has been highlighted by IDS (1990c), who point to the efforts which arise from the 'obsession' which many business commentators and mana-gers have with economic definitions of 'productivity'. In particular, they suggest that most organizations should be more concerned with questions of efficiency and that, even here, they should be cautious that numerical measures of efficiency are not treated as more real than the activities they represent. All too often, It seems, productivity measurement has got the focus wrong - from the organizational point of view, what Is Important is the jobs that people do, rather than the balance of payments. This also means that measures of productivity based on worker effort are similarly ill conceived. It is not, IDS claim, a question of whether workers are working harder, but whether they are working better. As more organizations start to think about issues of quality and high value-added goods and services, the latter concern becomes absolutely crucial; An employee may work incredibly hard, but be involved in a process which is inefficient. In this respect the key to measuring efficiency, and to cutting costs, is a qualitative one: namely, to identify what it is that managers and employees do that is necessary, to look at the effectiveness of organizations and their members from the standpoint of the customer. This is very different from merely cutting costs on a bottom-line basis. Instead it focuses upon the nature of the work that is done, the skills that are needed by employees, and the ways in which those skills are utilized. IDS give the following examples: A comparative study of the hotel industry in Britain and Germany conducted by the National Institute for Economic and Social Research...revealed that German hotels were able to function with between 50 per cent and 70 per cent of the staff of their British counterparts. The key difference was the level and mix of skills in the German hotels, above all in the key craft functions. German hotels operated with many fewer unskilled workers and a larger number of qualified staff capable of a variety of roles. A second case is the pioneering work on skill mix in the NHS done at the John Radcliffe Hospital in Oxford, since taken up at a number of other hospitals. The changes involved an increase in the number of other hospitals. The changes involved an increase in the number of registered nurses and a decrease in the number of less trained staff (enrolled nurses and auxiliaries). Routine tasks were delegated and skilled staff devoted more time to patient care. Costs were held steady while all the measures of quality and effectiveness of care showed an improvement. (IDS 1990c: 10) One way in which organizations have attempted to rethink the organization of employment to enhance performance through greater efficiency is through a reassessment of working practice in tems of greater flexibility. FLEXIBILITY AND WORKING PRACTICES Flexibility can be achieved at two levels: at the level of work practice (functional flexibility); and at the level of organization structure (numerical flexibility). To this can be added a third category, temporal flexibility, which involves the reorganization of working time (Blyton and Morris 1992). Functional flexibility An example of functional flexibility is provided by Storey (1992) in the case of Ford of Britain's 1985 agreement whereby discretionary productivity allowances were made available at plant level with the provision that they become payable only to 'employees who cooperate with local management in ensuring maximum capacity utilization and the efficient use of manpower' (ibid.:92). This involved accepting changed working practices, so as to encourage versatility and flexibility, the acquisition and use of new skills, and the elimination of inefficient demarcation lines. Wickens' (1987:52) account of flexibility at Nissan UK seems also to point in this direction (referring as it does to flexibility between production functions that can involve manual, non-manual and managerial employees), although the reality of this position has been questioned by Garrahan and Stewart (1992). In practice it seems that most developments in terms of this form of flexibility have involved the relaxation of restrictive demarcation practices (Blyton and Morris 1992:306), rather than thoroughgoing multi-skilling of craft workers. This is confirmed by IDS (1990d), which compares surveys from 1986,1988 and 1990 to conclude that although multi-skilling remains an aim, the real task across a range of industries is now to enhance and build on specific skills' (IDS 1990d:l), this position involving a greater recognition by managements of the importance of respecting craft attitudes and adapting working arrangements to deepen skills. BIBLIOGRAPHY 1. Bennison, M. (1984) The Manpower Planning Handbook, London: Mc Graw Hill. 2. Blyton , P. and Morris, J. (1992) 'HRM and the limits of flexibility', in Blyton, P. and Turnbull, P.(eds) Reassessing Human Resource Management, London: Sage 3. Dawson, C.(1989) 'The moving frontiers of personnel management: human resource management or human resource accounting', Personnel Review 18(3): 3-12 4. Flamholtz,E. and Lacey, J.(1981) Personnel Management: Human Resource Management in International Firms.Basingstoke: Macmillan 5. Garrahan, P. and Stewart, P.(1992) The Nissan Enigma, London: Cassell 6. Gray, R. and Maunders, K.(1987) Corporate Social Reporting, London: Prentice Hall. 7. Giles, W. and Robinson, D.(1972) Human Asset Accounting, London: Cassell 8. IPM/IMS(1991) Computers in Personnel 1991 Conference Book, Brighton: IMS 9. IRS(1992c) IRS Recruitment and Development Report 28,"Auditing the management of human resources in the NHS', April 10. IDS(1990c) IDS Focus 57 'The politics of production' 11. Likert, R.(1967) The Human Organization, London: Mc Graw Hill 12. Malloch, H.(1988) 'evaluating strategies on a cost-based manpower planning model', personnel Review 17(3): 22-28 13. Richards-Carpenter, C.(1992)'Capitalizing on devolution', personnel management April. 14. Woodward, T. and Winchurch, R.(1991) 'Molecular human resourcing', Computers in Personnel Conference, Brighton: IMS/IPM: 77-84 Word Count: 3834 f:\12000 essays\business & economics (632)\HRM.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ HRM - Ever Evoloving Outline Thesis Statement: Advances in technology along with shifts in the nations' social structure heavily impact the workplace environment, creating a need for new management models in Human Resources. I. The Changing Workplace A. An Historical Perspective of Jobs in America B. Jobs in the 21st Century II. Identifying Corporate Needs A. The Emergence of Human Resource Management as a Component of General Management. B. Corporate Expectations III. Developing Human Resource Policy A. What HRM Professionals Have to Say IV. Identifying Worker Needs A. Family VS Work B. The Working Environment C. Benefits and Compensation V. Where to From Here? - HRM Models for Innovation A. Motivation Theory B. Alternate Work Systems - a Comparrison Table This paper is written from the perspective that Human Resource Management (HRM) practices are continually evolving to meet the changes of dynamic work environments. New technologies, increasingly rapid exchanges of information, social paradigm shifts and the restructuring of family systems contribute heavily to the need to find and apply methods of HRM that meet the needs of industry, workers and consumers. To do so effectively, vision and creativity are required in addition to on-going awareness of the bottom line. The Changing Workplace At the opening of the 20th century, the majority of jobs in America were held in two areas, agriculture and industry. Population distribution tables for that time demonstrate that most of the nation inhabited rural areas rather than urban areas. This continued to be the trend up until WWII, when men left the country to fight and women left rural America to fill factory jobs as their contribution to the war effort. This movement was the beginning of nationwide workplace and societal changes that have accelerated during the last half of the 20th century. The move from rural to suburban environments changed the way we did business as a nation. Where extended families resided in and supported each other in culturally defined rural settings, nuclear families found themselves alone in homogenous neighborhoods. (1) This created a demand for goods and services that were formerly provided by extended family and community members, opening up new markets and creating jobs. It also created the need to recognize the management of workers as a separate and formal discipline. As we move into the 21st century we can trace our nations' business growth over the last 100 years. We moved from an agrarian base to an industrial one. By the mid-50s' the majority of jobs were found in factories. Manufacturing suffered heavy blows during the late 60's and early seventies and was displaced by the service industry. With the closing of the 20th century those services have become increasingly technological. Surviving those changes requires adaptation, not only in the retooling of physical plants and the retraining workers, but also in the way we manage those workers. Some feel that there appears to be an underlying theme in books and papers on the subject of HRM, that there is only one correct way to manage people. (2) Maslow on Management offers a much different approach, demonstrating conclusively that one size does not fit all; i.e., that different people need to be managed differently. HMR models operating on the assumption that there is a single right way to manage people are using workplace criteria that are quickly becoming a thing of the past. The "one way" model views people working for an organization as employees who work full time and are solely dependent on that organization for their livelihood and their careers. These employees generally were viewed as subordinates with limited or very narrow skill sets. (3) These images of the worker may have been valid several decades ago. However, today every one of these images has become insupportable. While the majority of people working for an organization may be classified as employees, a very large and steadily growing minority - by working for the organization - no longer work as employees, but instead as outsource contractors. The concept of subordinate positions is fading as well, even in those areas that are considered fairly low level. As technology becomes increasingly more complex special knowledge is required in all operations. Subordinates, increasing their skill sets, become associates. The secretary, with knowledge of specialized software, becomes the Administrative Assistant. In order for the organization to run smoothly, the individual who does his job well, often has more knowledge about his job than his boss. (4) For example, the vice president of marketing may know a great deal about selling, but nothing about market research, pricing, packaging, service, or sales forecasting. Workers in these positions may report to the vice president, but are often experts in their own areas. Identifying Corporate Needs. Formerly, lower technological expectations and a firmly established hierarchy allowed general managers to delegate narrowly defined personnel responsibilities to those functioning as specialists. Today however, such practices would be inefficient to the point of being considered static, and must be replaced. To fail to do so would be to ignore and fail to address the many unprecedented pressures that demand a comprehensive and more strategic view in relation to the organizations' human resources. From the view point of General Management, what does the organization need? The General Mangement picture of HRM is viewed from a global perspective, as demonstrated by a survey of Fortune 500 CEOs in 1989. The results of that survey determined that effective management of Human Resources must address corporate needs in the eight following areas: 1. Increasing international competition makes the need for greatly improved human production mandatory. The crisis experienced in both the automobile and steel industries serve as clear illustrations. Foreign management practices, particularly Japanese management models, are being used to guide developing HRM techniques, especially those that seem to increase employee commitment while providing companies with a long term source of workers with necessary competencies and skills. 2. As organizations increase in size and complexity layer upon layer of management has resulted in expensive, but not particularly effective, bureaucracies. Multiple layers of management also serve to isolate workers from the competitive environment in which organizations operate as well as company policy makers. It's hoped that a reduction of middle management layering will put workers closer to the competitive environment, fostering commitment to the organization as well as sharpening the competitive edge. Multinational companies have additional challenges in managing human resources, and need to adapt policies to work within diverse cultures and vastly different social values. 3. Some companies may face declining markets or slower growth, handicapping the organizations' ability to offer advancement opportunities and job security. How then to attract and retrain a competent and highly skilled work force? 4. Greater government involvement in human resource practices generates a need to re-examine HRM policies and mandates the development of new policies. For example, the Americans with Disabilities Act forced the revision of HRM policies in companies across the nation. 5. America's workforce has become increasingly more educated making it necessary to rethink assumptions about employee capabilities and the delegation of responsibilities. Under utilization of employee talent is a major cause of workforce turnover. 6. Expectations and the values of the workforce are changing, particularly those values and expectations relative to authority. This fosters a need to reexamine how much involvement and influence workers should be given. Means of voicing employee concerns and addressing those concerns with due process need to be provided. 7. As workers become more concerned with life and career satisfaction corporations are revisiting traditional career paths and seeking more alternative career paths that take into consideration employee lifestyle needs. 8. Demographic shifts in the workforce, particularly the infusion of women and minorities into organizations, are causing corporations to reexamine all policies, practices and values that impact the treatment, responsibilities, and advancement of these groups. (5) Developing Human Resource Policies How do universal General Management issues affect HRM departments and practices? While narrower in scope than those concerns voiced by General Management, impact areas identified by HRM professionals closely mirrored major corporate needs identified by General Managers. Human Resource professionals, in an effort to meet the needs of both worker and organization, have examined ways to ensure a desired working environment while increasing productivity. In the early 1990s, the advisory board of the Commerce Clearing House were asked to identify the issues that they felt would shape the role of human resource functions in the next decade. Commerce Clearing House advisory board members saw four main HRM areas where current issues would influence the role of the human resource function in the near future: compensation; communication and personnel practices; employment relations; and Equal Employment Opprtunity requirments. (6) Compensation issues focused on the diversity of worker needs, pay-for-performance plans, and the regulation of employee benefit plans. Flexibility and adaptability in HRM practices are primary keys in addressing worker needs. Job sharing, staggered scheduling and flex time are some of the outcomes generated by creative approaches to HRM practices. Pay-for-performance plans hold the allure of rewarding productivity while providing monetary motivation. Successful implementation of such practices, however, require effective performance evaluations. To attempt such compensation without valid, reliable, and standard assessment instruments is to court litigation. Fairness is a national concern strongly affecting human resource managers. Personnell plansfocused soley on organizational needs must be abandoned to benefit workers and organizations alike. One example is the growing social phenomena of two career couples. As the numbers increase nepotism policies must be reexamined. Managing change and preparing people for change also require HRM professionals to rethink policy. New demands for an increase in functions such as retraining evolve as workers move through change. Training and professional development are crucial in all areas of operation. Even the lowest clerk needs to stay abreast of the latest innovations brought on by technical advancement. The march of technology, however, not only changes jobs, it makes some of them redundant or obsolete. In an era of company reconfiguration it becomes apparent that layoffs and divestirtures will occur when retraining isn't an option. Outplacement policies must be considered and developed in preparation of the need. HRM professionals also understand the need for the development of effective HR auditing instruments to measure employee perceptions of management fairness and the climate for effective communication within the company. The information obtained by employee attitude surveys can be greatly beneficial to supervisors, but only if they've been trained to use it. (7) The legal environment of personnell management is many fingered and quite comprehensive. In addition to regulations stemming from the Occupational Safety and Health Act (OSHA), passed in 1970, HRM is greatly affected by the broad umbrella of Equal Employment Opportunity (EEO) regulation. As well as protecting workers form discrimination based on race, color, or creed, EEO serves workers in many other areas. Age discrimination also falls under this umbrella. With an increasing number of age discrimination suits, organizations need to develp a sensitvity to age issues and policy specific to older employees. A recent off shoot of EEO is the American with Disablities Act (ADA). ADA has created a need for new policies and procedures in accommidating employees with handicaps and disabilities. The emerging legal view that Acquired Immune Deficiancy Syndrome (AIDS) is a handicap brings policy questions about AIDS testing to the forefront. There is great potential for conflict in providing for the needs of other employees and creates an HRM channel that must be carefully navigated. Benefit plans that are regulated by the Employee Retirement Income Security Act (ERISA) require special attention. Companies must be prepared to provide resources that not only offer such plans but also impeccably manage those employee benefit plans. Failure to do so will lead to subsequent suits by employees challenging plans that are out of compliance with ERISA disclosure, reporting and fiduciary standards are problematic. Governemnt regulation is also partly responsible for shifting attention from union group representation to regulations and policies that emphasize the rights of individual employees. It is mandatory that this factor be taken into consideration in personnel planning and policy making. The role of unions as bargaining units is on the decline and will continue to diminish as bargaining relationships become increasingly stable. This translates to decreased strike activity and fewer actions filed with the National Labor Relations Board (NLRB). While that is a positive outcome the trade-off must be recognized, prepared and accounted for. While businesses will see fewer strikes, they can expect to see increasing numbers of employment-at-will and wrongful discharge suits. An additional considertion affects employers who contract temporary employees. This practice is experiencing an increasing number of suits by temporary employees alleging unlawful activity. This surely influences staffing policy decisions. It should come as no surprise that such pressures have created the need for a greater emphasis on the human aspect of business. With something so seemingly obvious the qustion is why hasn't this human aspect been addressed before? It may be due, in part, to the tendency to educate, develop, and train managers to fixate on analytical and technical aspects while assuming that "business as usual" in dealing with employees was sufficient to promote productivity. So why are companies now hoping to find solutions to business problems in the human side of enterprise? The answer lies in part to growing societal pressures. Concern over the condition of blue-color jobs in the 1930s, as well as civil rights and equal opportunity legislation in the 1960s and 1970s, has paved the way to revamping HRM policies to recognize and respond to shifting social values. More simply put, other approaches to improve employee productivity and organizational effectiveness haven't worked. (9) Identifying Worker Needs The area of single most impact on worker performance lies outside of the work environment. Family needs are the primary cause of absenteeism, tardiness, and lower productivity. (9) The here are several factors creating this phenomena. First there is the steady flow of women into the work place. In 1970, 20.2% of women worked outside the home. That figure grew to 73.8% in 1995. The increase in two career couples has assisted families in reaching financial stability and filled a need for personal satisfaction. It has also, however, created a void in care giving that was traditionally a woman's role. Another major cause of family issues impact is the increasing number of single parent homes. Single parent homes have grown from 12% in 1970 to 49.8 % in 1995. (10) As the sole burden of child rearing is placed on a worker, childcare arrangements, school obligations, and childhood illnesses are far more likely to interfere with attendance and productivity. Another social phenomenon, which strains workers and, in turn, disrupts the workplace, is increasing longevity. As the population grows older the phenomena of living longer allows workers the luxury of postponing marriage and having children. It's relatively common today for couples to postpone their first child until their late thirties or early forties, a time formerly used for the preparation of an empty nest. Instead of retiring to grandparenthood these later in life parents are dealing with teenagers and how to get them through college. A large percentage of the workforce now finds itself in the position of not only having children to care for, but elderly parents as well. Add to the list of family pressures the moral and financial obligation workers must contend with in providing for the wellbeing of two generations. The American worker is now faced with a double whammy in the attempt to meet family needs. When looking at the increasing longevity of the workforce, one must consider that piece of the big picture which has to do with the rate that people retire. It's estimated that within the next twenty to thirty years the retirement age in developed countries will, by necessity, move up to seventy-nine or so. Seventy-nine, in terms of health and life expectancy, correlates with the age of sixty-five and the health and life expectancies of 1936, when the United States, the last western country to do so, adopted a national retirement plan (Social Security). (11) As America continues to gray, a significant percentage of the work force will develop unprecedented needs that are geriatric in nature, impacting worker expectations of benefit packages. The question facing business in the future is determining what that age and experience are worth in terms of monetary compensation and benefits. This is a dilemma currently being faced by the Armed Forces, with many branches finding themselves to be top heavy with senior officers. The funding resources dedicated to personnel are not distributed in a fashion that attracts and retains military members, seriously jeopardizing the productivity of military organizations. (12) This is relevant in that many private organizations as well as public and government agencies are finding themselves in the same position. Retirement Incentive bonuses have become common place and are a primary tool used by organizations to cull the workforce. Will this remain a viable means of thinning an aging workforce? In addition to family pressures, and salary and benefits needs, there is a growing concern throughout the nation's work force concerning quality of life. While benefits and compensation are key to employee satisfaction, and therefore productivity, a strong value is placed on the emotional satisfaction one finds professionally. These emotional perks come out of all areas, and are as solid as additional training and added responsibility or as intangible as recognition, appreciation, and creativity. (13) Business must take into account the social implications of such information, as it becomes essential to address staff needs and to determine successful strategies that should surround any HRM policy. New HRM Models The management of human resources centers on a single basic function of the management process: staffing. The HRM professional is charged with matching the right person to the job. While recruitment is an exacting area of HRM, a more significant piece of employee productivity lies in motivation. Motivation methods are key to fashoning successful HRM models. Motivation is a deceptively simple concept but probably one of the most complex components of human resource management. Motivation is simple in terms of human behavior. People are basically motivated or driven to behave in ways that they find rewarding. So the task seems easy; just find out what they want and hold it out as a possible reward or incentive. It becomes complex when trying to find a universal incentive in a very diverse workforce. What has value to worker A may be meaningless to worker B. And what has value at one point in time may become insignificant at another. For example, everyone has a need to eat. A big steak dinner, as an incentive to succesful completion of a task, is motivation - as long as your hungry! Had you just eaten, a steak dinner would hold no interest . An additional factor in the motivation equation has to do with the reality of obtaining the reward. Telling a person that they will be promoted to sales manager if sales in that jurisdiction increase is empty if that task is percevied as virtually inpossible. Two conditions must be met for motivation to occur, according to Vroom's expectancy theory of motivation. First the value of the particular outcome (such as recieving a promotion) is very high for the person and, secondly, the person feels that there is a reasonably good chance of accomplishing the task at hand and obtaining the outcome. This is the process of motivation. (14) Theories of motivation center on a a single basic question: what do people want? Abraham Maslow states that humans have five basic categories of need; physiological, safety, social, ego, and self-actualization. These needs have been arranged in order of there importance to humans. When the basic physiological needs, food, drink, etc., are met, they no longer serve as motivation. Instead, those urges toward safety, i.e., protection and security, become the driving force. Human beings move up this needs ladder as basic needs are met. Frederick Herzberg has divided Maslow's hierarchy into two planes, the lower meeting physiological, safety and social needs, and the higher meeting those needs surrounding ego and self actualization. Herzberg believes that the best motivation lies in satisfying those higher level needs. Based on his studies, Herzberg believes that factors that satisfy lower level needs, which he identifies as hygiene factors, are markedly different from those, reffered to as motivators, that satisfy higher level needs. Herzberg states that if hygeine factors are inadequate workers will become disgruntled, but once satisfied there is no incentive to perform. Therefore, hygiene factors are necesary for preventing dissatisfaction, but very inefficient in encouraging motivation. Job content, however is the source of motivating factors. Opportunities for achievement, recognition, responsibility, and more challenging jobs motivate employees. Motivating factors work because they appeal to higher level needs that are never completly satisfied. According to Herzberg, the best way to motivate employees is to build challenge and opportunities for achievement into their jobs. Herzberg reffers to this method of applying his theory as job enrichment. Basically, job enrichment consists of building motivators like opportunity for achievment into the job by making it more interesting and challenging. This theory restructures more traditional HMR models since job enrichment is often accomplished by giving workers more autonomyand allowing them to do more of the planning and inspection normally done by a supervisor. This is diametricaly opposed to strict hierarchal models. The shifts made in HRM practices can be most easily observed in the accompanying table comparing traditional and innovative HRM models. Alternate Work Systems Table ___________________________________________________ Traditional Model High-Committement Model ___________________________________________________ Narrowly defined jobs Broadly defined jobs Specialization of workers Rotation through jobs and crosstraining Pay by specific job content Pay by skills mastered Closely supervised work Self or peer supervision Assignment or transfers by Team assigns members to the rule book cover demands in flexible fashion No career development Promotion of learning and growth Employees as individual parts Employees in a team Employee kept ignorant about Team runs as a business: business data is widely shared Status symbols used to Status differences reinforce hierarchy minimizied No employee feedback Broad employee participation _______________________________________________________________ In Conclusion It seems apparent that HMR practices have evolved to more worker friendly models out of necessity. Studies have found that use of specific practices, or what are more commonly reffered to as "high performance work practices" enhances overall organizational practices. It was determined in a 1995 study that extensive recruitment and training procedures, incentive compensation and increased employe involvment are assosciated with lower levels of turnover, higher productivity, and better financial performance. With regard to identifying the ideal HR systemfor innovation, it may be that such a definitive HR model would be to rigid for the innovative organization and it's constantly changing needs. A flexible combination of traditional and high-commitment practices, and others found to be contingent on a strategy of innovation, may be what organizations need to remain successfully competative. Notes 1. H. Stephen Glenn, Developing Capable People (Rockland CA: Prima Press 1989) 14-21 2. Martin Isenberg, "A Short History of Human Resource Management," Strategic Human Resource Management Readings, (January 1994) University of Massachusetts Press, 97 3. Peter F. Drucker, Management Challenges for the 21st Century, (New York: Harper-Collins, 1999) 17 4. Drucker, 112 5. Beer, Spector, Lawrence,Mills,Walton, Managing Human Assets ( London: Collier Macmillan, 1984) 49-55 6. Gary Dessler, Personnel Management, 4th Edition, (New Jersey: Prentice Hall, 1988) 706 7. Dessler, 323 8. Drucker, 154 9. R.P. Kalleberg, Social Perspectives on Labor Markets, (New York: Academic Press, 1991) 119-149 10. US Bureau of Statistics Data Base, http://www.stats.gov.public 11. Drucker, 189 12. Jan Nybor, "More Than a Few Good Men" Navy Times, 14 Sept. 1994, 16 13. Dessler, 388 14. Victor H. Vroom, Work and Motivation, (New York: Wiley, 1964) 350-367 15. Fredrick Herzberg, "One More Time: How Do You Motivate Your Employees?" Harvard Business Review, vol. 47 Jan-Feb. 1968 16. Pritchard, DeLao, Von Bergen, "A field Test of Expectancy - Valence Incentive Motivation Techniques," Organizational Behavior and Human Performance, vol. 15 no.2 April 1976 111 17. Dessler, 323-338 18. Beer, et al, 165-167 19. Tushman and O'Reilly, Winning Through Innovation, (Boston: Harvard Business School Press, 1997) 299 Biblography Primary Sources Collected Documents Nybor, Jan. Navy Times, 14 Sept. 1994 Pritchard, DeLao, Von Bergen, "A Feild Test of Expectancy - Valence Incentive Motivation Techniques," Organizational Behavior and Human Performance vol.15 Herzberg, Fredrick, "One More Time: How Do You Motivate Your Employees?" Harvard Business Review vol. 47 Electronic References US Bureau of Statistics Data Base Books Glenn, H. Stephen, Developing Capable People, Rockland CA: Prima Press 1989 Isenberg, Martin "A Short History of Human Resource Management," Strategic Human Resource Management Readings, (January 1994) University of Massachusetts Press Drucker, Peter F., Management Challenges for the 21st Century, New York: Harper-Collins, 1999 Dessler, Gary , Personnel Management, 4th Edition, New Jersey: Prentice Hall, 1988 Kalleberg, R.P. Social Perspectives on Labor Markets, New York: Academic Press, 1991 Vroom, Victor H. Work and Motivation, New York: Wiley, 1964 Tushman & O'Rielly, Winning Through Innovation, Boston: Harvard Business School Press, 1997 f:\12000 essays\business & economics (632)\IDT.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ IDT Howard Jonas, IDT's CEO and Founder came up with a way of providing the world with cheap international long distance calling rates. His tiny International Discount Telecommunications Corp. pioneered what is now a multi-billion dollar a year industry, international "callback" telephone service. This technology allows anyone around the world to bypass the high costs of placing international calls from countries outside of the US. Callback gives the caller the ability to make the international call as if he/she was calling from the US. Today, IDT offers telephone service to customers in over 225 countries worldwide. One of the main divisions if IDT is Net2phone. Excite has recently signed a two year agreement with Net2phone to bring internet phone to various counties in Europe and Japan. Net2Phone enables Internet users to place calls to any telephone in the world via the Internet, the company said. Excite said that the Net2Phone icon will be integrated through many of its channels, giving customers a one-click access to download the service, subscribe, and make calls anywhere in the world. Recipients of the call need not be online, as calls are routed directly to traditional telephones. Because calls are placed through the Internet, phone rates are not based on the country of origin, but on the pricing structure set by IDT, which, according to Excite, is low-cost. Excite said it is also planning to offer a click to dial service, by fully incorporating Net2Phone into Excite's personalized directory. IDT has also emerged as one of the nation's fastest growing Internet access providers, offering dial-up access to over 80,000 customers nationwide as well as dedicated access to hundreds of corporate customers. Through the build out of its own infrastructure, IDT now has one of the nation's largest networks providing local dial-up Internet access through more than 600 points of presence and a top rated DS3 backbone. IDT has been selected as a new top-level Internet domain name registrar, although there is no guarantee that if you register a name with them you will get it. Even if you do get the name you pick, it may be useless. IDT was among two dozen U.S. companies and fewer than 100 companies worldwide chosen as a registrar as part of the Internet Assigned Number Authority sponsored expansion of the Internet domain name system. IANA is the central coordinator for the assignment of unique numbers every machine on the Internet needs to be found by user machines, and formed the Council of Registrars (CORE), a committee that's been studying a new domain name system and may itself become the successor to the InterNIC. The InterNIC registers domain names under a National Science Foundation Contract awarded to Network Solutions Inc. IDT has seen an enormous amount of growth in recent years. With Net2phone, web domain sales, international calling plans and other services IDT has become recognized as a growing multi million dollar company. It has seen much prosperity and shows no signs of slowing down. f:\12000 essays\business & economics (632)\Immigration And The Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Immigration And The Economy Immigration does not hurt the Economy Since the founding of the U.S. more than 200 years ago, people have come here from every country on earth. Whether it be escaping an oppressive government, or just to find a general better way of life, people immigrate to the United States. Some people say that when an immigrant comes here, they are not used to our way of life, and therefore throw off our way of life and economy. They say that they cause more harm to the stable, tax-paying citizens of the U.S. then they do good. I disagree with these people for a few reasons. Although immigrants may cause a few problems, and might not want to immediately comply with our standards and laws, most in time do. Except for a few short-term problems, such as not paying their taxes, drawing on welfare, and increasing an already crowded society, immigrants eventually do more good for our society and economy than bad. First off, the government is losing money on immigrants, especially ones that enter illegally. They either do not pay their taxes at all, or pay them incorrectly. This is a problem that affects everyone, not just immigrants. They might not pay those taxes, and receive wages under the table, but those under the table jobs can come in handy for the rest of us. How many U.S. born teenagers would be privileged to get paid two or three dollars an hour to take out the trash and clean toilets. Those might be jobs that they are using up that could go to native-born Americans, but do we really want them? Plus, they are "Americanizing" themselves to be better citizens. What a better way to get used to living here, and become a good, tax-paying person, than to work here, and constantly be around U.S. I myself feel that by teaching the Spanish only speaking bus boy English at my work, I am helping him become more American. They are working for a better life. The few that bend the rules on the path to becoming American shouldn't be punished. Think of when your ancestors immigrated. Do you think that they bent a few rules? Next off is welfare, and the people that abuse it. There are people that come here from another country with no experience, and many children. These people, if accepted as citizens, are entitled to welfare. Those kinds of people are draining over 2 billion dollars from welfare each year (Topolnicki 224). However, once those people get adjusted to our way of living, and get out in the world, they can become very productive members of society. Welfare is, in a large way, to provide for children as well, and raising children in a U.S. environment can only strengthen the economy. On average immigrants dump around 30 billion more into the U.S. economy than they siphon from government programs such as welfare (Topolnicki 226). Lastly, immigrants count for a large portion of the population increase in the U.S. Except for lack of jobs, I can see this only as a benefit. To introduce varied, life seeking people into an environment can only make it stronger in the long run. They mix with the current population creating diversity. While racism is still a big issue in society, it is obviously decreasing. As I look around, out of 10 people, I see three Latin-Americans, four inidian/arabians, one African-American, and two other white people. This diversification has created a better and more open-minded society to live in. These people are in college with me, hoping to one day be good honest, law abiding tax payers, just like Uncle Sam wants them to be. I don't see what is wrong with a little change in population, as long as the population wants to work hard to make their lives better, as well as increase the economy. One more plus to these non-native born Americans. They have not had the chance to become lazy yet, and many bring with them an idea to work unusually hard. In conclusion, although there are some short term problems associated with allowing immigrants into our society, they do not do harm to our society, or our economy. The benefits gained by a rational super-power country, by allowing entrance from all parts of the world is so great that it overrides any harm done by a small percentage of the others. The sign in New York still says "Give us your poor, your tired, your huddled masses, yearning to be free." To hold the freedom for just us would be greedy. They might not pay all their taxes, and they might be a burden, 9% for immigrants, on welfare, but they are all striving to improve the economy, whether they know it or not. f:\12000 essays\business & economics (632)\Import Substitution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Import Substitution Describe import substitution (Inward looking) developmental strategy, clearly outlining the differences between the first and second stage. Assess its effectiveness in promoting economic development. Compare inward looking and outward looking strategies and discuss the assertion that the latter is superior. The First Stage of Import Substitution: All present day industrial and developing countries protect their manufacturing industries for the domestic markets. While the industrial countries of today rely primarily upon the usage of relatively low tariffs, developing countries apply high tariffs or quantitative restrictions which either limit or completely exclude competition from their imports. Protection like that - high protection - discriminates against exports through the explicit/implicit taxation of the export activities. Explicit taxation can take the form of export taxes whereas implicit taxation occurs as a result of the effects of protection on the exchange rate. As your protection level increases, your exchange rate level will decrease in order to ensure the necessary equilibrium of the balance of payments and the lower the amount of domestic currency exporters receive per unit of foreign exchange earned. There is no need for high protection at the first stage of import substitution in the replacement of the imports of non-durable consumer goods (clothing, shoes, household goods, textile fabrics, leather, wood and other types of inputs) since these commodities exist in the developing countries that are at the initial frontier of industrialization. The commodities I mentioned are intensive in unskilled labor, the scale of output is relatively low, and costs do not rise substantially at lower output levels. The production of the commodities do not involve the use of sophisticated technology or highly educated workers and suppliers for parts, components, materials and accessories are not necessary for highly efficient operations. An argument for infant industry protection and promotion is made for the "easy" stage, that being the first stage of import substitution because even though the domestic production of the commodities generates external economies in the form of labor training, entrepreneurial development and the spread of technology, there is a viable argument for infant industry protection because without the shielding from larger, more sophisticated companies, these infant industries will be crushed and overwhelmed by exceeding costs, non- competitiveness due to the lack of highly skilled laborers and the simple fact that these infant industries are technologically incompetent. The Second Stage of Import Substitution: I see the first stage of import substitution as a temporary requirement because the domestic production rises since it not only provides for increases in consumption but it also replaces imports. The rate of this growth however will decline as soon as the process of import substitution is completed. The maintaining of these high industrial growth rates necessitates the turning to the exportation of manufactured goods or moving to second stage import substitution. Second stage import substitution involves the replacement of intermediate goods and consumer durables by domestic production. These intermediate goods are highly capital intensive and are subject to important economies of scale. The margin of processing is very small and organizational and technical inefficiencies may contribute to high costs. Due to the scarcity of physical and human capital in developing countries that complete the first stage of import substitution, they tend to be at a disadvantage in the manufacture if highly physical capital intensive intermediate goods and skill intensive producer and consumer durables. By limiting the scope for the exploitation of economies of scale, the relatively small size of their national markets also contributes to high domestic costs in these countries. f:\12000 essays\business & economics (632)\Import Vs Export Substitution.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Describe import substitution (Inward looking) developmental strategy, clearly outlining the differences between the first and second stage. Assess its effectiveness in promoting economic development. Compare inward looking and outward looking strategies and discuss the assertion that the latter is superior. The First Stage of Import Substitution: All present day industrial and developing countries protect their manufacturing industries for the domestic markets. While the industrial countries of today rely primarily upon the usage of relatively low tariffs, developing countries apply high tariffs or quantitative restrictions which either limit or completely exclude competition from their imports. Protection like that - high protection - discriminates against exports through the explicit/implicit taxation of the export activities. Explicit taxation can take the form of export taxes whereas implicit taxation occurs as a result of the effects of protection on the exchange rate. As your protection level increases, your exchange rate level will decrease in order to ensure the necessary equilibrium of the balance of payments and the lower the amount of domestic currency exporters receive per unit of foreign exchange earned. There is no need for high protection at the first stage of import substitution in the replacement of the imports of non-durable consumer goods (clothing, shoes, household goods, textile fabrics, leather, wood and other types of inputs) since these commodities exist in the developing countries that are at the initial frontier of industrialization. The commodities I mentioned are intensive in unskilled labor, the scale of output is relatively low, and costs do not rise substantially at lower output levels. The production of the commodities do not involve the use of sophisticated technology or highly educated workers and suppliers for parts, components, materials and accessories are not necessary for highly efficient operations. An argument for infant industry protection and promotion is made for the "easy" stage, that being the first stage of import substitution because even though the domestic production of the commodities generates external economies in the form of labor training, entrepreneurial development and the spread of technology, there is a viable argument for infant industry protection because without the shielding from larger, more sophisticated companies, these infant industries will be crushed and overwhelmed by exceeding costs, non-competitiveness due to the lack of highly skilled laborers and the simple fact that these infant industries are technologically incompetent. The Second Stage of Import Substitution: I see the first stage of import substitution as a temporary requirement because the domestic production rises since it not only provides for increases in consumption but it also replaces imports. The rate of this growth however will decline as soon as the process of import substitution is completed. The maintaining of these high industrial growth rates necessitates the turning to the exportation of manufactured goods or moving to second stage import substitution. Second stage import substitution involves the replacement of intermediate goods and consumer durables by domestic production. These intermediate goods are highly capital intensive and are subject to important economies of scale. The margin of processing is very small and organizational and technical inefficiencies may contribute to high costs. Due to the scarcity of physical and human capital in developing countries that complete the first stage of import substitution, they tend to be at a disadvantage in the manufacture if highly physical capital intensive intermediate goods and skill intensive producer and consumer durables. By limiting the scope for the exploitation of economies of scale, the relatively small size of their national markets also contributes to high domestic costs in these countries. f:\12000 essays\business & economics (632)\In Search Of Excellenc Review.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In Search Of Excellence: Review In Search of Excellence is a book dealing with many different principles of economics and what makes big business' excellent. The first idea that Peters discusses is his chart of the McKinsey 7-S Framework. The graph is very simple but the ideas are fairly complex. In their research, they found that their philosophies were too hard to explain and easily forgettable. They made this Framework to deal with strategy, structure, style, systems, staff (people), skills, and shared values (culture). This has 7 S's (easy to remember) and a graphical representation to visualize. This shows the businessman that the intractable, irrational, intuitive, and informal organization can be managed. For example, anyone assuming that a new manager of a Taco Bell will perform exactly as the old manager did is ridiculous. The organization of workers must adjust and adapt to the new manager's way of business. Another more main topic of the novel is the Eight Basic Principles. Their research had shown that the excellent companies had been based on the basics. The companies had to try to keep things simple. Sometimes, to a big business, it might seem logical that business should be run more complex the larger it is. From their research, this is usually not true. The first pricnciple is a bias for action. This is basically saying "Stop talking and do something about it." When Taco Bell has a rush of customers and their supplies for making food are low, they (usually) don't say "You know what, I have no more cheese" or "Could someone get me some more cheese?" They take action and get the cheese, make it if necessary, and get the problem solved as quickly as possible. The second Principle they deal with is to be close to the customer. This means good service and listening to what the customer has to say. If the producer, Taco Bell, is not in touch with what the customer wants to eat, then the business will most likely fail. Although it also refers to customer satisfaction; quality food made right and curteous service: "Have a nice day and enjoy your meal!" The third principle is autonomy and entrepreneurship. This is the innovation principle. 3M is known for innovation and they welcome the changing and rearranging of old and new products. For example, my dad took 3M's basic arthroscopy pump and redesigned it into an in flow-out flow cannula. This innovation on his part temporarilly set 3M back on its feet in that product line. The fourth basic principle is productivity through people. This deals with the indivdual as the best means for efficiency improvement rather than capital investment. If Taco Bell could put everyone in the area of work they most enjoyed (drive-thru, washer,...) then they could produce more food and maximize their utiles. The fifth basic principle is hands on, value driven. This is the standard setting and enforcing values in a company. This is keeping the "head honcho" in touch with the assembly line worker and projecting the company's original ideas, instead of an image of some suited businessman lurking in a big, dark office. The sixth and often obvious principle is to stick to the knitting. The basically says that if a company is in the food business, it should not branch off into the wood industry unless they have no where else to expand in the industry they are already in. The seventh basic principle is a simple form, lean staff. This means leaving few people up top to manage a company and keep the form of management simple. The eighth and final basic principle is simultaneous loose-tight properties. This is another value-based principle. This could be described as the ability for a worker of Taco Bell to do his/her job in his/her own way as they incorporate the company's values and philosophies into their work. These values demonstrate that they don't just work because they work, but rather because they just make sense. Peters does a great job of explaining and giving examples of these eight principles and shows us that we would be foolish to ignore these principles. Also, we could learn a new skill from the 7 S-Framework, which is what growth is really about: the ability to learn and teach. f:\12000 essays\business & economics (632)\In Search of Excellence Review.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In Search of Excellence: Review In Search of Excellence is a book dealing with many different principles of economics and what makes big business' excellent. The first idea that Peters discusses is his chart of the McKinsey 7-S Framework. The graph is very simple but the ideas are fairly complex. In their research, they found that their philosophies were too hard to explain and easily forgettable. They made this Framework to deal with strategy, structure, style, systems, staff (people), skills, and shared values (culture). This has 7 S's (easy to remember) and a graphical representation to visualize. This shows the businessman that the intractable, irrational, intuitive, and informal organization can be managed. For example, anyone assuming that a new manager of a Taco Bell will perform exactly as the old manager did is ridiculous. The organization of workers must adjust and adapt to the new manager's way of business. Another more main topic of the novel is the Eight Basic Principles. Their research had shown that the excellent companies had been based on the basics. The companies had to try to keep things simple. Sometimes, to a big business, it might seem logical that business should be run more complex the larger it is. From their research, this is usually not true. The first pricnciple is a bias for action. This is basically saying "Stop talking and do something about it." When Taco Bell has a rush of customers and their supplies for making food are low, they (usually) don't say "You know what, I have no more cheese" or "Could someone get me some more cheese?" They take action and get the cheese, make it if necessary, and get the problem solved as quickly as possible. The second Principle they deal with is to be close to the customer. This means good service and listening to what the customer has to say. If the producer, Taco Bell, is not in touch with what the customer wants to eat, then the business will most likely fail. Although it also refers to customer satisfaction; quality food made right and curteous service: "Have a nice day and enjoy your meal!" The third principle is autonomy and entrepreneurship. This is the innovation principle. 3M is known for innovation and they welcome the changing and rearranging of old and new products. For example, my dad took 3M's basic arthroscopy pump and redesigned it into an in flow-out flow cannula. This innovation on his part temporarilly set 3M back on its feet in that product line. The fourth basic principle is productivity through people. This deals with the indivdual as the best means for efficiency improvement rather than capital investment. If Taco Bell could put everyone in the area of work they most enjoyed (drive-thru, washer,...) then they could produce more food and maximize their utiles. The fifth basic principle is hands on, value driven. This is the standard setting and enforcing values in a company. This is keeping the "head honcho" in touch with the assembly line worker and projecting the company's original ideas, instead of an image of some suited businessman lurking in a big, dark office. The sixth and often obvious principle is to stick to the knitting. The basically says that if a company is in the food business, it should not branch off into the wood industry unless they have no where else to expand in the industry they are already in. The seventh basic principle is a simple form, lean staff. This means leaving few people up top to manage a company and keep the form of management simple. The eighth and final basic principle is simultaneous loose-tight properties. This is another value-based principle. This could be described as the ability for a worker of Taco Bell to do his/her job in his/her own way as they incorporate the company's values and philosophies into their work. These values demonstrate that they don't just work because they work, but rather because they just make sense. Peters does a great job of explaining and giving examples of these eight principles and shows us that we would be foolish to ignore these principles. Also, we could learn a new skill from the 7 S-Framework, , which is what growth is really about: the ability to learn and teach. f:\12000 essays\business & economics (632)\In search of excellence.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ business In Search of Excellence: review In Search of Excellence is a book dealing with many different principles of economics and what makes big business' excellent. The first idea that Peters discusses is his chart of the McKinsey 7-S Framework. The graph is very simple but the ideas are fairly complex. In their research, they found that their philosophies were too hard to explain and easily forgettable. They made this Framework to deal with strategy, structure, style, systems, staff (people), skills, and shared values (culture). This has 7 S's (easy to remember) and a graphical representation to visualize. This shows the businessman that the intractable, irrational, intuitive, and informal organization can be managed. For example, anyone assuming that a new manager of a Taco Bell will perform exactly as the old manager did is ridiculous. The organization of workers must adjust and adapt to the new manager's way of business. Another more main topic of the novel is the Eight Basic Principles. Their research had shown that the excellent companies had been based on the basics. The companies had to try to keep things simple. Sometimes, to a big business, it might seem logical that business should be run more complex the larger it is. From their research, this is usually not true. The first pricnciple is a bias for action. This is basically saying "Stop talking and do something about it." When Taco Bell has a rush of customers and their supplies for making food are low, they (usually) don't say "You know what, I have no more cheese" or "Could someone get me some more cheese?" They take action and get the cheese, make it if necessary, and get the problem solved as quickly as possible. The second Principle they deal with is to be close to the customer. This means good service and listening to what the customer has to say. If the producer, Taco Bell, is not in touch with what the customer wants to eat, then the business will most likely fail. Although it also refers to customer satisfaction; quality food made right and curteous service: "Have a nice day and enjoy your meal!" The third principle is autonomy and entrepreneurship. This is the innovation principle. 3M is known for innovation and they welcome the changing and rearranging of old and new products. For example, my dad took 3M's basic arthroscopy pump and redesigned it into an in flow-out flow cannula. This innovation on his part temporarilly set 3M back on its feet in that product line. The fourth basic principle is productivity through people. This deals with the indivdual as the best means for efficiency improvement rather than capital investment. If Taco Bell could put everyone in the area of work they most enjoyed (drive-thru, washer,...) then they could produce more food and maximize their utiles. The fifth basic principle is hands on, value driven. This is the standard setting and enforcing values in a company. This is keeping the "head honcho" in touch with the assembly line worker and projecting the company's original ideas, instead of an image of some suited businessman lurking in a big, dark office. The sixth and often obvious principle is to stick to the knitting. The basically says that if a company is in the food business, it should not branch off into the wood industry unless they have no where else to expand in the industry they are already in. The seventh basic principle is a simple form, lean staff. This means leaving few people up top to manage a company and keep the form of management simple. The eighth and final basic principle is simultaneous loose-tight properties. This is another value-based principle. This could be described as the ability for a worker of Taco Bell to do his/her job in his/her own way as they incorporate the company's values and philosophies into their work. These values demonstrate that they don't just work because they work, but rather because they just make sense. Peters does a great job of explaining and giving examples of these eight principles and shows us that we would be foolish to ignore these principles. Also, we could learn a new skill from the 7 S-Framework, which is what growth is really about: the ability to learn and teach. f:\12000 essays\business & economics (632)\In Search of Low Wage Labor.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ INTRODUCTION The goal of all corporations is to increase shareholder wealth. Shareholder wealth is increased is by increasing the corporation's profit. In a corporation involved in manufacturing, reducing the cost of the factors of production is essential for growth. One of the major components of production costs is labor. When in comes to labor costs, the corporation and the worker usually have very different goals. The corporation wants to pay the worker as little as possible, while maintaining the productivity and quality required by its customers. The worker, on the other hand, seeks to increase his or her personal wealth by demanding the highest possible wages and benefits. Because of this somewhat adversarial relationship, corporations and labor have developed strategies to strengthen their positions. One of Labor's main defenses is to organize in unions. The existence of unions can be an effective method of gaining a position of strength, especially when dealing with power corporations. Depending on the size of the corporation, they might have the power to employ methods which are difficult for the workers to prevent or counteract. One tactic used by corporations to reduce labor costs is the utilization of "sweatshop" labor. A sweatshop is a manufacturing facility that operates below minimum standards of safety and/or wages and benefits. Sweatshops flourished in the United States in the late 1800s and early 1900s. This paper will examine the re-emergence of sweatshop manufacturing in the U.S. and abroad, and its impact on how manufacturers do business. Two U.S. corporations will be discussed in detail. And the issue of utilizing low cost labor domestically and offshore, including arguments for against this practice, will be discussed. ISSUE BACKGROUND Since, by definition, sweatshops violate the basic rights of workers, a brief discussion of the history of the labor movement is a necessary element in understanding the use of sweatshops. This section is intended to give a brief outline of some of the events leading to worker's rights laws. The following information was excerpted from NBC News Online. June 3, 1900 Garment workers form the International Ladies' Garment Workers' Union to protest low pay, fifteen-hour workdays, no benefits, and unsafe working conditions. While weak at the onset, the ILGWU struggles to help all workers fight for better conditions and higher pay. 1909 November 22,1909-February 15, 1910 Organized by the ILGWU, 20,000 shirtwaist makers, mostly women and children, stage the first garment workers strike. Many picketers are beaten or fired. In the end, the garment workers win a pay raise and a work reduction to 52 hours of work per week. July - October, 1910 ILGWU organizes a second large strike which featured 50,000 cloak-makers. Taking their lead from the women, this mostly male strike won uniform wages, a shorter work week, and paid holidays. A Joint Board of Sanitary Control is set up, as well as an arbitration board. As a result of the strikes in 1909 and 1910, the ILGWU swells in membership. March 25, 1911 One of the worst fires in U.S. history breaks out at the Triangle Shirtwaist Company in Manhattan's Lower East Side, killing 146 garment workers. The Triangle fire prompts the government to take action and establish regulatory control over the industry. Days after the tragedy, 80,000 people participate in a funeral procession up Fifth Avenue. June 25, 1938 President Franklin Roosevelt signs the Fair Labor Standards Act (FLSA) - also known as the federal wage and hour law - guaranteeing a minimum hourly wage of 25 cents. The law is enforced by the Department of Labor's Wage and Hour Division and sets the federal minimum wage and overtime requirements. It also prohibits child labor and requires employers to keep adequate time and payroll records. In 1996, the FLSA covers more than 110 million workers. 1958 The largest nationwide ILGWU strike in union history occurs, with 100,000 union members walking out of factories. They win new concessions, including more holidays and higher wages. 1960s-1980s This three-decade period is marked by rapid globalization which hits the garment industry. In the 1960s, faced with increased unionization, higher wages, and better benefits in the Northeast, companies begin moving factories South. However, by the late-1970s, the South had all but caught up in terms of Union activity. In the 1980s, many manufacturers and retailers begin outsourcing their production to subcontractors in Central America and Asia. Countries such as Honduras, El Salvador, Nicaragua, Malaysia, Indonesia, and Singapore provide free-trade zones and laborers who would work, according to the National Labor Committee, for as cheap as 9 cents per hour. By the late 1980s and early 1990s, under increased competition from foreign subcontractors, sweatshops start to flourish once again in the U.S. September 9, 1994 The U.S. Department of Labor announces it will step up enforcement of the FSLA "Hot Goods" provision. The Fair Labor Standards Act's "Hot Goods" clause allows the DOL to fine and seize the goods of those manufacturers and retailers who knowingly sell merchandise manufactured by companies violating the FLSA. While the provision had been a powerful weapon, it was rarely enforced in the past. Secretary of Labor Lynn Martin, who served under the Bush administration, was the first to warn garment manufacturers they would be held responsible under the provision. During the Clinton administration, sweatshops gained more media attention, Labor Secretary Robert Reich enforces the provision more stringently. August 2, 1995 The Department of Labor raids a factory in El Monte, California. The DOL finds 72 garment workers toiling in "virtual slavery" for negligible wages of as little as 70 cents per hour. Large U.S. retailers such as Disney, Hecht's and Bloomingdale's are found to have sold clothes made at El Monte. U.S. Labor Secretary Robert Reich notes that while "the El Monte operation was an extreme example of worker abuse...violations of minimum wage and overtime laws are the norm in the [garment] industry." Since then, the DOL has filed a civil suit seeking $5 million dollars in back wages for the rescued workers. The Department of Labor is currently in discussions with several large retailers on how to resolve the back wages issues without going to court. June 30, 1995 The ILGWU becomes the Union of Needletrades, Industrial & Textile Employees (UNITE). Since its transformation, UNITE has initiated numerous campaigns to bring attention to sweatshops and garment industry working conditions. September 12, 1995 DOL Secretary Robert Reich calls a Retail Summit in New York to address the issue of sweatshops. He calls on some of the biggest manufacturers and retailers to help wipe-out sweatshops. The summit results in part in a "Statement of Principles," which is presented by the National Retail Federation as part of their efforts to curb sweatshop labor. The document states that all of the participating retailers agree to require their suppliers to comply with all hour and wage laws that apply to them. The agreement, signed by 128 U.S. retailers, also emphasizes their promise to cooperate more closely with law enforcement. The NRF, which represents the $2.2 trillion retail industry, is the largest association of its kind. October 17, 1995 Secretary Reich hosts a meeting of manufacturers at the American Apparel Manufacturers Association. He invites retailers and manufacturers to join the government's effort against sweatshops, and makes public a list of manufacturers who signed compliance monitoring agreements. December 15, 1995 The Gap clothing company agrees to allow an independent monitor to evaluate its factories in Central America, becoming the first U.S. apparel company to do so. February 19, 1996 Secretary Reich releases the Department of Labor's Fair Labor Fashion Trendsetter List of manufacturers and retailers which are helping in the fight to abolish sweatshops. The 31companies on the list are praised for taking responsibility for monitoring the work practices of their contractors. April 29, 1996 The National Labor Committee, a private foundation, testifies before the Democratic Policy Committee on Child Labor and targets entertainer Kathie Lee Gifford's clothing line. Gifford says she was unaware that her Wal-Mart clothing line is assembled by illegal child laborers. At a congressional hearing, she speaks out against the practice of using sweatshop labor. May 23, 1996 The Department of Labor launches an investigation into Seo Fashions in New York City, which had failed to pay its workers for several weeks, and was manufacturing "Kathie Lee" clothing. May 24, 1996 Frank Gifford, Kathie Lee Gifford's husband, visits the Garment District Justice Center to hand out money to underpaid workers who had been f:\12000 essays\business & economics (632)\Inaccuracies of the Consumer Price Inde1.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Inaccuracies of the Consumer Price Index(CPI) Aman Aggarwal Sept. 28, 1996 The Consumer Price Index is a measure of the prices of a fixed market basket of some 300 consumer goods and services purchased by a "typical" urban consumer. The 1982-1984 period serves as the base period so analysts can compare other year's changes with this base period. The composition of the market basket is fixed in the base period and is assumed not to change from one period to another. The reason for the assumption is because the CPI measures the costliness of a constant standard of living. Critics claim that the CPI is inaccurate because it overstates the increases in the cost of living. For this reason, the CPI has been said to be inaccurate. First, consumers do change their spending patterns. Even though the composition off the market basket is assumed not to change, it does because consumers change their spending patterns. Because consumers substitute lower priced products in lieu of higher priced ones, the weight has shifted. The CPI assumes that this does not occur and therefore it overcompensates the standard of living. Secondly, because the base period was over a decade ago, the quality of the products has increased significantly, and therefore the prices should be higher. The CPI, however, assumes that the increases in prices is a result of inflation rather than quality improvements which is false. Here also, the CPI overstates the rate of inflation. Many consumers do not mind the overcompensation of the CPI because in most cases it means more money in their pockets, but there are some consequences. This may cause an ongoing inflation trend. The reason why the government does not restrict it is because they are worried about getting re-elected. Even if the President does call for a revision of the CPI, Congress would defeat it to keep their positions. Another consequence of the overstated CPI involves the adjustment of tax brackets. Their intent of indexing is to prevent inflation to cause people to be placed into a higher tax bracket. For example, if your income increases by 10%, that may put you in a higher level tax bracket, but if product prices have also increased by 10%, your real income has remained constant. This would transfer money from taxpayers hands to the Federal Government. However, indexing will tend to reduce the Federal Government's share by raising the levels of the tax brackets. Therefore, more money will stay in the people's hands due to indexing. The only party that seems to be hurting as a result of the overcompensation of the CPI is the Federal Government. Because consumers are the ones that are being affected, they control the CPI as opposed to the Federal Government. f:\12000 essays\business & economics (632)\Inaccuracies of the Consumer Price Index.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Inaccuracies of the Consumer Price Index (CPI) The Consumer Price Index is a measure of the prices of a fixed market basket of some 300 consumer goods and services purchased by a "typical" urban consumer. The 1982-1984 period serves as the base period so analysts can compare other year's changes with this base period. The composition of the market basket is fixed in the base period and is assumed not to change from one period to another. The reason for the assumption is because the CPI measures the costliness of a constant standard of living. Critics claim that the CPI is inaccurate because it overstates the increases in the cost of living. For this reason, the CPI has been said to be inaccurate. First, consumers do change their spending patterns. Even though the composition off the market basket is assumed not to change, it does because consumers change their spending patterns. Because consumers substitute lower priced products in lieu of higher priced ones, the weight has shifted. The CPI assumes that this does not occur and therefore it overcompensates the standard of living. Secondly, because the base period was over a decade ago, the quality of the products has increased significantly, and therefore the prices should be higher. The CPI, however, assumes that the increases in prices is a result of inflation rather than quality improvements which is false. Here also, the CPI overstates the rate of inflation. Many consumers do not mind the overcompensation of the CPI because in most cases it means more money in their pockets, but there are some consequences. This may cause an ongoing inflation trend. The reason why the government does not restrict it is because they are worried about getting re-elected. Even if the President does call for a revision of the CPI, Congress would defeat it to keep their positions. Another consequence of the overstated CPI involves the adjustment of tax brackets. Their intent of indexing is to prevent inflation to cause people to be placed into a higher tax bracket. For example, if your income increases by 10%, that may put you in a higher level tax bracket, but if product prices have also increased by 10%, your real income has remained constant. This would transfer money from taxpayers hands to the Federal Government. However, indexing will tend to reduce the Federal Government's share by raising the levels of the tax brackets. Therefore, more money will stay in the people's hands due to indexing. The only party that seems to be hurting as a result of the overcompensation of the CPI is the Federal Government. Because consumers are the ones that are being affected, they control the CPI as opposed to the Federal Government. f:\12000 essays\business & economics (632)\Inaccuracies of the CPI.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Aman Aggarwal Sept. 28, 1996 Inaccuracies of the Consumer Price Index(CPI) The Consumer Price Index is a measure of the prices of a fixed market basket of some 300 consumer goods and services purchased by a "typical" urban consumer. The 1982-1984 period serves as the base period so analysts can compare other year's changes with this base period. The composition of the market basket is fixed in the base period and is assumed not to change from one period to another. The reason for the assumption is because the CPI measures the costliness of a constant standard of living. Critics claim that the CPI is inaccurate because it overstates the increases in the cost of living. For this reason, the CPI has been said to be inaccurate. First, consumers do change their spending patterns. Even though the composition off the market basket is assumed not to change, it does because consumers change their spending patterns. Because consumers substitute lower priced products in lieu of higher priced ones, the weight has shifted. The CPI assumes that this does not occur and therefore it overcompensates the standard of living. Secondly, because the base period was over a decade ago, the quality of the products has increased significantly, and therefore the prices should be higher. The CPI, however, assumes that the increases in prices is a result of inflation rather than quality improvements which is false. Here also, the CPI overstates the rate of inflation. Many consumers do not mind the overcompensation of the CPI because in most cases it means more money in their pockets, but there are some consequences. This may cause an ongoing inflation trend. The reason why the government does not restrict it is because they are worried about getting re-elected. Even if the President does call for a revision of the CPI, Congress would defeat it to keep their positions. Another consequence of the overstated CPI involves the adjustment of tax brackets. Their intent of indexing is to prevent inflation to cause people to be placed into a higher tax bracket. For example, if your income increases by 10%, that may put you in a higher level tax bracket, but if product prices have also increased by 10%, your real income has remained constant. This would transfer money from taxpayers hands to the Federal Government. However, indexing will tend to reduce the Federal Government's share by raising the levels of the tax brackets. Therefore, more money will stay in the people's hands due to indexing. The only party that seems to be hurting as a result of the overcompensation of the CPI is the Federal Government. Because consumers are the ones that are being affected, they control the CPI as opposed to the Federal Government. f:\12000 essays\business & economics (632)\Increasing Shareholder Wealth.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Increasing Shareholder Wealth INTRODUCTION The goal of all corporations is to increase shareholder wealth. Shareholder wealth is increased is by increasing the corporation's profit. In a corporation involved in manufacturing, reducing the cost of the factors of production is essential for growth. One of the major components of production costs is labor. When in comes to labor costs, the corporation and the worker usually have very different goals. The corporation wants to pay the worker as little as possible, while maintaining the productivity and quality required by its customers. The worker, on the other hand, seeks to increase his or her personal wealth by demanding the highest possible wages and benefits. Because of this somewhat adversarial relationship, corporations and labor have developed strategies to strengthen their positions. One of Labor's main defenses is to organize in unions. The existence of unions can be an effective method of gaining a position of strength, especially when dealing with power corporations. Depending on the size of the corporation, they might have the power to employ methods which are difficult for the workers to prevent or counteract. One tactic used by corporations to reduce labor costs is the utilization of "sweatshop" labor. A sweatshop is a manufacturing facility that operates below minimum standards of safety and/or wages and benefits. Sweatshops flourished in the United States in the late 1800s and early 1900s. This paper will examine the re-emergence of sweatshop manufacturing in the U.S. and abroad, and its impact on how manufacturers do business. Two U.S. corporations will be discussed in detail. And the issue of utilizing low cost labor domestically and offshore, including arguments for against this practice, will be discussed. ISSUE BACKGROUND Since, by definition, sweatshops violate the basic rights of workers, a brief discussion of the history of the labor movement is a necessary element in understanding the use of sweatshops. This section is intended to give a brief outline of some of the events leading to worker's rights laws. The following information was excerpted from NBC News Online. June 3, 1900 Garment workers form the International Ladies' Garment Workers' Union to protest low pay, fifteen-hour workdays, no benefits, and unsafe working conditions. While weak at the onset, the ILGWU struggles to help all workers fight for better conditions and higher pay. 1909 November 22,1909-February 15, 1910 Organized by the ILGWU, 20,000 shirtwaist makers, mostly women and children, stage the first garment workers strike. Many picketers are beaten or fired. In the end, the garment workers win a pay raise and a work reduction to 52 hours of work per week. July - October, 1910 ILGWU organizes a second large strike which featured 50,000 cloak-makers. Taking their lead from the women, this mostly male strike won uniform wages, a shorter work week, and paid holidays. A Joint Board of Sanitary Control is set up, as well as an arbitration board. As a result of the strikes in 1909 and 1910, the ILGWU swells in membership. March 25, 1911 One of the worst fires in U.S. history breaks out at the Triangle Shirtwaist Company in Manhattan's Lower East Side, killing 146 garment workers. The Triangle fire prompts the government to take action and establish regulatory control over the industry. Days after the tragedy, 80,000 people participate in a funeral procession up Fifth Avenue. June 25, 1938 President Franklin Roosevelt signs the Fair Labor Standards Act (FLSA) - also known as the federal wage and hour law - guaranteeing a minimum hourly wage of 25 cents. The law is enforced by the Department of Labor's Wage and Hour Division and sets the federal minimum wage and overtime requirements. It also prohibits child labor and requires employers to keep adequate time and payroll records. In 1996, the FLSA covers more than 110 million workers. 1958 The largest nationwide ILGWU strike in union history occurs, with 100,000 union members walking out of factories. They win new concessions, including more holidays and higher wages. 1960s-1980s This three-decade period is marked by rapid globalization which hits the garment industry. In the 1960s, faced with increased unionization, higher wages, and better benefits in the Northeast, companies begin moving factories South. However, by the late-1970s, the South had all but caught up in terms of Union activity. In the 1980s, many manufacturers and retailers begin outsourcing their production to subcontractors in Central America and Asia. Countries such as Honduras, El Salvador, Nicaragua, Malaysia, Indonesia, and Singapore provide free-trade zones and laborers who would work, according to the National Labor Committee, for as cheap as 9 cents per hour. By the late 1980s and early 1990s, under increased competitionfrom foreign subcontractors, sweatshops start to flourish once again in the U.S. September 9, 1994 The U.S. Department of Labor announces it will step up enforcement of the FSLA "Hot Goods" provision. The Fair Labor Standards Act's "Hot Goods" clause allows the DOL to fine and seize the goods of those manufacturers and retailers who knowingly sell merchandise manufactured by companies violating the FLSA. While the provision had been a powerful weapon, it was rarely enforced in the past. Secretary of Labor Lynn Martin, who served under the Bush administration, was the first to warn garment manufacturers they would be held responsible under the provision. During the Clinton administration, sweatshops gained more media attention, Labor Secretary Robert Reich enforces the provision more stringently. August 2, 1995 The Department of Labor raids a factory in El Monte, California. The DOL finds 72 garment workers toiling in "virtual slavery" for negligible wages of as little as 70 cents per hour. Large U.S. retailers such as Disney, Hecht's and Bloomingdale's are found to have sold clothes made at El Monte. U.S. Labor Secretary Robert Reich notes that while "the El Monte operation was an extreme example of worker abuse...violations of minimum wage and overtime laws are the norm in the [garment] industry." Since then, the DOL has filed a civil suit seeking $5 million dollars in back wages for the rescued workers. The Department of Labor is currently in discussions with several large retailers on how to resolve the back wages issues without going to court. June 30, 1995 The ILGWU becomes the Union of Needletrades, Industrial & Textile Employees (UNITE). Since its transformation, UNITE has initiated numerous campaigns to bring attention to sweatshops and garment industry working conditions. September 12, 1995 DOL Secretary Robert Reich calls a Retail Summit in New York to address the issue of sweatshops. He calls on some of the biggest manufacturers and retailers to help wipe-out sweatshops. The summit results in part in a "Statement of Principles," which is presented by the National Retail Federation as part of their efforts to curb sweatshop labor. The document states that all of the participating retailers agree to require their suppliers to comply with all hour and wage laws that apply to them. The agreement, signed by 128 U.S. retailers, also emphasizes their promise to cooperate more closely with law enforcement. The NRF, which represents the $2.2 trillion retail industry, is the largest association of its kind. October 17, 1995 Secretary Reich hosts a meeting of manufacturers at the American Apparel Manufacturers Association. He invites retailers and manufacturers to join the government's effort against sweatshops, and makes public a list of manufacturers who signed compliance monitoring agreements. December 15, 1995 The Gap clothing company agrees to allow an independent monitor to evaluate its factories in Central America, becoming the first U.S. apparel company to do so. February 19, 1996 Secretary Reich releases the Department of Labor's Fair Labor Fashion Trendsetter List of manufacturers and retailers which are helping in the fight to abolish sweatshops. The 31companies on the list are praised for taking responsibility for monitoring the work practices of their contractors. April 29, 1996 The National Labor Committee, a private foundation, testifies before the Democratic Policy Committee on Child Labor and targets entertainer Kathie Lee Gifford's clothing line. Gifford says she was unaware that her Wal-Mart clothing line is assembled by illegal child laborers. At a congressional hearing, she speaks out against the practice of using sweatshop labor. May 23, 1996 The Department of Labor launches an investigation into Seo Fashions in New York City, which had failed to pay its workers for several weeks, and was manufacturing "Kathie Lee" clothing. May 24, 1996 Frank Gifford, Kathie Lee Gifford's husband, visits the Garment District Justice Center to hand out money to underpaid workers who had been f:\12000 essays\business & economics (632)\India Economic Success.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ India's Economic Success In every region of the world there are culture and social differences that set countries apart. Each with an economic, social and political outlooks on the future that determine the way people live. These endless arrays, even occur in different parts of a particular of every country including one of the worlds most diverse, India. India is separated into 25 states and 7 territories which create 16 major languages and 1,000 minor languages and dialects. This diversity in language creates somewhat of a barrier for India to become one of the foremost leaders in world because of the lack of unity. Although, in the past, the India government has taken steps to correct this matter with promoting Hindi as the national language. However, Indians who cannot speak Hindi frowned upon this notion. They believed the best jobs would go to Indians who spoke Hindi and with their pride of their regional languages kept them from accepting this unity, thus government decided against this idea. Now, the India government recognizes 13 regional languages as official languages. Children in schools learn Hindi as their second language, with English being used primary in higher education. Education has become the most recognizable forms of advancing one's country, India has exploded in schools and enrollment in these schools. As we can see by page 2, both chart's, the difference in a little more then 10 years is considerable. Both school enrollment and the number of educational institutions have increased by an average of 63%, however do not get fooled by these numbers. The Indian's school system are extremely overcrowded and many children drop out to get a job to help support their families. This problem with India's educational system falls in two parts, the first being that children who do drop out to find a job, is part of the social problem that India has been trying to correct. The Indian government started this quest to eliminate child labor in 1986 with a whole section in the United Nations' convention on the Rights of the Child. Additionally, in 1986 they passed the Child Labor Act that intended to ban the employment of children in occupations that are considered hazardous and to regulate conditions of work for children employed in occupations where child labor is not actually banned. However, as we can see by the summery of this act it does not make the necessary changes to the social conditions in which children have to work to ensure that the family has money. The second problem with the educational system in India is the overcrowding. However this occurrence has more to do with the situation of population increasing steadily over the past 20 years. As we can see by the 1st page the population will enter into the billions by the year 2001, which will also have a direct impact on the density of India. If the figures for the year 2001 are correct the density per sq. km should be around 422 which close to twice as crowed in 1991. This in turn again will have a direct effect on the overcrowding of schools unless the Indian government starts to build more schools. As we can see the educational system has its flaws not to mention the fact that most of the population lives in the rural area of India, which we can see on page 1, where modern development like schools are very few in number in the urban area. These alterations of the system must come from the top i.e. the government, however, they have gone through many changes themselves. In the past year the Indian government elected their new prime minister H.D. Deve Gowda. One of the main goals of prime minister Gowda is to carry on the economic reforms and increasing social spending to the lower and middle class. This would included India becoming more open to global investment and building up relations with almost all countries especially their neighbors Pakistan and China. Additionally, this would included more government allocation of funds including medical care, and other social reforms. As we just illustrated the Indian government is in directed command of India's future in turns of economic development since all new reforms come from the prime minister Gowda. Another step within the government that has aided India in becoming an economic power is the time period which it takes to create new regulations and laws. In the past it was a few years now it is a few weeks. As we can see by page 3, these reforms by the government has been taking its effect because of the increase trend of these numbers. The difference from 1981 to 1991 is staggering which is especially shown in both charts. In these past ten years all aspects of the Indian economy has nearly tripled in number and size. This is in part again from the government forcing economic changes but also in part from the expanding wealth of India. The problem of India is that the poverty is a high factor however this country has a large GNP. Although this value can not be compared to America since because if its large population they have one of the lowest per capita GNP's. This low ranking is strictly why the India is still a developing country. The India economy is split up into nine basic parts with the four on page three being the main ingredients. The main one is considered to be agriculture since it provides the nation with the third of its income. This economy also has been increasing and less imports are coming into India because of improved farming techniques, with in turn has enlarged the economy. Service is another economic activity however, because of huge rural population this less important in India. Although, due to the expanding population all over India this has become more important in the past 10 years as seen in the charts on page 3. Manufacturing also has become a leader in expansion in India. This is in part from the gaining of Independence in which India received from Britain in the 1950's. Thus India became more free to pursue, and have control their own manufacturing which in turn gain them their own economy. India's economic success as a country is strictly from gaining independence India. However, just like ever developing country India has had trouble in the social aspect. In the upcoming years this corrections will have to be addressed since the India economy is expanding at an idea rate however, the social conditions are staying somewhat behind of other countries. f:\12000 essays\business & economics (632)\Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The investment industry is composed of a wide variety of firms. The main players include independent full line brokerage firms, investment bank subsidiaries of chartered banks, and discount brokers. Independent full line brokerage firms offer a wide range of services, including underwriting, trading of stocks, advice and research. In essence, the full service brokerage subsidiaries of chartered banks offer the same services, however, banks' brokerage firms may have a larger pre-established clientele. Finally, the discount brokers are basic stock brokers that perform trades for clients who do not want investment advice. Usually, this service is targeted toward the sophisticated investor who does his/her own research to incur minimal commission fees. Banks entered the investment industry in 1987, whereby they took over full-service brokerages, introduced mutual funds to the banking industry and became part of discount brokering. From this time on, chartered banks have expanded their dominance in the industry by acquiring key players in the industry or branching off into full brokerage services. For example, the brokerage firms for CIBC, Royal Bank, Toronto Dominion Bank, Bank of Nova Scotia and Bank of Montreal are Wood Gundy, RBC Dominion, Evergreen, Scotia McLeod and Nesbitt Burns respectively. In addition, the aforementioned chartered banks have also branched into the discount brokerage sector. As of December 1994, the Securities Industry as a whole included 158 firms, directly employs over 24,000 people, has operating revenue of $5.1 Billion and operating profit of $1.2 Billion (Appendix A). Within this industry the largest firms ranked by revenue are: RBC Dominion Securities ($1 Billion), Midland Walwyn ($480 million), Burns Fry ($416 million) and Nesbitt Thomson ($335 million) (Appendix B). It is evident that the industry is highly concentrated in a small number of companies. The top 4 leaders in the industry accounted for 44% of revenue, while the top 8 was 51%. Industry information from 1993 displays further segregation, between retail, institutional and integrated firms. Integrated retail-institutionalized firms (RBC Dominion Securities, Scotia McLeod, Nesbitt Thomson, Wood Gundy) made up 66% of the industry's revenue, while strictly institutional firms (First Marathon Securities, Gordon Capital Corp. and Loewer Ondaatje McCutcheon Ltd.) made up 21% and Retail firms (Green Line Investor Services Inc.), 15% (Appendix C). The following analysis will outline the investment dealer's industry, specifically the life cycle, critical success factor, strengths, weaknesses, target markets and profitability. Life Cycle The demand for investment financial services is expanding. This becomes evident by examining the average increase in revenue which has occurred over the 1990-1994, 5 year span. This amounts to a 114% increase in revenue, ($2.4 Billion and $5.13 Billion), (Appendix A). An additional indication of growth in the investment industry is the fact that the number of firms in the industry has increased from 119 in 1990 to 158 in 1995, and 163 by the second quarter of 1995 (Appendix A). Furthermore, firms are entering the market because they realize the increasing need for investment services as well as the potential for profits. It is obvious that the industry is growing, however the cause for this growth must also be addressed. Firstly, demographics of the Canadian society point towards an aging population. This aging society is comprised of active retired and semi-retired individuals who have knowledge, time and disposable income for investing purposes. Moreover, younger generations who fear the elimination of the existing CPP because of the aging population, are interested in "building a retirement nest egg." (Fine, p. B21) Secondly, the fact that people want to be more educated about the investments industry, ties into an additional cause for growth in the industry. The market is offering more information to those who want to be part of it. This additional information reduces investors' fear of not knowing enough, and if they choose to take advantage of the available information they can capitalize on it. Also, more information gives people the perception that they are able to make an increased number of higher quality investment decisions. Finally, the entrance of banks into the industry has increased public interest. First of all, banks carry a great deal of trust which is extremely important to the average investor. Second, banks are higher profile marketers so they reach a larger number of people. In addition, the large number of branches makes the product readily available and easily accessible. Banks also have a large existing customer base to which they can market products, and influence investing. Overall, banks have increased the demand for investment services by creating interest and awareness to people who would otherwise not give extensive consideration to investments. Critical Success Factors The investment industry is very volatile in that the upward trend in today's market does not guarantee the same trend tomorrow. Investment dealers cannot fully command the direction of their profits. The market they work with, i.e. capital markets, is greatly affected by external factors. Falling stock and bond prices can negatively affect industry profits, because they reduce capital market activity. In addition, volatility is affected by consumer confidence. If unsophisticated investors believe the market is unstable and fail to realize the problem may only be a rumor, then they may all pull out at the same time causing upheaval and drastic downturns in profit. In such a situation, investment dealers have no control over the situation or their profits. Every investor suffers the consequences of volatility. However, even though this volatility exists there are means to attract investors to the capital market, thereby outperforming competitors and increasing revenue derived from service fees. First, the investment dealer must build trust with the investor. This is of extreme importance to the potential client because of the amount and importance of the funds that they are investing. More importantly, trust is needed in order to attract new clients, through word of mouth, and maintain existing ones. Second, the client is greatly concerned with the performance or returns of their portfolio. Even though the market is volatile, the investment dealer is trusted to properly assess their clients' financial situation, level of risk aversion and investment decisions in order to establish the best portfolio. Their ability to carry out these functions will influence, to a certain degree, the performance of the investment dealer, i.e. through returns. Third, customers want continuous high quality service. This means that in addition to the service provided at the time of the portfolio selection, they also want a relationship with the dealer. Specifically, the customer may want to be kept informed on their portfolio as well as changes which may be occurring in the market. Being able to continue this high quality service will prove to attract many unsophisticated investors and establish a long-term clientele. At this point, it is important to know that the investment dealers must have the expertise to identify which investors want this service and which don't. Their failure to do this may actually cause the loss of sophisticated investors who do not want to be bothered. In short, "clients said the most important factor in choosing an investment firm was trustworthiness, followed by performance and service" (Roseman, p.B18). Aside from these three factors, the speed of processing transactions has equal importance to a customer. Since prices change very rapidly in this volatile industry, timing is everything,. For this reason, customers would prefer to have immediate accessibility to the trading floor without going through the middleman. Present changes indicate that the industry is headed in this direction. Presently, Instinet Corp. has introduced a new technology, Instinet, which allows foreign securities to be traded through electronic trading terminals thereby bypassing the broker's responsibility to contact a trader on the costly exchange floor (TSE). The trade would no longer require attendance to the exchange floor, since the transaction could be done electronically at designated institutions. Eventually, investment brokers will have to excel in areas which cannot be replaced by electronic technology, i.e. research, knowledge about the industry and building a trusting rapport with customers. Strengths and Weaknesses The securities industry (and the financial services industry in general) is highly automated and technically advanced. This allows the industry to operate efficiently and cost effectively. The marginal costs of processing a $10 transaction and a $10-billion one are negligible (Campbell, in Dermer: p. 237). Technology gives investors (the clientele) the ability to make transactions easily and quickly. Therefore, investing becomes more attractive because of the relative ease and convenience of trade execution. The cost effectiveness of the industry also allows it to compete abroad with larger brokers thus increasing its customer base. The entrance of banks also boosted competition and led to further reductions in costs. Chartered banks have also given the industry a boost because of their large client base, credibility, high-degree of technology, marketing expertise, and "retail store" environment. Banks can offer an entire array of financial services and instruments which provides a great deal of convenience. Customers can easily open direct trading accounts with their branch and make transfers to and from their savings accounts. This "one-stop shopping" approach has made the securities industry more attractive and strengthened it. Although law prohibits the transfer of financial information about bank clients between banks and their investment dealing subsidiaries (to maintain confidentiality and credibility), the banks can still act as channels of information to potential customers. Toronto Dominion Bank, for instance, offers S.S.Q. points (Sales, Service, and Quality) to their customer service representatives whenever referrals are given for a TD-Green Line (discount broker) or TD-Evergreen (full service) account. In essence, the industry has a large number of indirect employees acting as agents for their services. This creates awareness, and helps boost demand. A growing interest in the industry in terms of education can only help strengthen the industry. In the past year, 21500 students took Canadian Securities Institute programs, this number being 53% higher than the previous year (Fine: p. B21). This translates to a high number of knowledgeable people being employed within the industry. This helps the industry in that customers are better served, and thus they are inclined to invest more due to the fact that they trust the investment dealer. As such, more cash flow into the market means more profits for the investment dealers due to increased commissions. The industry's dependence on the performance of the securities markets can be considered a weakness. This is because the industry's main purpose revolves around the stock market itself. Thus if the stock market is lagging, profits will fall due to a lower number and value of transactions. In addition, firms are much less willing to enter a bearish market for new financing. This is also the case when firms are doing well since they may not require increased financing and may not need the services of an investment dealer (for underwriting) (IDA bulletin p2). Unlike banks who have CDIC protecting the accounts of their customers, investors portfolios are in no way secured in terms of value. This creates a negative sentiment towards investing because highly risk averse individuals would rather lock up their money in the bank. Profitability The Brokerage Industry derives the majority of its income from commissions (43% of 1994 revenues), underwriting (21%) and fixed income trading (16%) (Appendices A & D). Since most of the revenue comes from commissions, it is apparent that revenue is largely dependent on volume and value of transactions. Transactions volume and values are dependent on the performance of the stock market. For example between 1992 and 1993, the TSE 300 gained approximately 29% in value. Reported operating profits for 1993 were $1.7 billion ($726 million net), which was up from 1992's operating profit of $676 million ($253 million) (Appendix A). Between 1993 and 1994 the TSE 300 lost 3% of value and this resulted in a decline in profits during the same period of $500 million ($300 million net). Thus, shifts in the stock market affect the stability of the industry's profits. Financial Ratios Analysis of important financial ratios can help provide a better picture of the industry as a whole. Examining the quick and current ratios for some of the larger firms in the industry shows that investment dealers have an equal proportion of highly liquid assets to short term liabilities (approx. 1.0). This shows that the firms have little in terms of a maturity mismatch. In addition, accounts receivable as a percent of total assets is quite large (approx. 91% for Fahnestock Viner, and 65% for Midland Walwyn). This shows that the industry relies on its ability to give its clients lines of credit and the ability to finance them. In addition, the high level receivables increases the level of default risk for the industry. Thus, one must look at the quality of these receivables (that is who are these debtors) to evaluate the level of risk to the industry. Furthermore, these receivables can be a source of revenue for the dealers, for example, interest received from margin accounts. Conclusions Based on the above discussion, it is fair to say that the industry has a positive outlook for the future. This can be said despite the industry's dependence on stock market activity. A growing interest in the industry is proof of this, as the number of firms involved is increasing as well as the number of professionals entering the fields within the investment industry. An additional indication of the industry's growth is the increased participation of Canadian Banks, combining one of Canada's most vital industries with the investment industry. As the public becomes more aware of the potential gains from investing, the future of the industry will be reinforced. Long gone are the days when people held large sums of money in static bank accounts. Rather, a changed population (in terms of education, demographics etc.) is seeking a dynamic investment which can earn greater returns than a bank account. Considering this new demand for securities, investment dealers have a greater incentive to devise additional attractive financial instruments in order to attract the undecided. In short, a need for greater returns leads to increased asset demand thereby increasing market activity which in turn will strengthen the investment dealer industry as a whole. f:\12000 essays\business & economics (632)\Information Rules.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Information Rules I. Chapter 1 In this book Carl Shapiro and Hal R. Varian provide an overview of the competitive playing field of the network economy, and highlight the key economic rules that govern it. They assert that one does not need a New Economics to understand the New Economy: the basic economic principles needed to develop business strategy remain the same. To understand the economics of information technology one must look at economic issues involving both information and technology. On the information side, Shapiro and Varian discuss: the cost of producing information, how to manage intellectual property, information as an experience good, and the economics of attention. On the technology side, they introduce: systems competition, lock-in and switching costs, positive feedback, network externalities, and standards. The chapter ends with a brief overview of the policy issues concerning the Network Economy. II. Chapter 2 To begin, it is asserted that information is costly to produce but cheap to reproduce. The economic rule that parallels this theme states that while fixed costs of production are large, variable costs of reproduction are small. This chapter focuses on the special cost structure of information, and outlines effective ways to sell an information good to identifiable markets. It discusses how to develop a basic strategy based on what industry one operates in, and illustrates how the unique characteristics of information markets offer new opportunities to implement time-tested principles of competitive strategy. Shapiro and Varian also examine strategies for customizing information by personalizing your product, and by various means of personalized pricing. III. Chapter 3 This next chapter examines ways to version information goods in order to make them appeal to various market segments that will pay different prices for the different versions. Strategies for versioning are illustrated with examples and include: delay, user interface, convenience, speed of operation, flexibility of use, and support. Shapiro and Varian also explore issues such as: how to avoid common pitfalls in versioning, how to determine the number of versions to offer, and the value to be gained from product bundling. IV. Chapter 4 Thirdly, this book explores whether copyright law is hopelessly outdated. Shapiro and Varian say no, and within this chapter demonstrate why many of its principles are still valid. What has changed, they say, is that the Internet, and information technology in general, offer new opportunities and challenges in applying these principles. Shapiro and Varian review the history of intellectual property and describe the lessons it has for rights management on the Internet. They discuss the tension between giving away one's information to let people know what one has to offer and charging them for it to recover one's costs, and outline strategies managers can use in making this choice. V. Chapter 5 Then the issue of the lock-in is considered. When the costs of switching from one brand or technology to another are substantial, users face lock-in. Shapiro and Varian argue that the friction free economy is a fiction, and that in the information age, users will be facing more instances of lock-in. Understanding the costs of switching technologies or brands will be critical to success in today's economy. This chapter describes the common patterns that give rise to switching costs in an attempt to help companies recognize and measure lock-in. Using company examples, the chapter explains the different kinds of lock-in, outlines strategies to incorporate proprietary features into a product, and describes ways to coordinate one's strategy with that of his or her partners. VI. Chapter 6 Moreover, this chapter describes how to exploit lock-in when one is offering an information system, and how to avoid it or at least anticipate it when one is the buyer. The first part of this chapter is aimed at buyers of information technology, which includes virtually everyone in today's economy. To help prevent mistakes in dealing with lock-in, Shapiro and Varian provide a catalog of strategies to minimize lock-in and avoid monopoly exploitation. In addition, Shapiro and Varian show how individuals can make their own switching costs work in their favor if they get the timing right. The second part of the chapter outlines competitive strategies for companies that sell their products and services in markets where customers face significant switching costs, and shows how these strategies can be put into practice. VII. Chapter 7 This next chapter goes on to highlight network externalities as a fundamental economic characteristic of real and virtual networks, which occur when the value of a product or service to one user depends on how many other users there are. The pattern such technologies follow results from positive feedback. As the installed base of users grows, more and more users find the product useful to adopt. Shapiro and Varian identify four generic strategies for igniting customer feedback, which follow logically from two basic tradeoffs: whether the company will base their strategy on improved performance or enhanced compatibility; and whether the product will be open or proprietary. How these concepts and strategies work in practice is illustrated through a series of historical case studies ranging from the early days of the telephone industry to the introduction of color television. VIII. Chapter 8 Furthermore, this next chapter describes how firms must function in a standards-rich environment. It focuses on the openness strategies, which are fundamentally based on cooperation with allies. Due to the winner take all nature of network markets; Shapiro and Varian argue that it is especially important to figure out early on who your allies are, and who your enemies are. Carl Shapiro and Hal R. Varian systematically explore how companies can determine critical issues such as: whether they want an open standard; which allies they need to win and how to most effectively attract them; whether they can assemble allies to launch their technology successfully while still keeping some control over how it evolves; whether to fight a standards war or seek an early truce; and what a company should do if it has a declining market share in a network industry. IX. Chapter 9 Subsequently, when a network is launched, the stage of negotiations over interconnection and standardization is critical. This chapter examines what happens if these negotiations break down: how to fight a standards war, and how to get positive feedback working in a company's favor in a battle against an incompatible rival technology. Shapiro and Varian explore in detail seven key assets that determine a company's ability to successfully wage a standards war: control over an installed base of users, intellectual property rights, ability to innovate, first-mover advantages, manufacturing abilities, strength in complements, and brand name and reputation. In addition, they outline two marketplace tactics companies will need to employ in pursuing a standards battle, and discuss how they should best precede in protecting and improving their positions once they've won. X. Chapter 10 Finally, whether fending off legal challenges or using the antitrust laws to challenge the conduct of competitors or suppliers, understanding the rules of the game is important for any manager operating in the Network Economy. In this chapter, Shapiro and Varian explore government policy, including antitrust policy and regulation in the telecommunications sector. They underscore why competitive strategy in the information economy collides with antitrust law in three primary areas: mergers and acquisitions, cooperative standard setting, and monopolization, and explore the current legal rules in each of these areas. In addition, they suggest changes that could be made so that the government supports, rather than impedes, the growth of the information economy. Bibliography Page Shapiro, Carl and Varian, Hal R. Information Rules . Harvard Business School Press. 1998. f:\12000 essays\business & economics (632)\Information Technology Outsourcing 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Information Technology Outsourcing "Information Technology outsourcing is the contracting out of part or all of an organization's IT activities." New trends have included operations, programming, and technology planning. The main reason for information technology outsourcing is to gain immediate economic gains for the company, usually through savings. Financial motivations aren't first on businesses minds though; other strategic objectives are. Outsourcing can make it easier to downsize. Because you are bringing in outside help, and can cut back on fixed salaries, the company becomes more variable. Outsourcing leads to tighter linking of strategy and IT. Knowledge which usually flows slowly can flow freely, and a company has more access to outside technology. Plus businesses receive information faster than other types of hierarchical communication, and the resources are endless. Outsourcing can unlock organizational structures. "The unlocked IT organization can provide a better mechanism for costing user requests, prioritizing technology initiatives and controlling expenditures." It offers the benefits of both systems involved. Another important goal that IT outsourcing takes on, is reducing technological risk. By outsourcing your needs you know that that the employee know what they are doing. Some of the problems IT outsourcing may encounter are, loss of strategic control, risk of technological obsolescence, limiting of long-term flexibility, difficulty in benchmarking initial contract, hostage to additional charges, high exit or switching costs, limited choice of vendors, the fixed nature of legal contracts, legal exposure, from dissatisfied former employees, and cultural conflicts. The people doing the outsourcing for the companies are sometimes the life's-blood of that company. If the outsourcers want more money, then they are almost obligated to give that money. This is usually the case when the contractors are bringing new technology into the system. High exit or switching costs entail the switch-over costs the company must shoulder if they decide to end the outsourcing and hire full time employees. It is important not to put too many resources at the hands of the contractors. Limiting this will ease the switch-over costs. Legal issues also creep into the picture when a company chooses to outsource. Some companies have problems with employees that are not happy with their current arrangement or are mistreated. There tends to be a high unionization with these kinds of workers. A company can not only be held for its actions but also for the actions of the outsourcing agent. Finally an important factor is cultural conflicts. What is excepted in one culture may be different in another, causing worker and management related problems. For instance the role of leadership in an organization or the number of hours a worker is expected to work a week. These variables have to be scrutinized by the outsourcing company. f:\12000 essays\business & economics (632)\Information Technology Outsourcing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Information Technology Outsourcing "Information Technology outsourcing is the contracting out of part or all of an organization's IT activities." New trends have included operations, programming, and technology planning. The main reason for information technology outsourcing is to gain immediate economic gains for the company, usually through savings. Financial motivations aren't first on businesses minds though; other strategic objectives are. Outsourcing can make it easier to downsize. Because you are bringing in outside help, and can cut back on fixed salaries, the company becomes more variable. Outsourcing leads to tighter linking of strategy and IT. Knowledge which usually flows slowly can flow freely, and a company has more access to outside technology. Plus businesses receive information faster than other types of hierarchical communication, and the resources are endless. Outsourcing can unlock organizational structures. "The unlocked IT organization can provide a better mechanism for costing user requests, prioritizing technology initiatives and controlling expenditures." It offers the benefits of both systems involved. Another important goal that IT outsourcing takes on, is reducing technological risk. By outsourcing your needs you know that that the employee know what they are doing. Some of the problems IT outsourcing may encounter are, loss of strategic control, risk of technological obsolescence, limiting of long-term flexibility, difficulty in benchmarking initial contract, hostage to additional charges, high exit or switching costs, limited choice of vendors, the fixed nature of legal contracts, legal exposure, from dissatisfied former employees, and cultural conflicts. The people doing the outsourcing for the companies are sometimes the life's-blood of that company. If the outsourcers want more money, then they are almost obligated to give that money. This is usually the case when the contractors are bringing new technology into the system. High exit or switching costs entail the switch-over costs the company must shoulder if they decide to end the outsourcing and hire full time employees. It is important not to put too many resources at the hands of the contractors. Limiting this will ease the switch-over costs. Legal issues also creep into the picture when a company chooses to outsource. Some companies have problems with employees that are not happy with their current arrangement or are mistreated. There tends to be a high unionization with these kinds of workers. A company can not only be held for its actions but also for the actions of the outsourcing agent. Finally an important factor is cultural conflicts. What is excepted in one culture may be different in another, causing worker and management related problems. For instance the role of leadership in an organization or the number of hours a worker is expected to work a week. These variables have to be scrutinized by the outsourcing company. f:\12000 essays\business & economics (632)\intel annual report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Results of operations. Intel broke a record in net revenues in 1995, for the ninth consecutive year, rising by 41% from 1994 to 1995 and by 31% from 1993 to 1994. Higher volumes of the rapidly raising Pentium microprocessor family, partially offset by lower prices, and increased sales of related board-level products were responsible for most of the growth in revenues in 1994 and 1995. Revenues from the Intel486 microprocessor family declined substantially in 1995 due to a shift in market demand toward the Company's Pentium microprocessors and lower Intel486 microprocessor prices. Higher volumes of flash memory and chipset products also contributed toward the increase in revenues from 1993 to 1995 and also helped enable the successful Pentium microprocessor ramp. Sales of system platforms, embedded control products, and networking and communications products also grew. Cost of sales increased by 40% from 1994 to 1995 and by 71% from 1993 to 1994. The growth in cost of sales from 1993 to 1995 was driven by Pentium microprocessor and board-level unit volume growth, new factories coming into production, shifts in process and product mix, and in the fourth quarter of 1995, by costs associated with unusually high reserves related to inventories of certain purchased components. Gross margin for the fourth quarter of 1994 included the impact of a $475 million charge, primarily to cost of sales, to cover replacement costs, replacement material and an inventory record related to a divide problem in the floating point unit of the Pentium microprocessor. As a result of the above factors, the gross margin percentage was 52% in 1995 and 1994, compared to 63% in 1993. Quarterly unit shipments of the Pentium microprocessor family passed those of the Intel486 microprocessor family during the third quarter of 1995. The Company helped accelerate this transition by offering chipsets and motherboards to enable computer manufacturers to bring their products to market faster. Sales of the Pentium microprocessor family comprised a majority of the Company's revenues and a substantial majority of its gross margin during 1995. During 1995, the Intel486 microprocessor family represented a significant but rapidly declining portion of the Company's revenues and gross margins. The Intel486 microprocessor family comprised a majority of the Company's revenues and a substantial majority of its gross margin during 1993 and 1994. Research and development spending grew by 17% from 1994 to 1995, as the Company continued to invest in strategic programs, particularly for the internal development of microprocessor products and related manufacturing technology. Increased spending for marketing programs, including media merchandising and the Company's Intel Inside cooperative advertising program, drove the 27% increase in marketing, general and administrative expenses from 1994 to 1995. The $28 million decrease in interest expense from 1994 to 1995 was mainly due to lower average borrowing balances in addition to higher interest capitalization resulting from increased facility construction programs. The increase in interest expense from 1993 to 1994 was primarily due to higher average interest rates on borrowings, partially offset by higher interest capitalization. The Company utilizes investments and corresponding interest rate swaps to preserve principal while enhancing the yield on its investment portfolio without significantly increasing risk, and uses forward contracts, options and swaps to hedge currency, market and interest rate exposures. Gains and losses on these instruments are generally offset by those on the underlying hedged transactions; as a result, there was no material net impact on the Company's financial results during the 1993-1995 period. The Company's effective income tax rate increased to 36.8% in 1995 compared to 36.5% and 35.0% in 1994 and 1993, respectively. The increases in rate from 1993 to 1995 resulted from the fact that tax credits have not grown as rapidly as overall pretax income. Financial condition. The Company's financial condition remains very strong. As of December 30, 1995, total cash and short- and long-term investments totaled $4.11 billion, down from $4.54 billion at December 31, 1994. Cash generated from operating activities rose to $4.03 billion in 1995, compared to $2.98 billion and $2.80 billion in 1994 and 1993, respectively. Investing activities consumed $2.69 billion in cash during 1995, compared to $2.90 billion during 1994 and $3.34 billion during 1993. Capital expenditures increased substantially in both 1994 and 1995, as the Company continued to invest in the property, plant and equipment needed for future business requirements, including manufacturing capacity. The Company expects to spend approximately $4.1 billion for capital additions in 1996 and had committed approximately $1.47 billion for the construction or purchase of property, plant and equipment as of December 30, 1995. Inventory levels, particularly raw materials and finished goods, increased significantly in 1995. This increase was primarily attributable to the increased level of business and, to a lesser extent, to an unusually low level of inventory at the end of 1994 because of a report of inventories in the fourth quarter of 1994 in connection with the divide problem in the floating point unit of the Pentium processor. The increase in accounts receivable in 1995 was mainly due to revenue growth, including the growth of non-domestic sales that have longer payment terms. During 1995, the Company experienced an increase in its concentration of credit risk due to increasing trade receivables from sales to manufacturers of microcomputer systems. The Company's five largest customers accounted for approximately 33% of net revenues for 1995. At December 30, 1995, these customers accounted for approximately 34% of net accounts receivable. A portion of the receivable balance from one of its five largest customers has been converted into a loan. The total amount receivable from this customer was approximately $400 million at December 30, 1995. The Company used $1.06 billion and $557 million for financing activities in 1995 and 1994, respectively, while $352 million was provided in 1993. The major financing application of cash in 1995 was for stock repurchases totaling $1.03 billion. Financing applications of cash in 1994 included stock repurchases of $658 million and the early retirement of the Company's 8 1/8% debt. Sources of financing in 1993 included the Company's public offering of the 1998 Step-Up Warrants, which resulted in proceeds of $287 million. As part of its authorized stock repurchase program, the Company had outstanding put warrants at the end of 1995, with the potential obligation to buy back 12 million shares of its Common Stock at an aggregate price of $725 million. The exercise price of these warrants ranges from $38 to $68 per share, with an average exercise price of $60 per share. Other sources of liquidity include combined credit lines and authorized commercial paper borrowings of $1.86 billion, $57 million of which was outstanding at December 30, 1995. The Company also maintains the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under Securities and Exchange Commission shelf registration statements. The Company believes that it has the financial resources needed to meet business requirements in the foreseeable future, including capital expenditures for the recently announced expansion of international manufacturing sites, working capital requirements, the potential put warrant obligation and the dividend program. Outlook. The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results may differ materially. Intel expects that the total number of personal computers using Intel's Pentium microprocessors and other semiconductor components sold worldwide will continue to grow in 1996. Intel has expanded manufacturing capacity over the last few years and continues to expand capacity to be able to meet the potential increase in demand. Intel's financial results are to a large extent dependent on this market segment. Revenue is also a function of the distribution of microprocessor speed and performance levels, which is difficult to forecast. Because of the large price difference between components for the highest and lowest performance computers, this distribution affects the average price Intel will realize and has a large impact on Intel's revenues. Intel's strategy has been, and continues to be, to introduce ever higher performance microprocessors and work with the software industry to develop compelling applications that can take advantage of this higher performance, thus driving demand toward the newer products. Capacity has been planned based on the assumed continued success of the Company's strategy. In line with this strategy, the Company has recently announced higher speed members of the Pentium Pro microprocessor family. If the market demand does not continue to grow and move rapidly toward higher performance products, revenue growth may be impacted, the manufacturing capacity installed might be under-utilized and capital spending may be slowed. The Company may continue to reduce microprocessor prices aggressively and systematically to bring its technology to market. The Company's gross margin percentage is a sensitive function of the product mix sold in any period. Because the percentage of motherboards that Intel's customers purchase changes with maturity of the product cycle, and motherboards generally have lower gross margin percentages than microprocessors, Intel's gross margin percentage varies depending on the mix of microprocessors and related motherboards within a product family. Various other factors, including unit volumes and costs and yield issues associated with initiating production at new factories or on new processes, also will continue to affect the amount of cost of sales and the variability of gross margin percentages in future quarters. From time to time the Company may forecast a range of gross margin percentages for the coming quarter. Actual results may differ. Longer term gross margin percentages are even more difficult to predict. To implement its strategy, Intel continues to build capacity to produce high-performance microprocessors and other products. The Company expects that capital spending will increase to approximately $4.1 billion in 1996. This spending plan is dependent upon delivery times of various machines and construction schedules for new facilities. Based on this forecast, depreciation for 1996 is expected to be approximately $1.9 billion, an increase of approximately $500 million from 1995. Most of this increased depreciation will be included in cost of sales and research and development spending. The industry in which Intel operates is characterized by very short product life cycles. Intel considers it imperative to maintain a strong research and development program to continue to succeed. Accordingly, research and development spending is expected to grow in 1996 to approximately $1.6 billion. The Company will also continue spending to promote its products and to increase the value of its product brands. Based on current forecasts, spending for marketing and general and administrative expenses is expected to increase in 1996. Intel believes that it has the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but future revenues, costs, margins, product mix and profits are all influenced by a number of factors, as discussed above. f:\12000 essays\business & economics (632)\Intel.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Intel Results of operations. Intel broke a record in net revenues in 1995, for the ninth consecutive year, rising by 41% from 1994 to 1995 and by 31% from 1993 to 1994. Higher volumes of the rapidly raising Pentium microprocessor family, partially offset by lower prices, and increased sales of related board-level products were responsible for most of the growth in revenues in 1994 and 1995. Revenues from the Intel486 microprocessor family declined substantially in 1995 due to a shift in market demand toward the Company's Pentium microprocessors and lower Intel486 microprocessor prices. Higher volumes of flash memory and chipset products also contributed toward the increase in revenues from 1993 to 1995 and also helped enable the successful Pentium microprocessor ramp. Sales of system platforms, embedded control products, and networking and communications products also grew. Cost of sales increased by 40% from 1994 to 1995 and by 71% from 1993 to 1994. The growth in cost of sales from 1993 to 1995 was driven by Pentium microprocessor and board-level unit volume growth, new factories coming into production, shifts in process and product mix, and in the fourth quarter of 1995, by costs associated with unusually high reserves related to inventories of certain purchased components. Gross margin for the fourth quarter of 1994 included the impact of a $475 million charge, primarily to cost of sales, to cover replacement costs, replacement material and an inventory record related to a divide problem in the floating point unit of the Pentium microprocessor. As a result of the above factors, the gross margin percentage was 52% in 1995 and 1994, compared to 63% in 1993. Quarterly unit shipments of the Pentium microprocessor family passed those of the Intel486 microprocessor family during the third quarter of 1995. The Company helped accelerate this transition by offering chipsets and motherboards to enable computer manufacturers to bring their products to market faster. Sales of the Pentium microprocessor family comprised a majority of the Company's revenues and a substantial majority of its gross margin during 1995. During 1995, the Intel486 microprocessor family represented a significant but rapidly declining portion of the Company's revenues and gross margins. The Intel486 microprocessor family comprised a majority of the Company's revenues and a substantial majority of its gross margin during 1993 and 1994. Research and development spending grew by 17% from 1994 to 1995, as the Company continued to invest in strategic programs, particularly for the internal development of microprocessor products and related manufacturing technology. Increased spending for marketing programs, including media merchandising and the Company's Intel Inside cooperative advertising program, drove the 27% increase in marketing, general and administrative expenses from 1994 to 1995. The $28 million decrease in interest expense from 1994 to 1995 was mainly due to lower average borrowing balances in addition to higher interest capitalization resulting from increased facility construction programs. The increase in interest expense from 1993 to 1994 was primarily due to higher average interest rates on borrowings, partially offset by higher interest capitalization. The Company utilizes investments and corresponding interest rate swaps to preserve principal while enhancing the yield on its investment portfolio without significantly increasing risk, and uses forward contracts, options and swaps to hedge currency, market and interest rate exposures. Gains and losses on these instruments are generally offset by those on the underlying hedged transactions; as a result, there was no material net impact on the Company's financial results during the 1993-1995 period. The Company's effective income tax rate increased to 36.8% in 1995 compared to 36.5% and 35.0% in 1994 and 1993, respectively. The increases in rate from 1993 to 1995 resulted from the fact that tax credits have not grown as rapidly as overall pretax income. Financial condition The Company's financial condition remains very strong. As of December 30, 1995, total cash and short- and long-term investments totaled $4.11 billion, down from $4.54 billion at December 31, 1994. Cash generated from operating activities rose to $4.03 billion in 1995, compared to $2.98 billion and $2.80 billion in 1994 and 1993, respectively. Investing activities consumed $2.69 billion in cash during 1995, compared to $2.90 billion during 1994 and $3.34 billion during 1993. Capital expenditures increased substantially in both 1994 and 1995, as the Company continued to invest in the property, plant and equipment needed for future business requirements, including manufacturing capacity. The Company expects to spend approximately $4.1 billion for capital additions in 1996 and had committed approximately $1.47 billion for the construction or purchase of property, plant and equipment as of December 30, 1995. Inventory levels, particularly raw materials and finished goods, increased significantly in 1995. This increase was primarily attributable to the increased level of business and, to a lesser extent, to an unusually low level of inventory at the end of 1994 because of a report of inventories in the fourth quarter of 1994 in connection with the divide problem in the floating point unit of the Pentium processor. The increase in accounts receivable in 1995 was mainly due to revenue growth, including the growth of non-domestic sales that have longer payment terms. During 1995, the Company experienced an increase in its concentration of credit risk due to increasing trade receivables from sales to manufacturers of microcomputer systems. The Company's five largest customers accounted for approximately 33% of net revenues for 1995. At December 30, 1995, these customers accounted for approximately 34% of net accounts receivable. A portion of the receivable balance from one of its five largest customers has been converted into a loan. The total amount receivable from this customer was approximately $400 million at December 30, 1995. The Company used $1.06 billion and $557 million for financing activities in 1995 and 1994, respectively, while $352 million was provided in 1993. The major financing application of cash in 1995 was for stock repurchases totaling $1.03 billion. Financing applications of cash in 1994 included stock repurchases of $658 million and the early retirement of the Company's 8 1/8% debt. Sources of financing in 1993 included the Company's public offering of the 1998 Step-Up Warrants, which resulted in proceeds of $287 million. As part of its authorized stock repurchase program, the Company had outstanding put warrants at the end of 1995, with the potential obligation to buy back 12 million shares of its Common Stock at an aggregate price of $725 million. The exercise price of these warrants ranges from $38 to $68 per share, with an average exercise price of $60 per share. Other sources of liquidity include combined credit lines and authorized commercial paper borrowings of $1.86 billion, $57 million of which was outstanding at December 30, 1995. The Company also maintains the ability to issue an aggregate of approximately $1.4 billion in debt, equity and other securities under Securities and Exchange Commission shelf registration statements. The Company believes that it has the financial resources needed to meet business requirements in the foreseeable future, including capital expenditures for the recently announced expansion of international manufacturing sites, working capital requirements, the potential put warrant obligation and the dividend program. Outlook. The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results may differ materially. Intel expects that the total number of personal computers using Intel's Pentium microprocessors and other semiconductor components sold worldwide will continue to grow in 1996. Intel has expanded manufacturing capacity over the last few years and continues to expand capacity to be able to meet the potential increase in demand. Intel's financial results are to a large extent dependent on this market segment. Revenue is also a function of the distribution of microprocessor speed and performance levels, which is difficult to forecast. Because of the large price difference between components for the highest and lowest performance computers, this distribution affects the average price Intel will realize and has a large impact on Intel's revenues. Intel's strategy has been, and continues to be, to introduce ever higher performance microprocessors and work with the software industry to develop compelling applications that can take advantage of this higher performance, thus driving demand toward the newer products. Capacity has been planned based on the assumed continued success of the Company's strategy. In line with this strategy, the Company has recently announced higher speed members of the Pentium Pro microprocessor family. If the market demand does not continue to grow and move rapidly toward higher performance products, revenue growth may be impacted, the manufacturing capacity installed might be under-utilized and capital spending may be slowed. The Company may continue to reduce microprocessor prices aggressively and systematically to bring its technology to market. The Company's gross margin percentage is a sensitive function of the product mix sold in any period. Because the percentage of motherboards that Intel's customers purchase changes with maturity of the product cycle, and motherboards generally have lower gross margin percentages than microprocessors, Intel's gross margin percentage varies depending on the mix of microprocessors and related motherboards within a product family. Various other factors, including unit volumes and costs and yield issues associated with initiating production at new factories or on new processes, also will continue to affect the amount of cost of sales and the variability of gross margin percentages in future quarters. From time to time the Company may forecast a range of gross margin percentages for the coming quarter. Actual results may differ. Longer term gross margin percentages are even more difficult to predict. To implement its strategy, Intel continues to build capacity to produce high- performance microprocessors and other products. The Company expects that capital spending will increase to approximately $4.1 billion in 1996. This spending plan is dependent upon delivery times of various machines and construction schedules for new facilities. Based on this forecast, depreciation for 1996 is expected to be approximately $1.9 billion, an increase of approximately $500 million from 1995. Most of this increased depreciation will be included in cost of sales and research and development spending. The industry in which Intel operates is characterized by very short product life cycles. Intel considers it imperative to maintain a strong research and development program to continue to succeed. Accordingly, research and development spending is expected to grow in 1996 to approximately $1.6 billion. The Company will also continue spending to promote its products and to increase the value of its product brands. Based on current forecasts, spending for marketing and general and administrative expenses is expected to increase in 1996. Intel believes that it has the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but future revenues, costs, margins, product mix and profits are all influenced by a number of factors, as discussed above. f:\12000 essays\business & economics (632)\International Business Ventures.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ International Business Ventures Measuring a potential business venture has many aspects which the international manager must be aware of in order to convey the correct information back to the decision makers. Being ignorant to any of the aspects can lead to a false representation of the project, and hence an uninformed decision being passed. In order for a business to survive it must grow. For growth to be optimal, management must first be able to identify the most attractive prospective leads. The country as a whole, specifically geography, government, and financial aspects must be looked at in order to yield the best possible picture of the market a company wishes to enter. Concentration should be placed on gathering reliable facts that are backed up by more than one source. It is to be hoped that after creating "a picture" of the market, management's analysis of the potential business venture and plan of action will be structured as to avoid losses and to find the most profitable scenarios. The success of the multinational corporation lies on the shoulders of it's management. International management and organization-design expert Henry Mintzenberg says every CEO has three essential duties: direct supervision, development of the organization's strategy, and management of the organization's boundary conditions. Top management's responsibility at and beyond the organization's boundaries is largely a communication responsibility; however, no commonly accepted model exists for decision, execution, and assessment of communication opportunities. Within even some of the largest and most venerable organizations, the process used is haphazard and inconsistent. The Wyatt Company's survey of communications professionals showed that just 58.1 percent agreed that their organization's communication objectives are linked to business objectives, and 83.3 percent reported that their organizations conduct no formal review of return on communications investment. CEOs must establish and reinforce an organization's image in public by viewing each target public as a client; by doing research, looking at trends, and talking to experts, a CEO focuses on selling what the client wants to buy.1 Finding a country to conduct business in can be a very easy task depending on if the organization's top management follows the advice of Mr. Mintzenberg. The way a company normally discovers where to conduct research is through leads on potential operations from outside sources. The selection of which leads to investigate becomes the difficult task. After sifting through the leads and finding the right ones to investigate management must formulate an international marketing plan. This further helps management in locating potential markets for their products. The first step is to use secondary research to find out what the sales potential is in a given market. Asking the questions of need, demand, and support gives one a starting point for research. If we were a company that sold pants we might want to ask the following questions. Is there a need for pants? Is it cold enough there to wear pants? Do people that demand the pants have money? These are the questions that one should ask of potential markets. Table 1-located at the end of the paper-shows the statistics that are needed for a general market picture. After gathering the information from the secondary research, the picture of a potential market becomes more evident. However, to make the picture clearer, one must conduct primary research. This research outlines the specifics of the potential market that directly pertain to the product. Robert Douglas' book, Penetrating the International Market, addresses the issue of locating potential markets in greater detail.2 [mg1] After finding a lead that contains profitable markets it is necessary to analyze the venture as a whole. The decisions of companies must be based on the facts of reliable sources on all investments. To gather the information needed for investment projects, management must organize a competent feasibility team. The members of this team should be comprised of employees of the company, this is so that the knowledge will stay within the company. If the resources are not available for an employee conducted study then outside consultants may be used, it may also be beneficial to use a combination of the two. The first step in conducting a study is to design it by using project objectives as the base. During the second step the team must be staffed with people that have the ability to solve problems in any situation. In the third step the team should be properly placed and instructed. In the fourth and final step the product of the feasibility study should be properly communicated to the decision-making management.3 Table 2-located at the end of the paper-shows a general timeline that a company follows through the progression of a feasibility study. The design of a feasibility study first assumes that a company possesses the skills and resources necessary to be competitive in the market under analysis. Management must know the limits of its operations abroad. The operating margin for the expense of establishing and starting operations abroad should be easily recoverable within a reasonable time period. The design should also include the management's goals, which comes down from the investors of the company. The goals of management should be to acquire specific knowledge of the partner, in a joint venture situation, as well as the financial aspects, and the business- environment. The currency of the host country along with the political situation, and the economy are finer points of detail that the study must cover when analyzing the business-environment.4 In a less formal sense the design of the study should cover relevant material so that when viewing the final report decision-makers will know with what they are becoming involved. Staffing a feasibility study is of major importance. Not only must the members be competent in communication and understanding, but the management selecting the team must be confident in the abilities of each individual. Communication in international affairs plays a great role for the fact that different languages spoken and unspoken are involved. The communication through a translator let alone person-to person communication can be vastly misconstrued.5 The individual's communication skills should be top-notch in order to be selected for the team. The members of the team should also be aware of the cultural factors that play a role in communication. Cultural interpretation and adaptation are a prerequisite to the comparative understanding of national and international management practices.6 For example, during contract negotiations with a Japanese company there are times of long pronounced silence on the part of the Japanese. They state that the negotiations, (will take a little longer,( and (this is quite difficult.( From the American perspective one would become frustrated at the slow pace of the negotiations. From the Japanese point of view the negotiations are proceeding quite well. Differences such as the one illustrated must be kept in mind at all times while communicating to any foreign counterpart.7 The placement of the team is dependent upon the profession of the individual. The accountants obviously speak and gather their information from the counterpart's accounting offices, and so on. Concerning placement, their daily schedule should allow time for team meetings. During the meetings, progress and the experiences of each member should be shared. This sharing of information can bring the team closer together and also allow the supervisor to measure progress and disseminate any changes in plans.8 As the importance of correct understanding of the translator and the foreign counterpart are during communication, the final communication of the study should be understood by the top decision-makers. When these four steps are taken while conducting a study the measure of feasibility will become more accurate. Understanding the importance of proper analyzation of ventures can be seen with the following example of the Patras Cement Company, SA.9 Yankee Cement Company Inc. of Denver Colorado needed to approve an expansion of it's subsidiary, Yankee International SA of Switzerland. The expansion was to build a 500,000- ton cement plant in conjunction with Titan Cement Co. SA of Athens. The plant would reach full production capacity within two years after the beginning of construction. Estimates by both Titan and Yankee showed that total capital needed for the Patras operation was US$15 million. The equipment manufacturer, F.L. Smidth of Copenhagen would finance 40 percent of capital expenditures, and another 20 percent would be financed through the National Investment Bank for Industrial Development, SA. The remaining 60 percent of Patras shares would be equity, of which 75 percent of shares would be owned by Yankee, and 25 percent of Patras shares would be owned by Titan. The international division manager of Yankee, Bob Walbecker, dealt with the Manourpoulos family, who were the owners of Titan. After establishing the connection with Titan, Mr. Walbecker continued to establish good rapport between his division and Titan. Ten days after preliminary negotiations between the two parties Mr. Walbecker was assembling a feasibility team in Denver, which was Yankees' domestic headquarters. The team consisted of a market analyst, an accountant, a geologist, a civil engineer, and Mr. Walbecker, who managed the study. For each American there was a Greek counterpart that translated and disclosed all information known to Titan. After four years from the start of the study Yankee expected that personnel within the subsidiary would be able to handle any further developments. Preparing for the in country phase of the study is perhaps more important than the actual time spent in the country conducting research. Before departing for Athens with his team, Mr. Walbecker prepared an outline for each day's activities for the entire study period. He also had the individuals make a contact list, which contained a bank, an accounting firm, a lawyer, an equipment supplier, the embassy, the ministry, as well as industry source phone and cable numbers. Another important point that was covered was that Mr. Walbecker made maps available to the team of the location, and showed documentary films discussing the political and economical situation of the country as well. Shots and medical supplies were also made available and taken with the team. Language was also a concern to the accuracy of the study. Based on this fact personnel were required to attend classes on the language even if they had some prior knowledge. After sufficiently preparing the personnel for the trip, Mr. Walbecker departed with the team for Athens. For the first four days the team was allowed to orient themselves to their surroundings. There are several reasons why the team was given this time to relax. First, they had to recover from the long flight. Physical and mental stamina were at a low-point when the team left the plane. Secondly, the change in surroundings has an effect on the emotions of a person. Third, it allows for the creation of a team from a group of individuals. A sense of camaraderie can be established during this free time. By the beginning of the week the team was eager and ready to start work on the study. Using the contact list and each individuals daily schedule the team was sent about to gather information. From each contact on the prepared list each member was expected to gain at least two additional contacts. While meeting with contacts the team was asked to differentiate between opinion and fact. This is because misinformation gathered by inexperienced people is very abundant. Fortunately for Walbecker the team he had assembled was able to distinguish between relevant and irrelevant material. During the study the team was also required to take notes every day. They were also encouraged to go outside of the metropolitan area in order to gain a better feeling of the country and it's people. Upon return of the team from Athens, Walbecker concluded the following: the rate of return would be 16 percent, the partners had good integrity and intentions, the political situation was not extremely stable, the ownership option was good for other projects if the Patras investment was slow, and there were no technical or market developments evident to slow down progress in construction. From these findings Walbecker had to persuade the Board to agree to the venture. He concentrated on the soundness of the venture, the reliability of the partners, and the advantages of Greece. Using market analyses and forecasts, an audit of Titan's financial affairs, the geological report, plant layout and consolidated capital estimates, and a business-environment report, which covered the political situation, the economy, partner evaluation, and an outlook on the country's currency-the Drachma-Mr. Walbecker was prepared to start finalizing the report. Concluding the report were the financial details on the US$4.5 million equity needed by Yankee. Before giving a formalized presentation to the Board and other important associates, Mr. Walbecker had informal discussions over breakfast with the three top executives at Yankee about the project. The reason for this was not only to give the executives a briefing about the information that was gathered, but also to get an idea as to result of the vote on the project. After the formal presentation, the Board was given one month to decide on accepting or rejecting the project. At the conclusion of one month's time from the formal presentation the Board's vote revealed the acceptance of the project. This example should have revealed the importance of the site selection, gathering, and transmission processes used in conducting a feasibility study. The main point of conducting a feasibility study is to find the intricate details which are necessary to make the right choice for expansion. The example presented above is just one particular situation. In trying to maintain brevity, the paper could not possibly include all of the suggested actions that management should take in every situation. Management must be able to adjust and plan a course of action to find the details of their particular situation that are essentials to making a viable decision. As an overall idea in dealing with foreign counterparts one should be objective in judgment and abundant in knowledge of the person's/people's backgrounds. Knowledge is a valuable resource when expanding operations. Conducting venture analysis is one way in which a company can perceive how the investment will contribute to future operations. Table 1: List of statistics that portray the market situation. Essential Market Statistics: 1. Population by language, religion, ethnic groups 2. Population by age, income, major occupations 3. Population by regions and centers-with growth rates 4. Number of households and rate of creation 5. Percentage of households with car, radio, refrigerator, TV set, washing machine, running water, electricity. 6. Per capita disposable income (per capita national income less taxes and savings) broken down by region 7. Personal and household consumption pattern; changes over ten years. 8. Government purchases of goods and services, broken down by product groupings and buying agency. 9. Type, number, and purchasing of state enterprises 10. Imports, and exports, by product and by origin or destination 11. Statistics on market for your product (internal production plus imports less exports) * Source: Penetrating the International Market, p.27-8. Bibliography 1 McGrath, John J. Sell Your CEO! Vital Speeches of the Day. vol. 61-14. May 1, 1995: 444-7. 2 Stuart, Robert Douglas. Penetrating the International Market. American Management Association. New York 1965: 25-39. 3 Haner, F.T. Multinational Management. Merrill. Columbus, Ohio 1973: 43-58. 4 Ewing, John S. and Meissner, Frank. International Business Management; Readings and Cases. Wadsworth. Belmont, California. 1964: 146-70. 5 Robinson, Richard D. International Management. Holt, Reinhart and Winston. New York. 1967: 71-85. 6 Morden, Tony. International Culture and Management. Management Decision. vol. 33-2. 1995:16-21. 7 Harris, Philip R. and Moran, Robert T. Managing Cultural Differences. Gulf. Houston, Texas. 1979: 12-24. 8 Fayerweather, John. International Business Management; A Conceptual Framework. McGraw-Hill. New York. 1969: 51-64. 9 Haner, F.T. Multinational Management. Merill. Columbus, Ohio. 1973: 60-64. [mg1] f:\12000 essays\business & economics (632)\International Economic Policies In The 1990s.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The book reviewed in this essay, International Economic Policy in the 1990s, was to focus on some of the most recent concerns about international trade. Its author, William R. cline, seems to have some good insights about the topic as it seems that he researched, taught and lectured about this field of study. The author tried to be as objective as possible and tried not to be biased by referring to the different opinions about most of the issues he handled. However, as it is really impossible to be totally unbiased, some biases were to exist due to their necessity to form an argument. Furthermore, other biases can be detected through his writings by remarking the aspects of international trade that he examined, versus those he gave very small or no weight at all. There are many issues related to international trade that one can study, however as it is usually the case, this book was to examine only some of them. The author, in some parts of his book, was to concentrate on the question of adjusting the US trade deficit against with Japan. He was to show the American point of view that argues that Japanese terms of trade are unfair (104). Also he was to refer to the North American Free Trade Agreement and reflect how it is beneficial for Mexico (as first developing country to join the US and Canada) which could not gain support from Europe to develop (as Europe was to concentrate on its own further development and unity at the moment), and to how the joining of Mexico was to benefit the US (and Canada) as it would open a large market for the US as well as cheap labor (106). A good point made by him was to show the prospects of incorporating more Latin American countries in NAFTA (as this book was published in 1994) while saying that the Latin American market "remains too small to compensate US exports for any broader loss of markets in Europe, Japan, and elsewhere "(112). This conclusion might have led him to have a closer look outside the US (and NAFTA) circle. In a chapter of his book, he was to look at the "economic future of Europe". He was to argue that an implication of the monetary union may be less need for European countries to hold large reserves of dollars, as there will be "reserves pooling". This may lead to an excess supply of dollars, and consequently a "downward pressure" on the dollar (203). Unfortunately, this may be the case, meaning that many economies will be affected. Another notice was that the future of Europe is depending heavily on what will happen to the "volcano" next to it, which is the former Soviet Union. This as the author thought, should make Europe assist the former Soviet Union in order to assure that Europe will not be affected by problems such as economic immigrants (204). At his conclusion, he was to mention that Europe could play a similar role to the world trade in the future as the one played by the US after the Second World War. He was to look at the Uruguay Round and have some interesting remarks about it. There are two of them that seemed to me as interesting. The first one states that major achievements in the Uruguay Round need not to be by further liberalization of trade, but by the very fact that such a round reassured the already given promise not to return to protectionism (231). As for instance Japan was fearing "new protective barriers that might be otherwise wise set up against Japan" if the round was not held (69). The second one was to show how the areas in which the round was to seek further liberalization were divide into two; categories: the first include services, intellectual property, and investment, while the second included agriculture and textiles. He remarked that developed countries agreed to liberalize the second category as to encourage developing countries to liberalize the first category (68). Another topic, that he was to view, was the effect on the relation between global trade and its effects on the environment. He was optimistic about the future of environment with further trade growth. He saw that economic growth may be linked to more pollution problems, but this might be the case at first, as the more the countries get more developed, the more they take better "environment friendly" measures. Furthermore, he was to argue that there are "two types of environmental damage: local reversible and global irreversible" (210). He thought that no tough measures were needed to be taken against countries engaged in the first kind as it did no harm to the rest of the world and as it could be "repaired later. While he encouraged taking tough measures against the later. He added that in case that a country may led to environmental damage, only then economic sanctions or other measures could be legitimate if peaceful means failed (211). His overall handling of the environmental issue was well put except for some details, as he gave no clear enough guides to differentiate between what is local reversible and what is global irreversible. The author was to handle some major issues concerning global trade and its prospects. However, as it seems to me it was to give little concern to some major issues. For example, he failed to look at the North/South relations, as it seems that the fact that the gap between the rich and the poor increased. Also, poverty, huge increase in the third world's population, and the lack of water in the future may lead to problems to the world as a whole and so serious steps must be taken to contain a forthcoming disaster. Furthermore, the author should have taken a serious look at the South East Asian countries (the Asian Tigers) as it seems that they might become a real economic power (possibly with Japanese supervision) and this will have enormous consequences on global trade. China, with its huge power and huge potential economy and market, should have got his attention as it might be a major economic power in the near future. Overall, the author seemed to try to give various opinions, and rarely mark his analysis as the "right" one. However, his neglecting of some major aspects of international trades (as the economic powers, and the North/South relation mentioned above) did not necessarily harm the book. This was due to the good analysis he gave to the specific issues that he covered, and his attempt to be objective A review of: Cline, William R. International Economic Policy in the 1990s. Cambridge: The MIT Press, 1994. f:\12000 essays\business & economics (632)\International Economic Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ International Economic Policy: Book Review The book reviewed in this essay, International Economic Policy in the 1990s, was to focus on some of the most recent concerns about international trade. Its author, William R. cline, seems to have some good insights about the topic as it seems that he researched, taught and lectured about this field of study. The author tried to be as objective as possible and tried not to be biased by referring to the different opinions about most of the issues he handled. However, as it is really impossible to be totally unbiased, some biases were to exist due to their necessity to form an argument. Furthermore, other biases can be detected through his writings by remarking the aspects of international trade that he examined, versus those he gave very small or no weight at all. There are many issues related to international trade that one can study, however as it is usually the case, this book was to examine only some of them. The author, in some parts of his book, was to concentrate on the question of adjusting the US trade deficit against with Japan. He was to show the American point of view that argues that Japanese terms of trade are unfair (104). Also he was to refer to the North American Free Trade Agreement and reflect how it is beneficial for Mexico (as first developing country to join the US and Canada) which could not gain support from Europe to develop (as Europe was to concentrate on its own further development and unity at the moment), and to how the joining of Mexico was to benefit the US (and Canada) as it would open a large market for the US as well as cheap labor (106). A good point made by him was to show the prospects of incorporating more Latin American countries in NAFTA (as this book was published in 1994) while saying that the Latin American market "remains too small to compensate US exports for any broader loss of markets in Europe, Japan, and elsewhere "(112). This conclusion might have led him to have a closer look outside the US (and NAFTA) circle. In a chapter of his book, he was to look at the "economic future of Europe". He was to argue that an implication of the monetary union may be less need for European countries to hold large reserves of dollars, as there will be "reserves pooling". This may lead to an excess supply of dollars, and consequently a "downward pressure" on the dollar (203). Unfortunately, this may be the case, meaning that many economies will be affected. Another notice was that the future of Europe is depending heavily on what will happen to the "volcano" next to it, which is the former Soviet Union. This as the author thought, should make Europe assist the former Soviet Union in order to assure that Europe will not be affected by problems such as economic immigrants (204). At his conclusion, he was to mention that Europe could play a similar role to the world trade in the future as the one played by the US after the Second World War. He was to look at the Uruguay Round and have some interesting remarks about it. There are two of them that seemed to me as interesting. The first one states that major achievements in the Uruguay Round need not to be by further liberalization of trade, but by the very fact that such a round reassured the already given promise not to return to protectionism (231). As for instance Japan was fearing "new protective barriers that might be otherwise wise set up against Japan" if the round was not held (69). The second one was to show how the areas in which the round was to seek further liberalization were divide into two; categories: the first include services, intellectual property, and investment, while the second included agriculture and textiles. He remarked that developed countries agreed to liberalize the second category as to encourage developing countries to liberalize the first category (68). Another topic, that he was to view, was the effect on the relation between global trade and its effects on the environment. He was optimistic about the future of environment with further trade growth. He saw that economic growth may be linked to more pollution problems, but this might be the case at first, as the more the countries get more developed, the more they take better "environment friendly" measures. Furthermore, he was to argue that there are "two types of environmental damage: local reversible and global irreversible" (210). He thought that no tough measures were needed to be taken against countries engaged in the first kind as it did no harm to the rest of the world and as it could be "repaired later. While he encouraged taking tough measures against the later. He added that in case that a country may led to environmental damage, only then economic sanctions or other measures could be legitimate if peaceful means failed (211). His overall handling of the environmental issue was well put except for some details, as he gave no clear enough guides to differentiate between what is local reversible and what is global irreversible. The author was to handle some major issues concerning global trade and its prospects. However, as it seems to me it was to give little concern to some major issues. For example, he failed to look at the North/South relations, as it seems that the fact that the gap between the rich and the poor increased. Also, poverty, huge increase in the third world's population, and the lack of water in the future may lead to problems to the world as a whole and so serious steps must be taken to contain a forthcoming disaster. Furthermore, the author should have taken a serious look at the South East Asian countries (the Asian Tigers) as it seems that they might become a real economic power (possibly with Japanese supervision) and this will have enormous consequences on global trade. China, with its huge power and huge potential economy and market, should have got his attention as it might be a major economic power in the near future. Overall, the author seemed to try to give various opinions, and rarely mark his analysis as the "right" one. However, his neglecting of some major aspects of international trades (as the economic powers, and the North/South relation mentioned above) did not necessarily harm the book. This was due to the good analysis he gave to the specific issues that he covered, and his attempt to be objective A review of: Cline, William R. International Economic Policy in the 1990s. Cambridge: The MIT Press, 1994. f:\12000 essays\business & economics (632)\International Marketing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ International Marketing A firm's international marketing program must generally be modified and adapted to foreign markets. This international marketing program uses strategies to accomplish its marketing goals. Within each foreign nation, the firm is likely to find a combination of marketing environment and target markets that are different from those of its own home country and other foreign countries. It is important that in international marketing, product, pricing, distribution and promotional strategies be adapted accordingly. In order for an international firm to function properly, cultural, social, economic, and legal forces within the country must be clearly understood. The task of International marketing is more difficult and risky than expected by many firms. One of the most controlling factors of international marketing is management. It is very important for managers to recognize the differences as well as similarities in buyer behavior. Many mistakes can occur if managers fail to realize that buyers differ from country to country. It is the international differences in buyer behavior, rather than similarities, which cause problems in successful international marketing. An international marketing manager is a manager responsible for facilitating the exchange of products between the organization and its customers or clients. Sometimes an international marketing manager will find difficulties in completing the exchange of products. Many surprises in international business are undesirable human mistakes. An international corporation must fully understand the foreign environment before pursuing business matters. Problems constantly crop up and many times have unexpected results. Sometimes these unexpected results are unavoidable. Other times they are avoidable. To be sure those avoidable situations do not occur, international marketing managers must be aware of cultural differences. Cultural differences take place among most nations of the world. Differences in culture are one of the most significant factors in an international company. All nationalities posses unique characteristics, which are unknown to many foreigners. Many of the top international businesses are unaware of these cultural differences. It is very important to understand these cultures in order to market a product successfully. As an example, different nationalities have different beliefs on how business matters should take place. Where some countries prefer to work with a deadline other countries can take this as being offensive. Many countries feel it is an insult to be asked to work under a set time period. A country may feel that a deadline is threatening and may feel backed into a corner. On the other hand, other countries try to expedite matters by setting deadlines. To be effective in a foreign market it is necessary to understand the local customs. Knowing what to do in a foreign country is as important as knowing what not to do. Failure to understand local customs can lead to serious misunderstandings between business people. The simple rejection of a cup of coffee can lead to total confusion. The decline of an invite is sometimes considered an affront. To avoid making blunders, a person must be able to discern the difference between what is acceptable behavior and what is not acceptable behavior. Violations of a local custom can be insulting, and can cause uncomfortable situations. To be a successful manager of international marketing, one must be able to discern the differences as to what must and must not be done. It is almost impossible to attain complete knowledge and understanding of a foreign culture. As established, culture plays an important role in the drama of international marketing. Of all the cultural aspects, communication may be the most critical. It is certain that communication has been involved in a number of cultural confusion. Good communication linkages must be set between a company and its customers, suppliers, its employees, and the governments of the countries where it performs business activities. Poor communication can obviously cause various difficulties. One source of difficulty among starting companies is that of effective communication with potential buyers. The problem is that there are many possible communication barriers. Sometimes messages can be translated incorrectly, regulations overlooked, and economic differences can be ignored. Other times when the message does arrive, its ineffectiveness can cause it to be of no value. Every now and then a buyer will receive the message, but to the companies disappointment, the message was sent incorrect. It is normal in multinational businesses to send and receive messages on a regular basis. Many well-known people have incapacitated public speech introductions by using inaccurate titles and names. Not all communication problems are verbal. Some serious problems have occurred as a result of non-verbal communication. Non-verbal communication exist in numerous forms. Sometimes a person's appearance can convey a stronger message than intended. Untidy attire, for example, can be more offensive in some nations than in others. The local people often are willing to overlook most of the mistakes made by tourist. On the other hand, locals are less tolerant of the errors of business people. It is very important to be able to interpret the different means of communication in international marketing. In America, we sometimes take for granted the display of products on the market. However, in other nations such product array and selection do not always exist. It is important to understand that even if local customers can afford a certain product, they may not always want it. If by chance are interested, it may be only if it is substantially modified to fit their local preferences and taste. These adaptations exist in the form of product and package. The alteration of a material product is sometimes required to match the product to local taste and conditions. Adaptation of the package is often needed to attract customers to the product. Many times adaptation is also used to maintain a product's righteousness in a unique environment. A firm is occasionally forced to modify both the product and the package to create an appropriate product for the new market. Some products may require more technical modification than others may. Measurement systems vary between countries, and often components need to be adjusted to cleave to local standards. The need for product adaptation has existed for many years. In 1857 England's East India Company possibly lost control of India because it failed to modify a product it provided. A product may be well acceptable in markets, but may not sell if housed in an inappropriate package. Packages promote the product and they protect it. International packaging must be able to withstand the journey. Some countries have exported their products only to witness the return of crushed and half-empty containers. Packaging can sometimes bring embarrassment to a company. Medical containers made in the U.S. drew unwanted attention because they carried the instructions "Take off top and push in bottom." These messages was harmless here in America, but were sexual and humorous connotations to the British. Often the choice of package and product is difficult. Sometimes companies have failed to sell their products overseas because of the packaging of a product. Each firm must determine the area most appropriate for its product. Determining the region where it is most appropriate to market a product is not an easy task. Wherever the location of these places, they must be found because market testing is essential in international marketing. Many countries maintain regulations concerning their products and packages. Countries have expectations that foreign marketers will adhere to the rules. Failure to abide by the rules of a country can prove to be very costly. The legal and political atmosphere varies across national borders. Different countries have different legal policies. There are laws to which a marketer must abide by when marketing internationally. Some countries enact laws to protect consumers or to preserve a competitive atmosphere in the marketplace. Since many countries maintain regulations concerning their products and packages, the wording or color of a package can create difficulties. In some countries giving gifts to authorities is a standard business procedure. In other countries, such as the United States, these gifts would be considered as bribes or payoffs and are strictly illegal. If an error occurs it can be costly, but with the appropriate alterations it can be corrected. The General Agreement on Tariffs and Trade (GATT) reforms imposes on national governments the obligation to sacrifice local and state laws that protect customers, and the environment. Plans were developed in the mid-1980s to broaden GATT's mandate by extending its police powers to the areas of foreign investment and trade in services. If such reforms are enacted, GATT will have the authority to remove barriers to foreign investment and to override or knock out local laws for protecting a nation's insurance, brokerage, an banking businesses. Removing local laws can definitely make the international work place easier, when it comes to the legal aspect. In the field of marketing, a product promotion can be the most difficult. Timing is the most critical element in the launching of a new product. Most firms understand this and also perceive that varied peoples hold different conceptions of time. Since some nationalities are more conscious of time factors than others, extra time must often be allocated to guarantee that everything is completed as schedule. An international marketer can adopt several strategies regarding its product and promotion. Marketing a product internationally through a single promotional message worldwide can be effective for products that have standardized appeal for the majority of the people. Most times this could be the least expensive strategy. When it is hard to translate promotional messages or to adapt an overall promotion to local customs, companies market one product. This promotion is designed to market one product but vary its promotions. Some products are well known among the nation and need little advertising. The advertisement can be on American influence located in China. If a theme works exceedingly well in one country, then it naturally becomes very tempting for a firm to want to use it in another country. There is a big risk involved in doing this, because admirable themes are culturally oriented. For example, consider the very popular Marlboro advertisements. The Marlboro man projects a strong masculine image in America and in Europe. In Hong Kong, attempts to use this advertisement were unsuccessful because the urban people did not identify with horseback riding in the countryside. Several firms have tried to use old, reliable promotional methods in countries where they simply do not work. Billboard advertisements, for example, are perfectly legal in most parts of the Middle East, but it does not mean one should use them. In some cases companies have been know to advertise in the wrong language. Such mistakes can cause major problems. It is often the promotional strategy that creates mistakes. The perception of the product characteristics plays an important role in the international marketing strategy. One must realize that the importance's of a certain product traits vary from country to country. Multinational corporations, therefore, must consider varying promotional tactics. Adapting the product but using the same promotional mix is a strategy used when a product will not appeal to different local tastes. For example an American cheese company may need to use different ingredients when making cream cheese for the markets of different countries. The most expensive strategy is adapting to both the product and its promotion. This strategy may be required when neither the existing product nor its promotion would appeal to foreign markets. In some cases, the international firm may develop a completely new product for a foreign market. It can be very costly to create a new product line for a foreign market. The distribution strategy used sometimes depends on the firm's international organization. It does not matter if it is licensing, exporting, or manufacturing in the host country. International marketers use existing distribution channels for the most part. Distribution channels link the producer of a product to the consumer or industrial user. This international marketing channel is sequence of marketing organizations from nation to nation that directs the flow of products. Most industrial products use shorter channels. One of the most basic levels of international marketing is licensing. A license is a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation. This grant may be in the form of a direct sale of rights or be limited to a certain period of time. International licensing can be tied to joint ventures between the parent and the subsidiary. For example, an American candy manufacturer might enter into a licensing arrangement with a British firm. The British producer would be entitled to use the American firm's candy formula, and packaging to advertise the candy as though it were its own. The advantage of licensing is that it provides a simple method of expanding into a foreign market with no investment. However, if the licensee does not maintain the licensor's product standards, the product's image may be damaged. Another disadvantage is that a licensing arrangement does not usually provide the original producer with any foreign marketing experience. Technology licensing is a conceivable alternative to the exportation of finished products through intermediaries or to the different types of capital involvement, which could be chosen as an international strategy. Many companies use intercompany licenses to protect the intellectual property of the parent company that is held by the subsidiary, and to allow for payments by the subsidiary to the parent of certain license fees. Licensing is also dependent upon product characteristics. Products subject to rapid technological change are also good licensing candidates. For most large companies licensing is designed as a means to enter secondary markets. The potential licensor must look at legal and financial considerations. Many times the decision to license has been made since the company has no other alternative because the government restricts direct investment through controls on foreign ownership or because it restricts the development of marketing network by a number of tariff barriers. Licensing allows the licensor to enter into foreign markets with a low financial risk. The decision to license is a complex one. Many licensing relationships do not succeed because the parties fail to understand each other's agenda. The creation of joint ventures sometimes prevents all the problems encountered by a company when going overseas from occurring. With the combined expertise and efforts of local and foreign firms, many problems will be eliminated. A joint venture is a partnership that is formed to achieve a specific goal or to operate for a specific period of time. International corporations may enter into joint ventures. Most joint ventures were formed to share the extremely high cost of exploring for offshore products. A company should create a joint venture only after giving it some consideration. Many problems occur when company's fail to thoroughly investigate potential partners. Licensing decisions are as difficult to analyze as those decisions involving the creation of a joint venture. Failure to make the correct decisions at the right time can result in the loss of substantial long-range business prospects and profits. A firm can also manufacture its products in its home country and export them for sale in foreign markets. Like licensing, exporting can be a relatively low-risk method of entering foreign markets. Unlike licensing, it is not an easy task. Exporting opens up several levels of involvement to the exporting firm. On the basic level, the exporting firm may sill its products to an export/import merchant. This merchant assumes all the risks of product ownership, distribution, and sale. It may purchase the good's in the producer's home country and assume responsibility for exporting the product. The exporting firm may also ship its products to an export/import agent. The export/import agent arranges the sale of the products of foreign intermediaries for a commission or fee. The agent is an independent firm that sells and may perform other marketing functions for the exporter. The exporter retains title to the products during shipment and until they are sold. An exporting firm may also establish its own sales offices in foreign countries. These installations are international extensions of the firm's distribution system. The exporting firm maintains control over sales, and it gains both experience and knowledge of foreign markets. Eventually, the firm may develop its own sales force to operate in conjunction with foreign sales offices or branches. Pricing is a very important factor in international business. The pricing system more common in international marketing is cost-based pricing. Cost-based pricing is not as popular in domestic marketing as it is in international marketing. Using this simple method of pricing, the seller first determines the total cost of producing or purchasing one unit of the product. The seller then adds the amount to cover additional cost and profit. The cost added is called the markup. The total cost of the markup is the selling price of the product. Many smaller firms calculate the markup as a percentage of their total cost. Markup pricing is easy to apply, and it is used by most businesses. However, it has two major flaws. The first is the difficulty of determining an effective markup percentage. If this percentages too costly, the product may be overpriced for its market. On the other hand, if the markup percentage is too low, the seller is "giving away" profit that could have earned simply by assigning a higher price. In other words, the markup percentage needs to be set to account for the working of the market, and that is very difficult to do. The second problem with markup pricing is that it separates pricing from other business functions. The product is priced after production quantities are decided upon, after cost are incurred, and almost without regard for the market or the marketing mix. To be effective, the various business functions should be integrated. The different types of pricing can vary in international marketing. Geographic pricing strategies deal with delivery cost. The seller may assume all delivery cost, no matter where the buyer is located. The seller may share transportation cost with the buyer to pay the greatest part of delivery cost. When a foreign product enters a country, there is a tax added to the cost. Import duties are designed to protect specific domestic industries by raising the prices of competing imported products. The importer first pays most of the import duties. After the importer pays the price it is then passed on to the customers through higher prices. These higher prices are usually less competitive. The cost of shipping and complying with other various regulations can also add to the pricing method. Prices are also effected by exchange rates, especially by changes in these rates. Financial limitations are normally imposed through exchange rates. It is required to convert local currency to foreign currency at government-imposed exchange rates. Because of the added cost and uncertainties in the exchange rate, prices tend to be higher in foreign markets than in domestic markets. An important economic consideration is the distribution of income. The distribution of income, especially discretionary income, can widely vary from nation to nation. Discretionary income is of particular interest to marketers because consumers have more input in the spending of it. Income creates purchasing power. International marketers tend to concentrate on higher income countries as either personal, disposable, or discretionary. For obvious reasons, marketers tend to concentrate on higher income countries. Some producers have found that their products are more likely to sell in countries with low income. As in domestic marketing, the determining factor is how well the product satisfies its target market. International marketing encompasses all business activities that involve exchanges across national boundaries. A firm may enter the international market for many reasons. Whatever the reason international marketing can provide and efficient way of entering the market. A firm's marketing program must be adapted to foreign markets to account for differences in the business environment and target markets form nation to nation. The marketing mix may require the modification of cultural, social, economic, and legal differences. Foreign marketing requires the understanding of various additional costs, which tend to increase the prices of exported goods. The marketing program of an international company must adapt to the necessities of a foreign market. The strategies it uses to accomplish a firm's marketing goal should be the main priority of the marketing program. False assumptions frequently cause expensive mistakes in the market. The importance of international marketing f:\12000 essays\business & economics (632)\Internationalization of Accounting Standards for Consolidatio.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Internationalization of Accounting Standards for Consolidation Japan: A Case Study The purpose of this paper will be to examine problems with internationalization of accounting standards for consolidations on methods from an international perspective - specifically, in the US and Japan. This is an especially timely topic as standardization of financial markets is a prerequisite to international free trade. Given the trends toward greater globalization, the motivations of companies for seeking a uniform accounting system are strong. If companies have to prepare their accounts according to several different sets of rules, in order to communicate with investors in the various capital markets in which they operate or for other national purposes, they incur a considerable cost penalty and feel that money is wasted. This significantly limits global opportunities for multinational businesses. Thus, it is important to understand what the differences are between accounting standards, why they exist, and what problems they pose. It is worth noting that no one nation has a set of accounting rules which appears to have such clear merits that they deserve adoption by the whole world. No one country can claim to have a uniquely correct set of rules. The United States has the longest history of standard setting. It has the largest standard setting organization which is characterized by high standards of professionalism. But, even the rules of the United States exhibit compromises between different interests of a kind which could have reasonably been decided otherwise. Furthermore, no unanimity exists among U.S. accountants about the merits of the precise details of the compromises that have been struck. For example, the recent discussion memorandum on consolidation outlines three different methods which are GAAP in the US (Beckman, 1995). No one nation has a clear right, on the basis of existing achievements, to be regarded as predominant in accounting. A great deal more work is needed by accountants from different countries before we can reach the point of having a well founded basis for uniformity. People who study differences among systems of accounting rules are inclined to group countries into two categories. On the one hand, there are countries where business finance is provided more by loans than by equity capital, where accounting rules are dominated by taxation considerations and where legal systems customarily incorporate codes with detailed rules for matters such as accounting. The effect of taxation systems can be particularly pervasive. Often, the taxation system effectively offers tax breaks for businesses by allowing generous measurement of expenses and modest measurement of revenues on condition that these measurements are used for general reporting purposes. Companies have strong incentives to take advantage of these taxation concessions as real cash is involved. But the penalty is a jack of full transparency for investors. Major countries in this category include France, Germany and Japan( AAA, 1995). The other group of countries is one in which equity sources of finance are more important, accounting measurements are not dominated by taxation considerations as tax breaks can be enjoyed independent of the way result are reported to shareholders, and common law systems prevail. These countries generally have some private sector system for setting accounting standards, often with a general statutory framework. The role of equity finance is important because capital market pressures are then brought to bear most strongly to improve the quality of information available. The absence of detailed codes leaves flexibility to respond to pressures. The United States, the United Kingdom, Australia and the Netherlands are examples of countries in this category (AAA, 1995). US consolidation policy begins with a definition of control. It is based on the simple legal concept that the majority shareholder controls a company and that even without a majority, a stockholder can exert significant influence. Thus, consolidated financial statements reflect the financial position and results of the firm as well as all subsidiaries upon which the firm may exert this influence. Furthermore, the entity about which the consolidated financial statements are prepared is not an entity in legal form. It is an abstraction created solely for the purpose of these statements and does not have an ongoing set of books as a normal corporation would (Beams, 1992). The details of consolidation in the US are based on one of two theories as outlined in the Discussion Memorandum. The economic unit theory considers the consolidated group to be one economic entity for financial accounting purposes. Thus, the full fair market value of the subsidiary's net assets at the date of acquisition as well as the minority interest in those assets are included in the consolidated financial statements. The parent company theory holds that only the parent company's shareholders' ownership interest should be reflected. There are many more detailed controversies in US accounting for consolidations, but this illustrates how even the US, with the most developed set of accounting standards in the world can have disputes about the most fundamental aspects of consolidation (Beckman, 1995). However, because the US has been the first to conceptualize accounting for consolidations, our form has come to be accepted by the international financial community (Lowe, 1990). While this may be good for us because our method of consolidation is consistent with our culture, it does have some negative effects on the substance of reporting in other countries with incompatible cultures. Japan is an excellent example of how the international acceptance of accounting standards can actually lower the value of the information provided if the standard is incompatible with the culture of the country. The Japanese began to use consolidated financial statements at least half a century later than many of the other industrialized countries of the world. Responding to external pressure they reluctantly adopted the accounting practices applicable to consolidated reporting employed in the United States and have made a determined effort to adapt them to their own business environment (McKinnon, 1984). The results, however, have been terrible. While US GAAP for preparing consolidated financial statements recognizes groups based upon the legal relationships arising from the majority ownership of voting shares, Japanese corporate groups tend to form from substantive relationships of a non-legal nature. The nature of Japan's corporate group associations reflect that nation's cultural and historical interpersonal and intergroup relationships (Lamb, 1993). These corporate related entities deal with each other much in the same manner as we in the United States expect of parent and subsidiary company groups. It is because of this kind of special relationship that we in the U.S. insist upon consolidated reporting. But because Japanese groups are often not connected through legal ownership they are not consolidated. Instead entities with weak relationships are consolidated because they are tied together legally (Lowe, 1990). Consequently, American users of Japanese consolidated statements assume they are analyzing the financial position and results of operations of a group of companies operating as an economic entity. Actually they may be analyzing something quite irrelevant because the statements do not represent the substance of the actual business relationships. This obviously impairs the ability of readers to make appropriate judgments from these statements. The Japanese form of business grouping is called the keiretsu. This term indicates a grouping or alignment when stockholder control is formally lacking. It enables companies to share risk and allocate investment to strategic industries (Lamb, 1993). Lowe outlines the characteristics of a keiretsu: (1) Members are all "independent" major firms in their own oligopolists industries. (2) The keiretsu is a confederation of firms excluding competition but aiming at representing all lines within the confederation (3) Service firms such as banking, trading, insurance and shipping companies from within the keiretsu perform special functions for industrial member firms to the complete exclusion of outsiders. (4) Between the firms there are many cross ties. Examples are borrowing from the same bank, mutual shareholdings, interlocking directors, using the same trademark, or selling their products through the same trading company. (5) The presidents of each member firm meet together once a month and discuss matters of mutual interest to the member corporations. These are backed up with meeting of directors and of upper level managers. (6) Interfirm business within the group has a high priority. (7) Holding companies at the top are prohibited so the relationship between the firms in these groups is based on cooperation not control as would be the case in the U.S. Each of these groups is centered around a bank and includes a trading company, a real estate company, an insurance company, and numerous other companies each performing a special function useful to the group. For example, the Mitsui Group includes the Mitsui Bank, Mitsui and Co. (Trading Co.), The Mitsui Real Estate Company, The Tashio Marine Insurance Company, The Mitsui Life Insurance Co., the Mitsui Chemical Co., et al. Each of these major companies has from a few to hundreds of affiliated firms many with small and others with large intercompany stockholdings. Each also holds a small fraction of the outstanding voting shares of the other "parent-like" firms in the group. This is not done for control purposes but to create good relationships and stimulate the feeling of interdependence. It is difficult to determine the size of these corporate groups. They exist as a matter of fact but not as a matter of record. Sales, net income, or asset information is not published on a group basis (McKinnon, 1984). Each company may own up to 10 percent of each other's voting shares but none has voting control over any of the others. Human ties within the group insure the cohesiveness through intercompany meetings, interlocking directorates, and transfers of personnel. It is difficult for the typical American to understand the forces which bind together on a stable and permanent basis a group of corporations of the type described (Lowe, 1990). If legal control by a parent is not present an American would say a stable group does net exist. However, this is perfectly rational for a person reared in the Japanese culture and tradition. The vital factors in the maintenance of the keiretsu are the generally recognized characteristics of group consciousness and interdependence. Japanese consolidated statements patterned after American standards have survived only because foreign users have been largely unaware of their inappropriate focus and innocent misrepresentation. No financial statements yet developed are capable of dealing with the typical Japanese sphere of influence concept of economic interdependence (McKinnon, 1984). Parent-company only financial statements do alert readers to the fact that they are seeing only a segment of the financial position and results of operations of the total economic entity. Consolidated statements prepared in such circumstances have the serious weakness of tending to mislead users into believing they are getting a full picture of the group when obviously they are not. Many of the most important firms affecting the future fortunes of the group are not even represented in these statements. Cultural and historical influences provide significant contrasts between corporate group associations and corporate behavior in Japan and the United States. Evidence of these contrasts in Japan are found in the stable ownership of a majority of the shares, the decentralized cross-holding pattern of share ownership, the predominance of small shareholdings, and the importance of non-share ownership criteria as a basis for forming corporate groups. The corporate group associations tend to be maintained by the cultural characteristic of group consciousness with a strong orientation toward interdependence. The notion of control through direct or indirect majority share ownership and the presence of a holding company or a dominant parent company are foreign concepts to the typical Japanese executive. Share ownership is generally regarded as of minor significance in the forming and maintaining of corporate groups. Consequently, American practices of consolidation tend to group Japanese corporations in a manner contrary to their normal functioning. Such practices tend to break up the complex and dynamic reality of the natural groups into American-type corporate groups attempting to portray an American perspective to something uniquely Japanese. Japan's experience with consolidated statements pinpoints an unexpected problem associated with the process of harmonizing accounting standard. All nations have their own peculiar cultural features. It is expected that each country will make an effort to harmonize its own financial reporting methods with international reporting standards in order to make its reports more useful to foreign users. But it will do so only as fast as it is able to reconcile these standards with its culture. In contrast to this, Japan adopted harmonizing consolidated reporting standards without reconciling them with its culture and it attempts to apply these standards meticulously. Consequently, its unique business organizational structure often makes its consolidated financial report less rather than more useful to readers. Bibliography American Accounting Association. "German Accounting Principles: An Institutionalized Framework" Accounting Horizons. September, 1995. Pp. 92-99 Beams, Floyd A. Advanced Accounting. Englewood Cliffs, NJ: Prentice-Hall 1992 Beckman, Judy K. "Economic Unit Approach to Consolidated Financial Statements". Journal of Accounting Literature. Vol.14, 1995. Pp. 1-23 Lamb, Charles W. Principles of Marketing. Cincinnati: South-Western Publishing. 1993 Lowe, Howard. "Shortcomings of Japanese Consolidated Financial Statements". Accounting Horizons. September, 1990. Pp. 1-9. McKinnon, Jill. "Application of Anglo-American Principles of Consolidation to Corporate Financial Disclosure in Japan". Abacus. Vol.20, No. 1, 1984, pp. 18-19 f:\12000 essays\business & economics (632)\Internationalization of Accounting Standards for Consolidation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Internationalization of Accounting Standards for Consolidation - Japan: A Case Study The purpose of this paper will be to examine problems with internationalization of accounting standards for consolidations on methods from an international perspective - specifically, in the US and Japan. This is an especially timely topic as standardization of financial markets is a prerequisite to international free trade. Given the trends toward greater globalization, the motivations of companies for seeking a uniform accounting system are strong. If companies have to prepare their accounts according to several different sets of rules, in order to communicate with investors in the various capital markets in which they operate or for other national purposes, they incur a considerable cost penalty and feel that money is wasted. This significantly limits global opportunities for multinational businesses. Thus, it is important to understand what the differences are between accounting standards, why they exist, and what problems they pose. It is worth noting that no one nation has a set of accounting rules which appears to have such clear merits that they deserve adoption by the whole world. No one country can claim to have a uniquely correct set of rules. The United States has the longest history of standard setting. It has the largest standard setting organization which is characterized by high standards of professionalism. But, even the rules of the United States exhibit compromises between different interests of a kind which could have reasonably been decided otherwise. Furthermore, no unanimity exists among U.S. accountants about the merits of the precise details of the compromises that have been struck. For example, the recent discussion memorandum on consolidation outlines three different methods which are GAAP in the US (Beckman, 1995). No one nation has a clear right, on the basis of existing achievements, to be regarded as predominant in accounting. A great deal more work is needed by accountants from different countries before we can reach the point of having a well founded basis for uniformity. People who study differences among systems of accounting rules are inclined to group countries into two categories. On the one hand, there are countries where business finance is provided more by loans than by equity capital, where accounting rules are dominated by taxation considerations and where legal systems customarily incorporate codes with detailed rules for matters such as accounting. The effect of taxation systems can be particularly pervasive. Often, the taxation system effectively offers tax breaks for businesses by allowing generous measurement of expenses and modest measurement of revenues on condition that these measurements are used for general reporting purposes. Companies have strong incentives to take advantage of these taxation concessions as real cash is involved. But the penalty is a jack of full transparency for investors. Major countries in this category include France, Germany and Japan( AAA, 1995). The other group of countries is one in which equity sources of finance are more important, accounting measurements are not dominated by taxation considerations as tax breaks can be enjoyed independent of the way result are reported to shareholders, and common law systems prevail. These countries generally have some private sector system for setting accounting standards, often with a general statutory framework. The role of equity finance is important because capital market pressures are then brought to bear most strongly to improve the quality of information available. The absence of detailed codes leaves flexibility to respond to pressures. The United States, the United Kingdom, Australia and the Netherlands are examples of countries in this category (AAA, 1995). US consolidation policy begins with a definition of control. It is based on the simple legal concept that the majority shareholder controls a company and that even without a majority, a stockholder can exert significant influence. Thus, consolidated financial statements reflect the financial position and results of the firm as well as all subsidiaries upon which the firm may exert this influence. Furthermore, the entity about which the consolidated financial statements are prepared is not an entity in legal form. It is an abstraction created solely for the purpose of these statements and does not have an ongoing set of books as a normal corporation would (Beams, 1992). The details of consolidation in the US are based on one of two theories as outlined in the Discussion Memorandum. The economic unit theory considers the consolidated group to be one economic entity for financial accounting purposes. Thus, the full fair market value of the subsidiary's net assets at the date of acquisition as well as the minority interest in those assets are included in the consolidated financial statements. The parent company theory holds that only the parent company's shareholders' ownership interest should be reflected. There are many more detailed controversies in US accounting for consolidations, but this illustrates how even the US, with the most developed set of accounting standards in the world can have disputes about the most fundamental aspects of consolidation (Beckman, 1995). However, because the US has been the first to conceptualize accounting for consolidations, our form has come to be accepted by the international financial community (Lowe, 1990). While this may be good for us because our method of consolidation is consistent with our culture, it does have some negative effects on the substance of reporting in other countries with incompatible cultures. Japan is an excellent example of how the international acceptance of accounting standards can actually lower the value of the information provided if the standard is incompatible with the culture of the country. The Japanese began to use consolidated financial statements at least half a century later than many of the other industrialized countries of the world. Responding to external pressure they reluctantly adopted the accounting practices applicable to consolidated reporting employed in the United States and have made a determined effort to adapt them to their own business environment (McKinnon, 1984). The results, however, have been terrible. While US GAAP for preparing consolidated financial statements recognizes groups based upon the legal relationships arising from the majority ownership of voting shares, Japanese corporate groups tend to form from substantive relationships of a non-legal nature. The nature of Japan's corporate group associations reflect that nation's cultural and historical interpersonal and intergroup relationships (Lamb, 1993). These corporate related entities deal with each other much in the same manner as we in the United States expect of parent and subsidiary company groups. It is because of this kind of special relationship that we in the U.S. insist upon consolidated reporting. But because Japanese groups are often not connected through legal ownership they are not consolidated. Instead entities with weak relationships are consolidated because they are tied together legally (Lowe, 1990). Consequently, American users of Japanese consolidated statements assume they are analyzing the financial position and results of operations of a group of companies operating as an economic entity. Actually they may be analyzing something quite irrelevant because the statements do not represent the substance of the actual business relationships. This obviously impairs the ability of readers to make appropriate judgments from these statements. The Japanese form of business grouping is called the keiretsu. This term indicates a grouping or alignment when stockholder control is formally lacking. It enables companies to share risk and allocate investment to strategic industries (Lamb, 1993). Lowe outlines the characteristics of a keiretsu: (1) Members are all "independent" major firms in their own oligopolists industries. (2) The keiretsu is a confederation of firms excluding competition but aiming at representing all lines within the confederation (3) Service firms such as banking, trading, insurance and shipping companies from within the keiretsu perform special functions for industrial member firms to the complete exclusion of outsiders. (4) Between the firms there are many cross ties. Examples are borrowing from the same bank, mutual shareholdings, interlocking directors, using the same trademark, or selling their products through the same trading company. (5) The presidents of each member firm meet together once a month and discuss matters of mutual interest to the member corporations. These are backed up with meeting of directors and of upper level managers. (6) Interfirm business within the group has a high priority. (7) Holding companies at the top are prohibited so the relationship between the firms in these groups is based on cooperation not control as would be the case in the U.S. Each of these groups is centered around a bank and includes a trading company, a real estate company, an insurance company, and numerous other companies each performing a special function useful to the group. For example, the Mitsui Group includes the Mitsui Bank, Mitsui and Co. (Trading Co.), The Mitsui Real Estate Company, The Tashio Marine Insurance Company, The Mitsui Life Insurance Co., the Mitsui Chemical Co., et al. Each of these major companies has from a few to hundreds of affiliated firms many with small and others with large intercompany stockholdings. Each also holds a small fraction of the outstanding voting shares of the other "parent-like" firms in the group. This is not done for control purposes but to create good relationships and stimulate the feeling of interdependence. It is difficult to determine the size of these corporate groups. They exist as a matter of fact but not as a matter of record. Sales, net income, or asset information is not published on a group basis (McKinnon, 1984). Each company may own up to 10 percent of each other's voting shares but none has voting control over any of the others. Human ties within the group insure the cohesiveness through intercompany meetings, interlocking directorates, and transfers of personnel. It is difficult for the typical American to understand the forces which bind together on a stable and permanent basis a group of corporations of the type described (Lowe, 1990). If legal control by a parent is not present an American would say a stable group does net exist. However, this is perfectly rational for a person reared in the Japanese culture and tradition. The vital factors in the maintenance of the keiretsu are the generally recognized characteristics of group consciousness and interdependence. Japanese consolidated statements patterned after American standards have survived only because foreign users have been largely unaware of their inappropriate focus and innocent misrepresentation. No financial statements yet developed are capable of dealing with the typical Japanese sphere of influence concept of economic interdependence (McKinnon, 1984). Parent-company only financial statements do alert readers to the fact that they are seeing only a segment of the financial position and results of operations of the total economic entity. Consolidated statements prepared in such circumstances have the serious weakness of tending to mislead users into believing they are getting a full picture of the group when obviously they are not. Many of the most important firms affecting the future fortunes of the group are not even represented in these statements. Cultural and historical influences provide significant contrasts between corporate group associations and corporate behavior in Japan and the United States. Evidence of these contrasts in Japan are found in the stable ownership of a majority of the shares, the decentralized cross-holding pattern of share ownership, the predominance of small shareholdings, and the importance of non- share ownership criteria as a basis for forming corporate groups. The corporate group associations tend to be maintained by the cultural characteristic of group consciousness with a strong orientation toward interdependence. The notion of control through direct or indirect majority share ownership and the presence of a holding company or a dominant parent company are foreign concepts to the typical Japanese executive. Share ownership is generally regarded as of minor significance in the forming and maintaining of corporate groups. Consequently, American practices of consolidation tend to group Japanese corporations in a manner co ntrary to their normal functioning. Such practices tend to break up the complex and dynamic reality of the natural groups into American-type corporate groups attempting to portray an American perspective to something uniquely Japanese. Japan's experience with consolidated statements pinpoints an unexpected problem associated with the process of harmonizing accounting standard. All nations have their own peculiar cultural features. It is expected that each country will make an effort to harmonize its own financial reporting methods with international reporting standards in order to make its reports more useful to foreign users. But it will do so only as fast as it is able to reconcile these standards with its culture. In contrast to this, Japan adopted harmonizing consolidated reporting standards without reconciling them with its culture and it attempts to apply these standards meticulously. Consequently, its unique business organizational structure often makes its consolidated financial report less rather than more useful to readers. Bibliography American Accounting Association. "German Accounting Principles: An Institutionalized Framework" Accounting Horizons. September, 1995. Pp. 92-99 Beams, Floyd A. Advanced Accounting. Englewood Cliffs, NJ: Prentice-Hall 1992 Beckman, Judy K. "Economic Unit Approach to Consolidated Financial Statements". Journal of Accounting Literature. Vol.14, 1995. Pp. 1-23 Lamb, Charles W. Principles of Marketing. Cincinnati: South-Western Publishing. 1993 Lowe, Howard. "Shortcomings of Japanese Consolidated Financial Statements". Accounting Horizons. September, 1990. Pp. 1-9. McKinnon, Jill. "Application of Anglo-American Principles of Consolidation to Corporate Financial Disclosure in Japan". Abacus. Vol.20, No. 1, 1984, pp. 18-19 f:\12000 essays\business & economics (632)\interview report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Interview to Dow Jones: Q. What is the biggest challenge facing Dow Jones in the next few years? A. To continue investing in new products and services that will strengthen our franchises, increase our competitiveness and produce new revenue flows in the future, while at the same time being careful in setting priorities, prudent in controlling costs, and committed to producing strong annual profits. Q. Who are the major competitors of Dow Jones? A. In the broadest sense, any quality products or services that compete for the time and attention of busy businesspeople compete with Dow Jones. More specifically, we have some franchises such as The Wall Street Journal that are dominant in their fields. In other cases, we face particular competitors; Dow Jones Telerate, for example, competes with Reuters in offering real-time financial information around the world. We believe, however, that Dow Jones is a unique company in a number of important respects. Our businesses are balanced roughly 50-50 between print and electronic information. More than 40% of our operating profit is now earned outside the U.S. We are a focused company. We are not a media conglomerate, nor an entertainment company. We stick to our business of business, providing information essential to an ever expanding and increasingly interconnected worldwide business community. Q. What is the strategy behind your television operations? A. Dow Jones aims to provide business news in any form customers want it. When we looked at our operations a few years ago, television was the missing means of delivery for our business news. We began by pioneering with Asia's first business channel, Asia Business News, in late 1993 and followed with Europe's first business channel, European Business News, in early 1995. Both have achieved significant distribution success and viewer acceptance. Both also take advantage of Dow Jones' existing news flows and news talent in those regions. When we launch WBIS+ in New York later this year, we will begin daily business programming in the U.S., thus adding the third component of a global business network. The ITT sports programming will help to draw even larger audiences. Q. What is the profile of a typical Wall Street Journal reader? A. The typical reader of the Journal spends 49 minutes every business day with the newspaper. He or she might be a senior executive of a large corporation or the entrepreneur-owner of a smaller company. The reader is more likely to live in California than New York, has a median age of 46 and a median household income of $117,900. Interestingly, most of the customers registering for the Journal's Internet service are not current Journal readers. Thus, while the Journal's brand name and reputation clearly help to attract customers, the Internet offers untapped markets for us. Q. What is the Journal's editorial philosophy? A. The Journal's news pages, like those of all our other publications, simply seek to report the news and explain its significance as accurately, fairly and honestly as humanly possible. The Journal's editorial pages, which function independently from the news pages, propound a consistent philosophy that can be summed up as "free people, free markets." Our editorial pages thus stand for open markets, free enterprise, free trade and the free movement of people. These pages oppose government or other encroachments on political or economic freedoms. The Contract With America that set much of Washington's agenda in 1995 includes many tenets of this Journal philosophy, but the Journal editorial pages are no mouthpiece for any political party. Rather, the editorial staff views its role as that of the conscience of a populist political revolution. Q. What will be the impact of bank consolidations in the U.S. in 1995 and perhaps 1996 on Dow Jones Telerate revenue? A. At any given time, consolidations or contractions in some segment of the world financial community can temporarily slow revenue growth in some part of Dow Jones. At the same time, we view U.S. bank consolidations as a downward blip in what is a generally growing worldwide financial industry. Additionally, of course, Dow Jones' total array of products serves a business community far broader than simply banks or other financial institutions. Q. What are the competitive pressures on Dow Jones Telerate's business? A. While Dow Jones Telerate faces worthy competition in a fast-paced business marketplace, it successfully continues to grow. We invest in content, as we broaden our array of data and useful new applications. We are also expanding into new markets throughout the world from Latin America to India. These moves add up to increased revenue and profits for Dow Jones Telerate. Q. How do you plan to produce revenue and profit from your Internet products? A. Even though Internet information generally has been thought of as free, Dow Jones business news and information, because it is exclusive and essential, has value for customers regardless of the medium. Therefore, we are confident that we will create a successful formula for subscription pricing on the Internet. Additionally, we are confident that Dow Jones advertisers will pay fair value to participate in our Internet services. Money & Investing Update, our first Internet entry, already has more than a dozen paid advertisers. Q. Will rising newsprint prices continue to affect Dow Jones' business in 1996? A. We anticipate some modest further increase in newsprint costs this year but not of the magnitude of the roughly 50% increase of 1995. Dow Jones' equity investments in two newsprint mills in Canada and Virginia partially help offset the impact of those price increases. More important, the fact that some 50% of Dow Jones revenue is from electronic services limits the effect of newsprint price increases. In total, newsprint comprises just 8% of Dow Jones' costs. f:\12000 essays\business & economics (632)\Interview to Dow Jones.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Interview to Dow Jones Q. What is the biggest challenge facing Dow Jones in the next few years? A. To continue investing in new products and services that will strengthen our franchises, increase our competitiveness and produce new revenue flows in the future, while at the same time being careful in setting priorities, prudent in controlling costs, and committed to producing strong annual profits. Q. Who are the major competitors of Dow Jones? A. In the broadest sense, any quality products or services that compete for the time and attention of busy businesspeople compete with Dow Jones. More specifically, we have some franchises such as The Wall Street Journal that are dominant in their fields. In other cases, we face particular competitors; Dow Jones Telerate, for example, competes with Reuters in offering real-time financial information around the world. We believe, however, that Dow Jones is a unique company in a number of important respects. Our businesses are balanced roughly 50-50 between print and electronic information. More than 40% of our operating profit is now earned outside the U.S. We are a focused company. We are not a media conglomerate, nor an entertainment company. We stick to our business of business, providing information essential to an ever expanding and increasingly interconnected worldwide business community. Q. What is the strategy behind your television operations? A. Dow Jones aims to provide business news in any form customers want it. When we looked at our operations a few years ago, television was the missing means of delivery for our business news. We began by pioneering with Asia's first business channel, Asia Business News, in late 1993 and followed with Europe's first business channel, European Business News, in early 1995. Both have achieved significant distribution success and viewer acceptance. Both also take advantage of Dow Jones' existing news flows and news talent in those regions. When we launch WBIS+ in New York later this year, we will begin daily business programming in the U.S., thus adding the third component of a global business network. The ITT sports programming will help to draw even larger audiences. Q. What is the profile of a typical Wall Street Journal reader? A. The typical reader of the Journal spends 49 minutes every business day with the newspaper. He or she might be a senior executive of a large corporation or the entrepreneur-owner of a smaller company. The reader is more likely to live in California than New York, has a median age of 46 and a median household income of $117,900. Interestingly, most of the customers registering for the Journal's Internet service are not current Journal readers. Thus, while the Journal's brand name and reputation clearly help to attract customers, the Internet offers untapped markets for us. Q. What is the Journal's editorial philosophy? A. The Journal's news pages, like those of all our other publications, simply seek to report the news and explain its significance as accurately, fairly and honestly as humanly possible. The Journal's editorial pages, which function independently from the news pages, propound a consistent philosophy that can be summed up as "free people, free markets." Our editorial pages thus stand for open markets, free enterprise, free trade and the free movement of people. These pages oppose government or other encroachments on political or economic freedoms. The Contract With America that set much of Washington's agenda in 1995 includes many tenets of this Journal philosophy, but the Journal editorial pages are no mouthpiece for any political party. Rather, the editorial staff views its role as that of the conscience of a populist political revolution. Q. What will be the impact of bank consolidations in the U.S. in 1995 and perhaps 1996 on Dow Jones Telerate revenue? A. At any given time, consolidations or contractions in some segment of the world financial community can temporarily slow revenue growth in some part of Dow Jones. At the same time, we view U.S. bank consolidations as a downward blip in what is a generally growing worldwide financial industry. Additionally, of course, Dow Jones' total array of products serves a business community far broader than simply banks or other financial institutions. Q. What are the competitive pressures on Dow Jones Telerate's business? A. While Dow Jones Telerate faces worthy competition in a fast-paced business marketplace, it successfully continues to grow. We invest in content, as we broaden our array of data and useful new applications. We are also expanding into new markets throughout the world from Latin America to India. These moves add up to increased revenue and profits for Dow Jones Telerate. Q. How do you plan to produce revenue and profit from your Internet products? A. Even though Internet information generally has been thought of as free, Dow Jones business news and information, because it is exclusive and essential, has value for customers regardless of the medium. Therefore, we are confident that we will create a successful formula for subscription pricing on the Internet. Additionally, we are confident that Dow Jones advertisers will pay fair value to participate in our Internet services. Money & Investing Update, our first Internet entry, already has more than a dozen paid advertisers. Q. Will rising newsprint prices continue to affect Dow Jones' business in 1996? A. We anticipate some modest further increase in newsprint costs this year but not of the magnitude of the roughly 50% increase of 1995. Dow Jones' equity investments in two newsprint mills in Canada and Virginia partially help offset the impact of those price increases. More important, the fact that some 50% of Dow Jones revenue is from electronic services limits the effect of newsprint price increases. In total, newsprint comprises just 8% of Dow Jones' costs. f:\12000 essays\business & economics (632)\INTRODUCTION For those who believed that Brazil.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2243 INTRODUCTION "For those who believed that Brazil would forever be the country of the future, I have a piece of bad news. The future has finally arrived." For years, the largest and most industrialized nation in Latin America has been known as the country of tomorrow. That slogan may soon be out of date. Under the guidance of former finance minister and current president, Fernando Henrique Cardoso, this tenth largest economy in the world, once known for its high tariffs and even higher inflation, has entered a period of steady growth, the fruit of a newly-stable political and commercial environment. In combination with the upturn in its economy, Brazil's demonstrated preference for foreign products and strong direct investment presence bode well for expanded sales of equipment and services in future years. EMERGING SECTORS Access to Brazilian markets in most sectors is generally favorable, and competition and participation characterize most markets by foreign firms through imports, local production and joint ventures. Many sectors such as healthcare, the environment, transportation, telecommunications and financial services, have been growing at a phenomenal rate and opportunities to further expand trade and investment are highly encouraged. Healthcare Technology Brazil is an excellent market for U.S. manufacturers of health technology products and services. In the medical device sector, the products that should have the best long-term prospects in Brazil are medical imagining equipment, electro-diagnostic apparatus and technologically advanced disposable medical products. In the pharmaceutical sector, long-term prospects for over-the-counter drugs and vitamins are excellent because of the high cost of private medical assistance and a growing trend towards home treatment. In the healthcare services sector, the best market opportunities include the following areas:  hospital management and consulting services  training for allied health-care personnel  hospital renovation  health maintenance organizations In order to provide more efficient health care, the Brazilian government has begun to reform the country's entire medical care delivery system. It has decentralized the system, giving more autonomy to the states and cities in the planning and controlling of local health care programs. Overall, improvements in Brazils public healthcare sector, coupled with its trade liberalization measures, should improve the prospects for U.S. technology firms in the Brazilian market. Environmental Technology The Brazilian market for environmental technology had an estimated value of over $1 billion in 1994. However, the National Department of Sanitation and Environmental Equipment estimates that the total investments needed to equip Brazil with necessary pollution control supplies and services amounts to over $19 billion. The Brazilian market-size, alone, makes it worth consideration: its population is the largest in Latin America. Additionally, Brazil's diversified industrial and agricultural base has proved a ready market for a wide array of environmental goods and services. Also significant are recent and anticipated moves towards trade liberalization. Brazilian tariffs affecting pollution control equipment have been lowered from 25 to 20 percent while non-tariff barriers such as quotas and voluntary export restraints have, in a large part, been eliminated. Finally, a growing environmental awareness, including stricter fines for non-compliance with environmental standards, is catalyzing demand for foreign environmental goods and services. Transportation Brazil is the tenth largest car producer in the world. Brazil's success in automobile sales is due to a government decree which virtually eliminated the federal industrial products tax on small "popular models" such as the GM Corsa, Volkswagon Golf and Fiat Uno. The decree includes commitments by the automakers to pass on the entire tax reduction to consumers and to expand production and employment. These incentives apply only to specific locally assembled vehicles meeting strict local content requirements. Another aspect of the automotive industry is auto parts. Brazil's current market-opening policy is to promote the sector in order to boost investment in manufacturing processes, training and research. However, trade sources have reported that some manufacturers are unable to invest and therefore achieve the necessary international quality and price standards. Thus, motor vehicle manufacturers are expected to increase purchases of automotive parts manufactured abroad. This condition represents a huge long-term trade opportunity for American automotive parts suppliers. The amount of imported U.S. equipment is expected to increase an average of ten percent per year during the next few years because of lower transportation costs (in comparison to Europe and Asia) and the relatively high acceptance level that American automotive parts have historically had among Brazilian customers. Other important elements influencing sales of American parts in Brazil include:  American products have been used in Brazil since the birth of their motor vehicle industry.  The U.S. export potential is great as high-tech, high-quality U.S. parts will increase in demand as the market grows at its high estimated rate.  U.S. competitive stance will improve in Brazil as demand for parts increases and tariffs decrease. The most important purchasing factors are price and quality. Nevertheless, Brazilian customers favor products that have already been successful in the international market. Products that have been standard approved and have good brand recognition are readily acceptable to potential buyers in Brazil. Telecommunications Equipment and Services Brazil's telecommunications market has enormous potential. In order for the country to modernize its governmental and economic structures, it must upgrade its communications services. Further liberalization of the telecommunications sector should create a tremendous market for U.S. products and services. A constitutional amendment, which would allow greater private company participation in the telecommunications sector and eliminate their monopoly company, Telebras, is currently under review by the Brazilian congress. U.S. companies are also encouraged because the import tariffs on communication projects are falling. Liberalization of Brazil's telecommunications sector will also contribute to growth in computer hardware, software and information services, as communications costs drop and technology is upgraded. Financial Services Brazil has a large and sophisticated financial sector that provides a wide range of services, but despite their impressive credentials, they are in need of financial insurance providers. They are an especially large potential market for the U.S. Relatively recent data illustrates this market potential- Brazil's 1994 premiums per capita of $34 and premiums/GDP ratio of 1.8 percent are low compared to other key Latin countries. About 105 companies and a government-controlled monopoly re-insurer currently serve the Brazilian market. A number of foreign insurers, including U.S. insurance providers, have ownership interests in Brazilian insurance companies. Nevertheless, access to and treatment in Brazil's insurance market is relatively restricted. Foreign insurers' participation is limited to 50 percent of the capital and about one-third of the voting stock of a Brazilian insurance company. However, in a move that could benefit U.S. and other foreign insurers, Brazil recently agreed to slowly open portions of its market to private reinsurers in November 1995. Although Brazilian restrictions currently tend to limit commercial and investment opportunities for U.S. insurance firms, the prospect of growth oriented economic stabilization and global trade and investment liberalization could likely enhance future opportunities for U.S. companies in the Brazilian financial sector. INVESTING IN BRAZIL The 1988 Constitution restricts foreign investment in several sectors: petroleum and gas, telecommunications, mining, power generation, fishing, transport, media, construction and professional services. In the case of petroleum and telecommunications, state-owned monopolies dominate the market. In other sectors, investment is restricted so that individuals residing in Brazil hold the majority of voting capital and the actual decision-making power. The distinction in Brazil's constitution between national and foreign capital constitutes a denial of national treatment to foreign investors. However, President Cardoso has introduced legislation to the Brazilian congress, which, if approved, will significantly liberalize Brazil's investment regime. He proposed constitutional amendments that would eliminate the distinction between national and foreign capital and allow greater foreign participation in the telecommunications and petroleum/gas sectors. Paulo Tarso Flecha de Lima, Brazil's Ambassador to the U.S. stated, "The election of President Fernando Henrique Cardoso was a watershed in Brazilian political history. It marked an end of a decade long process of democratic consolidation and opened up a new horizon for Brazil's future in which a pluralistic and free society will be able to determine its hard won destiny, building a brighter future for all its members." We conclude that the old pattern of development followed until the 1990's is rapidly being replaced by a new model based on a competitive integration into the international economy and modernization through gains in productivity. Competitiveness in both internal and external markets is now the name of the game. There is a widespread consensus within Brazil that this is the only solution through which they can resume economic growth. MARKET ACCESS Before a foreign country invests in Brazil, certain information is crucial. Recent data on tariffs and import barriers, government practices and competition between other foreign nations who are also interested in this investment, is vital. The next three sections describe these specific economic characteristics of Brazil. Tariffs and Import Barriers Most of Brazil's import duties range from 0 to 20 percent; however, a few items are as high as 70 percent. The average duty is approximately 14 percent. Duties are assessed on the cost, insurance and freight (c.i.f.) value of the import. Under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), Brazil agreed to bind tariffs on 100 percent of its industrial lines at a ceiling of 35 percent, with subceiling in certain sectors. The internal Brazilian taxes of consequence to U.S. exporters are the Industrial Products Tax (IPI) and the Merchandise Circulation Tax (ICM). The IPI is a federal tax levied on most domestic and imported manufactured products. The ICM is a state government value-added tax applicable to both imports and domestic products. Some sectors of the economy such as construction services, mining, electrical energy, liquid fuels and locally produced machinery and equipment are exempt from the ICM tax. For the most part, Brazilian exports are exempt. Although deemed temporary measures to address Brazil's trade deficit, they have raised concerns that Brazil may be stepping back from its trade liberalization program. Government Practices Brazilian government acquisition policies apply to purchases by government entities and by parastatal companies. Price is usually the determining factor in selecting suppliers, and most government procurements are opened to international competition either through direct bidding or imports. International bidding is allowed for most procurements with related international development bank funding. Generally speaking, it is difficult for foreign firms to operate in the public sector in Brazil unless work is performed in association with a local firm. To be considered Brazilian, a firm must have majority Brazilian Capital participation and decision making authority- "operational control." A Brazilian State enterprise is permitted to services to a foreign firm if domestic expertise is not available for that specific task. A foreign firm may only bid for government contracts to provide technical services when no qualified Brazilian firm exists. A U.S. supplier may find that including local purchases of Brazilian goods and services within its bid, or developing a significant sub-contract association with the Brazilian firm, will improve the chances for success. Similarly, a financing proposal that includes credit for the purchase of local goods and services for the same project will be more attractive than one that ignores local business. The U.S. Embassy in Brazil advises U. S. exporters interested in supplying goods and services for Brazilian Government projects that advance descriptions of the suppliers' capabilities can often be influential in gaining a sale. These early proposals can be effective even before the exact terms of an investment plan are defined or the design of project specifications are completed. Such a proposal should influence presentations. The Competition The governments of key U.S. economic rivals are re-doubling their efforts to increase market share in Brazil. Widespread interest in emerging countries is prompted in part by reductions in trade barriers, recent economic reforms and improving growth prospects. Moreover, rival governments want to diversify their export promotion efforts away from a heavy East Asia orientation and do not want to concede the rapidly growing Western Hemisphere market to the U.S. Some specific countries to be aware of before investing in Brazil are:  France - Paris emphasizes government lobbying, favorable financing and the use of its embassies and consulates in Brazil to push for sales.  Germany - Germans use trade missions and trade shows as key tactics for targeting the Brazilian market.  United Kingdom - London relies on high-level visits, preferential financing trade promotion activities and lobbying to boost sales.  Italy - Rome uses trade missions and lobbying in Brazil.  Canada - Ottowa's strategy emphasizes high-level visits and trade shows for business in Brazil.  Taiwan - Taipei uses governmental agreements and high-level visits and trade shows to promote trade in Brazil. CONCLUSIONS AND RECOMMENDATIONS In light of the new Cardoso Administration's commitment to pursue further economic reform and stabilization, the outlook for building a stronger U.S.-Brazil commercial partnership has never been more favorable. Although market access barriers, including government monopolies in certain sectors and restrictive government acquisition policies, continue to pose problems for the U.S. firms in Brazil, this country is determined to do everything they can to assist the U.S. private sector in reaping the tremendous commercial opportunities that Brazil offers, while at the same time, helping to promote Brazil's economic development. Export investment in Brazil is definitely recommended for the future. f:\12000 essays\business & economics (632)\introduction to business 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Business plays a major role within our society. It is a creative and competitive activity that continuously contributes to the shaping of our society. By satisfying the needs and wants people cannot satisfy themselves, businesses improve the quality of life for people and create a higher standard of living. It is a way for individuals to provide goods and services to consumers, and at the same time, produce a profit for themselves. Businesses are not only important because they provide goods and services for consumers, but they also improve the economy and increase jobs for people within society which is an additional fact producing a higher standard of living. To measure our societies standard of living, we must look to our "Gross National Product", which is the complete measure of our nations output. Unfortunately, inflation is a major problem in our nation which often reduces the Gross National Product. Inflation occurs when the goods become too high within society and spending decreases. A central function within our economic system is satisfying the needs of the consumers with the use of limited supplies. The purpose of a business is to combine resources such as land, labor, and capital in a way that will make them more valuable. Operating in a political and economic climate that supports individual rights, American business has as its guiding principle the right to private ownership and profit. The amount of goods produced depends upon the number of resources available for use. This idea is commonly known as "Supply and Demand". Businesses must attempt to reach an equilibrium between the two which will directly impact the price of the products produced. If something is heavily demanded and at the same time, it's resources are limited, the price of the product will rise. This idea of course works both ways. The easier it is to produce something, the cheaper it will be. All economic systems begin with the same resources including land, labor, capital and technology. These resources may be limited at any given time, varying within the world at large, from country to country. This business cycle explains how business fluctuates from high to low prosperity, recession, depression and recovery over time. The major challenges faced by our nation today are the Federal Budget Deficit, international trade deficit, the Decline of Smokestack America, and the conservation of energy. The Federal Budget Deficit occurs when our expenditures are greater then our revenues. International trade deficits occur when a nation imports more then it exports. The Decline of Smokestack America is when there is a change from an industrial to a post-industrial economy. Finally, the conservation of energy is so that there are a sufficient amount of natural resources necessary to produce goods. General economic growth or stagnation also has an important influence on business within our society. Many factors can affect it's condition, such as war, new inventions and technology, political assassinations, the discovery of physical and natural resources, labor negotiations, government action, and many others. When the economy is strong and the demand is high, businesses can prosper. Regardless of how great the economy may become, businesses still must compete with other firms for scarce raw materials and labor. A businesses environment creates many opportunities as well as problems for prospering businesses. The environment determines what a business can do by shaping and channeling its development. Businesses function within an environment by allowing entrepreneurs to raise capital and create profits freely. The supply of money available within a business as well as the economic stability through times of growth and recession have strong effects on businesses. Not only is the physical environment, including natural resources, pollution and energy as discussed previously, important, but many other aspects within the environment influence business. A business must adapt and overcome consumerism and ecology, and it has a social responsibility to do so. Cultures surrounding businesses also play a major role. A business must adapt to a changing society with age, lifestyle, culture and location. When a business learns to adapt to these changes, it will be profitable for both the business and consumers. Economic systems can be classified into three categories. These include capitalism, socialism and communism. Pure capitalism is an unrestrained freedom to buy, sell and compete. Private enterprises allow entrepreneurs to run businesses without central government control and can operate within a free market. Capitalism is a system of true private enterprise. Some aspects of capitalism are free choice, private ownership, private profit and free competition. The only drawback of this type of system is that a company can operate with no competition thereby creating a monopoly unfavorable for consumers. Socialism, on the other hand, is a system where the production and distribution of industries are owned and operated by the government. Officials directly manage some or all of the extraction of raw materials, manufacturing, communication and transportation. This system is loosely regulated by the government. Finally, communism replaces the operation of a free market almost entirely. Most of the rights enjoyed within the capitalist system are denied and private ownership is prohibited. Business are controlled by state planners and competition is almost completely eliminated. Today our economy is made up of a mixed economic system with each one contributing but no one dominating. Communist and socialist systems seem to be adopting many capitalists views and ideas. It is up to you to decide which system you prefer, but the United States' system of capitalism seems to be working adequately and positively. It is based on the principles of private enterprise and modified capitalism. There are many forms of business within our economic system but they are all arranged in three major categories. These three categories are sole proprietorships, partnerships and corporations. Within a sole proprietorship, one entrepreneur assumes all the risks of the business, but at the same time, keeps all of the profits. In just this one simple sentence we become aware of the obvious fact that along with it's advantages come many disadvantages. A sole proprietor, on one hand, makes his own decisions and pays only one tax for himself and the business. In addition, setting up a business for a sole proprietor is much simpler under the law compared to the other two types of businesses. However, the sole proprietor has unlimited liability and complete responsibility to the business. He or she must assume all of the risks and often must contribute from his own savings in order to prosper or just simply exist. A sole proprietor must also bring the natural resources, human resources and capital together by himself in order to run the business and produce goods and services. Because of it's difficulty to raise funds and grow, sole proprietorships very often suffer from impermanence. A partnership can also start with little difficulty under the law. They have a greater chance of growing and existing because partners can pool their assets, talents, funds and borrowing power. Similar to sole proprietorships, partnerships also pay only one tax and create a high degree of satisfaction for the partners stemming from them being their own boss. Unfortunately, however, with a partnership comes unlimited liability and personal disagreements between the partners. In addition, because of this single taxation, the personal assets of the partners are frozen which often creates major problems. As a result, partnerships also suffer from impermanence. A corporation, in my opinion, is the best option. Although filing for a corporation can become expensive and they are heavily regulated by the state, they have the ability to raise large amounts of capital. They have a long term existence, continuing to exist even when one of it's officers dies or resigns, large investment possibilities, easy withdrawal power and a specialized management making production easier and quicker. Best of all, corporations have limited liability, holding only the corporation itself liable to any debts or obligations and freeing all officers and their personal assets from blame and liability. Although this may all be true, owners within a corporation, that being the shareholders, must share the total investment and divide all profits made. Because of the generally large number of owners, job satisfaction also decreases along with strong personal motivation. Shareholders have almost no privacy when it comes to their financial affairs. There is a higher taxation for corporations and the shareholders are taxed twice, once for the corporations assets and a second time for personal assets. The role of the government in authorizing the operations of corporations creates still another disadvantage. They are often expensive to establish and complex to run because they are strictly regulated by the government. More government regulations are applied to corporations then any other form of business ownership. Just simply reporting to the government so that they know all regulations are being followed can be timely and complicated. Strict and detailed records and statements must always be kept for the government as well as for the shareholders of the corporation. It is obvious, everything that comes with advantages must also come with disadvantages, this is why the type of business ownership that is right for a person varies, depending on the detailed aspects of each particular business. The advantages and disadvantages must be weighed within each situation. While the main forms of business ownership include the three subsequently discussed, there are many other variations that can be used, depending upon each situation. These include limited partnerships, joint ventures, joint stock companies, cooperatives and franchises. Small business are also widespread in our nation and are growing rapidly. They provide the most employment to teenagers, immigrants and the elderly, thereby employing a large percentage of the population. This fact is true because small business are more willing to adjust to their employees needs and responsibilities. The services industry is dominated by small businesses which require limited capital in order to establish them and run successfully. They have greater flexibility, provide greater personal attention to consumers, have lower, fixed costs, high innovation and greater motivation. Unfortunately, the failure rate of small businesses is high due to poor management and inadequate financing. Therefore, small business owners accept many benefits as well as burdens. The benefit of being your own boss and gaining greater work satisfaction is accompanied by the burden of working long hours and dealing with high amounts of stress. However, these burdens are generally a result of many occupations, regardless of whether or not you are your own boss. This is why small businesses are on the rise. There are many aspects that go along with creating a successful business, regardless of it's size. These include networking, planning, environmental examinations, internal control and resources. The problem is, however, that it is up to the sole proprietor of the business to bring all of these aspects together in working order which is harder for a small business then it is for a larger business or corporation. However, there are several agencies of the federal government whose primary purpose is to offer support and guidance to small businesses. A major agency among these is the Small Business Administration. Specifically, the Small Business Administration provides guidance in the form of special courses and workshops in management problems and skills. It publishes information on how to prepare a business plan, start up and operate a business, and helps a business obtain there fair share of governmental contracts. Of major importance to small business owners is the fact that the Small Business Administration assists sole proprietors in obtaining loans and capital necessary in order to create a business. While they can neither guarantee nor provide these funds, they can be of great assistance. People obtaining small businesses through franchising have a much higher success rates, for obvious reasons. They are a good choice in order to avoid the many problems of creating a small business on your own. A franchise permits an individual to own his or her own business while benefiting from a trademark, know-how and the reputation of an established firm. This enables an individual to acquire a business more quickly and receive profits rapidly. However, the individual owner must pay the parent corporation a portion of the businesses' profits. This often becomes a problem because in some instances the financial rewards for the individual are sometimes low in relation to the time an effort that they put in to running the business. Therefore, this a major disadvantage and often makes the idea unattractive to small business owners. Since the government plays a major role in the operation of a business, the two must learn to coexist. The main role of government has traditionally been to protect the rights of the country's citizens. They follow this role by providing for the people police protection, a judicial system and a national defense system. The government protects individuals within our economy by protecting fair competition, consumer investments and general welfare, promotes property rights, and oversees certain administrations and industries. During the nineteenth century many businesses' strategy was to reach a monopoly position, and many were successful. Finally the government stepped in and regulation has been a rule ever since. The right to own property is basic to a private enterprise and it is the ultimate responsibility of the government to enforce this right. The government must also enforce limitations on property rights, one important limitation being taxation, in order to benefit the public. It is responsible for establishing many agencies to protect consumers' health and safety. This, of course, being another benefit of taxation. Taxation is done in order to provide public service and promote the general well being for the people. The most important source of revenue for the federal government is a tax on personal and corporate incomes. Many states and some cities depend heavily on income taxes. Noting gets done without management. Business management is central to running a business by handling resources and activities and accomplishing work through other people within the firm. A business can be looked at as a system of related parts working together, and management is what integrates these parts to make up the system. Small firms usually have only one or two managers, but large corporations have a staff of managers all working on different levels. The level of the manager is how he or she is ranked within the company. The top level consists of executives, the middle level are known as the middle managers, and finally the lower level are commonly known as the first-level supervisors. This is what I mean by the managers being ranked in the company. An executive will be known to have much more responsibility, plan and implement strengths and have more control of the business than the lower level managers do. However, all managers are trying to achieve the same goal regardless of the size of the company, this goal being to work effectively with the employees and consumers in order to achieve the company's objectives. Managers have four basic responsibilities; planning, organizing and staffing, directing and coordinating, and evaluating and controlling. Managers make plans to solve problems and take advantage of opportunities that come there way in order to help the business run successfully and profitably. They must recruit qualified workers to carry out this plan, workers who work well with others and are hard working and innovative. Some king of organization is needed to arrange each workers position within the company. A supervisor must also be selected so that each employee will know to whom they will be directly working for. All of these tasks must be brought together by the manager. The manager must constantly evaluate the workers and coordinate the work being completed. The evaluation of results leads to control, which influences other functions within the company. One important aspect that makes a successful manager is his degree of sensitivity. Since a manager must work through people, personal interaction skills are of utmost importance. All managers use different approaches to dealing with people but it is important to treat employees with respect, flexibility, recognition, and room for ideas. You will only get back what you give, and this is where many business fail. No matter how intelligent or business minded you may be, if your employees or consumers don't like or respect you as a person, you will get no where. Managers must also be innovative in order to find better ways to get the job done, good decision makers so that they may take risks in order to solve problems, good leaders in order to bind and organize the company, have good communication skills with employees and bosses so as to promote a free flowing exchange of information, and finally, have good motivational skills so as to motivate employees to add incentive and meaning to the work. Obviously, management is a difficult job. All of the functions that a manager must perform require dedication, intelligence, the ability to deal with stress and diverse people, and most of all, the ability to deal with and accept responsibility. Today, producers must make an effort to find out what kinds of products consumers want and to make these products available for sale. They must also make an effort through advertising to inform consumers of the goods and services that are available to them. Lets face it, all businesses have the same goal, to make consumers happy and make a profit. The marketing concept builds profits for the consumers' needs and interests. Marketing requires as mixture of production, development, pricing, placement and promotion. All of these functions must be implemented on a continuous basis in order to improve sales. Product planning concentrates on determining which goods and services consumers want to design them and meet their needs. Pricing is an important aspect of production because it ultimately determines whether a product will be purchased and if, at the same time, it will be profitable to the company. Product distribution involves decisions about warehousing and transportation that will be cost effective, timely and safe. At this point, the company will also determine whether they will be selling products directly to the public or to an intermediary. Finally, product promotion includes personal selling and promoting the products available, advertising, and direct sales promotion, such as free samples and discount coupons. Business income depends entirely upon the sale of products, including goods or services. Successful companies must introduce there products in a way that works consistently with the changing market, economic conditions, competition, and changing company goals so as to benefit both the consumers and the company through a high percentage of sales. The main role of marketing managers is to insure to the best of their ability that the product will be sold in quantities necessary to benefit the company. This role entails expert knowledge about the product and knowledge of consumers' wants and needs. It will almost always include designing the specifications of the product in order to produce its precise functions and abilities. An important aspect of planning and designing a new product is differentiating it form other similar products on the market. Packaging and presentation can help to achieve this goal in some ways, however, specific features must be present within the products themselves in order to achieve this differentiation. A trademark or brand name is an important way of differentiating products by creating buyer loyalty. Brands are important in production because they make it easy for consumers to distinguish one product from another. Buyers feel confident buying certain brands that they feel they can trust and are assured of consistent quality. Brands are normally at the center of advertising. Even if a consumer is convinced about buying a product, they would be more able to identify and more apt to purchase it if it had a brand. Advertising is an important aspect of marketing. It provides the presentation of good available to the consumer through communications vehicles such as the media. It present informative and persuasive sales messages through the newspapers, television, magazines, etc. Advertising stimulates interest in and demand for specific products, and thus supports sales promotion and personal selling. It is often used to create a favorable public view toward a company, industry or other institution. The main purpose of advertising is to help sell goods and/or services. It supports personal selling by informing the potential buyer of a products features and encouraging a favorable attitude towards it before the product has actually reached the selling stage. It reaches people sales personnel cannot since it rarely possible to have a sales force large enough to reach every potential consumer and will sometimes motivate people to seek out representatives on their own. Advertising improves personal relationships with dealers by increasing demand and sales. And finally, advertising promotes goodwill by proving to be reliable, interested in the public good and a good citizen. This advertisement will do this by concentrating on the business itself rather then the product so that consumers trust it and feel safe by using the companies products. Setting the right price for a product is essential to it's success. The major factors that effect product pricing are demand and competition. Demand is closely linked to price. If the supply of a product is constant, greater demand will allow higher prices. At the same time, however, higher prices will tend to reduce demand. Competition also affects pricing. Free competition tends to drive prices down because competitors will increase the supply of the product in the market and new competitors often purposely sell at lower prices in an effort to cut into the sales of an established producer. Therefore, marketers have an important choice to make when pricing a product. They can establish high prices with the expectation of selling fewer units with higher profits on each unit, or set low prices in an effort to achieve voluminous sales even though the profit on each unit may be small. They must then attempt to find the right price in order to maximize profits by balancing a sales volume with profit per unit. Federal and state governments have passed laws influencing the fair pricing of gods by companies. These Fair Trade Laws prohibit retailers from selling goods at a price lower then that set by the producer, so as to prevent unfair competition. They are supposed to protect small retailers from the competition of large stores who can afford to set lower prices because of their voluminous sales. Marketing management includes more then just buying and selling. It includes a wide range of activities and duties, all being of great importance to the business. Nearly every firm is concerned with buying, selling, transporting, storing, risk bearing, standardizing, grading and labeling, financing, and gathering and using information. What all of these aspects have in common is that they must all be done with enough appeal and innovation necessary in order to sell products and at the same time make a profit for the company. Running a business is costly, therefore every idea must be carefully though out and implemented so as to satisfy consumers, while at the sale time, satisfying the business by creating a profit. Market research is of equal importance to a business. As discussed previously, our economy is very diverse and constantly changing. A business must study the environment and population so as to comply with the consumers buying patterns, needs and wants. A company can do this through market segmentation, demography, and by the use of questionnaires and surveys. Market research can be carried out by the use of market segmentation, which is the dividing up of the market into similar groups so that each group may be studied and carefully examined. Demography is the study of the population as a whole through the use of statistics. Finally, questionnaires, surveys, consumer test panels, and the observation of shopper behavior in stores can also aid in identifying and characterizing a market within the economy. This will surely keep a business up to par on the changing economy in the present, as well as forecasting future trends which has also proven to be necessary in order to operate as a successful business. In conclusion, it is obvious from my brief discussion that the term "Business" is very complex. When discussing it, one must consider many important sub-categories such as economic systems, the business cycle, business environments, types of businesses, government, management, marketing and advertising, each of which in and of itself is also very complex. f:\12000 essays\business & economics (632)\Introduction to Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Introduction to Business Business plays a major role within our society. It is a creative and competitive activity that continuously contributes to the shaping of our society. By satisfying the needs and wants people cannot satisfy themselves, businesses improve the quality of life for people and create a higher standard of living. It is a way for individuals to provide goods and services to consumers, and at the same time, produce a profit for themselves. Businesses are not only important because they provide goods and services for consumers, but they also improve the economy and increase jobs for people within society which is an additional fact producing a higher standard of living. To measure our societies standard of living, we must look to our "Gross National Product", which is the complete measure of our nations output. Unfortunately, inflation is a major problem in our nation which often reduces the Gross National Product. Inflation occurs when the goods become too high within society and spending decreases. A central function within our economic system is satisfying the needs of the consumers with the use of limited supplies. The purpose of a business is to combine resources such as land, labor, and capital in a way that will make them more valuable. Operating in a political and economic climate that supports individual rights, American business has as its guiding principle the right to private ownership and profit. The amount of goods produced depends upon the number of resources available for use. This idea is commonly known as "Supply and Demand". Businesses must attempt to reach an equilibrium between the two which will directly impact the price of the products produced. If something is heavily demanded and at the same time, it's resources are limited, the price of the product will rise. This idea of course works both ways. The easier it is to produce something, the cheaper it will be. All economic systems begin with the same resources including land, labor, capital and technology. These resources may be limited at any given time, varying within the world at large, from country to country. This business cycle explains how business fluctuates from high to low prosperity, recession, depression and recovery over time. The major challenges faced by our nation today are the Federal Budget Deficit, international trade deficit, the Decline of Smokestack America, and the conservation of energy. The Federal Budget Deficit occurs when our expenditures are greater then our revenues. International trade deficits occur when a nation imports more then it exports. The Decline of Smokestack America is when there is a change from an industrial to a post-industrial economy. Finally, the conservation of energy is so that there are a sufficient amount of natural resources necessary to produce goods. General economic growth or stagnation also has an important influence on business within our society. Many factors can affect it's condition, such as war, new inventions and technology, political assassinations, the discovery of physical and natural resources, labor negotiations, government action, and many others. When the economy is strong and the demand is high, businesses can prosper. Regardless of how great the economy may become, businesses still must compete with other firms for scarce raw materials and labor. A businesses environment creates many opportunities as well as problems for prospering businesses. The environment determines what a business can do by shaping and channeling its development. Businesses function within an environment by allowing entrepreneurs to raise capital and create profits freely. The supply of money available within a business as well as the economic stability through times of growth and recession have strong effects on businesses. Not only is the physical environment, including natural resources, pollution and energy as discussed previously, important, but many other aspects within the environment influence business. A business must adapt and overcome consumerism and ecology, and it has a social responsibility to do so. Cultures surrounding businesses also play a major role. A business must adapt to a changing society with age, lifestyle, culture and location. When a business learns to adapt to these changes, it will be profitable for both the business and consumers. Economic systems can be classified into three categories. These include capitalism, socialism and communism. Pure capitalism is an unrestrained freedom to buy, sell and compete. Private enterprises allow entrepreneurs to run businesses without central government control and can operate within a free market. Capitalism is a system of true private enterprise. Some aspects of capitalism are free choice, private ownership, private profit and free competition. The only drawback of this type of system is that a company can operate with no competition thereby creating a monopoly unfavorable for consumers. Socialism, on the other hand, is a system where the production and distribution of industries are owned and operated by the government. Officials directly manage some or all of the extraction of raw materials, manufacturing, communication and transportation. This system is loosely regulated by the government. Finally, communism replaces the operation of a free market almost entirely. Most of the rights enjoyed within the capitalist system are denied and private ownership is prohibited. Business are controlled by state planners and competition is almost completely eliminated. Today our economy is made up of a mixed economic system with each one contributing but no one dominating. Communist and socialist systems seem to be adopting many capitalists views and ideas. It is up to you to decide which system you prefer, but the United States' system of capitalism seems to be working adequately and positively. It is based on the principles of private enterprise and modified capitalism. There are many forms of business within our economic system but they are all arranged in three major categories. These three categories are sole proprietorships, partnerships and corporations. Within a sole proprietorship, one entrepreneur assumes all the risks of the business, but at the same time, keeps all of the profits. In just this one simple sentence we become aware of the obvious fact that along with it's advantages come many disadvantages. A sole proprietor, on one hand, makes his own decisions and pays only one tax for himself and the business. In addition, setting up a business for a sole proprietor is much simpler under the law compared to the other two types of businesses. However, the sole proprietor has unlimited liability and complete responsibility to the business. He or she must assume all of the risks and often must contribute from his own savings in order to prosper or just simply exist. A sole proprietor must also bring the natural resources, human resources and capital together by himself in order to run the business and produce goods and services. Because of it's difficulty to raise funds and grow, sole proprietorships very often suffer from impermanence. A partnership can also start with little difficulty under the law. They have a greater chance of growing and existing because partners can pool their assets, talents, funds and borrowing power. Similar to sole proprietorships, partnerships also pay only one tax and create a high degree of satisfaction for the partners stemming from them being their own boss. Unfortunately, however, with a partnership comes unlimited liability and personal disagreements between the partners. In addition, because of this single taxation, the personal assets of the partners are frozen which often creates major problems. As a result, partnerships also suffer from impermanence. A corporation, in my opinion, is the best option. Although filing for a corporation can become expensive and they are heavily regulated by the state, they have the ability to raise large amounts of capital. They have a long term existence, continuing to exist even when one of it's officers dies or resigns, large investment possibilities, easy withdrawal power and a specialized management making production easier and quicker. Best of all, corporations have limited liability, holding only the corporation itself liable to any debts or obligations and freeing all officers and their personal assets from blame and liability. Although this may all be true, owners within a corporation, that being the shareholders, must share the total investment and divide all profits made. Because of the generally large number of owners, job satisfaction also decreases along with strong personal motivation. Shareholders have almost no privacy when it comes to their financial affairs. There is a higher taxation for corporations and the shareholders are taxed twice, once for the corporations assets and a second time for personal assets. The role of the government in authorizing the operations of corporations creates still another disadvantage. They are often expensive to establish and complex to run because they are strictly regulated by the government. More government regulations are applied to corporations then any other form of business ownership. Just simply reporting to the government so that they know all regulations are being followed can be timely and complicated. Strict and detailed records and statements must always be kept for the government as well as for the shareholders of the corporation. It is obvious, everything that comes with advantages must also come with disadvantages, this is why the type of business ownership that is right for a person varies, depending on the detailed aspects of each particular business. The advantages and disadvantages must be weighed within each situation. While the main forms of business ownership include the three subsequently discussed, there are many other variations that can be used, depending upon each situation. These include limited partnerships, joint ventures, joint stock companies, cooperatives and franchises. Small business are also widespread in our nation and are growing rapidly. They provide the most employment to teenagers, immigrants and the elderly, thereby employing a large percentage of the population. This fact is true because small business are more willing to adjust to their employees needs and responsibilities. The services industry is dominated by small businesses which require limited capital in order to establish them and run successfully. They have greater flexibility, provide greater personal attention to consumers, have lower, fixed costs, high innovation and greater motivation. Unfortunately, the failure rate of small businesses is high due to poor management and inadequate financing. Therefore, small business owners accept many benefits as well as burdens. The benefit of being your own boss and gaining greater work satisfaction is accompanied by the burden of working long hours and dealing with high amounts of stress. However, these burdens are generally a result of many occupations, regardless of whether or not you are your own boss. This is why small businesses are on the rise. There are many aspects that go along with creating a successful business, regardless of it's size. These include networking, planning, environmental examinations, internal control and resources. The problem is, however, that it is up to the sole proprietor of the business to bring all of these aspects together in working order which is harder for a small business then it is for a larger business or corporation. However, there are several agencies of the federal government whose primary purpose is to offer support and guidance to small businesses. A major agency among these is the Small Business Administration. Specifically, the Small Business Administration provides guidance in the form of special courses and workshops in management problems and skills. It publishes information on how to prepare a business plan, start up and operate a business, and helps a business obtain there fair share of governmental contracts. Of major importance to small business owners is the fact that the Small Business Administration assists sole proprietors in obtaining loans and capital necessary in order to create a business. While they can neither guarantee nor provide these funds, they can be of great assistance. People obtaining small businesses through franchising have a much higher success rates, for obvious reasons. They are a good choice in order to avoid the many problems of creating a small business on your own. A franchise permits an individual to own his or her own business while benefiting from a trademark, know-how and the reputation of an established firm. This enables an individual to acquire a business more quickly and receive profits rapidly. However, the individual owner must pay the parent corporation a portion of the businesses' profits. This often becomes a problem because in some instances the financial rewards for the individual are sometimes low in relation to the time an effort that they put in to running the business. Therefore, this a major disadvantage and often makes the idea unattractive to small business owners. Since the government plays a major role in the operation of a business, the two must learn to coexist. The main role of government has traditionally been to protect the rights of the country's citizens. They follow this role by providing for the people police protection, a judicial system and a national defense system. The government protects individuals within our economy by protecting fair competition, consumer investments and general welfare, promotes property rights, and oversees certain administrations and industries. During the nineteenth century many businesses' strategy was to reach a monopoly position, and many were successful. Finally the government stepped in and regulation has been a rule ever since. The right to own property is basic to a private enterprise and it is the ultimate responsibility of the government to enforce this right. The government must also enforce limitations on property rights, one important limitation being taxation, in order to benefit the public. It is responsible for establishing many agencies to protect consumers' health and safety. This, of course, being another benefit of taxation. Taxation is done in order to provide public service and promote the general well being for the people. The most important source of revenue for the federal government is a tax on personal and corporate incomes. Many states and some cities depend heavily on income taxes. Noting gets done without management. Business management is central to running a business by handling resources and activities and accomplishing work through other people within the firm. A business can be looked at as a system of related parts working together, and management is what integrates these parts to make up the system. Small firms usually have only one or two managers, but large corporations have a staff of managers all working on different levels. The level of the manager is how he or she is ranked within the company. The top level consists of executives, the middle level are known as the middle managers, and finally the lower level are commonly known as the first-level supervisors. This is what I mean by the managers being ranked in the company. An executive will be known to have much more responsibility, plan and implement strengths and have more control of the business than the lower level managers do. However, all managers are trying to achieve the same goal regardless of the size of the company, this goal being to work effectively with the employees and consumers in order to achieve the company's objectives. Managers have four basic responsibilities; planning, organizing and staffing, directing and coordinating, and evaluating and controlling. Managers make plans to solve problems and take advantage of opportunities that come there way in order to help the business run successfully and profitably. They must recruit qualified workers to carry out this plan, workers who work well with others and are hard working and innovative. Some king of organization is needed to arrange each workers position within the company. A supervisor must also be selected so that each employee will know to whom they will be directly working for. All of these tasks must be brought together by the manager. The manager must constantly evaluate the workers and coordinate the work being completed. The evaluation of results leads to control, which influences other functions within the company. One important aspect that makes a successful manager is his degree of sensitivity. Since a manager must work through people, personal interaction skills are of utmost importance. All managers use different approaches to dealing with people but it is important to treat employees with respect, flexibility, recognition, and room for ideas. You will only get back what you give, and this is where many business fail. No matter how intelligent or business minded you may be, if your employees or consumers don't like or respect you as a person, you will get no where. Managers must also be innovative in order to find better ways to get the job done, good decision makers so that they may take risks in order to solve problems, good leaders in order to bind and organize the company, have good communication skills with employees and bosses so as to promote a free flowing exchange of information, and finally, have good motivational skills so as to motivate employees to add incentive and meaning to the work. Obviously, management is a difficult job. All of the functions that a manager must perform require dedication, intelligence, the ability to deal with stress and diverse people, and most of all, the ability to deal with and accept responsibility. Today, producers must make an effort to find out what kinds of products consumers want and to make these products available for sale. They must also make an effort through advertising to inform consumers of the goods and services that are available to them. Lets face it, all businesses have the same goal, to make consumers happy and make a profit. The marketing concept builds profits for the consumers' needs and interests. Marketing requires as mixture of production, development, pricing, placement and promotion. All of these functions must be implemented on a continuous basis in order to improve sales. Product planning concentrates on determining which goods and services consumers want to design them and meet their needs. Pricing is an important aspect of production because it ultimately determines whether a product will be purchased and if, at the same time, it will be profitable to the company. Product distribution involves decisions about warehousing and transportation that will be cost effective, timely and safe. At this point, the company will also determine whether they will be selling products directly to the public or to an intermediary. Finally, product promotion includes personal selling and promoting the products available, advertising, and direct sales promotion, such as free samples and discount coupons. Business income depends entirely upon the sale of products, including goods or services. Successful companies must introduce there products in a way that works consistently with the changing market, economic conditions, competition, and changing company goals so as to benefit both the consumers and the company through a high percentage of sales. The main role of marketing managers is to insure to the best of their ability that the product will be sold in quantities necessary to benefit the company. This role entails expert knowledge about the product and knowledge of consumers' wants and needs. It will almost always include designing the specifications of the product in order to produce its precise functions and abilities. An important aspect of planning and designing a new product is differentiating it form other similar products on the market. Packaging and presentation can help to achieve this goal in some ways, however, specific features must be present within the products themselves in order to achieve this differentiation. A trademark or brand name is an important way of differentiating products by creating buyer loyalty. Brands are important in production because they make it easy for consumers to distinguish one product from another. Buyers feel confident buying certain brands that they feel they can trust and are assured of consistent quality. Brands are normally at the center of advertising. Even if a consumer is convinced about buying a product, they would be more able to identify and more apt to purchase it if it had a brand. Advertising is an important aspect of marketing. It provides the presentation of good available to the consumer through communications vehicles such as the media. It present informative and persuasive sales messages through the newspapers, television, magazines, etc. Advertising stimulates interest in and demand for specific products, and thus supports sales promotion and personal selling. It is often used to create a favorable public view toward a company, industry or other institution. The main purpose of advertising is to help sell goods and/or services. It supports personal selling by informing the potential buyer of a products features and encouraging a favorable attitude towards it before the product has actually reached the selling stage. It reaches people sales personnel cannot since it rarely possible to have a sales force large enough to reach every potential consumer and will sometimes motivate people to seek out representatives on their own. Advertising improves personal relationships with dealers by increasing demand and sales. And finally, advertising promotes goodwill by proving to be reliable, interested in the public good and a good citizen. This advertisement will do this by concentrating on the business itself rather then the product so that consumers trust it and feel safe by using the companies products. Setting the right price for a product is essential to it's success. The major factors that effect product pricing are demand and competition. Demand is closely linked to price. If the supply of a product is constant, greater demand will allow higher prices. At the same time, however, higher prices will tend to reduce demand. Competition also affects pricing. Free competition tends to drive prices down because competitors will increase the supply of the product in the market and new competitors often purposely sell at lower prices in an effort to cut into the sales of an established producer. Therefore, marketers have an important choice to make when pricing a product. They can establish high prices with the expectation of selling fewer units with higher profits on each unit, or set low prices in an effort to achieve voluminous sales even though the profit on each unit may be small. They must then attempt to find the right price in order to maximize profits by balancing a sales volume with profit per unit. Federal and state governments have passed laws influencing the fair pricing of gods by companies. These Fair Trade Laws prohibit retailers from selling goods at a price lower then that set by the producer, so as to prevent unfair competition. They are supposed to protect small retailers from the competition of large stores who can afford to set lower prices because of their voluminous sales. Marketing management includes more then just buying and selling. It includes a wide range of activities and duties, all being of great importance to the business. Nearly every firm is concerned with buying, selling, transporting, storing, risk bearing, standardizing, grading and labeling, financing, and gathering and using information. What all of these aspects have in common is that they must all be done with enough appeal and innovation necessary in order to sell products and at the same time make a profit for the company. Running a business is costly, therefore every idea must be carefully though out and implemented so as to satisfy consumers, while at the sale time, satisfying the business by creating a profit. Market research is of equal importance to a business. As discussed previously, our economy is very diverse and constantly changing. A business must study the environment and population so as to comply with the consumers buying patterns, needs and wants. A company can do this through market segmentation, demography, and by the use of questionnaires and surveys. Market research can be carried out by the use of market segmentation, which is the dividing up of the market into similar groups so that each group may be studied and carefully examined. Demography is the study of the population as a whole through the use of statistics. Finally, questionnaires, surveys, consumer test panels, and the observation of shopper behavior in stores can also aid in identifying and characterizing a market within the economy. This will surely keep a business up to par on the changing economy in the present, as well as forecasting future trends which has also proven to be necessary in order to operate as a successful business. In conclusion, it is obvious from my brief discussion that the term "Business" is very complex. When discussing it, one must consider many important sub-categories such as economic systems, the business cycle, business environments, types of businesses, government, management, marketing and advertising, each of which in and of itself is also very complex. f:\12000 essays\business & economics (632)\Introduction to ManagementIntroduction to Management _Project_ (Whirlpool corporation).TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Introduction to Management _Project_ (Whirlpool corporation) Current management differs from traditional management due to the new developments in markets, technological advances, communication revolution, particularly instant communications through the internet and electronic mail, all require an evolution in the science of management, so as to match and accommodate these developments. In this context, we come across numerous celebrated articles discussing three main key issues: Task environment, diversity, and total quality management (TQM). All these articles, plus the chapter and the pages in the course book are interrelated. Since the task environment is a more comprehensive concept embracing diverse issues, such as those surrounding the production process, e.g., competitors, clients, strategic allies, suppliers, outsourcing, and regulators. These issues are strongly interrelated. The task environment provides useful information more readily than does the general environment because the manager can identify environmental factors of specific interest to the organization rather than having to deal with the more abstract dimensions of the general environment. (The course book, p.75) The task environment consists of five dimensions: * Competitors: organizations that compete for resources. Information about competitors is often quite easily obtained. * Customers: are whomever pays money to acquire an organization's products or services. Common sources of information about customers include market research, surveys, consumer panels, and reports from sales representatives. * Suppliers: are organizations that provide resources, and human resources. Most organizations try to develop and maintain relationships with a variety of suppliers. * Labor (unions): employees, particularly those organized into unions. * Strategic allies: are two organization working together in a joint venture or similar arrangement * Regulators: are units that have potential to control, regulate, or otherwise influence the organization's policies and practices. There are two kinds of regulators: 1. Regulatory agencies: created by government to protect the public from business practices or to protect organization from one another. 2. Interest group: is formed by their own individual members to attempt to influence business. The article in the book discusses how Ford Motors Company's surrounding environment affects the process of management so as to maximize profits and to achieve best products. Of course, the market forces and aggressive competitors influence the decision madding process. Diversity in the article, titled "Expanding definitions of Diversity", is related to cultural diversity: "In California, it's folly to dream of a homogenized, One culture pool of professionals". But, in the field of management, diversification may be related to the extension of other markets or to diversified sources of supplies or to diversified products so as to match diverse colors of customers' tastes. Diversity can either enrich work or render it disturbingly chaotic and unpredictable. Those who like being challenged by differences, innovators at heart, thrive on diversity. For others, whose identities are dependent on the status quo, diversity is scary because of the misunderstanding, which can arise from differences on any of the above named dimensions. On the other hand, diversity can be beneficial in the following dimension: 1. Work speed and case load tolerance. 2. Work family balance considers actions. 3. Accountability ducking it or taking on too much, status on the provide team. 4. Preference for face-to-face criticism/correction. 5. Attitude towards authority toward service. 6. Attitudes towards receiving care, being touched, intimate contact. The start-up of managing diversity intervention also contains the seeds of corporate success or failure down the line. It takes place through four over lapping stages: (1) entry (2) problem (3) education and awareness (4) organization and implementation. (The diversity factor by cross white, p.4) Furthermore, nowadays, we are increasingly coming familiar with the term TQM. In the article, "The right Way to Go Global", we find that over the past fifty years ago, more changes happened due to the changes in the economy, and the market as a whole. Everything became global from economy, to competition, to market... The environment in which traditional businesses and management thinking over-ruled is no longer adequate. The environment is currently market driven instead of technology driven. Currently, diversification is a great source of success. People are no longer considered as replaceable parts, rather, they currently represent a strategic asset. Total quality management (TQM) is a management philosophy that can provide organizations with the impetus for positive change, stimulating the workforce and creating an environment that gives a company the competitive edge. It is a system of dealing with quality at every stage of the production. TQM aims to improve the effectiveness and flexibility of the business as a whole and attempt to eliminate wasted effort. TQM pays constant attention to the needs of the customer and requires a continuing process of gathering relevant. (Environmental Management and Business Strategy, p.180) Griffin also adds other factors related to quality improvements, such as benchmarking, which means the process of learning how other companies do better qualities. There is a direct method to apply benchmarking by buying samples of the better product and studying it to see how it exceeds our product. Outsourcing is also a contributing factor in TQM: The process of outsourcing is related to subcontracting business to other firms which may do the services at comparative advantages in term of quality, precision, and price. (The course book, p.639) In summary, TQM has a number of key attributes. It: 1. Asks customers what they want and satisfies their requirements. 2. Attacks processes, not employees. 3. Instills teamwork and creates an atmosphere for innovation and continuous quality improvement. 4. Empowers people. 5. Strives for continuous organization-wide improvement. Whirlpool Corporation Corporate profile Number of employees 1997 61,370 Number of shareholders 1997 $10,171 Total revenues (in millions) 1997 $8,617 Net earning (in millions) 1997 $238 Stock value (at year end) 1997 $55 Fortune 500 ranking 1997 182 Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. Its growth is the result of strategic direction set in the mid 1980's and integrated strategic planning process in 1992. In the 1980, Whirlpool was unable to find growth potential in the U.S. appliance market and unwilling to accept the status quo, the company began a systematic evaluation of opportunities-both inside and put side the appliance industry-worldwide. At the same time, Whirlpool established parameters within which decisions about the company's future would be made. With growth parameters established and study data in, the decision was made to remain focused on major home appliances but to expand into markets not already served by Whirlpool. The goal was world leadership in a rapidly globalizing major appliance industry. Throughout the early 1990s, Whirlpool continued its expansion in the Latin America and Europe. And, to manage its small appliance business on a global basis, a small Appliance Business Unit was formed. In the past four years, Whirlpool has aggressively pursued its Asian strategy. Two years later, five majority-owned joint ventures were announced in the India and china to expand the company's Asian manufacturing base. In Asia, Latin America, North America, Europe, and in all the countries where it has a presence, Whirlpool pursues the goals of its Worldwide Excellence System (WES). WES incorporates the best of all Whirlpool quality programs, worldwide, with Malcom Baldrige Award and International Standards Organization criteria to establish a common approach to quality, one that dedicates the company to the pursuit of excellence and total customer satisfaction. Whirlpool's strategy to shape and lead the emerging global home appliance industry is working because the company consistently improves the quality of its product and services while refining its understanding of customers and what they want from Whirlpool. Now we have to match the theoretical setting into the giant Whirlpool Corporation's current practices. To accomplish this job, there is a very useful and informative article, which centers on an interview with Whirlpool CEO, David Whitwam, who provided the following unsatisfied background of the company. "When Whitwam became CEO in 1987, whirlpool was mired in just such an unwinnable war in the North American major-appliances market." (The Right Way to go Global. P135). Whitwam tried to introduce whatever changes necessary to secure real growth for the future of the company. First of all, Whitwam reidentified the company's new goal, which considers the customers' satisfaction. This decision, according to Whitwam, should precede any development in common technologies and processes. "He mentioned: But before you can develop common technologies and processes, don't you have to define the new organization's goals?" (The Right Way to go Global, p.136) By focusing on the customers' satisfaction, Whirlpool integrated the task environment in its system. Incorporating new technologies within the firm is also one basic element in the process of designing, manufacturing and selling services at the lowest possible cost. Improvements in products are also manifested in Whirlpool's new purchases of Philips. The new Philips possessed their own particularities, which could not fit in other machines' spare parts. These inventions of new products, and the rapid expansion of Whirlpool in different parts of the world, represent the concept of diversity. Furthermore, concerning outsourcing and bench marking as well as standardization of ISO-9000, it is maintained in the same company, Whirlpool: "One of the company's challenges was creating a company wide total quality management system, which we now call the Whirlpool Excellence System (WES). When we acquired Philips, we suddenly had one organization that focuses on ISO-9000, the European total quality system, and another that focused on the U.S. Baldrige approach to quality." (The Right Way to go Global, p.141) As for the involvement of all employees in the management process and product improvement, Whirlpool is integrating the (TQM) in its system and as a result, it has been successful ever since. Traditional management is no longer surviving in the age of instant communication, electronic transaction, and surprising technological breakthroughs, which provide certain companies an edge over others. (TQM) considers all these variables Whirlpool, In particular has changed, and sparked its employees on all levels to accept such changes: "One of the best way to change an inflexible mind-set is to expose people to both challenges and new ideas that can meet those challenges," (The right way to go global, p.141) In conclusion, setting the theoretical approach in the Whirlpool current management strategy we can say that all the above mentioned major issues revolve around the integral requirements: * A customer focus. * A continuous improvement philosophy. * Total employee involvement (empowerment and teamwork). In brief, we can not but confirm that TQM is a must for any company willing to survive in this very competitive environment. For a firm, to be successful, it must consider the task environment with all its dimensions. Whirlpool is successful because it is applying the three management principles that we discussed. References: 1. Maruca, Fasio. "The right way to go global"(p.135-145) 2. Griffen Management fifth ed. : Mifflin Co., 1996, p. 75-80. 3. The diversity factor, by Crosswhite. P.4-7 4. Environmental management and business strategy, p. 180-183 5. Gary Namie. "Expanding definitions of diversity" p.133-144 6. Internet. f:\12000 essays\business & economics (632)\Introduction to Marketing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Introduction to Marketing (((The National Factory))) Introduction This project speaks about a national factory in Lebanon. It pleased me greatly to get an interview with the owner of The National factory for Blocks and Cements. The observer begins to know how the competition happens among men who work in a similar domain. Beside this, a person should follow several functional means in order to keep on his factory in its high level. The progressive movement of any factors is not only the responsibility of the managers but it is also the responsibility of the policy and the regime of the government. So, to have a successful company, establishment, or a factory we should depend on good managers and select the good economical and sociological state surrounding any factory. These two factors play a good role in the success of any company. The National Factory for Blocks and Cements started in the year 1969 in Lebanon. This factory is located in Zouk Mkail-Green Zone in a place away from the crowded city and civilians. The owners and the general managers of this factory are two partners Mr. Samir Boustani and Mr. Ibrahim Malah. Thirty-nine employees and workers work in this factory, among them there are twenty two foreign workers. Most of these are workers are either from Egypt or Syria. This factory produces cements and marbles for the Lebanese market. According to the statistic, the factory can be classified as both a manufacturers of consumer and industrial goods. Besides, The factory contains ten large machines and each has a different job. I have told that these machines are the best in Lebanon. They get the row material that they need for their products from Italy. Mr. Samir said that others factories get the row material from different countries with lower prices, but of coarse the quality differ. For this reason, customers prefer the National Factory from other factories. He believes that quality is more important than the price. Their competitors are many. In Zouk only they compete with two similar factories that works in the same field. The first belongs to Mr. Karam Azar and the other to Mr. Nabil razak. Mr. Samir told me that with these two factories they have direct comparison, but customers can easily observes the quality standard in their factory. Out side zouk region there are a many factories that work in the field of marble and cements. The National Factory have a high quality standard, which is not available in other factories. For this they prefer not to compare themselves with others factories. What they care for is to satisfy their customers needs and make them believe in their products. The buyer's behavior towards their products is the most important thing for the factory. But in the present situation in Lebanon no one is satisfied neither the buyer nor the manufacturer, nor the seller. If we take the economical situation nowadays it is failing but when a customer comes to buy from the National Factory he is sure of his buying decision. The government most urges the Lebanese to buy national product rather than foreign one. Mr. Samir said, "The most important influence in marketing theory is the continuous and rapid change in consumer interests and desires. Consumers today are more sophisticated than those of past generations. They attend school for much longer; they are exposed to newspapers, magazines, movies, and radio... So, demands are more exacting, and their taste is more volatile. Because of this we always try to segment our products in order to fit all customers tastes". Besides, advertisement is very important for the National Factory. They put a lot of their investments in advertising in order to build the image for their products. They make advertisements because if they stop the advertisements they will loose a lot. T.V advertisement is impossible for the factory to use because it is very expensive and they can not afford such expenses. So, they depend on other kinds of advertisement like magazines "Al-Geish", and newspapers. In addition, Mr. Samir said " We always try to lower the cost production in order to offer better prices for our customer. But of course this should not affect the quality. Because of this, we use the recent technology in order to lower cost production without hurting the quality. We also offer facilitation in payment. In the past we used to offer facilitation in payment but if the customer could not pay we used to bail him. Today everything is different, the banks offering the customer a loan, so the banks are now competing in offering better plans for financing ". The facilitation in payment increases the number of customers. Because, few have cash money in this bad economic situation. The factory uses a fixed pricing policy. They believe that this strategy will make the customer more confident and satisfied of his buying decision. Sometimes they are obliged to increase their prices because of the increase in the prices of the raw material. They have a good relation with an Italian company that supply them with the material they need. The national Factory is known to have the best services. Time is sacred for them. "We always deliver the products on time and sometimes before. If we don not have a good services we do not sell any of our products. However the service after sale is more important than selling the products, you can sell a product in ten minutes but you have to continue in your service towards this product." said Mr. Samir. He believes that a service is the provision of his company. Internet and telephone ordering are not included in the policy of this factory. They lack this easily means of communication. Mr. Samir said "the world distribution in Lebanon is too wide, we are a very small to talk about such distribution. We have one sale points which is our factory, so we have no Internet and telephone ordering". They have been in business for thirty years, so they depend on their popular name in the Lebanese market. If the product concept passes the business test, it moves into the product development stage. Here R&D develop the product concept into a physical product. The R&D department develops and tests one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly and at Budgeted costs. Developing a successful prototype can take days, weeks months, or even years. Often, products undergo rigorous functional tests to make sure that they perform safely and effectively. The success of specialized marketing developments had caused many older organizations to revise their operating methods. Under this plan, the retailer is given the right to sell, within a certain area, without competition from another retailer dealing in the same product. Many consumers now find it more desirable to rent products than to purchase them outright. For example, a homeowner may find it preferable to rent an electric floor polisher when needed, rather than purchase the appliance at the list price, use it only frequently, and then have to provide storage space within the home. The renting of equipment also figures in large industry. Corporation are finding it to their economic advantage to rent computers and office industrial machinery, thereby assuring themselves of product servicing and repair and allowing changeover, without great expenses, to newer equipment models as they become available. The use of credit has had a great impact on marketing. Customers with credit cards can make purchases without the normal immediate presentation of cash, and sales are thus stimulated. Stores often further stimulate sales by use of premium promotions whereby customers making purchases receive free goods or the opportunity to buy special merchandise at very low prices. Businesses must strive daily to outdo competitors. The methods available to businesses for distinguishing their commodity from others in the market are subject only to their ingenuity. Such methods may include product movement, a unique promotional campaign, a new twist in servicing, a change in distribution channels, or an enticing price adjustment. The National Factory introduces many new products in the Lebanese market. According to the factory the first and the most important thing in the new product is to assure its safety. They make different kinds of tests to assure the safety of the products. The second important thing in marketing development for the factory is to test the effectiveness of the new products. This can be done without serious tests. It is the responsibility of the research and development department to tests the safety and effectiveness of the new products. In addition, the managers of the factory can develop new markets or its current products. Managers could review new geographical markets. They expand their marketing efforts and sales to different countries in the Middle East, Asia, and Europe... They should target newly opened markets in order to gain more profits. In my opinion, I like to say that this factory lacks the means of success for it does not own the easy means of communication which is the internet and telephone ordering. The other point of laciness is not giving enough promotions to attract new customers. Had Mr. Boustani invested more money in promotions and advertisements, he would have got more profit. Lastly, it is the responsibility of the government to urge the people to buy national products than foreign one. This policy of the government must be taken into consideration for it might help local factories and other establishments not to get bankruptcy. f:\12000 essays\business & economics (632)\Investigating Mexicos Prospects as a Manufacturing Base for .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Mexico has established itself as one of the biggest emerging markets in the world today. It has exhibited many of the signs of a high growth economy, offering several advantages to prospective investors. Some highlights of the Mexican economy include " single-digit inflation, a balanced public budget, real economic growth (presently at a rate of 12 percent), a deregulated economy and a favorable investment climate" (Risk Management/ June 94, P.32). Mexico also possesses a strategic geographic location as a gate way to Latin American markets. Mexico is among the fastest- growing export markets for the United States. In 1985, Mexico became the third largest market for total U.S. exports, behind Canada and Japan. In 1992, Mexico surpassed Japan as the second largest export market for U.S. manufactured goods. Mexico now accounts for $1 out of every $10 of total U.S. exports. After the passing of NAFTA, bilateral trade was quite balanced in 1994, with the U.S. registering a surplus of $1.3 billion, virtually unchanged from 1993. However, there was a sharp increase in trade opportunities, as both import and export growth exceeded 20 percent. One-fifth of the total trade that occurs between the United States and Mexico was created in 1994. One of the major sectors that holds a large promise for the U.S. manufacturers is that of the automobile industry. The Mexican market for auto parts is expected to grow by 24 percent from 1994 levels to $16.9 billion in the year 2000. It is also expected that NAFTA will help increase the U.S. export share of the Mexican market to around 70 percent by the year 2000. In the long run, Mexico's location could profit the U.S. industries that establish themselves there, through an expanded free trade area in Latin America, which could include Argentina, Brazil, Venezuela, and Chile. Such expansion could prove crucial to the U.S. industry, as a strong export orientation helped sustain industry growth. Exports increased from 18.5 percent of total output in 1989 to 27.2 percent in 1991. And the level of employment which could be attributed to exports increased from 116,500 in 1989 to 154,200 in 1991. Mexico also offers some intriguing possibilities in terms of production facilities for U.S. based firms. In 1994 alone Mexican car and truck production totaled 1.173 million units, up 8.6 percent from 1993. The Mexican government had along term plan in terms of automobile production in Mexico, and it is in a phase now that favors foreign investors and exportation out of the Mexican market. Check the figure bellow to see how the plan has progressed so far. Assembly Manufacturing ISI Export Promotion Liberalization 1925-1962 1962-1969 1969-1989 1989- In previous years there were many barriers to trade, to date some still exist while many have been lifted or reduced substantially. U.S. firms seeking to take advantage of low Mexican wages, established many joint ventures in Mexico. These plants were known as maquiladora plants. These plants started as basically a "screwdriver and nuts operation" where firms merely assembled their cars in Mexico with no real manufacturing performed within these plants. There were several obstacles to the U.S. firms taking full advantage of the low Mexican wages. For a long time in Mexico, any cars sold domestically within Mexico had to contain 60 percent locally produced parts, including the engine. That rule has changed requiring 34 percent locally produced auto parts , falling to 29 percent by the year 2003 through NAFTA measures. Another major impediment to full-scale car production in Mexico was the 20 percent import tariff imposed on auto parts imported into Mexico. Also cars imported into the U.S. that were produced in Mexico used to incur a 2.5 percent duty. Since NAFTA's implementation at the beginning of 1994, half of all U.S. exports have been eligible for zero Mexican tariffs, including machine tools, electronic equipment, and computers; components vital to the operation of the plants. NAFTA reduced Mexico's auto parts tariff from 20 percent to 10 percent on January 1st, 1994 and lowered other barriers. And cars coming into the United States no longer incur a 2.5 percent duty. As a result of NAFTA, auto-makers have started integrating their Mexican plants into their North American operations, shifting mid-size to luxury car productions to their underutilized plants in the Midwest, while producing smaller sized cars in Mexico. Mexico will probably become a center of small-car production. That is what the local market favors, and lower labor costs will make small-car production more profitable. U.S. firms cannot survive by merely using Mexico as an exporting platform, rather, they do need a strong internal market and local revenue. Several obstacles still persist. The Mexican government continued to open the Mexican market to foreign investors following the implementation of NAFTA. Inflation dropped to about 7 percent in 1994, down from the high of 150 percent in 1987. However several factors deteriorated the outlook for the Mexican market. Namely an unresolved peasant uprising in Chipas, Political assassinations, and a series of high profile kidnappings. All of those contributed to investor skepticism towards Mexico. The devaluation of the Mexican peso, which went down as much as 50 percent against the dollar, was a mixed blessing. Though it lowered payroll costs, which make up roughly 80 percent of a typical maquildora's operating budget. It had several negative effects. For one the worker morale was negatively affected. Also as stated above, a strong local market is crucial for sustaining growth and profits. With the devaluation of the peso, auto sales in Mexico dropped 70 percent in the months following that crisis, also, the price of automobiles in Mexico went up 10 percent in pesos, despite being discounted 20 percent in dollar terms. Several U.S. firms are restructuring within Mexico in response to that devaluation, which helps their exports out of Mexico, but not their local market shares. They have announced cutbacks in production, and an increase in payrolls for their Mexican labor in terms of the peso. As a result, in 1994, vehicles that were destined for foreign sales increased by 20.8 percent, while those for domestic sales dropped by 28.6 percent. And in 1995, export production jumped to 700,280 vehicles, while production for Mexico shrank to 373,210 vehicles. All of these factors have deteriorated some of Mexico's automobile investment prospects. For example, Thrall Car Manufacturing, an Illinois-based rail-car builder, has put a hold on plans to start operations in Mexico. Most firms in the United States and Canada are adopting a more cautious attitude on business ventures in Mexico. Some of the reasons are the uncertainty of NAFTA benefits, Mexico's unstable financial exchanges, and the devaluation of the peso. The devaluation, more than anything else, is the real stumbling block for any company considering a Mexico venture. Most Mexican based firms have a dollar-based debt but peso-based profits. When the peso loses value, repaying the debt becomes a major task. Also current interest rates offered by Mexican banks fluctuate between 20 percent to 60 percent. While U.S. banks offer some relief, with a rate of 16 percent to 17 percent, it is still a counter productive rate. Most businesses cannot support a debt of 17 percent and still survive. As can be seen there major advantages, along with many risks for U.S. firms to open a plant in Mexico. There are ways for minimizing the risks, such as raising the capital abroad and undertaking local partners. But in general the outlook for the Mexican market should be a cautious one until the full effects of the NAFTA agreement are realized. References n Higgs, Richard. "Mexico a lucrative market for U.S. suppliers, consultant says" Automobile News Feb 13th 1995: 86. n " Economic woes take toll on Mexican workers" Automotive News Feb 13th 1995: 86. n Jenkins, Rhys. " The political economy of industrial policy: automobile manufacture in the nearly industrializing countries" Cambridge Journal of Economics 19 (1995): 625-636. n "NAFTA fans trade fire for U.S. auto suppliers" Rubber-and-Plastic-News-II Dec 13th 1993: 4. n " NAFTA's effect on the Mexican Economy." Risk Management Jan 1994: 32. n "Weak peso applies brakes in Mexico" Wards-automotive-Reports Jan 16th 1995: 1. Investigating Mexico's Prospects as a Manufacturing Base for U.S. Firms Economics 580 Dr. Leon Haitham Boukhadour Fall 96 f:\12000 essays\business & economics (632)\Investing Currencies in the Far East.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ BECOA Report on Investing Currencies in the Far East Prepared by: Brad Saunders Introduction In the world today, the possibilities are endless for people who want to make money. These opportunities may exist in the form of a bond, currency, stock, or business venture, but the common tie between them is that it is possible to make money if you research the market and impose the proper strategic plans. In this report, the issue of investing money in the currency markets of the Far East will be my main area of interest. The Far East offers great potential for a currency trader who wishes to make money. I also have the option of investing in the European currency market as well, but I feel that the European market is somewhat too volatile for any significant gains to be made by pursuing any countries within. As is evident from classroom work in this course, the Far East has the greatest potential of any area in the world to be the next big area, in terms of economic expansion. With the many countries available to select for currency trade, it is very difficult for a student with limited resources to accurately and to the best of his or her's ability to make any significant amount of money on the currency market. However, I believe that by my researching the countries trends in areas such as: Inflation, Capital Investments, Unemployment, Exports, Budget balances, and Real Growth rates, that this is the key to making money through currency exchange. In this report my selections for currency exchange will justified by using the above areas as well as currency trends and volatilities, that prove Japan, Hong Kong, Singapore, Thailand, and Taiwan were all good strategic investments. Japan The first country that I chose to buy currency in was Japan. Japan, as many people know is a country that has proven itself as having one of the world's most powerful and stable economies. When we examine the Real Growth Rate in Japan (Fig. 1, pg: 7), we can see that the Japanese economy is growing every year over the charts history. In the late 80's and early nineties the Japanese economy was peaking and still continues to grow, with recent reports that the Japanese economy could rise once again as seen in the chart with 1995's increase. The second factor for Japan that I took into affect was their low levels of inflation. In (Fig. 2, pg: 7), we can see that the inflation level in Japan is very low, which means that the cost of goods in Japan does not widely fluctuate from year to year. In the early 1990's it is evident that Japan had a healthy level of inflation which we have learned is between two to four percent. But as of late, the level of inflation is somewhat a cause for concern because it has fallen below one percent. However, the economy is still growing and the only cause for alarm would be if the inflation rate approached zero or actually became deflation. These first two choices, as is evident have a great bearing on the fluctuation and growth that the Japanese Yen has shown and will continue to show. Yet another area that is of great of importance that I looked at before investing in Japan, is the export market. When we refer to (Fig. 4, pg: 8), it is clear that the value of exports that have been leaving Japan has been on a steady rise for the last five years. This trend is partly due to the great demand that the world has put on the Japanese for their high quality and low priced electronic goods. Since Japan is among the technological elite of the world, exports have been growing which will drive the value of the Yen up, causing me to make money because I bought the Yen at a lower price. The large number of exports that Japan produces is in part due to another area of my research, unemployment. The Japanese have what I conceive as a great grasp on controlling unemployment while the principal of low inflation combats against it. The low levels of unemployment can be seen in (Fig.5, pg: 9), which show Japan has an extremely low unemployment rate. The low unemployment contributes to the production of more goods that can be exported and in turn increasing the value of the Japanese Yen and making money for investors. The final factor that I took into account when invest in Japan is the Capital Investment made there. When referring to (Fig. 6, pg: 9), it shows that there has been a steady if not prospective increase in Capital Investment in Japan. This factor encouraged my to invest because it shows that the confidence is growing for investors and business people to invest in Japan, so therefore limiting the risk involved by investing in Japan. After seeing all of the information provided it is clearly evident that the Japanese Yen is a good choice of a currency to make money. Hong Kong When research materials became available, I immediately saw that the country of Hong Kong had a great potential for an extremely good return on an investment. Even though Hong Kong is faced with the prospects of return to the rule of the Chinese government in 1997, it's economy and dollar still continue to grow. When we view (Fig.1, pg: 7), we can see that Hong Kong's Real Growth Rate has been increasing as of late. This constant growth of the Hong Kong economy is an exceptional example of why Hong Kong is such a good country to invest in the currency market. Although the Real Growth Rate is a good indicator of Hong Kong's investment return potential, I believe that Hong Kong's effort to maintain a balanced budget may be even better. If we refer to (Fig. 2, pg: 7), it is evident that Hong Kong has stayed on budget as well as saved money to help pay off their foreign debts. These figures show the government is committed to providing a stable dollar and economic environment, for both domestic and foreign business. This in turn will increase investment in Hong Kong and raise the value of their dollar. Another aspect in Hong Kong of interest, is their great export power. In (Fig. 4, pg: 8), the exports have grown by about $20 Billion a year for the last five consecutive years. This growth in exports is approximately a six percent increase in exports per annum. These figures show that Hong Kong has a strong and growing export market, which will put a greater demand on the Hong Kong Dollar, therefore driving it's price up. As is seen above, the impression is conveyed that the Hong Kong government is committed to providing a stable business environment. Hong Kong's strong business environment can also be seen through it's very health level of unemployment. (Fig.5, pg: 9) shows that in the last five years, Hong Kong's unemployment rate has been fluctuating around anywhere from two to three percent. As is seen in the output of the economy these levels are good examples of how a low unemployment rate can contribute and show the growth of a countries dollar. Many of the above examples found in Hong Kong are reasons that other business people invest their money in Hong Kong. In (Fig.6, pg: 9), Capital Investment in Hong Kong is shown. Like many of the other trends and statistics in Hong Kong, invest is growing with every coming year. The invest continues because the Hong Kong market offers a stability and potential that investors are looking for. However, in the coming year investors will have to wait and see what the Chinese plan to do with Hong Kong, then decide whether or not to continue to invest in Hong Kong. Singapore When choosing a country in which to invest, there are two things that I tend to take into account. The first point would be is the country emerging and a potential future power or is the country past it's prime years. Singapore is a country that fit my first criteria perfectly. Singapore is one of the world's fastest growing countries, economically and is predicted to be the next "Japan". Economists or market analyzers often place Singapore in a group of countries known as the 4 Mini-Dragons or Tigers. If we refer to (Fig.1, pg: 7), it is quite obvious that Singapore has experienced some major and substantial economic expansion in the past five years. The rate of increase is one of the big attractions to investors who feel Singapore can provide some major returns through their currency. The Singapore dollar is a currency that is very prone to following the way of the Japanese Yen. This means that if the Yen starts a slow decline, the Singapore dollar can be predicted to go down. This phenomenon can be explained be comparing Singapore and Japan to Canada and the United States. The reason for the ties between currencies is simply based on the fact that both countries are each others major trade partner. The Singapore government which is known for it's strict rules has also played a major part in the country's currency developing to the stable and profitable rate it is today. The government's role in the economic and currency raise, can be seen by looking at (Fig.2, pg: 7), (Fig.3, pg: 8), and (Fig.5, pg: 9). These three charts can be interlinked between some main reasons for investing in Singapore. Singapore's inflation rate can be dubbed health since it is presently hovering between two and four percent. The low inflation in the country, in turn creates the low levels of unemployment that is seen in Singapore. An unemployment rate of two to three percent can be expected here due to the movement between jobs. The government has very strict unemployment policies here and tends to help those without jobs find a new one within a few months. The unemployment creates a very productive and functional work force that helps boost the economy as well as provides more goods for export. If we also look at Singapore's exports (Fig.4, pg: 8), we can see that exports have grew, mostly due to the low levels of unemployment and high volume of money being invested into business. The growing exports will surely add value to the already strong Singapore dollar. This extra infusion of investment dollars can be seen in (Fig. 6, pg: 9). This added value to the Singaporean market provides other investors with a basis which to compare potential currency exchange within Singapore's growing market. Thailand and Taiwan Thailand and Taiwan are two countries that have great strategic importance to my Far East Currency Investment Plan. These two countries were are used in the same main reasons as all the others, but for one other distinct reason. That reason is extremely low volatility against the Canadian Dollar. This strategic reason may sound absurd by involving the Canadian dollar, but the actual principal behind this idea is simple. If the Thai Baht and Taiwan dollar remain with a negative or zero volatility against the Canadian dollar after the 26th of November when the exchange of currency was made, this would secure all earnings to that point as well as possibly adding to them. (refer to pg: 10). Another way to back up this point is to see that the Foreign Funds must be converted back into Canadian Funds at the end of the project, so if the money is in a currency with little or no fluctuation against the Canadian Dollar a better return will be produced. Both countries Real Growth Rate can be found by referring to (Fig.1, pg: 7). Growth in both of these countries is steady and shows that the currencies of these countries must be in demand. However, as of late the reports suggest that Thailand could continue to grow at a faster rate if political situations subside. The next reason for investment in Thailand and Taiwan would be their Balanced Government Budgets. These can be found in (Fig.2 ,pg: 7) where it is obvious that the Taiwan government is committed to a balanced budget to add stability to their economy, after a couple of years of showing a deficit. Another interest combination that occurs between these two countries is the relationship between Unemployment and Inflation. The fact is in both countries healthy levels of both exist and seem to be stable. These inflation and unemployment figures (Fig.3, pg: 8) & (Fig.5, pg: 9) show that it is possible to have a stable dollar with both low levels of inflation and unemployment. In turn these two elements can attract the attention of foreign buyers of goods or currency. The foreigners see an advantage to make money by either investment or trading, so therefore want to buy more business or currency. To prove this fact (Fig. 6, pg: 9) shows that capital investment in both countries is making a turn for the good. With the many business transactions that have been occurring in Thailand and Taiwan, the export business has growing rapidly and became quite profitable. This fact can be proved by refer to (Fig. 6, pg: 9), that shows exports have climbed rapidly especially in Taiwan where recent predictions for export values are expected to be in the neighborhood of $110 Billion Dollars. After the completion of this section it is conclusively apparent that countries like Taiwan and Thailand were needed for this project to be successful in obtaining a profit. Conclusion After the completion of this report the reasons for my investing in the currencies of the Far East are all proved and justified with solid facts. It is now obvious that investing in foreign currencies is an exceedingly tedious task and requires a strategy as well as being able to find out to date information everyday. That is why by looking at factors such as: growth, exports, inflation, investment, budget, and volatility, it is easier to determine the direction of a countries currency value and hopefully after completing this report the knowledge and ideas that have been presented are clear enough, that you can now see why the countries which I invested in were good choices. f:\12000 essays\business & economics (632)\Investing in Canada 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Investing In Canada - Factors that are attractive for direct investment in Canada. Canada is the second largest country in the world, occupying close to 10 million square kilometres of land bounded by the Atlantic, Pacific and Arctic oceans. Canada shares a 6,000 kilometre border and the five largest freshwater lakes in the world with the United States. Known as the Great Lakes, they provide a route to the Atlantic via the St.- Lawrence Seaway, permitting direct access to international markets. More international companies are investing in Canada. The stock of foreign direct investment (FDI) in Canada has increased steadily over the past five years to reach over $130 billion last year. Investor confidence is high. International companies are discovering what firms in the United States have known for decades: it pays to invest in Canada. There is a government commitment to attract foreign direct investment. Canada's government provides a competitive, welcoming climate for international business. It is committed to fiscal responsibility, deficit reduction and job creation. The following are some essential points all of which prove Canada is a favorable choice: Domestic market; wage competitiveness; work force quality; International business skills; raw materials; energy costs; infrastructure; business services and legal environment. Domestic Market Canada's per capita purchasing power is second only to that of the United States, among the G-7 countries, and the OECD expects Canada to lead the industrialized countries in near-term economic growth. Inflation is below two per cent and forecast to remain low. Cost of money is lower than it has been for decades. Exports are at record high, having increased by 14 per cent in 1993 over 1992. Under free trade, Canadian-based companies have increased their market share of the Canada-U.S. market. Further, the Canada-U.S. Free Trade Agreement (FTA), together with the North American Free Trade Agreement (NAFTA) which came into force on January 1, 1994, gives Canadian-based companies an unparalleled access to 365 million people, forming an economy larger than that of the European Community. The combined 1993 GDP value of the Canada-Mexico-U.S. market was in excess of $8.5 trillion. Competitive Wages and Benefit Rates: Many international corporations find the Canadian work force to be highly cost-effective. On average, wages in Canada's business centers are lower than those in nearly all major business centers around the world. Hourly wages of Canadian production workers have risen only 5.4 percent since 1990. Canadian manufacturing wage rates showed the second slowest growth among G-7 countries in 1992, averaging 2.6 percent. In contrast, hourly increases in Britain and Germany have been 12.4 and 14.3 percent, respectively. Educated and Skilled Work Force The cost-effectiveness of the Canadian work force becomes especially apparent in the high level of skills and education of the workers. Canada leads the G-7 countries in advanced education, with about two-thirds of its 20 to 24-year-olds enrolled in post-secondary education. Canada's 67 universities and colleges produce more than 25,000 graduates annually in engineering, the applied sciences, the physical sciences and mathematics, while its technical institutes provide 11,000 graduates annually in areas relating to electronics and telecommunications. Canadian operations enjoy low turnover and absenteeism rates, and the days lost to work stoppages have been cut by more than one-half in the past two years. Major international firms have also won many productivity improvements in their Canadian operations through work place initiatives in labor-management relations. International Business Skills Canada is a land of immigrants. Employers will find pools of experienced workers who also offer fluency in foreign languages, knowledge of international cultures and business practices, and networks of business contacts in the key Asian, European and American markets. Canada is an effective bridge between North America and Europe. Canadian business practices and laws are a blend of American and European cultures. Canada's metric system of measurement means that Canadian manufacturers can readily meet requirements for European standards and measures. In addition, new government initiatives, such as the Skill Investment Program, are further enhancing Canada's ability to train and retrain workers for tomorrow's growth industries. Abundant Raw Materials Canada's rich mineral reserves and natural resources, coupled with its cost-effective ability to extract and harvest, enable Canada to be a leader in exports of both raw and processed commodities. Canada is the world's top producer of newsprint and zinc, as well as the second largest producer of nickel, pulp and potash. Canadian-based processors and manufacturers can enjoy reduced transportation costs by being close to these globally competitive sources of supply. Vast, low-cost Energy Supplies In addition to raw materials, Canada's rich mineral deposits involve mineral fuels and river systems that have been tapped for massive energy reserves. These include huge deposits of oil and gas, coal and uranium, as well as virtually unlimited hydroelectric generating capacity. Canada is one of two G-7 countries that are self-sufficient in oil supplies. Canada has the lowest electricity cost of all the G-7 countries, and is the only G-7 member with enough natural gas to be a net exporter. The resulting benefits of Canada's energy abundance to industry are widespread. For example, low-cost hydroelectric power enabled Canada to become a leading exporter of aluminum and aluminum products. Sophisticated and Efficient Infrastructure As a consequence of the geographical vastness of Canada, the communications and transportation infrastructure has become highly effective and advanced. Heavy investment in fiber optics and high speed transmission technology, together with a newly competitive long-distance market, will help maintain Canada's competitive costs. The need to provide effective communications links from coast-to-coast led to Canada's emergence as a major telecommunications equipment exporter, and an international leader in satellite communications. Collectively, Canada's transportation systems (roads, railroads, air transport and port access) is the cornerstone of its industrial strength. World-Class Business Services Canada's business service sector has expanded considerably over the past 20 years, and now provides highly specialized service for all international investor needs. Canadian banks rank among the largest in North America, with international offices in the U.S., Latin-America, Europe and Asia. Trust companies and other financial institutions provide additional financial services. International investors who prefer to deal with financial services firms based in their home country will find that many leading international banks, investment dealers and insurance companies have offices in Canada. For example, there are Canadian offices for global asset leaders of American, British, French, German, Japanese, Hong-Kong and Swiss banks. Stock exchanges in Toronto, and Vancouver provide many international firms with Canadian equity participation. - Factors that discourage direct investment in Canada. Canada is an excellent country for direct investment, although there are few factors that might discourage direct and foreign investment; The political instability that was created by the Quebec referendum, had discouraged current foreign investment from expanding, and put a halt in new investments. As long as the Quebec situation is not solved, uncertainty by foreign investors will continue. (2). - Factors that allow or make Canadian Industry to be competitive or not competitive; -Dynamic economies constantly re-invent themselves and grow through innovation. To grow and prosper, business needs an efficient marketplace an environment that encourages innovation and expansion, free of unnecessary barriers. -Increasing productivity, and creating jobs for Canadians. help the private sector create more and better-paying jobs. Spending smarter, targeting resources where the payoff is greatest, and reallocating funds to new priorities. -Increasing global trade and advances in technology are changing the world economy. Countries that ignore what is happening and take a "business-as-usual" attitude will fall behind. On the other hand, countries that take bold actions by adapting to new technologies and the realities of today's economy will meet the challenges of tomorrow head on, seize new opportunities, and build a better country. -Build a positive entrepreneurial climate and help small businesses grow -Expand markets for jobs and growth through trade -Create an efficient and modern infrastructure -Increase global trade and business dealings, and continually upgrade Canadians' skills and knowledge levels to ensure jobs and growth. All Canadians, individuals as well as groups in both business and government, need to work together to improve their chances for success -Helping small business grow. Small business creates jobs, almost 90 percent of the new jobs in the Canadian economy. The priority is to make sure that nothing stands in its way, by removing obstacles to growth. -Cutting paper burden: Entrepreneurs should spend more time growing their businesses and less time filling out government forms -Encouraging investment in small business: -Encourage greater cooperation between levels of government, and work with the provinces in streamlining the regulatory regime. -High standards to boost sales: Developing and adhering to common standards for products and services is important in a highly competitive, global economy. -Concentrate attention on those countries seeking to become members of the new World Trade Organization, and countries such as Chile who may join the North American Free Trade Agreement (NAFTA). -Increase the number of exporters and reduce the current account deficit and, as a result, create more jobs for Canadians. -Building global linkages. A more strategic approach to promoting Canada as an investment site within NAFTA. 3. (A). The two likeliest strategies to adopt: 1. Open a plant in Mexico to assemble the auto parts. Canadian suppliers must compete on the basis of lowest-cost, highest-quality, high value-added; components. The low value of the peso will encourage parts and vehicle sourcing from Mexico while discouraging exports to the Mexican vehicle market. Global competition will intensify for both parts companies and assemblers, particularly as emerging countries struggle to develop their economies, many using the automotive sector to spur economic growth. It is expected that trade barriers will be reduced further, thus opening new market opportunities for Canadian firms. The risk of adopting this strategy is the firm will have to deal with a completely different sets of rules and regulation of the Mexican government, that might not suit the firms goals and policies. 2. Outsource the assembling of auto parts to Mexican plants. In the longer term, the Mexican market is expected to increase assembly capacity over 50 percent, to about 2 million units per year, and parts sales are expected to grow to $20 billion. The phasing out of the protectionist Mexican Auto Decree will create significant trade, sourcing and investment opportunities for both assemblers and parts manufacturers. The risks of adopting this strategy are the possibilities of jeopardizing quality of the firms auto parts, and the difficulty of implementing quality and control check on their products. 3. (B). The services that Canadian Government can provide to assess Canadian businesses: Department of Foreign Affairs and International Trade (DFAIT) DFAIT promotes and protects the interests of Canada and the common values of Canadians throughout the world. Within its International Trade mandate, DFAIT strives to maintain and enhance Canada's economic health and competitiveness by actively pursuing and promoting Canada's economic and commercial interests with its global partners. Through International Trade Centres (ITCs) in Canada and its missions abroad, DFAIT implements a wide range of initiatives designed to attract productive foreign investment to Canada and promotes Canadian firms as strong investment, commercial and technology partners. DFAIT programs and initiatives ensure that Canadians have full access to investment opportunities in Canada and abroad. DFAIT meets its objectives through working closely with federal departments such as Industry Canada, as well as with the provinces and major business and industry associations. Services provided, in Canada, by DFAIT include basic export and trade-related advice, investment and technology development counselling; including publications, market studies and information on government assistance programs. To support its activities abroad, DFAIT has five geographic branches, each focused on a specific area of the world: Africa and the Middle East, Asia-Pacific, Europe, Latin America and the Caribbean, and the United States. DFAIT also has a network of trade commissioners and commercial officers, in Canada and abroad, to assist Canadian firms and promote trade, investment, technology and strategic alliances. Canada's International Business Strategy Canada's International Business Strategy is a blueprint which lays out how government and industry can best work together to generate new international opportunities for Canadian business. CIBS is central to the federal government's commitment to a Team Canada; partnership with Canadian industry and the provinces. Industry Canada (IC) Industry Canada is responsible for Canadian industry and science, tourism, telecommunications, business and consumer framework policy. IC also administers the Investment Canada Act which includes investment review and notification procedures. IC is organised on an industry sector basis, and works directly with Canadian companies and business associations to promote industrial, scientific and technological development, including promoting and facilitating foreign direct investment in those sectors in Canada. It manages a portfolio of programs and provides services in the areas of business intelligence and information, technology and industrial development, and trade and market development. It also maintains a network of regional offices across Canada and works closely with the provinces. 3. ( c). The specialists to use in import/export: Export Development Corporation (EDC) EDC is a customer-driven, financial services corporation dedicated to helping Canadian business succeed in the global marketplace. EDC facilitates export trade and foreign investment through the provision of risk management services, including insurance (export credit, foreign investment), financing and guarantees to Canadian companies and their customers. Canadian business center Where you meet and how you present yourself could make the difference between closing a deal or closing a door. That's what the Canadian Business Center is all about. The Canadian Business Center can play a key role in your positioning, marketing, and sales strategies. You can host special events including sales presentations, seminars, receptions, meetings an exhibits in the deluxe meeting facilities. The firm can have a single contact point for their Mexican clients and partners, where they can. reach you any time you are in Mexico. Up to 30 fully equipped individual booth spaces available Ideal for a variety of events including mini-trade shows, product demonstrations, special exhibits and receptions. The center offers Professional Services. The Canadian Business Center can give you immediate access to the resources of the Canadian Embassy and the extended network of clerical resources to assist you with all your business correspondence; Translation and Interpretation Services to facilitate quick and effective communication with your Mexican partners and clients Centrally located in downtown Mexico City, the Canadian Business Center service offered through the Department of Foreign Affairs and International Trade's Access North America program. It is part of an overall strategy to help Canadian companies take advantage of emerging business opportunities in Mexico. Experts In International Law and Trade For the firm to survive and be competitive in the global market, it must be aware of the international laws and regulations of the foreign countries they are dealing with. To facilitate this task, its extremely important to consult experts in international laws and global trade. f:\12000 essays\business & economics (632)\Investing In Canada.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Investing In Canada Investing In Canada - Factors that are attractive for direct investment in Canada. Canada is the second largest country in the world, occupying close to 10 million square kilometres of land bounded by the Atlantic, Pacific and Arctic oceans. Canada shares a 6,000 kilometre border and the five largest freshwater lakes in the world with the United States. Known as the Great Lakes, they provide a route to the Atlantic via the St.- Lawrence Seaway, permitting direct access to international markets. More international companies are investing in Canada. The stock of foreign direct investment (FDI) in Canada has increased steadily over the past five years to reach over $130 billion last year. Investor confidence is high. International companies are discovering what firms in the United States have known for decades: it pays to invest in Canada. There is a government commitment to attract foreign direct investment. Canada's government provides a competitive, welcoming climate for international business. It is committed to fiscal responsibility, deficit reduction and job creation. The following are some essential points all of which prove Canada is a favorable choice: Domestic market; wage competitiveness; work force quality; International business skills; raw materials; energy costs; infrastructure; business services and legal environment. Domestic Market Canada's per capita purchasing power is second only to that of the United States, among the G-7 countries, and the OECD expects Canada to lead the industrialized countries in near-term economic growth. Inflation is below two per cent and forecast to remain low. Cost of money is lower than it has been for decades. Exports are at record high, having increased by 14 per cent in 1993 over 1992. Under free trade, Canadian-based companies have increased their market share of the Canada-U.S. market. Further, the Canada-U.S. Free Trade Agreement (FTA), together with the North American Free Trade Agreement (NAFTA) which came into force on January 1, 1994, gives Canadian-based companies an unparalleled access to 365 million people, forming an economy larger than that of the European Community. The combined 1993 GDP value of the Canada-Mexico-U.S. market was in excess of $8.5 trillion. Competitive Wages and Benefit Rates: Many international corporations find the Canadian work force to be highly cost- effective. On average, wages in Canada's business centers are lower than those in nearly all major business centers around the world. Hourly wages of Canadian production workers have risen only 5.4 percent since 1990. Canadian manufacturing wage rates showed the second slowest growth among G-7 countries in 1992, averaging 2.6 percent. In contrast, hourly increases in Britain and Germany have been 12.4 and 14.3 percent, respectively. Educated and Skilled Work Force The cost-effectiveness of the Canadian work force becomes especially apparent in the high level of skills and education of the workers. Canada leads the G-7 countries in advanced education, with about two-thirds of its 20 to 24-year-olds enrolled in post-secondary education. Canada's 67 universities and colleges produce more than 25,000 graduates annually in engineering, the applied sciences, the physical sciences and mathematics, while its technical institutes provide 11,000 graduates annually in areas relating to electronics and telecommunications. Canadian operations enjoy low turnover and absenteeism rates, and the days lost to work stoppages have been cut by more than one-half in the past two years. Major international firms have also won many productivity improvements in their Canadian operations through work place initiatives in labor-management relations. International Business Skills Canada is a land of immigrants. Employers will find pools of experienced workers who also offer fluency in foreign languages, knowledge of international cultures and business practices, and networks of business contacts in the key Asian, European and American markets. Canada is an effective bridge between North America and Europe. Canadian business practices and laws are a blend of American and European cultures. Canada's metric system of measurement means that Canadian manufacturers can readily meet requirements for European standards and measures. In addition, new government initiatives, such as the Skill Investment Program, are further enhancing Canada's ability to train and retrain workers for tomorrow's growth industries. Abundant Raw Materials Canada's rich mineral reserves and natural resources, coupled with its cost- effective ability to extract and harvest, enable Canada to be a leader in exports of both raw and processed commodities. Canada is the world's top producer of newsprint and zinc, as well as the second largest producer of nickel, pulp and potash. Canadian-based processors and manufacturers can enjoy reduced transportation costs by being close to these globally competitive sources of supply. Vast, low-cost Energy Supplies In addition to raw materials, Canada's rich mineral deposits involve mineral fuels and river systems that have been tapped for massive energy reserves. These include huge deposits of oil and gas, coal and uranium, as well as virtually unlimited hydroelectric generating capacity. Canada is one of two G-7 countries that are self-sufficient in oil supplies. Canada has the lowest electricity cost of all the G-7 countries, and is the only G-7 member with enough natural gas to be a net exporter. The resulting benefits of Canada's energy abundance to industry are widespread. For example, low-cost hydroelectric power enabled Canada to become a leading exporter of aluminum and aluminum products. Sophisticated and Efficient Infrastructure As a consequence of the geographical vastness of Canada, the communications and transportation infrastructure has become highly effective and advanced. Heavy investment in fiber optics and high speed transmission technology, together with a newly competitive long-distance market, will help maintain Canada's competitive costs. The need to provide effective communications links from coast-to-coast led to Canada's emergence as a major telecommunications equipment exporter, and an international leader in satellite communications. Collectively, Canada's transportation systems (roads, railroads, air transport and port access) is the cornerstone of its industrial strength. World-Class Business Services Canada's business service sector has expanded considerably over the past 20 years, and now provides highly specialized service for all international investor needs. Canadian banks rank among the largest in North America, with international offices in the U.S., Latin-America, Europe and Asia. Trust companies and other financial institutions provide additional financial services. International investors who prefer to deal with financial services firms based in their home country will find that many leading international banks, investment dealers and insurance companies have offices in Canada. For example, there are Canadian offices for global asset leaders of American, British, French, German, Japanese, Hong-Kong and Swiss banks. Stock exchanges in Toronto, and Vancouver provide many international firms with Canadian equity participation. -Factors that discourage direct investment in Canada. Canada is an excellent country for direct investment, although there are few factors that might discourage direct and foreign investment; The political instability that was created by the Quebec referendum, had discouraged current foreign investment from expanding, and put a halt in new investments. As long as the Quebec situation is not solved, uncertainty by foreign investors will continue. (2). -Factors that allow or make Canadian Industry to be competitive or not competitive; -Dynamic economies constantly re-invent themselves and grow through innovation. To grow and prosper, business needs an efficient marketplace an environment that encourages innovation and expansion, free of unnecessary barriers. -Increasing productivity, and creating jobs for Canadians. help the private sector create more and better-paying jobs. Spending smarter, targeting resources where the payoff is greatest, and reallocating funds to new priorities. -Increasing global trade and advances in technology are changing the world economy. Countries that ignore what is happening and take a "business-as-usual" attitude will fall behind. On the other hand, countries that take bold actions by adapting to new technologies and the realities of today's economy will meet the challenges of tomorrow head on, seize new opportunities, and build a better country. -Build a positive entrepreneurial climate and help small businesses grow -Expand markets for jobs and growth through trade -Create an efficient and modern infrastructure -Increase global trade and business dealings, and continually upgrade Canadians' skills and knowledge levels to ensure jobs and growth. All Canadians, individuals as well as groups in both business and government, need to work together to improve their chances for success -Helping small business grow. Small business creates jobs, almost 90 percent of the new jobs in the Canadian economy. The priority is to make sure that nothing stands in its way, by removing obstacles to growth. -Cutting paper burden: Entrepreneurs should spend more time growing their businesses and less time filling out government forms -Encouraging investment in small business: -Encourage greater cooperation between levels of government, and work with the provinces in streamlining the regulatory regime. -High standards to boost sales: Developing and adhering to common standards for products and services is important in a highly competitive, global economy. -Concentrate attention on those countries seeking to become members of the new World Trade Organization, and countries such as Chile who may join the North American Free Trade Agreement (NAFTA). -Increase the number of exporters and reduce the current account deficit and, as a result, create more jobs for Canadians. -Building global linkages. A more strategic approach to promoting Canada as an investment site within NAFTA. 3. (A). The two likeliest strategies to adopt: 1. Open a plant in Mexico to assemble the auto parts. Canadian suppliers must compete on the basis of lowest-cost, highest-quality, high value-added; components. The low value of the peso will encourage parts and vehicle sourcing from Mexico while discouraging exports to the Mexican vehicle market. Global competition will intensify for both parts companies and assemblers, particularly as emerging countries struggle to develop their economies, many using the automotive sector to spur economic growth. It is expected that trade barriers will be reduced further, thus opening new market opportunities for Canadian firms. The risk of adopting this strategy is the firm will have to deal with a completely different sets of rules and regulation of the Mexican government, that might not suit the firms goals and policies. 2. Outsource the assembling of auto parts to Mexican plants. In the longer term, the Mexican market is expected to increase assembly capacity over 50 percent, to about 2 million units per year, and parts sales are expected to grow to $20 billion. The phasing out of the protectionist Mexican Auto Decree will create significant trade, sourcing and investment opportunities for both assemblers and parts manufacturers. The risks of adopting this strategy are the possibilities of jeopardizing quality of the firms auto parts, and the difficulty of implementing quality and control check on their products. 3. (B). The services that Canadian Government can provide to assess Canadian businesses: Department of Foreign Affairs and International Trade (DFAIT) DFAIT promotes and protects the interests of Canada and the common values of Canadians throughout the world. Within its International Trade mandate, DFAIT strives to maintain and enhance Canada's economic health and competitiveness by actively pursuing and promoting Canada's economic and commercial interests with its global partners. Through International Trade Centres (ITCs) in Canada and its missions abroad, DFAIT implements a wide range of initiatives designed to attract productive foreign investment to Canada and promotes Canadian firms as strong investment, commercial and technology partners. DFAIT programs and initiatives ensure that Canadians have full access to investment opportunities in Canada and abroad. DFAIT meets its objectives through working closely with federal departments such as Industry Canada, as well as with the provinces and major business and industry associations. Services provided, in Canada, by DFAIT include basic export and trade-related advice, investment and technology development counselling; including publications, market studies and information on government assistance programs. To support its activities abroad, DFAIT has five geographic branches, each focused on a specific area of the world: Africa and the Middle East, Asia- Pacific, Europe, Latin America and the Caribbean, and the United States. DFAIT also has a network of trade commissioners and commercial officers, in Canada and abroad, to assist Canadian firms and promote trade, investment, technology and strategic alliances. Canada's International Business Strategy Canada's International Business Strategy is a blueprint which lays out how government and industry can best work together to generate new international opportunities for Canadian business. CIBS is central to the federal government's commitment to a Team Canada; partnership with Canadian industry and the provinces. Industry Canada (IC) Industry Canada is responsible for Canadian industry and science, tourism, telecommunications, business and consumer framework policy. IC also administers the Investment Canada Act which includes investment review and notification procedures. IC is organised on an industry sector basis, and works directly with Canadian companies and business associations to promote industrial, scientific and technological development, including promoting and facilitating foreign direct investment in those sectors in Canada. It manages a portfolio of programs and provides services in the areas of business intelligence and information, technology and industrial development, and trade and market development. It also maintains a network of regional offices across Canada and works closely with the provinces. 3. ( c). The specialists to use in import/export: Export Development Corporation (EDC) EDC is a customer-driven, financial services corporation dedicated to helping Canadian business succeed in the global marketplace. EDC facilitates export trade and foreign investment through the provision of risk management services, including insurance (export credit, foreign investment), financing and guarantees to Canadian companies and their customers. Canadian business center Where you meet and how you present yourself could make the difference between closing a deal or closing a door. That's what the Canadian Business Center is all about. The Canadian Business Center can play a key role in your positioning, marketing, and sales strategies. You can host special events including sales presentations, seminars, receptions, meetings an exhibits in the deluxe meeting facilities. The firm can have a single contact point for their Mexican clients and partners, where they can. reach you any time you are in Mexico. Up to 30 fully equipped individual booth spaces available Ideal for a variety of events including mini- trade shows, product demonstrations, special exhibits and receptions. The center offers Professional Services. The Canadian Business Center can give you immediate access to the resources of the Canadian Embassy and the extended network of clerical resources to assist you with all your business correspondence; Translation and Interpretation Services to facilitate quick and effective communication with your Mexican partners and clients Centrally located in downtown Mexico City, the Canadian Business Center service offered through the Department of Foreign Affairs and International Trade's Access North America program. It is part of an overall strategy to help Canadian companies take advantage of emerging business opportunities in Mexico. Experts In International Law and Trade For the firm to survive and be competitive in the global market, it must be aware of the international laws and regulations of the foreign countries they are dealing with. To facilitate this task, its extremely important to consult experts in international laws and global trade. f:\12000 essays\business & economics (632)\Is gambling a feasible source of funds for the government.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Over the past twenty or so years, great wealth and improved economic and social conditions have been promised to the communities that have embraced legalized gambling. However, with twenty years of experience it is time to look back and analyze whether this is true or not. It could easily be said that gambling is as American as apple pie. Gambling has shaped American history since its beginning. Lotteries were used by The First Continental Congress to help finance the Revolutionary war. Many of our founding fathers, such as Benjamin Franklin, Thomas Jefferson, and George Washington, have sponsored private lotteries. It has been said that "Our founding fathers were just numbers guys in wigs" At one time baseball would have seemed to be the American pastime. This is not so now. In recent years, the attendance at casinos has nearly doubled the attendance at all major league baseball games, with close to 130 million people visiting casinos every year.1 With so much money at stake, the average gambler does not stand a chance against this big business. The casinos go to every length to analyze what makes a gambler bet, stay longer, and loose as much money as possible. Gamblers who come to casinos with the intention of winning money are habitually disappointed. As casino crime lord, Meyer Lansky's universal gambling truth states; "Gamblers never win, the house never loses"2 Slot Machines and most table games allow players to make bets where the probability of winning is relatively high. Frequent wins are characterized by low payouts. These frequent wins encourage further gambles with low payouts. Frequent winning, low paying games are not the only way casinos get people to keep playing. Nothing less that psychological warfare is going on at casinos across the country. "The days of shaved dice, missing face cards and rigged roulette wheels are long gone. But the pursuit of profitability in the corporate era of gambling has turned the average casino into a financially hazardous place for betters"3 The casino's beliefs are all based on the fact that since the house has an advantage over the player, the longer the house can keep the player playing, the more money the house will make. The gambling industry spends millions each year to whether wider isles, fresher air, and back rests on the chairs at slot machines make a player stay longer.4 And why would the casino care if somebody is comfortable? Because if each better stays for just a few more minutes, it could mean millions for the casinos. Casinos have false ceilings with rooms above them where some people watch for cheats and swindlers. From these same vantage points, are other people with alternate jobs. They are hired to observe and study what situations encourage gamblers to play longer. And as stated before, the longer people play, the more money casinos receive. These tricks of the trade are not just directed at the comfort level of the players, but also at their subconscious. Adding a certain scent into the air can make slot players spend up to fifty percent more than average at times. When money is turned into chips, in the player's mind, it decreases it's value. When a gambler asks a dealer for change for a hundred dollar bill, the dealer is under orders to give the player the lowest denomination possible, in five dollar chips. The player would easily spend the twenty chips as pocket change. But a twenty-five dollar chip is much more likely to be saved or even cashed in. Colors are a very important part of the subconcience mind. Betters are easily drawn to bright red machines, but tire of them quickly. Many casinos now put bright red machines on the outside of isles. Inside the isles are the more calm cool blue and greens that seem to encourage the player to stay longer. Gamblers are at the mercy of the big business casinos. Most people do not fully realize how much they are controlled by institutions who have made a science of studying gamblers behavior at the gaming tables. It is a fact that the economic status of a gambler, usually determines the psychological meaning of gaming for him or her. "The higher one's income , the more one will tend to see gambling as entertainment or as a way to socialize with other people. Conversely, the lower one's income, the more gambling tends to be seen as an investment"5 With the poor who cannot afford such investments as the stock market or real estate, gambling is meant to be less as play and more as a sincere chance to transform their lives for the better. While the poor do not spend much more than gambling than middle income families, they do spend a much higher percentage of their income. Another disturbing situation in the gambling community is the changing percentage of women and young people who are becoming problem gamblers. At this time gambling is called "the fastest-growing teenage addiction, with the rate of pathological gambling among high-school and college-age youth about twice that of adults." In Atlantic City, the lure of gambling is so strong that over thirty thousand underage people are either thrown out, or stopped from entering the casino.6 Lobbyists for the gambling industry have made exorbitant claims about the benefits that states will receive from the legalization of gambling. Among the many claims made by lobbyists are the increase in jobs, millions in revenue from gambling taxes, and an overall better economy. On the surface these statements seem beneficial. But underneath lies a misconstrued group of half-truths that support the gambling industry. This is only because the studies that came up with these findings were funded entirely by companies that have interests in promoting gambling.7 There is a consistency in most of the stories the lobbyists for the gambling industry. They usually involve the myth that says that big spenders will spend money on local businesses and therefore boost the economy. This myth is false. In fact, most local economies are actually hurt by the existence of a casino. This is due to the actuality that the majority of the people to go to casinos are the people form the surrounding area. Instead of spending their expendable money in local stores on clothing or appliances, they gamble it away. So what the casino is really doing is recycling the money of the city and filtering out its profits. It is like running an engine to power a generator, to in turn power the engine; eventually it will run out. The reason such gambling Meccas as Las Vegas and Atlantic City are so successful is because they are tourist attractions. "The casino explosion elsewhere has helped , by simply whetting the appetite of a whole new generation of gamblers to try Las Vegas"8 The gambling industry has also taken advantage of people's indecision. They do this by stating that there is much potential demand for gambling, and without acting on it, casinos in neighboring communities and Indian reservations will open and take business away from them. They claim that casinos in nearby cities are presently reaping the benefits from a gambling based economy. Indecisive communities are told that by not acting, they are in fact losing money. Money that could be used to finance schools, police, and city services. So by forcing voters to make a quick decision, they are actually forcing them to open Pandora's box. There are two general ways in which the gambling industry encourages crime. The fact that gambling leads to crime has even been measured. In 1994 the national crime rate fell two percent, while in the thirty-one places that got new casinos the year before, saw a 7.7 percent increase in crime.9 The people that commit these crimes are not usually mobsters. "People who engage in crime to support their compulsive gambling behavior generally have no prior record of criminal behavior."10 Governments are creating environments where normal people, without criminal backgrounds, are being lured into activities that could lead them to commit serious crimes. The average compulsive gambler who resorts to crime to support his or her habit is someone with a good job, better than average intelligence, and had stable relationships. With state governments sending the subtle message of "gambling is OK", the public lowers its defenses against it. According to a national survey conducted by Harrah, a large casino company, "51 percent of American adults believe "casino entertainment is acceptable for everyone." Another 35 percent say that it is "acceptable for others but not for me"11 Some five percent of gamblers are compulsive, and to support their habit, some of these gamblers turn to crime. According to a 1992 report by the Minnesota state planning agency, about sixty percent of all pathological gamblers engage in crime to support their habit. Another 10 percent, go to jail or are on probation.12 Different crimes are committed by different ages of gamblers. Adults tend toward white collar crimes like writing bad checks, while teenagers are more prone to steal from their parents. The second way gambling effects crime is by attracting organized crime. Organized crime is probably not as prevalent on the surface of the gambling industry as it was in the forties, but it is still there. One of the claims made by gambling promoters, is that legal gambling shifts illegal gambling dollars into public fund. But, organized crime, by offering better odds and nontaxable payouts, has remained an active supplier of gambling products with its own niche in the market. The illegal gambling market is so enormous that its profits each year, surpass that of the top 100 American corporations combined.13 This includes IBM, all the automotive industries, and many more. To help gamblers pay for these billions lost, organized crime sets up loan sharks. These loan sharks together are a ten billion dollar a year business , with ninety percent of the earrings coming from gamblers.14 Casinos have been the financial savior of many Native American tribes in the past decade. Taking what they thought as their sovereign rights, which exempted them from the laws of the states, tribes began putting card rooms and bingo halls in their reservations. Before long many people were coming by the busload to play. Many tribes such as the Mashantucket Pequots, who are only 350 in number, began to seriously cash in on these casinos. The Pequots own the largest and most profitable casino in the western world, with an estimate income of 2.6 billion dollars.15 The incoming money from the casinos helps with the living conditions of the tribe. The members see huge benefits such as better health care, subsidized mortgages, scholarships, and of course jobs. With such benefits, there is bound to be some people who would like to be members of the tribe. People come to the tribe with forged documents in an attempt to become Indian but "you just can't leap over and become an instant Indian" says Rick Hill of the National Indian Gaming Association.16 However, in the long run, tribal casinos may not be a sustained source of economic benefit. In the future, Tribal casinos will face stiffer competition from the non-indian gambling industry, as well as from more tribal casinos. "The Indian people can't have things too long before the white man begins coveting them.17 People only have a certain amount of discretionary money. This is the extra money that they have to spend on items other than their monthly bills and necessities. When casinos are introduced into an economy, it tends to "Cannibalize" consumer dollars that wound go to other local businesses. If this money was instead diverted to the local economy, it would not only strengthen the local businesses, but it would greatly diminish the costs of caring for compulsive gamblers. In 1994, The Illinois Economic and Fiscal Commission reported on five locations who received new gambling operations. They found that "no community demonstrated any real identifiable increase in general merchandise sales. In specific locations there were actually indications of losses."18 According to one local in Joliet, the behavior of the gambling crowd consists of this: "they on the boat, get off the boat, get in the car and drive home."19 Not only do casinos divert money away from legitimate businesses, but they also steal it from other forms of gambling. The public has only so much money to spend solely on entertainment. Horse and dog racing have competed against Casinos and suffered in communities where they have been implemented. One of the single hardest hit businesses by the gambling industry is the restaurants around the casinos. Casinos offer an enormous amount of cheap food at the casinos to attempt to keep people inside. Many casinos have such specials as "Women eat free at 6:00" to cover the slower times of the day. The losers are the neighborhood restaurants, many of whom soon go out of business. In Atlantic city, the number of restaurants dropped from 243 to 146 between 1977 and 1987.20 As convenience gambling increases, not only do local businesses loose consumer dollars, but governments loose the sales taxes they would have received if citizens would have made these purchases. All of this adds to the drain on local government. Probably the most devastating consequences of the gambling industry are the hidden social costs imposed on the gamblers and on their families. Gambling is an addicting habit which should be controlled, but for the most part is not. Perhaps this is because widespread legalization of gambling is such a relatively new phenomenon that the long term effects have not been totally seen. The vast majority of citizens do not have a problem with gaming, but problem can be acquired. A study in Iowa showed that in 1989, only 1.7 percent of residents had a history of compulsive gambling. In 1995, four years after Iowa became the first state to admit riverboat gambling, the number of compulsive gamblers had jumped to 5.4 percent.21 This may be that some people had a tendency toward compulsive gambling but until it came to their community they did not have an opportunity to act upon this trait. It seems that when these people with inclination towards the addiction are allowed to gamble, their gambling problem comes to the surface. Compulsive gamblers will bet until nothing is left: savings, family assets, personal belongings-anything of value that may be pawned, sold, or borrowed against. They will borrow from co-workers, credit unions, family, and friends, but will rarely admit that it is for gambling. They may take personal loans and possibly drive themselves into bankruptcy. A good example of this is that in the past two years since gambling began in South Dakota, the state has experienced significant increases in chapter seven bankruptcies, and small claims filings.22 Personal debt is by far not the only problem for compulsive gamblers. In the same two years that bankruptcy increased in South Dakota, the number of divorces increased nearly six percent, a jump of nearly 500 percent over the 1 percent yearly increase in the three years preceding the introduction of about 80 casinos in the small town of Deadwood, and of thousands of electronic gambling machines throughout the state.23 Gambling often leads to other destructive behavior. Compulsive gamblers also have a much higher rate of auto accidents. Some people attribute many of these accidents to suicide attempts, another costly behavior of problem gamblers. On average, compulsive gamblers have suicide rates that are five to ten times higher than the rest of the population. To add to the victim list are the people who get hit by the cars of gamblers. Many problem gamblers have driven themselves so far into debt that they do not have any auto insurance to pay for the damage that they have done. Child abuse and neglect are high among the crimes that compulsive gamblers commit. While parents are in the casinos, their children are in the car parked outside. With numerous gamblers turning to alcohol to try to ease their pain, the number of child abuse cases goes upas well. There are many economic costs of compulsive gamblers as well. By combining costs produced by problem gamblers such as fraud, embezzlement, unpaid debts, bankruptcies, and increases in criminal justice expenses, large sums of money are found the cost of legalized gambling. In fact, some estimated to be between twenty and thirty thousand dollars for each gambler, with some estimates that go as high as 52 thousand. These figures when multiplied by the number of problem gamblers in a large state such as California, the total jumps to nearly 900 million dollars.24 It is a fact that the economic status of a gambler, usually determines the psychological meaning of gaming for him or her. "The higher one's income , the more one will tend to see gambling as entertainment or as a way to socialize with other people. Conversely, the lower one's income, the more gambling tends to be seen as an investment"25 With the poor who cannot afford such investments as the stock market or real estate, gambling is meant to be less as play and more as a sincere chance to transform their lives for the better. While the poor do not spend much more than gambling than middle income families, they do spend a much higher percentage of their income. Another disturbing situation in the gambling community is the changing percentage of women and young people who are becoming problem gamblers. At this time gambling is called "the fastest-growing teenage addiction, with the rate of pathological gambling among high-school and college-age youth about twice that of adults." In Atlantic City, the lure of gambling is so strong that over thirty thousand underage people are either thrown out, or stopped from entering the casino.26 A few years ago, the costs of counseling problem gamblers was relatively low. This was because relatively few states allotted much money for the treatment of them. With the number of compulsive gamblers increasing, the money for the treatment of gamblers will increase. At one time, most health insurance companies viewed compulsive gambling as a moral problem, and refused to pay for treatment. As the number of gamblers grow with the promotion of more state promoted gambling enterprises, there is likely to be even more lobbying pressure for increased government and insurance money for treatment and research. This will cumulatively increase the money that taxpayers will have to pay. After thorough examination of the gambling industry, we find that it is not in the best interest of anyone for numerous reasons. For starters, it is not good for the individual because the legalization of gambling is closely related with the increase of many compulsive gamblers. It is also unfavorable for the individual, because it will lead a person who would never commit a crime on their own, to steal to finance their habit. Gambling is also not very prudent for the families of gamblers. Many gamblers are also alcoholics who would beat their spouse and neglect or abuse their children. The community that the casino resides in is also hurt. Money that gambling was supposed to come, never came. And instead of tourists coming in to gamble the majority of gamblers came from the town itself. Money that could have been spent on goods from local stores was gambled away in the casinos. Finally the state and local governments lose on this deal. Compulsive gamblers cost the state an enormous amount of money each year, and with the number of problem gamblers growing with the casinos, this is a problem that will not go away. It is probably put best in the quote "once gambling starts, it does not slow down and there can be no standing in it's place for those who would stop it's spread"27 Bibliography Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) Annin, Peter, "Looking for a Peice of the Action," Newsweek (June 13, 1994), p. 44 Eichenwald, Kurt, "Fool's Gold in American Gambling," Newsweek (March 21, 1993) p.33 Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.36 Lester, David, Gambling Today, Thomas, (1989) Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.42 Sasuly, Richard, Bookies and Bettors, 200 years of Gambling, Holt, Rinehart and Winston, New York (1987) Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.52 Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.159 Weinstein, David and Lillian Deitch, The Impact of Legalized Gambling: The Socioeconomic Consequences and Off-Track Betting, Praeger, New York (1991) Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar-A-Day Habit, Prentice-Hall, (1984) Endnotes 1. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.57 2. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar-A-Day Habit, Prentice-Hall, (1984) p.54 3. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.48 4. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.49 5. Lester, David, Gambling Today, Thomas, (1989) p.37 6. Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.162 7. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.39 8. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.58 9. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.73 10. Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) p.97 11. Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.36 12. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.60 13. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar-A-Day Habit, Prentice-Hall, (1984) p.42 14. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar-A-Day Habit, Prentice-Hall, (1984) p.57 15. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.104 16. Annin, Peter, "Looking for a Peice of the Action," Newsweek (June 13, 1994), p. 44 17. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.110 18. Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.175 19. Eichenwald, Kurt, "Fool's Gold in American Gambling," Newsweek (March 21, 1993) p.38 20. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.56 21. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.74 22. Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.38 23. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.56 24. Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) p.45 25. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.39 26. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar-A-Day Habit, Prentice-Hall, (1984) p.33 27. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.61 f:\12000 essays\business & economics (632)\IT Faliure And Dependence.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ I.T Faliure And Dependence In Today's Society we are so Dependent on I.T that the Consequences of its Failure May be Catastrophic. Discuss the Threats and Causes of Failure, and Steps Taken to Minimise it. In today's world it is impossible to run a large organisation without the aid of computers. Businesses hold massive amounts of important data, hospitals hold large amounts of confidential patient information and large scientific research projects hold important codes, formulae, and equations. The bottom line is that loss or corruption of this information is sure to result in bankruptcy, a substantial loss of customers, and even world-wide financial meltdown. A dependency on technology is impossible to avoid - even with its fatal consequences. Companies face the worry of information lost through hacking, virus corruption, and even physical threats such as fire and flood. Viruses are the most common threat to companies they can corrupt large amounts of files and data both kinds of virus, biological and electronic, take over the host cell/program and clone their carrier genetic codes by instructing the hosts to make replicas of the viruses. Neither kind of virus, however, can replicate themselves independently; they are pieces of code that attach themselves to other cells/programs, Just as biological viruses need a host cell, computer viruses require a host program to activate them. Once such example of the damage done by viruses occurred in 1988. A Cornell University hacker named Robert Morris used the national network system Internet, which include the Pentagon's ARPAnet data exchange network. The nation's high-tech ideologues and spin doctors have been locked in debate since, trying to make ethical and economic sense of the event. The virus rapidly infected an estimated six thousand computers around the USA This created a scare that crowned an open season of viral hysteria in the media, in the course of which, according to the Computer Virus Industry Association in Santa Clara, the number of known viruses jumped from seven to thirty during 1988, and from three thousand infections in the first two months of that year to thirty thousand in the last two months. While it caused little in the way of data damage (some richly inflated initial estimates reckoned up to $100m in down time), the ramifications of the Internet virus have helped to generate a moral panic that has all but transformed everyday "computer culture." Other worrying viruses include "Pathogen" which was created by Christopher Pile. This fatal virus wiped data from a computers hard drive, in 1995 he was convicted under the Computer misuse attack. Stephen Fleming a BT employee gained access to a database that contained hundreds of top secret phone numbers and addresses of government installations. Police managed to catch him, and he was threatened to prosecution under the first category of the computer misuse act. Meanwhile BT tightened their security. One major bug that threatened to destroy all of our data was the Millennium bug. It pursued the media for months; it was difficult not to have heard of it. The problem was that many electrical items - not just computers held a chip that kept track of the date, it was feared that after 1999 the date would switch to 0000 or 1900 and stop working all together. Millions of pounds were spent trying to outsmart the bug; no computers were sold in the years running up to 2000 without being "millennium compliant". Fortunately the bug did not strike, and now many anti-virus companies are being accused of conning industries into buying new software to tackle a non-existent bug. Anti-virus packages are now one of the best selling types of software. Many companies offer bigger and better packages each year. "Norton" anti-virus software is one of the best selling packages along with "Dr Solomon's" anti-virus toolkits. It is very sensible for every computer owner to have an anti-virus package. And it is vital for any company to have an advanced anti-virus package. Data is also secured using a backup system. When processing information banks and businesses produce huge amounts of backup. Looking at the amount of backup created you may think that it is absurd. But for the business it secures information, any master data that is lost can just be brought up from backup files. The problem is that backup files need room to be stored, and protection. Fire and flood produce an increasing threat to large backup files. To avoid these problems most companies store there backup files in a different building to their master files. This means that damage to one building forces the company to recall their backup files from the other building which will not have sustained damage (unless the company has very bad luck!) Companies taking these precautions spend a huge amount of money on them. Updating anti-virus software, changing passwords and changing the location of tons of information can prove severely expensive. That is not to say that the companies are foolish, for the amount spent on prevention is only a fraction of that which would be forfeited from loss. It is rather scary to think that we risk so much money and even lives over the loss of simple data. Space travel, vital medical care, stock markets, air traffic control, and transport all rely heavily on I.T to keep them going. It is fearful to think of the price we might pay if the I.T that we count on, failed. f:\12000 essays\business & economics (632)\itt sheraton corporation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ??????????? ?? ?????????? ? ???????? ?????????? ??????? ?????? ?? ????: ???????? ?????? - ITT SHERATON CORPORATION ???????????: ????. ???? ?????? ????????? ???????????: ???????????? ??????? ?????????? ?????: ????: ?????: 3 ?????? 1997 ????????? ? ?????????? ?? ???????????? ??????????-???????????? ????????? ??? ??-????? ???????? ????????? ????????. ? ??????? ?? ??????? ??? ?? ????????? ???? ????????????? ??????? ?? ???????????, ????? ? ???????? ?? ?????????? ?? ???????? ??? ????? ?????????? ????? ?? ???????? ?????????. ???????? ? ???????? ?????????????? ????????? ?? ????????????? ????????????? ??? ?? ????????? ??????????? ? ????????? ?? ?????? ??????, ? ???? ???? ? ?? ?????????? ?? ?????????????? ?????? ? ?????????. ?????????? ?????????? ?? ?????????????? ??????? ?? ?????? ?????? ??? ?????? ?? ?????, ???? ?? ??????????????? ???????? ???????? ? ?? ??????? ??????????? ????????? ?? ??????? ????? ?? ????? ? ?????????????? ?????????, ????? ??????????? ?????????? ????? ????????? ?? ?????????. ???????? ? ????? ??????? ? ? ??????? ??????? ?? ???????????. ??? ??????? ???????????? ?? ???????????? ?? ???? ??????? ????? ? ??????, ????? ? ?????????? ?? ??????? ???? ? ? ?????? ????????????, ??????????????, ???????? ??????????, ?? ???? ? ? ??????? ????????????. ?? ?????? ????? ?? ?????????? ????????? ???????? ??????? ?? ?????????? ?? ?????????? ??????? ???????? ? ??? ?? ????????. ????? ???????????? ???????? ?????? ?? ???? ?? ???-???????? ????????????? ?? ?????? ? ??????, ????? ?? ????? ? ????? ???????????? ???????????? ?? ?????????, ??? ??????, ?? ? ???? ?????? ????? ? ??????????? ?????? ?????, ???????????? ????? ?????? ?????? ???? ?? ????????? ?? ?? ?????? ?? ?????? ???????? ? ????? ? ?? ? ?????????. ???????? ???????? ?????? ??????????? ?????????? ?? ?????????? ?? ???? ? ???? ??????? ?? ?????????? ?? ?????? ????, ?????? ??????? ?????????, ????????????????? ? ????? ???????? ?????????? ?? ?????????? ????????? ??????? ?? ????? ????? ??????? ? ???? ??? ????? ?????? ?? ?? ????????? ? ????????? ????????? ?????? ?? ???? ?????????? ? ?? ?????? ???????? ? ? ?????? ????. ??????? ? ???? ?? ???-???????? ???????? ?????? ? ?????. ?? ??????? ????? 415 ???????? ?????? ? 62 ?????? ? ?????? ????, ?? - ?????? ???? ?? ????? ?? ????? ????????????, ? ? ??????? ??? ???????? ???????? ?? ??????????? ??????? ?? 15 ??????? ????. ?????? ? ????? ????????? Sheraton ITT Corporation ??? ?????? ???? ?????? ?? ????? 130 ??????, ??????? ???????? ???????? ????? 45 ??????? ?????. ???? 1995 ?????? ???????? ?? ?????????? ??????????? ????? 4 ???????? ??????. ?????? ? ??????? ?? ??????? ??????? ?????? ???? ??????? ??????? 250 81 599 ?????? 67 16 505 ?????? ? ?????? ????? 32 9 018 ???? 49 16 768 ???????? ??????? 16 6 071 ?????? ? ??????? ?? ????????? ????????? ?????? ???? ??? ?????? ???? 49 13 735 ??? ?????? 287 102 311 ?????? ?????? 82 15 993 ??????? ????????? ?? ???????? ??????? ???? 1937 ?????? ?????? ??????? ?????????? ?? ?????????? ???????? ????? ????? ?????- Stonehaven ( ??????? ???) ? ??????????, ??????????, ???. ??????? ? ??????? ?? ?????????? ????? $350 000 ? ?????????? ? 200 ????. ???? ?????????? ??? ?????? ?? ??????? ?? ??????? ??? ??? ?????? ? ??????. ??????? ?? ??????????? ?????? ? ?? ???? ???? ????? ???????. ?? ???? ????? ?????????? ????????? ?????? ??? ?????? ??????? ??????? ?? ???????. ?? ????????? ?? ?? ?????????? ???? ? ????? ????????? ?????????. ???? 1940 ?????? ?? ????? ??? ? ????????? ?????? ?? ??????? ?? ?????????? ? ?????? ?????? ?????? ???? ? ????? ???????? ?.?. ?? ???????? ? ????????? ??????? ?????? ??? ???????????? ?? ??????????? ????????????? ???????. ?????????? ?????? ?? ???????????? ??????? ?????? ???? 1949 ???????? ??? ?????? ? ?????? ? ?? ???????????? ??? ????????. ???? 1956 ?????? ???????? Epley ???? ???????????? ??? ???????????? ????? "????????? ????" ?? $31 ???????. ???????? 1958 ? ???????? ????? ?? ?????????? ???? ? ?? ?????? ???????????? ?????????. ???? ???? ?????? ? ??????? ? ???????? ??? ??? ????????????? ?????? ??? ?????????? "Rezervatron". ???? ? ??????? ? ????? ??????? ?? ?????????????? ??????? ?? ??????????. ??????? ????? ??????? ???????? ?????? ?????????????? ? ?????????????? ??????????????? ???????. 1961 ?????? - ???? ?????? ??????? ????? ?? ???????? ? ???????? ?????, ???? ????? ? ?????? ? ????????? ??? ???? 1963 - ????? ????? ? ???? ??????? ??????? ? ???? ???? ???? ?? ??????? ????? ?????? ? ???????????? ????? ??????????? ? ??????? ???? 1-800-????????? ????????? ??????. ????????? ?? ?? ???? ?? ???? ?????? ????? ?????? ?? ???????? ???? ?? ??????? ?????????? ??? ?? ?????? ??????????, ???? ?????????? ???????? ?? ???????? ?? ?????? ?? ??????????. ???? 1967 ?????? ? ???????? ? ???????????? ?????? ????????????? ??????? "Reservatron II" , ????? ?????????? ????? ??????????. ?? ??????????? ?? ??????? ?????? ?? ????????? ???? ????????? $6 ??????? - ??????? ?? ????? ????? ??????????. ???? ?????? ??-????? ?????????? ???? ???????? ?? ITT Corporation. ?????????? ?????????????? ?? ????????????? ?? ???????? ?? ?????????? ?? ???????? ???????????? ??? ?? ???????? ???? ???????? ???????? ???????? ????? ?? ??????. 1971 - ?????? ?? ???-???????? ????? ?? ???????? ???????- Waikiki, ??????? ????????? ? 1900 ?????. 1973 - "Rezervatron III". 1979 - ?????? ?????? ?? ?????????? ???????? ??????????? ????????? ?? ?. ??? ???? 80-?? ?????? ?????????? ??? ????????????? ?? ???? ????????? ??????? ???????? ?? ???????????? ?? ???? ? ???? ??????? ???????? ???? ?? ???????? ??? ?? ???? ????? ?????????? ???????? ???????????? ????????? ?? ???????? ? ????????????? ??????. 1985 - ??????? ??????? ??????? ??????? ? ????? ? ????? 1986 - ?????? ? ??????? ?????? ?????. ???? 1987 ?????? ?? ???? ????? ?? ?????????? ?? ???????? ? ?????????? ?????????????? ?? ????????? ? ??? ?? ???? ????????? ?????????? ?? ?????????? ??? ???????? ?? ????????. ?? ??????? ??????? ?? ???? ?? ??? ?? ??? - ???????? ?? ??????? ?? ?????? ?.?. ????? ???? ? ???? ???????? ?? ????????? ?? ???? ????????? ????? ??????????. ???? 1989 ??????? ??????? joint-venture ? ????? ? ??????? ??? ?????? ? ?????? ???? 90-?? ?????? ?? ?????? ??-?????? ???????? ?? ???????????? ?? ?????????? ?? ???????? ? ??????? ???????. ???? ????????? ????? ?????? ???????? ? ??????????? ??????? ?? ????? ?? ??????. ??????? ??????? ? ? ?????????? ?????? ???? ???????? ????? Desert Inn ? ??? ?????, ???? 1992 ??????. ???? ?????? 1994 ?????? ?? ?????? Sheraton Casino ? Tunica County, Mississippi, ? ???? 1???????? ?????? ?????? ???????? ? ????? ??????? ? ????, ????; ???? ? ???-???????? ?????? ?? ??????????? ?? ????????. ???? 1994 ??????? ???????? CIGA Hotels SpA, ?????? ?? 32 ?????? ? ??????, ????? ????????? ?? ?????????? ?? '???????' ???? ????????? ? ??????. ???? 1995 ?????? ???????? ????????? ?????? ?? ???? ?????? ?????? ????? ???????? ?????? ???????? ?? ??????????, ?? ? ??-????? ???? ? ?? ??-????? ????. ?? ???????? ?? ??? ??????? ????? ??????????? ???? ?? ?? ??????? ???? ???????? ?????? ? ????? ??????? ???? ?? ???? ?? ?????? ???? ????? ???????????? ?? ??????????? ?????????? ? ?? ????????? ???? ?? ??????????. ??????? ????? ???? ???? ?????????? ???? ????? ?? ????????, ? ?????? ????? ??????? ?????? ?????. ??????? ? ?????????? ? ??????? ?? ????? ????? ?? ???????? ??????????? ??????? ???, ?????? ?? ?? ????? 11 ????????? ?? ??????????, ????????? ??? 188 ????, ?????? ?????? ? 5 ?????? ? ????????? ???????????? ???????? ?????????. ??????? ?? ?????? ????? ?? ???????? ??????? ??? ????????? ?????, ???? ???? ??? ??????? ????. ?? ????? ??? ?????? ??? ?????? ??????????? ? ??????. ??? ??? ????? ???? ? ??? ??????????? ???? ????? ??????? ?? 460 ??????. ??? ?????????? ? ???? ??????? ????????? ?? ??????? ?????????? ? ???????????? ????. ????? ????? ?? ?????? ? ??????????? ??? ????? ???? ????; ?? ? ?????????? ? ????? ???????, ????????? ?? ?????? ?? ?? ???????? ?????????? ??? ????????? ?? ???????? ? ??????. ???????? ?? ? ?? ????????? ???? ????? ?????? ?? ??????? ????? ???? ?? ??????, ???????? ????????? ?????????? ? ??????????? ?? ???????? ???????????: n ????? ?????????? ???? n ????????? ???? ???????????? ?? ????? n ????? ???? ?????? ??????? ???????? ?? ????? ?? ???????? n ????? ?????????? ?? ???? ???????? ?? ????? ??? ?????? ?? ???? ???? ????? ?? ???????? ??????? ?? ???????? ? ??????????? ?? ?????. ???-??????? ????? ????????? V I P ????????? ????? ???????? ??-????????? ????????? ?? ?????????, ? ?????????? ?? ??????. ???? ??????? ????????? ?? ??????? ?? ????????, ??????? ?? ?????????? ?? ???????? (???????? ?????? ?????? ?????? ???????). ??? ??????????? ????????? ?? ?????? ? ??????????? ?? ??????? ??????? ???? ? ????? ????? ?? ??????. ??? ????? ???????? ???????????? ?? ????? ? ???? ?????, ??? ? ????? ? ?? ? ????? ?? ???????? ?????? ???????? ?? ???? ??????? ?? ?????? ?? ?????????. ?????????? ?? ?????? ? ?????????????????? ? ? ?????? ?a ?????? ????????, ?????? ????? "???????? ?? ? ?????? ? ???????? ?? ??????, ? ?????? ??????? ???". ????? ????????? ?? ?????? ?????? ?????????? ???? ???????????? ??????????? ????????. ?? ???????????? ?? ????????? ?? ????? ????? ??????. ??? ???????? ????, ????? ?? ???????? ?? ????????? ?? ??????, ?? ????? ????? ?? ????????? ?????????? ???? ?? ??????, ???????????? ???? ?? ?????????. ????????? ???? ????? ?? ???????? ????? ? ?? ? ?? ??????????? ?? ?????? ??? ??????? ?????????? ?? ????????? ????????, ???? ???? ? ?? ???????????? ?????, ???? ?? ????? ? ??? ?? ?? ???????? ??????? ? ?? ? ????????????. ? ???????? ????????? ??? ????? ???? ????? ?? ????????? ?? ???????? ?? ?????????. ??? ???????? ???? ? ?????, ?????? ?????? ?? ????? ?????????? (? ????????? ? ???? ? ?????). ??????? ??? ??????? ??????? ? ??????????? ? ?????? ???????? ? ?????? ??????? ???????? ?? ?????? ? ??????????? ?????????. ????????? ?? ???????? ?? ???? ??????????? ?????? ???? ? ?????? ?? ????????? ? ????? ?????????? ?? ??????? ?? ???. ? ?????? ??????? ????? 500 ?????? ????? ?????? ?? ???????????? ????????? ? ????? 60% ?? ??????? ?? ????????? ??? ???????? ?? ?????????? ?????????? "DAEWOO". ?????? ??????? ???????? ??? ??? ?? ?????????? ? ? ??????? ?????? ?????? ?? ?????? ??????? ???? ???????? ?????? ?? ?????????????. ??????? ? ???????? ? ???????????? ??????? ?? ?????? ?? ?????????????? ????????????. ???? ? ??? ??????? ?? ?????? ?? ????? ??????? ?? ??????? ??? ???????? ???????? ?????? ???? ?????? ????? ? ? ?????? ????? ???????, ?? ? ????? ?? ??????????? ???????????? ?????? ?? ????????? ???????????? ?? ????????, ????? ??????? ????????????. ????????? ?????? ???? 2001 ??????. ?????? ???? ??????? ???? ?? ??????????? ?? ?????? ?? ???????? ????????? ?? ?????????? ?? ???????????? ?? ??????????? ???????????? ?? ??????. ? ??????? ????????????? ????????? ?? ?????? ??? ???????? ???: ???? ?? ??????????? (5 ?????? = 3 ????????????? ?? ???????????? "DAEWOO" + 1 ???????????? ?? ???????? ?? ??????? + 1 ???????????? ?? ITT SHERATON CORPORATION (general manager)) ????? ???? ?? ??????????? ? ????? ?? ??????????? ???? ?? ???????????? ?????? ??? ???????? ??? ????????? ? ?? ??????? ???????? ?? ????? ?? ??????. SALES AND MARKETING DIRECTOR (??????? ????????, ????? ?? ???????? ? ???????????? ?? ?????? ?? ?????) 10 ???????? ?????? ?) house keeping b) technicians - ???????, ????????? ?? ? ???????? ?? ?????????? ?????????? c) room service - ?????????? ?? ??????, ?????? 24 ???? ? ???????????. d) security - ?????? ?? ??????? ?? ?????? ? ?? ?????????? ?????????. e) front desk - ??? ??? ??? ?????????????: n ????????, ???????? ?? ? ?????????? ?? ??????????, ????????????? ?? ???????, ????? ?? ?? ??????? ?????????? ?? ????? ?? ??????? ??. n ???????? n ?????? f) sales&marketing - ???????? ?? ? ?????????? ???????? ?? ?????? ? ? ??????????? ?? ????????? ?? ?? ??????. g) food and baverage - ????????? ?? ? ???????????? ?? ??????????? ? ?????? ? ???????????? ???????? ?? ??????????? ???? h) accounters - n ????????????? n ??????? n ??????? ??????? i) airline gathering - ?????????? ? ???????? ?? ????? ? ??????? ?? ?????????? ?? ???????? ????????????. ????? ??????? ???? ?? ????????? ?? ??????. j) trainning department - ???????? ?? ? ???????????? ?? ???? ????? ?? ?????? ? ??????. ????? ?????? ???????? ? ?????? ?? ???????????????. ???????? ??? ?? ??????????, ? ?????????????? ?????? ??? ?? ? ?????????? ?????? ???????? ????????? ??????????? ?? ???????? ?? ????????? ?? ???????. ???? ?? ???? ???? ???????????? ???????????? ?? ?? ????? ??????? ?????? ?????. ???? ???? ???? ?? ?? ?????? ???????????? ? ?? ?? ???????? ????????. ???? ???? ???????????? ??????? ? ???? ?? ???-???????? ???????? ?????? ? ?????, ?? ???????? ??????? ?????????? ??????? ? ???????????? ?? ??????? ??????? ?? ???????? ? ?? ?????? ???????? ?? ????????????? ?? ?????????? ?????? ?? ?????????? ?????? ?? ?? ??????? ?? ???? ????? ?????? ????. ?.?. ????????????? ?? ?????????? ? ??????????????, ?? ???????? ???????? ??????? ?? ?????? ?? ???? ?????????? ? ?? ?????????? ?? ?????? ??????, ????? ?? ?????, ?? ?????? ?????? ????? ??????? ??????? ?? ????????????? ????????. ???? ????? ???? ?? ?????????? ???? ???? ???? ? ?? ?????? ? ?????. ?????????? ?? ???? ? ????? ???? ? ??????????? ????? ????? ??????? ?????? ?? ???? ???????? ?? ???????? ?? ?????????? ????????? ?? ????????????, ?? ???????? ??????? ????? ?????? ? ???? ?? 49-?? ?????? ???????????? ????? ?? ???????? ?????????? The Luxury Collection. ??????? ?? ? ????? ????? ?? ??????????? ?? ???????? ?? ????? ?????? ?????? ?? ??????? ?? ???????, ???????? ?? ?? ?????????? ????. f:\12000 essays\business & economics (632)\Japan On Its Way To Be The World.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Japan On Its Way To Be The World's Largest Economy Japan has performed a miracle. The country's economic performance following its crushing defeat in World War II is nothing short of astounding. The economic expansion of Japan is second to none. All of the elements are in place for Japan to continue increasing its share of the world's wealth as America's gradually declines. The country is on track to becoming the world's largest economy. How did Japan do it? There are many theories and studies that have traced the Japanese miracle without success. The answer to the mystery can be found by examining Japan's culture, education, and employment system. Japan's success is not just a case of good technique and technology in business, but a real recognition and development of the necessary human skills. A better understanding of the Japanese society provides the framework to understanding the workings of Japanese business (and possibly the Japanese mind.) The ways of the Japanese provide a foundation for their economic adaptability in modern times. Japan is a culture where human relations and preservation of harmony are the most important elements in society. "It is their sense of identity and destiny which gives their industrial machine its effectiveness."1 "Among the Japanese, there exists an instinctive respect for institutions and government, for the rules of etiquette and service, for social functions and their rituals of business. Japan is a traditionally crowded island, the people are forced to share the limited space with each other and to live in harmony.. The Japanese are very protective of their culture. They are very conservative to outside intrusion. Their distinctive ways are a source of pride and national strength."2 Japan's striving for purity is very different form a North American idea of open doors and diversity as strength. Japan is relatively closed to immigration to outside countries. However, this feeling of superiority does not stop them from being careful. "This is probably because the Japanese know their economic house is on shaky ground, literally. Japan is eternally at nature's mercy, vulnerable to the sea that surrounds it, to earthquakes of the soil beneath it and a real shortage of raw materials, particularly food and fuel."3 A period of extended isolation could be disastrous to the country. Japan's trade surplus is its only generator of wealth. This is a fact of life that is preached through the media and taught constantly to Japanese throughout their lives in school, from parents, and when they enter the working world. The message is clear: Japan is always vulnerable, we must protect her. "Obsessed with national character, the Japanese are proud and ambitious, constantly measuring themselves against the world's best and biggest. Accordingly, one of the main sources of Japan's strength is its people's willingness to sacrifice, to be regimented and homogenized, and to subordinate personal desires to the harmony of the working group."4 The Japanese people have had to become a group- oriented society. While in the western world, individuality and independence are highly valued, Japanese society emphasizes group activity and organization. The people accept that they will belong to one social group and work for one company for life. The crowded island conditions have driven society to value conformity. "The highest priority is placed on WA, or harmony."5 The Japanese have learned to share their limited space and value the precious distance between themselves and others. The culture that Japanese people are brought up in causes them to recognize that they have to work together to succeed. Only harmony will provide improvement. This development of the human nature and attitude relates directly to Japan's business practice and provides a basis for good business relations. Japan's education system has grabbed the world's attention as it is specifically designed to teach the children skills and aptitudes to give them an edge in the business world. "The educational system, based on the principle of full equality of educational opportunity, is widely recognized as having greatly contributed to the prosperity of Japan by providing a highly qualified work force supplemented by extensive intraining programs by many of the major employers."6 "The primary and secondary educational system is probably the most comprehensive and most disciplined in the world."7 Where North American students attend school 175 days a year, Japanese students attend 240 days. . Japanese students attend elementary and secondary school six days a week and for two months longer each year than North American students. In addition, they have long hours of homework. A large majority of Japanese students attend juku, or preparatory schools, in the evenings and on Sundays. In higher education, while lacking the strong University system which exists in North America, the curriculum is equally rigorous, and "Japan is graduating 75 000 engineers per year, 3 000 more than the U.S., from a University population one fifth the size."8 "The education system itself is a unifying force. It molds children into group oriented beings by demanding uniformity and conformity form the earliest ages. The attainment of excellence within this complex environment, and the importance it holds for one's future is stressed early."9 This emphasis places a great burden on the young to perform well in school an to earn admittance to high status universities. The public school system not only produces good, obedient citizens, it produces good workers. A willingness to give oneself to the corporation's best interest, to arrive early and stay late, and to produce good work are attributes learned in the Japanese schools. Those who cannot learn these skills do not do well in school or do not rise in the ranks of the corporate world. The education system is an excellent example of how the Japanese recognize and develop the necessary human skills that are needed in society and stressed in the business world.. One of the most important aspects of Japan's successful economics is the countries employment system. The system is very complex and has many hidden but powerful aspects that help Japan maximize its output. The system's three main principles of lifetime employment, company unions, and seniority pay, work together to form a system worthy of notice. "The system is based on comprehensive labour regulation, and it has been consciously invented as Japan's answer to a Western labour system that Japanese leaders have long believed is inappropriate for an advanced economy."10 "The whole system is based around a people-centered management. Japanese companies undertake their annual hiring of recent graduates expecting all the people they hire to work with them until retirement."11 Lifetime employment is often regarded as a key factor behind Japan's industrial success. Yet, "lifetime employment as practiced in Japan is no more than a general guiding principle. It is by no means a guarantee and only the large companies can afford to assure employment."12 The obvious value of such a system is the sense of stability it presents. But there are many advantages to such a system. "Consider how valuable the lifetime employment system is in winning worker cooperation for the introduction of productivity enhancing new technologies. Japanese workers see no downside risk in helping their employers improve productivity, they embrace new technology knowing it will enhance their company's future and their own jobs. Workers can then be reassigned to different work, typically making improved products."13 "The American hire-and-fire system sets works and managers against each other over new technology. American workers are suspicious of new technology because employers often use such technology to cut jobs. If a company is to innovate, it must train its workers to handle ever more sophisticated tasks."14 "Here again the Japanese labour system provides Japanese employers with a vital advantage in that they can undertake expensive training programs knowing they will enjoy a good return on the investment."15 By contrast, American employers see such training as a risk because the workers are free to take their skills to rival employers. Japanese management is also a major source of Japan's success. "A Japanese manager knows that the decisions he makes today remain permanently on his record and he may be asked to account for them many years down the road. He cannot simply sweep problems away. The company's long term success always has to be on the mind of the manager."16 "The lifetime employment system also enables Japanese corporations to groom prospective executives for many years." The managers know that the path to success is to dedicate themselves single- mindedly to the success of their companies. The lifetime employment system contributes greatly to raising employees' desire to work and to fostering loyalty and commitment to the company."17 The merits of the Japanese employment system are endless. The healthy relations provide a basis for growth. All the aspects of the employment system develop skills necessary for a stable company. Ever since the Tokyo stock market entered a period of decline in 1990, the Western press has attacked aspects of Japan's economics and portrayed Japan as in an economic slump. Westerners endlessly attack the Japanese employment system. It is true that the system was supposed to make workers fiercely dedicated to their employers, but it prevented Japanese companies from cutting the size of the work force in hard times. "While Canadian companies emerged from the recession leaner and more competitive, Japanese firms stagnated."18 The argument is always the same: as the world economy "globalizes", Japanese corporations are being drawn into increasingly head-to-head competition with Western counterparts and face extinction if they do not adopt the "more efficient" Western system of employment. This argument was "never more insistent than in the recession of the early 1990's"19, but, as on previous occasions, the Japan Employment system triumphantly silenced its critics by emerging from the recession as strong as ever. Westerners cut jobs to increase profits, the Japanese cut profits to increase jobs. Western critics also attack the Japanese education system. "Although often noted for their rigor and high test results, the school system is seen as presenting a dark side with conservatism and conformity."20 A modern economy is argued to "need creative thinkers willing to take risks, which Japan's schools are not producing."21 This may be true as Japan has a history of copying Western products detail by detail. The lack of creativity is dismissed by the Japanese. They feel that "copying is common sense. Relieved of the burden of having to come up with original designs, Japanese manufacturers can concentrate all their creative talents on the far more economically effective task of beating Western rivals in productivity."22 The school systems are producing thinkers and problem solvers. All of these attacks are underestimating the power of the Japanese. Is it an economic slump when "in the first four years of this decade, Japanese exports soared by 32 percent, the yen rose 27 percent, and Japanese employers created 3.2 million new jobs. Japan is not crumbling, it has now surpassed the U.S. to become the world's largest manufacturing economy and is ready to claim the lion's share of the world's growth."23 Attacks on Japan's ways are countless. Obviously there are many problems with the way they run their country. Yet, no one can ignore the economic success that Japan has had. The roots of the success can be traced back to the skills developed through culture and education, and the healthy attitudes developed by the Japanese employment system. The Western world could learn much from what makes the Japanese successful in business. It is not just a case of adopting Japanese techniques and technology but of recognizing and developing the necessary human skills. The East has borrowed heavily from the West in improving its business performance; the West could also take note of the lessons of Japanese history and culture and consider applying them in its own organizations. f:\12000 essays\business & economics (632)\Japan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 25/01/1997 the Japanese economy Jonathan Allen The prewar economy of Japan was a Socialist economy and the country was ruled by an emperor up to WW2 and after WW2 it started to lean towards a mixed market economy until what it is today although its government is Socialist it is leaning towards a mixed market economy. The Japanese economy is a mixed economy that leans towards market, it is like this because almost all business are run by private corporations or people and that is the market in the economy. And the reason that they are thriving and are so competitive is because of the trade tariffs and quotas that the government has in place. These regulations include heavy taxes on some products and denial on some others for example: the way Japan will only let certain foreign cars in to Japan and even then they are so heavily taxed that the average Japanese person can¹t pay that much and will have to buy a Japanese made car and at the same time in other countries they are selling their cars for less than anyone else in that country and that is what they do with most of their products and is how they get a trade surplus year after year. Manufacturing is the most important economic activity in Japan it accounts for about 28% of it¹s GDP. The Japanese people import more than half of the products that they manufacture from other countries in their crudest form and manufacture them into transportation equipment, iron, steel, chemicals, petroleum and coal products and textiles. Most of these products are produced by large corporations with many employees and the happier the employees are the more it will be done. An aspect of a market economy that Japan has is the way the companies treat their workers. The way the Japanese treat their workers is so different form the way we treat our workers here. The Japanese are so much more respectful towards their employer( the exact opposite from other countries especially those with a centralised economy) and often work for one employer until retirement. Some of the special treatment that the workers receive is housing; some of the companies namely Honda have a special housing unite for their workers and their families and a company cemetery for all the workers and their families. Because of this the employees work habits are much more productive and a larger profit can be turned and they can get a jump on the competition. In centralised economies very few lucturies are returned to the people and in market economies most of them are, in Japan there are to kinds of people farmers and city dwellers, the farmers get no lucturies and live in poor conditions while the city dwellers on the other hand get just about all the lucturies like mass transit, hospitals and if you have a job financial security. The government keeps whatever is necessary and whatever the people will buy and will export the rest. In the farmlands there is a strong sense of a command system and in the city there is capitalistic economy. Farming is one of the larger employers in Japan it employs 9% of the work force but it only accounts for 3% of the GDP.There are few government owned companies the only ones they own are some power plants, railways and some airlines as well as the commuting services and civil services. The government employs about 1 in 10 people in Japan mostly civil services. There are some strict regulations set forth by the government to insure that the countries stores are filled with Japanese goods rather than forgien goods and they include trade restrictions such as tariffs, bands and quotas. After reviewing all this evidence the Japanese economy is leaning heavily towards a market economy but does have some socialist government views and laws but the market out weighs the command. BIBLIOGRAPHY Comptons learning company 1988. InComptons encyclopedia (vol. 12 pp. 34-39.). Chicago: devision of encyclopedia Britannica, inc. John J. Curran(May 18, 1992). Why Japan will emerge stronger. Fortune, pp.46-60. Ross Laver( nov. 1991). The company man. Maclean¹s. pp. 55-57. Richard Swift(May 1992). Prisoners of prosparity. New Internationalist. pp. 4-8. f:\12000 essays\business & economics (632)\JAPANESE BUSINESS CULTURE.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Japanese Business & Culture bus 258.1An investigation of Japanese corporate culture, its trends and changes. Table of Contents1.0 Introduction 2.0 Procedure 3.0 Findings 3.1 Changing social culture. 3.2 Business Culture in Japan 3.3 Why change is needed 3.4 What is Japan and her corporations doing to develop and change 4.0 Conclusion 5.0 Bibliography Japanese Business & CultureAn investigation Japanese corporate culture, its trends and changes.1.0 IntroductionThis report is based around the following quote: "Japan's corporate culture is the product of uniquely Japanese social and historical influences, so deeply rooted as to easily repel outside influences. Bur Japanese corporations need to change their basic goals...." This report will discuss nature of corporate culture in Japan, and why change is needed. The maximum length is 2,000 words 2.0 Procedure The report was produced using library based research because of the time scale and cost. The sources used include text books, journals and newspapers.. The references have been made 'Harvard Style' and can be found in the Bibliography. 3.0 Findings The Japanese business culture has been described by Beedham as a culture that acts like a clan, in that there is a large amount of authority given to the man at the top, and in the commitment that is shown by the people around him, Beedham points out that this can be evident in the way that their car factories, investment banks and government ministries are ran. This clan-like-behaviour has the effect of making decision making painfully slow, with compromises having to be met in all directions, but this is starting to change, as the people of Japan are starting to change and have different priorities. These changes can be put down to several factors that are changing in Japanese society as a whole. 3.1 Changing social culture. The increasing and speeding up of urbanisation is one way in which corporate culture is being changed. Because of this urbanisation there is less commitment to groups as people become more individual and have their own priority in life. Marriage and family ties are also starting to loosen. Links between children, parents and grandparents are not the same as they were ten years ago. The greatest impact on peoples commitment to their work is money. As the Japanese become richer, they are starting to see that there is a lot more to just working every hour possible. With this extra money they have been given the opportunity to make friends out of the workplace and focus on other activities such as clubbing, music, football etc. and they are seeing spare time differently. But this is only taking place on the outside edge of Japanese society and the core of Japan which includes the big businesses, are still operating in the traditional way of life and it has been estimated that it will take a further fifty years before a new way of living and lifestyle becomes the norm. (Beedham) 3.2 Business Culture in Japan Business Culture is said to be the product of the mind and is often described as: "how we do things round here". (source unknown) Before describing the corporate culture within Japan it is useful to understand the corporate culture in the West as a comparison. In the West, business is simply about profit seeking. Its Managers and workers are there to increase profit for the owners of a corporation. The employees are evaluated by how much of a contribution they make towards the generating of this profit. The Western corporation is designed like a profit machine and operated like a profit machine. Within the Japanese business world, the corporation is not seen as been there for just profit. Profit is important, but it is not the only reason for the company's existence, but involves people and their future. The community factor is as important, and sometimes more important than, short term profitability. The Japanese business people see their company as a community, this community has within in it people who happen to live together by working together. The company is a living society which needs profit as sustenance for growth. Western Europe and China, has seen many revolutions throughout their history in areas such as their religions, politics, industry and culture. When these revolutions occur new system of thinking replaced the old, sometimes these changes are forced upon the population. It was not so in Japan, where new system of thought, whether made internally or introduced from abroad, was added to or mixed with what was the current ideal. Because of this accumulation and mixing of ideas, the Japanese mind has became more complex than the so called "enlightened" cosmopolitan Western mind, and retains the archaic, medieval, modern and post-modern views. An example of the almost schizophrenic thinking of a typical business man from Japan could be, an English speaking business manager of an internationally operating company may behave like a rice growing villager in his board room discussions, then the same person behaves like a Samurai clansman in the competitive market, and like a devoted Buddhist in social functions and like a scientist when he is in search of a solution for his business problems. At the core of the Japanese mind there is a basic notion of ANIMISM, this is the belief that everything has a spirit which is the nature-worshipping religion of Shintoism. Confucianism, Taoism and other schools of thought which came from China are added on top of Shintoism, which is still a powerful element of the Japanese culture and determines many aspects of the social and organisational behaviours. Chinese and Korean scholars and immigrants brought in other types of thinking into Japan and those new ideas were mixed with the indigenous ideals which has resulted in a hybrid strain of philosophy, religion and social ethics Then Buddhism which was refined in China was a further addition to the Japanese character. The final layer added the Japanese character was added through globalisation, and occurred in the middle of the nineteenth century and again in 1945. After the American occupation in 1945, to think like Europeans was strongly encouraged. This was accepted but at the same time they retained the "Japanese spirit". (source: unknown, Internet) 3.3 Why change is needed Because of the complex way in which the Japanese thought process works and the way that the corporate culture works is not seen as the easiest country to do business with. Japan protects its markets and its ideals. With the economic bubble bursting and the emergence of the China as a economic force change is needed to get the economy running at the levels it once enjoyed. As well as China there are the other Tiger economies in the Pacific that are emerging and becoming big players. There are calls for the country to go through further economic deregulation. Shoichiro Toyoda is one of the people calling for this and states: 'We have to reform and cut our high costs if we are to compete in the future.' He also says that Japanese companies should become more global, and that it is necessary for companies both to compete and co-operate in international markets and to become more outward looking, (FT 96 Dec 05 page 6) Japan needs to change from a manufacturing-led to consumer-driven economy; from an over-regulated bureaucracy to a more open market; and from a culture of corporate rigidity to one of entrepreneurial freedom. Change has to occur but as long as each section of society continues to benefit from the current situation, there will continue to be no foreseeable movement for change, this lack of development will bring about the end of Japan as a economic power or at least take away the influence it has on the world. However this change cannot just be a gradual change because if it is not quicker in the next 10 years than it was in the previous five, it is highly likely that it will not be able to get back its old position and instead will go into decline. (FT 96 Dec 02 page 20) 3.4 What is Japan and her corporations doing to develop and change At the moment there is a definite change in policy and a deliberate attempt at change within the corporations and this is helped by political changes too. An example of this is seen in the appointment of Taizo Nishimuro as the president of Toshiba. There are three reasons why this appointment was seen as against the norm. The first was that he had spent 14 years overseas. This is seen as a long time and not the norm for a future corporate, because in Japan, head office jobs are seen as the quickest and best way to get to the top echelons . Secondly Mr Nishimuro was not next in line to the job as typically happens within Japanese corporations. There were another nine executives ahead of him, this was another big change in a corporate culture where seniority matters. And finally Nishimuro was not from Toshiba's heavy engineering division but is an electronics expert, which is a big change for this particular corporation and is another indication of how much they want to change . (FT 96 Dec 05 page 6) Another corporation that is changing the way it is ran forever is Canon, who supply computer printer, copier and camera's. There internal changes have been in action for a longer period than most Japanese corporations. Their changes have been taken place over the last decade. It has given more management control to its foreign based subsidiaries, hired a greater proportion of foreign staff and management, and increased research and development abroad, and this a massive move from what is seen as the 'norm' in Japan. This change to Canon's culture and operations became even more radical during the summer of '96. During this period, world responsibility for a series of key R&D projects was switched away from its headquarters in Tokyo to the US, France and Britain. Since this there have been more Japanese corporation follow this lead. (FT 96 Nov 18 page 14) It is generally accepted that because of the structure and culture within Japanese corporations that their R&D is not as effective as it could be, as everything is from the grass roots up. The people at the bottom of the chain are asked and checked and so on. This is the reason behind these changes. The Prime Minister of Japan, Ryutaro Hashimoto, has said that he wants to put in place far-reaching financial reforms. A great surprise to all was the idea that the Ministry of Finance, which is the very heart of Japan's bureaucratic oligarchy, should be broken up. With the policy ideas of Ryutaro Hashimoto concerning deregulation, there has seen a mobile phone boom, a lowering in air fares and the establishment of Japan's first proper supermarkets In the corporate sector, cross-shareholdings are to be slowly dissolved, and a big change is in the perception that corporation have on profit. Companies are now starting to set targets for their financial returns. (FT 96 Dec 02 page 20) 4.0 Conclusion The Japanese business culture is very different from that in western countries and China and this is a consequences of their history. Japan has never been invaded but different ideologies, religions and ways of thinking have be interwoven into the Japanese character. There is however change occurring within the Japanese social structure. This is mainly down to the speeding up of urbanisation and this has the knock on effect of changing the corporate culture slightly Japanese corporations are not seen as been there for just profit. Profit is important, but it is not the only reason for the company's existence, but involves people and their future. This is however changing with corporations starting to set financial targets for themselves and cut costs. Ways in which the Japanese corporate culture is starting to change can be found in the way that promotions are decided. In the past seniority meant everything and no some positions are given on merit. Also, management positions are starting to be taken up by foreigners, as well as R&D relocation outside Japan. Japanese politics are also helping in the change of culture. Deregulation and liberalisation promote a more dynamic organisation culture and structure but these developments need backing up with further proposals to deregulate and promote entrepreneurship 5.0 Bibliography Brian Beedham, Tomorrow's Japan, The Economist, July 13th 1996 Various Internet article with no title or author. FT 96 Dec 05 page 6/ Survey - Japanese Industry: Routes to the top FT 96 Dec 02 page 20/ Lex Column: Japan FT 96 Nov 18 page 14/ Management: Time to pull back the screen ?? (footnote continued) 10 9 Japanese Business and Culture Japanese Business and Culture f:\12000 essays\business & economics (632)\John Bates Clark 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ John Bates Clark was an American economist who lived from 1847-1938. He played an important role in the development of marginal productivity, and had a great influence on the development of economic thought in the United States. Clark was educated at Amherst College and at the University of Heidelberg in Germany. He taught at Carlton College in Northfield, Minnesota from 1875 to 1881. He then moved on to teach at Smith College, Amherst, Johns Hopkins and Columbia from which he retired in 1923. In formulating the Neoclassical theory of the firm, John Bates Clark took over the classical categories of land, labor, and capital and simplified them in two ways, this simplification was the theory of marginal productivity. First, he assumed that all labor is homogenous, which meant that one labor hour is a perfect substitute for any other labor hour, but when marginal productivity was decreasing, the industry found it more profitable to replace labor with machinery. Clark believed that to make a sound economy wages had to be equal to the marginal productivity of labor. This was also beneficial to both the industry and the labor. Secondly, Clark ignored the distinction between land and capital, grouping together both kinds of non-human inputs under the general term "capital," which he then assumed that the broadened "capital" is homogenous. John took this Neoclassical approach one step further than others in applying it to the business firm and the maximization of profits. One of the results was a theory of the distribution which demonstrated that market outcomes were just. Clark also believed that technological change would lead to an increase in the standard of living which he felt was one of the chief goals of any economic system. He felt that with this technological change, labor would be more productive and lead to higher profits for industry. When the labor would see that industry was making higher profits, they would demand its share of the profits for their hard work. The labor's higher wages and the industries' higher profits would increase incomes and better the social living for everyone. Among Clark's works are The Philosophy of Wealth (1886), The Distribution of Wealth (1899), and Essentials of Economic Theory (1907). His son, John Maurice Clark, also became a noted economist, and even co-wrote some work with his father, but his work is remembered as being quite different from, and in some ways even contradictory to, his father's. Critics believe that John Bates Clark's ideas were somewhat incomplete because they showed the ideal economy and not the real world of imperfect markets and factors of production. Clark's ideas have aided in the explanation of human economic behavior, and many economists today share his views on marginal analysis and the increased standard of living. f:\12000 essays\business & economics (632)\John Bates Clark.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ John Bates Clark John Bates Clark was an American economist who lived from 1847-1938. He played an important role in the development of marginal productivity, and had a great influence on the development of economic thought in the United States. Clark was educated at Amherst College and at the University of Heidelberg in Germany. He taught at Carlton College in Northfield, Minnesota from 1875 to 1881. He then moved on to teach at Smith College, Amherst, Johns Hopkins and Columbia from which he retired in 1923. In formulating the Neoclassical theory of the firm, John Bates Clark took over the classical categories of land, labor, and capital and simplified them in two ways, this simplification was the theory of marginal productivity. First, he assumed that all labor is homogenous, which meant that one labor hour is a perfect substitute for any other labor hour, but when marginal productivity was decreasing, the industry found it more profitable to replace labor with machinery. Clark believed that to make a sound economy wages had to be equal to the marginal productivity of labor. This was also beneficial to both the industry and the labor. Secondly, Clark ignored the distinction between land and capital, grouping together both kinds of non-human inputs under the general term "capital," which he then assumed that the broadened "capital" is homogenous. John took this Neoclassical approach one step further than others in applying it to the business firm and the maximization of profits. One of the results was a theory of the distribution which demonstrated that market outcomes were just. Clark also believed that technological change would lead to an increase in the standard of living which he felt was one of the chief goals of any economic system. He felt that with this technological change, labor would be more productive and lead to higher profits for industry. When the labor would see that industry was making higher profits, they would demand its share of the profits for their hard work. The labor's higher wages and the industries' higher profits would increase incomes and better the social living for everyone. Among Clark's works are The Philosophy of Wealth (1886), The Distribution of Wealth (1899), and Essentials of Economic Theory (1907). His son, John Maurice Clark, also became a noted economist, and even co-wrote some work with his father, but his work is remembered as being quite different from, and in some ways even contradictory to, his father's. Critics believe that John Bates Clark's ideas were somewhat incomplete because they showed the ideal economy and not the real world of imperfect markets and factors of production. Clark's ideas have aided in the explanation of human economic behavior, and many economists today share his views on marginal analysis and the increased standard of living. f:\12000 essays\business & economics (632)\Judge Declares Microsoft A Monopoly.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Judge Declares Microsoft A Monopoly On November 5, 1999, District Judge Thomas Penfield Jackson declared one of the leading software companies in the world, a monopoly. The United States' government has what are called, antitrust laws, which prevent a company from having a monopoly on a market. The US charged Microsoft with violations of these laws, stating that they were thwarting such competitors as, Netscape Navigator, and other web browsers. The US justice department has accused Microsoft of being "engaged in massive anticompetitive practices." Bill Gates, owner of Microsoft, believes that the practices of Microsoft are in no way that of a monopoly, and are just forms of very aggressive competition. It is estimated that any sanctions that Microsoft faces will be appealed for years to come, prolonging this case. Judge Penfield has not ruled on whether Microsoft has broken the antitrust laws set forth by the government; and it will be years before the judge sets the penalties for these infractions. The decision of Jackson was announced after the closing of the stock market, and the market is closed for a week after this decision. This is good news, because many economists feared a large dive due to this recent decision. The court evaluated thousands of pages of electronic mail, and 76 days of testimony, and came to the conclusion that Microsoft was partaking in anticompetitive practices. Jackson stated that "Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition." The government will continue this case against Microsoft and continue to push for the penalties to be presented to the corporate giant. The ideas that the justice system has to punishing Microsoft range from, forcing the license of Windows to be distributed to other competitors, large fines, or breaking up Microsoft into smaller divisions. The process of serving the punishment will take a very long time, but one can ensure that the penalties will be great. Boston Globe Online- http://www.boston.com/globe/ By: Peter J. Howe, Globe Staff 11/6/99 f:\12000 essays\business & economics (632)\Jusstice for All.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ When we are young, most of us are somewhat naive. We are inherently taught that good will always triumph over evil. A courthouse is the forum where evil should be dealt with. But, in reality, this is seldom the case. The county courthouse looks like a typical courthouse. The courthouse itself looks like a place where justice is served. It is a Romanesque building, three stories high, with large pillars in the front. Ivy grows up one side of the building. The green grass in the courtyard is immaculately kept. The United States flag flies high above the building. Etched in stone on the front wall of the courthouse are the words" truth, justice, and liberty." This is a place where one should feel truly safe. As I walk inside the cold and quiet building, a young woman is talking with the circuit court clerk. She is very innocent looking, with blond hair and a petite figure. She seems to be getting more upset by the second. The young lady finally erupts, yelling and almost crying. Her ex-husband has not paid her child support in a month, and she cannot buy diapers for her baby. The clerk tells her that nobody can do anything about it until he is six months behind in his support. After five more minutes of intense arguing, the young lady, now engulfed in tears, leaves. The clerk shrugs and turns around. The building seems colder upstairs. There almost seems to be a dampness in the air. Down a corridor there are empty offices and paintings of important looking people. I recognize two of them as Washington and Jefferson. In between them is a copy of the constitution. As I read it I chuckle, and wonder if this government is really what they had in mind. Farther down the hall I hear voices. The general court is in session. Inside the courtroom, a scruffy-looking man is in front of the judge. He has been charged with public intoxication and resisting arrest. He does not seem nervous; he has probably done this before. I assume he will be put in jail for a little while, at the least. The judge tells the man that he does not want to see him in court again. The man assures the judge that he will not be back. With the bang of a gavel, the judge gives him a five dollar fine, plus court costs. The man stumbles out of the courtroom already looking half drunk again. As I walk out of the courtroom, the courthouse seems colder than ever. This is not a place where truth, justice, and liberty prevail. It is a place of tragedy. A place where innocent people suffer because of the system, and where guilty people walk free because of it. f:\12000 essays\business & economics (632)\Kao Corporation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Kao Corporation Executive Summary In this project, I have chosen the Fast Moving Consumer Product industry as the topic of study. First of all we will take a brief look at how the industry started in the late 19th century as soap making companies and slowly evolving into some of the most successful multidomestic company of today. Following we will have insight on the industry's prominent characteristics and highlight some of the major players. We will also get an idea of the attractiveness of the industry through the use of Porter's 5 forces industrial analysis. Included in this project is an in-depth review of Kao Corporation, Japan. Kao Corporation is one of the major players in the industry. Here we will take a look at how the Japanese based company employs strategies to reduce cost and at the same time differentiate its product from its competitors to gain competitive advantage. We will also examine some of the key financial ratios to aid us in identifying some of the company's strength and weaknesses. Then a SWOT analysis is carried out on the company. From the SWOT analysis we can formulate suitable strategies in order to improve the performance of the company. By closely examining the company's internal environment to better understand the company's capabilities and limitations and then analysing the changes in the external environment that could affect the company favourably or adversely, appropriate strategies can be formed in order to ensure high performance of the company. Then finally we will look at other possible recommendation, which I believe would help improve the company's performance in the competitive fast moving consumer products industry. Fast Moving Consumer Product Industrial Brief Fast Moving Consumer Product are products that consumer would use regularly. The product line of Fast Moving Consumer Products encompasses a wide range of products such as shampoo, body foam and facial wash. These products are classified as fast moving due to the nature of its usage and durability. While shampoos are non-perishables, the consumer would eventually finish utilizing it and would require to purchase another bottle of shampoo. Therefore, unlike products like television and radios which consumers would only buy once in a blue moon, Fast Moving Consumer Products are bought constantly from time to time by consumers. The Fast Moving Consumer Product Industry has evolving since the 19th century. Many of the major players today started of as a soap making company. Colgate Palmolive began in 1806 as soap maker in New York City. Later in 1837, William Proctor and James Gamble, formed Proctor and Gamble which better known as P&G. P&G at that time was only a candle and soap producing company based in Cincinnati, USA. Back then, there were not much innovation in the products. Soap was soap, everybody used the same soap but today due to the vast advancement in technology and the ever-changing consumer needs. Today, companies like P&G no longer just produce soaps. It has expanded its product lines into shampoo, body foam and many others. The industry underwent much evolution, not only in terms of product innovations but also production methods. As technology advanced, the trends in manufacturing changed as well. In the 1910, the trend of manufacturing moved towards mass production. This is to enable the lowering of cost and the enlargement of market reach. Mass production is still being practiced. Some time in the 1950s, manufacturing began to under take a more lean approach. This is whereby products were given more emphasis and were made possible through research and development. Quality improvement was facilitated by technological advancements. By implementing Just in Time systems, greater cost efficiency were attainable. As time progressed on, companies found that their respective domestic markets were becoming saturated and that many Big Emerging Markets were spawning across the globe. These New Big Emerging Markets opened many doors of opportunity for companies to go global. As such begin the trend of globalizations. Bodies such as World Trade Organization and GATT, which pushed for free trade on a global basis, further facilitated these trends. As such began the trend of globalization. Today, companies likes P&G Kao Corporation and Johnson & Johnson have operations around the world. Their operation could range from Foreign Direct Investments to Joint Ventures. Now, the world has just moved into the 21st century and the Fast Moving Consumer Product Industry is fast changing. With the advent of the Internet and the rapid growth of e-commerce, companies are able to capitalize on this new frontier. E-commerce is able to reach the consumers without the presence of middlemen. This reducing both price and cost. Industry's Dominant Traits In order to have a better idea of the Fast Moving Consumer Products industry, we will take a look at several prominent traits in the industry. Market Size The target market of the Fast Moving Consumer Products is very wide. The products are used by almost every one of all ages regardless of gender. Due to the large market size this tends to attract new competitors. This would cause the intensity of competition to increase. Major Players in the Industry 1) Proctor & Gamble, USA. 2) Johnson & Johnson, USA. 3) Kao Corporation, Japan. 4) Colgate Palmolive, USA. Scope of Competitive Rivalry The major players in the industry basically competes on a global scale. Thus these companies have production plants all over the globe. Plants are usually set up to serve regional markets. However, there are many other minor players who only concentrate their marketing efforts in specific region or country. Brands such as Follow Me which was incorporated in Malaysia, concentrates its marketing efforts mainly in the South East Asian region. Nature of Demand in the Industry Due t the nature of the product, the consumer would practice the Habitual Buying Behaviour. This is because the product is because the product is in inexpensive and there is low involvement on the part of the consumer. The consumer tends to buy a brand out or familiarity or far variety sake. As such the consumer might lack brand loyalty. Many companies such as Kao Corporation put effort into building its brand name to instil brand loyalty. The industry players are very much dependent on the repeat purchase of the consumer to make long term profits. Product Characteristics The Fast Moving Consumer Product is made of a wide range of Products. The following are some examples: - 1) Shampoo 2) Facial Wash 3) Detergents 4) Soap Within these product lines, there is further differentiation, for instance, shampoo for oily, dry and normal hair types. As time progresses on, companies undertake research to better satisfy the needs and wants of the market. Due to the vast differences between individuals more and more product lines are being introduced. Industrial Life Cycle The industry can be said to be of age. In most developed countries, the industry has already reach maturity and demand is saturated. However, in the Less Developed and Developing countries, the industry is said to be in its growth stage. In order to avoid many of the products to enter the decline stage, many companies have modified existing products in order to breathe new life into it. This is a tactic used to attract both new and existing consumers. Even though the market is matured, the competitions continues to intensify, many firms are introducing new products with new value or convenience in their bid to win consumer support. This in turn causes the introduction stage of the product life cycle to be shorter as competitors are fast to introduce new products into the market. Products are being designed to be more diversified into the individuality of consumers. As such, the trend in the industry is that many new products will be constantly introduced into the market at a much faster rate than before. Industrial Competitive Forces Analysis (Peter's 5 Forces) Intensity of Rivalry The intensity of rivalry is high in the Fast Moving Consumer Product industry. This is due to several factors. First of all, there are many players in the industry. Apart from the major players, there are many local and regional competitors, which implement different strategies. Some brands like Zaitun, which uses a religious approach to selling its product. Zaitun's strategy proved successful in Islamic countries is no longer experiencing rapid growth. In fact, many developed country's market is saturated. As such competition is fierce, as they fight for the same slice of cake. Rivalry is further intensified by the fact that consumers can switch between brands easily and incurring virtually zero cost. This fact causes companies to constantly fight over the same consumers. Firms use many different strategies to obtain competitive advantage ranging from product innovations to low prices. The strategy used would depend on the market position of the firm. Threat of Entry The threat of Entry into the Fast Moving Consumer Product industry is quite high as new entrants would require a considerable amount of capital in order to set up a production plant and other administration cost. More over, the existing firms, especially the major players, which are multidomestic companies, have considerable cost advantage due to economies of scale. As such the new entrants would have a smaller profit margin. In addition, in order to produce good quality products, firms have to undertake Research & Development efforts. These factors make the industry less attractive to new entrants. However, the industry does not require high levels of technical know how in its production process and it is not subjected to many government regulations. This eases the entrance of firms somewhat. Threat of Substitution The threat of substitution is not very prominent in the Fast Moving Consumer Product industry. Although the switching cost of the consumer is very low, there is not many substitution for Fast Moving Consumer Products. Take for instance, there is no real substitute for using shampoo to wash hair. Although today, soap has much been substituted by body shampoo, but the firms which used to produce soaps, also produces body shampoo now. Therefore it can be summarised that there is no real substitute for Fast Moving Consumer Products. Power of Suppliers Much of the input required by Fast Moving Consumer Product industry is in the form of chemical. Many of the major players in the industry vertically integrate backwards in order to reduce the power of suppliers. For instance Kao Corporation has raw material bases in the Philippines and Malaysia. These places have ample supply of key raw material such as coconut and palm oil. The reduction of power of suppliers not only gives the firm lower cost which translate into higher profitability but also better control of the quality of its inputs Power of Buyers In the Fast Moving Consumer Product industry, the main buyers are the hypermarkets and other High Traffic outlets. Due to the purchasing power of hypermarkets, there is considerable power of buyer to dictate terms with manufacturers. While many of the major players have the resource to forward integrate but would find it uneconomical to open up a hypermarket just to sell its product to the consumer. However, with the development of the Internet, there lies a possibility for firms to reduce the Power of Buyers in this industry. Kao Corporation Company Background Corporate Name Address Foundation Capital Kao Corporation 14-10, Kayabocho 1-chome, Nihonbashi, Chuo-ku TOKYO 103-8210, JAPAN June 1887, TOKYO, JAPAN 78.0 billion yen (as of March 1998) (approx. US$590 million) Mr Tomiro Nagase established Kao Corporation in June 1887 in Tokyo. Back then, Kao Corporation was only a soap making company. Today Kao Corporation has become a multinational company with operations all over the globe. It succeeded in establishing itself as a leading manufacturer of daily use household products. In Malaysia, Kao Corporation Japan chose joint ventures in order to gain entry into the local market. Kao (Malaysia) Sdn. Bhd. was formed on 20th March 1973 as a private limited company. The partners consist of Kao Japan, Boustead holding and Felda. Both Kao Japan and Boustead holds 45% of the total shares each, while Felda holds 10% of the remaining shares. The capital structure is as follows: - TOTAL (RM) ORDINARY PREFERENCE OTHERS ALLOWED 25000000 Total Shares 25000000 0 0 Divided into 25000000 0 0 Nominal Amount per Share 100 0 0 (in cents) ISSUED 16000000 Cash 16000000 0 0 Others 0 0 0 The share holding is as follows: - SHAREHOLDER'S DETAILS COMPANY NAME TOTAL SHARE FELDA TRADING SDN. BHD. 1600000 BOUSTEAD HOLDINGS BHD 7200000 KAO CORPORATION 7200000 Kao Corporation's mission is to ensure the complete satisfaction and the improvement of the daily lives of its customers. Developing products of high value and quality for its customers does this. Kao Corporation strives to win the confidence and trust of its customers in the core fields of cleanliness, beauty and health. Due to the fact that Kao products are sold internationally, it has to ensure that its quality is maintained all around the globe. As such Kao Corporation objectives is to ensure that Kao products is of equivalent quality as Kao products in all parts of the world. This is important in order to maintain Kao product image and reputation internationally. Through this standardisation of quality, Kao is able to instil reliability in its customer's mind. While Kao Corporation aims to obtain profitable growth, it never neglects its responsibility to the society and environment. Kao Corporation strives to exist in harmony with Mother Nature in the course of its human activities. Management and Operational Strategies Kao Corporation is currently a multidomestic company with operations around the world. However, Kao Corporation has operations in 3 major regions, which is Asia, Europe and North America. Within each country, Kao Corporation sets ups its operation in the form of Foreign Direct Investments or Joint Ventures. For instance in Malaysia, Kao Corporation formed a Joint Venture with Boustead Holdings and Felda to form Kao Malaysia. The Joint Venture was seen as a necessary step to overcome entry barriers into the Malaysian market. Due to political and legal environment, the Joint Venture was seen as a strategic move to gain entry. Moreover, due to the vast difference between the Malaysian and Japanese cultures, a local partner was essential in aiding Kao Corporation to successfully market its product in Malaysia. Local partners know the local climate of the market and as such were in a better position to formulate appropriate marketing strategies suited for Malaysian market. Economic Value Added (EVA) Kao Corporation recognises that in order to be successful in a competitive world; the company cannot just emphasise on product quality and reliability. The company now is moving into cost efficiency. This means that Kao Corporation is moving a level up in the corporation's business strategy theme. A model of Business level strategy was introduced by Nakane-Hall and can be seen below Speed/Flexibility Cost/Efficiency Dependability Quality In order to achieve better cost efficiency, Kao Corporation has decided to incorporate EVA in its management system. The objective of Eva is to steer the company towards sustainable profit growth. EVA was implemented as of April 1999 for the parent company. EVA was created by Stern Stewart which is a New York based consulting firm. The aim of EVA is to give importance to cost of capital. EVA determines the amount of economic value created by the corporation. This is done by deducting the cost of capital employed from the net operating profit after tax. EVA is believed to encourage its managers to find more value creating employment of capital. This in turn will make Kao Corporation more competitive. In addition, EVA is able to better the relationship between management and shareholders. The interest of managers and shareholders can conflict at times and this in turn could result in poor performance of the company. EVA will be used as a means to make decisions for daily operations. Employees will be trained on the method of using EVA to create higher awareness of the importance of cost of capital and value creation. Moreover, to ensure the effectiveness of EVA, managers will be compensated through an incentive system which will better motivate the managers to help ensure the success of EVA. In the long run, EVA will be constantly innovated in order to ensure constantly profitability growth in the future. Operational Reform In 1986, Kao Corporation began an operational reform process which is still ongoing till present time. The reformation was aimed at improving work methods and planning process, which would result in the reduction of cost. To this end, Kao Corporate integrated Total Cost Reduction (TCR) in its corporate culture. Currently apart from the implementation of EVA to increase competitiveness, Kao Corporation has undertaken structural reforms in the areas of production, sales and distributions. As of 31 March 2000, the production plant of the Kyushu will be changed into a distribution base in order to facilitate the distribution channels in Japan. In addition, Kao Corporation aims to become the best in customer service in the whole of Japan. In order to achieve this, Kao Corporation has consolidated 8 of its sales company around Japan. On the international front, Kao Corporation seeks to build strong partnerships with companies, which would complement the company. In a recent development, Kao Corporation formed a Strategic Alliance with Beiersdorf AG in order to strengthen the sales of Biore in Europe. In the US, Kao Corporation entered into an agreement with S.C. Johnson & Son, Inc., to market Kao's household cleansing kit in U.S. These are examples of the many mutually beneficial partnerships, which Kao Corporation has undertaken. In conclusion, Kao Corporation has recognised the need for management to implement cost reducing strategies in order to improve profitability and competitiveness on a global scale. Moreover, Kao Corporation is constantly evolving and restructuring its operation all in a bid t make the company into a successful global company. Marketing Strategies Consumer Oriented Approach The consumers are the heart of the industry. Thus, it makes sense to put emphasis on the consumer's needs and wants. In order to serve the consumers better, Kao Corporation undertakes many efforts to identify their needs. To accomplish this task, the Kao's Business Divisions, the Product Development Department and the Research and Development Division will take an insight into the daily lives of the consumer in order to create innovative products. In addition, Kao's Consumer Information Centre gathers consumer's inquiries and comments on a daily basis. This is called the Kao Echo System. The Kao Information Centre provides information to all Kao's divisions. To further increase the effectiveness of the collection of consumer data, Kao established an information oriented sales organisation. In 1994, Kao took part in the Electronic Data Interchange (EDI) program with the retailers. This program became the foundation of the birth of the Efficient Consumer Response (ECR) program. These programs served more than just to provide Kao with sales information on a real time basis. The information gathered by EDI and ECR were used as guidelines for new product developments. Retail outlets are an essential contact with the consumers. While the gathering of information is crucial, Kao Corporation always keeps in mind the view of the consumers. In order to better understand the consumer's real needs in their everyday lives product developers and marketers would visit homes of product test users to carry out interview with them and obtain firsthand information about the product usage. Kao does not only concentrate on making discoveries on the product but also the method of usage is given emphasis so that it is not inconvenient for the consumer to use. Products that truly satisfy the consumers are the basis of establishing Kao's brand. Kao is an international brand and as such it is imperative that efforts to implement consumer orientation must be on a global scale. By taking into consideration the different cultures of each country, Kao Corporation will adapt its product to suit the local needs and preferences. Kao believes the consumer-oriented approach to develop new products will strongly aid the company in establishing a strong brand in the global market. Product Building Kao's Brand Power Being in the Fast Moving Consumer Product industry, Kao recognises the importance of brand power. By increasing Kao's brand power, its corporate strength can be significantly reinforced. Presently, Kao has succeeded in empowering its brand. In 1997, the Nikkei Research Institute of Industry and Markets rated Kao Attack as the best selling brand in Japan. This shows that consumers have a good perception and have high brand loyalty towards Kao. Building Brand Power is a constant ongoing practice, undertaken by Kao. One of such efforts is to utilise Research & Development to support brand building. Through the synergy of scientific knowledge and technological know how, Kao is able to produce new and improved products which would offer consumers more value. Take for instance, Kao scientific research were the first to discover that wrinkles is due to a biochemical process. Thus Kao came up with Sofina Seraty which was able to slow down this ageing process. With constant product improvements and innovations, Kao is able to offer better products to the consumers. This in turn strengthens Kao's Brand. As can be seen here Research & Development is an essential part of the company's strategy in building a globally recognised brand. Research & Development is able to support the brand product innovations. With constant product improvements and innovations, Kao believe it is able to gain the trust of the consumers through strong brand loyalty. This in turn will contribute to Kao's overall objective of achieving profitable growth. Product Quality In addition to building a strong brand, Kao aim to satisfy its consumers all around the world. As we know, Kao is dependent on repeat purchase and by satisfying its consumer, Kao stands to benefit from repeat purchase. A satisfied consumer would tell 3 people about his/her bad experience. In line with Kao's globalisation goals, Kao Corporation ensures that the quality of Kao products all around the world is of similar standards. This is so that consumer can rely on Kao's products anywhere around the world. Price The pricing objective of Kao Corporation has to coincide with the company's business strategy. In general, the Fast Moving Consumer Product industry is very price sensitive. This means that competitors are very fast to respond to any changes in Kao's pricing and vice versa. Kao Corporation prices its product according to the product's position in the market. Take for instance in Malaysia, Kao Laurier is the leader in the sanitary market. As such, Kao does lowers it prices even though the competition has decreased its prices. This is because Laurier is a quality leader and lowering of prices could cause its image to be jeopardised. However in the shampoo market, Kao is the market challenger of P&G. In this case, Kao would change its prices according to changes in prices of P&G products. Overall, due to the sensitivity in prices, Kao has to adopt a follow the leader pricing strategy in order to avoid a wide price war among competitors that would be very costly to the industry as a whole. Kao's Pricing strategy during the Asian Crisis The Asian Crisis, which caused many repercussions in the region, has a significant impact on Kao Corporations especially several of its foreign subsidiaries. Kao Malaysia was very heavily dependent on imports for its raw material. However when the Asian Crisis struck the Malaysian ringgit depreciated drastically. This in turn caused its cost to rise drastically. This left Kao no choice but to increase prices as well in order to survive. However, should Kao Malaysia had increased it prices in proportion to the rise in cost, the Kao would have faced the risk of losing market share to its competitors. In order to cushion the effects of the price increase, Kao increased its prices gradually. Kao Malaysia increased its prices quarterly and each time the increase would be an increase of 10% - 15%. This would consumers would not feel the price increase is too exorbitant. The psychological effect of this strategy on the consumers proved largely successful. Today, prices have stabilised and Kao managed to pull through the crisis without losing its market position. Distribution Channel Kao Corporation established on information oriented sales organisation to carry out regional marketing directly with retailers. In 1994, Kao incorporated the Electronic Data Interchange (EDI) program. The EDI is an online processing of information between Kao and retailers to enable speedy and efficient distribution of products. This co-operation thus successfully minimised transaction and operational cost. The success of EDI led to the development of Efficient Consumer Response (ECR) program. This made it possible for Kao to constantly innovate its distribution and other marketing activities. Moreover, Kao Corporation sets up regional production plants in order to reduce cost. Countries chosen would be one that has low production cost due to cheaper rent and labour. Regional plants make distribution within the region to be faster and cheaper. However, Kao Corporation still practices the conventional distribution channel despite its efforts to reduce logistic cost. (Refer to Appendix A). Promotion The establishment of Kao products in the market is Kao Corporation promotion objective. This is especially important due to the fact that in the Fast Moving Consumer Product industry, consumer practice the Habitual Buying Behaviour. This is whereby the consumer would choose a brand based on familiarity or convenience. Through the use of Promotion, Kao aims to instil brand loyalty. The media is also very useful for Kao Corporation to create awareness in market about a new product. Through the use of advertisements Kao can educate the public about the existence and the benefits of particular new product it has launched. The promotional tools used by Kao are as follow: - 1) Advertisements - TV, Radio, Newspaper and Magazines. 2) Personal selling 3) Sales promotion Competitive Strategies Currently Kao Corporation uses the differentiation strategy to fend off its competitors Kao has adopted a consumer orientated approach in order to better understand the needs and wants of the consumer. Kao is always improving its existing product through Research & Development in order to provide value for the consumers. At the same time, Research & Development enables Kao to introduce new products into the market. Some of these products are first in the market while others are new product lines aimed at winning market share from competitors. Take for instance, in order to fight fierce competitors such as P&G in the hair care market, Kao introduced Lavenus which is a new hair care line. Lavenus has L-AHA formula to make hair softer and shinier. This is Kao's attempt to differentiate its products from that of its competitors. By providing superior quality and value for the consumers, Kao's strategy is to instil brand loyalty in its consumers to achieve long term success in the market. Competitors such as Follow Me and Ginvera employs the low cost leadership. These firms use price to gain market share by undercutting Kao Corporation. In defence, Kao uses promotional efforts to emphasis on Kao products superior quality and features. With constant Research & Development activities to ensure consumer satisfaction, Kao has been able to fend off the low cost producers. However there are competitors like P&G and Johnson & Johnson who employ similar differentiation strategy. Both P&G and Johnson & Johnson carry out heavy Research & Development efforts in order to create value for consumers in their product. In addition Johnson & Johnson emphasise on product reliability to gain the trust of the consumers. In order to stay competitive against these strong competitors, Kao has employed lower cost strategy to increase its profitability. However, Kao does not compromise its product quality in its struggle to reduce cost. Instead it reduces cost through increase efficiency in management and operational activities. This enables Kao to stay ahead in the competitive environment of the Fast Moving Consumer Products. Evaluation and Comment of the Implemented Strategies Now that we have seen Kao Corporation's strategies, we can evaluate the degree of effectiveness of these strategies. First of all, it is dear that the company's current goal is to increase profitability. One of the methods Kao intends to achieve this is through cost efficiency. Since 1986, Kao launched Total Cost Reduction Program to steer the company towards greater cost efficiency. Now in 1999, Kao's cost reduction efforts are still continuing with the implementation of Economic Value Added Program which aims to increase the value creation capability of the company by training management the importance of cost of capital in making decisions. While this is generally a good strategy, it remains to see how well EVA will perform especially in the area of conflict of interest between management and shareholders see eye to eye in order for the company to sustain profitable growth in the long run. Looking at Kao's marketing strategies, the company has managed to layout a well-designed product with emphasis on Research & Development efforts in order to satisfy the consumers better. The consumer is at the heart of Kao Corporation's marketing strategies. As such, Kao channels considerable efforts into understanding the needs and wants of the consumer. Products are ensured to be of satisfactory quality and value for consumer. While products are of superior quality, Kao does not price its product exorbitantly. In fact, all Kao products are priced competitively in order to win market share. However pricing is not everything. Kao's uses promotion in order to instil brand loyalty and increase company profitability. However it is very hard to accurately measure the effectiveness of above the line promotion efforts. Moreover, the cost of advertisement and other promotional tools could be significantly high. Once promotional efforts have been carried out, Kao has to distribute its product into the market. While Kao has adopted the EDI and ECR programs effectively to reduce logistic cost while speeding up the process. However, contradictory to Kao's effort to reduce logistic cost, it still maintains the conventional methods of distribution. Kao's distribution channel still consists of many levels, which results in higher distribution cost. Currently Kao Corporation is a multidomestic company. However, the world is moving towards globalisations but Kao Corporation is not showing signs to steer the company towards this end. There are no clear strategies that are aiming at transforming Kao into a global company, which would benefit Kao Corporation in the long run. Financial Analysis For the financial year ended 31 March 1999, Kao Corporation's consolidated net sales saw an increase of 1.9% to ¥924.5 billion. (Refer to Appendix B). Despite the sluggish Japanese market, domestic sales of household products continued to increase by 1%. This was largely due to the company's ability to improve its products while introducing new products into market. These were made possible through the Research & Development efforts of Kao research team. In the Asia and Oceania region, Kao Corporation was able to strengthen its core brands that resulted in the increase in the region sales. Despite the Asian crisis, Kao Corporation managed to expand sales. This proved that the company's strategy to build brand power was a right move. As for North America and Europe region, the strong sales performance by Biore facial core products, Kao's sales were substantially boosted. In addition, Kao took several other strategic steps to strengthen its presence in the region. In May 1998, Kao Corporation acquired Bausch & Lomb Inc, which is a skin core company founded in the United States. In the Europe, Kao Corporation formed a strategic alliance with Beiersdorf A.G in Germany to launch Nivea Usage. Following are some of the key financial ratios, which I believe would be useful to give us a better insight of the company's financial standings: - Return on Equity (Refer to Appendix C) The return on Equity of Kao Corporation has been fluctuating between 5% to 7.68% in the past 5 years. The low was during the year ended 31 March 1998 where the ROE was 5.77%. This was probably due to the sluggish economic situation in the Asian region. However in 1999, the ratio rose to 7.68%. On an overall, Kao Corporation has been able to maintain profitable performance over the past 5 years. This shows that the strategies of Kao Corporation have been successful. However, while Kao has positive returns, if it is insufficient to cover the cost of capital, then it is not sufficiently profitable. Earnings per Share (Refer to Appendix D) The earnings per share of the company has shows significant increase over the years. The high was in 1999 with ¥55.98 per share while the low was in 1995 with ¥39.49 per share. This shows that Kao has been successful in creating value for the company. Kao has been able to protect the shareholder's interest in the company. This means that management does not just look after their own interest but also take into the consideration of the shareholders. Inventory Turnover (Refer to Appendix E) Kao Corporation's Inventory Turnover has been maintained above 4 times per annum over the past 5 years. This means that Kao Corporations stock are moving relatively fast. The public largely accepts its products and the company does not face the problem of slow moving stocks. Acid Test Ratio (Refer to Appendix F) Kao Corporation's acid test ratio has been on the rise over the past 5 years. In 1995 the ratio stood at 55.41% whereas by 1999, the ratio was at 101.67%. This means that Kao's liquidity has been improving. An acid ratio of 101% would mean that the company is able to meet any short-term obligation and it has sufficient funds to cover all its current liabilities. This shows that the company is in no danger of liquidation in the near future. Debt Ratio (Refer to Appendix G) Over the past 5 year, Kao's debt ratio has been decreasing. Currently the debt ratio stands at 39.18%. This means the company is reducing its leverage. Lower leverage would mean less financial risk and creditor commitments. Moreover lower leverage would translate into less interest payments. However, at present, 39.18% of the company's assets are still financed through borrowings. This is still considered quite high and risky on the shareholders as in a case of liquidation; creditors would be paid first. SWOT Analysis Potential Internal Strength Ability to discover consumers needs Through the use of consumer orientated approach in its marketing strategy, Kao has been successful in satisfy its consumer. With specific efforts undertaken to obtain valuable feedback from consumers, Kao has constantly been able to keep track of changes in the consumer's taste or needs and as such be the first to satisfy those needs in the market. Combined with Research & Development efforts, Kao is able to capitalise on the opportunities and gain competitive advantage. Superior Research & Development Currently Kao Corporation Research & Development efforts encompass a wide range of fields such as surface science, organic chemistry, polymer science, biological science and material science. At Kao Corporation, Research & Development work is on cutting edge technology which in turn enables Kao to develop new products that provide value and comfort to meet consumer's needs. Moreover, Research & Development efforts is not only focused on making new products but also considering the product design and the convenience of packages through ergonomic improvements. Strong Sales Force In Japan, Kao Corporation has its own sales company system, which differs from other competitors. Kao develops close relations with the retailers. By co-operating and working together on many issues such as store shelves to make convenient for consumers to choose and purchase products, and also improve logistic efficiency through the use of EDI and ECR. Effective Profit Management Over a 5 year period beginning in 1995, managed to sustain profitable growth. In 1999, the Return on Equity ratio rose to a high of 7.68%. This continued profitability would aid Kao in its growth and expansion goals. Profits in turn will provide Kao with the required resources to develop superior products. Over the years, Kao has shown stability and sustain growth due to its effective profit management. Established Brand Name Kao Corporation has been in business since 1887, and by today Kao's product is being marketed all around the globe. Kao's product has managed to penetrate many markets and has gained the confidence of the consumers. Wide Product Lines Kao produces many different types of products. Kao has a very diversified product line including household detergents, skin care, and hair care and facial cleanser. Not only Kao's product line diversified horizontally but also vertically. This means that within each product line would break down into many other products. Each product is aimed at a different segment of the market. Large Capital As of 31stMarch 1999, Kao's capital stood at ¥451,776 million. This will enable Kao to undertake any new profitable ventures. Large capital will provide the resources it needs to finance all expansion and growth plans. High Liquidity Since 1995, Kao Corporation's Acid Test Ratio has been rising to reach a high of 101.67% in 1999. This shows that Kao's liquidity has been strengthening and currently very strong. Strong liquidity would mean that it is able to meet all short-term financial obligations and in the short run should any adverse events turn up, Kao Corporation would be in a better position to survive the ordeal. Reducing Financial Leverage The debt ratio of Kao's Corporation stood at 39.18% at 31 March 1999. Kao has been reducing its debt ratio over the past 5 years. This move will reduce the company's financial commitments and financial risk. Potential Internal Weaknesses Multiple levelled distribution channels As discussed earlier, Kao Corporation still utilises the conventional distribution channel. This causes the distribution channels to consist of more levels. As such this could increase the logistic cost in the system. This in turn causes higher prices for consumers and lower profitability for Kao Corporation. In addition, more levels in the distribution channel will cause logistic lag time to lengthen. Longer logistic lag time could cause lower responsiveness and other stock out cost at the point of sales. Non Keiretsu Company Currently, Kao Corporation is not a Keiretsu company like some of the successful Japanese firms. Keiretsu are very large and are able to enjoy huge economies of scale. Moreover Keiretsu have the ability to integrate forward and backward to reduce the power of buyer and supplier. Reliance on Imports Many of Kao Corporation's subsidiaries outside of Japan depend on imports of raw material. This in turn makes these subsidiaries to be vulnerable to fluctuations in the Foreign Exchange Market. This is evident in the case of Kao Malaysia. When the Malaysian Ringgit depreciated drastically during the Asian Crisis, Kao Malaysia experienced significant increase in raw material cost. As such Kao Malaysia experience losses during the year 1998. Moreover imports are subjected to import tax and this could again cause cost to rise should the local government decides to increase taxes. Relatively high leverage Even though the debt ratio is showing a downward trend, it is still relatively high. At 31 March 1999, the debt ratio stands at 39.18%. This means that almost 40% of Kao's assets are being financed by borrowings. As such this could cause the company to be bogged down by heavy interest and loan repayments. Potential Environmental Opportunities Emerging Markets Many developing countries such as Malaysia, Indonesia and Thailand are fast becoming tomorrow's Big Emerging Markets (BEM). These markets have potential to grow and will contribute a significant portion of the tomorrow's world GDP. There could be an increase in demand in these countries for Kao products. Downfall of Communism In the 1990, the world saw the downfall of communism. The Soviet Union broke up and China began to open up its economy to the world. New countries such as Slovenia, Ukraine and China are new markets whereby Kao can market its product. Previously under communism it was hard for Kao to penetrate these markets but now that communism has fallen and capitalism is taking over, Kao can capitalise on this opportunity to expand its operation an a global scale. Liberalisation and Free Trade Currently the world is progressing towards free trade. Much of the efforts are being carried out by the World Trade Organisation (WTO). Free Trade would mean less trade barriers among countries. When tariffs and quotas have been removed, Kao Corporation will be able to operate more profitably. E-commerce All around the world, the Internet is gaining popularity. The latest development in the Internet is E-commerce. Many believe that E-commerce will be the future way of the business world. By selling product directly to the consumers through the Internet Kao Corporation can significantly reduce its distribution cost. Changing Age Structure In many countries, the population is said to be getting older. There is a slow down in birth rate but more importantly, Baby Boomers who were born just after the World War II are now ageing. Taking over, as consumers of the future are the Generation Xers. The generation born between 1965 to 1976 and are poised to have a big impact on the workplace and marketplace of the future. Population Growth in Developing Countries Developing countries like Malaysia is expected to experience population growth over the next few decades. As such increase in population would translate into increase demand for Kao's products. Potential Environmental Threats Increase Power of Buyer Today, there is a new trend of major retailers forcing manufacturers t manufacture products, on the retailer's behalf using the retailer's brand. This is already happening in U.K. where Tesco, which is one of the major retail outlets throughout U.K. is forcing manufacturers like Coca-Cola to manufacture soft drinks using Tesco's name instead of Coke. If Coca-Cola disagrees, then Tesco will not carry Coke in their stores. This will cause a drastic lost of market share. Should this happen to Kao, then Kao would be forced to create another competitor which would undercut Kao's prices or virtually no existent demand growth in Japan. Intensifying Competition Competition in the Fast Moving Consumer Product industry is intensifying both domestically and internationally. Kao is facing fierce competition such as P&G and Johnson & Johnson. These competitors are fast to introduce new products into the market by undertaking heavy Research & Development efforts. Moreover, the number of competitors are increasing, brands such as Shokubutsu body shower by Lion Corporation are fighting for the same piece of cake that Kao is competing far. Country Risk As Kao Corporation expands its operation worldwide it faces the risk of the foreign government exercising unfavourable policies such as domestication or expropriation of assets. When this happens, the firm will stand to suffer huge losses. Iran once expropriated all U.S. assets in the country. As a result, U.S. firms lost millions of dollars. Forex Fluctuations Being a multidomestic company, Kao's profits can be adversely affected by foreign exchange fluctuations. The Asian Crisis was a perfect example of this. Moreover, over the years the Yen has been strengthening. This makes Kao's products to be less competitive in the global market. Recommendation Internal Factor External Factor Strengths - Ability to discover consumer need - Superior Research & Development - Strong Sales Force - Profitability - Establish Brand - Wide Product Line - Large Capital - Liquidity Weaknesses - Many levelled distribution channel - Non-Keiretsu - Reliant on Import - High Leverage Opportunities - Emerging Market - Free Trade - E-commerce - Changing Age Structure - Population Growth SO Strategic - Expansion - New Product - Globalisation WO Strategic - E-commerce venture - Vertical Integration - Diversification Threats - Increase Power of Buyer - Intensifying Competition - Country Risk - Forex Fluctuation ST Strategic - E-commerce - Superior Products - Lower Cost/Price - Vertical Integrate WT Strategic - Hedging - Acquisition/Mergers - Strategic Alliance - Divest/Turnaround Table 1: SWOT Analysis Strategies Now that we have seen Kao Corporation's SWOT Analysis, we can now relates the 4 different elements together to form effective strategies for the company. Table 1 shows the key factors in each element, strength, weaknesses, opportunity and threats. Basically the strength and weaknesses makes up the company's internal environment. The external environment on the other hand, consists of opportunities and threats. Internal environment is controllable by the firm where as the external environment depend on factors such as politics, economic, social and technology. By using the combining internal and external environment, we can obtain a basis for strategy formulation. The following are some of the strategy that we can formulate using SWOT analysis. SO Strategies As discussed earlier, there are many Big Emerging markets, particular in the Asian region, which are developing countries. These developing countries are experiencing population and economic growth. Thus, these markets are great opportunities for Kao to expand its market share. Moreover, with the newly born countries such as Slovenia due to the fall of communism, Kao can expand its operations into these markets. Kao has the capital and with its well-established brand name, the company should be able to successfully penetrate these untapped markets. As for the change in global age structure and the upcoming of Generation Xers, this provides Kao an excellent opportunity to capitalise on the future. As Kao already has the ability to discover consumers needs, Kao should undertake efforts to understand the taste, needs and wants of the Generation Xers. Accompanied by Kao's superior Research & Development capabilities to develop new products especially targeted at the Generation Xers. With the support of Kao's strong sales force, Kao would be well position to obtain competitive advantage in the future. Another important trend is the liberalisation of trade worldwide. With WTO, efforts to remove trade barriers, it is a golden opportunity for Kao Corporation to steer the company towards globalisation. By moving from a multidomestic company to a global company Kao Corporation can enjoy higher levels of Economies of Scale. Free Trade will ease Kao's entry into countries, which previously impeded while the removal of tariffs and levies will increase Kao's profitability. WO Strategies As we know one of Kao's major weaknesses is the many levels in the distribution channel. This can be overcome through the use of the Internet and its E-commerce capabilities. E-commerce will link Kao directly to the consumers and this in turn will make it possible for Kao to reduce its logistic cost, as there would be no more middlemen cost. In addition, prices can be lowered due to no middlemen mark ups, thus an increase in consumer's surplus. Kao is one of the oldest companies in Japan and yet it is not as successful as some of the Keiretsu companies like Toyota and Mitsubishi. These companies are very well diversified with high levels of forward and backward integration. Keiretsus experiences a lot of cost savings and economies of scale. As the world economy is changing the future is very unpredictable. Kao Corporation should look into appropriate diversification plans, which could be related or totally unrelated to Kao's core competencies. It is always a god idea not to put all your eggs in one basket. Moreover, Kao has the capital to achieve this in stages. ST Strategies In the fast evolving world today, many threats can be obstacle in Kao's struggle to achieve ultimate success. First of all, in order to overcome the threat of powerful buyers, which can dictate unfavourable terms with Kao, Kao can capitalise on the exciting capabilities of the Internet. By using E-commerce, Kao can remove the need for retailers and as such reduce the threat of powerful buyers. Another threat is intensifying competition. Increase competition means lower profitability. With more competitors fighting for the same piece of cake, Kao has to device ways of staying ahead of the pack. One of these is to use Kao's superior Research & Development capabilities to develop new products before the competitors do. In addition, Kao should strive to lower its cost in order to increase its profitability. Through the use of Economic Value Added and Total Cost Reduction program, Kao can effectively lower its cost. However, this might not be sufficient. Kao has large capital and large capitals need proper management in order to obtain maximum profit for the company. At the same time lower cost and prices can help maintain the competitiveness of Kao's products although the Yen continues to rise against the US dollar. WT Strategies While the weaknesses of Kao Corporation may not be on that is very serious, it can be significantly amplified with threats from the external environment. Fluctuating Forex can cause severe losses due to heavy reliance on raw material imports by Kao foreign subsidiaries. In order t counter this setback, Kao has to engage into financial hedging activities. Through the use of forward contracts and put/call options, the risk of Forex fluctuations can be significantly reduced. As for the intensifying competition, Kao can try to merger or acquire a competitive firm. The acquired firm should be one that creates value for Kao Corporation. This would be especially beneficial if the acquired firm has a competitive advantage over Kao Corporation. However, this strategy could be quite capital consuming. Another alternative is to form strategic alliances with competitor for a mutual benefit. The idea is "if you can't beat them, join them." Strategic alliances can also be used to reduce the threat of buyers. By forming alliances with major retailers, Kao and retailers can stand to benefit from better understanding of each other's needs and difficulties. Then together find a productive solution to the problem. Sometimes, business is not all about war, sometimes its about making friends who we can rely on. However, in the unlikely case of severe economic turmoil and accompanied by severe competition, Kao has to try to employ a turnaround strategy. Depending on the situation, it could use offensive strategies which would include low-cost or adopting a new differentiation strategy. This strategy would require significant resources. In a worse case scenario it could have no choice but to harvest what it has left and exit the industry as soon as possible. These strategies are very negative in nature. In my opinion, the best strategy is to ensure that the company never comes to this stage. Other Recommendations A part from the strategies, we have obtain through the use of the SWOT Analysis, there are other recommendation I would like to make. First of all, the company should take steps to look into its Financial Management. In sight of the company's optimal capital structure in line with the Kao's launch of the EVA program. High gearing might provide cheap capital to the firm. However the trade off is higher financial risk. Higher financial risk would cause shareholders demand for an additional risk premium. This is an increase to the cost of capital. Moreover, in Appraising projects just considering cost of capital and the usage of Net Present Value Method or Internal Rate of Return would be sufficient. Current there is a new method called the Project Wealth Creation Profile. The idea is that projects are competing for capital and projects should be awarded according to the following criteria: - (a) Financial Value (b) Cash Flow Profiles (c) Strategic Value (d) Stakeholders Value (e) Risk Profile (f) Management Motivation As capital is scarce, the company should employ careful steps in deciding how to spend its capital. As for the operation side of Kao Corporation, it has yet to implement Just in Time stocking system. A lot of Kao's Japanese counterparts have already adopted JIT. JIT can provide Kao with stockholding cost savings. This would be inline with Kao's ongoing operational reforms and Total Cost Reduction efforts. In the area of marketing, Kao should develop a catchy jingle to accompany a unique advertisement, which will be shown repetitively. The aim is to have high Brand Recall Rate in the minds of consumers. Then at the point of sale or high traffic outlets, supporting promotional tools such as promoters and shelf fliers should be use. By combining high recall rate and supporting promotional tools at the point of sale, Kao's sales can be increase. This is because most of the time, the decision to buy a fast moving consumer product like shampoo is made at the point of sales. Moreover, as Islamic countries like Malaysia and Indonesia emerge as the big markets of tomorrow, there is an opportunity for Kao Corporation to use its R&D capabilities that would be specially designed for the Islamic society. Zaitun in Malaysia has proven that this strategy can be very successful. In addition to obtain further cost reduction, further product standardisation should be adopted. Standardisation of products can give the company more economies of scale. Currently Kao does not standardise its products. Most new products are first launched in Japan then later brought over to the South East Asia region. By launching its new products simultaneously worldwide, it can take advantage of greater economies of scale and faster market penetration. One last area I would like to make some recommendations on is to use cross-functional management. Currently Ford carries out this practise. By combining all the department of the organisation to perform a project, greater speed and flexibility can be achieve. There is also cost saving in this method of project management. Better understanding can be achieve among members of the different divisions and also decisions are made faster with less bureaucracy. Conclusion Kao Corporation is basically a strong and profitable company. It has sound financial fundamentals and has been largely successful in marketing its product both domestically internationally. The strategies that Kao Corporation employs in its bid to achieve profitable growth are admirable. However, Kao still has its weaknesses. These weaknesses can be overcome through the use of an appropriate strategy. Now, Kao Corporation is moving into the new millennium with new challenges to face and new opportunities to grasp. The external environment is changing rapidly. Changes are not just led by the Internet but also changes in people and their way of life. People have new needs All of Kao's competitors are well aware of the external environmental changes. Competition is intensifying and in order for Kao to emerge successful, it has to carefully analyse and formulate the appropriate strategies f:\12000 essays\business & economics (632)\Karl Marx Estranged Labor.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Karl Marx's Estranged Labor In Karl Marx's early writing on "estranged labor" there is a clear and prevailing focus on the plight of the laborer. Marx's writing on estranged labor is an attempt to draw a stark distinction between property owners and workers. In the writing Marx argues that the worker becomes estranged from his labor because he is not the recipient of the product he creates. As a result labor is objectified, that is labor becomes the object of mans existence. As labor is objectified man becomes disillusioned and enslaved. Marx argues that man becomes to be viewed as a commodity worth only the labor he creates and man is further reduced to a subsisting animal void of any capacity of freedom except the will to labor. For Marx this all leads to the emergence of private property, the enemy of the proletariat. In fact Marx's writing on estranged labor is a repudiation of private property- a warning of how private property enslaves the worker. This writing on estranged labor is an obvious point of basis for Marx's Communist Manifesto. The purpose of this paper is to view Marx's concept of alienation (estranged labor) and how it limits freedom. For Marx man's freedom is relinquished or in fact wrested from his true nature once he becomes a laborer. This process is thoroughly explained throughout Estranged Labor. This study will reveal this process and argue it's validity. Appendant to this study on alienation there will be a micro-study which will attempt to ascertain Marx's view of freedom (i.e. positive or negative). The study on alienation in conjunction with the micro-study on Marx's view of freedom will help not only reveal why Marx feels labor limits mans freedom, but it will also identify exactly what kind of freedom is being limited. Karl Marx identifies estranged labor as labor alien to man. Marx explains the condition of estranged labor as the result of man participating in an institution alien to his nature. It is my interpretation that man is alienated from his labor because he is not the reaper of what he sows. Because he is never the recipient of his efforts the laborer lacks identity with what he creates. For Marx then labor is "alien to the worker...[and]...does not belong to his essential being." Marx identifies two explanations of why mans lack of identity with labor leads him to be estranged from labor. (1) "[The laborer] does not develop freely his physical and mental energy, but instead mortifies his mind." In other words labor fails to nurture mans physical and mental capacities and instead drains them. Because the worker is denied any nurturing in his work no intimacy between the worker and his work develops. Lacking an intimate relation with what he creates man is summarily estranged from his labor. (2) Labor estranges man from himself. Marx argues that the labor the worker produces does not belong to him, but to someone else. Given this condition the laborer belongs to someone else and is therefore enslaved. As a result of being enslaved the worker is reduced to a "subsisting animal", a condition alien to him. As an end result man is estranged from himself and is entirely mortified. Marx points to these to situations as the reason man is essentially estranged from his labor. The incongruency between the world of things the worker creates and the world the worker lives in is the estrangement. Marx argues that the worker first realizes he is estranged from his labor when it is apparent he cannot attain what he appropriates. As a result of this realization the objectification of labor occurs. For the worker the labor becomes an object, something shapeless and unidentifiable. Because labor is objectified, the laborer begins to identify the product of labor as labor. In other words all the worker can identify as a product of his labor, given the condition of what he produces as a shapeless, unidentifiable object, is labor. The worker is then left with only labor as the end product of his efforts. The emerging condition is that he works to create more work. For Marx the monotonous redundancy of this condition is highly detrimental because the worker loses himself in his efforts. He argues that this situation is analogous to a man and his religion. Marx writes, "The more man puts into God the less he retains in himself....The worker puts his life into the object, but now his life no longer belongs to him but to the object." The result of the worker belonging to the object is that he is enslaved. The worker belongs to something else and his actions are dictated by that thing. For Marx, labor turns man into a means. Workers become nothing more than the capital necessary to produce a product. Labor for Marx reduces man to a means of production. As a means of production man is diminished to a subsisting enslaved creature void of his true nature. In this condition he is reduced to the most detrimental state of man: one in which he is estranged from himself. To help expand on this theme it is useful to look at Marx's allegory of man's life-activity. Of the variety of reasons Marx argues man is estranged from his labor, probably the most significant is his belief that labor estranges man from himself. Marx argues that the labor the worker produces does not belong to the worker so in essence the worker does not belong to the worker. By virtue of this condition Marx argues the worker is enslaved. Enslavement for Marx is a condition alien to man and he becomes estranged from himself. For Marx, man estranged from himself is stripped of his very nature. Not only because he is enslaved but because his life-activity has been displaced. For Marx mans character is free, conscious activity, and mans pursuit of his character is his life-activity. Mans life-activity is then the object of his life. So by nature, mans own life is the object of his existence. This is mans condition before labor. After labor mans life-activity, that is, his free conscious, activity, or his very nature, is displaced. In a pre-labor condition mans life was the object of his condition; in a labor condition man exists to labor and his life-activity is reduced to a means of his existence so he can labor. In effect labor necessitates itself in man by supplanting mans true nature with an artificial one that re-prioritizes mans goals. Man's goal then is not to pursue his life but to labor. He becomes linked to his labor and is viewed in no other way. Man is reduced to chattel, a commodity, the private property of another individual. For Marx labor limits the freedom of man. Labor becomes the object of man's existence and he therefore becomes enslaved by it. In considering the validity of Marx's argument I feel Marx is correct that man's freedom is limited by the fact that he is a laborer. But in opposition to Marx I believe that man's freedom is no more limited as a laborer than as a farmer. Agrarian worker or laborer man's freedom is limited. Whether he is identified by the product he creates in a factory or in a wheat field in either case he is tied to his work and is not viewed beyond it. In either instance the product is objectified because in either instance the worker works only to create more work. Just as the laborer must continue to work without end to subsist, so must the agrarian worker. The implication then is that alienation is not the culprit that limits mans freedom, it is work itself. Do not mistake this as an advocation for laziness. Instead consider the implications of not working. If one did not work at all he or she would live a life of poverty and would be far less free than if he did work. Working, either as a laborer or a farmer, offers greater financial means and with greater financial means comes greater freedom. This point of the argument stands up of course only if you believe money can by freedom. I argue it can. Surely my freedom to buy something is limited if I do not have the financial means. On the other hand if I have greater financial means I have more freedom to buy things. So although labor limits freedom to the extent that the worker becomes tied to his work, labor also offers a far greater freedom than that of indigence. Laboring is no less acceptable than agrarian work because the implications of partaking in either are uniform to both and alienation holds no relevancy. Marx's view of freedom would seem a rather broad topic, and I'm sure it is. For our purposes it is convenient to have just an idea of what type of freedom Marx favors. For the sake of ease the scope of this study will be limited to two (2) classifications of freedom: prescribed (positive) freedom and negative liberties. Prescribed freedom would be guided freedoms, or freedoms to do certain things. Negative liberties would be freedom to do all but what is forbidden. In Marx's writing On The Jewish Question he identifies (but does not necessarily advocates) liberty as "...the right to do everything which does not harm others." In further argument Marx's states that "liberty as a right of man is not founded upon the relationship between man and man; but rather upon the separation of man from man." By this definition liberty is negative liberty, and for Marx it is monistic and solitary. Marx then argues that private property is the practical application of this negative liberty. He states "...[private] property is...the right to enjoy ones fortune and dispose of it as one will; without regard for other men and independently of society." Private property for Marx is the mechanism by which man can be separate from other men and pursue his (negative) liberty. Marx's writings on estranged labor and in The Communist Manifesto are a clear repudiation of private property. What can be deduced then is that Marx does not favor negative liberties. Negative liberties require private property to exist and private property is for Marx the enslaver of the proletariat. With negative freedom eliminated from the discussion we are left with Positive or prescribed freedoms. Positive freedom, as was identified above, is the freedom to pursue specified options. That is, freedom to do certain things. Man is not necessarily given a choice of what these options are, he is simply free to pursue them whatever they may be. Positive freedoms then are the freedoms Marx likely wishes to uphold by denouncing estranged labor.Bibliography Bibliography 1Marx, Karl, The Early Marx, 2Marx, Karl and Engles, Freidrich, The Communist Manifesto, London, England, 1888 f:\12000 essays\business & economics (632)\Keynesian Theory and the New Deal.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Keynesian Theory and the New Deal The crash of the stock market brought many hard times. Franklin D. Roosevelt's New Deal was a way to fix these times. John Stuart Mill and John Maynard Keynes were two economists whose economic theories greatly influenced and helped Franklin D. Roosevelt devise a plan to rescue the United States from the Great Depression it had fallen into. John Stuart Mill was a strong believer of expanded government, which the New Deal provided. John Maynard Keynes believed in supply and demand, which the New Deal used to stabilize the economy. Franklin D. Roosevelt's New Deal is the plan that brought the U.S. out of the Great Depression. It was sometimes thought to be an improvised plan, but was actually very thought out. Roosevelt was not afraid to involve the central government in addressing the economic problem. The basic plan was to stimulate the economy by creating jobs. First Roosevelt tried to help the economy with the National Recovery Administration. The NRA spread work and reduced unfair competitive practices by cooperation in industry. Eventually the NRA was declared unconstitutional. Franklin D. Roosevelt then needed a new plan. Keeping the same idea of creating jobs he made many other organizations devoted to forming jobs and in turn helping the economy. One of those organizations was the Civilian Conservation Corps. This corps took men off the streets and paid them to plant forests and drain swamps. Another of these organizations was the Public Works Administration. This organization employed men to build highways and public buildings. These were only some of the organizations dedicated to creating jobs. Creating jobs was important because it put money in the hands of the consumer. This directly affected the supply and demand. The more money they had the more they could spend. This would slowly start a chain reaction and bring the economy back to the way it was before the depression. By the end of the 1930's this plan had lowered unemployment to 17.2%. To make these organizations it was going to take money. Roosevelt had to deficit spend, which is when the government spends more than their budget in one year, in order to obtain this money. Of course these ideas of supply and demand and active government didn't just come to him. He was influenced by John Maynard Keynes and John Stuart Mill. There philosophies were the basis of the New Deal. John Stuart Mill, who began studying economics at age 13, was one of the most influential political thinkers of the mid-Victorian period. He believed in empiricism and utilitarianism. Empiricism is the belief that legitimate knowledge comes only from experience. Utilitarianism is the belief by which things are judged right or wrong. It is judged according to their consequences. In a way he was a hypocrite. When the economy was good he believed in Laisezz-Faire, which means "hands off." If the economy was bad, though, he believed in an extended role of government. This simply meant that the government should take part in the economy and try to make it better. The New Deal was a very active government plan because it had the government working directly to make jobs and fix the economy. Mill died in 1873 and would never had a chance to talk to Franklin D. Roosevelt. In a press conference Franklin D. Roosevelt once said, "I brought down several books by English economists and leading American economists, I suppose I must have read different articles by fifteen different experts."(Schlesinger, Pg.650) This writing indirectly steered Roosevelt towards a plan which expanded the role of government. Mill gave Franklin D. Roosevelt the basis of the plan, but it needed to be elaborated on. John Maynard Keynes was the man to do this. John Maynard Keynes, one of the most influential economists of the 20th century. For many years he was an active voice in economics. In 1929 he wrote We Can Conquer Unemployment and in 1930 he wrote his Treatise on Money. Ten years before he died he wrote his General Theory of Employment, Interest and Money. Above all he believed in supply and demand. This was an indirect way to let the economy balance itself. In order for this system to work people needed money. This could only be done by creating jobs. Keynes also believed that to reduce unemployment the government needed to increase the aggregate demand. The aggregate demand is the total amount of goods being demanded. The government could do this by creating jobs. These jobs would provide people with money to spend on products. The ability to pay and the increase desire to spend would increase the demand for goods. The demand for goods would rise and the demand for workers would rise. This would slowly reduce the unemployment rate and put the economy back where it was before the crash of the stock market. In Arthur M. Schlesinger Jr.'s book The Politics of Upheaval it's stated that Franklin D. Roosevelt and Keynes communicated on several occasions such as, letters, English tea meetings, and messages delivered via mutual friends. Although Franklin D. Roosevelt never publicly embraced Keynes' theories, and at times voiced disagreement with parts of his theories, there were many similarities between the works of the two men. Franklin D. Roosevelt took these philosophies and created the New Deal, which eventually brought the United States out of the Great Depression. John Stuart Mill gave Franklin D. Roosevelt the idea of an active government and John Maynard Keynes showed him how to do it. Although Franklin D. Roosevelt never really liked economists it appears that the work of many economists showed up in his New Deal. Although Mill did not directly influence FDR his philosophies were present in Franklin D. Roosevelt's plan. Also, Keynes theories were disagreed on time and time again by FDR, but in the end the New Deal was almost a perfect example of Keynes' theories. f:\12000 essays\business & economics (632)\Kommunalt samarbejde formalisering eller kommunikation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Kommunalt samarbejde - formalisering eller kommunikation Af Peter Mulvany tlf 5944 5281/ 4083 8819 Århus, maj 1996. Indsamlingen af affald sker i langt de fleste kommuner af kommunens egen renovationsafdeling eller af en privat virksomhed på en kommunal kontrakt. Der forventes i de kommende år en koncentration på markedet for indsamling af affald, hvorefter de fælleskommunale og lands-dækkende private selskaber vil opleve en kraftig vækst og vil dominere markedet. I Danmark produceres der årligt 10,9 mio. tons affald og kommunernes udgifter til indsamling af renovation beløber sig til 1,4 mia. kr. årligt. Udtalelser fra mange sider hævder, at kommunerne i fremtiden vil have et tættere og mere alsidigt samarbejde med deres leverandører af varer og tjenesteydelser, herunder affaldsindsamlere for at kunne dække kommunernes stadig øgede behov for komplicerede løsninger. En gennemgang af faglitteraturen og udtalelser fra fagfolk tyder dog på, at man sjældent gør sig klart, hvad man mener med 'samarbejde'. Jeg har i en undersøgelse af de danske kommuners samarbejde med deres affaldsindsamlere fundet to former for samarbejde: 1) formel integration og 2) kommunikation. Formel integration blev målt som et gennemsnit af omfanget af det kontrakt- baserede samarbejde og investering i affaldsindsamlingsudstyr, der anvendes af modparten. Kommunikation blev målt som et gennemsnit af graden af tillid, commitment (forpligtelse) og information til indsamleren, gensidig afhængighed mellem kommune og indsamleren, samarbejde om løsning af problemer, der måtte opstå og samarbejdsvilje hos indsamleren med hensyn til kommunens ønsker til indsamling. Undersøgelsens centrale resultat er vist i figur 1 og er resultatet af en repræsentativ spørgeskemaundersøgelse af 27 danske kommuner foretaget i april 1996. De fleste kommuner har alle en høj grad af kommunikation med deres affaldsindsamler, men en meget variende grad af formel integration. Min undersøgelse viser, at det især var kommuner med et stort indbyggertal, der har en formel integration af affaldsindsamlingsfunktionen i kommunen i form af egen indsamling. Kommuner med et stort indbyggertal har en højere grad af gensidig afhængighed af indsamleren og har investeret mere i transaktionsspecifikke aktiver. Kommuner med egen indsamling af affald er mere aktiv i søgning af information på affaldsområdet og har investeret mere i transaktionsspecifikke aktiver. Undersøgelsen viser, at kommunerne hverken føler de har magt over eller er afhængige af deres leverandør men har tillid til indsamleren og har en høj grad af samarbejde om løsning af de problemer, der måtte opstå og at indsamleren er meget samarbejds-villig med hensyn til kommunens ønsker til indsamling og visse leverandører er forpligtet til at løse alle tænkelige opgaver for deres kommuner på affaldsindsamlingsområdet. Alle kommuner mener at de har stor indsigt i lovgivningen på området og tilrettelæggelse af affaldsindsamling og bruger megen tid, på at holde sig orienteret om udviklingen på affaldsområdet. Derimod føler kommu-nerne ikke, at de er særlig committede til indsamleren eller har gjort store investeringer i trans-aktionsspecifikke aktiver eller aktiver, der benyttes af modparten. Relationerne mellem kommunerne og affaldsindsamlerne viser sig at være baseret på tillid, at leverandørerne ønsker at yde de ønskede ydelser og der er et utvungen samarbejde om løsning af de problemer, der måtte opstå. Alle kommunerne er villige til at investere tid og kræfter i forhand-linger med indsamlerne og i en løsning af en eventuel konflikt. Mens alle kommuner har en ens høj grad af kommunikation med deres affaldsindsamlere er det muligt for kommunerne at øge den formelle integration med et større kontraktbaseret samarbejde og investering i affaldsindsamlingsudstyr, der anvendes af modparten. Det er min opfattelse, at kommunerne i fremtiden vil få mere omfattende opgaver, der skal løses under hensyntagen til flere krav om miljøhensyn, EU-licitationer og statslige pålæg om udlicitering og budgetmål. Disse krav vil tvinge kommunerne til at drage større omsorg for deres indkøb og til at købe driftsydelser fra eksterne leverandører i stedet for at producere dem selv. Sammenholdt med den stigende koncentration af leverandører er kommunerne nødt til at styrke deres indkøbs-funktion med medarbejdere, der kan indgå i en dialog med brugerne i kommunerne og deltage i komplicerede forhandlinger med leverandørerne om produktegenskaber og kontraktforhold. Vælger kommunerne fortsat at indsamle dagrenovation selv, må de slutte sig sammen med andre kommuner i fælleskommunale selskaber om en fælles løsning af indsamlingsopgaverne for derved at udnytte deres ressourcer og ekspertise bedre. f:\12000 essays\business & economics (632)\Konkurrence forhold p† det britiske marked.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ konkurrence forhold De britiske konkurrence forhold adskiller sig ikke fra de danske i særlig stor grad. Man har i Storbritannien et liberalistisk syn på konkurrencen, dvs. man har fri konkurrence, hvor staten prøver at holde sig neutral og lade markedsøkonomien styre markedet. Man har fra statens side i England afviklet en stor del af de offentlige virksomheder de senere år, dog kun dem der ikke har direkte indvirkning på velfærden i landet eller de brancher hvor der er tale om konkurrence forvridning. Der er også et andet mindre problem, når man begår sig på det britiske marked, det er sproget. Man skal sørge for en engelsk brugsanvisning og etiket. Derudover skal man også have reklame brochurerne oversat hvis de overhovedet appellere til det Engelske marked. Konkurrence mæssigt set bør man også bekymre sig om firmaskatter, britisk ehvervslovgivning eller ændring i valutakursen, som kan gøre det dyrere/billigere at benytte det britiske pund i handelssituationer. Et eksempel omkring den britiske lovgivning er at man har en form for forbrugerbeskyttelse - Office of Fair Trading - det blev oprettet for at beskytte forbrugeren imod prismanipulation og konkurrenceforvridning, dvs. situationer hvor en branche er domineret af at en bestemt virksomhed som har monopol. Der er tale om en monopolsituation i England det øjeblik et firma eller en person har en markedsandel på 25% af et bestemt markedsområde. Salgsparametre Man skal prøve at sælge sit produkt efter de mange salgsparametre, dvs. kvalitet, pris, service, levering osv. det er nemlig også disse ting briterne går op i. Salgsparameteret "kvalitet" er vigtigt, da det kan hjælpe firmaet med at få et bedre ansigt både udadtil og indadtil. Udadtil fordi man får positiv omtale af produktet af uafhængige medier, indadtil fordi man som medarbejder føler mere for sit arbejde, hvis det færdige resultat er af god kvalitet. Service er vigtig for virksomheden, for det kan sikre at kunderne vender tilbage til en, ved ekstraordinære indsatser kan man sikre sig et godt forhold til kunden. Levering er ligeledes vigtigt, især da "just in time" princippet er ved at blive mere udbredt, hvis man ikke levere til tiden, når kunden benytter det princip kan det få katastrofale følger. Derfor er det godt at levere til tiden for ens omdømme. Et salgsparametre kunne også være kvalitetsstempler eller sikringssystemer, som ISO 9000 der er et certifikat for at virksomheden "holder hvad den lover" med hensyn til kvalitetsniveau, dog siger ISO 9000 ingenting om selve kvaliteten. Det inkludere også vejledning og måden man behandles på af virksomheden; ISO 9000 er naturligvis et internationalt anderkendt certifikat. Etablering af datterselskab Når man etablere et datterselskab i udlandet, er det vigtigt man opretholder en god kontakt med moderselskabet, fordi man skal kunne være handlekraftig, hvis man f.eks. får en stor ordre kan hurtigt få bekræftet af moderselskabet, at den er muligt at føre ud i livet. Forbindelsen er også vigtigt for at man ved nok om nye produkter, især hvis man kun har et handelsselskab i udlandet. Ved nyetablering af et datterselskab, kan det være en fordel at starte med en handelsafdeling eller et handelskontor, fordi hvis man vil til at producere, kan det gå ud over ens gode omdømme, da man vil komme til at mangle erfarne medarbejdere i den nye virksomhed. Ellers skal man til at flyve sine specialister frem og tilbage imellem moderselskabet og datterselskabet, det er både stressende for medarbejderne og dyrt for firmaet. Ved produktion i udlandet skal man også investere en hel del penge i nye maskiner og bygninger f:\12000 essays\business & economics (632)\Labor Unions 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Labor unions are groups or clubs of workers and employees who bond together to get good working conditions, fair pay, and fair hours for their labor. For example, in a newspaper, all the people who work the presses might all belong to one union. All of the artists, who are responsible for the artistic layout, might belong to another. These unions are usually joined together, and most unions in America are some branch of the largest labor union organization in the United States, the AFL-CIO. The unions of the workers at a certain business or factory might get together with the management for a period of time to talk about a contract. This time is known as negotiation. The union will tell the management what it wants its workers getting paid, and then the management will tell the union what it can pay the workers and still be earning a reasonable profit. They bargain and it usually works out. Most businesses and corporations have eight-hour work days, with optional extra hours. This is not usually a topic in negotiations, but could be. Working conditions could be discussed. If workers in the factory have no heat, no lunch breaks or they are not allowed to speak, (which was the case in many sweatshops for immigrants and children in the 1920's through 1940's), then the labor unions will obviously want something done. These differences are usually settled fairly quickly, and a new contract featuring these agreements will be realized . Most contracts are in operation for about 3 to 5 years. Then, negotiations begin again. This is how labor-management relations go in a perfect world. But, obviously, this is not always the case. Sometimes the unions want unrealistic wages. They might stress extreme luxuries that the company cannot provide for working conditions. Or the management may be stubborn and unwilling to give up a large percentage of the profit in a good year. Or maybe both sides are seemingly in the right and an agreement can not be met. Whatever the case maybe, after the set negotiation has been passed, and a contract has not been created, then the union will go to the workers tell them the situation, and they will vote in a strike. The unions purpose in the strike is to stop the company or factory from caring out their purpose of existence. If they are supposed to deliver packages, blockades will be set up in most cases to stop this. The union must succeed not only in this, but in preventing replacement workers, known as scabs, from doing their jobs. If the new workers can do the jobs and the company can perform its job, then all the union members did by striking is quit their jobs and lose benefits. They have to let the company feel their loss and force them to let them back and meet their demands. In a striking situation, one of three basic things happens: the union wins by preventing the company from overstating, they get their jobs back and their demands are met; the management wins, the strike fails, and the workers are unemployed; or the strike seemingly goes on forever, a stalemate of a kind, and, hopefully, one side will just give in. One of the methods that unions use to protest when on strike is picketing, which is carrying around signs stating either your cause, what your doing out there pacing on the sidewalk, or the union division you belong to. Many strikes have become violent over history, whereas some are merely workers who leave the job and will not come back until their demands are met. The violent strikes may involve picketing, injury or death of workers, severe rioting, damage and vandalization of company or employer property, and more. Police have to intervene in this type of strike, and it is this type of labor union action that irritates many people with the whole organization. A lot of people are strongly for unions, whether they work for the particular company or not, and will support the unions in their strikes. It is this sort of support unions hope for, because the more people they get the stronger they are. But some people, especially small business owners, who do not see much profit in a day- to-day operation, are very critical of unions. Some union demands have driven small business owners out of business, simply because they could not afford to do what the union wanted. The major formation of national labor unions came after the Civil War. This war greatly expanded factory production and railroad building, which generated much concern about the well-being of the workers. By 1864, about 300 local unions operated in twenty northern states. In 1866, the International Industry Assembly of North America became the National Labor Union. It was the first important association of unions. But, in 1872 , it failed and disappeared from the pages of history. The next big step in the labor movement was the formation of the Knights of Labor, begun by Uriah Stephens, a tailor, in 1869. It began as a secret society to improve workers welfare through peaceful means. It became the first major American attempt to found a union for all workers, skilled and unskilled. The Nights of Labor had a boost of importance in the public eye when it had its first major victory in the great railroad strikes of 1877. In 1886, the Knights had 600,000 to 700,000 members. But, in that same year, Samuel Gompers and Adolph Strasser left the Knights of Labor because it did not represent craft union interests. They formed the American Federation of Labor (AFL). The AFL became a competitor to the Knights of Labor, and eventually ran them out of business. The AFL became the reigning giant in the labor force, almost doubling the Knights' membership in just three years. Gompers remained president of the AFL for forty years. Mass-production industries such as car manufacturers separated from the AFL because of lack of attention in the 1930's, and formed the Congress of Industrial Organizations (CIO). This organization was formed by John T. Lewis of the United Mine Workers in 1938. In the late 1930's and early 1940's, both the AFL and the CIO made huge gains in recruiting new members. Both came out of World War II stronger than ever before. In 1955, both labor unions agreed on a contract that combined the two into one huge union, the AFL-CIO, still the largest labor union in existence today. In July 1993, the contract between the Detroit News and the major local union that the employees belonged to, ran out. The paper took this opportunity to let the union know that it had purchased new printing presses, and this reduced the number of people needed to operate it. The old ones took nineteen people per press to operate. Since the new ones, which only required ten, had been put into use, the operators took turns going to a nearby bar, since there were still nineteen of them. The newspaper wanted to fire the extra nine people per press, and the union did not want them to. The union went on strike, but were unsuccessful in getting their demands met. During this time, replacement workers had been hired. They were working much faster than the previous workers, who, it turns out , were purposely working especially slow to cover the fact that not all nineteen of them were needed. With the new replacement workers, the presses only required six people per press. This would save the paper a lot of money in the future. Meanwhile, the strike was not going well. The union leaders and the teamsters headed to the newspaper negotiators. They were willing to make a deal to allow only ten to work the press if the teamsters could have their jobs back. The paper told them that now only six people were needed. Infuriated, the teamsters stormed out, and a full-fledged strike again in late July. Literally millions of ex-workers and sympathetic workers of the union, flooded the streets with picket signs and clubs, beating cars and buses, stopping traffic, clubbing "scabs", and wreaking havoc in the streets of Detroit. Buckets of paint were hurled at the walls and windows of Detroit News and Detroit Free Press buildings, although the real strike was going on at the news. Star nails, nails about the size of tennis balls that stick out in all directions to pop and shred the tires on cars, were everywhere. These were stopping the armored cars busing workers and scabs into the building. The buses were clubbed and beaten, but police intervention eventually brought the riots down.. Even months afterward, several fights broke out between scabs and union enthusiasts. Detroit became torn: those for the strike, and those against it. It was very tense, but did eventually die down somewhat. Ex-workers picketed around stores and businesses that advertised in the newspaper, which ruined sales for these stores by stopping those sympathetic with the strike from shopping there. Many businesses withdrew dramatically. Also, thousands of subscribers were canceled by union sympathetic and enthusiasts. In the early days of the strike, papers were kept from being delivered to boxes and homes. This continued for quite a while, reducing sales of paper overall. But not even all of this was enough to make a giant in business such as the Detroit News fall. The strike has died down much now, and only two or three lone picketers can be seen pacing at the gates of the News building now. The union has tried several times to give in and make weak deals, and over time the paper has refused. In this strike, it would appear that the management has won. But, to look at the issue of strikes from a different view, the infamous 1994 Major League Baseball Strike comes to mind. The salary caps caused the players to simply walk off the job. No violent riots or picketing was necessary: most players went and played golf. This was because of two things: they were already rich by most peoples standards, and they were desperately needed by the owners, because baseball is a hard business to find replacements . The owners tried, though, but failed. Although public disgust ran high at the "spoiled" baseball players, the union did not waver, and the owners gave in, and the next season baseball was back. Labor unions all started out as a small idea when a few workers shared their ideas that they did not like the way management was running things. They formed a union and threatened the management by walking off the job. This was a new idea then, but today it is commonplace. The big worry is among the heads of big business who are resorting to downsizing to raise profit. The future of labor unions is unclear, but it seems to be a colorful one. Bibliography 1. The Detroit News and Free Press. Saturday, February 15, 1997; Front pag f:\12000 essays\business & economics (632)\Labor Unions.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Labor Unions Labor unions are groups or clubs of workers and employees who bond together to get good working conditions, fair pay, and fair hours for their labor. For example, in a newspaper, all the people who work the presses might all belong to one union. All of the artists, who are responsible for the artistic layout, might belong to another. These unions are usually joined together, and most unions in America are some branch of the largest labor union organization in the United States, the AFL-CIO. The unions of the workers at a certain business or factory might get together with the management for a period of time to talk about a contract. This time is known as negotiation. The union will tell the management what it wants its workers getting paid, and then the management will tell the union what it can pay the workers and still be earning a reasonable profit. They bargain and it usually works out. Most businesses and corporations have eight-hour work days, with optional extra hours. This is not usually a topic in negotiations, but could be. Working conditions could be discussed. If workers in the factory have no heat, no lunch breaks or they are not allowed to speak, (which was the case in many sweatshops for immigrants and children in the 1920's through 1940's), then the labor unions will obviously want something done. These differences are usually settled fairly quickly, and a new contract featuring these agreements will be realized . Most contracts are in operation for about 3 to 5 years. Then, negotiations begin again. This is how labor- management relations go in a perfect world. But, obviously, this is not always the case. Sometimes the unions want unrealistic wages. They might stress extreme luxuries that the company cannot provide for working conditions. Or the management may be stubborn and unwilling to give up a large percentage of the profit in a good year. Or maybe both sides are seemingly in the right and an agreement can not be met. Whatever the case maybe, after the set negotiation has been passed, and a contract has not been created, then the union will go to the workers tell them the situation, and they will vote in a strike. The unions purpose in the strike is to stop the company or factory from caring out their purpose of existence. If they are supposed to deliver packages, blockades will be set up in most cases to stop this. The union must succeed not only in this, but in preventing replacement workers, known as scabs, from doing their jobs. If the new workers can do the jobs and the company can perform its job, then all the union members did by striking is quit their jobs and lose benefits. They have to let the company feel their loss and force them to let them back and meet their demands. In a striking situation, one of three basic things happens: the union wins by preventing the company from overstating, they get their jobs back and their demands are met; the management wins, the strike fails, and the workers are unemployed; or the strike seemingly goes on forever, a stalemate of a kind, and, hopefully, one side will just give in. One of the methods that unions use to protest when on strike is picketing, which is carrying around signs stating either your cause, what your doing out there pacing on the sidewalk, or the union division you belong to. Many strikes have become violent over history, whereas some are merely workers who leave the job and will not come back until their demands are met. The violent strikes may involve picketing, injury or death of workers, severe rioting, damage and vandalization of company or employer property, and more. Police have to intervene in this type of strike, and it is this type of labor union action that irritates many people with the whole organization. A lot of people are strongly for unions, whether they work for the particular company or not, and will support the unions in their strikes. It is this sort of support unions hope for, because the more people they get the stronger they are. But some people, especially small business owners, who do not see much profit in a day-to-day operation, are very critical of unions. Some union demands have driven small business owners out of business, simply because they could not afford to do what the union wanted. The major formation of national labor unions came after the Civil War. This war greatly expanded factory production and railroad building, which generated much concern about the well-being of the workers. By 1864, about 300 local unions operated in twenty northern states. In 1866, the International Industry Assembly of North America became the National Labor Union. It was the first important association of unions. But, in 1872 , it failed and disappeared from the pages of history. The next big step in the labor movement was the formation of the Knights of Labor, begun by Uriah Stephens, a tailor, in 1869. It began as a secret society to improve workers welfare through peaceful means. It became the first major American attempt to found a union for all workers, skilled and unskilled. The Nights of Labor had a boost of importance in the public eye when it had its first major victory in the great railroad strikes of 1877. In 1886, the Knights had 600,000 to 700,000 members. But, in that same year, Samuel Gompers and Adolph Strasser left the Knights of Labor because it did not represent craft union interests. They formed the American Federation of Labor (AFL). The AFL became a competitor to the Knights of Labor, and eventually ran them out of business. The AFL became the reigning giant in the labor force, almost doubling the Knights' membership in just three years. Gompers remained president of the AFL for forty years. Mass-production industries such as car manufacturers separated from the AFL because of lack of attention in the 1930's, and formed the Congress of Industrial Organizations (CIO). This organization was formed by John T. Lewis of the United Mine Workers in 1938. In the late 1930's and early 1940's, both the AFL and the CIO made huge gains in recruiting new members. Both came out of World War II stronger than ever before. In 1955, both labor unions agreed on a contract that combined the two into one huge union, the AFL-CIO, still the largest labor union in existence today. In July 1993, the contract between the Detroit News and the major local union that the employees belonged to, ran out. The paper took this opportunity to let the union know that it had purchased new printing presses, and this reduced the number of people needed to operate it. The old ones took nineteen people per press to operate. Since the new ones, which only required ten, had been put into use, the operators took turns going to a nearby bar, since there were still nineteen of them. The newspaper wanted to fire the extra nine people per press, and the union did not want them to. The union went on strike, but were unsuccessful in getting their demands met. During this time, replacement workers had been hired. They were working much faster than the previous workers, who, it turns out , were purposely working especially slow to cover the fact that not all nineteen of them were needed. With the new replacement workers, the presses only required six people per press. This would save the paper a lot of money in the future. Meanwhile, the strike was not going well. The union leaders and the teamsters headed to the newspaper negotiators. They were willing to make a deal to allow only ten to work the press if the teamsters could have their jobs back. The paper told them that now only six people were needed. Infuriated, the teamsters stormed out, and a full-fledged strike again in late July. Literally millions of ex-workers and sympathetic workers of the union, flooded the streets with picket signs and clubs, beating cars and buses, stopping traffic, clubbing "scabs", and wreaking havoc in the streets of Detroit. Buckets of paint were hurled at the walls and windows of Detroit News and Detroit Free Press buildings, although the real strike was going on at the news. Star nails, nails about the size of tennis balls that stick out in all directions to pop and shred the tires on cars, were everywhere. These were stopping the armored cars busing workers and scabs into the building. The buses were clubbed and beaten, but police intervention eventually brought the riots down.. Even months afterward, several fights broke out between scabs and union enthusiasts. Detroit became torn: those for the strike, and those against it. It was very tense, but did eventually die down somewhat. Ex-workers picketed around stores and businesses that advertised in the newspaper, which ruined sales for these stores by stopping those sympathetic with the strike from shopping there. Many businesses withdrew dramatically. Also, thousands of subscribers were canceled by union sympathetic and enthusiasts. In the early days of the strike, papers were kept from being delivered to boxes and homes. This continued for quite a while, reducing sales of paper overall. But not even all of this was enough to make a giant in business such as the Detroit News fall. The strike has died down much now, and only two or three lone picketers can be seen pacing at the gates of the News building now. The union has tried several times to give in and make weak deals, and over time the paper has refused. In this strike, it would appear that the management has won. But, to look at the issue of strikes from a different view, the infamous 1994 Major League Baseball Strike comes to mind. The salary caps caused the players to simply walk off the job. No violent riots or picketing was necessary: most players went and played golf. This was because of two things: they were already rich by most peoples standards, and they were desperately needed by the owners, because baseball is a hard business to find replacements . The owners tried, though, but failed. Although public disgust ran high at the "spoiled" baseball players, the union did not waver, and the owners gave in, and the next season baseball was back. Labor unions all started out as a small idea when a few workers shared their ideas that they did not like the way management was running things. They formed a union and threatened the management by walking off the job. This was a new idea then, but today it is commonplace. The big worry is among the heads of big business who are resorting to downsizing to raise profit. The future of labor unions is unclear, but it seems to be a colorful one. Bibliography 1. The Detroit News and Free Press. Saturday, February 15, 1997; Front page f:\12000 essays\business & economics (632)\Laissezfaire.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Laissez-faire The American Civil War fades away. It now appears that a new social unrest has taken root in America. But the debate was to be fought in the economic world. The question was, how should the government interact with business? The issue splits into two main views, that of Laissez-faire, and that of General Welfare. Laissez-faire is a rather straight-forward philosophy. It can be best described by saying that the government should have absolutely no interaction within the business world. These thinkers trust that the government's sole purpose is to protect life and property, and that the role of government should end there. The tree of Laissez-faire has many branches, two of which are classical economics and Social Darwinism. Believers in classical economics base most of their philosophy on mercantilism and its effects. They have no doubt that government interaction with the business world is inept, and can only hurt economic growth. Social Darwinism was a popular belief. It grew from studies of Charles Darwin, and his publication, The Origin of Species. Charles Darwin argued that species had not been created, but had evolved. But most importantly to the philosophy of Social Darwinism, Darwin theorized that evolution takes place by survival of the fittest. It was that idea in s! urvival of the fittest that became the backbone for Social Darwinists. The Social Darwinists believed that the involvement of government in business interfered with the natural selection of those that were best suited to survive.(Lesson14 74) On the other side of the issue was the general welfare state. The philosophy of the general welfare state, called the Social Gospel, was advocated in part by Christians in the United States. They believed that individuality had gone too far and that it was necessary for government involvement. Increased urbanization and industrialization also led to the belief in the general welfare state. It was the opinion of these thinkers that laissez-faire was not the answer to the problems of economics.(Lesson14 74) Laissez-faire may have been a significant step in the evolution of economics to many people, but there were also many silent threats that it carried. Without government protection, big business can exploit the many people that make it work. Such exploitation could be brought about in low wages and poor working conditions, long working hours, and many others. Many believed that government protection was needed to insure fair competition and high standards of morality. In the 1860s oil became more and more essential as an everyday item. Its demand grew dramatically. The main use at that time for oil was kerosene. Kerosene was used in several ways, although its most popular use was in lamps. Crude oil needs to be refined to produce products such as Kerosene. Pennsylvania was the main location that oil refining was done in the 1860s, but times were changing. The Lake Shore Railroad helped Cleveland become one of the new centers for oil refining. It was obvious that the railroads were invaluable to the oil business. In the new refining city of Cleveland, Ohio, a new refining company was created. This company was the Standard Oil Company, owned primarily by John D. Rockefeller.(Lesson16 95) John D. Rockefeller is a legend of the business world. He started a relatively small oil refinery in Cleveland, Ohio in 1870. In just two years, it grew into an enormous monopoly, producing ninety percent of the nations refined oil (Chapter4 15). His business ethics have been hotly debated because of many apparent rebates and other schemes. The Standard Oil Company's success can be attributed to Rockefeller's business aptitude. Aside from his great business qualities, the Standard Oil Company's success in the oil industry is because of the secret illegal rebates by the railroads. A rebate in the railroad business is a reduction in shipping fares in exchange for promised use of the railroad's services. These rebates were brought about through the South Improvement Company, which was set up in 1872 (Lesson16 96). The South Improvement Company was designed with one mission, to destroy all competition to the Standard Oil Company, and other companies that were part of the South Improvement Company. It was started by several large corporations, including the Standard Oil Company. Rockefeller is reported to have met with other oil businesses and tell them that if they do not join the South Improvement Company, they will be wiped out of business due to the lower shipping rates given to the South Improvement Company (Lesson16 96). Eventually the public gained knowledge of this conspiracy through . After nonstop opposition, the railroads eventually gave in and stooped giving the rebates. The South Improvement Company collapsed in April of 1872, and the Congressional Committee on Commerce denounced it as "one of the most gigantic and dangerous conspiracies ever committed" (Lesson16 97). After the failure of the South Improvement Company, the Standard Oil Company also tried secret pacts and bribing. Rockefeller's objective was to keep the price of crude oil down. If he could buy oil at cheap prices, transport it at low rates, and could sell the refined oil at high prices, he could make enormous profits. Through his deceiving ways, Rockefeller turned the Standard Oil Company to one of the most famous monopolies of all time. He had turned the oil refining industry away from free market competition and towards monopolization. Ida Tarbell, lady journalist and famous muckraker, became John D. Rockefeller's greatest nemesis. As a journalist for the popular McClure's Magazine, Ida Tarbell was hired by S.S. McClure at the age of thirty-seven. She became an immediate sensation with readers. By 1900 McClure's was reaching 350,000 homes thanks to her. She became known for her biography on Napoleon, and then her series on Abraham Lincoln, which took her four years of research. But she earned her place in the history books for her pursuit of the Standard Oil Company, and the Famous Tycoon that ran it, John D. Rockefeller. In the October, 1902 issue of McClure's Magazine Ida announced that she had finished her research on "the most perfectly developed trust in existence" (The Gentlewomen and the Robber Barron 185). For two years and in eighteen installments, Ida Tarbell revealed the scandalous nature of the Standard Oil Company and its primary owner, John Rockefeller. She gained her knowledge of the monopoly, through interviews with business people with first-hand knowledge of the Standard Oil Company, and Rockefeller. As the months passed, Ida Tarbell published her installments, which portrayed Rockefeller as a ruthless tycoon, obsessed with taking over control the oil industry. Miss Tarbell urged her readers not to support monopolists such as Rockefeller. She argued that "a thing won by breaking the rules of the game, is not worth winning" (The Gentlewomen and the Robber Barron 190). In 1909, the Standard Oil Company was accused with violation of the Sherman Act. On May 15, 1911, the U.S. Supreme Court had finally come to a decision. It found the Standard Oil Company, guilty (The Gentlewomen and the Robber Barron 191). Essentially, the supreme court agreed with Ida Tarbell. Ida Tarbell's study of the Standard Oil Company had raised a controversial question. Is it better to have free competition, with fierce survival of the fittest, or is it better to have industry fall under the control of a single dominance which could maintain order and profits (The Gentlewomen and the Robber Barron 192)? Ida Tarbell wrote and published many other works of literature after that of the Standard Oil Company, but none had such an impact on society. Ida was and is a role model for women of all ages, races, and social classes. She proved that a woman can gain the same amount of admiration and respect as a man. The issues of Laissez-faire versus General Welfare and competition versus Monopoly were becoming more and more hotly debated. It was time for the U.S. Government to start taking sides and making decisions. This was done through the U.S. Supreme Court. By the mid 1880s people were starting to take notice to the fact that the practices of John D. Rockefeller in the oil industry was not an isolated phenomenon. The same practices of monopolizing were happening in the meat packing, copper, steel, coal, sugar, and countless other industries. It was obvious that Adam Smith's philosophy of laissez-faire was leading the economic world into one populated and governed by monopolies. The question was, whether or not to do anything about that. The question started to get answered in 1887 by the Interstate Commerce Act. The Interstate Commerce Act was the first of several laws that were a turning point on the governments position of Laissez-faire and monopolies. The Interstate Commerce Act was designed to prevent particular unfair actions, taking place within the railroads (The Supreme Court Decides 37). Examples of such unfair actions are rebates, discrimination, 'unreasonable' rates, and several others. In 1890 the Sherman Anti! -Trust Act was passed. This act was designed to forbid unfair competition among large firms, and essentially, make monopolies illegal. The Sherman Anti-Trust Act was written with very broad language, which left it to the courts decide how to interpret it (The Supreme Court Decides 37). We would now have to wait to see how the courts would use these new weapons against monopolies. It was soon found out how the courts would use the Sherman Act in the court case, U.S. v. E.C. Knight, 1894. The court case revolved around the purchase of four sugar refineries in the Philadelphia area, by the American Sugar Company. This purchase gave the company control of 98% of the nations' sugar refining capacity (The Supreme Court Decides 38). The American Sugar Company was found not guilty of attempting to monopolize. This loss seemed to make the Sherman Act look like a failure, and for the time being it was. Several other businesses were taken to court, and only a small percent were won by the government. After Theodore Roosevelt took office as president, the prosecution of big business with the Sherman Act was altered, to the disadvantage of big business. Theodore Roosevelt took forty-four different businesses to the supreme court. The most famous one was U.S. v. Standard Oil, 1907. The Government claimed that John D. Rockefeller led his Standard Oil Company! to a monopoly through illegitimate means. The Government won. This lawsuit was one of the most dramatic because the government was taking on the largest corporation in the nation at the time (The Supreme Court Decides 39). It now appeared that the government and the courts had made their decision. There was to be no Laissez-faire economy, and monopolies would not be tolerated in the United States of America. What role the government plays in the regulation and intervention of American life is not just a eminently debated issue from the past. It is an issue that has proved to be a major concern and interest of almost all Americans. It is the feeling of many people that business should be unregulated by the federal government. But there are also those many Americans that believe that the government should regulate the growth and behavior of economics, to protect the American Citizen. These two opposite opinions are one of the main divisions of political parties. The Republican party is one that is very attractive to big business. It stands for smaller government intervention in the business world. The Democratic Party stands for larger government interaction in the economy and lives of America's citizens. It stands to protect the citizens from the dangers small government intervention. Many people fear a large unregulated economy. It is possible that an economy can run out of control and exploit the consumers and workers. This was illustrated by a study of the Standard Oil Company, headed by the 'ruthless' Rockefeller. When a business is able to monopolize within a single industry the outcomes can be potentially devastating. The abuse of consumers is no longer a difficult task. When a consumer has no choice but to purchase from a certain company, that monopoly is able to regulate prices to whatever they deem 'fair'. It is not always the consumer that is defiled. One may overlook the common worker. When there are no unions to watch over the treatment of workers, employers may exploit them. Long work hours with little pay, and poor working conditions were just two of the many cruelties that early muckrakers uncovered. It is also possible that too much government control over the economy can be present. This is why our present day society exists in a mixed economy. In a mixed economy, private ownership is combined with some government control. This system attempts to eliminate inefficiencies inherent in capitalism or socialism alone. It is in this mixed economy state that a potential median between both philosophies is found. But our philosophies are always changing, as is our government. Word Count: 2147 f:\12000 essays\business & economics (632)\LEADERSHIP.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ LEADERSHIP TRAITS Course: Organization Behavior Leadership Outline I- Scott OKI A- Summary of article B- Brief Description of his leadership traits. II- Michael Marics 1. Summary of Article 2. Brief Description of his leadership traits III- Marcus Wallenberg A- Summary of article B- Brief Description of his leadership traits IV- Discussion of leadership similarities I- SCOTT OKI A- Summary of Article Bill Gates, the founder of Microsoft, may have made himself the world's richest man before the age of 40 but an outstanding contribution to Microsoft's success comes from the creator of Microsoft outside America, Scott OKI. OKI is the founder of Microsoft International. He had the foresight to see in the early eighties that the world market was being left fallow by other software companies entering and competing in the technological revolution. His task was putting Microsoft on the global map. Within Microsoft some say that OKI's contribution was as important as that of founder Bill Gates and president Steve Ballmer. Microsoft made OKI a job offer which intrigued him for a number of reasons. First, he though the company's strategy was extremely smart. Second, it had a dominant share in the computer language business. In addition, there was also a lot of talk about developing a strategy to develop applications software products. The idea seemed so smart and gutsy, because you can sell more than one application software product for each computer. Although the compensation package offered OKI was less attractive than Micro Pro's, he joined Microsoft in 1982. He says: " My got told me that they were going to be more successful than Micro Pro. From his very first day at Microsoft, OKI understood what it would take to succeed in such a high-energy, self critical and confrontational company. In early 1982, Microsoft had approximately 20 employees. OKI liked the entrepreneurial environment. He was searching for the biggest opportunity for Microsoft. Having come from HewLeh-Packard, he understood what an international presence meant. Virtually all the software companies were concentrating on US sales. During the next month, OKI wrote a business plan to set up Microsoft International. He identified the largest market opportunities. France, the United Kingdom and Germany OKI recommended starting wholly-owned subsidiaries for each market rather than setting up a single European head quarters. Although he had faith in his plan and his ability, he knew he was taking a huge risk. There were no guidelines to follow and no one in the nascent PC Software industry had done it successfully before. Fortunately, Microsoft was still a small company and it was fairly easy to set goals and achieve them. Bureaucracy was virtually nonexistent. OKI was putting him self and his future on the line, as he says: "I had made some bold premises to Bill, but I delivered". OKI's imprint was all over Microsoft International. He wrote the rules, hired the people and established the culture for each subsidiary so it would look, feel, and work like the mother ship. The only vision was that there was this huge untapped market. OKI was extremely dedicated to his work; In his first few years with Microsoft he didn't take a single day off. He even worked on Christmas days when no one else was there. It was hard work but OKI didn't mind the hours because he was just totally passionate about it. Obviously, OKI needed to hire the right people. He wanted to find the ones who would work harder than others and set an example for Microsoft International. He didn't care whether they were successful or failed start-ups. He looked for people who were risk takers and who had high energy. He set up the Munich, Paris and London Subsidiaries on the money that Gates had given him. The first 10 general managers OKI hired had start-up experience. He spent long hours hiring the country managers, working with them, training them and educating them, as he says: "It required just being there". After finding the right people, OKI had his work cut out for him. Once the international hardware manufacturers licensed the operating system, Microsoft took advantage of that fact by then licensing Localized applications software to them. Ironically, getting into that business led Microsoft into all its other businesses. OKI left Microsoft in 1992 worth some US$ 600 million. His contribution to Microsoft had been us great as Steve Ballmer's and Paul Allen's' and no one disputed that. B- Brief Discussion of OKI's Leadership traits It is inevitable that Scott OKI showed extreme dedication to his work. This dedication is revealed through the long hours of training his employees. In fact, his true devotion is obvious since he didn't take a single day off in his first few years with Microsoft. Scott OKI is a risk taker with on intuitive vision, who had the courage to look for new international markets while others where content in local markets. Microsoft is currently at the top of its industry and Mr oki was capable in identifying that Microsoft would be a success when he trusted his intuition by rejecting a higher paid offer by Micro Pros and sticking with Microsoft. II- MICHAEL MARICS A- Summary of Article Heroics are made in many different ways, but when the topic is related to business a person who lived by the name of Michael Marks definitely stands out as one of the best retailers of our time. Marks, like millions of people in the would had ideas, his were three simple ones that revolted the shop keeping system of Europe. These founding ideas introduced Britain's biggest and largest retail chain (MARKS AND SPENCER). With such an entrepreneurial vision for the retailing system, it was obvious that he had found the best way to achieve success in this field. Due to unfortunate circumstances related to the situation he was in during his arrival to Britain as a penniless loner, his future looked much less promising. He was a Youngster that was in his early twenties that didn't know a word of English and had no training in specific trade. He made his living by selling certain household goods such as nails and screws etc... He moved about form door to door so he could provide himself with a bite to eat, but the lack of the English language was a drawback in him achieving joyful success. Luckily he meat a man named Isaac Dewhirst that worked as a young local wholesaler. As an immigrant he wood up well, that dewhirst decided to show him around the warehouse from whom he bored £ 5 (Pounds). Soon enough he used tables to sell goods at an open market in Leeds that he had bought from dewlirst. When marks arrived in Britain, the people there were disposing more income than ever before. Dramatic rise in wages while prices had remained the same for about half a century, smartly marks spotted the ongoing way quickly, which prompted him to find more unusual consumer goods as temptations to new consumers. He stuck to his "One penny" policy which forced him to find better value for money suppliers. This allowed his mind to focus on pushing up turn over to compensate for the lower margins. Spencer, who was marks' "helper", contributed by teaching marks to perfect the English language. Spencer was a book keeper that carefully looked over the accounts while marks was discovering new business opportunities. On 4th June 190s marks and Spencer became a private limited company with a capital of £ 30.000 of which marks and Spencer held half each year. By them M and S had a large number of employees. Marks was know to be as an unusual generous employees and their families. He took extra care of female means to keep them comfortable. Such good treatment of staff proved to be a positive step for the company towards success that was later imitated by other companies. B- Brief Description of his leadership traits Undeniably, Marks was an entrepreneur whose ideas where transformational in his own time and will still be considered so. His system of reward towards his employees are highly considered as innovative especially for a man with no educational background. His dominant personality and intelligent vision allowed him to directly contact wholesalers at a time where such a direct contact was impossible without a middle man. His success as a retailer caused a threat on wholesalers. Such success cannot be achieved without a business oriented mind. Although not mentioned, it could be assumed that Marks was capable to satisfy customers by providing them with the best services and high quality. His motivation, vision and innovation definitely classifies him as one of the most successful entrepreneurs with leadership traits that cannot be forgotten. Obviously, Marks life was a successful one, although he suffered at the beginning of his revolutional journey concerning the retail system, he proved that his ideas and the way they were carried out changed and improved the European ?? conventions. He is indisputably one of the best Business man of the 20th century and should be looked at as a ?? generous leader that carried out his work in an outstanding fashion. III- MARCUS WALLENBERG A- Summary of Article Young Marcus was born, so he would say, with a sense of duty and a sense of destiny. He went straight into banking after business studies in Stockholm. In 1925 he became an assistant manager of Enskilda Bank in Stockholm. Passionate about expanding the family business, Marcus was a high achiever who might have found the intense levels of expectation placed on him a burden. Instead he continued to blossom as natural heir to his grand father's Legacy. He proved within the business and within high society that he was abundantly gifted and energetic. Also, as an athlete Wallen berg was a sensation. Too busy in business ever to really fulfill his sporting potential, he played for relaxation throughout his life. In 1930 he began his career as a tycoon by turning around ailing Atlas Diesel, A company with only 300 employees. In 1954 he founded Scandinavian Airlines which, as SAS, would quickly become Scandinavia's Largest airline. Marcus Wallen berg's charisma, sense of duty and inimitable work ethic transformed Sweden from economic sluggard into one of the World's richest countries. In accordance with his public service ethic he championed innumerable charitable causes, was chairman of the council of European Industrial Federation and the Business and Industry Advisory committee to the OECD, as well as member of the Nobel prize committee for many years. By the time he died Wallen Berg's interests employed half a million people and turned over 14 billion. He had become an icon of capitalism in Scandinavia. An unheard of achievement for a business man. B - Brief Discussion of Wallen berg's Leadership traits The achievement and success that wallenberg enjoyed was accompanied by a great deal of responsibility, charisma and vision. The intense levels of expectation made him an exceptional transformational leader. He was also inspirational to many people, because he was both a business man and an athlete. However, he was able to single-handedly transform Sweden into one of the world's richest country, which required a great deal of perseverance and a sense of achievement. IV All these men were visionary leaders. Marks showed great personal skills with his reward policy. However, their leadership traits. Differ slightly. OKI showed extreme dedication to his work. However Marks was undoubtedly a true entrepreneur. In fact, all of them showed dedication to their work. Wallen berg's passion and high achievement started out first by expanding the family business. Michael Mark's had a vision in a time where there wasn't any vision and OKI had a vision in a time where there were many visions. However, a little luck could be attributed to their huge successes. Their innate intuition drove them to be the leaders that they are known to be. f:\12000 essays\business & economics (632)\Lee Iacocca 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Lee Iacocca, born Lido Iacocca on October fifteenth 1924, was the son of an Italian immigrant named Nicola Iacocca. He had one sister named Antonette. The family lived in Allentown, Pennsylvania. His father was some what of an entrepreneur in the food service industry. The family business was called the Orpheum Weiner House in Allentown, Pennsylvania. The company is still standing today, operating under the name Yocco's, his uncles' are still making hot dogs for the public. Growing up in Allentown was difficult for Lee, because of his ethnic background. Allentown was primarily made up of Dutch immigrants. In his early years of education he was ridiculed for his heritage. An his senior year in high school Lee came down with rheumatic fever. He had a harsh bout with the disease because there was no modern medicine to aid in the recovery. In 1941 during the World War he was very excited about joining the military. Ironically, the illness that had almost killed him, saved him from going to war. Most of his classmates that joined the service had been killed over-seas and abroad. For college Lee chose Lehigh University for its engineering program, although he wanted to go to Purdue, he did not get a scholarship. Lehigh University was one of the sights that Ford Motor Company used to recruit new employees. He was able to secure a place in the Ford training program, it was difficult for him to get admission but he survived. During his time in the training program Lee had become less interested in the engineering aspect of the business and more in sales. He dropped out of the program to pursue areas in sales with the Ford Corporation. During his time at Ford Lee Iacocca came out with several very innovative purchasing concepts. One concept was the 56 for 56 payment plan. This payment plan would allowed the consumer to purchase a new Ford vehicle with a twenty percent down payment and a $56 monthly payment until the vehicle was paid off. This was one of the first payment plans that was structured to be affordable for the consumer. The system was responsible for selling over seven hundred fifty thousand vehicle in 1956. Although his career with the Ford Motor Company was extensive, all that would come to an end with the production of one vehicle the "Pinto". After Ford was able to settle law suits over the compact car for explosive reasons, (the Pinto was noted for exploding from rear end collisions), they recalled over a million and a half Pintos. This was June of 1978, one month before Lee was fired. In 1979 Lee Iacocca was employed with the Chrsler Corporation. Within his first few month there he had seen Chrysler cancel production of over sixty thousand cars. After a short period of time he found out there were no dealers to sell cars for them. Their inventory was bulging because of cars that were made with no destination. These vehicles were part of Chrysler's sales bank. It was a large inventory of cars that were manufactured only to keep plants running. One of his first ideas was to get rid of the sales bank. He put pressure on all local dealers to empty the inventory. He made the dealers take up the slack so he could implement a just in time form of inventory. They would be manufacture specific orders so no capital would be wasted. Another problem with Chrysler was they were leasing vehicles to rental agencies instead of selling to them. Chysler had been running the worlds largest leasing company. Every six months they would buy them back. The new car dealers wanted nothing to do with the rented cars. With this policy in effect, Chrysler also made itself the worlds largest used car broker. In late 1979, early 1980 Chrysler had wrote off almost 88 million dollars in used car losses. Between the inventory problem and the leasing issue, Chrysler's loss was in the five hundred million dollar range. The next item was the staff. He needed to replace over thirty five stop level managers, and replace then with people that knew what they were doing. With over twenty years of experience with Ford it was clear were the replacements would come from. Sales continued to drop steadily until the creation of the K car. These were compact vehicles that would put Chrysler back in the market place or finish them off. The present problem was that Chrysler had such a large debit already with no fresh capital. Through the help of government loans and an improving economy Chrysler was able to save itself. By giving more of the market share Chrysler was on the way to recovery. Presently the corporation holds a very large piece of the market from large trucks to compact vehicles. Lee Iacocca was able to save a failing company by establishing a competent management team, cutting production runs of vehicles without destinations and arranging guaranteed loans from the Federal Government during an uncertain time. Interest rates were very high and the customer base was low. He had an extensive amount of fore thought by staying with the firm. His guidance was able to save and American corporation. With the successful turn around of the Chrysler Corporation there was a lot of gossip and allegations that Lee would be seeking a political career. In 1983 he signed a three year contract with Chrysler to close his career. In 1986 he retired from the car manufacturing industry completely. In my opinion Lee Iacocca was blackballed from one of the worlds largest auto manufactures, then was placed in charge of a company that had little chance of survival in the present economy. He turned the struggling company around and repaid all debits owed by the Chrysler Corporation. There is one phrase he also said that will be remembered for years to come, "If you can find a better car, buy it." f:\12000 essays\business & economics (632)\Lee Iacocca.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Lee Iacocca Lee Iacocca, born Lido Iacocca on October fifteenth 1924, was the son of an Italian immigrant named Nicola Iacocca. He had one sister named Antonette. The family lived in Allentown, Pennsylvania. His father was some what of an entrepreneur in the food service industry. The family business was called the Orpheum Weiner House in Allentown, Pennsylvania. The company is still standing today, operating under the name Yocco's, his uncles' are still making hot dogs for the public. Growing up in Allentown was difficult for Lee, because of his ethnic background. Allentown was primarily made up of Dutch immigrants. In his early years of education he was ridiculed for his heritage. An his senior year in high school Lee came down with rheumatic fever. He had a harsh bout with the disease because there was no modern medicine to aid in the recovery. In 1941 during the World War he was very excited about joining the military. Ironically, the illness that had almost killed him, saved him from going to war. Most of his classmates that joined the service had been killed over-seas and abroad. For college Lee chose Lehigh University for its engineering program, although he wanted to go to Purdue, he did not get a scholarship. Lehigh University was one of the sights that Ford Motor Company used to recruit new employees. He was able to secure a place in the Ford training program, it was difficult for him to get admission but he survived. During his time in the training program Lee had become less interested in the engineering aspect of the business and more in sales. He dropped out of the program to pursue areas in sales with the Ford Corporation. During his time at Ford Lee Iacocca came out with several very innovative purchasing concepts. One concept was the 56 for 56 payment plan. This payment plan would allowed the consumer to purchase a new Ford vehicle with a twenty percent down payment and a $56 monthly payment until the vehicle was paid off. This was one of the first payment plans that was structured to be affordable for the consumer. The system was responsible for selling over seven hundred fifty thousand vehicle in 1956. Although his career with the Ford Motor Company was extensive, all that would come to an end with the production of one vehicle the "Pinto". After Ford was able to settle law suits over the compact car for explosive reasons, (the Pinto was noted for exploding from rear end collisions), they recalled over a million and a half Pintos. This was June of 1978, one month before Lee was fired. In 1979 Lee Iacocca was employed with the Chrsler Corporation. Within his first few month there he had seen Chrysler cancel production of over sixty thousand cars. After a short period of time he found out there were no dealers to sell cars for them. Their inventory was bulging because of cars that were made with no destination. These vehicles were part of Chrysler's sales bank. It was a large inventory of cars that were manufactured only to keep plants running. One of his first ideas was to get rid of the sales bank. He put pressure on all local dealers to empty the inventory. He made the dealers take up the slack so he could implement a just in time form of inventory. They would be manufacture specific orders so no capital would be wasted. Another problem with Chrysler was they were leasing vehicles to rental agencies instead of selling to them. Chysler had been running the worlds largest leasing company. Every six months they would buy them back. The new car dealers wanted nothing to do with the rented cars. With this policy in effect, Chrysler also made itself the worlds largest used car broker. In late 1979, early 1980 Chrysler had wrote off almost 88 million dollars in used car losses. Between the inventory problem and the leasing issue, Chrysler's loss was in the five hundred million dollar range. The next item was the staff. He needed to replace over thirty five stop level managers, and replace then with people that knew what they were doing. With over twenty years of experience with Ford it was clear were the replacements would come from. Sales continued to drop steadily until the creation of the K car. These were compact vehicles that would put Chrysler back in the market place or finish them off. The present problem was that Chrysler had such a large debit already with no fresh capital. Through the help of government loans and an improving economy Chrysler was able to save itself. By giving more of the market share Chrysler was on the way to recovery. Presently the corporation holds a very large piece of the market from large trucks to compact vehicles. Lee Iacocca was able to save a failing company by establishing a competent management team, cutting production runs of vehicles without destinations and arranging guaranteed loans from the Federal Government during an uncertain time. Interest rates were very high and the customer base was low. He had an extensive amount of fore thought by staying with the firm. His guidance was able to save and American corporation. With the successful turn around of the Chrysler Corporation there was a lot of gossip and allegations that Lee would be seeking a political career. In 1983 he signed a three year contract with Chrysler to close his career. In 1986 he retired from the car manufacturing industry completely. In my opinion Lee Iacocca was blackballed from one of the worlds largest auto manufactures, then was placed in charge of a company that had little chance of survival in the present economy. He turned the struggling company around and repaid all debits owed by the Chrysler Corporation. There is one phrase he also said that will be remembered for years to come, "If you can find a better car, buy it." f:\12000 essays\business & economics (632)\Linda McQuaigLinda McQuaig Shooting The Hippo Causes and Results of Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Linda McQuaig's Shooting The Hippo: Causes and Results of Debt Linda McQuaig's most recent book, "Shooting the Hippo" is about the causes and results of the debt. It is a look at both the factual causes and the arguments which are merely presented to us through the various elements of the media. McQuaig delivers an insightful overview of the extensive media coverage which has bombarded us over the past few years. "With the excitement of a mystery writer, McQuaig tells the real story behind the debt." . This book explains the history of the deficit myth, and enables people such as myself who are not experienced in these types of problems to get to the heart of the arguments presented so frequently about our financial situation. I found her book an inspiration which will hopefully help us all to devote ourselves to the enormous challenge which we will face in the future. We are responsible to inform and educate ourselves, our friends, our families and neighbours in the difficult days ahead. To explain McQuaig's title I'll briefly describe the beginning of the "mystery." A baby hippo, born in a zoo, is to be shot because of recent government cutbacks which leave nothing to feed or care for the hippo. This image grabs the attention of the reader and leads to numerous other examples which McQuaig uses to break down the popular myths about the deficit. McQuaig, determined to expose one by one, several of the current myths about the state of the Canadian economy, backs up her arguments with interviews and publications. These include: a chief statistician at Statistics Canada who has been working on the statistics of social spending since the middle '60s; the man at Moody's bond rating service in New York who is in charge of setting the credit rating on our federal debt; and noted economists, among others. The book goes on in its investigation as to why the recession in Canada was the worst of the world's most powerful nations. It is noted that if there is a simple way to explain the reason for most of the recession then it will in turn account for most of the increase in the debt. McQuaig also presents a bit of history of banking, monetary systems, and the struggle of the conflicts between the rich minority and the rest of us. All of this is presented in a very readable and interesting manner. McQuaig asks an intriguing question to all of us. Are we prepared to see our social programs sacrificed in order to reduce the deficit? Our political figures would have us believe that there is quite simply no other option but to give them up, a view which McQuaig effectively destroys in the 285 pages of this book. In the end, McQuaig warns us not to let our achievements as a society be sacrificed in the name of deficit reduction. Her fear is that we, as a society will not be able to find the determination needed in order to succeed. Over the past few years it has been nearly impossible to open a newspaper without seeing an article on the deficit. The subject of the deficit has been terribly misunderstood, and it continues to be one of our largest problems. McQuaig delivers the message, which is consequently backed up by her interviews, that the deficit is not caused by social spending. Contrary to popular belief McQuaig argues that we are no where near hitting the "debt-wall". She delivers and backs up the argument that fighting the recession, rather than eliminating social programs, would do the most in the attempt to eliminate the deficit. McQuaig criticizes the media's uncanny ability to deliver only half the story, and in doing so points out that the media has created a negative image of spending on certain social programs. In reality, spending on social program has not contributed much at all to the increase in deficit. This is according to a study put out by Statistics Canada. McQuaig relates that Hideo Mimoto, chief of the social security section, who in fact wrote the study, shows that increases in social spending have done very little to nothing at all in terms of increasing the federal debt. The wrong suspects are being brought in for questioning. Unemployment insurance, which is portrayed so poorly in the media, has created only one percent of debt growth. In comparison one of the largest weights on the deficit was police, military and prison spending. McQuaig delivers the message that if people were really concerned about chipping away at the debt wall, they would be cutting back on police and prisons. McQuaig effectively presents arguments which give impressive evidence that we are continually being misled by the people in power. I believe this book has been an important step for me in considering the future of our country. It is my generation who will benefit from McQuaig's detective work. McQuaig delivers her findings and her opinions in a clear and concise manner. Her book is well written and is a refreshing change to the one sided arguments that are delivered by our corporate leaders. McQuaig effectively analyzed the problem of the deficit in a book that was easy to read because of its voice. At no point did I feel that McQuaig was speaking on an elevated level. She was truthful and if an opinion was voiced it was also proven. McQuaig delivers the problem as she sees it after all the misleading information delivered from others, has cleared away. She poses certain solutions, some of which are unrealistic, such as her suggestion for less police and military funding, and some of which make terrific sense. She points out that the "powers that be" are not interested in open debate, perhaps they fear they will be contradicted. In the end, I feel this a worthwhile piece of work, it has broadened my understanding of the deficit as well as my understanding that just because somebody holds the power doesn't mean that they are doing good. This book helped explain to me the history of the deficit, and enabled me to get to the heart of the arguments, without having to weed through a lot of high power terms, that usually through me for a loop. I have learned we are responsible to inform and educate ourselves, our friends, our families and neighbours on the road to a solid economical future. Bibliography 1. McQuaig, Linda. Shooting The Hippo. Toronto: Penguin Books Canada Ltd., 1995. 2. Stockley, Les. Http://www.wordplay.com:80/books/newreleases/shooting.html f:\12000 essays\business & economics (632)\Long Swings in the Exchange Rate and the Excess Returns Puzzl.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ William Strauss Long Swings in the Exchange Rate and the Excess Returns Puzzle: The Role of Imperfect Knowledge The paper is a clear breath of "dirty" air in the sterile world of perfect foresight. The authors offer a well worked out model of how agents persistently bid the exchange rate away from the expected long-run equilibrium rate. It seems intuitively comfortable to see the mathematical justification for the unexplained excess returns to be a function of the distance from the bench-mark (PPP). The uncertainty of a switch occurring in a regime (the Peso Problem) is an interest-ing form within which to embed the imperfect information. It is a format that seems ready to ex-pand into many other areas of economic modeling in which expectations are at the core of the model's dynamics. Of course, the choice of the benchmark is key to the mechanics of the process. In this case, PPP is an obvious choice... but, since the idea of PPP drives this model so strongly, it is interesting to look at its place and its characteristics. In the paper, the authors note that if PPP holds, "relative excess demand for domestic and foreign goods is zero." The obvious suggestion, based on the model, is that the flow of goods and services is the foundation for the equilibrating dynamic. Behind the flow of goods and services is the gap between the gap between, domestic and foreign short-term rates, and the steady state long-run interest rate gap that sets goods flows to zero. The assumption is that the prices of the domestic and foreign goods in their respective for-eign currencies are "incorrect" based on the fundamentals of the respective countries and that agents know this (and know that the exchange rate path is unstable) but cannot be sure of the de-gree of "incorrectness" or the persistence of the divergence. Embedded into this model are as-sumptions about PPP that provide comfort about this benchmark's ability to give the "correct" relative prices. It is possible that these assumptions, to some degree, mask the complexity of the situation with respect to PPP's ability to proxy relative prices. At the theoretical level, PPP should simply offer equal purchasing power for equal commodity bundles through the exchange rate. Unfortunately, the problem of explaining stylized facts requires some matching with reality. Set-tling for getting the signs right mitigates much of the angst, but, as has been demonstrated by the predictive abilities of many of the models to date, the problem is not really solved. Perhaps the model of PPP as a function of interest rates only misses something... But here we have a BIG step (from the real exchange rate side, not from the side of better modeling PPP) toward not only getting the signs right, but also understanding the dynamics of the switch. If PPP were built from a micro-foundation choice-based model (where demand-side ef-fects influence saving/investment and interest rates), I suspect that we might see a real conver-gence toward understanding the excess returns puzzle. f:\12000 essays\business & economics (632)\Long Swings in the Exchange Rate and the Excess Returns Puzzle.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Long Swings in the Exchange Rate and the Excess Returns Puzzle: The Role of Imperfect Knowledge William Strauss The paper is a clear breath of "dirty" air in the sterile world of perfect foresight. The authors offer a well worked out model of how agents persistently bid the exchange rate away from the expected long-run equilibrium rate. It seems intuitively comfortable to see the mathematical justification for the unexplained excess returns to be a function of the distance from the bench-mark (PPP). The uncertainty of a switch occurring in a regime (the Peso Problem) is an interest-ing form within which to embed the imperfect information. It is a format that seems ready to ex-pand into many other areas of economic modeling in which expectations are at the core of the model's dynamics. Of course, the choice of the benchmark is key to the mechanics of the process. In this case, PPP is an obvious choice... but, since the idea of PPP drives this model so strongly, it is interesting to look at its place and its characteristics. In the paper, the authors note that if PPP holds, "relative excess demand for domestic and foreign goods is zero." The obvious suggestion, based on the model, is that the flow of goods and services is the foundation for the equilibrating dynamic. Behind the flow of goods and services is the gap between the gap between, domestic and foreign short-term rates, and the steady state long-run interest rate gap that sets goods flows to zero. The assumption is that the prices of the domestic and foreign goods in their respective for- eign currencies are "incorrect" based on the fundamentals of the respective countries and that agents know this (and know that the exchange rate path is unstable) but cannot be sure of the de-gree of "incorrectness" or the persistence of the di vergence. Embedded into this model are as-sumptions about PPP that provide comfort about this benchmark's ability to give the "correct" relative prices. It is possible that these assumptions, to some degree, mask the complexity of the situation with respect to PPP's ability to proxy relative prices. At the theoretical level, PPP should simply offer equal purchasing power for equal commodity bundles through the exchange rate. Unfortunately, the problem of explaining stylized facts requires some matching with reality. Set- tling for getting the signs right mitigates much of the angst, but, as has been demonstrated by the predictive abilities of many of the models to date, the problem is not really solved. Perhaps the model of PPP as a function of interest rates only misses something... But here we have a BIG step (from the real exchange rate side, not from the side of better modeling PPP) toward not only getting the signs right, but also understanding the dynamics of the switch. If PPP were built from a micro- foundation choice-based model (where demand-side ef-fects influence saving/investment and interest rates), I suspect that we might see a real conver-gence toward understanding the excess returns puzzle. f:\12000 essays\business & economics (632)\Loss on impairments.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Loss on impairments Accounting for impairments of long -lived assets was issued by the FASB in 1995. In this standard, an impairment occurs when the carrying amount of an asset and certain identifiable intangibles is not recoverable and, therefore a write-off is needed. Many changes lead to an impairment of an asset, here are some of them: 1. A decrease in the market value of an asset 2. A change in the extent of the asset. 3. a forecast that demonstrates continuing losses associated with an asset. In accordance to IAS (International Accounting standards) and FASB (financial accounting standard board) There are some similarities and differences with respect to loss on impairments. According to the similarities between the two standards: 1. (IAS36) prescribes the accounting and disclosure for impairments of all assets .It replaces the requirements for assessing the recoverability of an asset and recognizing impairment losses that were included in : IAS16 (property, plant and equipment). IAS22 (business communications) IAS28(accounting for investments) IAS31(financial reporting of interest in joint venture) According to FASB, loss on impairments is found in standard121 .It establishes the accounting standards for the impairments of long lived assets, certain identifiable intangibles and good will related to those assets to be held and used for long lived assets and certain identifiable intangibles to be disposed of. 2. (IAS) AN asset is impaired when the carrying amount of the asset exceeds its recoverable amount. Also ht describes some indications that an impairment loss may have occurred. If any of those indications is present, an enterprise is required to make a formal estimate of recoverable amount. If no indications of a potential impairment loss is present, this standard does not require an interprise to make a formal estimate of recoverable amount. 3) According to the FASB, long lived assets are recorded at cost but during time it depreciates . This practice has been modified in some circumstances when an asset has been determined to be impaired , in which the asset has been written down to a new carrying amount that is less than the remaining cost and a loss has been recognized According to the disclosures for (IAS36) , for each class of assets , the financial statement should disclose: a. The amount of impaired losses recognized in the income statement during the period. b. The amount of reversals of impairment loses recognized in the income statement during the period c. The amount of impairment loss recognized directly in equity during the period . d. The amount of reversals of impairment losses recognized directly in equity during the period. According to the FASB, the disclosures in the financial should be: a. A description of assets to be disposed of, the facts and circumstances leading to the expected disposal date, and the carrying amount of those assets. b. If applicable the business segment in which assets to be disposed of are held . c. The gain or loss d. the results of operations for assets to be disposed of to the extent that those results are included in the Entity results of operations for the period and can be identified. 4) In (IAS) 36 in case of no market value is existing, present value of expected future net cash flows should use, In accordance to FASB, also we estimate the net cash flow. According to the dissimilarities: 1) IN (IAS) 36 goodwill arising on acquisition represents a payment made by an acquirer in anticipation of future economic benefits. The future economic benefits may results from synergy between the identifiable assets acquired or from assets, which individually, do not qualify for recognition in the financial statement. Goodwill doesn't generate cash flows independently from other assets or groups of assets and, therefore the recoverable amount of goodwill as an individual asset cannot be determined. As a consequence, if there is an indication that goodwill may be impaired, recoverable amount is determined for the cash generating unit to which goodwill belongs. This amount is then compared to the carrying amount of this cash generating Unit and any impairment loss is recognized With respect to the FASB, if an asset being tested for recoverability was acquired in a business combination accounted for using the purchase method. The goodwill that arose in that transaction should be included as a part of the asset grouping in determining recoverability. If some but not all assets acquired in that transaction are being tested for recoverability on a pro-rata bases using the relative fair values of the long lived assets and identifiable intangibles acquired at the acquisition data. Unless there is evidence to suggest that some other method of associating the goodwill with those assets is more appropriate. In instances where goodwill is identified with assets that are subjected to an impairment loss, the carrying amount of the identified goodwill should be eliminated as before making any reduction of the carrying amounts of impaired long -lived assets and identifiable intangibles. 1. According to discount rate about IAS. The institution must apply the appropriate discount rate to these future cash flows. With respect to the FASB, the company market rate interest should be used in discounting to present value. 3) According to discount rate about IAS, The institution must apply the appropriate discount rate to these future cash flows. With respect to the FASB, the company market rate interest should be used in discounting to present value. 2. In (IAS) estimates of cash flows should include: a. projections of cash flows from the continuing use of the asset b. projections of cash flows that are necessarily incurred to generate the cash inflows from continuing use of the asset (including cash outflows to prepare the asset for use ) and that can be directly attributed , or allocated on a reasonable and consistent bases to the asset c. Net cash flows, if any, to be received (or paid) for the disposal of the asset at the end of its useful life. d. Projections of cash outflows include future overheads that can be attributed directly , or allocated on a reasonable and consistent basis , to the use of the asset e. When the carrying amount of an asset does not yet include all the cash outflows to be incurred before it is ready for use or sale , the estimate of future cash outflows includes an estimate of any further cash outflows that is expected to be incurred before the asset is ready for use or sale . For example, this is the case for a building under construction or for a development project that is not yet completed. With respect to the FASB, 1) The board recognizes that judgements, estimates, and projections will be required for measuring impaired assets and that precise information about the relevant attributes of those assets seldom will be available. Partly as a result, the board decided that the measurement guidance provided in this statement should be general. 2) The board agreed that one method of obtaining an appropriate measure in some situations is to project expected future cash flows and to discount those cash flows at a current rate that considers the risk inherent in those cash flows .The board decided not to address issues about how to project cash flows or what interest should be associated with those cash flows. The board currently has a separate project on present value based measurements in accounting on its agenda to consider the latter issue 5) IN IAS, an impairment loss should be recognized as an expense in the income statement for asset carried at cost and treated as a revaluation decrease for asset carried at revalued amount IN FASB, an impairment loss should be reported as a part of income from continuing operations. This loss Should be reported as an extraordinary item. As a conclusion, The FASB and the IAS are two important organizations in which they share many common standards as well as many differences among them in recognizing and considering each statement. f:\12000 essays\business & economics (632)\lucent technologies business profile.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ BACKGROUND In 1996, AT&T decided to split into three different companies. These new companies were the new AT&T, NCR, and Lucent Technologies. Lucent Technologies is one of the leading designers, developers, and manufacturers of telecommunications systems, software, and products.1 They are beginning to emerge as a Fortune 40 company. Lucent Technologies builds local networks, business telephone systems, and consumer telephones that access the global networks.2 Lucent Technologies was launched with an initial public stock offering in April.3 AT&T owns an 82% share of the company.4 KEY PERSONNEL Lucent technologies has 125,000 employees worldwide. Approximately 82% of its employees come from the United States and the other 18% come from foreign countries.5 Lucent Technologies has offices in more than 90 countries, and Bell Labs has offices in 13 countries.6 The chairman and chief executive officer is Henry B. Schacht. Schacht has been on AT&T's board of directors since 1981. He has also held chairman and chief executive officer positions at Cummings Engine Company, INC.7 Lucent Technologies' President and chief operating officer is Richard A. McGinn. McGinn joined AT&T in 1978. He has previously served as executive vice president and chief executive officer of AT&T's network group. From 1994 to 1996, McGinn served on the AT&T management executive committee.8 BUSINESS STRUCTURE Lucent Technologies is composed of four operating units. These four units are: Business Communication Systems, Consumer Products, Microelectronics Group, and Network Systems. These units are designed to work together to provide innovative and cost-efficient solutions for customers. Bell Laboratories supports each group.9 Bell Laboratories is a research and development organization that is recognized throughout the world for its achievements in science and technology. Currently, Bell Laboratories is focusing on developing: Digital signal processor algorithms, Lightwave communications (photonics), Networking, Silicon chips, Software, and Wireless communications.10 Business Communications Systems design, manufacture, install, and service advanced voice and multimedia systems worldwide.11 Consumer Products design, manufacture, sell, and lease communications products for consumers, small offices, and home offices. In 1995 in the United States, Consumer Products sold 31% of the corded phones, 28% of the cordless phones, and 35% of answering machines.12 The Microelectronics Group makes integrated circuits, power systems, and optoelectronic components for Lucent Technologies.13 The largest unit of Lucent Technologies is the Network Systems. The Network Systems designs, develops, and manufactures networking systems and software for telecommunications providers, wireless communications is growing at an annual rate of 33 percent.14 BUSINESS STRATEGY The worldwide demand for communications systems is booming. Lucent Technologies is predicting a 10% annual growth for the communications industry. The business is pursuing growth opportunities around the world and is trying to build on Bell Laboratories established global relationships with its key customers. 15 Much emphasis for advancement is being put on the areas of Wireless communications, Networking software, and multimedia convergence. With the increasingly mobile society, Lucent Technologies feels that there will be an increasing demand for wireless communications. The more sophisticated technology becomes, the greater the demand for smarter networks. One of the world's largest producers of networking software is Lucent Technologies. Multimedia devices deal with all kinds of communications. Lucent Technologies is trying to develop innovations on multimedia that the customers want.16 ADVERTISING STRATEGY The company's name, Lucent Technologies, was thought of after many interviews with customers and other stakeholders. Lucent means, "Marked with clarity, or glowing with light". Lucent Technologies logo is supposed to be a bold, red, hand-drawn innovation ring.17 The company's slogan is, "We make the things that make communications work." LIST OF COMPETITORS -DSC Communications -General Electric -Hitachi -Intel -Matsushita -Microsoft -Motorola -Nokia -Sony -Toshiba -U.S. Robotics18 BIBLIOGRAPHY 1.) AT&T's 1995 Annual Report 2.) Lucent Technologies fact booklet 3.) America on line TABLE OF CONTENTS Background - page 1 Key personnel - page 1 Business Structure - page 2 Bell Laboratories - page 2 Business Strategies - page 3 Advertising Strategies - page 3 List Of Competitors - page 4 Bibliography - page 5 f:\12000 essays\business & economics (632)\Lucent Technologies.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Lucent Technologies BACKGROUND In 1996, AT&T decided to split into three different companies. These new companies were the new AT&T, NCR, and Lucent Technologies. Lucent Technologies is one of the leading designers, developers, and manufacturers of telecommunications systems, software, and products.1 They are beginning to emerge as a Fortune 40 company. Lucent Technologies builds local networks, business telephone systems, and consumer telephones that access the global networks.2 Lucent Technologies was launched with an initial public stock offering in April.3 AT&T owns an 82% share of the company.4 KEY PERSONNEL Lucent technologies has 125,000 employees worldwide. Approximately 82% of its employees come from the United States and the other 18% come from foreign countries.5 Lucent Technologies has offices in more than 90 countries, and Bell Labs has offices in 13 countries.6 The chairman and chief executive officer is Henry B. Schacht. Schacht has been on AT&T's board of directors since 1981. He has also held chairman and chief executive officer positions at Cummings Engine Company, INC.7 Lucent Technologies' President and chief operating officer is Richard A. McGinn. McGinn joined AT&T in 1978. He has previously served as executive vice president and chief executive officer of AT&T's network group. From 1994 to 1996, McGinn served on the AT&T management executive committee.8 BUSINESS STRUCTURE Lucent Technologies is composed of four operating units. These four units are: Business Communication Systems, Consumer Products, Microelectronics Group, and Network Systems. These units are designed to work together to provide innovative and cost-efficient solutions for customers. Bell Laboratories supports each group.9 Bell Laboratories is a research and development organization that is recognized throughout the world for its achievements in science and technology. Currently, Bell Laboratories is focusing on developing: Digital signal processor algorithms, Lightwave communications (photonics), Networking, Silicon chips, Software, and Wireless communications.10 Business Communications Systems design, manufacture, install, and service advanced voice and multimedia systems worldwide.11 Consumer Products design, manufacture, sell, and lease communications products for consumers, small offices, and home offices. In 1995 in the United States, Consumer Products sold 31% of the corded phones, 28% of the cordless phones, and 35% of answering machines.12 The Microelectronics Group makes integrated circuits, power systems, and optoelectronic components for Lucent Technologies.13 The largest unit of Lucent Technologies is the Network Systems. The Network Systems designs, develops, and manufactures networking systems and software for telecommunications providers, wireless communications is growing at an annual rate of 33 percent.14 BUSINESS STRATEGY The worldwide demand for communications systems is booming. Lucent Technologies is predicting a 10% annual growth for the communications industry. The business is pursuing growth opportunities around the world and is trying to build on Bell Laboratories established global relationships with its key customers. 15 Much emphasis for advancement is being put on the areas of Wireless communications, Networking software, and multimedia convergence. With the increasingly mobile society, Lucent Technologies feels that there will be an increasing demand for wireless communications. The more sophisticated technology becomes, the greater the demand for smarter networks. One of the world's largest producers of networking software is Lucent Technologies. Multimedia devices deal with all kinds of communications. Lucent Technologies is trying to develop innovations on multimedia that the customers want.16 ADVERTISING STRATEGY The company's name, Lucent Technologies, was thought of after many interviews with customers and other stakeholders. Lucent means, "Marked with clarity, or glowing with light". Lucent Technologies logo is supposed to be a bold, red, hand-drawn innovation ring.17 The company's slogan is, "We make the things that make communications work." LIST OF COMPETITORS -DSC Communications -General Electric -Hitachi -Intel -Matsushita -Microsoft -Motorola -Nokia -Sony -Toshiba -U.S. Robotics18 BIBLIOGRAPHY 1.) AT&T's 1995 Annual Report 2.) Lucent Technologies fact booklet 3.) America on line TABLE OF CONTENTS Background - page 1 Key personnel - page 1 Business Structure - page 2 Bell Laboratories - page 2 Business Strategies - page 3 Advertising Strategies - page 3 List Of Competitors - page 4 Bibliography - page 5 f:\12000 essays\business & economics (632)\Macroeconomic Overview.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MACROECONOMIC OVERVIEW BY Steven Ricciardi Mr. Esposito Economics February 12, 1997 Monetary/Fiscal Policy Government monetary and fiscal policies change all the time. These policies are installed or fixed for the betterment of trade, inflation, unemployment, the budget, or many other economic factors. In my opinion, it seems like two people have the majority of the control when it comes to forming these policies. The first person who influences these policies is President Bill Clinton who proposes tax cuts, to balance the budget (Clinton's budget proposal should be given to congress soon), minimum wage increases, or other legislation to improve the economy. The second person who influences policy is the Federal Reserve Board Chairman Alan Greenspan who can truly destroy our economy by a slight miscalculation. Greenspan is so influential that the mere speculation of his making a move can cause panic buying or selling in the open markets. Alan Greenspan has the power to increase or decrease the money supply by changing reserve requirements, by changing the discount rate, or by buying or selling U.S. Securities over the open market. The major governmental problem is trying to balance the budget. The United States government is currently in debt $5,262,697,717,000 as of February 7. This number grows about $10,000 per second(see charts 2,3,and 7). President Clinton, Chairman Greenspan, and Congress are all working towards a balanced budget by the year 2002. As many economists explain , the need is for legislation to keep the budget balanced for years to come and not look for a quick fix to balance the budget for only a few months to quiet critics. The government takes steps constantly to balance the budget; economists say that the chances of inking a deal this year are better than ever. President Clinton has currently proposed an offer of $100 billion in tax cuts through 2002. These cuts are aimed at giving relief to middle class citizens. A few of his other proposals include: $500.00 child tax credit, tax deduction for post high school education, increasing the limits of individual retirement accounts, and elimination of the capital gains tax. Despite these cuts, he still believes a balanced budget will be achieved by the year 2002. Greenspan, in an effort to shave billions of dollars off the deficit, explained to Congress that they are overpaying Social Security recipients. Greenspan's testimony sets the stage to successfully balance the budget. His reasoning behind these allegations is that the cost of living is overstated and he is urging Congress to correct the problem which would affect inflation, gross national product, and the budget. Inflation The fourth quarter results have been calculated and the economy is in great shape. The Commerce Department released fourth quarter numbers which show a 4.7% annual growth rate and a 1.8% rise in inflation. This 1.8% fourth quarter rate is lower than the 2.1% third quarter rate. The gain in the fourth quarter is due to higher exports and higher consumer spending. The fact of the matter is that 1996 ended with strong growth and no problem with inflation(see chart 6). Many economists showed concern over steady inflation growth and are worried about 1997. They believe investors may be tricked because the economy is really hot and it is just a facade. Many are concerned that the impressive growth in 1997 could start a dangerous domino effect that could push up inflation. Demand and production are very strong which is always a good point for economic growth. Many retailers moaned about a slower Christmas buying season but consumer spending showed a rise of 3.4%. Many analysts expected unfortunate product overloads. It does not look like businesses will be stuck trying to clear out their stock rooms. As for 1997, I get mixed reactions. Many investors seem split about their predictions and are not too sure about the future. Where does Alan Greenspan, chairman of the Federal Reserve, stand on inflation? As indicated earlier in this report, a few weeks ago, he urged Congress to revamp the method by which the government measures inflation. He believes that the consumer price index overweighs inflation by approximately one percent per year. He pointed out that the cost of living increases are overstated and urged politicians to appoint a commission to correct the problem. Gross National Product The gross national product is a measure of the market value of goods and services produced during a specific time period. The GNP is the most widely used factor of economic performance. GNP are estimates that are prepared after each quarter. The GNP estimate after the fourth quarter in 1996 was . GNP can be calculated by adding the total cost of supplying the goods and services, including the income of the producer. An average breakup of Real GNP can be divided as such: 64.5% from consumption of goods and services, 19.8% from government purchases, 16.6% from gross investment, and -0.9% from net exports. It is tough to keep up with technology and the products that consumers spend their money buying. It is tough to tell if the consumer has the money to buy luxury items or necessities, but there are many goods and services from here and abroad that are readily available and worth looking into. Domestic demand is rebounding and even foreign demand is picking up for our products. Many manufacturers are feeling the pressure in their order books. Unfilled orders and consumer demand are increasing and forcing producers to lengthen their workweeks; increase their payrolls, and speed up production. Overall orders so far as the fourth quarter can tell are well above their third quarter average. Orders for capital goods are high as well as durable goods, which include long-lasting items like air-conditioners, microwaves, stoves, and airplanes. This rebound is why the new year looks to be promising. Consumers have a to do with the manufacturing upbeat look. Despite the majority of products being goods and services, Government spending also makes up a large part of our GNP. Military is a major spender and with the competition over B-2 bombers, money is being exchanged in large amounts. President Clinton is also expected to propose a 20% increase in spending for education which would raise the total to some $51 billion. Other examples of Government spending which will be addressed in Clinton's Budget for 1997 will be International Affairs, Transportation, and Medicare(to name a few). The prospect of stronger world growth clearly is a plus for exports, especially capital goods. Foreign sales of capital goods have risen 10.4% from a year ago. Cheaper exports means cheaper imports will allow foreign goods producers to expand their already record share of the U.S. market. Unemployment The unemployment report is released periodically and it contained a big surprise for many economists in 1996. Over the past months the reports showed the economy doing quite well. This economy has been doing so well that some economists were worried about reaching full employment rather quickly. Although the jobless would love that to happen, full employment would lead to high inflation and destruction of the economy. The consensus on Wall Street was that the Fed would have to raise rates until word got around about the report. By day's end, the mainstream were afraid of an economy that will grow so slowly that rates will have to go lower. The current unemployment rate is 5.3%. President Clinton is trying to create new jobs to get everyone earning real wages. People want to know that he is opening job opportunities but he also does not want full employment. This is a prime example of politics. Tell people what they want to hear but do not let the economy stagnate. I guess that is his hidden agenda. In effect, Clinton plans to strengthen employment and business investments in poverty stricken urban areas. He plans to triple funds to lend to city banks in order to foster economic development in poor neighborhoods. He will also try to triple employment in public housing projects through a $10 million project involving HUD, Rockefeller Foundation, and Chase Manhattan. Many Southern states, seven to be exact, are about to cut their unemployment insurance taxes by hundreds of millions of dollars. The Southern economy has seen tremendous growth and people are forgetting the bad economic times. The region has also been adding jobs at a constant pace. Unemployment has dropped to record lows in some of these states. This risky act may spell disaster. New Happenings President Clinton sent his opening proposal to congress in his attempt to balance the budget by 2002. Economists say Clinton is right on track with his proposals. Areas that are being hit hard are: Medicare, Defense, and Welfare (check chart one for breakdown). Also new, the unemployment breakdown came out and the economy has not lost a step. Despite the unemployment rate increasing from 5.2% to 5.3%, there is no fear of inflation. Payrolls also showed growth while the labor force expanded and the workers' hours decreased. f:\12000 essays\business & economics (632)\Maglev Consequences.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Maglev Consequences Magnetically levitated ground transportation, or "maglev," is an advanced mode of surface high speed transportation whereby a vehicle gliding above a guide track is suspended, guided, and propelled by magnetic forces. Because they never touch the guide track causing friction, maglev vehicles can be designed to travel at extremely high speeds, 500 kilometers per hour (300 miles per hour), or more! Americans traveled 3.2 trillion passenger kilometers (2 trillion passenger miles) by car, truck, bus, and public transit, and 9.8 billion passenger kilometers (6.1 billion passenger miles) on Amtrak. As populations have grown the traditional systems have become stressed. Congestion on highways and at airports not only wastes time and fuel and increases pollution, but constrains mobility to the extent that economic growth and productivity are adversely affected. Increased demand. Between 1980 and 1990, with deregulation and consumer demand for fast inner-city travel leading to lower airline fares, commercial air traffic has increased by 56 percent. Adding to the congestion and delay is increased commuter and regional air traffic. Those short distance flights take valuable landing slots that could be used for larger planes on more profitable, longer flights. With the maglev vehicles the shorter trips excluding access time can be cut a lot. With a study of 16 major corridors of travel, less than 300 miles in length, they studied how well the maglev vehicles could help, and in 10 out of the 16 the time could be cut at least slightly. Also the cost of a maglev trip will be less so that even with the longer trips where the maglev vehicles don't have the time advantage they will have the cost advantage. Because land is costly and scarce, adding more highway lanes and building new airports in or near our larger cities is becoming increasingly difficult. For example, adding new highway capacity in urban areas typically costs more than $15 million per land mile, and a new Denver airport is estimated to cost $3 to 4 billion. Current transportation technologies are petroleum dependent, accounting for 64 percent of total petroleum use. Without transportation alternatives that reduce petroleum dependency, transportation related petroleum use is expected to remain high--36 percent above our own US petroleum production, so we will have to get the oil from other countries which will raise taxes on oil imports, possibly creating national security problems. High speed ground transportation systems are capable of approaching the speed of airplane flight while offering some of the flexibility of the automobile, such systems can provide added capacity in dense corridors around the world. Because of its very high speed, it will be more likely to attract medium distance air travelers and highway drivers than high speed rail. Electrically powered, maglev will be virtually independent of petroleum based fuels decreasing our need for foreign oil products. Maglev networks will help decrease air pollution and lessen US dependence on foreign oil. Also, maglev systems will complement existing transportation systems-by lessening the air traffic, highway traffic leaving the extra routes free for businesses to use. The American government has already put billions of dollars into the maglev projects and prototypes. I believe that we should just go ahead and spend a little bit more and work with the countries like Japan and Germany and build a maglev transport device for America. I believe with the plans to run maglev tracks along heavily traveled highways and along highly traveled air corridors. This will cut back the congestion of the airports causing less of them to be made at a large cost to America. One of the problems that we found was a low frequency hum caused by the maglev vehicles running along the tracks. Which has not been proven. It is describes by the hearers near the tracks in New Mexico as a low frequency hum that annoys them late at night when the air is still. Another is the cost many people think there is no reason to spend so much money on something that may not even take off in the American public nut there have been unpublished surveys of people asking if they would switch to maglev transportation if I was easier and will cost less than conventional travel methods that we have today. f:\12000 essays\business & economics (632)\MAGLEV.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MAGLEV CONSEQUENCES Magnetically levitated ground transportation, or "maglev," is an advanced mode of surface high speed transportation whereby a vehicle gliding above a guide track is suspended, guided, and propelled by magnetic forces. Because they never touch the guide track causing friction, maglev vehicles can be designed to travel at extremely high speeds, 500 kilometers per hour (300 miles per hour), or more! Americans traveled 3.2 trillion passenger kilometers (2 trillion passenger miles) by car, truck, bus, and public transit, and 9.8 billion passenger kilometers (6.1 billion passenger miles) on Amtrak. As populations have grown the traditional systems have become stressed. Congestion on highways and at airports not only wastes time and fuel and increases pollution, but constrains mobility to the extent that economic growth and productivity are adversely affected. Increased demand. Between 1980 and 1990, with deregulation and consumer demand for fast inner-city travel leading to lower airline fares, commercial air traffic has increased by 56 percent. Adding to the congestion and delay is increased commuter and regional air traffic. Those short distance flights take valuable landing slots that could be used for larger planes on more profitable, longer flights. With the maglev vehicles the shorter trips excluding access time can be cut a lot. With a study of 16 major corridors of travel, less than 300 miles in length, they studied how well the maglev vehicles could help, and in 10 out of the 16 the time could be cut at least slightly. Also the cost of a maglev trip will be less so that even with the longer trips where the maglev vehicles don't have the time advantage they will have the cost advantage. Because land is costly and scarce, adding more highway lanes and building new airports in or near our larger cities is becoming increasingly difficult. For example, adding new highway capacity in urban areas typically costs more than $15 million per land mile, and a new Denver airport is estimated to cost $3 to 4 billion. Current transportation technologies are petroleum dependent, accounting for 64 percent of total petroleum use. Without transportation alternatives that reduce petroleum dependency, transportation related petroleum use is expected to remain high--36 percent above our own US petroleum production, so we will have to get the oil from other countries which will raise taxes on oil imports, possibly creating national security problems. High speed ground transportation systems are capable of approaching the speed of airplane flight while offering some of the flexibility of the automobile, such systems can provide added capacity in dense corridors around the world. Because of its very high speed, it will be more likely to attract medium distance air travelers and highway drivers than high speed rail. Electrically powered, maglev will be virtually independent of petroleum based fuels decreasing our need for foreign oil products. Maglev networks will help decrease air pollution and lessen US dependence on foreign oil. Also, maglev systems will complement existing transportation systems-by lessening the air traffic, highway traffic leaving the extra routes free for businesses to use. The American government has already put billions of dollars into the maglev projects and prototypes. I believe that we should just go ahead and spend a little bit more and work with the countries like Japan and Germany and build a maglev transport device for America. I believe with the plans to run maglev tracks along heavily traveled highways and along highly traveled air corridors. This will cut back the congestion of the airports causing less of them to be made at a large cost to America. One of the problems that we found was a low frequency hum caused by the maglev vehicles running along the tracks. Which has not been proven. It is describes by the hearers near the tracks in New Mexico as a low frequency hum that annoys them late at night when the air is still. Another is the cost many people think there is no reason to spend so much money on something that may not even take off in the American public nut there have been unpublished surveys of people asking if they would switch to maglev transportation if I was easier and will cost less than conventional travel methods that we have today. f:\12000 essays\business & economics (632)\Malcolm Baldrige.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Malcolm Baldrige The Malcolm Baldrige Award is the highest most recognized quality award in the United States of America. In 1987 the U.S. Congress established the Malcolm Baldrige award program to recognize U.S. organizations for their achievements in the quality and performance excellence as a competitive edge. Its recipients, that are well known, are held on a plateau over other companies competing for the same market share. Not only does it recognize excelled companies for their excellent commitments, it also is used as a selling point. This can be evident if you look at the recipient's profits from one year to the next. Later on, you will see how Motorola, the very first recipient was changed by the awarding of the Baldrige to them and what the award did for the company. The U.S. Congress saw a need for American companies to focus on quality and what is stood for. In the early and mid-1980's, many industry and government leaders saw that a renewed emphasis on quality was no longer an option for American companies which were falling behind in the global economy. However, many American companies didn't feel that quality was important or that it wouldn't take them anywhere, well they were wrong. The Baldrige Award stood as a standard of excellence that would help U.S. organizations achieve world-class quality programs and products. Now in 1999, not only can U.S. companies partake in the Award process, so can education and health care providers as well. The criteria for the Baldrige Award, which has changed over the years, has played a major role in achieving the goals established Congress. The standards set is recognized not only nation wide but universally as the standards for performance excellence. Two major criteria which the Malcolm Baldrige Award what's companies to focus on are, delivering ever improving value to customers and improving overall performance in the organization. Who are the companies who have won the Malcolm Baldrige Award? Well, in the past 12 years a total of 37 companies have won the award, and the list keeps growing. Ranging from Motorola Inc., to Boeing, from 3M Dental products, to Xerox Corp., from Cadillac Motor Car, to Ames Rubber Corp, and from Ritz-Carlton Hotel to AT&T. These are just some of the elite corporations in the United States, which have won this prestigious award. Who will be next now one knows, maybe the company you work for. Born in 1922 in Omaha, Nebraska, Malcolm Baldrige was an American dreamer from the get go. Graduating from Yale University with a bachelor's degree, in 1944, he headed down his path of life. Before moving into the working world, Baldrige served in the Pacific as a Captain during WWII. Beginning his career in 1947 as a foundry hand in an iron company, he rose to become the companies President in 1960. On December 11, 1980, President Ronald Reagan nominated Malcolm to be Secretary of Commerce. He was a leader among many businessmen and a friend to many of the world's most powerful leaders. He opens the gates to the east and even into the Soviet Union. Not only was he a skillful man with oversea affairs, he also had the upper hand in the Commerce Department, buy reducing the budget by 30% and man power by 25%. "The economic liberty and strong competition that are indispensable to economic progress were principles that "Mac" Baldrige stressed...." President Ronald Reagan. In 1987 Baldrige died in a rodeo accident in the state of California. The Malcolm Baldrige Award Foundation is a public and private partnership, which creates the backbone for the award itself. Signed into Law on August 20, 1987 by President Ronald Reagan, Public Law 100-107 states that it is in the countries best interest to produce quality products in order to compete in the global economy. Based off of seven basic categories, which are: Leadership, Strategic planning, Customer and market focus, Information and analysis, Human resource focus, Process management, and Business results, today's corporation strive to be the best in there market and create a competitive edge above the rest. This joint public and private program generates approximately $100 million dollars privately and 4.9 million from the federal government. Who will win the next Malcolm Baldrige National Quality Improvement Award, no one knows. But all across America companies will be striving to provide the best service to their customers, employees, and suppliers because they know in order to survive, "Quality must be job one." So even though the process is difficult, companies of today and companies of tomorrow will strive to be the best at what they do no matter what the cost. f:\12000 essays\business & economics (632)\Malthuss population theory.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1. Explain and evaluate critically Malthus's population theory. In 1798 Thomas Robert Malthus, a British clergyman and professor, wrote an essay showing the way to modern demography. In 1824 he wrote a shorter final version, the article on population for that year's Encyclopedia Britannica. Malthus has been criticized for his lack of scientific foresight-he did not foresee modern advances leading to increased life expectancy, food production and birth control. He has been criticized for his politics-he thought welfare immorally increased population and hunger. He has been criticized for pessimism-the adjective Malthusian is associated with a gloomy outlook for humanity. But he showed the way for the study of human population. People. To learn how fast people might reproduce, Malthus examined the United States census. Conveniently, that count was required each decade, starting in 1790, by the Constitution of the former British colonies. Land was so fertile and uncrowded that food production seemed not to limit population growth. Immigration counts were available to subtract from natural rates of population growth, thus revealing net reproductive growth. Malthus observed that under such ideal conditions, during each 25 years the human population tends to double. So if world population is represented by 1, then after each 25 years it would be 2, 4, 8, 16, 32 and so on, provided there were no limits on such "natural" rates of population increase. Food. To learn how fast people might produce food, Malthus examined agriculture in several countries, and made a rough estimate: all food produced could increase each 25 years by at most the prior 25 years' increase. So if food production is represented by 1, then after each 25 years it would be 2, 3, 4, 5, 6, and so on. In other words, food could only increase arithmetically, whereas the population if otherwise left unfettered would tend to increase geometrically. Checks on Population. Malthus concluded that, since food is necessary to human life, world population will necessarily grow slower than its natural trend. Malthus postulated two types of checks on human population growth---positive and negative. Positive checks are increases in the death rate as a result of wars, famines, disease, and similar disasters. A negative check is the lowering of the birth rate, which is best accomplished by the postponement of marriage. However, given his moral code, Malthus was forced to conclude that the postponement of marriage could only result in vice, misery, and degradation of character, because premarital sexual relations would occur. In other words, his core conclusion was that unless people stopped multiplying, there would not be enough food, regardless of how hard they worked to produce it. Maltus's fearful prediction has not yet been fulfilled world wide, although it is a reasonable description so some countries, past and present. Although the world's population has continued to increase at a phenomenal rate, the overall food supply generally has kept pace. Scientists in many disciplines and a sizable proportion of the general public have identified the "population explosion" and the "ecological crisis" as critical problems requiring immediate attention. Some have suggested, and these views have been well received, that population size is "causing" the ecological imbalance. But the impact of human population growth on the problems mentioned above depends upon a vast number of factors, including the level of technology in a society, the nature of its social organization, its power relative to other human societies, its marital and reproductive practices, and its institutions of socialization. Economists point to four stages in the "demographic transition." In preindustrial societies high death rates balance high birthrates, ensuring steady population. In the second stage---early industrial development---better health lowers death rates, so birthrates appear excessive, and population spurts upward. Since Malthus collected his data in such an era, he did not and probably could not have seen what would come next. In the third stage, the security derived from urbanization, education, and affluence persuade many people to have fewer children. Thus the death rate continues falling but so does the birthrate, which flattens the population curve. Finally, in a mature society, with successful birth control and often with both spouses gainfully employed, couples seem to desire between one and three children, and the population stabilizes. Another "fact" accepted without question in many quarters is that high human density is bad. A few animal studies on crowding (of questionable generality for other animal species, let alone for human population) are quoted repeated to make the point that overcrowding produces pathological behavior. Nevertheless, people crowd to the cities, because on balance they find life there more rewarding than in other locales. In fact, there is evidence that from a number of points of view, urban life-high density living-is good for people. f:\12000 essays\business & economics (632)\Management Achievement Claims Perspective.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Management's Achievement Claims Perspective It is to no one's surprise that Coca-Cola is one of the world's largest companies. Fourteen years ago, Coca-Cola began building credibility to its investors by never over-promising, just consistently hitting long-term growth targets. In Great Britain, Coca-Cola surpassed two leading teas of consumption per capita. People said it would not be possible, but Coke did it. That is just one example. Coca-Cola's management believes in the theory that people need 64 ounces of liquid everyday to survive. Right now, Coke only accounts for an average of less than two of those ounces. They believe that by adding strength to the world's strongest brand, it will help people make Coke a more frequent choice for those 64 ounces. The part of this Annual Report that I personally wanted to attack was the lack of sales in Canada and Coca-Cola's goals in improving them. Being native of Canada and a big Coke fan, I know that Coke has struggled in my homeland for several years. M. Douglas Ivester answered my concern by stating that Coke allowed the retail prices of their products to out pace their value in the eyes of our consumers. Since 1994-1995, Canada's unit per case volume increased 4%. Coke is expecting an even greater increase in 1996 because their Canadian bottler signed with two major grocery retailers. Coca-Cola used Canada as a lesson they can use as a guide worldwide never repeat. CEO, Robert Goizueta believes that there is no limit to your growth. He will not allow boundaries to be set. It is evident to me that Coke is not setting boundaries considering that they have a bottler in almost every corner of the world. Coke is focused on strengthening world wide markets and creating new ones. In this report, they state how the will improve sales in Nigeria, China, South Africa, and Canada. Of all the Financial Reports I have read (Anderson Consulting, Home Depot, Green Park, etc.), Coca-Cola is a company in which I believe what the management claims. Coke has a great responsibility of making investors, employees, and consumers happy all over the world. Why would they blow it?? Coke realigned their management team at the beginning 1996 to more accurately reflect the global nature of their business. That says growth all over it. Comparison to Industry Standards Coca-Cola Industry Standard 1.) Quick Ratio .2 .7 This states that Coke through these calculations is not as liquid as the industry standard. 2.) Current Ratio 1.0% 1.4% 3.) Profit Margin 11% 9% 4.) Return on Equity 55% 9.5% This is very good percentage, above industry standard. 5.) Asset Turnover 1.2% 3.6% 6.) Return on Assets 20% 8.5% 7.) Debt to Equity 75.3% 66.5% A little high compared to industry, but still has not peaked at 100%. The present value of Coca-Cola's discounted cash flow compared with the market value shows that Coca-Cola is greatly undervalued. This makes Coca-Cola a good investment for the future. Conclusion After doing several ratios and comparing them to the industry average, I see nothing but a solid investment for 1997. Coca-Cola has not yet peaked in its profit increase and return on equity. This company is so big that if the company burned down to the ground, they would have no trouble borrowing the money to rebuild, just based on the strength of their Trademarks alone. Coca- Cola's trademark is worth $1 for accounting purposes, but in the neighborhood of $40 billion in actuality. Coke has an unbelievable cash flow because their capital requirements are low for a company of their size. They only have 32,000 employees worldwide. Unlike wine, Coke products can go from production to consumption in a matter of hours. As far as their advertising goes, they now use many different agencies instead of just one. This will add more creativity and ideas. When we finally have our meeting with the investment club, Coke will be one of the stocks I invest in because of the sense of security it gives you. f:\12000 essays\business & economics (632)\MANAGEMENT INFORMATION SYSTEM 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MANAGEMENT INFORMATION SYSTEM SONY.com TOSHIBA.com A Report on Internet technology at Sony Corporation and Toshiba Inc. Contents 1. Introduction ........................... 2 2. Today's World and the Internet .. 3 3. Sony Corporation 4. Toshiba Inc. 5. Sony.com 6. Toshiba.com 7. Information technology at the HQs 8. Website Discussion 9. Conclusion Today's World and the Internet The world has been moving dynamically across the ages. There have been many alterations in the world economies and technologies. However, the three main worldwide changes that altered the environment that today's organizations function are Globalization, which is a concept of global workgroups, delivery systems and competition in world markets. Moreover, there has been a transformation of individual economies and societies into "Knowledge and Information based service economies". Additionally, the business enterprise itself has been transformed into flatter, more decentralized, flexible, teamwork motivated and costs have dropped due to the advancement of technology. Above all, the Internet, the world's largest and most widely used network that connects nearly 200 countries together for science, education, gov't and business has become the primary technology in today's information age. Additionally, on a more microcosm level, the Internet technology is being increasingly applied to facilitate the management of the rest of the business, using internal communication networks or Intranet. Through internet technology, a whole new dimension of markets emerge since a vast array of goods and services are being advertised, bought and exchanged worldwide using the internet as a global marketplace. Moreover, large electronic shopping malls are being opened whereby customers can locate products and services by name and by type and automatic order is available. One example of the Internet for business use says that a Lebanese importer has purchased over US$150,000 of communications and computer equipment from Asia via the Internet. The Internet is based upon client/server technology, where users of the net control what they do through client applications, using graphical user interfaces (GUI) or character-based products that control all functions. The major functions of the Internet interms of electronic transactions or e-commerce are: * Communicate and collaborate * Exchange business transactions * Shopping * Access information In the following pages, Sony Corp. and Toshiba Inc. will reveal their websites on which a lot of information about themselves is shown. This shows that a large percentage of effort and dependence is put because of the websites' importance. Sony Corporation Sony Corporation is headquartered in Tokyo, Japan. Sony is one of the world's premiere entertainment and electronics companies. Nature of work Sony is poised to be the leading manufacturer of audio, video, communications and information technology products for the 21st century consumer and professional markets. Sony's music, motion pictures, television production, computer entertainment operations and online business make Sony one of the most comprehensive companies in the world. Mission Sony Corporation of Japan together with its 1,041 consolidated subsidiaries worldwide have geared its human and raw material resources to provide innovative, satisfactory and durable entertainment and electronic devices of high quality and world standards to serve the consumer effectively and efficiently. Major operations Sony has many operations and divisions, as listed below: Sony Corp. of America (SCA) Etah Inc. Sony Electronics Inc. Sony Computer Entertainment USA Sony Transcom Sony Pictures Entert. Materials research corp. Sony Online Entert. Inc. Sony Cinema products corp. Sony Development Sony Music Entertainment Inc. Partnerships Sony Plaza Annual Sales US$56.6 billion (FY ended Mar 31, 1999) Workforce US Sales US$ 18.0 billion 177,000 employees worldwide (FY ended Mar 31, 1999) 28,200 employees in USA Products and technology Range Digital still cameras ATRAC3 Digital Camcorder CD Text Mobile Phones Data Media Lithium ion Battery Digital Dream land Metal Evaporated Tape Digital image creation Memory stick Disc identification method MO Polygon Eater Robot Research forum Walkmans HiFD Components Factory Automation Global ENG service network Printer Driver Download Professional Media Semiconductor Toshiba Incorporated Toshiba Inc. is a large multinational organization that is also headquartered in Tokyo, Japan. Toshiba is well known for its diverse production of electronics that are designed to serve today's world. Nature of work Toshiba, in every sense is a world company. Since 1965, when Tokyo-based Toshiba was established, it has grown into a multibillion dollar Fortune 500 company with six distinct and successful divisions of its own. Toshiba Inc. manufactures a wide variety of simple domestic products such as TVs, telephone sets to high-tech products such as semiconductors and digital hardware. Mission Toshiba Inc. has been a company serving a long-term dedication to serve its worldwide customers. Toshiba and its expertise have been focused on serving man' need interms of technology, speed and sophistication shown through its product design. Moreover, it has an environmentally friendly policy that is incorporated in its industries globally. Major operations Toshiba's main operations around the world are shown below: Toshiba Business Solutions, Inc. (TBS) Toshiba Consumer Products, Inc. (TCP) Toshiba Electronic Components, Inc. (TEC) Toshiba Information Systems, Inc. (TIS) Toshiba Medical Systems, Inc. (TMS) Toshiba International Corporation (TIC) Annual Sales US$6.4 billion (FY ended 1998) Workforce 100,000 employees worldwide (FY ended 1998) Products and technology Range Headphones Digital Satellite Systems Digital Camcorder Internet terminals Cameras and imaging Semi conductors Home Entertainment Wireless computing DVD Cable and networks products Televisions Telecommunication systems Walkmans Toshiba Compact ISDN Router Speakers PCX 1000 cable modem Clocks Copiers and faxes Medical imaging Industrial imaging Presentation products Telecommunications products Toshiba PCX1000 Toshiba Compact ISDN Router Toshiba Digital and PC cameras Sony.com After having a brief look at Sony Corp. and Toshiba Inc., we are now able to visit their websites and investigate their use and see what information is available on them. We will assess the websites on the following 5 criteria: * User interface design and its attractiveness * Information provided * Options & Maneuvering * Multimedia options and the level of interactivity * Customer markets Sony Corp.'s website is found on the following address: www.sony.com. The home page has a colored background with stationary graphics in the center. It is very well designed to give a simple, crisp and an attractive professional look. The advantage to its simple yet attractive home page allows the user to have easy navigation and access to the information wanted through the options available that are placed side by side as shown below: Large quantities of information is available on the Sony webite. Through the Quick Link option, information on Sony and its operations, products, technologies, services, e-mail, the Sony Dream, comments and games are all available. Additionally, information on prices, code number, item number and dimensions are all available for Online Shopping. On the following page, the Sony shopping mall is shown when the is pressed. The Sony Online Shopping page is shown overleaf. Sony boasts multimedia on its website. Multimedia is defined as the technologies that facilitate the integration of two or more types of media, such as text, graphics, sound, voice, full-motion video or animation, into a computer-based application. On the first page on Sony's home page are five icons as shown below, that offer colorful animation. Such multimedia icons offer direct connection with virtually all the entertainment and products Sony has to offer. For example, pushing the button once on the electronics icon the following page appears. Such maneuverability is very easy and fast. The level of interactivity is very good. Sony.com offers online games and demonstrations, which can be interactive for the user. f:\12000 essays\business & economics (632)\Management Information system.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Management Information system Term project Introduction: Until recently, there was a need of information technology. Companies were content with their old and traditional handling of information necessary to their growth. Source documents or data collected on forms or paper was their best medium for shoring information. In today's global environment information itself is considered a important asset for the firms in which they need to store and share large amounts of data by having direct access to it from virtually any spot or location in the world. All these changes taking place in the business environment call for the use of information systems. The system that is used is the computer based information systems (CBIS). By definition, CGIS is the systems that rely on computer hardware and software for processing and disseminating information. Moreover, it facilitating the work of companies and mattes the managers' life easier. It purpose is to collect, star and deliver information from an organization's environment (competitors, customers, etc...). In order to get best out of an information system, the company in need for a system that is called inter organizational systems that automate the glow of information across organizational boundaries and link a company to its customers, distributors, or suppliers. The types of information system are 1- Operational level system, which support operational manager, example: transaction processing system (TPS). 2- Knowledge level system, which support knowledge and data workers, ex: (knowledge work system) KWS and office Automation systems (OAS) 3- Management level system, which supports the monitoring controlling, decision making and administration activities of middle managers. Ex: MIS, DSS 4- Strategic level system which support the long range planing activating of senior management. Ex: executive support system (ESS), which is designed to address unstructured decision making through advanced graphics and communications. Each of the major types of information systems described previously is valuable for helping the organizations solve an important problems. In the past few decades, some of these systems have become especially critical to firms' long-term prosperity and survival. Such systems powerful tools for staying ahead of the competition. In order to gain a competitive advantage, the company is in need of a system that could change the goals, operation, product, services or environmental relation ships. To company is in need for the strategic in the systems. In order to use information systems as competitive weapons , one must first understand where strategic opportunities for businesses are likely to be found. Two models of a firm and its environment have been used to identify areas of the business where information systems can provide advantages over competitors these are the competitive ?? model and the value chain model. The competitive forces model describes the interaction of external influences, specifically threats and opportunities, that affect an organization's strategy and ability to compete. While the value chain model highlights the primary activities (directly related to firms services) or support activities that add a margin of value to firm's products or services where inf. Systems can best be applied to achieve a competitive advantage. Based on the information above, we searched the internet trying to find the two competing organizations. The first one is New York Daily new and the other is New York Newsday. These two organizations performs services to people at a daily bases in the form of a newspaper. New York Newsday: It's one of the sixth largest metropolitan newspaper in New York. The residents in Nassan, In ?? and queens consider this newspaper their "Local" one. It started in 1940 and its web site is Newsday. Com. Is rapidly evolving as a major source for information, research and resources. New York Daily news: has the advantage of the national, regional and local recognition of New York's number one newspaper, "Daily news". This newspaper is a ?? product everyday. Not only is Daily News online updated daily, they are constantly developing new ideas to keep it provocative and exciting. There is always something new for visitors of the web site to see, resulting in repeat visitors and multiple exposures for your online advertising message. Daily news: Targets professional, upscale and well educated consumers in the tri-state New York metropolitan consumers in the tri-state New York metropolitan area. The site also attracts large numbers of transplanted New Yorkers, tourists, and others interested in the on goings of the Big Apple- i.e its sports teams, night life, local news, gossip, entertainment and more. Daily news: online: is robust web site designed with both visitor and advertiser in mind. Its pleasing design, wide range of content and ease of navigation ensures that your online advertising messages are highly visible. Internet Technology It is very important to have services online and because of the Internet technology it is found easily. Investing money in stocks online is one of the internet technology in which any person can trade stocks and invest in mutual funds online through broker ages that let him place orders and track his investments on their web sites. Moreover, the internet technology links people through PCs Net in which no long distances anymore. Also internet technology gives the opportunity to people to sign a deal on the web site of a certain company. Example on the date of 17 of October 99, Mayor Guiliani and Gov. Pataki quietly signed a deal with star Media Inc., the world's largest web site that has content for Spanish and Portuguese speaking audiences. Information provided: Daily news The information provided on this newspaper all new, views, sports, last week news, Archives shopping, career. Moreover there are lathery results, Television Guide, Banking center. If a person wants more inf. Abut any item, there is an icon which is called "ad info" for more information. It is very easy to find information through the "Quick reference menu": by clicking on it, a person can find inf. About the following: News, sports, New York Now, Headlines index, last six days search, Archives, special features, weather, comics, horoscope astrology net. Traffic, city search, Banking center, stock quotes, T.V listings, travel reservations, if a person wants to search for any product, he can just quite the name of it in a certain space and click "go" and the inf will be provided in a seconds inf provided New York Newsday: inf is easily provided in this newspaper: through the quick reference menu where the following inf. Can be found: New, business, Editorial pages, fanfare, sports, Queens editions, currents and books food, Home, Discovery, multimedia options of Newsday: night beat, real estate, travel, by definition, multimedia is a technology that facilitates the integration of two or more types of media such as text graphics, sound, voice, full motion video, or animation into a computer based application. The Newsday is highly concerned with the multimedia options in order to satisfy customers. Broad casting News (Getting the local, national, and international news and weather). New York Newspapers on line on the internet computer News Daily New York times on the web your Health Daily Business strategies. Moreover, Multimedia provides an option which is a category of "Sign up now and get paid while supporting Answers". If a person has any questions, about today's trading, commercial online newspaper services. There is a Library web site sampler; since the Internet is unregulated, and not all net sources provide information that is current, accurate, or complete, any person can contact the Library web site which is www. Nassan Library org. or ? web site. Also, cool web sites, independent film, movies, are provided. Multimedia of Daily news * information center: about Business, trade, news government, Jobs, Buying movies. * Internet connection cross reference: cross reference last updated. * Access statistics: daily transmission statistics, hourly transmission statistics, total transfer, * Library services to the Spanish speaking. Major operation of News day: The major operation of Newsday is to give the updated informations to readers, in the field of Arts, Humanities, History, Region, countries, By time period, Military History, Wars. Major opera The major open of Daily news are to give also update inf. To readers in the field of business and Economy. Restaurant Business, Society and culture, people personal home pages, sports Base ball. In formation about information technology Newsday: * Information faculties on the internet (internet resources marketing sources, Business resources, technology resources, News sources, government resources, search, cool stuff, Job resources, Suggestion, Questions. * Revision: any kind of revision related to the Newsday (read follow,. Post follow, message lists). *http: contents page Aubrey less New York city district leader links of interest city government. Government social economic, political city links return to links page index New York City. * useful links: New York association of In-house locksmiths Inc. of useful links. * New York Newspapers on-line: New York Newspapers on the internet computer News, on the web of daily business strategies. * Cines cape inside: Getting a free issue of cines cape magazine upon clicking here. * Commercial on-line newspaper services update of * Baseball: on the Net: Base ball sites dealing with baseball, states, scores, chat, audio, video columns, games, baseball live. * Shopping on line on the Net: 3000 on line shopping sites, places to shop for gifts, products, malls, stores. Information about information technology: Daily news * Information center shopping,.... * Connection cross reference * Guest book entries: if any person is interested in seeing the past guest books. * Frequency of Access to remote sites,: N" of Requests to all sites accessed * Library services to Spanish speaking * States ?? statistics * Information faculties on the internet (internet resources marketing sources, Business resources, technology resources, News sources, government resources, search, cool stuff, Job resources, Suggestion, Questions. * Revision: any kind of revision related to the Newsday (read follow,. Post follow, message lists). * Shopping on line on the Net: 3000 on line shopping sites, places to shop for gifts, products, malls, stores. Conclusion The importance of the Internet technology in to days age is linking may buyers and sellers through a market place called electronic market. Moreover, it is very important to know the process of buying and selling goods and services electronically. This process is called electronic commerce. At last, strategic information systems often change the organization as well as its products, services, and internal procedures, driving the organization into new behavior patterns. Such change often require new mangers, a new work force, and a much closer relation ship with customers and suppliers. f:\12000 essays\business & economics (632)\Management Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MANAGEMENT POLICY OPERATION AND OPERATIONS MANAGEMENT All organizations have operations." A manufacturing company may conduct operations in a foundry, mill, or factory. Our interest is in the management of operations, or operations management (OM), including the usual management cycle of planning, implementing, and monitoring/controlling. The driving force for OM must be an overriding goal of continually improving service to customers, where customer means the next process as well as the final, external user. ? Since there is an operation element in every function of the enterprise, all people in all jobs in every department of the organization should team up for improvement of there own operations management elements. Teaming Up with Customers What happens when suppliers and customer are disconnected? Consider design work, for example. Whether we speak of goods or services, time- and distance separation in the supplier-customer connection invites trouble. Question: "What's your Job?" Question: "But isn't your job to serve the customer?" In grocery stores, where the supplier-relationship is immediate, the operations manager system is hard pressed to maintain a customer focus. The customer is the next process, or where the work goes next. A buyer's customer is the associate in the department to whom the purchased item goes; a cost accountant's customer is the manager who uses the accounting operations-where the design will be produced or the service provided. It is also clear that throughout the organization, people not only have customers, they are customers. Let's turn our attention to what customers want. A Short List of Basic Customer Wants The requirement is a recipient's or customer's view of a good or service. A close partnership with the customer's actual requirements. A close partnership with the customer helps create good specifications, increasing the supplier's ability to fulfill the customer's needs. What else do customers want? Customers have six requirements of their providers: High levels of quality. High levels of service. Low costs. OPERATIONS STRATEGY An organizational commitment with wide ranging effects, such as continuing improvement in meeting customer needs, is called a strategy. Strategy itself is necessary because of competition, and successful strategy ensures that company strengths match customer requirements. Integrated Business Strategy To accomplish its aims, the business team must plan strategy in all four-line functions. A comprehensive strategic business plan deals with issues affecting the whole organization: employees, markets, location, line of products and services, customers, capital and financing, profitability, competition, public image and so forth. OM strategies should be consistent with the business plan, but with a narrower focus: Capacity (operating resources): front-line and support people, information, equipment and tools, materials, location (space). Products, processes, methods, and systems: Strategies might include level of investment in product and process development, standardization, and manual versus automated information processes. Outputs: Quality, cost, lead-time, flexibility, variation, and service. Operations Managers translate that business strategy into an operation strategy of developing two new fitness-related services, which will maintain high utilization of staff and space, as substitutes for two other services that are declining in popularity. 1. Companies A and B. Two companies, both manufactures of shoelace extender, have the same dominant business strategy: rapid customer service. Although the business strategy is the same at both companies, Company B's operations strategy will provide superior customer service and overall success. Distinctive competencies might be obvious to customers; fast service, very clean premises, and superior quality are examples. All have dependably high quality. Disney offers customer service unparalleled in its industry. Developing distinctive competencies helps retain customers and invites new business. The strategic factors that best describe competitive success for any company quality, efficiency, continuous improvement go to the heart of operations management. It needs customer- and quality centered operations management. Principle of Operations Management - As Strategy Many diverse organizations, in both goods and services, are adopting operations management strategies. Listed is a 16-point set of the principles of OM, that is the principles of employee- and team-driven, customers-centered continuous improvement in operations management. Operations strategy in the firm is comparable to a sports team's game plan. The first group, formulation of operations strategy, must account for customers, the company, and competitors. Operations Strategy-Formulation Customers: Become dedicated to continual, rapid improvement in quality, but cost, lead-time, flexibility, variability, and service. Company: Company: Operations Strategy-Implementation 5. Cut the number of product or service components or operations and the number of suppliers to a few good ones. 6. Organize resources into multiple "chains of customers," each focused on a product, service, or customer family; create cells, flow lines, and "plants-in-a-plant." Capacity: Maintain and improve present equipment and human work before thinking about new equipment automates incrementally when process variability cannot otherwise be reduced. Processing: Cut flow time (wait time), distance, and inventory all along the chain of customers. Cut setup, changeover, get ready, and startup times. Problem solving and control: Record and own quality, process, and problem data at the workplace. Ensure that front-line improvement teams get first chance at problem solving-before staff experts. Teaming up can mean moving associates by how the work flows. This facilitates quick, easy communication, associate to associate, when the customer has a problem, or when Globe people have questions about customer needs. Become Dedicated to Continual, Rapid Improvement in Quality, Cost, Lead Time, Flexibility, Variability, and Service. This principle aims squarely at resolving that crisis prescribing a customer-oriented agenda suitable for any business. Operations management associates cannot be effective without competitive information. They need to learn about competitors' design, capacities, skill base, and supplier/customer linkages - as well as costs, quality, flexibility, and lead times. Cut the Number of Product or Service Components or Operations and Number of 6. Organize Resources into Multiple Chains of Customers, each Focused on a Product, Service, or Customer Family, Create Cells, Flow Lines, and Plants-in-a-Plant. Multiple Skills), Education, Job and Career-Path Rotation, and Improved Health, Safety, and Security. Continuous improvement: Each associate continually master more job and job supports skills, problems-solving techniques, and self (team) management. People are variable, and variability stands in the way of serving the customer. Automation causes major work force changes and potentially even greater labor problems. Planning in multiple-capacity units allows growth to occur at the same time as the firm is becoming product/customer focused. Moreover, focusing equipment and operating teams on narrow families of products/customers helps large and growing companies act like small, customer-service-minded ones. It enlists concepts and practices stretching from designing for time. It enlists concepts and practices stretching from designing for quality, to partnering up with suppliers and customers for quality, to controlling processes for quality, to collecting and analyzing data for removal of the sources of poor quality. Cut Flow Time (Wait Time), Distance, and Inventory All along the Chain of Customers. This and the next two principles are closely associated with just-in-time operations, which shorten throughput time and improve responsiveness to customers. A change in the demand patterns takes considerable time to run through, and the customer often will not wait. This allows each job or customer to be processed without delay. Often it is possible to get the desired results by moving process stages closer together-shortening the flow path-which at the same time reduces in-process inventories and cuts flow time. Cut Setup. Changeover, Get-Ready, and startup Times. This principle deals with preparation-to-service delays of all kind. As just-in-time equipment setup times. Don't invest in equipment that runs many times faster than the work can be processed downstream. Customers may not be willing to wait. 14. Recur and Own Quality, Process, and Problems Data at the Workplace. That leaves front-line associates (the majority of company employees) out of the problem-solving, control, and process ownership loop. 15. Ensure that Front-Line Improvement Teams Get First Chance at Problem Sollving- Staff experts may have more problems-solving skills, but they have less understanding if the processes where problems occur. This leaves little time for solving ongoing process problems and on-the-spot emergencies, which are the natural responsibility of front-line associates. Operations Managers The 16 principles of operation management tell what to strive for and how to manage operations effectively. In the best companies, every employees Teamed up with others in work flow relationship and periodically joins a special project team. Their role-meeting current demanded exactly and managing and improving processes and products-involves data collection, problems solving, process control, and ever better service to the customer. Staff experts. The role of staff is to plan for change, respond expertly to problems, and serve on improvement teams. The job mode of operations covers nearly all human services, most office work, and industrial job shops. Jumbled Jobs If the schedule consists of a long succession of jobs that are identical, or nearly so, they aren't actually jobs; it's continuous or repetitive operations, which involve a small number of variables to manage. The trouble with job operations is the typically large number of variables: irregular and randomly changing colors, size, and styles; number of units, process steps, and routings through the processes; and specifications, components, and customer expectations. Job planning, scheduling, and control. Exhibit 1 shows the job processing sequence in manufacturing, processing documents, or serving clients. First, the master scheduling committee (or person) positions the work in a master schedule or appointment book, sometimes with other similar work. If all required inventories are on hand or due in, scheduling at a detailed job-by-job level may take place; for a multi operation job, this may involve a scheduler's putting start and completion dates on each operation. In the dispatching step, jobs in progress get positioned one more time; dispatching is what we call prioritizing jobs in queue at a given work center. Orders for component parts or services are often processed in several steps, called operations. An operation in a job, and each operation requires a new set-up, changeover, or get ready. A job (or batch or lot or jobs lot), on the other hand, is the whole work activity needed to fill a service order or a production order. There are several reasons why each operation might be separately planned, scheduled, and controlled. Example 13-1 further distinguishes between operations and jobs. Making a quantity of the shelf involves planning and controlling one job and several operations. Exhibit 13-2 shows a job consisting of 10 bookcase shelves. The shelf part number i 777, and the shop order is shown as a five operation job. Operation 10: Withdraw boards from the stockroom. Operation 20: Saw boards. Operation 30: Plane saw boards. Operations 40: Sand planed boards. Operation 50: Apply finish to sanded boards. Each operation, even stockroom activities, requires setup time. After each operation, work-in-process (WIP) inventories form and sit idle for a time. Scheduling Detailed scheduling, job by job, at the component level dose include starts times. Detailed scheduling, simply called scheduling in business and industry, is our concern here (Madter scheduling was discussed in Chapter 6).??? Scheduling a service or job order requires answers to three questions: When can the job be completed? (Based on standard times). When should the job be completed? (Based on date if customer or parent-items need). When will the job be completed? (Based on realities in operating work centers). A lab is a job shop, and in job shops queues of job orders from and jostle for priority. Lead-Time Elements In job operations, lead time to produce or deliver something or provide a service usually contains much more delay time than actual work; that is, the part, client, or document spends far more time idle than being processed. Queue time Run time (service time) Setup time Wait time (wait for instruction, transportation, tools, etc.) Inspection time Move time Other Run time may be precisely measured using standards time techniques (see Chapter 15). Accurate estimates of lead times, and therefore accurate schedules, are likely only when work centers are uncongested; only then can the typical job sail through without long and variable queue times at each work center. One of the scheduler's jobs is to keep things uncongested, that is, without too much work in process. The WIP problem is attacked directly with just-in-time techniques. Service. Low WIP means less queue time and quicker response to customers; also with less queue time is less uncertainly in the schedule and customers may be given better status information. Production control work force. In service we could add another benefit: Customers are happy when they don't have to wait in long lines (Note: the customers are the WIP). Each job in the work stream usually will require different operations times at each work center it visits. Lead-Time Accuracy Queue time for an average job is hard to predict, because the average varies with the changing job mix. Queue time for a particular job is even harder to predict, because the job may queue up at several work centers as it completes its routing. Here queue time includes an extra-time allowance for current or projected congestion. In closed-loop materials requirements planning, informed. Inaccurate lead times have a more severe effect on capacity control. Backward and Forward Scheduling Those issues-tasks, jobs, customer service effects, and the rewards system-are considered next. Tasks. Jobs. If all jobs were developed like the plate-scraping one, wouldn't work life be intolerable? A collection of concepts now job design attempts to avoid such a fate for working people. Best known among the job design ideas are job enlargement and job enrichment. Job enlargement means expanding the number of task included in a person's job, for example, cooking, serving, and scraping plates; it offers horizontal variety. Existence of job standards offers a guide path for avoiding problems, thereby offering more freedom for the associate to work on process improvements, which translate into still better job standards. Customers, Internal and External An obstacle in the way of learning more skills is the job classification systems, or work rules. Operations and Operating Environments Word Count: 2294 f:\12000 essays\business & economics (632)\Management Principles.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUMMARY Summary of the article by David Forman "BHP REVITALISES ITS GLOBAL MANAGEMENT," Business Review Weekly, April 17 1995, page 24-26. BHP is setting up the required management to handle a rapid global expansion. They have done this by appointing a network of regional corporate representatives and a corporate general manager, international. Representing BHP across the world, these managers will facilitate new developments, and assist global expansion. This overseas focus of expansion requires new systems and processes, to take on projects in different countries around the world. BHP has taken advice from other companies, that have expanded outside their home countries, also background advice from consulting firms. BHP have taken this advice, and created a management model to suit their operations. By providing regional representatives to deal with governments, bureaucracies and coordinators of cross divisional activities, this model expects BHP to be able to find expansion opportunities. Particularly where opportunities exist that involve more than one divisional group. An example of this is BHP Power, which develops power stations using the most appropriate energy source for the circumstances. Power is an independent group, drawing on the skills of the Mining and Petroleum divisions where necessary. The company is looking at other possible new businesses, that are natural developments of the company's existing businesses, in the same way Power has evolved from Petroleum and Mining. One of these is Manufacturing, using the skills developed in the Steel division. In 15 years BHP has gone from being a domestic steel producer with small petroleum and mining operations, to having a significant international presence in the steel, oil and mining industries. (Forman, D. 1995, pp. 24-26) MANAGEMENT PRINCIPLES After a six month review of their business position into the next century BHP has developed a strategic plan.(Forman, D. 1995) The strategic management process uses nine steps to create a strategic plan. 1: Identify the organisations current mission, objectives and strategies. BHP operates steel, mining and petroleum businesses. 2: Analyse the environment. They have recognised that many areas that they operate in are suitable for expanding existing operations. 3: Identify opportunities and threats. The opportunities are to develop businesses that are not yet operating in a particular area. The threats are competitors who move in quicker, and a lack of understanding of the specific environment. 4: Analyse the organisation's resources. BHP have recognised that they have many skilled people within the steel, mining and petroleum operating divisions. 5: Identifying strengths and weaknesses. The strength of BHP is in its traditional steel, mining and petroleum operations. The weaknesses are the lack of a co-operative link between the divisions. 6: Reassessing the organisation's mission and objectives. Merging the organisations' resources with the opportunities in the environment shows the organisation's opportunities. FIGURE: 1. ORGANISATIONS OPPORTUNITIES (Robbins,S & Murkeji, D.1994 page 142) The opportunities are to develop new businesses using the skills of the steel, mining and petroleum people. The organisation's objectives were to operate these divisions as separate businesses. New objectives will be needed to direct the organisation into these opportunities. 7: Formulating strategies. Using the eight step decision making process, a strategic plan was formulated. The objective of this plan is worldwide growth, through diversification and direct expansion. 8: Implementing strategies. Once the strategic plan was decided, the process was implemented to develop an operational plan to achieve the objectives. 9: Evaluating results. The performance results of this plan, measured by the international growth of the organisation, will show whether the plan requires adjustments or not. (Robbins,S & Murkeji, D.1994. pp 141-143) BHP has then used the eight steps of decision making to develop the operational plan. 1: Formulating a problem. The problem was to find a management model that will help achieve the goal of global expansion and diversification. 2: Identifying decision criteria. BHP wanted a stronger presence overseas, to be able to recognise and develop opportunities for new projects, with greater co-operation between the steel, petroleum and mining divisions. 3: Allocating weights to the criteria. Weighting these criteria, divisional co-operation would have scored highest, then the need to have people that can develop new opportunities, followed by the need for regional representatives. All of these criteria would have scored highly. 4: Developing alternatives. BHP studied other successful global companies, as well as seeking advice from consulting firms, looking for alternative management systems. 5: Analysing alternatives. Studying the management systems of other international companies, BHP could then select certain systems that would meet the criteria. 6: Selecting an alternative. Using the selected systems BHP developed a management model that is suitable for their own operations. 7: Implementing the alternative. An operational plan was then developed to implement this new management model. 8: Evaluation of decision effectiveness. The decision's effectiveness will be gauged by how well the company develops new international business. (Robbins,S & Murkeji, D.1994. pp 79-83) Part of BHP's operational plan, was to make changes to its organisational structure by appointing regional corporate representatives, these representatives are positioned alongside existing operating divisions. The new structure looks like this; New positions FIGURE: 2. As this diagram shows, the new positions, (circled), provide a link between the steel, petroleum and mining operations. These additions to the divisional structure are designed to be enable the co-operation between the divisions enabling cross divisional expansion developments, such as BHP Power. By adding 'geographic departmentalisation' to the original 'product departmentalisation', BHP is able to monitor regional environments more closely, by liaising with local governments, bureaucracies and BHP's divisional managers. (Robbins, S & Mukerji, D. 1994, page 208.) By understanding the 'specific environment' better BHP's managers can recognise opportunities within that environment for new projects and businesses. They can also make quicker, and more informed decisions when running operations in that environment as well as making the needs and timing for expansion clearer. All of these changes are designed to facilitate international growth, in an entrepreneurial way, without jeopardising the traditional operating divisions, or 'cash cows' as in the BCG matrix shown in figure 3. HIGH LOW MARKET SHARE STARS *BHP POWER QUESTION MARKS ?NEW BUSINESSESSUCH AS MANUFACTURING CASH COWS STEELMINING& PETROLEUM DOGS (Robbins,S & Murkeji, D.1994 page 145) FIGURE: 3. Using this matrix shows that if BHP converts its new businesses from 'question marks' to 'stars', without creating 'dogs', this will lead to rapid growth. To control profitability and cash flow, they must also keep maintaining and expanding their 'cash cows' which are the steel, mining and petroleum divisions, these are the backbone of the organisation. BHP is planning this by developing new businesses using the resources of the 'cash cows' and then adding value to the products that they produce, creating new customers for their own products. An example of this is that BHP Power is building power stations using the skills and resources of the mining and petroleum operations, and in turn these power stations use either coal, produced by the mining division, or gas, produced by the petroleum division. BIBLIOGRAPHY Forman, D. 1995, 'BHP revitalises its global management', Business review weekly, April 17, 1995, pp. 24-26. Robbins, S & Mukerji, D. 1994, Managing Organisations, 2nd edn, Prentice Hall, Englewood Cliffs, NJ. f:\12000 essays\business & economics (632)\Managing Globalization in the Age of Interdependance.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Notes based on Managing Globalization in the age of Interdependence, published 1995 by Pfeiffer & Company, San Diego, CA. Introductory Quotation: "In Managing Globalization in the Age of Interdependence, best-selling author George C. Lodge, Jaime and Josefina Chua Tiampo Professor of Business Administration at the Harvard Business School, tackles an issue of worldwide proportions - the tensions created by globalization, the growing interdependence of the earth's 5.5 billion people. Globalization is the process forced by global flows of people, information, trade, and capital. It is accelerated by technology, potentially harmful to the environment - and at the present, driven by only a few hundred multinational corporations. Lodge describes and analyzes the process on a truly global level, looking at the relationships among the world's economic, technological, political, and cultural aspects to provide more realistic insights than purely management-based books on the subject. Business in tandem with government must develop safe new institutions to manage global tensions. And communitarianism, or collective leadership among the world's peoples, he says, is the challenge of globalization." Introduction: "Globalization is a fact and a process. The fact is that the world's people and nations are more interdependent than ever before and becoming more so. The measures of interdependence are global flows of such things as trade, investment, and capital, and the related degradation of the ecosystem on which all life depends, a degradation that constantly reminds us that we are all passengers on a spaceship, or, more ominously, a lifeboat" (p. XI) "Globalization is a promise of efficiency in spreading the good things of life to those who lack them. It is also a menace to those who are left behind, excluded from its benefits. It means convergence and integration; it also means conflict and disintegration. It is upsetting old ways, and challenging cultures, religions, and systems of belief." (p. XI) "In spite of many variations and differences, an ideological framework can be composed so that globalization may serve the cause of humanity." (p. XV) Structure: The book is written in 5 chapters: The Phenomenon of Globalization, The Collapse of the Old Paradigm, Global Leadership, The Basis for Global Consensus and World Ideology: Variations on a Communitarian Theme. Chapter 1: The Phenomenon of Globalization "Globalization is the process whereby the world's people are becoming increasingly interconnected in all facets of their lives - cultural, economic, political, technological, and environmental." (p. 1) "Japan typifies the Asian model in many respects. Its economy is externally focuses; aims at gaining market share in the world economy through exports. Most importantly, it is oriented toward strengthening its producers rather than encouraging consumers." (p.10) "Convergence is both forced and facilitated by global information systems, televisions, faxes, fiber optics and the like." (p. 11) "Americans have been ideologically averse to government involvement in their lives, especially in the world of commerce, the domain of 'private enterprise.' The theory was that firms competed against other firms in open markets ... The Japanese and other cultures have shown that this view of the world was not only unrealistic, but also a handicap. There, consortias of firms cooperating with one another and with the government have emerged to become fierce competitors" (p. 13) "Globalization has clearly enriched the rich in the industrial worlds of Asia, Europe and North America, but at the same time it has widened the gap between rich and poor both within and among countries." (p. 23) Chapter 2: The Collapse of the Old Paradigm "The management of globalization and its tensions requires a global consensus about purposes and direction." (p. 31.) "The United States emerged from World War 2 all powerful and committed to the establishment of a New World order. It took its economic supremacy for granted..." (p. 38) "It was not until 1993 - and then only at the urging of the Japanese government - that World Bank economists reluctantly acknowledged that the East Asian countries - Korea, Japan, Taiwan, Malaysia, Thailand and China - were following a development strategy quite different from the one advocated by the bank, one characterized by extensive government intervention..." (p. 44) "Today the United States lacks an enemy, and there are four instead of two centers of World Power: Japan, China, Europe and the United States. Asian centers are growing fast; western ones are floundering." (p. 51) "If the United States is to continue to organize collective leadership, as many seem to want, it must strengthen itself and replace the old Cold War paradigm with a new one." (p. 51) Chapter 3: Global Leadership "In spite of a substantially weaker economy and a more ambiguous moral purpose, if any country is to lead the world into the twenty-first century, it seems that it must be the United States - and that means both its government and its multinational enterprises." (p. 61) "A weak America cannot lead: It needs strength to be magnanimous and the confidence to know and secure its vital interests. Only then can it negotiate the instruments of global order with others." (p. 63) "The Asian model gives government the important role of targeting for special support those technologies and industries that are crucial to the nation's future strength. The United States has always supported the industries vital to the countries national security ... but only recently has it conceded that it is proper to support other selected industries for the country's economic security." (p. 69) "The United States must - and has begun to - change its system in order to make more effective use of its resources and to strengthen its economy. This is important not only for Americans' standard of living, but also as a prerequisite for America's leadership role in organizing the consensus required to manage the tensions of globalization." (p. 73) "The United States looks like a less-developed country, importing high-value, high-tech products and exporting raw-materials and minerals." (p. 72) "Japan's corporations have built national loyalty into their purposes; other nations, including America, often do not. This difference has political, social, and economic effects. A nationalistic corporation helps its nation, perhaps at the expense of other nations. It designs its global operations to maximize the benefits at home, such as high-paying jobs, skill development, and future technological gains. By contrast, a non-nationalistic corporation designs its operations strictly for the benefit of the corporation, unmindful of the effects on the home country. It being unclear which procedure is more competitive, both approaches will continue to flourish with important effects on different communities." (p. 75) "Theoretically, management's purpose in the United States is to satisfy shareholders, but increasingly that purpose in unachievable unless at least equal weight is given to the long-run interests of the managed and the community." (p. 78) The Basis for Global Consensus: "Socialism and communism are dead. Capitalism reigns supreme. Such conventional thinking is dangerously misleading. In fact, all three isms are meaningless, replaced by mixtures of the three that differ radically among national and regional communities. The mixtures have one thing in common: They share a communitarianism, as opposed to an individualistic, ideology, even though particular nations' versions of communitarianism differ widely." (p. 89) "By the late Twentieth Century they (Capitalism and Socialism) dissolved themselves by intermingling. Capitalist systems had adopted most of the aims of Socialism - if not the means - and "socialist" systems realized that to reach their lofty goals required many "capitalist" tools" (p. 98) "We have already seen the United States, which is perhaps as ideologically distant from Japan as any nation can be, changing its ways in a Japanese-like direction in order to become more competitive. And the pressures for ecological integrity are causing all nations to bow to certain global constraints affecting property rights, the uses of property, the role of government, and, most importantly, our perception of reality" (p. 108) "National systems - economic, social and political - are being forced to converge by two global forces: intensifying competition among the different systems and pressures to preserve ecological integrity" (p. 109) Chapter 5: World Ideology, Variations on a Communitarian Theme "There will, of course, never be a single world ideology. There will be as many ideologies as there are communities, but a variety of pressures are pushing the nations of the world toward ideological homogeneity" (p. 111) "The needs of the community (focusing on a national one, for example) for clean air, and water, safety, energy, jobs, competitive exports, and so forth are becoming increasingly distinct from, and more important than, what individual consumers may desire." (p. 118) "The role of the state in a communitarian society is to define community needs and to insure that they are implemented. Inevitably, the state takes on important tasks of coordination, priority setting, and planning. It needs to be efficient and authoritative, capable of making the difficult and subtle trade-offs among, for example, environmental purity, energy supply, economic stability and growth, rights of membership, and global competition" (p. 120) "The shape which communitarianism takes in different communities will be formed by crisis. The task of leadership is to prevent crisis from becoming catastrophe - to make maximum use of minimum crisis for maximum change. This requires early perception and definition of community needs, and the artful design of institutions and incentives to insure that they are met. It is also the task of leadership to make the best of communitarianism." (p. 123) Summary: From the Back of the Book "Globalization is so mysterious," says Harvard Business School Professor George Lodge, "that most examiners tend to approach it in pieces, using economics, political science, or sociology to approach the subjects it covers. There is no expert in globalization, nor will there ever be - unless he or she is a special emissary from the divine" Lodge's latest work, Managing Globalization in the Age of Interdependence, is a compact, complete study. It recognizes the interconnectedness of culture and communication, supply and demand, and the environment and technology. It also examines the replacement of old, pre-Cold War connections with new connections developed especially for the 21st Century. Because of the increasing power of multinational companies and the key role of business in managing globalization, Managing Globalization in the Age of Interdependence should be required reading among corporate executives and managers in every nation." Call Number: 658.049 Lod f:\12000 essays\business & economics (632)\Managing Globalization.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Managing Globalization Notes based on Managing Globalization in the age of Interdependence, published 1995 by Pfeiffer & Company, San Diego, CA. Introductory Quotation: "In Managing Globalization in the Age of Interdependence, best-selling author George C. Lodge, Jaime and Josefina Chua Tiampo Professor of Business Administration at the Harvard Business School, tackles an issue of worldwide proportions - the tensions created by globalization, the growing interdependence of the earth's 5.5 billion people. Globalization is the process forced by global flows of people, information, trade, and capital. It is accelerated by technology, potentially harmful to the environment - and at the present, driven by only a few hundred multinational corporations. Lodge describes and analyzes the process on a truly global level, looking at the relationships among the world's economic, technological, political, and cultural aspects to provide more realistic insights than purely management-based books on the subject. Business in tandem with government must develop safe new institutions to manage global tensions. And communitarianism, or collective leadership among the world's peoples, he says, is the challenge of globalization." Introduction: "Globalization is a fact and a process. The fact is that the world's people and nations are more interdependent than ever before and becoming more so. The measures of interdependence are global flows of such things as trade, investment, and capital, and the related degradation of the ecosystem on which all life depends, a degradation that constantly reminds us that we are all passengers on a spaceship, or, more ominously, a lifeboat" (p. XI) "Globalization is a promise of efficiency in spreading the good things of life to those who lack them. It is also a menace to those who are left behind, excluded from its benefits. It means convergence and integration; it also means conflict and disintegration. It is upsetting old ways, and challenging cultures, religions, and systems of belief." (p. XI) "In spite of many variations and differences, an ideological framework can be composed so that globalization may serve the cause of humanity." (p. XV) Structure: The book is written in 5 chapters: The Phenomenon of Globalization, The Collapse of the Old Paradigm, Global Leadership, The Basis for Global Consensus and World Ideology: Variations on a Communitarian Theme. Chapter 1: The Phenomenon of Globalization "Globalization is the process whereby the world's people are becoming increasingly interconnected in all facets of their lives - cultural, economic, political, technological, and environmental." (p. 1) "Japan typifies the Asian model in many respects. Its economy is externally focuses; aims at gaining market share in the world economy through exports. Most importantly, it is oriented toward strengthening its producers rather than encouraging consumers." (p.10) "Convergence is both forced and facilitated by global information systems, televisions, faxes, fiber optics and the like." (p. 11) "Americans have been ideologically averse to government involvement in their lives, especially in the world of commerce, the domain of 'private enterprise.' The theory was that firms competed against other firms in open markets ... The Japanese and other cultures have shown that this view of the world was not only unrealistic, but also a handicap. There, consortias of firms cooperating with one another and with the government have emerged to become fierce competitors" (p. 13) "Globalization has clearly enriched the rich in the industrial worlds of Asia, Europe and North America, but at the same time it has widened the gap between rich and poor both within and among countries." (p. 23) Chapter 2: The Collapse of the Old Paradigm "The management of globalization and its tensions requires a global consensus about purposes and direction." (p. 31.) "The United States emerged from World War 2 all powerful and committed to the establishment of a New World order. It took its economic supremacy for granted..." (p. 38) "It was not until 1993 - and then only at the urging of the Japanese government - that World Bank economists reluctantly acknowledged that the East Asian countries - Korea, Japan, Taiwan, Malaysia, Thailand and China - were following a development strategy quite different from the one advocated by the bank, one characterized by extensive government intervention..." (p. 44) "Today the United States lacks an enemy, and there are four instead of two centers of World Power: Japan, China, Europe and the United States. Asian centers are growing fast; western ones are floundering." (p. 51) "If the United States is to continue to organize collective leadership, as many seem to want, it must strengthen itself and replace the old Cold War paradigm with a new one." (p. 51) Chapter 3: Global Leadership "In spite of a substantially weaker economy and a more ambiguous moral purpose, if any country is to lead the world into the twenty-first century, it seems that it must be the United States - and that means both its government and its multinational enterprises." (p. 61) "A weak America cannot lead: It needs strength to be magnanimous and the confidence to know and secure its vital interests. Only then can it negotiate the instruments of global order with others." (p. 63) "The Asian model gives government the important role of targeting for special support those technologies and industries that are crucial to the nation's future strength. The United States has always supported the industries vital to the countries national security ... but only recently has it conceded that it is proper to support other selected industries for the country's economic security." (p. 69) "The United States must - and has begun to - change its system in order to make more effective use of its resources and to strengthen its economy. This is important not only for Americans' standard of living, but also as a prerequisite for America's leadership role in organizing the consensus required to manage the tensions of globalization." (p. 73) "The United States looks like a less-developed country, importing high- value, high-tech products and exporting raw-materials and minerals." (p. 72) "Japan's corporations have built national loyalty into their purposes; other nations, including America, often do not. This difference has political, social, and economic effects. A nationalistic corporation helps its nation, perhaps at the expense of other nations. It designs its global operations to maximize the benefits at home, such as high-paying jobs, skill development, and future technological gains. By contrast, a non-nationalistic corporation designs its operations strictly for the benefit of the corporation, unmindful of the effects on the home country. It being unclear which procedure is more competitive, both approaches will continue to flourish with important effects on different communities." (p. 75) "Theoretically, management's purpose in the United States is to satisfy shareholders, but increasingly that purpose in unachievable unless at least equal weight is given to the long-run interests of the managed and the community." (p. 78) The Basis for Global Consensus: "Socialism and communism are dead. Capitalism reigns supreme. Such conventional thinking is dangerously misleading. In fact, all three isms are meaningless, replaced by mixtures of the three that differ radically among national and regional communities. The mixtures have one thing in common: They share a communitarianism, as opposed to an individualistic, ideology, even though particular nations' versions of communitarianism differ widely." (p. 89) "By the late Twentieth Century they (Capitalism and Socialism) dissolved themselves by intermingling. Capitalist systems had adopted most of the aims of Socialism - if not the means - and "socialist" systems realized that to reach their lofty goals required many "capitalist" tools" (p. 98) "We have already seen the United States, which is perhaps as ideologically distant from Japan as any nation can be, changing its ways in a Japanese-like direction in order to become more competitive. And the pressures for ecological integrity are causing all nations to bow to certain global constraints affecting property rights, the uses of property, the role of government, and, most importantly, our perception of reality" (p. 108) "National systems - economic, social and political - are being forced to converge by two global forces: intensifying competition among the different systems and pressures to preserve ecological integrity" (p. 109) Chapter 5: World Ideology, Variations on a Communitarian Theme "There will, of course, never be a single world ideology. There will be as many ideologies as there are communities, but a variety of pressures are pushing the nations of the world toward ideological homogeneity" (p. 111) "The needs of the community (focusing on a national one, for example) for clean air, and water, safety, energy, jobs, competitive exports, and so forth are becoming increasingly distinct from, and more important than, what individual consumers may desire." (p. 118) "The role of the state in a communitarian society is to define community needs and to insure that they are implemented. Inevitably, the state takes on important tasks of coordination, priority setting, and planning. It needs to be efficient and authoritative, capable of making the difficult and subtle trade- offs among, for example, environmental purity, energy supply, economic stability and growth, rights of membership, and global competition" (p. 120) "The shape which communitarianism takes in different communities will be formed by crisis. The task of leadership is to prevent crisis from becoming catastrophe - to make maximum use of minimum crisis for maximum change. This requires early perception and definition of community needs, and the artful design of institutions and incentives to insure that they are met. It is also the task of leadership to make the best of communitarianism." (p. 123) Summary: From the Back of the Book "Globalization is so mysterious," says Harvard Business School Professor George Lodge, "that most examiners tend to approach it in pieces, using economics, political science, or sociology to approach the subjects it covers. There is no expert in globalization, nor will there ever be - unless he or she is a special emissary from the divine" Lodge's latest work, Managing Globalization in the Age of Interdependence, is a compact, complete study. It recognizes the interconnectedness of culture and communication, supply and demand, and the environment and technology. It also examines the replacement of old, pre-Cold War connections with new connections developed especially for the 21st Century. Because of the increasing power of multinational companies and the key role of business in managing globalization, Managing Globalization in the Age of Interdependence should be required reading among corporate executives and managers in every nation." Call Number: 658.049 Lod f:\12000 essays\business & economics (632)\Managing the Transition from Maturity to Decline 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Managing the Transition from Maturity to Decline: Diamond Power Corporation This case study, prepared by Richard C. Scameborn, follows the Diamond Power Specialty Company from its humble beginnings in 1903 to its decline in 1991. The birth of Diamond came with the invention of the hand cranked soot blower. As the years and technology progressed, so did the Diamond soot blower. Along with this main product, Diamond also added several other products to its line, but none had the profitability of the soot blower. Diamond had the market to itself for a number of years, but eventually two competitors sprang up to challenge Diamond: Copes-Vulcan and Bayer Company. Competition did not become fierce until World War II, when the soot blower became a major commodity used by the U.S. Navy to clean boilers on board its ships. At this point, the soot blower industry became a seller's market and the need for strategy (both corporate and business) became a necessity for growth and survival. Diamond Power's main mission at its beginning, to produce soot blowers that would efficiently clean the inside of boiler as it continued working, basically stayed the same up until the addition of competition into the market. At this point, Diamond had to revise its mission to include technological advances to stay ahead of it main competitor, Copes-Vulcan. With the passage of time, production efficiency and technology were not enough. Diamond eventually had to add foreign sales, customer service, and replacement part production to its original plan to keep ahead of the game. By the 1970's, the mission to supply replacement parts and service became one of Diamond's top priorities as it opened parts and service plants in New Jersey, Georgia, Ohio, Texan, Colorado, North Dakota, California, and Washington. Diamond Power's goals over the years seem to stay pretty congruent with its mission up until the early 1980's. Basically, Diamond's goals included staying on the moderate levels of technology, building a foreign market by exporting machines and parts and establishing joint-venture manufacturing companies overseas, establishing an extensive and profitable domestic aftermarket support system that included minifactories that supplied both parts and service, and to keep the upper hand on the soot blower market share. Diamond Power's parent corporation, McDermott, Inc, utilized several different corporate strategies to try to achieve Diamond's goal of a profitable and extensive aftermarket support system. However, some of the decisions made by McDermott, Inc in regards to its replacement part division caused more harm than good. For example, when a small operator began to copy and sell Diamond replacement parts at a lower cost than Diamond with great success, McDermott overrode Diamond executives' wish to acquire the operation. This decision had far-reaching repercussions as will be discussed in later paragraphs. McDermott also had to take action where Diamond was concerned when it began experienced severe financial difficulties in the late 1980's and early 1990's. McDermott had to implement a major costcutting effort and restructuring plan to keep from going bankrupt. This plan included putting pressure on Diamond to increase profits. Diamond had to take implement several business strategies in order to appease its parent corporation. Decisions made on the corporate level had a direct affect on the business strategies implemented by Diamond Power. The development of the aftermarket support system was a plan with several long term benefits. The plan, developed by the marketing vice president at the time, involved a nationwide network of minifactories that offered service and replacement parts that could be delivered in a matter of hours to industries in need. Diamond's high market share on soot blowers allowed the company to lower its new equipment prices and recoup any losses through its replacement part division. This resulted in increased sales in both new equipment and parts. Diamond's competition, Cope-Vulcan, did not have any service centers and only limited replacement part manufacturing, and therefore did not reap profits as high as Diamond Power's. However, not all of Diamond's business strategies worked as well as the replacement part and service system. Under the pressure of McDermott, Inc, Diamond felt it had to make several rash decisions in order to increase profitability. First, Diamond did not purchase Bill Blalock's low production company that made Cope and Diamond parts. This allowed a foreign company to buy it out and break into Diamond's dominant part industry. It also allowed Cope-Vulcan to increase its part production market by forcing it to implement an aggressive management team and add new products to its line. Diamond responded to this by deciding to reverse-engineer nonpatented Cope parts in Korea and sell them for a lower price than Cope sold them itself. Diamond also made the decision to close a very productive plant in Canada and lose a very influential employee in the process. Both of these decisions eventually caused severe problems for the company and helped to lead to its decline. Ethically, Diamond commits only two mistakes in judgment that should have been avoided. Diamond's decision to start making Cope parts was not illegal, but was underhanded since the two companies seemed to have an understanding that they would not make eachother's parts. Diamond also made and ethical mistake by closing the plant in Canada and basically turning its back on a loyal Diamond employee. Both of these breaches of ethics ends up causing Diamond a lot of trouble as time goes on. There are three major problems that come up in the Diamond Power case. The most obvious problem the company encounters involves the handling of its lucrative parts industry. For a number of years, the parts division was able to carry the company through times of low new equipment sales. But, for as important as the parts business was for Diamond, it did not take adequate measures to protect it. For example, Diamond never bothered to patent its parts in the U.S. or in Korea, and this left the door open for other companies to reverse-engineer Diamond parts and sell them for their own profits. Also, Diamond did not take the opportunity to buy out the profitable Blalock low production company, a company making Diamond parts that were not patented. Patenting would have saved Diamond from the invasion of a low producer invasion and from aggressive retaliation by Cope later on for making and selling nonpatented Cope parts. It seems that a division as valuable as the service and replacement division would have been protected more heavily. The second major problem Diamond had was in shutting down its Canadian factory. This caused trouble for Diamond in two ways: it gave other companies the opportunity to cash in on a profitable Canadian market, now left wide open by the removal of Diamond, and it caused a very influential and valuable employee to leave and eventually join forces with Cope-Vulcan. The consequences of closing the Canadian plant and failing to protect its replacement part business eventually come back to haunt Diamond as Cope is able to break into Diamond's replacement part market share and lower it from 60% to 56% in less than one year. The third major problem Diamond creates for itself is its shut down of 6 of its 8 service divisions in the face of profit pressure and cost-cutting. This was probably the worst place to cut back, since the former expansiveness of its service business is what made Diamond such a nationwide force. Industries that once turned to Diamond for service and subsequently Diamond part had no choice put to go to Diamond's competitors for service and parts. By this foolhardy decision, Diamond's president not only lost profits for Diamond, but also lost his job. The weakness most in need of fixing is found within the administration. The leaders of Diamond Power seemed to become increasingly weaker and/or more foolish as time went on. Examples of incompetence and lack of vision by the business leaders of Diamond include failure to patent and protect the replacement parts division, failure to acquire small businesses that posed a threat to the replacement market share, reverse-engineering of a competitor's parts without protecting the company from retaliation, closing and losing a very vital and important foreign plant and employee, and shutting down the nationwide influence of Diamond by closing service centers in major cities. Diamond's strengths lay in it replacement parts and service departments. Both of these industries proved profitable for many years and often carried the company in hard times. This strength was not protected, but could have still been improved. Revival of the replacement parts and service division of the company is essential for the survival of the company. Major improvements of old parts should be made and quickly patented in order to win back clients and protect future profits and market shares. Price reductions might need to be implemented in order to resuscitate sales quickly. Also Diamond may want to boost the technology level in its machinery and parts to prove that to customers that Diamond makes high quality products. Some expenses would have to be increased initially, but these would soon pay for themselves by increasing sales and reputation. Long-term changes should include reopening service centers and possibly trying to break into the Canadian and foreign markets. Also, the production of new products or services could be a long-term goal to reach for. New, more aggressive management should also be a long-term project. The initial mission was a good one and should be kept. The strategies should include lowering new equipment costs to spark increase in customer service and parts needs (like was done in the past). Also, Diamond should try to raise the market shares of other divisions, such as foreign sales to back up its aftermarket support system so the company is not reliant on just one of its divisions. However, fixing the weaknesses and improving the strengths would probably be the most productive course of action for the Diamond Power Specialty Company. f:\12000 essays\business & economics (632)\Managing the Transition from Maturity to Decline.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Managing the Transition from Maturity to Decline: Diamond Power Corporation This case study, prepared by Richard C. Scameborn, follows the Diamond Power Specialty Company from its humble beginnings in 1903 to its decline in 1991. The birth of Diamond came with the invention of the hand cranked soot blower. As the years and technology progressed, so did the Diamond soot blower. Along with this main product, Diamond also added several other products to its line, but none had the profitability of the soot blower. Diamond had the market to itself for a number of years, but eventually two competitors sprang up to challenge Diamond: Copes-Vulcan and Bayer Company. Competition did not become fierce until World War II, when the soot blower became a major commodity used by the U.S. Navy to clean boilers on board its ships. At this point, the soot blower industry became a seller's market and the need for strategy (both corporate and business) became a necessity for growth and survival. Diamond Power's main mission at its beginning, to produce soot blowers that would efficiently clean the inside of boiler as it continued working, basically stayed the same up until the addition of competition into the market. At this point, Diamond had to revise its mission to include technological advances to stay ahead of it main competitor, Copes-Vulcan. With the passage of time, production efficiency and technology were not enough. Diamond eventually had to add foreign sales, customer service, and replacement part production to its original plan to keep ahead of the game. By the 1970's, the mission to supply replacement parts and service became one of Diamond's top priorities as it opened parts and service plants in New Jersey, Georgia, Ohio, Texan, Colorado, North Dakota, California, and Washington. Diamond Power's goals over the years seem to stay pretty congruent with its mission up until the early 1980's. Basically, Diamond's goals included staying on the moderate levels of technology, building a foreign market by exporting machines and parts and establishing joint-venture manufacturing companies overseas, establishing an extensive and profitable domestic aftermarket support system that included minifactories that supplied both parts and service, and to keep the upper hand on the soot blower market share. Diamond Power's parent corporation, McDermott, Inc, utilized several different corporate strategies to try to achieve Diamond's goal of a profitable and extensive aftermarket support system. However, some of the decisions made by McDermott, Inc in regards to its replacement part division caused more harm than good. For example, when a small operator began to copy and sell Diamond replacement parts at a lower cost than Diamond with great success, McDermott overrode Diamond executives' wish to acquire the operation. This decision had far-reaching repercussions as will be discussed in later paragraphs. McDermott also had to take action where Diamond was concerned when it began experienced severe financial difficulties in the late 1980's and early 1990's. McDermott had to implement a major costcutting effort and restructuring plan to keep from going bankrupt. This plan included putting pressure on Diamond to increase profits. Diamond had to take implement several business strategies in order to appease its parent corporation. Decisions made on the corporate level had a direct affect on the business strategies implemented by Diamond Power. The development of the aftermarket support system was a plan with several long term benefits. The plan, developed by the marketing vice president at the time, involved a nationwide network of minifactories that offered service and replacement parts that could be delivered in a matter of hours to industries in need. Diamond's high market share on soot blowers allowed the company to lower its new equipment prices and recoup any losses through its replacement part division. This resulted in increased sales in both new equipment and parts. Diamond's competition, Cope- Vulcan, did not have any service centers and only limited replacement part manufacturing, and therefore did not reap profits as high as Diamond Power's. However, not all of Diamond's business strategies worked as well as the replacement part and service system. Under the pressure of McDermott, Inc, Diamond felt it had to make several rash decisions in order to increase profitability. First, Diamond did not purchase Bill Blalock's low production company that made Cope and Diamond parts. This allowed a foreign company to buy it out and break into Diamond's dominant part industry. It also allowed Cope-Vulcan to increase its part production market by forcing it to implement an aggressive management team and add new products to its line. Diamond responded to this by deciding to reverse- engineer nonpatented Cope parts in Korea and sell them for a lower price than Cope sold them itself. Diamond also made the decision to close a very productive plant in Canada and lose a very influential employee in the process. Both of these decisions eventually caused severe problems for the company and helped to lead to its decline. Ethically, Diamond commits only two mistakes in judgment that should have been avoided. Diamond's decision to start making Cope parts was not illegal, but was underhanded since the two companies seemed to have an understanding that they would not make eachother's parts. Diamond also made and ethical mistake by closing the plant in Canada and basically turning its back on a loyal Diamond employee. Both of these breaches of ethics ends up causing Diamond a lot of trouble as time goes on. There are three major problems that come up in the Diamond Power case. The most obvious problem the company encounters involves the handling of its lucrative parts industry. For a number of years, the parts division was able to carry the company through times of low new equipment sales. But, for as important as the parts business was for Diamond, it did not take adequate measures to protect it. For example, Diamond never bothered to patent its parts in the U.S. or in Korea, and this left the door open for other companies to reverse-engineer Diamond parts and sell them for their own profits. Also, Diamond did not take the opportunity to buy out the profitable Blalock low production company, a company making Diamond parts that were not patented. Patenting would have saved Diamond from the invasion of a low producer invasion and from aggressive retaliation by Cope later on for making and selling nonpatented Cope parts. It seems that a division as valuable as the service and replacement division would have been protected more heavily. The second major problem Diamond had was in shutting down its Canadian factory. This caused trouble for Diamond in two ways: it gave other companies the opportunity to cash in on a profitable Canadian market, now left wide open by the removal of Diamond, and it caused a very influential and valuable employee to leave and eventually join forces with Cope-Vulcan. The consequences of closing the Canadian plant and failing to protect its replacement part business eventually come back to haunt Diamond as Cope is able to break into Diamond's replacement part market share and lower it from 60% to 56% in less than one year. The third major problem Diamond creates for itself is its shut down of 6 of its 8 service divisions in the face of profit pressure and cost-cutting. This was probably the worst place to cut back, since the former expansiveness of its service business is what made Diamond such a nationwide force. Industries that once turned to Diamond for service and subsequently Diamond part had no choice put to go to Diamond's competitors for service and parts. By this foolhardy decision, Diamond's president not only lost profits for Diamond, but also lost his job. The weakness most in need of fixing is found within the administration. The leaders of Diamond Power seemed to become increasingly weaker and/or more foolish as time went on. Examples of incompetence and lack of vision by the business leaders of Diamond include failure to patent and protect the replacement parts division, failure to acquire small businesses that posed a threat to the replacement market share, reverse-engineering of a competitor's parts without protecting the company from retaliation, closing and losing a very vital and important foreign plant and employee, and shutting down the nationwide influence of Diamond by closing service centers in major cities. Diamond's strengths lay in it replacement parts and service departments. Both of these industries proved profitable for many years and often carried the company in hard times. This strength was not protected, but could have still been improved. Revival of the replacement parts and service division of the company is essential for the survival of the company. Major improvements of old parts should be made and quickly patented in order to win back clients and protect future profits and market shares. Price reductions might need to be implemented in order to resuscitate sales quickly. Also Diamond may want to boost the technology level in its machinery and parts to prove that to customers that Diamond makes high quality products. Some expenses would have to be increased initially, but these would soon pay for themselves by increasing sales and reputation. Long-term changes should include reopening service centers and possibly trying to break into the Canadian and foreign markets. Also, the production of new products or services could be a long-term goal to reach for. New, more aggressive management should also be a long-term project. The initial mission was a good one and should be kept. The strategies should include lowering new equipment costs to spark increase in customer service and parts needs (like was done in the past). Also, Diamond should try to raise the market shares of other divisions, such as foreign sales to back up its aftermarket support system so the company is not reliant on just one of its divisions. However, fixing the weaknesses and improving the strengths would probably be the most productive course of action for the Diamond Power Specialty Company. f:\12000 essays\business & economics (632)\Manipulative Advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Manipulative Advertising Business Ethics May 4, 1999 Manipulative Advertising According to Tom L. Beauchamp, manipulative advertising "limits free and informed action" (472). It is sort of like convincing customers to purchase something, but it is based on incorrect or inconclusive information. "Advertisers use attractive rates, enticing images, and a variety of forms of suggestion to hinder or block reasoned choice" (479). One example is "phony discounting where retailers present fake percentage markdown from suggested retail prices that are imaginary or artificially inflated" (472). The customers are mislead into thinking they are actually receiving a bargain. Use advertisements to manipulate people is sinister because "normal" people's freedom to choose freely is taken away. The important thing to remember is that it is not what was said and or done by the advertiser, but how a person (people) respond to what is trying to influence them. It is somewhat like lying, but it is the truth stretched out so far that it never seems to reach a lie. Some advertisers do lie and are held accountable in the sense that their business suffers because of it, but for the most part manipulative advertising is very common and well practiced especially in the United States. A very sad point concerning manipulative advertising is that advertisers, advertise to everyone including those very vulnerable people. Children as well as those with a weak state of mind, such as the mentally ill and many others in addition to "normal" people fall into the cunning face of manipulative advertising every day. It is understood that the more profitable a business is the longer they will be in business. It is a shame that most business use advertisements to falsely lure customers to their products or to their businesses in order for them to purchase their product and, or service. Although some companies give their customers a warranty, others do not and the companies do not have to replace the product every time something goes wrong with it if it is stated in the agreement. Manipulative advertising can have very detrimental affects. Such ways that this type of advertising can be detrimental is by labeling and or misusing words such as cholesterol free, fat free, fresh and low sugar. The health risks that people can put themselves in by using falsely advertised labels can be fatal. Today, in the food industry there are hundreds of thousands of competitors. To remain competitive, companies realize that their are increasing number of illnesses and deaths due to poor eating habits. The food companies try to target these people that are "watching their diet" (usually a large percentage of the population) and tries to attract them with words such as fat free and sugar free. With stricter regulations being passed by the Food & Drug Administration (FDA), companies have to be more careful in what they put in their foods (chemicals, additives, ingredients) and how they label them. A company can put "fat free" on a cookie and be completely honest about it, but customers don't realize that it is probably high in something unless, like sugar -unless it is a rice cake. Foods that have subtracted the one unhealthy point (fat), usually add something else that may not be better than what was originally in it (sugar). If sugar is replacing the fat, it doesn't make much of a difference because sugar will simply turn into fat if it is not used immediately. So, in the end, fat free doesn't necessarily mean that a person will get no fat from this food, it just means that it won't go in their mouth as fat, but it will be converted to fat later on if they don't expend the energy. Another negative impact that manipulative advertising can have is bringing people into debt. Some people buy things without asking all the right questions. For example, I had a credit card offer with a 4% APR rate on purchases, transfers, etc... but it was only for the first 3 months, after 3 months it was going up to 21%. If I had not asked the right questions or read the fine, extremely small print on my booklet I would have never known. Some people don't speak English, some people can't read and some don't even know what questions to ask. They then fall into the trap of being manipulated by advertisements like these, showing low rates but raising them in a short period. The advertising industry could and should change its techniques for manipulative advertising. If a company is trying to sell a product no one wants, they should not make the product and, or make the service look attractive when it is just a not true. This is seduction and falsifying information. I believe in advertising to let consumers know what products are out there, but to give them a true sense of what the product is all about and what the product may be able to do for them. To convince people to buy a product or service which they don't need, can't afford, or the full product information was withheld should be illegal. All of the benefits and the drawbacks of a product or service should be readily available (which sometimes is), but should also be made aware to the person with the purchasing power. f:\12000 essays\business & economics (632)\marketing analysis of new enterprises.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ OVERVIEW Skittles is a variety entertainment and dining establishment located in Washington, D.C. . Our mission is to provide our patrons with a unique blend of live entertainment while delivering a top quality dining experience. We will do this by emphasizing service excellence and the highest level of performance in all aspects of our operations and services. Our prominent services include live entertainment, ranging in form from comedy to jazz performances to poetry recitals and others. We also offer lunch, dinner, drinks and dancing to our customers. The restaurant is operated by its several partners who have an equal share in ownership. The partners are Tracy Jackson, James Johnson, Sonja Dawkins, Kevin Brown and Steffi Carr. The restaurant is ideally located on the D.C. waterfront. There it will be easily accessible to a large cross section of consumers and make it possible to provide patrons with a safe and controlled environment. Our establishment brings a relatively new concept to the Districts restaurant industry. What we provide is an everchanging mix of live entertainment to customers while serving all of their drinking and dining needs as well. We are somewhat of a one stop, night on the town, in that we provide not only the drinking and dining needs of person going out but we also provide, in the same location and depending on the night, everything from dancing to live music performances to a night of comedy entertainment. Because of its uniqueness to the marketplace in D.C., Skittles has an excellent opportunity to establish itself and become a force in the restaurant/entertainment community in the District. This is partly because of the limited direct competition the company has to face. Although direct competition is limited, there are several establishments which we feel will pose competition to us in the market. They include Blues Alley, Hogates, H.I. Ribsters, Phillips, Gang Plank, The Wharf, and Club 721. Despite the threats which the competition poses to the restaurant, we are still very confident in the ability of this concept and restaurant to thrive and succeed in the District. SITUATION ANALYSIS We, the owners of Skittles, are very enthusiastic about our chances of success with this new and exciting restaurant concept. Our enthusiasm was bolstered even more by what was revealed to us after performing a situation analysis for the company. The analysis showed that as a company, our strengths and the opportunities that exist, far outweigh our weaknesses and the threats we perceive ourselves having to face. This indicates to us that with hard work and a total team commitment, Skittles will be a definite success. As for the particulars that were revealed through the analysis they are as follows. First, the businesses internal strengths include the location of the restaurant, because of its convenient access to all the residents in the Metro Area. Another strength is the room for growth that we have as a company, because without it the company would reach its maximum potential in a relatively short time and then have no where to go but down. Also we have a strength in our prices which, for the services and the variety of entertainment we provide, are better than favorable when compared with the competitions prices. Finally, our internal strengths include the variety which we provide for our customers, both in the services and in the entertainment which we deliver. Next, there are the internal weaknesses that we have as a business and they include, first our inexperience with being managers and operators of a business as well as the inexperience in dealing with the real world, unforeseen problems that are bound to arise with a new business. Secondly, there is the fact that as of yet we don't have an established customer base to rely on. Also, we also don't have a loyal market of consumers whom we can depend on even during the most difficult economic periods. Finally, there is the fact that we don't have the established reputation for service and excellence that some of our competitors may have with the consumers in the area. Next, the situation analysis turned to the external factors that would be affecting our establishment. These factors include both our opportunities and the threats that we will have to face. First, there were the opportunities which include, the economic situation in the district which has the mayor and other prominent officials encouraging and supporting the formation of new businesses in the District in hopes of creating more revenue for the city. This is an opportunity because with the cooperation from the city and the powers that be, it will be less difficult to deal with all of the red tape and bureaucracy one has to go through when starting a business. Secondly, there the opportunity to become a tourist attraction, because we are located in the nations capitol which receives millions of visitors on a yearly basis. By becoming a city hot spot, it would enhance our reputation not only with the local residents but nation wide as well. It would increase our business revenue drastically if we could become one of the "must see" places for visitors to the capitol. The second opportunity has a direct relationship with the third and final opportunity which is to franchise and branch out. If we are successful in becoming a tourist attraction, that would open up markets for us all over the country in places where people don't have but want the services and entertainment concept which we provide to our customers. The final segment covered in our analysis was the threats we perceived ourselves having to deal with. They include, first the many hassles and the bureaucracy we would have to deal with, such as obtaining the proper licenses, zoning and building permits and meeting the required health, building and safety codes and regulations. Secondly, there is the threat posed by the slow economy we are currently faced with. It is causing more people to opt to stay at home rather than going out. Finally there is the threat posed by the competition in the District for disposable income. Because D.C. is the U.S. Capitol, there are many establishments which provide a variety of things to do for the consumer which will make attracting those disposable dollars all the more difficult for a new business. Over the coming year, it will be our goal to build on the strengths that we posses and to take full and complete advantage of the opportunities that exist for Skittles in the D.C. market. We also plan, to the best of our ability, to overcome the threats which await us and to eliminate as many, if not all, of our internal weaknesses. This will be achieved through strong management leadership, dedication to the company and careful decision making and planning on the part of Skittles owners and all of our employees. ORGANIZATION OBJECTIVES Since we are a new organization , there are many marketing objectives that we have yet to achieve and which we will strive to accomplish within the next year of business. Three of the more prominent objectives we have include first, establishing and maintaining a high level of customer loyalty and a large loyal market base in the D.C. metro area. Secondly, we seek to eliminate all of our internal weaknesses. Third and most importantly, we want to provide our customers with the most outstanding and superior quality of service found anywhere. As a new business, we are faced with the task of having to find a place for ourselves in the market among consumers. We can best make a place for ourselves by establishing a large , loyal base of consumers. We plan to achieve this objective by providing patrons with an experience like no other and by delivering top quality entertainment. We will be able to determine if the objective has been achieved by monitoring the increase or decrease in the level of regular repeat customers over the next year. Our second objective is one in which we have a great deal of concern. It is to eliminate our internal weaknesses. While we are concerned, we feel most confident about getting it achieved. This is because internal weaknesses are those which we have the most ability to influence and change. Currently our internal weaknesses include inexperience in management and a lack of a loyal customer base, to name a few. We will determine if the objective has been reached by performing a second situation analysis at the end of the year and comparing it with our current analysis. The third objective we have is probably the one most essential to determining our future in the marketplace. It is to provide our customers with the most outstanding quality of service found anywhere. By achieving this objective we will have little problem with achieving our first objective of developing a loyal customer base. This is because if we deliver a high quality of service excellence to our patrons, they will only naturally think highly of us and want return to our establishment. Also, by delivering outstanding quality in all aspects of the company, it will help to develop a positive reputation in the eyes of the consumers which will lead to more business for the restaurant which will in turn lead to more profits for the business. We will determine if the objective has been accomplished by getting feedback from customers after they've had the Skittles experience. Surveys will be taken randomly throughout the year to determine if service and overall quality is being maintained, improving, or getting worse. In any event we feel the achievement of these goals are essential to our remaining a viable venture in the marketplace and we plan to do everything within our powers to make certain that they are achieved. PERCEPTION OF GOODS Skittles target market will find the restaurant to be ideal for their dining and entertainment pleasure. This is because our services as well as our marketing are geared towards attracting and satisfying the wants and needs of our target market. Through our reasearch, we have found that our target demographics enjoy jazz, live music, and comedy, as well as full course dining when going out. By inquiring of the specific target market demographics, we have determineed exactly what they want in terms of entertainment and dining. As a result, we have focused our endeavors to meet those needs. HOW IS USP MANIFESTED? The unique selling position of Skittles will be manifested by our ability to provide a variety of live entertainment forms. It will further be manifested in our ability to provide for our customers, dining excellence as well as fun and excitement, all in the same location. In addition, our ability to cater not only to those looking for live entertainment fun but also those who wish to use our establishment for business purposes as well as other private functions will add to creating a distinct U.S.P. for Skittles. BRAND NAME DISCUSSION Skittles was chosen as the name of our establishment because the word skittles has now become synonymous with a variety of flavors. This is, we feel the most appropriate name to describe what it is that we have to offer our consumers in terms of goods and services, a wide variety. In the entertainment, as well as in the dining options and the overall concept of our business, ,Skittles the restaurant much like Skittles the candy, will provide a rainbow of variety and flavors to its customers. ADVERTISING OVERALL PLAN Skittles overall campaign will utilize several mediums and techniques in order to get the publics awareness of our existence up. The mediums we plan to utilize include flyers, posters, billboards and newspapers. The advertising campaign will be somewhat aggressive in its approach because we are a new entity trying to create a niche for ourselves in a very competitve environment. The advertisements will be targeted to appeal to the wantrs and sensibilities of our specific target market. We will accomplish this by focusing the ads on the entertainment and the variety aspects of our restaurant. Likewise, we will convey through our ads a sense of the atmosphere and ambiance which exists at Skittles. The ads will be run in major papersd tri-weekly, while billboards, posters and metro ads will be continuos in their display. We will make use of free passes for entertainment and meal discount coupons as well. As with any product , we are hoping that word of mouth will also help in establishing the reputation of Skittles as a great place for entertainment and dinning. DISCUSSION OF SUPPLY TO RESTAURANT The supply of Skittles' food and beverages will be handled through a combination of several wholesale and retail suppliers. For our beef, pork, lamb and veal supply we will utilize the National Beef and Provision Co. of Baltimore MD. The prince Wm Co. Poultry and Egg Company will provide our needs in those areas. Our seafood will be acquired fresh from the D.C. Wharf. Finally, our liquor and alcoholic beverages will be providerd by two suppliers. The F Wine Specialists will supply our wine needs while the International Distribution Corportion will supply all of our other alcohic beverages and the Pepsi Bottling Co. will supply our Fountain Sodas/beverages. To insure for our customers, the freshest food posible. Our meats, seafood, poultry and vegatables will be ordered weekly. To add, because all of our suppliers are in the D.C. area and in such close proximity, we will receive our supplies by way of refrigerated trucks. Again with the furthest supplier being in Baltimore, we are assured that our oders will be delivered within 24 hours of the reciept by the suppliers. Segmentation The Washington, D.C. market is the 6th largest MSA market according to the Office of Management and Budget. With a consumer market population of over 4 million people Washington,D.C offers a wide, diversive ethnic make-up of Whites,Black,Asians,Hispanics and Other ethnic groups, with the White and Black Populations being the majority. Furthermore the Washington D.C. market has an effective buying income of over 88 million dollars, and had retail sales in excess of 31million. (SRDS August 1993) Young adults Adults Middle Aged Seniors 18-24 25-34 35-49 50+ Racial Diversity: High degree and Some degree and Very small degree Extremely small degree highly intergrated some intergration and seperated and secluded. Maritial Status High degree of Some degree of singles Medium degree of married High degree og married Single individuals Some degree of married some divorced and singled some divorced and widowed Attitude towards Service Speed and Professionalism Value required, honesty extremly patient, avoid Expects Respect, and Honesty are k y aspectts professionalism demanded extra cost and Personable receives discounts. The above segmentation chart shows the age divison of adults in Washington, D.C. The base selected for this chart is the Age of the Consumer Market Population of Washington,D.C. The reason we chose age as our base is because it is the easiest way to divide and segment a consumer population. Furthermore the base starts at age 18 because Skittles will provide adult entertainment and will be serving alcholic beverages. We chose Racial Diversity, Maritial Status and Attitudes toward Service as our descriptors because Skittles will cater to a cornicopia of people with a high degree of ethnic diversity; married, single and divorced individuals as well as different attitudes and perceptions towards service. In doing so we noticed that there was a some degree of disparity among the Young Adults and Adults; within the descriptor of Maritial Status; generally the Young Adults were single, because many of them were either still in school or recent graduates.While the Adults were recent newlyweds and some still single. With the Middle Aged having a high degree of people being married and some divorcees. Finally the Seniors had a extremly high degree of married couples with some being widowed. Within the descriptor of Racial Diversity there were some differences.There is a high degree of Racial Diversity and intergration within the younger ages that gradually decreases as the adults get older. Also since Washington ,D,C. has such highly diversified communities ranging from Whites, Blacks, Hispanics,Asians, and others it would be ideal to offer a resturant that would and could cater to all people regardless of their ethnic orgin. PERSONAL SELLING MESSAGE Skittles servers will be trained to provide customers with both quality service and congeniality. To ensure that our employees are both courteous and respectful when dealing with customers, we will establish an incentive program for our employees which will be based on customer responses toward the service they receive. Ideally, the interaction of a Skittles server and a customer should be similar to the following dialogue: Server: Good evening, my name is Jacque and I'll be your waiter for this evening. Would you care for any appetizers or Drinks at this time? Cust.: No thank you, we're not quite ready to order yet so could you give us a few minutes please. Server: Certainly. (returns shortly) Are you ready to order now? Cust.: Yes, we are ready to order. Server: May I recommend our specials. Cust.: Thank you, but we would like to order ... Server: Would you like anything to drink? Cust.: We'll have ... Server: O.K. I'll be right back with your drinks.(returns) Here are your drinks and your dinner will be ready shortly. (leaves and returns w/ food) Here is your dinner, I hope you enjoy it. If there is anything that I can get you please let me know. Cust.: Thank You. The server will then check regularly to see if everything is fine with the customers and after they are finished with their meals, he will again check with them. Server: Would you like any dessert or is there anything else that I can do for you? Cust.: No thank you, we are ready for the bill please. Server: Of course. The server then will deliver through our computerized billing process, the bill to the customer. f:\12000 essays\business & economics (632)\Marketing Ethics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The question of whether or not marketing is completely unethical is the question most critics of marketing seem to be focusing their attention on. Ethics provide the basis for deciding whether a particular action is morally good or morally bad (Britt 553). But, each individual develops different opinions, moral standards, and values. So, marketers will deal with similar issues differently because there is no "correct" way to handle any given issue. Marketers face various types of ethical issues in their everyday marketing activities. Such marketing activities that require marketing managers to utilize their moral values ethically are advertising, packaging and labeling, and global marketing. "Advertising is the most criticized of all micro-marketing activities (McCarthy 643)." What is considered as unfair or deceptive advertising is very difficult to pinpoint, because times have changed and continue to change on a day to day basis. What one person may consider unfair or deceptive may not be unfair or deceptive to another person. There are no clear cut guidelines for marketing manager's to go by, so they must utilize their own judgement based on their own moral standards. But, in the United States their is an administrative agency that has the power to control unfair or deceptive business practices. The Federal Trade Commission (FTC) was created in 1914 to prevent "unfair methods of competition in commerce (commercial trade) and unfair or deceptive acts or practices in commerce (Miller 590)". The FTC issues guidelines that define unfair practices and in some instances the FTC will investigate widespread complaints to seek settlement of the complaint. The FTC has also set forth specific rules to govern certain advertising practices such as bait-and-switch advertising. Bait-and-switch advertising occurs when a seller advertises a product at a very low price to lure in consumers, but when customers come in to purchase the product; the seller either doesn't have the product available or the product is of very low quality and the seller then encourages the customer to purchase a more expensive substitute. The Federal Trade Commission also enforces laws that govern packaging and labeling. In the past, there had been much criticism concerning packaging and labeling, so much that in 1966 the Federal Fair Packaging and Labeling Act was passed. The Act requires that labels must be accurate and easily understood by consumers. The Act also governs packaging descriptions and savings information that is disclosed on labels (Miller 529). Marketers face some morally difficult situation in which they must make ethical decisions. Such a situation could be: The marketer's Research and Development department has modernized one of the companies products. The product isn't really "new and improved", but the marketer knows that putting that slogan on the package and advertising it would increase sale. What should the marketer do? This is one type of situation that many marketers may face in their careers. If the marketer should decide in favor of such a decision his or her behavior would be considered immoral. But, if he or she doesn't decide in favor of the act then he she may be considered an inefficient manager. Marketing managers also face ethical dilemmas about whether their products help or hurt consumers in less developed nations. The marketer must evaluate the benefit and the risks of serving such nations, then he or she must weigh those benefits against the risks by using his or her on judgement based on what they feel is morally right or wrong. The marketer must also take in consideration the literacy level in such less-developed nations. Marketing ethics are moral standards that guide marketing decisions and actions (McCarthy, 26). Today's companies must form clear policies to guide marketers in their marketing decisions so they can be socially responsible individuals. The decisions that the marketer makes has a big influence on how others see the company. The employees must choose between what is in the best interest of themselves, the company, or that of society as a whole. f:\12000 essays\business & economics (632)\Marketing Notes.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marketing Notes Chapter 1 - Marketing In a Changing World What is marketing? - Creating customer value and stratification are at the very heart of modern marketing thinking and practice. Market Defined - Markets always focus at satisfying customers needs - Marketing: A social and managerial process by which individuals and groups obtain what they need and want through creating exchanging products and value with others. - Needs: States of felt deprivation - Wants: Are the form taken by human needs as they are shaped by culture and individual personality. Wants are described in terms of objects that will satisfy needs. - Demands: Human wants that are backed by buying power - Products: Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need it. It includes physical objects, services, persons, places, organizations, and ideas. - "Marketing myopia" Sellers may suffer from "Marketing myopia" they are so taken with their products that they focus only on existing wants and lose sight f underlying customer needs. They forget that a physical product is only a tool to solve a consumer problem. Value, Satisfaction, and quantity - Customer Value: The difference between the values the customer gains from owning and using a product and the cost of obtaing the product. - Customer Satisfaction: The extent to which a product's perceived performance matches a buyer's expectations. - If the product's performance falls short of the customer's expectations, the buyer is dissatisfied. If the performance matches expectation, the buyer is satisfied. If performance excesses expeditions, the buyer is delighted. Outstanding marketing companies go out of their way to keep their customers satisfied. - Total quantity management (TQM): Programs designed to constantly improve the quantity of products, services and marketing processes. Exchange, Transactions, and Relationship - Exchange: The act of obtaining a desired object from someone by offering something in return. - Transaction: A trade between two parties that involves at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement. - Relationship Marketing: The process by creating, maintaining, and enhancing strong, value, -laden relationships with customers and other stakeholders. - A market network consists of the company and all of its surrounding stakeholder: customers, employees, suppliers, distributions, retailers, advertising, agencies, and others with whom it has built mutually profitable business relationships. Market - Market: The set of all actual and potential buyers of a product or service. - Figure 1-2 (13) Marketing - Marketing means managing markets to bring about exchanges for the purpose of satisfying human needs and wants. Marketing Management - Marketing Management: The analysis, planning, implementation, and control of programs designed to create, build, and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives. - De-marketing: Marketing to reduce demand temporarily or permantely-the aim is not to destroy demand, but only to reduce or shift it. Building profitable customer relationship - A company demand comes from two groups: 1. New customers and 2. Repeat customers. - It costs five times as much to attract new customers as it does to keep an existing customers satisfied. Marketing Management Philosophies - There are five alternatives concepts under which organizations conduct their marketing activities: the product, selling, marketing, and societal marketing concept. - Production Concept: The philosophy that consumers will favour products that are available and highly affordable and that management should therefore focus on improving production and distribution efficiency. - Product Concept: The philosophy that consumers will favour producers that offer the most quality, performance, and innovative features. - Selling Concepts: The idea that consumers will not buy enough of the organization's products unless the organization undertakes a large-scale selling and promotion effort. - Marketing Concept: The marketing management philosophy that holds the achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. The Internet - Internet: A vast and burgeoning global web of computer networks with no central management or ownership. Chapter 2- Strategic Planning the Marketing Process Strategic Planning - The annual plan is a short-run marketing plan that describes the current marketing situation, the company objectives, and the marketing strategy for the year, the action program, budgets, and controls. - The long-run plan describes the major factors and forces affecting the organization during the next several years, it includes the long-term objectives, the major marketing strategies that will be used to attain them, and the resources required. - Strategic Planning: The process of developing and maintaining a strategic fit between the organization's goals and capabilities and its changing marketing opportunities. - At the corporate level, the company first defines its overall purpose and mission. This mission then is turned into detailed supporting objectivities that guide the whole company. Next, headquarters decides what portfolio of business and products is best for the company and how much support to give each one. In turn, each business and product unit must develop detailed marketing and other departmental plans that support the company wide plan. Defining the company mission - Mission Statement: A statement of the organizations purpose-what it wants to accomplish in the larger environment. - Mission should be realistic, specific, fit the market environment, motivating Designing the Business Portfolio - Business Portfolio: The collection of business and products that comprise the company. - The best business portfolio is the one that best fits the company's strengths and weakness to opportunities in the environment. The company must (1) analyse the current business portfolio and decide which business should receive more, less, or no investment, and (2) develop growth strategies for adding new products or business to the portfolio. Analysing the current business portfolio - Portfolio Analysis: A tool by which management identifies and evaluates the various businesses that makes up the company. - Strategic business Unit (SBU): A unit of the company that has a separate mission and objectives and that can be planned independently from other company business. An SBU can be a company division, a product line within a division, or sometimes a single product or brand. - Management's first step is to identify the key businesses making up the company. The next step in business portfolio analysis calls for management to assess the attractiveness of its various SBU's and decide how much support each deserves. The Boston Consulting Approach - Growth-share matrix: A portfolio-planning method that evaluates a company's strategic business units (SBU) in terms of their market growth rate and relative market share. SBUs are classified as stars, cash cows, question marks, or dogs. - Four types of SBUs can be distinguished: 1. Star: High-growth, high share business or products that often require heavy investment to finance their rapid growth. 2. Cash Cow: Low-growth, high share business or products; established and successful units that generate cash that the company uses to pay its bills and support other business units that need investment. 3. Question Mark: Low-share business units in high-growth markets that require a lot of cash in order to hold their share or become stars. 4. Dogs: Low-growth, low share business and products that generate enough cash to maintain themselves but do not promise to be large sources of cash. - Figure 2-2 (45) Growth Share matrix The General Electric Approach - It uses a matrix with two dimensions-one representing industry attractiveness (the vertical axis) and one representing company strength in the industry (the horizontal axis). The best businesses are those located in highly attractive industries where the company has high business strength. Problems with Matrix Approaches - They can be difficult, time consuming, and costly to implement. Management may find it difficult to define to define SBUs and measure market share and growth. - These approaches focus on classifying current businesses but provide little advise for future planning. Developing Growth Strategies - Product/market expansion grid: A portfolio-planning tool for identify company growth opportunities through market penetration, market development, or diversification. - Market Penetration: A strategy for company growth by increasing sales of current products to current market segments without changing the product in anyway. - Market development: A strategy for company growth by identifying and developing new market segments for current company products. - Product development: A strategy for company growth by offering modified or new products to current market segments. - Diversification: A strategy for company growth by starting up or acquiring businesses outside the company's current products and markets. Marketing Role in Strategic Planning - Marketing looks at consumer needs and the company's ability to satisfy them; these same factors guide the company mission and objectives. - Marketing plays a key role in the company's strategic planning; Marketing provides a guiding philosophy-the marketing concept-which suggests company strategy should revolve around serving the needs of important consumer groups. Marketing provides input to strategic planners by helping to identify attractive market opportunities and by assessing the firm's potential to take advantage of them. Within individual business units, marketing designs strategies - For reaching the unit's objective. Conflict between Departments - Operations focuses on suppliers and production; finance is concerned with stockholders and sound investments; marketing emphasizes consumers and products, pricing, promotion, and distribution. The Marketing process - Marketing Process: The process of (1) analysing marketing opportunities; (2) selecting targets market (3) developing the marketing mix and (4) managing the marketing effort. - Market Segmentation: Dividing the market into distinct groups of buyers with different needs, characteristics, or behaviour who might require separate products or making mixes. - Market Segment: A group of consumers who respond in a similar way to given set of marketing stimuli. Market Targeting - Market targeting: The process of evaluating each market segment's attractiveness and selecting one or more segments to enter. Marketing Position - Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Marketing Strategies for Competitive Advantage - The company must formally or informally monitor the completive environment to answer these and other important questions: Who are our competitors? What are their objectives and strategies? What are their strengths and weakness? And how will they react to different completive strategies we might use? Developing the Marketing Mix - Marketing Mix: The set of controllable tactical marketing tools-product, price, place and promotion-that the firm blends to produce the response it wants in the target market. - Product means the 'goods and services" - Price is the amount of money customers have to pay to obtain the product. - Place includes company activities that make the product available to target consumers. - Promotion means activities that communicate the merits of the products and persuade target customers. Managing the Marketing Effort - Four management functions-analysis, planning, implementation and control. - Marketing Analysis à The Company must analyse its markets and making environment to identify attractive opportunities and avoid environmental threats. It must analyses company strengths and weaknesses, as well as current and possible marketing actions, to determine which opportunities it can best pursue. Marketing analysis needs information and other input to each of the other marketing management functions. - Marketing Planning à It involves deciding on marketing strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is needed for each business, product or brand. - Product or brand plan (Contents of Marketing Plan) p.58 - Product or brand plan includes: Executive summary that quickly overviews major assessment goals, and recommendation. The main section of the plan presents a detailed analysis of the current marketing situation, and of potential threats and opportunities. It next states major objectives for the brand and outlines the specific of a marketing strategy for achieving them. - Marketing Strategy: The marketing logic by which the business unit hopes to achieve its marketing objectives. It consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels. - In the marketing strategy level the planner explains how each strategy responds to threats, opportunities, and critical issues outlines earlier in the plan. - Additional Sections of the marketing plan lay out action program for implementing the marketing strategy, along with the details of a supporting marketing budget. - The last section à the controls that will be used to monitor progress and take corrective action. Marketing Implementation - Marketing Implementation: The process that turns marketing strategies and plans into marketing actions to accomplish strategic marketing objectives. - Implementation involves day-to-day, month-to-month activities that effectively put the marketing plan to work. Marketing Department Organization - Marketing manager is responsible for developing long range and annual plans for the sales and profits in their market. This system's main advantage is that the company is organized around the needs of specific customer segments, Marketing Control - Marketing Control: The process of measuring and evaluating the results of market strategies and plans, and taking corrective action to ensure that marketing objectifies are attained. - Marketing first sets specific marketing goals. It then measures its performance in the market place and evaluates the causes of any difference between expected and actual performance. Finally management takes corrective action to close the gaps between its goals and its performance, this may require changing the action programs or even changing the goals. - Operating Controls à Involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. It also involves determining the profitability of different products, territories, market and channels. - Strategic Controlà Involves considering whether the company's basic strategies are well matched to its opportunities. - The Marketing Audit: Is a comprehensive, systematic, independent, and periodic examination of a company's environment, objectives, strategies, and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company's marketing performance. - The Marketing Audit Questions (64) The Marketing Environment - The company must carefully analyse its environment so that t can avoid the threats and take advantage of its opportunities. Chapter 3 - The Global Marketing Environment - Marketing Environment: The factors and forces outside marketing's direct control that affect marketing management's ability to develop and maintain successful transactions with target customers. - Marketers have two special aptitudes. They have discipline methods -marketing intelligence and marketing research-for collecting information about marketing environment. They also normally spend more time in the customer and competitor environment. By conducting systematic environmental scanning, marketers can revise and adapt marketing strategies to meet new challenges and opportunities in the marketplace. - Microenvironment: The forces close to the company that affects its ability to serve its customers-the company, suppliers, marketing channel firm, customer market, competitors, and publics. - Microenvironment: The larger societal forces that affect the whole microenvironment -demographic, economic, natural, technological, political, and cultural forces. Suppliers - They provide the resources needed by the company to produce its goods and services. Marketing managers must be aware of supply availability -supply shortage or delays, labour strikes, and other events that can cost sales in the short run and damage customer satisfaction in the long run. Marketing Intermediaries - Marketing Intermediaries: Firms that help the company to promote, sell, and distribute its goods to final buyers, they include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. - Reseller à are distribution channel forms that help the company find customers or make sales to them. - Physical Distribution Firmsà help the company to stock and move goods from their points or origin to their destination. Working with warehouse and transportation firms, a company must determine the best way to store and ship goods, balancing such factors as cost, delivery, speed and safety. - Marketing Services agenciesà are marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right market. - Financial Intermediaries à include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods. Customer - The company needs to study its customer market closely. - 5 Types of customer market: 1. Consumer Market: consist of individuals and households that buy goods and services for personal consumption. 2. Business Market: buy goods and services for further processing or for use in their production process 3. Reseller Market: buys goods and services and resells it to make a profit. 4. Government Market: are composed of government agencies that buy goods and services in order to produce public services or transfer the goods and services to others who need them. 5. International Market: Consists of buyers in other countries, including consumers, producers, resellers and governments. Competitors Publics - Publics: Any group that has an actual or potential interest in or impact on an organization's ability to achieve its objectivities. - Seven types of publics (see page 79 & 80): 1. Financial publics 2. Media publics 3. Government publics 4. Citizen-action publics 5. Local publics 6. General publics 7. Internal publics The Company's Microenvironment Demographic Environment - Demography: The study of human population in terms of size, density, location, age, sex, race, occupation, and other statistics. Changing Age Structure of the Canadian Population - Baby Boom: The major increase in the annual birth rate following WWII and lasting until the early 1960s. The "baby boomers," now moving into middle age, are a prime target for marketer. The Changing family (87) Geographic Shifts in population (87) A better educated and more white-collar population (89) Increasing Diversity (89) Economics Environment - Economic Environment: Factors that affect consumer buying power and spending patterns. - Subsistence economies- they consume most of their own agricultural and industrial output. - Industrial economies - which constitute rich markets for many different kinds of goods. Chang in Income - Marketers pay attention to income distribution as well as average income. Changing Consumer Spending Patterns - Engel's Law: Difference noted over a century ago by Earnst Engel in how people shift their spending across food, housing, transportation, health care, and other goods and services categories as family income rises. Natural Environment - Natural Environment: Natural resources that are needed as inputs by marketers or that are affected by marketing activities. Technological Environment - Technological Environment: Forces that create new technological, creating new product and market opportunities. Political Environment - Political Environment: Consists of laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Legislation Regulation Business - Canada has many laws covering issues such as competition, fair trade practices, environment protection, product safety, truth in advertising packaging and labelling, price, and other important areas. - North American Free Trade agreement (NAFTA) replaced the Free Trade Agreement (FTA) in August 1992. It governs free trade among Canada, United States, and Mexico. NAFTA is a historic document since it is the first trade agreement between two developed nation and a developing country. - Business legislation has been enacted for various reasons. The first is to protect companies from each other. The second purpose of the government regulation is to protect consumers from unfair business practices. The third purpose of the government regulation is to protect the interests of society against unrestrained business behaviour. Cultural Environment - Cultural Environment: Institutions and other forces that affect society's basic value, perception, preference, and behaviour. - The following cultural characteristics can affect marketing decision-making: Persistence of cultural Values - Core beliefs and valuesà are passed by parents to children and are reinforced by schools, churches, business and government. - Secondary Beliefs and value à are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief. Shifts in Secondary Cultural Values - The major cultural values of a society are expressed in people's views of themselves and others, as well as in their views of organizations, society, nature and the universe. People's Views of themselves - People use products, brands, and services as a means of self-expression, and they buy products and service that match their views of themselves. People's View of others - This suggests a bright future for the products and services that serve basic needs rather that those relaying on glitz and hype. It also suggests a greater demand for "social support" products and services that improve direct communication between people, such as health clubs and family vacations. People's View of Organizations - They need to review their advertising communications to ensure that their messages are honest. They also need to review their various activities to make sure that they are perceived to be "good corporate citizens". People's View of society - Patriots à nationalist, pro country - Reformers à who want to change it - Malcontent à who want to leave it People's View of Nature People's View of the universe - People vary in their beliefs about the origin of the universe and their place in it. - 1980's people measured success in terms of career achievements, wealth, and worldly possessions. - 1990's success was measured with achievements such as a happy family life and service to one's community replacing money as the measure if worth. Responding to the Marketing environment - Many companies view the marketing environment as an "uncontrollable" element to which they must adapt. They accept the market place and do not change it. They analyse the environmental forces and design strategies that will help the company avoids the threats and take advantage of the opportunities the environment. - Environmental management perspective: A management perspective in which the firm takes aggressive actions to affect the publics and forces in its marketing environment rather than simply watching and reacting to it. Chapter 4- Marketing Research and Information System The Marketing Information System - Marketing Information System (MIS): People, equipment, and procedure to gather, sort, analyse, evaluate, and distribute needed, timely, and accurate information to marketing decision-makers. - First, it interact with these managers to assess information needs. Next, it develops needed information from internal company records, marketing intelligence activities, and marketing research. Information analysis processes the information to make it more useful. Finally the MIS distributes information to managers in the right form at the right time to help them make better marketing decision. Assessing Information Needs - Managers do not always need all the information they ask for, they may not ask for all they really need. The MIS cannot always supply all the information managers request. Developing Information Internal Data - Internal database: Information gathered from sources within the company that can be evaluate marketing performance and to detect marketing problems and opportunities. - Information in the database can come from many sources. The accounting department prepares financial statements and keeps detailed records of sales, costs, and cash flow. Manufacturing reports on production schedules, shipments, and inventories. The sales force reports on reseller reactions and competitor activities. The marketing department maintains a database of customer demographics, psychographics, and buying behaviour. The customer service department provides information on customer satisfaction or service problems. Marketing Intelligence - Marketing Intelligence: The systematic collection and analysis of publicity available information about competitors and development in the marketing department. - Marketing Intelligence can be gathered from many source; can be collected from the company's own personnel-executives, engineer and scientists, purchasing agents, and the sales force. - For a fee companies can subscribe to online database or information search services. Marketing Research - Marketing Research: The systematic design, collection, analysis, and reporting of data and finding relevant to a specific marketing situation facing an organization. Information Analysis - Information gathered by the company's marketing intelligence and marketing research systems often require more analysis, and sometimes managers may need help applying the information to their marketing problems and decisions. This may include advanced statistical analysis to learn more about both the relationships within a set of data and their statistical reliability. Distribution Information - The information gathered through marketing intelligence and marketing research must be distributed to the right marketing managers at the right time. - With recent advances in computers, software, and telecommunication, most companies are decentralizing their marketing information systems. In many companies, marketing managers have direct access to the information network through personal computers and other means. - Such systems offer exciting prospects. They allow the managers to get the information they need directly and quickly and to tailor it to their unique needs. The Marketing Research Process *Defining the problems and research objectives à Developing the research plan and collecting information à Implementing the research plan-collecting and analysing the data à Interpretation and reporting the findings - Marketing managers and researcher must work closely to define the problem carefully and they must agree on the research objectives. - Managers must know enough about marketing research to help in planning and interpreting research results. If they know little about marketing research they may obtain wrong information. - Experience marketing researchers who understand the manager's problem also should be involved at this stage. The researcher must be able to help the manager define the problem and suggest ways that research can help the manager make better decisions. - Defining the problem and research objectives is often the hardest step in the research process. - After the problem has been defined carefully, the manager and researcher must set research objectives. Can 1-3 types of objectives. Exploratory research, descriptive research and casual research. - Exploratory Research: Marketing research to gather preliminary information that will help to better define problems and suggest hypotheses. - Descriptive Research: Marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of customers. - Casual Research: Marketing research to test hypothesis about cause-and effect relationship. Developing the research plan - Determining the information needed, developing a plan for gathering it efficiently, and presenting the plan to marketing management. Gathering Secondary Information - To meet the manager's information needs, the researcher can gather secondary data, primary data, or both. - Secondary data: Information that already exists somewhere, having been collected for another purpose before. - Primary data: Information collected for the specific purpose at hand. - Researchers usually start be gathering secondary data. - Commercial data source à companies can buy reports from outside suppliers. - Table 4-2 (page 125) Sources of Secondary data - Online database and Internet data sources à Marketing research can conduct their own search of secondary data sources. A resent survey of marketing researchers found that 81 percent uses such online services for conducting research. - Online database: A compilation of marketing information that can be accessed online. Advantages and Disadvantages of Secondary Data - Secondary data can usually be obtained more quickly and at a lower cost than primary data. - A study to collect primary information might take weeks or months to complete and cost thousands of dollars. Secondary sources sometimes provide data that an individual company cannot collect on its own-information that either is not directly available or would be too expensive to collect. - Secondary data can also present problems. The needed information may not exist-researcher can rarely obtain all the data they need for secondary sources. - The researcher must evaluate secondary information carefully to ensure that it is relevant (fits research project needs), accurate (reliably collected and reported), current (up-to-date enough for current decisions), and impartial (objectively collected and reported) Planning Primary Data Collection - Primary data to assure that it will be relevant, accurate, current, and unbiased. Research Approaches - Observational research: The gathering of primary data by observing relevant people, actions, and situation. - Observational research can be used to obtain information that people unwilling or unable to provide. Some things can not be observed such as feelings, attitudes, and motives, or private behaviour. - Table 4-3 Planning Primary Data Collections (127) - Checkout scanners in retail stores record consumer purchases in detail. Consumer products companies and retailers use scanner information to assess and improve product sales and store performances. - Single Source data systems: Electronic monitoring systems that link consumers' exposure to television advertising and promotion (measured using television meters) with what they buy in stores (measured using store checkout scanners) - Survey Research: The gathering of primary data by asking people questions about their knowledge attitudes, preference, and buying behaviour. - Sometimes people are unable to answer survey questions because they cannot remember or have never thought about what they do and why. Or people may be unwilling to respond to unknown interviewers or talk about things they consider private. Respondents might answer survey questions when they do not know the answer in order to appear smarter or more informed. - Experimental research: The gathering of primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking differences in-group responses. Contact Methods - Information can be collected by mail, telephone, or personal interview. - Table 4-4 Strengths and Weaknesses of three Contacts Methods (131) - Personal Interviewing takes two forms- individual and group interviewing. Individual interviewing involves talking with people in their homes or offices, on the street, or in shopping malls. Such interviewing is flexible. - Group Interviewing consists of 6-10 people gather for a few hours with a trained moderator to discuss a product, service or organization. - Focus group interviewing: personal interviewing that consist of inviting six to 10 people to gather for a few hours with a trained interviewer to discuss a product, service, or organization. The interviewer "focuses" the group discussion on important issues. The comments are recorded through written notes. - Focus group interviewing has become one of the major marketing research tools for gathering insight into consumer thoughts and feelings. However, focus group studies usually use small sample sizes to keep time and costs down, and it may be hard to generalize from the results. - Computer Interviewing in which respondents sit down at a computer, read questions from a screen, and type their own answer into the computer. Sampling Plans - Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population. A sample is a segment of the population selected to represent the population as a whole. - Designing the sample requires 3 decisions: 1. Who is to be surveyed (what the sampling unit)? 2. How many people should be surveyed (What's the sample size)? 3. How should the people in the sample be chosen (what sampling procedure)? - Using probability samples each population member has a known chance of being included in the sample and researchers can calculate confidence limits for sampling errors. But when probability sampling costs too much or takes too much time, marketing researchers often take non-probability samples, even though their sampling error cannot be measured. Research Instruments - In collecting primary data, marketing researchers have a choice of 2 main research instruments - the questionnaire and the mechanical devices. - The questionnaire is by far the most common device. Questionnaires must be developed carefully and testes before they can used on a large scale. When developing a questionnaire the market researchers must first decide what to ask. - Closed-end questions à include all possible answers, and subjects make choices among them. - Opened-end questions à Questions allowing respondent to answer in their own words. - Researcher should also use care in wording and ordering questions. They should use simple direct, unbiased wording. - Table 4-7 Types of Questions (136) Presenting the Research plan - The proposal should cover the management problems addressed and the research objectives, the information to be obtained, the sources of secondary information or methods for collecting primary data, and the way the results will help management decision-making. It should also include, research cost, a written research plan, and they should all agree on why and how the research will be conducted. Implementing the Research plan - This involves collecting, processing, and analysing the information. Data collection can be carried out by the company's marketing research staff or by outside firm. The data collection phase of the marketing research process is generally the most expensive and the most subject to error. Interpreting and reporting the findings - The research must now interpret the finding, draw conclusions, and report them to management. The researcher should not try to overwhelm managers with numbers and fancy statistical techniques. Rather, the researcher should present important finding that are useful in the major decisions faced by management. In many cases findings can be interpreted in different ways, and discussions between researchers and managers will help identify the best interpretations. - Interpretations are an important phase of the marketing process. The best research is meaningless if the manager blindly accepts wrong interpretations from the research. Managers may have biased interpretations-they tend to accept research results that show what they expected and to reject those that they did not expect or hope for. Other Marketing Research Considerations Marketing research in small business and non-profit organizations - Managers of small business and non-profit organization can obtain good marketing information simply by observing things around them. - Managers can conduct informal survey using small convenience samples. - Managers can also conduct their own sample experiments. - Small organizations can obtain most of the secondary data available to large businesses. Many associations, local media, chambers of commerce, and government agencies provide special help to small organizations. International Marketing research - International marketing research can pose some unique challenges, For example they ma find it difficult simply to develop good samples. - Difference in culture from country to country cause additional problems for international researchers. Languages is the most obvious culprit. - Responses then must be translated back into the original language for analysis and interpretations. This adds to research costs and increase in the risk of error. - Transplantation a questionnaire from one language to another is anything but easy. Many idioms, phrase, and statements mean different things in different cultures. - Consumers in different countries also vary in their attitudes towards marketing research. Chapter 5 - Consumer Markets and Consumer Buyer Behaviour - Consumers buying behaviour: The buying behaviour of final consumers-individuals and households who buy goods and services for personal consumption. - All of these final consumers combined comprise the consumer market. - Consumer Market: All the individuals and households who buy or acquire goods and services for potential consumption. Model of Consumer Behaviour - The central questions for marketers are: How do consumers respond to various marketing efforts the company might use. Characteristics affecting consumer behaviour - Consumer purchases are influence strongly by cultural, social, personal, and psychological characterises. Cultural Factors - Culture: The set of basic values, perception, wants and behaviours learned by a member of a society from family and other important institutions. - Culture is the most basic cause of a person's wants and behaviour. Human behaviour is largely learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviours from the family and other important institutions. - International marketers must understand the culture in each international market and adapt their marketing strategies accordingly. SUBCULTURE - Subculture: A group of people with shared value system based on common life experience and situations. - Subculture includes nationalities, religions, racial groups, and geographic regions. (1) Native Canadians (2) Canada's Ethnic Consumers (3) Mature Consumers (4) Internet Users - Internet Users à Internet users are powerful and in control. The consumer s one who choose to access a web site and marketers must adjust to the idea that the Net is a means of two-way communication between a consumer and a vendor, not the one-way street that media advertising represents, IN other words, "They're not just listening to what the corporation wants to sell them, they're choosing the information that appeals to them. SOCIAL CLASS - Social classes are society's relatively permanent and order division whose members share similar values, interest, and behaviours. - Social Class: Relatively permanent and ordered division in a society whose members share similar values, interests, and behaviours. - Social class is not determined by a single form, such as income, but measured as a combination of occupation, income, education, wealth and other variables. - Table 5-2 Characterises of Seven Major North American Social Classes (page 162) - People can move to a higher social class or drop into a lower one. Social factors GROUPS - Groups: Two or more people whom interact to accomplish individual or mutual goals. - Groups that have a direct influence and to which a person belongs are called à Membership groups - Primary Groups à With whom there is regular but informal interaction - such as friends, family, neighbours, and co-workers. - Secondary Groups à, which are more formal and that, has less regular interactions. These include organizations, such as religious groups, professional associations, and trade unions. - Reference Groups à serve as a direct (face-to-face) or indirect points of comparison or reference informing a person's attitudes or behaviour. People often are influence be reference groups to which they do not belong. - Opinion Leaders: People within a reference group who, because of special skills, knowledge, personality, or other characteristics, exert, influence on others. - Opinion Leaders are found at all level of society, and one person may be an opinion leader in certain products areas and an opinion follower in others. Marketers try to identify opinion leaders for their products and direct marketing effort towards them. FAMILY - Family members can strongly influence buyer's behaviours. The family is the most important consumer buying organization in society. - In Canada and the United States, the wife is traditionally has been the main purchasing agent for the family, especially in the area of food, households, products, and clothing. - In the case of expensive products and services, husbands and wives more often make joint decisions. ROLES AND STATUS - A person belongs to many groups-family, clubs, and organizations. The person's position in each group can be defined in terms of both roles and status. A role consists of the activities that people are expected to perform according to the persons around them. Each role carries a status reflecting the general esteem given to it by the society. Personal Factors AGE AND LIFE CYCLE STAGE - Taste in foods, clothes, furniture, and recreation are often age-related. - Table 5-3 Life Cycle Stages (page 165) OCCUPATION - A person's occupation affects the goods and services that he or she buys. ECONOMIC SITUATION - A person's economic situation will affect product choice. Marketers of income sensitive goods watch trends in personal income, saving, and interest rates. If economic indicators point to a rescission, marketers can take steps to redesign, reposition, and reprice their products. LIFESTYLE - Lifestyle: A person's pattern of living as expressed in his or her activities, interests, and opinion. - Lifestyle is a person's pattern of living as expressed in his or her psychographics. It involves measuring consumers' major AIO dimensions activities (work, hobbies, shopping, sports, social events), interests (food, fashions, family, recreation), and opinions (about themselves, social issues, business products). Lifestyles capture something more than the person's social class or personality; it profiles a person's whole pattern of acting and interacting in the world. - Psychographics: The technique of measuring lifestyles and developing lifestyle classification; it involves measuring the major AIO dimension (activities, interest, opinions) - VALS; Classifies people according to how they spend their time and money. It divides consumers into eight groups on two major dimensions. - Self Orientation Group includes principle-oriented consumers à who buy based on their views on the world. Status Orientated buyers à who base their purchase on the actions and opinions of others. Action-oriented buyers à who are driven by their desire for activity, variety, and risk-taking. Consumers within each orientation are further classified into those with abundant resources and those with minimal resources. PERSONALITY AND SELF CONCEPT - Personality: A person's distinguished psychological characteristics that led to relatively consistent and lasting response to his or her own environment. Psychological Factors - A person's buying choices are further influenced by four major psychological factors: motivations, perception, learning, and beliefs and attitudes. MOTIVATION - Biological, arising from state of tension such as hunger, thirst, or discomfort. - Psychological, arising from the need for recognition, esteem, or belonging. Most of these needs will not be strong enough to motivate the person to act at any given them. - Motive: A need that is sufficiency pressing to drive the person to seek satisfaction of the need. - Psychologists have developed theories of human motivation. Sigmund Freud and Abraham Maslow - Freud's theory of motivation: Freud assumes that people are largely unconscious about the real psychological forces shaping their behaviour. - Abraham Maslow sought to explain why people are driven by particular needs at particular times. In order of importance, they are psychological needs, safety needs, social needs, esteem needs, and self-actualization needs. A person tries to satisfy the most important first. When that need is satisfied, it will stop being a motivator and the person will then try to satisfy the nest most important need. PERCEPTION - A motivated person is ready to act. How the person is influence by his or her perception of the situation. - Perception: Is the process by which people select, organize and interpret information to form a meaningful picture of the world. - People can form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion, and selective retention. Selective Attention à The tendency for people to screen out most of the information to which they are exposed- means that marketers must work especially hard to attract the consumer's attention. Their message will be lost on most people who are not in the market for the product. Moreover, even people who are in the market may not notice the message unless it stands out from the surrounding sea of other ads. Selective distortion à describes the tendency of people to interpret information in a way that will support what they already believe. Selective distortion means that marketers must try to understand consumer's perspectives and how these will affect interpretations of advertising and sales information. People will also forget what they learned they tend to retain information that supports their attitudes and beliefs. Because of Selective retention à advertisers try to frame messages in ways that are consistent with people's existing beliefs. Example "Jen is likely to remember goods points made about the Harley and to forget good points made about competing motorcycles. LEARNING - Learning occurs through the interplay of drives, stimuli, cues, responses and reinforcement. - Learning: Changes in an individual's behaviour arising from experience. - A drive is a strong internal stimulus that calls for action. Her drive becomes and motive when it is directed toward a particular stimulus object. - A cue are minor stimuli that determine when, where, and how the person response. BELIEFS AND ATTITUTEDS - Beliefs: A descriptive thought that a person holds about something. - This belief may be based on real knowledge, opinion, or faith and may or may not carry an emotional charge. - Attitudes: A person's consistently favourable or unfavourable evaluations, feeling, and tendencies towards an object or idea. - Attitudes put people into a frame of mind of liking or disliking things, of moving towards or away from them. Attitudes are difficult to change. A person's attitudes fit into a pattern, and to change one attitude may require difficult adjustments in many others. Thus, company should usually try to fit its products into an existing attitudes rather than attempt to change attitudes. Consumer Buying Roles - People might play any of several roles in buying decision: - Initiator à The person who first suggests or thinks of the idea of buying a particular product or service. - Influencer à A person whose views or advice influences the buying decision - Decider à The person who ultimately makes a buying decision or any part of it- whether to buy, what to buy, how to buy, and where to buy - Buyer à The person who makes the actual purchase. - User à The person who consumes or uses a product or service. Complex Buying Behaviour - Complex Buying Behaviour: Consumers buying behaviour in situations characterized by high consumer involvement in a purchase and significant perceived difference among brands. - Marketers need to differentiate their brand's feature, perhaps by describing the brand's benefits using print media with long copy. They must motivate store salespeople and the buyer's acquaintances to influence the final brand choice. Dissonance- Reducing Buying Behaviour - Dissonance- reducing buying behaviour: Consumer buying behaviour in situations characterized by high involvement but few perceived differences among brands. - Dissonance-reducing buying behaviour occurs when consumers are highly involved with an expensive, infrequent, or risky purchase, but see little difference among brands. - After the purchase, consumers might experience post-purchase dissonance (after sales discomfort) when they notice certain disadvantages of the purchase carpet brand or hear favourable things about brands not purchased. Habitual Buying Behaviour - Habitual Buying Behaviour: Consumer buying behaviour in characterized by low consumer involvement and few significant perceived brand differences. - Consumers have little involvement in this product category-they simply go to the store and reach for a brand. Example; salt. If they keep reaching for the same brand, it is out of habit rather than strong brand loyalty. - Consumers do not form strong attitudes towards a brand; they select the brand because it is familiar. Variety-Seeking Buying Behaviour - Variety-seeking buying behaviour: Consumer buying behaviour in situations characterized by low consumer involvement but significant perceived brand differences. Brand switching occurs for the sake of variety rather than due to dissatisfaction. The Buyer Decision Process - The stages that buyer pass through to reach a buying decision. There are 5 stages Need recognition à Information Search à Evaluation of alternatives à Purchase decision à Post-purchase behaviour - Consumers often skip or reverse some of these stages. Stage (1) Need Recognition - Need Recognition: The first stage of the buyer decision process in which the consumer recognizes a problem or need. - When the buyer recognizing a problem or need. The buyer actual senses a difference between his or her actual state and some desired stat. The need can be triggered by internal stimuli. Stage (2) Information Search - Information Search: The stage of the buyer decision process in which the consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search. - An aroused customer may or may not search or more information. If the consumer's drive is strong and a satisfying product is near at hand, the consumer is likely to buy it. If not, the consumer may store the need in memory or undertake an information search related to the need. - Heightened attention à Consumer becomes more receptive to information about the product. Consumer pays attention to ads. - Active information search à in which consumer looks for reading materials, surfs the net, phone friends, and gather information in other ways. - Consumers can obtain information from any of these sources: (-) Personal Sources: family, friends, neighbours, acquaintances (-) Commercial sources: advertising, salespeople, dealers, packaging, and displays (-) Public source: mass media, consumer-rating organizations (-) Experiential sources: handling, examining, using the product. Stage (3) Evaluation of alternatives - Alternative evaluation: The stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set. Alternative evaluation-that is, how the consumer processes information to arrive at brand choice. - Brand image: The set of beliefs that consumers hold about a particular brand. - In some cases, the consumer use careful calculations and logical thinking. At other times, the same consumers do little or no evaluating; instead they buy on impulse and relay on intuition. Stage (4) Purchase Decision - Purchase decision: The stage of the buyer decision process in which the consumer actually buys the product. - Consumer's purchase decision will be to buy the most preferred brand, but two factors can come between the purchase intention and the purchase decision. 1. Attitudes of others à Jennifer's friends ride Honda motorcycles, chances of her buying a Harley will be reduced. 2. Unexpected situation factors à The consumer may form a purchase intention based on factors such as expected income, expected price, and expected product benefits. However, unexpected events may change the purchase intention. Stage (5) Post-purchase behaviour - Post-purchase behaviour : The stage of the buyer decision process in which consumers take further action after purchase based on their satisfaction dissatisfaction. - What determines whether the buyer is satisfied or dissatisfied with purchase? The answer lies in the relationship between the consumer's expectation and the product perceived performance. If the product falls short of expectation, the consumer is satisfied; if it exceeds expectations, the consumer is delighted. - Cognitive dissonance: Buyer discomfort caused by post-purchase conflict. (181) However every purchase involves compromise. Thus consumers feel at least some post-purchase dissonance for every purchase. - Why is it important to satisfy the customer? Companies' sales come from two places new customers and retained customers. It usually costs more to attract new customers than to retain current ones, and the best way to retain current customers is to keep them satisfied. The buyer decision process for new products - New Product: A good, service, or idea that a perceived by some potential customer as new. - How consumers learn about products for the first time and make decisions on whether to adapt them. - Adoption Process: The mental process through which an individual passes from first hearing about an innovation to final adoption. Stages in the adoption process - Awareness à The customer becomes aware of the new product, but lacks information about it. - Interest à The customer seeks information about the new product. - Evaluation à The customer considers whether trying the new product makes sense. - Trial à The customer tries the new product on a small scale to improve his or her estimate of its value. Individual differences in innovations (The 5-adopter groups)à Innovators are venturesome they try new ideas at some risk. Early adopters are guided by respect-they are opinion leaders in their communities and adopt new ideas early but carefully. The early deliberate-although they rarely are leaders, they adopt new ideas before the average person. The late majority are sceptical-they adapt an innovation only after most people have tried it. Finally laggards are tradition bound-they re suspicious of changes and adopt the innovation only when it has become something of a tradition itself. Influence of product characteristics on rate of adoption - Five characteristics are especially important in influencing an innovation's rate of adoption 1. Relative advantage à the degree to which innovation appears superior to existing products. 2. Compatibility à The degree to which the innovation fits the value and experience of potential consumers. 3. Complexity à The degree to which the innovation is difficult to understand or use. 4. Divisibility à The degree to which the innovation may be tried on a limited basis. 5. Communicabilityà The degree to which the results of using the innovation can be observed or described to others. Chapter 6 - Business Markets and Business Buyer Behaviour - Business Markets: All the organizations that buy goods and services to use in the production of other products and services that are sold, rented, or supplied to others. It also includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. - Business Buying Behaviour: The decision-making process by which business buyers establish the need for purchase products and services and identify, evaluate, and choose among alternative brands and suppliers. Business Market Characteristics of Business Markets - Table 6-1 Characteristics of Business Market (200) Market Structure and Demand - The business market typically deals with far fewer but larger buyers than he consumer marketer does. - Business markets are also more geographically concentrated. - Derived demand: Business demand that ultimately comes from (derives from) the demand for consumer goods. - Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. - Business markets have more fluctuating demand. The demand for many business goods and services tend to change more-and more quickly then the demand for consumer goods and services does. Nature of buying Unit - Compared with consumer purchases, a business purchase usually involves more buyers and a more professional purchasing effort. Types of Decision and Decision Process A model of Business Buyer behaviour Business Buyer Behaviour Major types of Buying Situations - Straight rebuy: A business buying situation in which the buyer routinely reorders something without any modification. - They already did business and rebuying the same product. - Modified rebuy: A business buying situation in which the buyer wants to modify product specification, price, terms, or suppliers. - New Task: A business buying situation in which the buyer purchases a product or service for the first time. - The greater the cost of risk, the larger the number of decision participants and the greater their efforts to collect information will be. - The buyer makes the fewest decision in the straight rebuy and the most in the new task decision. In the new task situation, the buyer must decide on product specifications, suppliers, price limit, payment terms, order quantities, delivery times, and service suppliers. - System buying: Buying a package solution to a problem and without all the separate decision involved. - System selling is a two-step process. First the supplier sells a group of interlocking products. Second, the supplier sells system of production, inventory control, distribution, and other services to meet the buyer's need for a smooth-running operation. Participants in the Business Buying Process - The decision-making unit of a buying organization is called à buying centre - Buying centre: All the individuals and units that participate in the business buying decision process. - Users: Members of all the organization who will use the product or service: users often initiate the buying proposal and help define product specification. - Influencers: People in an organization's buying centre who affect the buying decision, they often help define specifications and also provide information for evaluating alternatives. - Buyers: People who make the actual purchase. - Deciders: People in the organization's buying centre who have formal or informal power to select or approve the final supplier. - Gatekeepers: People in an organization's buying centre who control the flow of information to others. Major Influence on business Buyers - Some marketers assume that the major influences are economic. They think buyers will favour the supplier who offers the lowest price, or the best product, or the most service. Environmental Factors - Business buyers are influenced heavily by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. As economic uncertainty rises, business buyers cut back on new investments, and attempts to reduce their inventories. - An increasingly important environmental factor is shortage in the key materials. Many companies now are more willing to buy and hold large inventories of scare materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive development in the environment. Culture and customs can strongly influence business buyer reactions to the marketer's behaviour and strategies, especially in the international marketing environment. Organizational Factors - Upgrade purchasing à Today competitive pressure have led many companies to transform their old-fashioned "purchasing departments," with an emphasis on buying at the lowest cost, to "procurement departments," with a mission to seek the best value from fewer and better suppliers. - Centralized purchasing à gives the company more purchasing influence, which can produce substantial saving. For the business market, this means dealing with fewer high-level. Instead of using regional sales force to sell to a large buyer's separate plants, today seller may use, national account sales force. - Businesses around the world has adopted several innovative manufacturing concepts, such as just-in-time production (JIT), value analysis, total quality management, and flexible manufacturing. Just-in-time means that production materials arrive at the customers factory exactly when needed for production, rather than being stored by the customer until used. It calls for close coordination between the production schedule of supplier and customer so that neither must carry much inventory. The Business Buying process 1. Problem Recognition: The first stage of the business buying process in which someone in the company recognizes a problem or need that can e met by acquiring a good or service. - The buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price. - Table 6-2 Major Stages of the business buying process in relation to major buying situations. 2. General Need Description: The stage in the business process in which the company describes the general characteristics and quantity of a needed item. - For complex items the buyer may have to work with others-engineers, users, consultants-to define the item. The team may want to rank the importance of reliability, durability, price and other attributes desired in the item. 3. Product Specification: The stage of the business buying process in which the buying organization decides on and specifies the best technical product characteristics for a needed item. - Value analysis: An approach t cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. 4. Supplier Search: The stage of the business buying process in which the buyer tries to find the best vendor. - The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations. The newer the buying task, and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers. 5. Proposal Solicitation: The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. In response some suppliers send catalogue, salesperson. However when the item is complex or expensive the buyer will usually require detailed written proposals or formal presentation from each potential supplier. 6. Supplier Selection: The stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers. - The member of the buying centre now reviews the proposal and select supplier or suppliers. - Another important factor includes repair and servicing capabilities, technical aid, and advice, geographic location, performance history and reputation. - Many buyers prefer multiple sources of suppliers to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time. 7. Order-Routine Specifications: the stage in the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical, quantity needed, expected time of delivery, return policies, and warranties. 8. Performance Review: The stage of the business buying process in which the buyer rates its satisfaction with suppliers, deciding whether to continue, modify, or drop them. - The buyer reviews supplier's performance. The buyer may contact users and ask them to rate their satisfaction. Institutional and Government Markets Institutional Markets - Institution Markets: Schools, hospital, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Government Markets - Government Markets: Government units-federal, provincial, and municipal- that purchase or rent goods and services for carrying out the main functions of government. - The Department of public works and Government Services Canada helps to centralize the buying of commonly used items in the civilian section. - Federal military buying is carried out by the Department of National Defence - Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. - Government Organizations tend to favour domestic suppliers over foreign suppliers. - Because the Government spending decisions are subject to public review government organizations require considerable paperwork from suppliers, who often complain, about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel. - Many companies that sell to the government have not been marketing-orientated for a number of reasons. Total government spending is determined by elected officials rather than by marketing effort to develop this market. Government buying has emphasized price, making suppliers invest their effort in technology to bring down costs. When the product's characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling matter much in winning bids on an open bid basis. Chapter 7 - Market Segmentation, Targeting, and Positioning for competitive advantage Market - Today most companies are moving away from mass marketing. Instead, they practice target marketing-identifying market segments, selecting one or more of them, and developing products and marketing mixes tailored to each. - Market Segmentation: deciding a market up into distinct groups of buyers with different needs characterises, or behaviours who might require separate products or marketing mixes. The company identifies different ways to segment the market and develop profiles of the resulting market segments. - Market targeting: The process of evaluating each market segment's attractiveness and selecting one or more segments to serve. - Market positioning: Setting the competitive positioning for the product and creating a detailed marketing mix. Market Segmentation Levels of Market Cementation Mass Market - Mass marketing - mass production, mass distributing, and mass promoting the same product in the same way to all customers. - The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest cost, which in turn can translate into either lower prices or higher margins. Segment Marketing - Segment Market: Marketing that recognizes that buyers differ in their needs, perception, and buying behaviour. - The company tries to isolate broad segments that comprise a market and adapts its offers to more closely match the needs of one or more segments. Niche Marketing - Niche Marketing: Marketing that focuses on subgroups within the large identifiable group in the market. Micromarketing - Micromarketing: The practice of tailoring products and marketing programs to suit the tastes of specific individuals or locations. - Micromarketing include local marketing and individual marketing. - Local Marketing: The practice of tailoring brands and promotions to the needs and wants of local customer groups. - Draw backs of local marketing, it can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistical problems as companies try to meet the varied requirements of different regional and local markets. And brands overall image might be diluted if the product and message vary in different stores. - Individual Marketing: The practice of tailoring products and marketing programs to the needs and preferences of individual customers. Bases for Segmenting Consumer Markets Geographic Segmentation - Geographic segmentation: Dividing a market into different geographical units such as nations, provinces, regions, countries, cities or neighbourhoods. Demographic Segmentation - Demographic segmentation: Dividing the market into groups based on demographics variable such as sex, age, family size, family life cycle, income, occupation, education, religion, race, and nationality. - Demographic factors are the most popular bases for segmenting customer groups. One reason is that customer needs, wants and usage rates often vary closely with demographic variables. Another s that demographic variables are easier to measure than most other types of variables. - Table 7-1 Major Segmentation Variables for customer markets (231) Age and life cycle - Age and life cycle: Dividing the market into different age and life cycle groups. - Customer needs and want change with age. Gender - Gender segmentation: Dividing a market into different groups based on sex. Income - Income Segmentation: Dividing a market into different income groups. Psychographics Segmentation - Psychographics segmentation: Dividing a market into different groups based on social class, lifestyle, or personality characteristics. Behaviour Segmentation - Behaviour Segmentation: Dividing marketing into groups based on customer knowledge, attitudes, use, or response to a product. - Occasion Segmentation: Dividing the market into groups according to occasions when buyers get the idea to buy, actually make their purchase, or use their purchase item. Benefit Sought - Benefit Segmentation: Dividing the market into groups according to the different benefits that customers seek from the product. User Status - Markets can be segmented into groups of non-user, ex-users, potential users, first-time users, and regular users of a product. Usage rate - Marketers also can be segmented into light, medium, and heavy user groups. Heavy users are often a small percentage of the market, but account for a high percentage of total buying. Loyalty Status - A market can be segmented by customer loyalty. Some customers are completely loyal-they buy one brand all the time. Others are somewhat loyal- they are loyal to 2 or 3 brands of a given product or favour one brand while sometimes buying others. Still other buyers show no loyalty to any brand. They either want something different each time they buy or they buy whatever is on sale. Segmenting Business Markets - Table 7-3 Major Segmentation Variables for Business Markets - Within the chosen industry, a company can further segment by customer size or geographic location. - Within a target industry and customer size, the company can segment by purchase approaches and criteria. - Programmed buyers à they buy the products as a routine purchase, usually pay full price, and accept below-average service. - Relationship buyers à these buyers regard packaging products as moderately important and are knowledgeable about competitors' offering. They prefer to buy from a retailer as long as its price is reasonably competitive. They receive a small discount and a modest amount of service. - Transaction buyers à these buyers view the product as very important to their operations. They are price and service sensitive. They receive about a 10 percent discount and above-average service. They are knowledgeable about competitors offering and are ready to switch for a better price, even if it means losing some service. - Burgin buyers à these buyers view the product as very important and demand the deepest discount and the highest service. They know the alternatives suppliers, bargain hard, and are ready to switch at the slightest dissatisfaction. Segmenting International Markets - Operating in many countries present new challenges. The different countries of the world, even those that are close together, can vary dramatically in their economic, cultural, and political composition. - Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, the Middle East, or Africa. - World markets can be segmented on the basis of economic factors. For example, countries might be grouped by population income, level, or by their overall level of economic development. - Countries can be segmented by political and legal factors such as the type and stability of government, receptivity firms, monetary regulations, and the amount of bureaucracy. Such factors can play a crucial role in a company's choice of which countries to enter and how. Cultural factors also can be used, grouping markets according to common language, religions, values, and attitudes, customs, and behavioural patterns. - Intermarket Segmentation: Forming segments of customers who have similar needs and buying behaviour even though they are located in different countries. Requirements for Effective Segmentation - Market segmentation must have the following characteristics: v Measurability; the size, purchasing power, and profiles of the segments can be measured. Certain segmentation variables are difficult to measure. For example, there are four million left handed people in Canada -which is 15 of the population. Yet few products are targeted towards left-handed segment. v Accessibility; The market segments can be effectively reached and served. Suppose a food company finds that heavy users of its brands are new Canadians. Unless there are media in the language spoken by these individuals, they will be difficult to reach. v Substantiality; The market segment are large or profitable enough to serve. A Segment should be the largest possible homogenous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for persons who height is less than 4 feet. v Actionability; Effective programs can be designed for attracting and serving the segments. For example, although one small airline identifies seven-market segment, its staff was to small to develop separate marketing programs for each segment. Market Targeting Evaluating Market segments - In evaluating different market segments, a firm must look at 3 factors: segment size and growth segment structural attractiveness, and company objectives and resources. Segment Size and Growth - The company must first collect and analyse data on current segment sales, growth rates and expected profitability for various segments. Segment Structural Attractiveness - A segment is less attractive if it already contains many strong and aggressive competitors. - A segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality or quantity of ordered goods and services. Company Objectives - If a segment fits the company's objectives, the company then must decide whether it possesses the skills and resources needed to succeed in that segment. If the company lacks strength needed to compete successfully in a segment and cannot readily obtain them, it should not enter the segment. Even if the company possesses the required strengths, it needs to employ skills and resources superior to those of the competition in order to really win in a market segment. The company should enter segments only where it can offer superior value and gain advantages over competitors. Selecting Market Segments - Target Market: A set of buyers sharing common needs or characteristics that the company decides to serve. Undifferentiated Marketing - Undifferentiated marketing: A market coverage strategy in which a firm decides to ignore market segment differences and purse the whole market with one offer. - The company designs a product and a marketing program that appeal to the largest number of buyers. - Difficulties arise in developing a product or brand that will satisfy all consumers. Firms using undifferentiated marketing typically develop an offer aimed at the largest segments in the market. Differentiated Marketing - Using a differentiated marketing strategy a firm decides to target several markets and designs separate offers for each. General Motors tries to produce cars for every "purse, purpose, and personality." Nike offers athletic shoes for a dozen or more different sports. - Differentiated marketing typically creates more total sales than does undifferentiated marketing, and growing number of firms have adopted this strategy. - Differentiated marketing: A market coverage strategy in which a firm decides to target several market segments and designs separate offers for each. Concentrated Marketing - Concentrated Marketing: A market-coverage strategy in which a firm goes after a large share of one or a few submarkets. - Concentrated marketing provides an excellent way for a small new business to get a foothold against larger, more resourceful competitors. - Concentrated marketing involves higher than normal risks. The particular market segment can turn sour. Or larger competitors may decide to enter the same agents. Choosing a market coverage strategy - When the firm's resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products such as grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. The product's stage in the life cycle also must be considered. When a firm introduces a new product, it is practical to launch only one version, and undifferentiated marketing or concentrated marketing makes the most sense. - Another factor is market variability. If most buyers have the same tastes, buy the same amount, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Competitors' marketing strategies are important. When competitors use segmentation, undifferentiated marketing can be suicidal. When competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing. Positioning for competitive advantage - Product Position: The way the product is defined by consumers on important attributes-the place the product occupies in consumer's minds relative to competing products. - Tide is positioned as a powerful, all-purpose family detergent Positioning Strategies - Marketers can follow several positioning strategies. They can position their products on specific product promotes performance. Products attributes- Honda Civic advertises its low price; BMW promotes performance. Products can be positioned on the needs they fill or the benefits they offer-Crest reduces cavities; Aim tastes good. Or product can be positioned according to usage occasions-in the summer, Gatorade can be positioned as a beverage for replacing athletes' body fluids; in the winter; it can be positioned as the drink to use when doctor recommends plenty of liquids. - A product can also be positioned directly against a competitors. For example, in its ads, VISA compares itself directly with American Express. Choosing and Implementing A positioning strategy Identifying Possible Competitive Advantages - The key to winning and keeping customers is to understand their needs and buying processes better than competitors do and to deliver more value. To the extent that a company can position itself as providing superior value to selected target market, either by offering lower prices than competitors do or by providing more benefits to justify higher prices, it gains competitive advantage. - Competitive advantage: An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justifies higher prices. Product Differentiation - Differentiation of physical products takes place along a continuum. At one extreme there are highly standardized products that allow little variation, chicken, steel, aspirin. At the other end is paper towels, creating a demand for higher quantity products. Service Differentiation - Installation also can differentiate one company from another. Companies can further distinguish between themselves through their repair services. Providing customer training service. Other companies offer free or paid consulting services-data, information systems, and advising services that buyers need. Personnel Differentiation - Companies can gain string competitive advantage through hiring and training better people than their competitors do. - Personnel differentiation requires that a company select its people carefully and train them well. This is especially important for companies such as consulting firms, which market knowledge-based services that hey tailor to their customers' need. Image Differentiation - Even when competing offers look the same, buyers may perceive a difference based on company or brand image. - Symbols can provide strong company or brand recognition and image differentiation. The chosen symbols must be communicated through advertising that conveys the company or brand personality. The ads attempts to establish a storyline a mood, a performance level-something distinctive about the company or brand. Selecting the right competitive advantage - Many marketers think that companies should promote one benefit to the target market. Ad man Rosser Reeves said that a company should develop a unique selling proposition for each brand and stick to it. Each brand should choose an attribute and tour itself as "number one" on that attribute. Buyers tend to remember "number one". - Other marketers think that companies should position themselves on more than one differentiating factor. This may be necessary if two or more firms are claiming to be best on the same attribute. - In general a company needs to avoid 3 major positioning errors. 1) Underpositioning à failing to ever really position the product at all. Some companies discover that buyers have only a vague idea of the company or that they do not really know anything special about it. 2) Overpositioning à giving buyers too narrow of a picture of the company. Thus, a consumer might think that Steuden glass company makes only fine art glass costing $4000 and up when in fact it makes affordable glass $60 and up. 3) Confused positioning à leaving buyers with a confused image of a company. Ex Burger King (251) Which difference to promote - A difference is worth establishing to the extent that it satisfies the following criteria: q Important: the difference delivers a highly valued benefit to target buyers. q Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way. q Superior: The difference is superior to other ways that customers might obtain the same benefit. q Communicable: The difference is communicable and visible to buyers. q Preemptive: Competitors cannot easily copy the difference. q Affordable: Buyers can afford to pay for the difference. q Profitable: The company can introduce the difference profitably. Communicating and Delivering the Chosen Position - Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. Chapter 8 - Product and Service Strategies What is a Product? - Product: A cluster of benefits that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. It includes physical objects, services, person, places, organizations, and ideas. - Service: Any activity or benefit that the party can offer to another that is essentially intangible and does not result in the ownership of anything tangible. The Product-Service Continuum - Pure-tangible good, such as soap, toothpaste, or salt-no services accompany the product. - Service dominated offerings à an intangible benefit created for the customer but no physical product is exchanged. Examples include a doctor's exam, a university lecture, or financial service. Levels of Product - Core product: The problem solving services or core benefits that consumers are really buying when they obtain a product. Example: A women buying lipstick buys more than lip colour, "It the factory we make cosmetics, in the stores we sell home". - Actual product: A product's parts, quality, level, features, design, brand name, packaging, and other attributes that combine to deliver core products benefits. - Augmented Product: Additional consumer services and benefits built around the core and actual product. Example: warranty on parts, free lessons on how to use the camcorder, quick repair service. - Figure 8-1 Three levels of a product Product Classification Consumer Products - Consumer Products: Products bought by final consumer for personal consumption. - Consumer products include convenience products, shopping products, specialty products, and unsought products. - Convenience Products: Consumer products and services that the customer usually buys frequently immediately, and with a minimum of comparison and buying effort. - Convenience products can divide further into staples, impulse products, and emergency products. Staples are products that consumers buy on a regular basis, such as ketchup, toothpaste, and electric power. Impulse products are purchased with little planning or search effort. These products are normally widely available. - Emergency products when their need is urgent-umbrellas during a rainstorm, travel insurance at an airport, or boots and shovels during the year's first snowstorm. - Shopping products: Consumer goods and services that the consumer, in the process of selection and purchase characteristically compares on such bases as stability, quality, price, and style. - When buying shopping products and services, consumers spend much time and effort in gathering information and making comparison., examples include furniture, clothing, vacations, and restaurant. - Table 8-1 Marketing consideration for consumer products - Specialty products: Consumer products and service with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. A Rolls Royce, for example, is a specialty product because buyers are usually willing to travel great distances to buy one. - Unsought Product: Consumer products and services that the consumer either does not know about or knows about but does not normally think of buying. Example; life insurance, encyclopaedias, and blood donations. Industrial Products - Industrial products: products and services bought by individual and organizations for further processing or for use in conducting a business. - There are 3 groups of industrial products: materials and parts, capital items, and supplies and services. - Material and Parts: Industrial products that enter the manufacturer's product completely, including raw materials and manufactured materials and parts. - Raw materials include farm products (wheat, cotton, livestock, fruit, vegetables) and natural products (fish, lumber, crude petroleum, iron ore) - Capital Items: Industrial products that partly enter the finished products, including installation and accessory equipment. - They include installations and accessory equipment. Installations consist of building (factories, offices) and fixed equipment (generators, drill presses, large computers and elevators) - Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (fax machine, desks) - Suppliers and services: Industrial products that do not enter the finished product at all. - Supplies and services are industrial products that include operating supplies (lubricants, coal, computer paper, pencils) and repair and maintenance items (paper, nails, broom) Organizations, Persons, Places, and Ideas - Organization marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward an organization both profit and non-profit organizations practise organization marketing. - Person marketing consists of activities undertaken to create, maintain, or change attitudes or behaviour toward particular people. - Place marketing involves activities undertaken to create, maintain, or change attitudes or behaviour towards particular places. Examples include business site marketing and tourism marketing. - Ideas also can be marketed. In one sense, all marketing is the marketing of idea, whether it is the general idea of brushing your teeth or the specific idea that Crest provides the most effective decay prevention. - Social Marketing: The creation and implementation of programs seeking to increase the acceptability of a social idea, cause, or practice within targeted groups. Individual Product Decisions - Figure 8-2 Individual product decisions (270) - Developing a product or service involves defining the benefits that the product will offer. These benefits are communicated and delivered by product attributes such as quality, feature and design. Product Quality - Product Quality: the ability of a product to perform its functions; it includes the product's overall durability, reliability, precision, ease of operation, repair, and other valued attributes. - Product Quality has two dimensions-level and consistency. In developing a product, the marketer must first choose a quality level that will support the product's position in the target market. Here, product quality means performance quality- the level at which a product performs its functions. - Product design: The process of designing a product's style and functions: creating a product that is attractive; easy, safe, and inexpensive to use and service; and simple and economical to produce and distribute. Product Features - Features are a completive tool for differentiating the company's product form competitor's products. Being the first producer to introduce a needed and valued new feature is one of the most effective ways to compete. Product Design - Design is a larger concept than style. Style simply describes the appearance of a product. Styles can be eye-catching or yawn inspiring. A sensational style may grab attention, but it does not necessarily make the products perform better. Unlike style, design, is more than skin deep-it goes to the very heart of a product. Good design contributes to a product's usefulness as well as to its looks. Branding - Brand: A name, term, sign, symbol, or design, or a combination of these intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. - Consumers view a brand as an important part of a product, they give products and service a personality that consumers can relate to, and branding can add value to a product. - Branding has become so strong that today hardly anything goes unbranded. - Branding helps buyers in many ways. Brand name helps consumers identify products that might benefit them. Brands also tell the buyer something about product quality. Buyers who always buy the same brand know that they will get the same features, benefits, and quality each time they buy. Branding also gives seller several advantages. The seller's brand name a trademark provide legal protection for unique product features that otherwise might be copied by competitors. - A brand can deliver up to 4 levels of meaning: Ø Attributes. A brand first brings to mind certain product attributes. Example Mercedes suggest attributes as "well engineered", and "durable". The company may use one or more of these attributes in its advertising for a car. Ø Benefits. Customers do not buy attributes, they buy benefits. Therefore, attributes must be translated into functional and emotional benefits. For example, the attribute "durable" could translate into functional benefit. Ø Values. A brand also says something about the buyers' values. Thus Mercedes buyers value high performance, safety, and prestige. A brand marketer must identify the specific groups of car buyers whose values coincide with the delivered benefit package. Ø Personality. A brand also projects a personality. Motivation researchers sometimes ask, "If this brand were a person, what kind of person would you be? The brand will attract people whose actual or desired self-image match the brand's image. Brand Equity - Brand equity: The value of a brand, based on the extent to which it has high brand loyalty, name awareness, perceived quality, strong brand association, and other assets such as patent, trademarks, and channel relationship. - High brand equity provides a company with many competitive advantages; a powerful brand enjoys a high level of consumer brand awareness and loyalty. Brand Name Selection - Figure 8-3 Major branding decision - Desirable qualities for a brand name include: (1) it should suggest something about the product's benefits and qualities. (2) It should be easy to pronounced, recognize, and remember. Short names. (3) The brand name should be distinctive. (4) The name should translate easily into foreign language. (5) It should be capable of registration and legal protection. A brand name should be registered if it infringes on existing brand names. Also, brand names that are merely descriptive or suggestive may be unprotected. Brand Sponsor - The product may be launched as manufactures brand (or national brand), as when Kellogg and IBM sell their output under their own manufacture's brand name. Or the manufacture may sell to resellers who give it a private brand (also called store brand and distributor brand). Although more manufactures create their own brands, other market licenses brand. Finally two companies can co-brand a product, such as when General Motors and Hershey Foods combined brands to create Reese's Peanut Butter Puffs Cereal. - Manufacture's brand (national brand): A brand created and owned by the producer of the product or seller. - Private Brand: A brand created and owned by a reseller of a product or service. - Slotting Fee: Payments demanded by retailers before they will accept new products and find "slot" for them on the selves. Licensing - Some companies license names or symbols previously created by other manufactures, names of well-known celebrities, character from popular movies and books-for fee, any of these can provide an instant and proven brand name. Co-branding - Co-branding: The practice of using the established brand names of two different companies on the same product. - For example, Pillsbury joined Nabisco to create Pillsbury Oreo Bars Baking Mix. - In most co-branding situations, one company licenses another company's well-known brand to use with its own. - Co-branding offers may advantages. Because each brand dominates in different category, the combined brands create broader consumer appeal and greater brand equity. Co-branding also allows companies to enter new markets with minimal risk. Brand Strategy Line Extension - Line extensions occur when a company introduces additional items in a given product category under the same brand name, such as new flavours, forms, colour, ingredients, or package size. - Line Extension: Using a successful brand name to produce additional items in a given product category under the same brand name, such as a new flavour, forms, colour, added ingredients, or package size. - A company might introduce line extensions to meet consumer's desires for variety, to utilize excess manufacturing capacity or to match a competitor's successful line extension. Some companies introduce line extension simply to command more shelf space for resellers. Brand Extension - Brand Extension: Using a successful brand name to launch a new or modified product in a new category. - Fruit of a Loom launched a new line of socks, men's fashion underwear, women's underwear, and athletic apparel. - A brand extension gives a new product instant recognition and faster acceptance. It also saves the high advertising costs usually required to build a new brand name. Ex. Life Saver Gum Multibrands - Multibranding: A strategy under which a seller develops two or more brands in the same product category. - Multibranding also allows a company to lock up more resellers "shelf space." Or the company may want to protect its major brands by setting up flanker or fighter brands. Seiko uses different brands for its higher-priced watches and a different price for its lower-prices watches. - A major drawback of multibranding is that each brand might obtain only a small market share, and none may be very profitable. Packaging - Packaging: The activities of designing and producing the container or wrapper for a product. - Labelling is also part of packaging and consists of printed information appearing on or with the package. - Packaging Concept: What the package should be or do for the product. Labelling - The label identifies the product or brand, such as the name Sunkist stamped on orange. The label might describe several things about the product-who makes it, where it was made, when it was made, its contents, how it is to be used, and how to use it safety. Product-Support Services - Product-support services: Services that augment actual products. Product Line decisions - Product Line: A group of products that are closely related because they function in a similar manner, are sold to the same consumer groups, are marketed through the same type s of outlets, or fall within the given price ranges. - The line is too short if the manager can increase profits by adding an item. The line is too long if the manager can increase profits by dropping items. - It can systematically increase the length of the product line in two ways: by strengthen its line and by filling its line. Stretching Downwards - Figure 8-5 Product Line stretching decision (284) - A company may stretch downward to plug a market hole that otherwise would attract a new competitor, or to respond to a competitor's attack on the upper end. Or it may add low-end products because it finds faster growth taking place in the low-end segments. Stretching Upwards - Companies at the lower end of the market may want to stretch their product lines upwards. They may be attracted by a faster growth rate or higher margins at the higher end, or they may simply want to position themselves as full-line manufacturers or add prestige to their current products. Stretching both ways Filling the Product Line - An alternative to product line stretching is product line filling-adding more items within the present range of the line. Reasons for product line filling: reaching for extra profit, trying to satisfy dealers, trying to use excess capacity, trying to be the leading full-line company, and trying to lug holes to keep out competitors. Product Mix Decisions - Product Mix (or product assortments): The sell of all products lines and items that a particular seller offers for sale to buyers. - The width of the products mix refers to the number of different product line the company carries. - The length of the product mix refers to the number of different product line the company carries. - Figure 8-2 Product Mix (286) - The depth of the product mix refers to the number of versions offered of each product in the line. Thus, Crest comes in three sizes and 2 formulations (paste, and gel); Crest has a depth of 6. Service Marketing - The government offers service through courts, employment services, hospital, loan agencies, military and police... - The private non-profit organizations offer service through museums, charities, churches, colleges, and foundations... - Business organizations offer service through airlines, banks, hotels, insurance companies, and entertainment... Nature and Characteristics of a Service - A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. - A company must consider four special characteristics of a service when designing marking programs, intangibility, inseparability, variability, and perishability. - Figure 8-6 Four service characteristics (290) Intangibility - Service Intangibility: A major characteristic of service-they cannot be seen, tastes, felt, heard, or smelled before they are bought. Example; cosmetic surgery. - Service inseparability: A major characteristic of services- they are produced and consumed at the same time and cannot be separated from their providers, whether the providers are people or machines. - Service Variability: A major characteristics of services-their quality may vary greatly, depending on who provides them and when, where, and how they are provided. For example, some hotel such as the best Western and the Marriot have reputations for providing better device then others. But within a given Marriot, one registration desk employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant and slower. - Service Perishability: A major characteristic of services-they cannot be stored for latter sale or use. - Some dentists charge patients for missed appointments because the service value existed only at the point and disappeared when the patient did not show up. Marketing Strategies for Service Firms The Service-Profit Chain - Healthy service profits and growth à superior service firm performance which result from... - Satisfied and loyal customers à satisfied customers who remain loyal, repeat, purchase, and refer other customers, which result from... - Greater service value à more effective and efficient customer value creation and service delivery, which result from... - Satisfied and productive service employees à more satisfied, loyal, and hard working employees, which result from... - Internal Service quality à superior employee selection and training, a quality work environment, and strong support for those dealing with customers. - Internal marketing: Marketing by a service firm to train and effectively motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction. - Interactive Marketing: Marketing by a service firm that recognizes that perceived service quality depends heavily on the quality of buyer-seller interaction. Managing Service Quality - One of the major ways a service firm can differentiate it is by delivering consistently higher quality than its competitors do. - They assess the credibility of the service. Strong brand names and guarantees increase consumers' perceptions of service credibility. They also want service providers to e empathetic and understand their needs and problems. Services must also be reliable. People expect that the service is delivered with consistent quality. People expect services to be responsive and to deal with them as individuals. People judge service quality using the tangible cues that surround service provision. Managing Productivity - The service providers can train current employees better, or they can hire new ones who will work harder or more skilful for the same pay. Or the service providers can increase the quality of their service by giving up some quality. Chapter 9 - New Product Development and Life Cycle Strategies New Product Development Strategy - A firm can obtain products in 2 ways: Acquisition- buy buying a whole company, a patent, or a license to product someone else's product. The other is through new-product development- in the company's own research and development department. - New product development: The development of original products, product improvements, product modifications, and new brands through the firm's own R&D efforts. - Why do so many new products fail? The market size might have been overestimated. Actual product was not designed as well as it should have been. Or it was incorrectly positioned in the market, price to high or advertised poorly. - Because so many new products fail, companies want to learn how to improve the success of their new product. One way is to identify successful new products and determine what they have in common. The number one success factor is unique superior product, one with high quality, new features, and higher value in use. The New Product Development Process 1. Idea Generation - Idea Generation: The systematic search for new product ideas. - Many new product ideas come from internal sources. - Good new-product ideas result from watching and listening to customers. 2. Idea Screening - Idea Screening: Screening new product ideas in order to identify good ideas and drop poor ones as soon as possible. - The purpose of screening is to identify good ideas and drop poor ones as soon as possible. Product-development costs rise greatly in later stages. The company wants to proceed only with the product ideas that will turn into profitable products. - Committee asks questions such as: Is the product truly useful to consumers and society? Is it good for our particular company? Does it mesh well with the company's objectives and strategies? Do we have the people, skills, and resources to make it succeed? Does it deliver more value to customers than competing products? Is it easy to advertise and distribute? 3. Concept Development and Testing - Product Concepts: A detailed version of new-product idea stated in meaningful consumer terms. - It is important to distinguish among a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product. Concept Development - Concept development: Concept development involves expanding the new product idea into various alternatives forms. - Concept testing: Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. - Some concept test a word or picture description might be sufficient. - After being exposed to the concept, consumers then may be asked to react to it by answering the questions in Table 9-2 (319) - Many firms routinely test new product concepts with consumers before attempting to turn them into actual new products. 4. Marketing Strategy Development - Marketing Strategy development: Designing an initial marketing strategy for a new product based on the product concept. - They marketing strategy statement consist of 3 parts. The first part describes the target market; the planned product positioning: and the sales, market share, and profit goals for the first year. The second part outlines the product's planned price, distribution, and marketing budget for the first year. The third part describes the planned long-run sales, profit goals, and marketing mix strategy. 5. Business Analysis - Business Analysis: A review of the sales, costs, and new profit projections, for a new product to determine whether these factors satisfy the company's objectives. - Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. If they do, the product can move to the product-development stage. To estimate sales, the company should examine the sales history of similar products and should survey market opinion. It should estimate minimum and maximum sales to assess the range of risk. 6. Product Development - Product Development: Developing the product concept into a physical product to assure that the product idea can be turned into a workable product. 7. Test marketing - Test marketing: The stage of new-product development where the product and marketing program are tested in more realistic market settings. - Test marketing gives the marketer experience with marketing the product before going to the expense of full introduction. It lets the company test the product and its marketing program-positioning strategy, advertising, distribution, pricing, branding, packaging, and budget level. - 3 Types of Test marketing: (1) Standard Test Markets (2) Controlled Test Marketing (3) Simulated Test Marketing Standard Test Markets - The company finds a small number or representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor survey, and other measures to gauge product performance. - May be very costly, takes a long time, gives competitors a look at the company's new product well before it is introduced nationally. Thus competitors may have time to develop defensive strategies, and may even beat the company's product to the market. Controlled Test Markets - Research firm keeps controlled panels of the store that have agreed to carry new products for a fee. The company with the new product specifies the number of stores and geographical locations it wants. The research firm delivers the product to the participating stores and controls shelf locations, amount of self-space, display and point of-purchase promotions, and pricing according to specified plans. Sales results are tracked to determine the impact of these factors on demand. - Controlled test markets take less time than standard test markets. Cost less. - Disadvantage: Limited number of cities and panel consumers used by the research services may not be representative of their product's markets or target consumers. Simulated Test Markets - The company shows ads and promotion for the new products. It gives a sample of a new product being tested in shopping centres. Gives customers a small amount of money and invites them to a laboratory store where they can keep the money or buy items. The researcher notes how many customers buy the new item. The research then ask consumers the reason for their purchase or non-purchase. Some weeks later, they interview the consumers by phone to determine product attitudes, usage, satisfaction, and purchase intentions. - Cost much less, keep the new product out of competitor's view. Disadvantage: does not consider simulated test markets to be accurate or reliable as larger, real-world tests. Test Business Products - Product use test à The business marketer selects a small group of potential customers who agree to use the new product for a limited time. - Trade Shows à These shows draw large number of buyers who view new products in a few concentrated days. The manufacture sees how buyer react to various product features ad terms, and can assess buy interest and purchase intentions. - Standard or controlled test markets à to measure the potential of their new products. They produce limited supply of the product and give it to the sales force in a limited number of geographical areas. 8. Commercialization - Commercialization: Introducing a new product into the market. - The company launching a new product must first decide on introduction timing. - The company must decide where to launch the new product-in a single location, a region, the national market, or the international market. Speeding up New-Product Development - Sequential Product Development: A new product development approach in which one company department works individually to complete its stage of the process before passing the new product along to the nest departments and stage. - This orderly, step-by step process can help bring control to complex and risky projects, but it can be dangerously slow. In fast-changing, highly competitive markets, such slow-but-sure product development can result in product failures, lost sales and profits, and crumbling market positions. - Simultaneous (or team based) product development: An approach to developing new products in which various company departments work closely together, overlapping the steps in the product-development process to save time and increase effectiveness. - The objective is not to create a product faster, but to create them better and faster. Product Life Cycle - Figure 9-2 (327) - Product Life Cycle (PLC): The course of a product's sales and profit over its lifetime. It involves five distinct stages: product development stage, Introduction, Growth, Maturity and Decline. - 1. Product development begins when the company finds and develop a new-product idea. During product development, sales are zero and the company's investments costs mount. - 2. Introduction is a period of slow sales growth as the product is being introduced in the market. Profits are non-existent in this stage because of the heavy expense of the product introduction. - 3. Growth is a period of rapid market acceptance and increasing profits. - 4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profit level off or decline because of increased marketing outlays to defend the product against competition. - 5. Decline is the period when sales fall off and profits drop. - Figure 9-3 (328) - Style: A basic and distinctive mode of expression. Example. Styles of Victoria, ranch, modern) - Fashion: A currently accepted or popular style in a given field. - Fads: Fashion that enters quickly is adopted with great zeal, peak early, and decline very fast. Introduction Stage - Introduction Stage: The product life cycle stage when the new product is first distributed and made available for purchase. - Profits are negative or low because of the low sales and high distribution and promotion expenses. Mush money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. Growth Stage - Growth Stage: The product life cycle stage at which a product's sales start climbing quickly. - The early adapters will continue to buy and later buyers will start following their lead. - Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where the are or fall only slightly. - Profits increase during growth stage, as promotion costs are spread over a large volume and as unit-manufacturing costs. Maturity Stage - Maturity Stage: The stage in the product life cycle where sales growth slows or levels off. - Overcapacity leads to greater competition. Competitors being marketing down prices, increase their advertising and sales promotion, and increasing their R&D budgets to find better versions of their product. - In modifying the market, the company tries to increase the consumption of the current product. - The company might also try modifying the product changing the product characteristics such as quality, features, and style to attract new users and to inspire more usage. It might improve the products quality and performance-its durability, reliability, speed, taste. Or it might add new features that expand the product's usefulness, safety, or convenience. - The company might decide to modify the marketing mix. Decline Stage - Decline Stage: The product life cycle stage at which a product's sales decline. - Many reasons include technological advances, shifts in consumer tastes, and increase in competition. - The biggest cost may well lie in the future. Keeping weak products delays the search for replacements, creates a lopsided product mix, hurts current profits, and weekend the company's foothold on the future. - Management may decide to maintain its brand without change in the hope that competitors will leave the industry. - Management may decide to harvest the product, which means reducing various costs (plants, equipment, maintenance R%D, advertising, sales force) and hoping that sales hold up. - Figure 9-3 (333) Chapter 20 - Marketing and Society Marketing Impact on Individual Consumers High Costs of Distribution - A longstanding charge is that greedy intermediaries mark up prices beyond the value of their service. - How do retailers answer to these charges? They argue the following: intermediaries do work that would otherwise have to be done by manufactures or consumers. Mark-ups reflect services that consumers themselves want-more convenience, larger stores and assortments, long store hours, return privileges. The cost of operating stores keep rising, forcing retailers to raise their prices. Retail competition is so intense that margins are actually quite low. High Advertising and Promotion Costs - Differentiated products-cosmetics, detergents, toiletries-include promotion and packaging costs that can amount to 40 percent or more of the manufacturer's price to the retailer. - Marketers answer these changes in many ways: Consumers want more benefits -they want to feel wealthy, beautiful, or special. Consumers usually can buy functional versions or products at lower prices but often are willing to pay more for products that also provide desired psychological benefits. Branding gives buyers' confidence. A brand name implies a certain quality, and consumers are willing to pay for well-known brands even if they cost a little more. Heavy advertising is needed to inform millions of potential buyers of the merits of a brand. If consumers want to know what is available on the market, they must expect manufacturers to spend large sums on money on advertising. Heavy advertising and promotion may be necessary for a firm o match competitors' efforts. The business would lose "share of mind" if it did not match competitive spending. Heavy sales promotion is needed to time to time because goods are produced ahead of demand in a mass-production economy. Deceptive Practice - Marketers are sometimes accused of deceptive practices that lead consumers to believe that they will get more value than they actually do. - It falls into three groups: deceptive pricing, promotion, and packaging. - Deceptive pricing à includes practices such as falsely advertising "factor" or "wholesale" prices or a large price reduction from a phoney high retail list price. - Double-tagging, the practise of placing a sales ticket showing an original price an another ticket showing a sales price of a piece of clothing. - Deceptive promotion includes practices such as overstating the product's features or performance, luring the customer to the store for a barging that is out of stock, or running rigged contests. - Deceptive packaging à includes exaggerating package contents through subtle design, not filling the package to the top, using misleading, labelling, or describing size in misleading terms. High-Pressure Selling - Salespeople are sometimes accused of high-pressure selling the persuades people to buy goods they has no intention of buying. - Marketers know that buyers often can be talked into buying unwanted or unneeded things. Shaddy or Unsafe Products - Products lack quality they should have. One complaint is that many products are not made well or services did not perform well, also many products deliver little benefits. Another concern is product safety. Product safety has been a problem for several reasons, including manufacturer indifference, increase production complexity, poorly trained labour, and poor quality control. Planned Obsolescence - Causing their products to become obsolete before they actually should need replacement. - Holding back attractive functional features, then introducing them later to make older models obsolete. - Marketers respond that consumer's life style changes; they get tired of the goods and want a new look in fashion or a new design in cars. Poor Service to Disadvantages Consumers - Accused of poorly serving disadvantaged consumers. Critics claim that the urban poor often have to stop in smaller stores that carry inferior goods and charge higher prices. Marketing's Impact on Society as a whole Too Few Social Goods - Business have been accused of overselling private goods at the expense of public goods. For example, an increase in automobiles ownership (private good) requires more highways, traffic controls, parking spaces, and police services (public goods). The overselling of private goods result in "social costs." - A way must be found to restore a balance between private and public goods. One option is to make producers bear the full social costs of their operations. Cultural Pollution - Critics charge marketing system with creating cultural pollution and commercial noise. Too Much Political Power - Advertisers are accused of holding too much power over the mass media, limiting their freedom to report independently and objectively. Example (686) Marketing's Impact on Other Business - Critics also charge that a company's marketing practices can harm other companies and reduce competition. 3 problems are involved: acquisitions or competitors, marketing practices create barriers to entry, and unfair competitive marketing process. - Large marketing companies can use patent and heavy promotion spending, and can tie up suppliers or dealers to keep out or drive out competitors. - Some firms have in fact used unfair competitive marketing practices with the intention of hurting or destroying other firms. They may set their prices below costs, threaten to cut off business with suppliers, or discourage the buying of a competitor's product. Citizens and Public Actions to Regulate Marketing Consumerism - Consumerism: An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers. - The association has also outlined the following as fundamental consumer rights: · The right of safety · The right to be informed · The right to choose · The right to be heard · The right to redress against damage · The right to consumer education Environmentalism - Environmentalism: An organized movement of concerned citizens and government agencies to protect and improve people's living environment. - Environmentalists are not against marketing and consumption; they simply want people and organizations to operate with more care for the environment. - Environmentalists want environmental costs included in both producer and consumer decision-making. Business Actions toward socially responsible Marketing Enlightened Marketing - Enlightened Marketing: A marketing philosophy holding that a company's marketing should support the best long-run performance of the marketing system: its five principle include consumer-oriented marketing, Innovative Marketing, value Marketing, sense-of-mission marketing and societal marketing. - Consumer-Orientated Marketing: A principle of enlightened marketing that holds that a company should view and organize its marketing activities from the consumers' point of view. - Innovative Marketing: A principle of enlightened marketing that requires that a company seek real product and marketing improvements. - Value Marketing: A principle of enlightened marketing that holds that a company should put most of its resources into value-building marketing investments. - Sense-of-Mission Marketing: A principle of enlightened marketing that holds that a company should define its mission in broad social terms rather than narrow product terms. Societal Marketing - Societal marketing: A principle of enlightened marketing that holds that a company should make marketing decisions by considering consumers' long-run interests, and society's long-run interests. - Deficient products: Products that have neither immediate appeal nor long-run benefits - Pleasing Products: Products that give high immediate satisfactions but may hurt consumers in the long run. - Salutary Products: Products that have low appeal but may benefit consumer in the long run. - Desirable Products: Products that give both high immediate satisfaction and high long-run benefits. Principle for Public Policy towards marketing - The principle of consumer and producer freedom - The principle of curbing potential harm. - The principle of meeting basic needs - The principle of economic efficiency - The principle of innovation - The principle of consumer education and information - The principle of consumer protection. Marketing Notes Chapter 1 - Marketing In a Changing World What is marketing? - Creating customer value and stratification are at the very heart of modern marketing thinking and practice. Market Defined - Markets always focus at satisfying customers needs - Marketing: A social and managerial process by which individuals and groups obtain what they need and want through creating exchanging products and value with others. - Needs: States of felt deprivation - Wants: Are the form taken by human needs as they are shaped by culture and individual personality. Wants are described in terms of objects that will satisfy needs. - Demands: Human wants that are backed by buying power - Products: Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need it. It includes physical objects, services, persons, places, organizations, and ideas. - "Marketing myopia" Sellers may suffer from "Marketing myopia" they are so taken with their products that they focus only on existing wants and lose sight f underlying customer needs. They forget that a physical product is only a tool to solve a consumer problem. Value, Satisfaction, and quantity - Customer Value: The difference between the values the customer gains from owning and using a product and the cost of obtaing the product. - Customer Satisfaction: The extent to which a product's perceived performance matches a buyer's expectations. - If the product's performance falls short of the customer's expectations, the buyer is dissatisfied. If the performance matches expectation, the buyer is satisfied. If performance excesses expeditions, the buyer is delighted. Outstanding marketing companies go out of their way to keep their customers satisfied. - Total quantity management (TQM): Programs designed to constantly improve the quantity of products, services and marketing processes. Exchange, Transactions, and Relationship - Exchange: The act of obtaining a desired object from someone by offering something in return. - Transaction: A trade between two parties that involves at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement. - Relationship Marketing: The process by creating, maintaining, and enhancing strong, value, -laden relationships with customers and other stakeholders. - A market network consists of the company and all of its surrounding stakeholder: customers, employees, suppliers, distributions, retailers, advertising, agencies, and others with whom it has built mutually profitable business relationships. Market - Market: The set of all actual and potential buyers of a product or service. - Figure 1-2 (13) Marketing - Marketing means managing markets to bring about exchanges for the purpose of satisfying human needs and wants. Marketing Management - Marketing Management: The analysis, planning, implementation, and control of programs designed to create, build, and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives. - De-marketing: Marketing to reduce demand temporarily or permantely-the aim is not to destroy demand, but only to reduce or shift it. Building profitable customer relationship - A company demand comes from two groups: 1. New customers and 2. Repeat customers. - It costs five times as much to attract new customers as it does to keep an existing customers satisfied. Marketing Management Philosophies - There are five alternatives concepts under which organizations conduct their marketing activities: the product, selling, marketing, and societal marketing concept. - Production Concept: The philosophy that consumers will favour products that are available and highly affordable and that management should therefore focus on improving production and distribution efficiency. - Product Concept: The philosophy that consumers will favour producers that offer the most quality, performance, and innovative features. - Selling Concepts: The idea that consumers will not buy enough of the organization's products unless the organization undertakes a large-scale selling and promotion effort. - Marketing Concept: The marketing management philosophy that holds the achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. The Internet - Internet: A vast and burgeoning global web of computer networks with no central management or ownership. Chapter 2- Strategic Planning the Marketing Process Strategic Planning - The annual plan is a short-run marketing plan that describes the current marketing situation, the company objectives, and the marketing strategy for the year, the action program, budgets, and controls. - The long-run plan describes the major factors and forces affecting the organization during the next several years, it includes the long-term objectives, the major marketing strategies that will be used to attain them, and the resources required. - Strategic Planning: The process of developing and maintaining a strategic fit between the organization's goals and capabilities and its changing marketing opportunities. - At the corporate level, the company first defines its overall purpose and mission. This mission then is turned into detailed supporting objectivities that guide the whole company. Next, headquarters decides what portfolio of business and products is best for the company and how much support to give each one. In turn, each business and product unit must develop detailed marketing and other departmental plans that support the company wide plan. Defining the company mission - Mission Statement: A statement of the organizations purpose-what it wants to accomplish in the larger environment. - Mission should be realistic, specific, fit the market environment, motivating Designing the Business Portfolio - Business Portfolio: The collection of business and products that comprise the company. - The best business portfolio is the one that best fits the company's strengths and weakness to opportunities in the environment. The company must (1) analyse the current business portfolio and decide which business should receive more, less, or no investment, and (2) develop growth strategies for adding new products or business to the portfolio. Analysing the current business portfolio - Portfolio Analysis: A tool by which management identifies and evaluates the various businesses that makes up the company. - Strategic business Unit (SBU): A unit of the company that has a separate mission and objectives and that can be planned independently from other company business. An SBU can be a company division, a product line within a division, or sometimes a single product or brand. - Management's first step is to identify the key businesses making up the company. The next step in business portfolio analysis calls for management to assess the attractiveness of its various SBU's and decide how much support each deserves. The Boston Consulting Approach - Growth-share matrix: A portfolio-planning method that evaluates a company's strategic business units (SBU) in terms of their market growth rate and relative market share. SBUs are classified as stars, cash cows, question marks, or dogs. - Four types of SBUs can be distinguished: 1. Star: High-growth, high share business or products that often require heavy investment to finance their rapid growth. 2. Cash Cow: Low-growth, high share business or products; established and successful units that generate cash that the company uses to pay its bills and support other business units that need investment. 3. Question Mark: Low-share business units in high-growth markets that require a lot of cash in order to hold their share or become stars. 4. Dogs: Low-growth, low share business and products that generate enough cash to maintain themselves but do not promise to be large sources of cash. - Figure 2-2 (45) Growth Share matrix The General Electric Approach - It uses a matrix with two dimensions-one representing industry attractiveness (the vertical axis) and one representing company strength in the industry (the horizontal axis). The best businesses are those located in highly attractive industries where the company has high business strength. Problems with Matrix Approaches - They can be difficult, time consuming, and costly to implement. Management may find it difficult to define to define SBUs and measure market share and growth. - These approaches focus on classifying current businesses but provide little advise for future planning. Developing Growth Strategies - Product/market expansion grid: A portfolio-planning tool for identify company growth opportunities through market penetration, market development, or diversification. - Market Penetration: A strategy for company growth by increasing sales of current products to current market segments without changing the product in anyway. - Market development: A strategy for company growth by identifying and developing new market segments for current company products. - Product development: A strategy for company growth by offering modified or new products to current market segments. - Diversification: A strategy for company growth by starting up or acquiring businesses outside the company's current products and markets. Marketing Role in Strategic Planning - Marketing looks at consumer needs and the company's ability to satisfy them; these same factors guide the company mission and objectives. - Marketing plays a key role in the company's strategic planning; Marketing provides a guiding philosophy-the marketing concept-which suggests company strategy should revolve around serving the needs of important consumer groups. Marketing provides input to strategic planners by helping to identify attractive market opportunities and by assessing the firm's potential to take advantage of them. Within individual business units, marketing designs strategies - For reaching the unit's objective. Conflict between Departments - Operations focuses on suppliers and production; finance is concerned with stockholders and sound investments; marketing emphasizes consumers and products, pricing, promotion, and distribution. The Marketing process - Marketing Process: The process of (1) analysing marketing opportunities; (2) selecting targets market (3) developing the marketing mix and (4) managing the marketing effort. - Market Segmentation: Dividing the market into distinct groups of buyers with different needs, characteristics, or behaviour who might require separate products or making mixes. - Market Segment: A group of consumers who respond in a similar way to given set of marketing stimuli. Market Targeting - Market targeting: The process of evaluating each market segment's attractiveness and selecting one or more segments to enter. Marketing Position - Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Marketing Strategies for Competitive Advantage - The company must formally or informally monitor the completive environment to answer these and other important questions: Who are our competitors? What are their objectives and strategies? What are their strengths and weakness? And how will they react to different completive strategies we might use? Developing the Marketing Mix - Marketing Mix: The set of controllable tactical marketing tools-product, price, place and promotion-that the firm blends to produce the response it wants in the target market. - Product means the 'goods and services" - Price is the amount of money customers have to pay to obtain the product. - Place includes company activities that make the product available to target consumers. - Promotion means activities that communicate the merits of the products and persuade target customers. Managing the Marketing Effort - Four management functions-analysis, planning, implementation and control. - Marketing Analysis à The Company must analyse its markets and making environment to identify attractive opportunities and avoid environmental threats. It must analyses company strengths and weaknesses, as well as current and possible marketing actions, to determine which opportunities it can best pursue. Marketing analysis needs information and other input to each of the other marketing management functions. - Marketing Planning à It involves deciding on marketing strategies that will help the company attain its overall strategic objectives. A detailed marketing plan is needed for each business, product or brand. - Product or brand plan (Contents of Marketing Plan) p.58 - Product or brand plan includes: Executive summary that quickly overviews major assessment goals, and recommendation. The main section of the plan presents a detailed analysis of the current marketing situation, and of potential threats and opportunities. It next states major objectives for the brand and outlines the specific of a marketing strategy for achieving them. - Marketing Strategy: The marketing logic by which the business unit hopes to achieve its marketing objectives. It consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels. - In the marketing strategy level the planner explains how each strategy responds to threats, opportunities, and critical issues outlines earlier in the plan. - Additional Sections of the marketing plan lay out action program for implementing the marketing strategy, along with the details of a supporting marketing budget. - The last section à the controls that will be used to monitor progress and take corrective action. Marketing Implementation - Marketing Implementation: The process that turns marketing strategies and plans into marketing actions to accomplish strategic marketing objectives. - Implementation involves day-to-day, month-to-month activities that effectively put the marketing plan to work. Marketing Department Organization - Marketing manager is responsible for developing long range and annual plans for the sales and profits in their market. This system's main advantage is that the company is organized around the needs of specific customer segments, Marketing Control - Marketing Control: The process of measuring and evaluating the results of market strategies and plans, and taking corrective action to ensure that marketing objectifies are attained. - Marketing first sets specific marketing goals. It then measures its performance in the market place and evaluates the causes of any difference between expected and actual performance. Finally management takes corrective action to close the gaps between its goals and its performance, this may require changing the action programs or even changing the goals. - Operating Controls à Involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. It also involves determining the profitability of different products, territories, market and channels. - Strategic Controlà Involves considering whether the company's basic strategies are well matched to its opportunities. - The Marketing Audit: Is a comprehensive, systematic, independent, and periodic examination of a company's environment, objectives, strategies, and activities to determine problem areas and opportunities and to recommend a plan of action to improve the company's marketing performance. - The Marketing Audit Questions (64) The Marketing Environment - The company must carefully analyse its environment so that t can avoid the threats and take advantage of its opportunities. Chapter 3 - The Global Marketing Environment - Marketing Environment: The factors and forces outside marketing's direct control that affect marketing management's ability to develop and maintain successful transactions with target customers. - Marketers have two special aptitudes. They have discipline methods -marketing intelligence and marketing research-for collecting information about marketing environment. They also normally spend more time in the customer and competitor environment. By conducting systematic environmental scanning, marketers can revise and adapt marketing strategies to meet new challenges and opportunities in the marketplace. - Microenvironment: The forces close to the company that affects its ability to serve its customers-the company, suppliers, marketing channel firm, customer market, competitors, and publics. - Microenvironment: The larger societal forces that affect the whole microenvironment -demographic, economic, natural, technological, political, and cultural forces. Suppliers - They provide the resources needed by the company to produce its goods and services. Marketing managers must be aware of supply availability -supply shortage or delays, labour strikes, and other events that can cost sales in the short run and damage customer satisfaction in the long run. Marketing Intermediaries - Marketing Intermediaries: Firms that help the company to promote, sell, and distribute its goods to final buyers, they include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. - Reseller à are distribution channel forms that help the company find customers or make sales to them. - Physical Distribution Firmsà help the company to stock and move goods from their points or origin to their destination. Working with warehouse and transportation firms, a company must determine the best way to store and ship goods, balancing such factors as cost, delivery, speed and safety. - Marketing Services agenciesà are marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right market. - Financial Intermediaries à include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods. Customer - The company needs to study its customer market closely. - 5 Types of customer market: 1. Consumer Market: consist of individuals and households that buy goods and services for personal consumption. 2. Business Market: buy goods and services for further processing or for use in their production process 3. Reseller Market: buys goods and services and resells it to make a profit. 4. Government Market: are composed of government agencies that buy goods and services in order to produce public services or transfer the goods and services to others who need them. 5. International Market: Consists of buyers in other countries, including consumers, producers, resellers and governments. Competitors Publics - Publics: Any group that has an actual or potential interest in or impact on an organization's ability to achieve its objectivities. - Seven types of publics (see page 79 & 80): 1. Financial publics 2. Media publics 3. Government publics 4. Citizen-action publics 5. Local publics 6. General publics 7. Internal publics The Company's Microenvironment Demographic Environment - Demography: The study of human population in terms of size, density, location, age, sex, race, occupation, and other statistics. Changing Age Structure of the Canadian Population - Baby Boom: The major increase in the annual birth rate following WWII and lasting until the early 1960s. The "baby boomers," now moving into middle age, are a prime target for marketer. The Changing family (87) Geographic Shifts in population (87) A better educated and more white-collar population (89) Increasing Diversity (89) Economics Environment - Economic Environment: Factors that affect consumer buying power and spending patterns. - Subsistence economies- they consume most of their own agricultural and industrial output. - Industrial economies - which constitute rich markets for many different kinds of goods. Chang in Income - Marketers pay attention to income distribution as well as average income. Changing Consumer Spending Patterns - Engel's Law: Difference noted over a century ago by Earnst Engel in how people shift their spending across food, housing, transportation, health care, and other goods and services categories as family income rises. Natural Environment - Natural Environment: Natural resources that are needed as inputs by marketers or that are affected by marketing activities. Technological Environment - Technological Environment: Forces that create new technological, creating new product and market opportunities. Political Environment - Political Environment: Consists of laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society. Legislation Regulation Business - Canada has many laws covering issues such as competition, fair trade practices, environment protection, product safety, truth in advertising packaging and labelling, price, and other important areas. - North American Free Trade agreement (NAFTA) replaced the Free Trade Agreement (FTA) in August 1992. It governs free trade among Canada, United States, and Mexico. NAFTA is a historic document since it is the first trade agreement between two developed nation and a developing country. - Business legislation has been enacted for various reasons. The first is to protect companies from each other. The second purpose of the government regulation is to protect consumers from unfair business practices. The third purpose of the government regulation is to protect the interests of society against unrestrained business behaviour. Cultural Environment - Cultural Environment: Institutions and other forces that affect society's basic value, perception, preference, and behaviour. - The following cultural characteristics can affect marketing decision-making: Persistence of cultural Values - Core beliefs and valuesà are passed by parents to children and are reinforced by schools, churches, business and government. - Secondary Beliefs and value à are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief. Shifts in Secondary Cultural Values - The major cultural values of a society are expressed in people's views of themselves and others, as well as in their views of organizations, society, nature and the universe. People's Views of themselves - People use products, brands, and services as a means of self-expression, and they buy products and service that match their views of themselves. People's View of others - This suggests a bright future for the products and services that serve basic needs rather that those relaying on glitz and hype. It also suggests a greater demand for "social support" products and services that improve direct communication between people, such as health clubs and family vacations. People's View of Organizations - They need to review their advertising communications to ensure that their messages are honest. They also need to review their various activities to make sure that they are perceived to be "good corporate citizens". People's View of society - Patriots à nationalist, pro country - Reformers à who want to change it - Malcontent à who want to leave it People's View of Nature People's View of the universe - People vary in their beliefs about the origin of the universe and their place in it. - 1980's people measured success in terms of career achievements, wealth, and worldly possessions. - 1990's success was measured with achievements such as a happy family life and service to one's community replacing money as the measure if worth. Responding to the Marketing environment - Many companies view the marketing environment as an "uncontrollable" element to which they must adapt. They accept the market place and do not change it. They analyse the environmental forces and design strategies that will help the company avoids the threats and take advantage of the opportunities the environment. - Environmental management perspective: A management perspective in which the firm takes aggressive actions to affect the publics and forces in its marketing environment rather than simply watching and reacting to it. Chapter 4- Marketing Research and Information System The Marketing Information System - Marketing Information System (MIS): People, equipment, and procedure to gather, sort, analyse, evaluate, and distribute needed, timely, and accurate information to marketing decision-makers. - First, it interact with these managers to assess information needs. Next, it develops needed information from internal company records, marketing intelligence activities, and marketing research. Information analysis processes the information to make it more useful. Finally the MIS distributes information to managers in the right form at the right time to help them make better marketing decision. Assessing Information Needs - Managers do not always need all the information they ask for, they may not ask for all they really need. The MIS cannot always supply all the information managers request. Developing Information Internal Data - Internal database: Information gathered from sources within the company that can be evaluate marketing performance and to detect marketing problems and opportunities. - Information in the database can come from many sources. The accounting department prepares financial statements and keeps detailed records of sales, costs, and cash flow. Manufacturing reports on production schedules, shipments, and inventories. The sales force reports on reseller reactions and competitor activities. The marketing department maintains a database of customer demographics, psychographics, and buying behaviour. The customer service department provides information on customer satisfaction or service problems. Marketing Intelligence - Marketing Intelligence: The systematic collection and analysis of publicity available information about competitors and development in the marketing department. - Marketing Intelligence can be gathered from many source; can be collected from the company's own personnel-executives, engineer and scientists, purchasing agents, and the sales force. - For a fee companies can subscribe to online database or information search services. Marketing Research - Marketing Research: The systematic design, collection, analysis, and reporting of data and finding relevant to a specific marketing situation facing an organization. Information Analysis - Information gathered by the company's marketing intelligence and marketing research systems often require more analysis, and sometimes managers may need help applying the information to their marketing problems and decisions. This may include advanced statistical analysis to learn more about both the relationships within a set of data and their statistical reliability. Distribution Information - The information gathered through marketing intelligence and marketing research must be distributed to the right marketing managers at the right time. - With recent advances in computers, software, and telecommunication, most companies are decentralizing their marketing information systems. In many companies, marketing managers have direct access to the information network through personal computers and other means. - Such systems offer exciting prospects. They allow the managers to get the information they need directly and quickly and to tailor it to their unique needs. The Marketing Research Process *Defining the problems and research objectives à Developing the research plan and collecting information à Implementing the research plan-collecting and analysing the data à Interpretation and reporting the findings - Marketing managers and researcher must work closely to define the problem carefully and they must agree on the research objectives. - Managers must know enough about marketing research to help in planning and interpreting research results. If they know little about marketing research they may obtain wrong information. - Experience marketing researchers who understand the manager's problem also should be involved at this stage. The researcher must be able to help the manager define the problem and suggest ways that research can help the manager make better decisions. - Defining the problem and research objectives is often the hardest step in the research process. - After the problem has been defined carefully, the manager and researcher must set research objectives. Can 1-3 types of objectives. Exploratory research, descriptive research and casual research. - Exploratory Research: Marketing research to gather preliminary information that will help to better define problems and suggest hypotheses. - Descriptive Research: Marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of customers. - Casual Research: Marketing research to test hypothesis about cause-and effect relationship. Developing the research plan - Determining the information needed, developing a plan for gathering it efficiently, and presenting the plan to marketing management. Gathering Secondary Information - To meet the manager's information needs, the researcher can gather secondary data, primary data, or both. - Secondary data: Information that already exists somewhere, having been collected for another purpose before. - Primary data: Information collected for the specific purpose at hand. - Researchers usually start be gathering secondary data. - Commercial data source à companies can buy reports from outside suppliers. - Table 4-2 (page 125) Sources of Secondary data - Online database and Internet data sources à Marketing research can conduct their own search of secondary data sources. A resent survey of marketing researchers found that 81 percent uses such online services for conducting research. - Online database: A compilation of marketing information that can be accessed online. Advantages and Disadvantages of Secondary Data - Secondary data can usually be obtained more quickly and at a lower cost than primary data. - A study to collect primary information might take weeks or months to complete and cost thousands of dollars. Secondary sources sometimes provide data that an individual company cannot collect on its own-information that either is not directly available or would be too expensive to collect. - Secondary data can also present problems. The needed information may not exist-researcher can rarely obtain all the data they need for secondary sources. - The researcher must evaluate secondary information carefully to ensure that it is relevant (fits research project needs), accurate (reliably collected and reported), current (up-to-date enough for current decisions), and impartial (objectively collected and reported) Planning Primary Data Collection - Primary data to assure that it will be relevant, accurate, current, and unbiased. Research Approaches - Observational research: The gathering of primary data by observing relevant people, actions, and situation. - Observational research can be used to obtain information that people unwilling or unable to provide. Some things can not be observed such as feelings, attitudes, and motives, or private behaviour. - Table 4-3 Planning Primary Data Collections (127) - Checkout scanners in retail stores record consumer purchases in detail. Consumer products companies and retailers use scanner information to assess and improve product sales and store performances. - Single Source data systems: Electronic monitoring systems that link consumers' exposure to television advertising and promotion (measured using television meters) with what they buy in stores (measured using store checkout scanners) - Survey Research: The gathering of primary data by asking people questions about their knowledge attitudes, preference, and buying behaviour. - Sometimes people are unable to answer survey questions because they cannot remember or have never thought about what they do and why. Or people may be unwilling to respond to unknown interviewers or talk about things they consider private. Respondents might answer survey questions when they do not know the answer in order to appear smarter or more informed. - Experimental research: The gathering of primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking differences in-group responses. Contact Methods - Information can be collected by mail, telephone, or personal interview. - Table 4-4 Strengths and Weaknesses of three Contacts Methods (131) - Personal Interviewing takes two forms- individual and group interviewing. Individual interviewing involves talking with people in their homes or offices, on the street, or in shopping malls. Such interviewing is flexible. - Group Interviewing consists of 6-10 people gather for a few hours with a trained moderator to discuss a product, service or organization. - Focus group interviewing: personal interviewing that consist of inviting six to 10 people to gather for a few hours with a trained interviewer to discuss a product, service, or organization. The interviewer "focuses" the group discussion on important issues. The comments are recorded through written notes. - Focus group interviewing has become one of the major marketing research tools for gathering insight into consumer thoughts and feelings. However, focus group studies usually use small sample sizes to keep time and costs down, and it may be hard to generalize from the results. - Computer Interviewing in which respondents sit down at a computer, read questions from a screen, and type their own answer into the computer. Sampling Plans - Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population. A sample is a segment of the population selected to represent the population as a whole. - Designing the sample requires 3 decisions: 1. Who is to be surveyed (what the sampling unit)? 2. How many people should be surveyed (What's the sample size)? 3. How should the people in the sample be chosen (what sampling procedure)? - Using probability samples each population member has a known chance of being included in the sample and researchers can calculate confidence limits for sampling errors. But when probability sampling costs too much or takes too much time, marketing researchers often take non-probability samples, even though their sampling error cannot be measured. Research Instruments - In collecting primary data, marketing researchers have a choice of 2 main research instruments - the questionnaire and the mechanical devices. - The questionnaire is by far the most common device. Questionnaires must be developed carefully and testes before they can used on a large scale. When developing a questionnaire the market researchers must first decide what to ask. - Closed-end questions à include all possible answers, and subjects make choices among them. - Opened-end questions à Questions allowing respondent to answer in their own words. - Researcher should also use care in wording and ordering questions. They should use simple direct, unbiased wording. - Table 4-7 Types of Questions (136) Presenting the Research plan - The proposal should cover the management problems addressed and the research objectives, the information to be obtained, the sources of secondary information or methods for collecting primary data, and the way the results will help management decision-making. It should also include, research cost, a written research plan, and they should all agree on why and how the research will be conducted. Implementing the Research plan - This involves collecting, processing, and analysing the information. Data collection can be carried out by the company's marketing research staff or by outside firm. The data collection phase of the marketing research process is generally the most expensive and the most subject to error. Interpreting and reporting the findings - The research must now interpret the finding, draw conclusions, and report them to management. The researcher should not try to overwhelm managers with numbers and fancy statistical techniques. Rather, the researcher should present important finding that are useful in the major decisions faced by management. In many cases findings can be interpreted in different ways, and discussions between researchers and managers will help identify the best interpretations. - Interpretations are an important phase of the marketing process. The best research is meaningless if the manager blindly accepts wrong interpretations from the research. Managers may have biased interpretations-they tend to accept research results that show what they expected and to reject those that they did not expect or hope for. Other Marketing Research Considerations Marketing research in small business and non-profit organizations - Managers of small business and non-profit organization can obtain good marketing information simply by observing things around them. - Managers can conduct informal survey using small convenience samples. - Managers can also conduct their own sample experiments. - Small organizations can obtain most of the secondary data available to large businesses. Many associations, local media, chambers of commerce, and government agencies provide special help to small organizations. International Marketing research - International marketing research can pose some unique challenges, For example they ma find it difficult simply to develop good samples. - Difference in culture from country to country cause additional problems for international researchers. Languages is the most obvious culprit. - Responses then must be translated back into the original language for analysis and interpretations. This adds to research costs and increase in the risk of error. - Transplantation a questionnaire from one language to another is anything but easy. Many idioms, phrase, and statements mean different things in different cultures. - Consumers in different countries also vary in their attitudes towards marketing research. Chapter 5 - Consumer Markets and Consumer Buyer Behaviour - Consumers buying behaviour: The buying behaviour of final consumers-individuals and households who buy goods and services for personal consumption. - All of these final consumers combined comprise the consumer market. - Consumer Market: All the individuals and households who buy or acquire goods and services for potential consumption. Model of Consumer Behaviour - The central questions for marketers are: How do consumers respond to various marketing efforts the company might use. Characteristics affecting consumer behaviour - Consumer purchases are influence strongly by cultural, social, personal, and psychological characterises. Cultural Factors - Culture: The set of basic values, perception, wants and behaviours learned by a member of a society from family and other important institutions. - Culture is the most basic cause of a person's wants and behaviour. Human behaviour is largely learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviours from the family and other important institutions. - International marketers must understand the culture in each international market and adapt their marketing strategies accordingly. SUBCULTURE - Subculture: A group of people with shared value system based on common life experience and situations. - Subculture includes nationalities, religions, racial groups, and geographic regions. (1) Native Canadians (2) Canada's Ethnic Consumers (3) Mature Consumers (4) Internet Users - Internet Users à Internet users are powerful and in control. The consumer s one who choose to access a web site and marketers must adjust to the idea that the Net is a means of two-way communication between a consumer and a vendor, not the one-way street that media advertising represents, IN other words, "They're not just listening to what the corporation wants to sell them, they're choosing the information that appeals to them. SOCIAL CLASS - Social classes are society's relatively permanent and order division whose members share similar values, interest, and behaviours. - Social Class: Relatively permanent and ordered division in a society whose members share similar values, interests, and behaviours. - Social class is not determined by a single form, such as income, but measured as a combination of occupation, income, education, wealth and other variables. - Table 5-2 Characterises of Seven Major North American Social Classes (page 162) - People can move to a higher social class or drop into a lower one. Social factors GROUPS - Groups: Two or more people whom interact to accomplish individual or mutual goals. - Groups that have a direct influence and to which a person belongs are called à Membership groups - Primary Groups à With whom there is regular but informal interaction - such as friends, family, neighbours, and co-workers. - Secondary Groups à, which are more formal and that, has less regular interactions. These include organizations, such as religious groups, professional associations, and trade unions. - Reference Groups à serve as a direct (face-to-face) or indirect points of comparison or reference informing a person's attitudes or behaviour. People often are influence be reference groups to which they do not belong. - Opinion Leaders: People within a reference group who, because of special skills, knowledge, personality, or other characteristics, exert, influence on others. - Opinion Leaders are found at all level of society, and one person may be an opinion leader in certain products areas and an opinion follower in others. Marketers try to identify opinion leaders for their products and direct marketing effort towards them. FAMILY - Family members can strongly influence buyer's behaviours. The family is the most important consumer buying organization in society. - In Canada and the United States, the wife is traditionally has been the main purchasing agent for the family, especially in the area of food, households, products, and clothing. - In the case of expensive products and services, husbands and wives more often make joint decisions. ROLES AND STATUS - A person belongs to many groups-family, clubs, and organizations. The person's position in each group can be defined in terms of both roles and status. A role consists of the activities that people are expected to perform according to the persons around them. Each role carries a status reflecting the general esteem given to it by the society. Personal Factors AGE AND LIFE CYCLE STAGE - Taste in foods, clothes, furniture, and recreation are often age-related. - Table 5-3 Life Cycle Stages (page 165) OCCUPATION - A person's occupation affects the goods and services that he or she buys. ECONOMIC SITUATION - A person's economic situation will affect product choice. Marketers of income sensitive goods watch trends in personal income, saving, and interest rates. If economic indicators point to a rescission, marketers can take steps to redesign, reposition, and reprice their products. LIFESTYLE - Lifestyle: A person's pattern of living as expressed in his or her activities, interests, and opinion. - Lifestyle is a person's pattern of living as expressed in his or her psychographics. It involves measuring consumers' major AIO dimensions activities (work, hobbies, shopping, sports, social events), interests (food, fashions, family, recreation), and opinions (about themselves, social issues, business products). Lifestyles capture something more than the person's social class or personality; it profiles a person's whole pattern of acting and interacting in the world. - Psychographics: The technique of measuring lifestyles and developing lifestyle classification; it involves measuring the major AIO dimension (activities, interest, opinions) - VALS; Classifies people according to how they spend their time and money. It divides consumers into eight groups on two major dimensions. - Self Orientation Group includes principle-oriented consumers à who buy based on their views on the world. Status Orientated buyers à who base their purchase on the actions and opinions of others. Action-oriented buyers à who are driven by their desire for activity, variety, and risk-taking. Consumers within each orientation are further classified into those with abundant resources and those with minimal resources. PERSONALITY AND SELF CONCEPT - Personality: A person's distinguished psychological characteristics that led to relatively consistent and lasting response to his or her own environment. Psychological Factors - A person's buying choices are further influenced by four major psychological factors: motivations, perception, learning, and beliefs and attitudes. MOTIVATION - Biological, arising from state of tension such as hunger, thirst, or discomfort. - Psychological, arising from the need for recognition, esteem, or belonging. Most of these needs will not be strong enough to motivate the person to act at any given them. - Motive: A need that is sufficiency pressing to drive the person to seek satisfaction of the need. - Psychologists have developed theories of human motivation. Sigmund Freud and Abraham Maslow - Freud's theory of motivation: Freud assumes that people are largely unconscious about the real psychological forces shaping their behaviour. - Abraham Maslow sought to explain why people are driven by particular needs at particular times. In order of importance, they are psychological needs, safety needs, social needs, esteem needs, and self-actualization needs. A person tries to satisfy the most important first. When that need is satisfied, it will stop being a motivator and the person will then try to satisfy the nest most important need. PERCEPTION - A motivated person is ready to act. How the person is influence by his or her perception of the situation. - Perception: Is the process by which people select, organize and interpret information to form a meaningful picture of the world. - People can form different perceptions of the same stimulus because of three perceptual processes: selective attention, selective distortion, and selective retention. Selective Attention à The tendency for people to screen out most of the information to which they are exposed- means that marketers must work especially hard to attract the consumer's attention. Their message will be lost on most people who are not in the market for the product. Moreover, even people who are in the market may not notice the message unless it stands out from the surrounding sea of other ads. Selective distortion à describes the tendency of people to interpret information in a way that will support what they already believe. Selective distortion means that marketers must try to understand consumer's perspectives and how these will affect interpretations of advertising and sales information. People will also forget what they learned they tend to retain information that supports their attitudes and beliefs. Because of Selective retention à advertisers try to frame messages in ways that are consistent with people's existing beliefs. Example "Jen is likely to remember goods points made about the Harley and to forget good points made about competing motorcycles. LEARNING - Learning occurs through the interplay of drives, stimuli, cues, responses and reinforcement. - Learning: Changes in an individual's behaviour arising from experience. - A drive is a strong internal stimulus that calls for action. Her drive becomes and motive when it is directed toward a particular stimulus object. - A cue are minor stimuli that determine when, where, and how the person response. BELIEFS AND ATTITUTEDS - Beliefs: A descriptive thought that a person holds about something. - This belief may be based on real knowledge, opinion, or faith and may or may not carry an emotional charge. - Attitudes: A person's consistently favourable or unfavourable evaluations, feeling, and tendencies towards an object or idea. - Attitudes put people into a frame of mind of liking or disliking things, of moving towards or away from them. Attitudes are difficult to change. A person's attitudes fit into a pattern, and to change one attitude may require difficult adjustments in many others. Thus, company should usually try to fit its products into an existing attitudes rather than attempt to change attitudes. Consumer Buying Roles - People might play any of several roles in buying decision: - Initiator à The person who first suggests or thinks of the idea of buying a particular product or service. - Influencer à A person whose views or advice influences the buying decision - Decider à The person who ultimately makes a buying decision or any part of it- whether to buy, what to buy, how to buy, and where to buy - Buyer à The person who makes the actual purchase. - User à The person who consumes or uses a product or service. Complex Buying Behaviour - Complex Buying Behaviour: Consumers buying behaviour in situations characterized by high consumer involvement in a purchase and significant perceived difference among brands. - Marketers need to differentiate their brand's feature, perhaps by describing the brand's benefits using print media with long copy. They must motivate store salespeople and the buyer's acquaintances to influence the final brand choice. Dissonance- Reducing Buying Behaviour - Dissonance- reducing buying behaviour: Consumer buying behaviour in situations characterized by high involvement but few perceived differences among brands. - Dissonance-reducing buying behaviour occurs when consumers are highly involved with an expensive, infrequent, or risky purchase, but see little difference among brands. - After the purchase, consumers might experience post-purchase dissonance (after sales discomfort) when they notice certain disadvantages of the purchase carpet brand or hear favourable things about brands not purchased. Habitual Buying Behaviour - Habitual Buying Behaviour: Consumer buying behaviour in characterized by low consumer involvement and few significant perceived brand differences. - Consumers have little involvement in this product category-they simply go to the store and reach for a brand. Example; salt. If they keep reaching for the same brand, it is out of habit rather than strong brand loyalty. - Consumers do not form strong attitudes towards a brand; they select the brand because it is familiar. Variety-Seeking Buying Behaviour - Variety-seeking buying behaviour: Consumer buying behaviour in situations characterized by low consumer involvement but significant perceived brand differences. Brand switching occurs for the sake of variety rather than due to dissatisfaction. The Buyer Decision Process - The stages that buyer pass through to reach a buying decision. There are 5 stages Need recognition à Information Search à Evaluation of alternatives à Purchase decision à Post-purchase behaviour - Consumers often skip or reverse some of these stages. Stage (1) Need Recognition - Need Recognition: The first stage of the buyer decision process in which the consumer recognizes a problem or need. - When the buyer recognizing a problem or need. The buyer actual senses a difference between his or her actual state and some desired stat. The need can be triggered by internal stimuli. Stage (2) Information Search - Information Search: The stage of the buyer decision process in which the consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search. - An aroused customer may or may not search or more information. If the consumer's drive is strong and a satisfying product is near at hand, the consumer is likely to buy it. If not, the consumer may store the need in memory or undertake an information search related to the need. - Heightened attention à Consumer becomes more receptive to information about the product. Consumer pays attention to ads. - Active information search à in which consumer looks for reading materials, surfs the net, phone friends, and gather information in other ways. - Consumers can obtain information from any of these sources: (-) Personal Sources: family, friends, neighbours, acquaintances (-) Commercial sources: advertising, salespeople, dealers, packaging, and displays (-) Public source: mass media, consumer-rating organizations (-) Experiential sources: handling, examining, using the product. Stage (3) Evaluation of alternatives - Alternative evaluation: The stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set. Alternative evaluation-that is, how the consumer processes information to arrive at brand choice. - Brand image: The set of beliefs that consumers hold about a particular brand. - In some cases, the consumer use careful calculations and logical thinking. At other times, the same consumers do little or no evaluating; instead they buy on impulse and relay on intuition. Stage (4) Purchase Decision - Purchase decision: The stage of the buyer decision process in which the consumer actually buys the product. - Consumer's purchase decision will be to buy the most preferred brand, but two factors can come between the purchase intention and the purchase decision. 1. Attitudes of others à Jennifer's friends ride Honda motorcycles, chances of her buying a Harley will be reduced. 2. Unexpected situation factors à The consumer may form a purchase intention based on factors such as expected income, expected price, and expected product benefits. However, unexpected events may change the purchase intention. Stage (5) Post-purchase behaviour - Post-purchase behaviour : The stage of the buyer decision process in which consumers take further action after purchase based on their satisfaction dissatisfaction. - What determines whether the buyer is satisfied or dissatisfied with purchase? The answer lies in the relationship between the consumer's expectation and the product perceived performance. If the product falls short of expectation, the consumer is satisfied; if it exceeds expectations, the consumer is delighted. - Cognitive dissonance: Buyer discomfort caused by post-purchase conflict. (181) However every purchase involves compromise. Thus consumers feel at least some post-purchase dissonance for every purchase. - Why is it important to satisfy the customer? Companies' sales come from two places new customers and retained customers. It usually costs more to attract new customers than to retain current ones, and the best way to retain current customers is to keep them satisfied. The buyer decision process for new products - New Product: A good, service, or idea that a perceived by some potential customer as new. - How consumers learn about products for the first time and make decisions on whether to adapt them. - Adoption Process: The mental process through which an individual passes from first hearing about an innovation to final adoption. Stages in the adoption process - Awareness à The customer becomes aware of the new product, but lacks information about it. - Interest à The customer seeks information about the new product. - Evaluation à The customer considers whether trying the new product makes sense. - Trial à The customer tries the new product on a small scale to improve his or her estimate of its value. Individual differences in innovations (The 5-adopter groups)à Innovators are venturesome they try new ideas at some risk. Early adopters are guided by respect-they are opinion leaders in their communities and adopt new ideas early but carefully. The early deliberate-although they rarely are leaders, they adopt new ideas before the average person. The late majority are sceptical-they adapt an innovation only after most people have tried it. Finally laggards are tradition bound-they re suspicious of changes and adopt the innovation only when it has become something of a tradition itself. Influence of product characteristics on rate of adoption - Five characteristics are especially important in influencing an innovation's rate of adoption 1. Relative advantage à the degree to which innovation appears superior to existing products. 2. Compatibility à The degree to which the innovation fits the value and experience of potential consumers. 3. Complexity à The degree to which the innovation is difficult to understand or use. 4. Divisibility à The degree to which the innovation may be tried on a limited basis. 5. Communicabilityà The degree to which the results of using the innovation can be observed or described to others. Chapter 6 - Business Markets and Business Buyer Behaviour - Business Markets: All the organizations that buy goods and services to use in the production of other products and services that are sold, rented, or supplied to others. It also includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. - Business Buying Behaviour: The decision-making process by which business buyers establish the need for purchase products and services and identify, evaluate, and choose among alternative brands and suppliers. Business Market Characteristics of Business Markets - Table 6-1 Characteristics of Business Market (200) Market Structure and Demand - The business market typically deals with far fewer but larger buyers than he consumer marketer does. - Business markets are also more geographically concentrated. - Derived demand: Business demand that ultimately comes from (derives from) the demand for consumer goods. - Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. - Business markets have more fluctuating demand. The demand for many business goods and services tend to change more-and more quickly then the demand for consumer goods and services does. Nature of buying Unit - Compared with consumer purchases, a business purchase usually involves more buyers and a more professional purchasing effort. Types of Decision and Decision Process A model of Business Buyer behaviour Business Buyer Behaviour Major types of Buying Situations - Straight rebuy: A business buying situation in which the buyer routinely reorders something without any modification. - They already did business and rebuying the same product. - Modified rebuy: A business buying situation in which the buyer wants to modify product specification, price, terms, or suppliers. - New Task: A business buying situation in which the buyer purchases a product or service for the first time. - The greater the cost of risk, the larger the number of decision participants and the greater their efforts to collect information will be. - The buyer makes the fewest decision in the straight rebuy and the most in the new task decision. In the new task situation, the buyer must decide on product specifications, suppliers, price limit, payment terms, order quantities, delivery times, and service suppliers. - System buying: Buying a package solution to a problem and without all the separate decision involved. - System selling is a two-step process. First the supplier sells a group of interlocking products. Second, the supplier sells system of production, inventory control, distribution, and other services to meet the buyer's need for a smooth-running operation. Participants in the Business Buying Process - The decision-making unit of a buying organization is called à buying centre - Buying centre: All the individuals and units that participate in the business buying decision process. - Users: Members of all the organization who will use the product or service: users often initiate the buying proposal and help define product specification. - Influencers: People in an organization's buying centre who affect the buying decision, they often help define specifications and also provide information for evaluating alternatives. - Buyers: People who make the actual purchase. - Deciders: People in the organization's buying centre who have formal or informal power to select or approve the final supplier. - Gatekeepers: People in an organization's buying centre who control the flow of information to others. Major Influence on business Buyers - Some marketers assume that the major influences are economic. They think buyers will favour the supplier who offers the lowest price, or the best product, or the most service. Environmental Factors - Business buyers are influenced heavily by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. As economic uncertainty rises, business buyers cut back on new investments, and attempts to reduce their inventories. - An increasingly important environmental factor is shortage in the key materials. Many companies now are more willing to buy and hold large inventories of scare materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive development in the environment. Culture and customs can strongly influence business buyer reactions to the marketer's behaviour and strategies, especially in the international marketing environment. Organizational Factors - Upgrade purchasing à Today competitive pressure have led many companies to transform their old-fashioned "purchasing departments," with an emphasis on buying at the lowest cost, to "procurement departments," with a mission to seek the best value from fewer and better suppliers. - Centralized purchasing à gives the company more purchasing influence, which can produce substantial saving. For the business market, this means dealing with fewer high-level. Instead of using regional sales force to sell to a large buyer's separate plants, today seller may use, national account sales force. - Businesses around the world has adopted several innovative manufacturing concepts, such as just-in-time production (JIT), value analysis, total quality management, and flexible manufacturing. Just-in-time means that production materials arrive at the customers factory exactly when needed for production, rather than being stored by the customer until used. It calls for close coordination between the production schedule of supplier and customer so that neither must carry much inventory. The Business Buying process 1. Problem Recognition: The first stage of the business buying process in which someone in the company recognizes a problem or need that can e met by acquiring a good or service. - The buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price. - Table 6-2 Major Stages of the business buying process in relation to major buying situations. 2. General Need Description: The stage in the business process in which the company describes the general characteristics and quantity of a needed item. - For complex items the buyer may have to work with others-engineers, users, consultants-to define the item. The team may want to rank the importance of reliability, durability, price and other attributes desired in the item. 3. Product Specification: The stage of the business buying process in which the buying organization decides on and specifies the best technical product characteristics for a needed item. - Value analysis: An approach t cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. 4. Supplier Search: The stage of the business buying process in which the buyer tries to find the best vendor. - The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations. The newer the buying task, and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers. 5. Proposal Solicitation: The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. In response some suppliers send catalogue, salesperson. However when the item is complex or expensive the buyer will usually require detailed written proposals or formal presentation from each potential supplier. 6. Supplier Selection: The stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers. - The member of the buying centre now reviews the proposal and select supplier or suppliers. - Another important factor includes repair and servicing capabilities, technical aid, and advice, geographic location, performance history and reputation. - Many buyers prefer multiple sources of suppliers to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time. 7. Order-Routine Specifications: the stage in the business buying process in which the buyer writes the final order with the chosen supplier(s), listing the technical, quantity needed, expected time of delivery, return policies, and warranties. 8. Performance Review: The stage of the business buying process in which the buyer rates its satisfaction with suppliers, deciding whether to continue, modify, or drop them. - The buyer reviews supplier's performance. The buyer may contact users and ask them to rate their satisfaction. Institutional and Government Markets Institutional Markets - Institution Markets: Schools, hospital, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Government Markets - Government Markets: Government units-federal, provincial, and municipal- that purchase or rent goods and services for carrying out the main functions of government. - The Department of public works and Government Services Canada helps to centralize the buying of commonly used items in the civilian section. - Federal military buying is carried out by the Department of National Defence - Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. - Government Organizations tend to favour domestic suppliers over foreign suppliers. - Because the Government spending decisions are subject to public review government organizations require considerable paperwork from suppliers, who often complain, about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel. - Many companies that sell to the government have not been marketing-orientated for a number of reasons. Total government spending is determined by elected officials rather than by marketing effort to develop this market. Government buying has emphasized price, making suppliers invest their effort in technology to bring down costs. When the product's characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling matter much in winning bids on an open bid basis. Chapter 7 - Market Segmentation, Targeting, and Positioning for competitive advantage Market - Today most companies are moving away from mass marketing. Instead, they practice target marketing-identifying market segments, selecting one or more of them, and developing products and marketing mixes tailored to each. - Market Segmentation: deciding a market up into distinct groups of buyers with different needs characterises, or behaviours who might require separate products or marketing mixes. The company identifies different ways to segment the market and develop profiles of the resulting market segments. - Market targeting: The process of evaluating each market segment's attractiveness and selecting one or more segments to serve. - Market positioning: Setting the competitive positioning for the product and creating a detailed marketing mix. Market Segmentation Levels of Market Cementation Mass Market - Mass marketing - mass production, mass distributing, and mass promoting the same product in the same way to all customers. - The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest cost, which in turn can translate into either lower prices or higher margins. Segment Marketing - Segment Market: Marketing that recognizes that buyers differ in their needs, perception, and buying behaviour. - The company tries to isolate broad segments that comprise a market and adapts its offers to more closely match the needs of one or more segments. Niche Marketing - Niche Marketing: Marketing that focuses on subgroups within the large identifiable group in the market. Micromarketing - Micromarketing: The practice of tailoring products and marketing programs to suit the tastes of specific individuals or locations. - Micromarketing include local marketing and individual marketing. - Local Marketing: The practice of tailoring brands and promotions to the needs and wants of local customer groups. - Draw backs of local marketing, it can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistical problems as companies try to meet the varied requirements of different regional and local markets. And brands overall image might be diluted if the product and message vary in different stores. - Individual Marketing: The practice of tailoring products and marketing programs to the needs and preferences of individual customers. Bases for Segmenting Consumer Markets Geographic Segmentation - Geographic segmentation: Dividing a market into different geographical units such as nations, provinces, regions, countries, cities or neighbourhoods. Demographic Segmentation - Demographic segmentation: Dividing the market into groups based on demographics variable such as sex, age, family size, family life cycle, income, occupation, education, religion, race, and nationality. - Demographic factors are the most popular bases for segmenting customer groups. One reason is that customer needs, wants and usage rates often vary closely with demographic variables. Another s that demographic variables are easier to measure than most other types of variables. - Table 7-1 Major Segmentation Variables for customer markets (231) Age and life cycle - Age and life cycle: Dividing the market into different age and life cycle groups. - Customer needs and want change with age. Gender - Gender segmentation: Dividing a market into different groups based on sex. Income - Income Segmentation: Dividing a market into different income groups. Psychographics Segmentation - Psychographics segmentation: Dividing a market into different groups based on social class, lifestyle, or personality characteristics. Behaviour Segmentation - Behaviour Segmentation: Dividing marketing into groups based on customer knowledge, attitudes, use, or response to a product. - Occasion Segmentation: Dividing the market into groups according to occasions when buyers get the idea to buy, actually make their purchase, or use their purchase item. Benefit Sought - Benefit Segmentation: Dividing the market into groups according to the different benefits that customers seek from the product. User Status - Markets can be segmented into groups of non-user, ex-users, potential users, first-time users, and regular users of a product. Usage rate - Marketers also can be segmented into light, medium, and heavy user groups. Heavy users are often a small percentage of the market, but account for a high percentage of total buying. Loyalty Status - A market can be segmented by customer loyalty. Some customers are completely loyal-they buy one brand all the time. Others are somewhat loyal- they are loyal to 2 or 3 brands of a given product or favour one brand while sometimes buying others. Still other buyers show no loyalty to any brand. They either want something different each time they buy or they buy whatever is on sale. Segmenting Business Markets - Table 7-3 Major Segmentation Variables for Business Markets - Within the chosen industry, a company can further segment by customer size or geographic location. - Within a target industry and customer size, the company can segment by purchase approaches and criteria. - Programmed buyers à they buy the products as a routine purchase, usually pay full price, and accept below-average service. - Relationship buyers à these buyers regard packaging products as moderately important and are knowledgeable about competitors' offering. They prefer to buy from a retailer as long as its price is reasonably competitive. They receive a small discount and a modest amount of service. - Transaction buyers à these buyers view the product as very important to their operations. They are price and service sensitive. They receive about a 10 percent discount and above-average service. They are knowledgeable about competitors offering and are ready to switch for a better price, even if it means losing some service. - Burgin buyers à these buyers view the product as very important and demand the deepest discount and the highest service. They know the alternatives suppliers, bargain hard, and are ready to switch at the slightest dissatisfaction. Segmenting International Markets - Operating in many countries present new challenges. The different countries of the world, even those that are close together, can vary dramatically in their economic, cultural, and political composition. - Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, the Middle East, or Africa. - World markets can be segmented on the basis of economic factors. For example, countries might be grouped by population income, level, or by their overall level of economic development. - Countries can be segmented by political and legal factors such as the type and stability of government, receptivity firms, monetary regulations, and the amount of bureaucracy. Such factors can play a crucial role in a company's choice of which countries to enter and how. Cultural factors also can be used, grouping markets according to common language, religions, values, and attitudes, customs, and behavioural patterns. - Intermarket Segmentation: Forming segments of customers who have similar needs and buying behaviour even though they are located in different countries. Requirements for Effective Segmentation - Market segmentation must have the following characteristics: v Measurability; the size, purchasing power, and profiles of the segments can be measured. Certain segmentation variables are difficult to measure. For example, there are four million left handed people in Canada -which is 15 of the population. Yet few products are targeted towards left-handed segment. v Accessibility; The market segments can be effectively reached and served. Suppose a food company finds that heavy users of its brands are new Canadians. Unless there are media in the language spoken by these individuals, they will be difficult to reach. v Substantiality; The market segment are large or profitable enough to serve. A Segment should be the largest possible homogenous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for persons who height is less than 4 feet. v Actionability; Effective programs can be designed for attracting and serving the segments. For example, although one small airline identifies seven-market segment, its staff was to small to develop separate marketing programs for each segment. Market Targeting Evaluating Market segments - In evaluating different market segments, a firm must look at 3 factors: segment size and growth segment structural attractiveness, and company objectives and resources. Segment Size and Growth - The company must first collect and analyse data on current segment sales, growth rates and expected profitability for various segments. Segment Structural Attractiveness - A segment is less attractive if it already contains many strong and aggressive competitors. - A segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality or quantity of ordered goods and services. Company Objectives - If a segment fits the company's objectives, the company then must decide whether it possesses the skills and resources needed to succeed in that segment. If the company lacks strength needed to compete successfully in a segment and cannot readily obtain them, it should not enter the segment. Even if the company possesses the required strengths, it needs to employ skills and resources superior to those of the competition in order to really win in a market segment. The company should enter segments only where it can offer superior value and gain advantages over competitors. Selecting Market Segments - Target Market: A set of buyers sharing common needs or characteristics that the company decides to serve. Undifferentiated Marketing - Undifferentiated marketing: A market coverage strategy in which a firm decides to ignore market segment differences and purse the whole market with one offer. - The company designs a product and a marketing program that appeal to the largest number of buyers. - Difficulties arise in developing a product or brand that will satisfy all consumers. Firms using undifferentiated marketing typically develop an offer aimed at the largest segments in the market. Differentiated Marketing - Using a differentiated marketing strategy a firm decides to target several markets and designs separate offers for each. General Motors tries to produce cars for every "purse, purpose, and personality." Nike offers athletic shoes for a dozen or more different sports. - Differentiated marketing typically creates more total sales than does undifferentiated marketing, and growing number of firms have adopted this strategy. - Differentiated marketing: A market coverage strategy in which a firm decides to target several market segments and designs separate offers for each. Concentrated Marketing - Concentrated Marketing: A market-coverage strategy in which a firm goes after a large share of one or a few submarkets. - Concentrated marketing provides an excellent way for a small new business to get a foothold against larger, more resourceful competitors. - Concentrated marketing involves higher than normal risks. The particular market segment can turn sour. Or larger competitors may decide to enter the same agents. Choosing a market coverage strategy - When the firm's resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products such as grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. The product's stage in the life cycle also must be considered. When a firm introduces a new product, it is practical to launch only one version, and undifferentiated marketing or concentrated marketing makes the most sense. - Another factor is market variability. If most buyers have the same tastes, buy the same amount, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Competitors' marketing strategies are important. When competitors use segmentation, undifferentiated marketing can be suicidal. When competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing. Positioning for competitive advantage - Product Position: The way the product is defined by consumers on important attributes-the place the product occupies in consumer's minds relative to competing products. - Tide is positioned as a powerful, all-purpose family detergent Positioning Strategies - Marketers can follow several positioning strategies. They can position their products on specific product promotes performance. Products attributes- Honda Civic advertises its low price; BMW promotes performance. Products can be positioned on the needs they fill or the benefits they offer-Crest reduces cavities; Aim tastes good. Or product can be positioned according to usage occasions-in the summer, Gatorade can be positioned as a beverage for replacing athletes' body fluids; in the winter; it can be positioned as the drink to use when doctor recommends plenty of liquids. - A product can also be positioned directly against a competitors. For example, in its ads, VISA compares itself directly with American Express. Choosing and Implementing A positioning strategy Identifying Possible Competitive Advantages - The key to winning and keeping customers is to understand their needs and buying processes better than competitors do and to deliver more value. To the extent that a company can position itself as providing superior value to selected target market, either by offering lower prices than competitors do or by providing more benefits to justify higher prices, it gains competitive advantage. - Competitive advantage: An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justifies higher prices. Product Differentiation - Differentiation of physical products takes place along a continuum. At one extreme there are highly standardized products that allow little variation, chicken, steel, aspirin. At the other end is paper towels, creating a demand for higher quantity products. Service Differentiation - Installation also can differentiate one company from another. Companies can further distinguish between themselves through their repair services. Providing customer training service. Other companies offer free or paid consulting services-data, information systems, and advising services that buyers need. Personnel Differentiation - Companies can gain string competitive advantage through hiring and training better people than their competitors do. - Personnel differentiation requires that a company select its people carefully and train them well. This is especially important for companies such as consulting firms, which market knowledge-based services that hey tailor to their customers' need. Image Differentiation - Even when competing offers look the same, buyers may perceive a difference based on company or brand image. - Symbols can provide strong company or brand recognition and image differentiation. The chosen symbols must be communicated through advertising that conveys the company or brand personality. The ads attempts to establish a storyline a mood, a performance level-something distinctive about the company or brand. Selecting the right competitive advantage - Many marketers think that companies should promote one benefit to the target market. Ad man Rosser Reeves said that a company should develop a unique selling proposition for each brand and stick to it. Each brand should choose an attribute and tour itself as "number one" on that attribute. Buyers tend to remember "number one". - Other marketers think that companies should position themselves on more than one differentiating factor. This may be necessary if two or more firms are claiming to be best on the same attribute. - In general a company needs to avoid 3 major positioning errors. 1) Underpositioning à failing to ever really position the product at all. Some companies discover that buyers have only a vague idea of the company or that they do not really know anything special about it. 2) Overpositioning à giving buyers too narrow of a picture of the company. Thus, a consumer might think that Steuden glass company makes only fine art glass costing $4000 and up when in fact it makes affordable glass $60 and up. 3) Confused positioning à leaving buyers with a confused image of a company. Ex Burger King (251) Which difference to promote - A difference is worth establishing to the extent that it satisfies the following criteria: q Important: the difference delivers a highly valued benefit to target buyers. q Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way. q Superior: The difference is superior to other ways that customers might obtain the same benefit. q Communicable: The difference is communicable and visible to buyers. q Preemptive: Competitors cannot easily copy the difference. q Affordable: Buyers can afford to pay for the difference. q Profitable: The company can introduce the difference profitably. Communicating and Delivering the Chosen Position - Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. Chapter 8 - Product and Service Strategies What is a Product? - Product: A cluster of benefits that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. It includes physical objects, services, person, places, organizations, and ideas. - Service: Any activity or benefit that the party can offer to another that is essentially intangible and does not result in the ownership of anything tangible. The Product-Service Continuum - Pure-tangible good, such as soap, toothpaste, or salt-no services accompany the product. - Service dominated offerings à an intangible benefit created for the customer but no physical product is exchanged. Examples include a doctor's exam, a university lecture, or financial service. Levels of Product - Core product: The problem solving services or core benefits that consumers are really buying when they obtain a product. Example: A women buying lipstick buys more than lip colour, "It the factory we make cosmetics, in the stores we sell home". - Actual product: A product's parts, quality, level, features, design, brand name, packaging, and other attributes that combine to deliver core products benefits. - Augmented Product: Additional consumer services and benefits built around the core and actual product. Example: warranty on parts, free lessons on how to use the camcorder, quick repair service. - Figure 8-1 Three levels of a product Product Classification Consumer Products - Consumer Products: Products bought by final consumer for personal consumption. - Consumer products include convenience products, shopping products, specialty products, and unsought products. - Convenience Products: Consumer products and services that the customer usually buys frequently immediately, and with a minimum of comparison and buying effort. - Convenience products can divide further into staples, impulse products, and emergency products. Staples are products that consumers buy on a regular basis, such as ketchup, toothpaste, and electric power. Impulse products are purchased with little planning or search effort. These products are normally widely available. - Emergency products when their need is urgent-umbrellas during a rainstorm, travel insurance at an airport, or boots and shovels during the year's first snowstorm. - Shopping products: Consumer goods and services that the consumer, in the process of selection and purchase characteristically compares on such bases as stability, quality, price, and style. - When buying shopping products and services, consumers spend much time and effort in gathering information and making comparison., examples include furniture, clothing, vacations, and restaurant. - Table 8-1 Marketing consideration for consumer products - Specialty products: Consumer products and service with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort. A Rolls Royce, for example, is a specialty product because buyers are usually willing to travel great distances to buy one. - Unsought Product: Consumer products and services that the consumer either does not know about or knows about but does not normally think of buying. Example; life insurance, encyclopaedias, and blood donations. Industrial Products - Industrial products: products and services bought by individual and organizations for further processing or for use in conducting a business. - There are 3 groups of industrial products: materials and parts, capital items, and supplies and services. - Material and Parts: Industrial products that enter the manufacturer's product completely, including raw materials and manufactured materials and parts. - Raw materials include farm products (wheat, cotton, livestock, fruit, vegetables) and natural products (fish, lumber, crude petroleum, iron ore) - Capital Items: Industrial products that partly enter the finished products, including installation and accessory equipment. - They include installations and accessory equipment. Installations consist of building (factories, offices) and fixed equipment (generators, drill presses, large computers and elevators) - Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (fax machine, desks) - Suppliers and services: Industrial products that do not enter the finished product at all. - Supplies and services are industrial products that include operating supplies (lubricants, coal, computer paper, pencils) and repair and maintenance items (paper, nails, broom) Organizations, Persons, Places, and Ideas - Organization marketing consists of activities undertaken to create, maintain, or change the attitudes and behaviour of target consumers toward an organization both profit and non-profit organizations practise organization marketing. - Person marketing consists of activities undertaken to create, maintain, or change attitudes or behaviour toward particular people. - Place marketing involves activities undertaken to create, maintain, or change attitudes or behaviour towards particular places. Examples include business site marketing and tourism marketing. - Ideas also can be marketed. In one sense, all marketing is the marketing of idea, whether it is the general idea of brushing your teeth or the specific idea that Crest provides the most effective decay prevention. - Social Marketing: The creation and implementation of programs seeking to increase the acceptability of a social idea, cause, or practice within targeted groups. Individual Product Decisions - Figure 8-2 Individual product decisions (270) - Developing a product or service involves defining the benefits that the product will offer. These benefits are communicated and delivered by product attributes such as quality, feature and design. Product Quality - Product Quality: the ability of a product to perform its functions; it includes the product's overall durability, reliability, precision, ease of operation, repair, and other valued attributes. - Product Quality has two dimensions-level and consistency. In developing a product, the marketer must first choose a quality level that will support the product's position in the target market. Here, product quality means performance quality- the level at which a product performs its functions. - Product design: The process of designing a product's style and functions: creating a product that is attractive; easy, safe, and inexpensive to use and service; and simple and economical to produce and distribute. Product Features - Features are a completive tool for differentiating the company's product form competitor's products. Being the first producer to introduce a needed and valued new feature is one of the most effective ways to compete. Product Design - Design is a larger concept than style. Style simply describes the appearance of a product. Styles can be eye-catching or yawn inspiring. A sensational style may grab attention, but it does not necessarily make the products perform better. Unlike style, design, is more than skin deep-it goes to the very heart of a product. Good design contributes to a product's usefulness as well as to its looks. Branding - Brand: A name, term, sign, symbol, or design, or a combination of these intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. - Consumers view a brand as an important part of a product, they give products and service a personality that consumers can relate to, and branding can add value to a product. - Branding has become so strong that today hardly anything goes unbranded. - Branding helps buyers in many ways. Brand name helps consumers identify products that might benefit them. Brands also tell the buyer something about product quality. Buyers who always buy the same brand know that they will get the same features, benefits, and quality each time they buy. Branding also gives seller several advantages. The seller's brand name a trademark provide legal protection for unique product features that otherwise might be copied by competitors. - A brand can deliver up to 4 levels of meaning: Ø Attributes. A brand first brings to mind certain product attributes. Example Mercedes suggest attributes as "well engineered", and "durable". The company may use one or more of these attributes in its advertising for a car. Ø Benefits. Customers do not buy attributes, they buy benefits. Therefore, attributes must be translated into functional and emotional benefits. For example, the attribute "durable" could translate into functional benefit. Ø Values. A brand also says something about the buyers' values. Thus Mercedes buyers value high performance, safety, and prestige. A brand marketer must identify the specific groups of car buyers whose values coincide with the delivered benefit package. Ø Personality. A brand also projects a personality. Motivation researchers sometimes ask, "If this brand were a person, what kind of person would you be? The brand will attract people whose actual or desired self-image match the brand's image. Brand Equity - Brand equity: The value of a brand, based on the extent to which it has high brand loyalty, name awareness, perceived quality, strong brand association, and other assets such as patent, trademarks, and channel relationship. - High brand equity provides a company with many competitive advantages; a powerful brand enjoys a high level of consumer brand awareness and loyalty. Brand Name Selection - Figure 8-3 Major branding decision - Desirable qualities for a brand name include: (1) it should suggest something about the product's benefits and qualities. (2) It should be easy to pronounced, recognize, and remember. Short names. (3) The brand name should be distinctive. (4) The name should translate easily into foreign language. (5) It should be capable of registration and legal protection. A brand name should be registered if it infringes on existing brand names. Also, brand names that are merely descriptive or suggestive may be unprotected. Brand Sponsor - The product may be launched as manufactures brand (or national brand), as when Kellogg and IBM sell their output under their own manufacture's brand name. Or the manufacture may sell to resellers who give it a private brand (also called store brand and distributor brand). Although more manufactures create their own brands, other market licenses brand. Finally two companies can co-brand a product, such as when General Motors and Hershey Foods combined brands to create Reese's Peanut Butter Puffs Cereal. - Manufacture's brand (national brand): A brand created and owned by the producer of the product or seller. - Private Brand: A brand created and owned by a reseller of a product or service. - Slotting Fee: Payments demanded by retailers before they will accept new products and find "slot" for them on the selves. Licensing - Some companies license names or symbols previously created by other manufactures, names of well-known celebrities, character from popular movies and books-for fee, any of these can provide an instant and proven brand name. Co-branding - Co-branding: The practice of using the established brand names of two different companies on the same product. - For example, Pillsbury joined Nabisco to create Pillsbury Oreo Bars Baking Mix. - In most co-branding situations, one company licenses another company's well-known brand to use with its own. - Co-branding offers may advantages. Because each brand dominates in different category, the combined brands create broader consumer appeal and greater brand equity. Co-branding also allows companies to enter new markets with minimal risk. Brand Strategy Line Extension - Line extensions occur when a company introduces additional items in a given product category under the same brand name, such as new flavours, forms, colour, ingredients, or package size. - Line Extension: Using a successful brand name to produce additional items in a given product category under the same brand name, such as a new flavour, forms, colour, added ingredients, or package size. - A company might introduce line extensions to meet consumer's desires for variety, to utilize excess manufacturing capacity or to match a competitor's successful line extension. Some companies introduce line extension simply to command more shelf space for resellers. Brand Extension - Brand Extension: Using a successful brand name to launch a new or modified product in a new category. - Fruit of a Loom launched a new line of socks, men's fashion underwear, women's underwear, and athletic apparel. - A brand extension gives a new product instant recognition and faster acceptance. It also saves the high advertising costs usually required to build a new brand name. Ex. Life Saver Gum Multibrands - Multibranding: A strategy under which a seller develops two or more brands in the same product category. - Multibranding also allows a company to lock up more resellers "shelf space." Or the company may want to protect its major brands by setting up flanker or fighter brands. Seiko uses different brands for its higher-priced watches and a different price for its lower-prices watches. - A major drawback of multibranding is that each brand might obtain only a small market share, and none may be very profitable. Packaging - Packaging: The activities of designing and producing the container or wrapper for a product. - Labelling is also part of packaging and consists of printed information appearing on or with the package. - Packaging Concept: What the package should be or do for the product. Labelling - The label identifies the product or brand, such as the name Sunkist stamped on orange. The label might describe several things about the product-who makes it, where it was made, when it was made, its contents, how it is to be used, and how to use it safety. Product-Support Services - Product-support services: Services that augment actual products. Product Line decisions - Product Line: A group of products that are closely related because they function in a similar manner, are sold to the same consumer groups, are marketed through the same type s of outlets, or fall within the given price ranges. - The line is too short if the manager can increase profits by adding an item. The line is too long if the manager can increase profits by dropping items. - It can systematically increase the length of the product line in two ways: by strengthen its line and by filling its line. Stretching Downwards - Figure 8-5 Product Line stretching decision (284) - A company may stretch downward to plug a market hole that otherwise would attract a new competitor, or to respond to a competitor's attack on the upper end. Or it may add low-end products because it finds faster growth taking place in the low-end segments. Stretching Upwards - Companies at the lower end of the market may want to stretch their product lines upwards. They may be attracted by a faster growth rate or higher margins at the higher end, or they may simply want to position themselves as full-line manufacturers or add prestige to their current products. Stretching both ways Filling the Product Line - An alternative to product line stretching is product line filling-adding more items within the present range of the line. Reasons for product line filling: reaching for extra profit, trying to satisfy dealers, trying to use excess capacity, trying to be the leading full-line company, and trying to lug holes to keep out competitors. Product Mix Decisions - Product Mix (or product assortments): The sell of all products lines and items that a particular seller offers for sale to buyers. - The width of the products mix refers to the number of different product line the company carries. - The length of the product mix refers to the number of different product line the company carries. - Figure 8-2 Product Mix (286) - The depth of the product mix refers to the number of versions offered of each product in the line. Thus, Crest comes in three sizes and 2 formulations (paste, and gel); Crest has a depth of 6. Service Marketing - The government offers service through courts, employment services, hospital, loan agencies, military and police... - The private non-profit organizations offer service through museums, charities, churches, colleges, and foundations... - Business organizations offer service through airlines, banks, hotels, insurance companies, and entertainment... Nature and Characteristics of a Service - A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. - A company must consider four special characteristics of a service when designing marking programs, intangibility, inseparability, variability, and perishability. - Figure 8-6 Four service characteristics (290) Intangibility - Service Intangibility: A major characteristic of service-they cannot be seen, tastes, felt, heard, or smelled before they are bought. Example; cosmetic surgery. - Service inseparability: A major characteristic of services- they are produced and consumed at the same time and cannot be separated from their providers, whether the providers are people or machines. - Service Variability: A major characteristics of services-their quality may vary greatly, depending on who provides them and when, where, and how they are provided. For example, some hotel such as the best Western and the Marriot have reputations for providing better device then others. But within a given Marriot, one registration desk employee may be cheerful and efficient, whereas another standing just a few feet away may be unpleasant and slower. - Service Perishability: A major characteristic of services-they cannot be stored for latter sale or use. - Some dentists charge patients for missed appointments because the service value existed only at the point and disappeared when the patient did not show up. Marketing Strategies for Service Firms The Service-Profit Chain - Healthy service profits and growth à superior service firm performance which result from... - Satisfied and loyal customers à satisfied customers who remain loyal, repeat, purchase, and refer other customers, which result from... - Greater service value à more effective and efficient customer value creation and service delivery, which result from... - Satisfied and productive service employees à more satisfied, loyal, and hard working employees, which result from... - Internal Service quality à superior employee selection and training, a quality work environment, and strong support for those dealing with customers. - Internal marketing: Marketing by a service firm to train and effectively motivate its customer-contact employees and all the supporting service people to work as a team to provide customer satisfaction. - Interactive Marketing: Marketing by a service firm that recognizes that perceived service quality depends heavily on the quality of buyer-seller interaction. Managing Service Quality - One of the major ways a service firm can differentiate it is by delivering consistently higher quality than its competitors do. - They assess the credibility of the service. Strong brand names and guarantees increase consumers' perceptions of service credibility. They also want service providers to e empathetic and understand their needs and problems. Services must also be reliable. People expect that the service is delivered with consistent quality. People expect services to be responsive and to deal with them as individuals. People judge service quality using the tangible cues that surround service provision. Managing Productivity - The service providers can train current employees better, or they can hire new ones who will work harder or more skilful for the same pay. Or the service providers can increase the quality of their service by giving up some quality. Chapter 9 - New Product Development and Life Cycle Strategies New Product Development Strategy - A firm can obtain products in 2 ways: Acquisition- buy buying a whole company, a patent, or a license to product someone else's product. The other is through new-product development- in the company's own research and development department. - New product development: The development of original products, product improvements, product modifications, and new brands through the firm's own R&D efforts. - Why do so many new products fail? The market size might have been overestimated. Actual product was not designed as well as it should have been. Or it was incorrectly positioned in the market, price to high or advertised poorly. - Because so many new products fail, companies want to learn how to improve the success of their new product. One way is to identify successful new products and determine what they have in common. The number one success factor is unique superior product, one with high quality, new features, and higher value in use. The New Product Development Process 1. Idea Generation - Idea Generation: The systematic search for new product ideas. - Many new product ideas come from internal sources. - Good new-product ideas result from watching and listening to customers. 2. Idea Screening - Idea Screening: Screening new product ideas in order to identify good ideas and drop poor ones as soon as possible. - The purpose of screening is to identify good ideas and drop poor ones as soon as possible. Product-development costs rise greatly in later stages. The company wants to proceed only with the product ideas that will turn into profitable products. - Committee asks questions such as: Is the product truly useful to consumers and society? Is it good for our particular company? Does it mesh well with the company's objectives and strategies? Do we have the people, skills, and resources to make it succeed? Does it deliver more value to customers than competing products? Is it easy to advertise and distribute? 3. Concept Development and Testing - Product Concepts: A detailed version of new-product idea stated in meaningful consumer terms. - It is important to distinguish among a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product. Concept Development - Concept development: Concept development involves expanding the new product idea into various alternatives forms. - Concept testing: Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal. - Some concept test a word or picture description might be sufficient. - After being exposed to the concept, consumers then may be asked to react to it by answering the questions in Table 9-2 (319) - Many firms routinely test new product concepts with consumers before attempting to turn them into actual new products. 4. Marketing Strategy Development - Marketing Strategy development: Designing an initial marketing strategy for a new product based on the product concept. - They marketing strategy statement consist of 3 parts. The first part describes the target market; the planned product positioning: and the sales, market share, and profit goals for the first year. The second part outlines the product's planned price, distribution, and marketing budget for the first year. The third part describes the planned long-run sales, profit goals, and marketing mix strategy. 5. Business Analysis - Business Analysis: A review of the sales, costs, and new profit projections, for a new product to determine whether these factors satisfy the company's objectives. - Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. If they do, the product can move to the product-development stage. To estimate sales, the company should examine the sales history of similar products and should survey market opinion. It should estimate minimum and maximum sales to assess the range of risk. 6. Product Development - Product Development: Developing the product concept into a physical product to assure that the product idea can be turned into a workable product. 7. Test marketing - Test marketing: The stage of new-product development where the product and marketing program are tested in more realistic market settings. - Test marketing gives the marketer experience with marketing the product before going to the expense of full introduction. It lets the company test the product and its marketing program-positioning strategy, advertising, distribution, pricing, branding, packaging, and budget level. - 3 Types of Test marketing: (1) Standard Test Markets (2) Controlled Test Marketing (3) Simulated Test Marketing Standard Test Markets - The company finds a small number or representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor survey, and other measures to gauge product performance. - May be very costly, takes a long time, gives competitors a look at the company's new product well before it is introduced nationally. Thus competitors may have time to develop defensive strategies, and may even beat the company's product to the market. Controlled Test Markets - Research firm keeps controlled panels of the store that have agreed to carry new products for a fee. The company with the new product specifies the number of stores and geographical locations it wants. The research firm delivers the product to the participating stores and controls shelf locations, amount of self-space, display and point of-purchase promotions, and pricing according to specified plans. Sales results are tracked to determine the impact of these factors on demand. - Controlled test markets take less time than standard test markets. Cost less. - Disadvantage: Limited number of cities and panel consumers used by the research services may not be representative of their product's markets or target consumers. Simulated Test Markets - The company shows ads and promotion for the new products. It gives a sample of a new product being tested in shopping centres. Gives customers a small amount of money and invites them to a laboratory store where they can keep the money or buy items. The researcher notes how many customers buy the new item. The research then ask consumers the reason for their purchase or non-purchase. Some weeks later, they interview the consumers by phone to determine product attitudes, usage, satisfaction, and purchase intentions. - Cost much less, keep the new product out of competitor's view. Disadvantage: does not consider simulated test markets to be accurate or reliable as larger, real-world tests. Test Business Products - Product use test à The business marketer selects a small group of potential customers who agree to use the new product for a limited time. - Trade Shows à These shows draw large number of buyers who view new products in a few concentrated days. The manufacture sees how buyer react to various product features ad terms, and can assess buy interest and purchase intentions. - Standard or controlled test markets à to measure the potential of their new products. They produce limited supply of the product and give it to the sales force in a limited number of geographical areas. 8. Commercialization - Commercialization: Introducing a new product into the market. - The company launching a new product must first decide on introduction timing. - The company must decide where to launch the new product-in a single location, a region, the national market, or the international market. Speeding up New-Product Development - Sequential Product Development: A new product development approach in which one company department works individually to complete its stage of the process before passing the new product along to the nest departments and stage. - This orderly, step-by step process can help bring control to complex and risky projects, but it can be dangerously slow. In fast-changing, highly competitive markets, such slow-but-sure product development can result in product failures, lost sales and profits, and crumbling market positions. - Simultaneous (or team based) product development: An approach to developing new products in which various company departments work closely together, overlapping the steps in the product-development process to save time and increase effectiveness. - The objective is not to create a product faster, but to create them better and faster. Product Life Cycle - Figure 9-2 (327) - Product Life Cycle (PLC): The course of a product's sales and profit over its lifetime. It involves five distinct stages: product development stage, Introduction, Growth, Maturity and Decline. - 1. Product development begins when the company finds and develop a new-product idea. During product development, sales are zero and the company's investments costs mount. - 2. Introduction is a period of slow sales growth as the product is being introduced in the market. Profits are non-existent in this stage because of the heavy expense of the product introduction. - 3. Growth is a period of rapid market acceptance and increasing profits. - 4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profit level off or decline because of increased marketing outlays to defend the product against competition. - 5. Decline is the period when sales fall off and profits drop. - Figure 9-3 (328) - Style: A basic and distinctive mode of expression. Example. Styles of Victoria, ranch, modern) - Fashion: A currently accepted or popular style in a given field. - Fads: Fashion that enters quickly is adopted with great zeal, peak early, and decline very fast. Introduction Stage - Introduction Stage: The product life cycle stage when the new product is first distributed and made available for purchase. - Profits are negative or low because of the low sales and high distribution and promotion expenses. Mush money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. Growth Stage - Growth Stage: The product life cycle stage at which a product's sales start climbing quickly. - The early adapters will continue to buy and later buyers will start following their lead. - Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where the are or fall only slightly. - Profits increase during growth stage, as promotion costs are spread over a large volume and as unit-manufacturing costs. Maturity Stage - Maturity Stage: The stage in the product life cycle where sales growth slows or levels off. - Overcapacity leads to greater competition. Competitors being marketing down prices, increase their advertising and sales promotion, and increasing their R&D budgets to find better versions of their product. - In modifying the market, the company tries to increase the consumption of the current product. - The company might also try modifying the product changing the product characteristics such as quality, features, and style to attract new users and to inspire more usage. It might improve the products quality and performance-its durability, reliability, speed, taste. Or it might add new features that expand the product's usefulness, safety, or convenience. - The company might decide to modify the marketing mix. Decline Stage - Decline Stage: The product life cycle stage at which a product's sales decline. - Many reasons include technological advances, shifts in consumer tastes, and increase in competition. - The biggest cost may well lie in the future. Keeping weak products delays the search for replacements, creates a lopsided product mix, hurts current profits, and weekend the company's foothold on the future. - Management may decide to maintain its brand without change in the hope that competitors will leave the industry. - Management may decide to harvest the product, which means reducing various costs (plants, equipment, maintenance R%D, advertising, sales force) and hoping that sales hold up. - Figure 9-3 (333) Chapter 20 - Marketing and Society Marketing Impact on Individual Consumers High Costs of Distribution - A longstanding charge is that greedy intermediaries mark up prices beyond the value of their service. - How do retailers answer to these charges? They argue the following: intermediaries do work that would otherwise have to be done by manufactures or consumers. Mark-ups reflect services that consumers themselves want-more convenience, larger stores and assortments, long store hours, return privileges. The cost of operating stores keep rising, forcing retailers to raise their prices. Retail competition is so intense that margins are actually quite low. High Advertising and Promotion Costs - Differentiated products-cosmetics, detergents, toiletries-include promotion and packaging costs that can amount to 40 percent or more of the manufacturer's price to the retailer. - Marketers answer these changes in many ways: Consumers want more benefits -they want to feel wealthy, beautiful, or special. Consumers usually can buy functional versions or products at lower prices but often are willing to pay more for products that also provide desired psychological benefits. Branding gives buyers' confidence. A brand name implies a certain quality, and consumers are willing to pay for well-known brands even if they cost a little more. Heavy advertising is needed to inform millions of potential buyers of the merits of a brand. If consumers want to know what is available on the market, they must expect manufacturers to spend large sums on money on advertising. Heavy advertising and promotion may be necessary for a firm o match competitors' efforts. The business would lose "share of mind" if it did not match competitive spending. Heavy sales promotion is needed to time to time because goods are produced ahead of demand in a mass-production economy. Deceptive Practice - Marketers are sometimes accused of deceptive practices that lead consumers to believe that they will get more value than they actually do. - It falls into three groups: deceptive pricing, promotion, and packaging. - Deceptive pricing à includes practices such as falsely advertising "factor" or "wholesale" prices or a large price reduction from a phoney high retail list price. - Double-tagging, the practise of placing a sales ticket showing an original price an another ticket showing a sales price of a piece of clothing. - Deceptive promotion includes practices such as overstating the product's features or performance, luring the customer to the store for a barging that is out of stock, or running rigged contests. - Deceptive packaging à includes exaggerating package contents through subtle design, not filling the package to the top, using misleading, labelling, or describing size in misleading terms. High-Pressure Selling - Salespeople are sometimes accused of high-pressure selling the persuades people to buy goods they has no intention of buying. - Marketers know that buyers often can be talked into buying unwanted or unneeded things. Shaddy or Unsafe Products - Products lack quality they should have. One complaint is that many products are not made well or services did not perform well, also many products deliver little benefits. Another concern is product safety. Product safety has been a problem for several reasons, including manufacturer indifference, increase production complexity, poorly trained labour, and poor quality control. Planned Obsolescence - Causing their products to become obsolete before they actually should need replacement. - Holding back attractive functional features, then introducing them later to make older models obsolete. - Marketers respond that consumer's life style changes; they get tired of the goods and want a new look in fashion or a new design in cars. Poor Service to Disadvantages Consumers - Accused of poorly serving disadvantaged consumers. Critics claim that the urban poor often have to stop in smaller stores that carry inferior goods and charge higher prices. Marketing's Impact on Society as a whole Too Few Social Goods - Business have been accused of overselling private goods at the expense of public goods. For example, an increase in automobiles ownership (private good) requires more highways, traffic controls, parking spaces, and police services (public goods). The overselling of private goods result in "social costs." - A way must be found to restore a balance between private and public goods. One option is to make producers bear the full social costs of their operations. Cultural Pollution - Critics charge marketing system with creating cultural pollution and commercial noise. Too Much Political Power - Advertisers are accused of holding too much power over the mass media, limiting their freedom to report independently and objectively. Example (686) Marketing's Impact on Other Business - Critics also charge that a company's marketing practices can harm other companies and reduce competition. 3 problems are involved: acquisitions or competitors, marketing practices create barriers to entry, and unfair competitive marketing process. - Large marketing companies can use patent and heavy promotion spending, and can tie up suppliers or dealers to keep out or drive out competitors. - Some firms have in fact used unfair competitive marketing practices with the intention of hurting or destroying other firms. They may set their prices below costs, threaten to cut off business with suppliers, or discourage the buying of a competitor's product. Citizens and Public Actions to Regulate Marketing Consumerism - Consumerism: An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers. - The association has also outlined the following as fundamental consumer rights: · The right of safety · The right to be informed · The right to choose · The right to be heard · The right to redress against damage · The right to consumer education Environmentalism - Environmentalism: An organized movement of concerned citizens and government agencies to protect and improve people's living environment. - Environmentalists are not against marketing and consumption; they simply want people and organizations to operate with more care for the environment. - Environmentalists want environmental costs included in both producer and consumer decision-making. Business Actions toward socially responsible Marketing Enlightened Marketing - Enlightened Marketing: A marketing philosophy holding that a company's marketing should support the best long-run performance of the marketing system: its five principle include consumer-oriented marketing, Innovative Marketing, value Marketing, sense-of-mission marketing and societal marketing. - Consumer-Orientated Marketing: A principle of enlightened marketing that holds that a company should view and organize its marketing activities from the consumers' point of view. - Innovative Marketing: A principle of enlightened marketing that requires that a company seek real product and marketing improvements. - Value Marketing: A principle of enlightened marketing that holds that a company should put most of its resources into value-building marketing investments. - Sense-of-Mission Marketing: A principle of enlightened marketing that holds that a company should define its mission in broad social terms rather than narrow product terms. Societal Marketing - Societal marketing: A principle of enlightened marketing that holds that a company should make marketing decisions by considering consumers' long-run interests, and society's long-run interests. - Deficient products: Products that have neither immediate appeal nor long-run benefits - Pleasing Products: Products that give high immediate satisfactions but may hurt consumers in the long run. - Salutary Products: Products that have low appeal but may benefit consumer in the long run. - Desirable Products: Products that give both high immediate satisfaction and high long-run benefits. Principle for Public Policy towards marketing - The principle of consumer and producer freedom - The principle of curbing potential harm. - The principle of meeting basic needs - The principle of economic efficiency - The principle of innovation - The principle of consumer education and information - The principle of consumer protection. f:\12000 essays\business & economics (632)\Marketing project 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marketing Project Introduction In the ever changing technological era of the soon to be 21st century, electronic advancements have amazed us all. Unfortunately, the educational gap for the common man/woman as a computer end user has left many far behind. There are those who know and those who don't. This gap is the anchor of the computer industry. One question comes to mind. "Why would I buy a computer, investing thousands of dollars, when I don't know the first thing about them?" If it were as easy as plugging it in and it guiding you through every nook and cranny answering every question you had, then the computer would basically sell itself. However, the shortcomings of this incredible technology intimidates the average person. There has to be a liaison, an educator, a hand-holder, someone that is there, patient and understanding, willing to teach and guide the most timid of users. This is where my service comes in to play. A service that is there for the computer novice, a strong, knowledgeable voice just a phone call away, soothing the anxieties, relieving the pressures of ignorance. Target Market A geographic approach for my business would be the most feasible. I'm concerned with anyone that now owns, plans to own, or is reluctant to own because of their fear due to lack of knowledge. As a test area, I would keep my business in the immediate vicinity. The Battle Creek/Kalamazoo area would be my start up point. Although computer sales have increased considerably due to the drastic drop in prices and at the same time the increase in speed and abilities, I don't want to bite off more than I can chew. There will always be computer users because, like the television, society has welcomed the computer chip into everyday life. In other words, expansion will be there. Product Strategy My business is a service to the public. Mainly telephone contact to all that contract with the service. For those extreme cases, home visits may be a necessity. The main purpose is to guide the computer owner through any problems they may encounter. At the present time, most computer companies offer assistance at a fee of $35 per situation. That means every time you need help it's $35. I ran into this when I first purchased my computer and I was quite angry about it. I gave my business to this company, not to mention almost three thousand dollars, and they have the gall to charge me more every time I had a problem. If someone who has no idea how to use a computer needs help, this could get quite costly. My business would deal more on the novice level. From how to turn on your computer to more advanced applications. I plan to gear my service toward the person who has a simple problem, to the more learned computer user, and will call on my service without hesitation. My goal would be to make the customer feel comfortable no matter how insignificant the case. This is what would separate my business from the others. Pricing Strategy I would be most likely accepted in the market in a penetration pricing strategy. First, my overhead would be minimal so cost of my service would best serve the public at a low start up price. Second, not many are willing to open their pocket books too wide after they've already made a major purchase. However, since my service could be considered a short term service with a high turnover, a month to month contract or a choice of extensions to this contract for additional fees would go like this: $25 for the first month up to 25 calls $45 for two months up to 50 calls $70 for three months up to 75 calls $125 for six months unlimited calls $200 for 1 year unlimited calls all emergency home visits would be a $20 charge An important note: These would be the promotional prices in the Introductory stage of my business. If and when my client list expands, further changes and adaptations would take effect. At this stage I'm more interested in building clientele. When it comes to a service, the price/value relationship is less likely to come into question. Therefore it will be my responsibility to convey to the potential customer the purpose and obligations of my service. I feel that once a person has an interest to call and question my service, the importance of communication is utmost to the sale. Making up a procedure for calls received, as to type, would be in place before initial advertising. Placement/Distribution The simplification of my service is that the channels of distribution is quite narrow. The customer can pick up the phone and contact me at any time. I would utilize a Selective strategy. The main area of exposure would be in the major computer sales retail stores such as Best Buy , Staples, and other more technical stores. Developing a relationship with management to these establishments, conveying that their computer sales could increase considerably if their customers knew that there was a service after purchase. Even possible supplemental deals purchased in a package with the computer for my service would also be a selling point to their product. This would provide prestige for this store's selling pitch. Working from my home would provide extreme low overhead on start-up. Adding additional phone lines for convenience would be an expense. Later down the line as my client list grows, adding more responsible, personable, and computer literate employees to the payroll will be necessary. Promotion Strategy The initial kickoff of my business would employ a pull strategy. I would try to get a working history and reputation before I approached the large chain stores. This would include using a beeper. Since I wouldn't put all my eggs in one basket, I would start by placing ads in the area newspaper and literary documents such as the Shopper, and other free hand out type circulations. As I said before, my main goal would be to establish a client list so I would post fliers, hand out business cards, and use word of mouth to my advantage. I would concentrate on keeping expenses down so my own salesmanship and personal contact would be my biggest assets. Once I had a reasonable client list and history of satisfied clients, I could approach the major franchises with respectable proposals. Selling my service to retail stores in conduction with their computer sales would be a major goal of my business. If successful, I could then employ the push strategy, as my service would be an attractive selling point to the computer novice. The initial ad I would place would go something like this: Does this machine scare you? Does your computer go unused because you don't know how to use it? Have you put off buying a computer because you don't know the first thing about it? Would you feel better knowing that there is a business that specializes in helping people like you? SAV-YOR COMPUTER CONSULTANTS! Our main objective is to guide you, the computer novice, on any and all problems with your computer. From how to turn it on, how to understand your computer, how to make your computer work for you, and even help you out with a computer purchase. There is no problem too small! We understand that the computer can be quite overwhelming at times and even the more experienced person can run into problems. Our purpose is to be here for you to help whenever you need us! We're only a phone call away! For more details please call: 1-800- 555-1234 I wouldn't rely as much on the newspaper ads as I would on personal contact and sales. Although the ad may sound 'cheesy', it is simple and to the point. The importance would be in the initial phone contact. If the call was a Q & A about the business, this would be a great opportunity for reeling in the customer. If the call was an established client, only the most professional and expedient handling of the problem would be acceptable. It will be crucial to make the customer feel comfortable and leave the situation feeling satisfied. Conclusion With the explosive surge of computer products and technology saturating our way of life, there must be a bridge to close the gap from the unknown to the producer. The market for a service to educate and dissolve the barriers of computer fears is vast and never-ending. This is a turning point in our lives. The computer is here to stay and will eventually engulf our way of life in even the most routine of chores. This is the service I will begin. Someday I'll look back, just as Microsoft giant Bill Gates, and remember sitting at my desk pumping life into a simple idea. Marketing Project by Bill Rossetti f:\12000 essays\business & economics (632)\Marketing Project.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marketing Project Bill Rossetti Introduction In the ever changing technological era of the soon to be 21st century, electronic advancements have amazed us all. Unfortunately, the educational gap for the common man/woman as a computer end user has left many far behind. There are those who know and those who don't. This gap is the anchor of the computer industry. One question comes to mind. "Why would I buy a computer, investing thousands of dollars, when I don't know the first thing about them?" If it were as easy as plugging it in and it guiding you through every nook and cranny answering every question you had, then the computer would basically sell itself. However, the shortcomings of this incredible technology intimidates the average person. There has to be a liaison, an educator, a hand-holder, someone that is there, patient and understanding, willing to teach and guide the most timid of users. This is where my service comes in to play. A service that is there for the computer novice, a strong, knowledgeable voice just a phone call away, soothing the anxieties, relieving the pressures of ignorance. Target Market A geographic approach for my business would be the most feasible. I'm concerned with anyone that now owns, plans to own, or is reluctant to own because of their fear due to lack of knowledge. As a test area, I would keep my business in the immediate vicinity. The Battle Creek/Kalamazoo area would be my start up point. Although computer sales have increased considerably due to the drastic drop in prices and at the same time the increase in speed and abilities, I don't want to bite off more than I can chew. There will always be computer users because, like the television, society has welcomed the computer chip into everyday life. In other words, expansion will be there. Product Strategy My business is a service to the public. Mainly telephone contact to all that contract with the service. For those extreme cases, home visits may be a necessity. The main purpose is to guide the computer owner through any problems they may encounter. At the present time, most computer companies offer assistance at a fee of $35 per situation. That means every time you need help it's $35. I ran into this when I first purchased my computer and I was quite angry about it. I gave my business to this company, not to mention almost three thousand dollars, and they have the gall to charge me more every time I had a problem. If someone who has no idea how to use a computer needs help, this could get quite costly. My business would deal more on the novice level. From how to turn on your computer to more advanced applications. I plan to gear my service toward the person who has a simple problem, to the more learned computer user, and will call on my service without hesitation. My goal would be to make the customer feel comfortable no matter how insignificant the case. This is what would separate my business from the others. Pricing Strategy I would be most likely accepted in the market in a penetration pricing strategy. First, my overhead would be minimal so cost of my service would best serve the public at a low start up price. Second, not many are willing to open their pocket books too wide after they've already made a major purchase. However, since my service could be considered a short term service with a high turnover, a month to month contract or a choice of extensions to this contract for additional fees would go like this: $25 for the first month up to 25 calls $45 for two months up to 50 calls $70 for three months up to 75 calls $125 for six months unlimited calls $200 for 1 year unlimited calls all emergency home visits would be a $20 charge An important note: These would be the promotional prices in the Introductory stage of my business. If and when my client list expands, further changes and adaptations would take effect. At this stage I'm more interested in building clientele. When it comes to a service, the price/value relationship is less likely to come into question. Therefore it will be my responsibility to convey to the potential customer the purpose and obligations of my service. I feel that once a person has an interest to call and question my service, the importance of communication is utmost to the sale. Making up a procedure for calls received, as to type, would be in place before initial advertising. Placement/Distribution The simplification of my service is that the channels of distribution is quite narrow. The customer can pick up the phone and contact me at any time. I would utilize a Selective strategy. The main area of exposure would be in the major computer sales retail stores such as Best Buy , Staples, and other more technical stores. Developing a relationship with management to these establishments, conveying that their computer sales could increase considerably if their customers knew that there was a service after purchase. Even possible supplemental deals purchased in a package with the computer for my service would also be a selling point to their product. This would provide prestige for this store's selling pitch. Working from my home would provide extreme low overhead on start-up. Adding additional phone lines for convenience would be an expense. Later down the line as my client list grows, adding more responsible, personable, and computer literate employees to the payroll will be necessary. Promotion Strategy The initial kickoff of my business would employ a pull strategy. I would try to get a working history and reputation before I approached the large chain stores. This would include using a beeper. Since I wouldn't put all my eggs in one basket, I would start by placing ads in the area newspaper and literary documents such as the Shopper, and other free hand out type circulations. As I said before, my main goal would be to establish a client list so I would post fliers, hand out business cards, and use word of mouth to my advantage. I would concentrate on keeping expenses down so my own salesmanship and personal contact would be my biggest assets. Once I had a reasonable client list and history of satisfied clients, I could approach the major franchises with respectable proposals. Selling my service to retail stores in conduction with their computer sales would be a major goal of my business. If successful, I could then employ the push strategy, as my service would be an attractive selling point to the computer novice. The initial ad I would place would go something like this: Does this machine scare you? Does your computer go unused because you don't know how to use it? Have you put off buying a computer because you don't know the first thing about it? Would you feel better knowing that there is a business that specializes in helping people like you? SAV-YOR COMPUTER CONSULTANTS! Our main objective is to guide you, the computer novice, on any and all problems with your computer. From how to turn it on, how to understand your computer, how to make your computer work for you, and even help you out with a computer purchase. There is no problem too small! We understand that the computer can be quite overwhelming at times and even the more experienced person can run into problems. Our purpose is to be here for you to help whenever you need us! We're only a phone call away! For more details please call: 1-800- 555-1234 I wouldn't rely as much on the newspaper ads as I would on personal contact and sales. Although the ad may sound 'cheesy', it is simple and to the point. The importance would be in the initial phone contact. If the call was a Q & A about the business, this would be a great opportunity for reeling in the customer. If the call was an established client, only the most professional and expedient handling of the problem would be acceptable. It will be crucial to make the customer feel comfortable and leave the situation feeling satisfied. Conclusion With the explosive surge of computer products and technology saturating our way of life, there must be a bridge to close the gap from the unknown to the producer. The market for a service to educate and dissolve the barriers of computer fears is vast and never-ending. This is a turning point in our lives. The computer is here to stay and will eventually engulf our way of life in even the most routine of chores. This is the service I will begin. Someday I'll look back, just as Microsoft giant Bill Gates, and remember sitting at my desk pumping life into a simple idea. f:\12000 essays\business & economics (632)\Marketing Senior Study.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marketing Senior Study Feasibility Study "At Your Service" Description of the Business Lebanon is a country of services and creating a new business in Lebanon that provide a new service for people living in Lebanon would be a great idea. This business acts as a middleman between the companies or shop or people who provide a specific service and consumers. The name of the Business is "AT YOUR SERICE" Company. This business is divided into 5 kind of services: 1. 1. Home Service: * * Painting houses (inside/outside) * Cleaning * Electricity maintenance * swimming pool cleaning * Gardener * House Security * House insurance * 1 day maid service 1. 1. Car Services: * * Mechanist * electronic * Polishing * Insurance * Security * Emergencies 3- Delivery Services: * * Water delivery * Supermarkets delivery * Fast-food delivery * General product delivery (electronics, furniture..etc) 4. External Services: * * Taxi * Hotel reservations * International telephone line * Restaurant Reservations 5. Health Care Services: * * Doctors * Medical Care Centers What do we do exactly? 1st of all, PRs go and search for the companies or people that do provide these services with high quality. Make one-year- contracts with them that we will be marketing their services or selling their products to consumers on condition that they will pay us a specific percentage as commission and that they should make home delivery. Secondly, we print an index that list the names of these companies according to the type of services that they provide. When a consumer calls, we provide him/her with all the information about the company that will be selling him its products and the cost. Then, we take the name, address, and telephone number of this consumer. After that we call the nearest company to this consumer and they will deliver their high quality product to him in less time and at a specific discount rate. Finally, we call back the consumer to get a feedback on the service. If it was O.K, then we make another year contract with the company. If the service was not up to the standard, then we avoid to deal with the company next year. The Marketing Mix of this business People Our target market is the people living in Lebanon who seek somebody to do the job in a high quality, less time consuming and at a lower price. This people are busy people, businessmen, housewives, and sick elder people. Place The office will be opened in Beirut. This service could be provided anywhere in Lebanon. Later on, a web page on the Internet for this business would increase the probability of reaching more the target market. Price Our service for consumers is free of charge. We only get paid a commission from the companies. Promotion a) Pre introduction stage of the business: An advertisement could appear on T.V on in this way: 1st week: " A Businessman is making a phone call from his office, he asks only " At your service?" Then a lady replies by saying only " At your service." in a very nice way. 2nd week: "The door of a house in a silent town is being knocked." A very old funny woman and man, open the door. A doctor appears in front of the door saying friendly "At your service." 3rd week: " A housewife is living in a great mass, very busy in cleaning her house, always anxious and nervous. She looked into window to find her neighbor sitting relaxed, calm, and enjoying her time. The neighbor then look to this housewife, smile and says "At your service". At this stage, the target market would be aware completely of the word "At your service", but still don't know what is it all about. b)Introducing the business: Here, An advertisement on T.V which provide the consumers with the theme of the service which is simply " We deliver to you a high quality service, in less time, at a lower price, just call 01/778899 (for example). Then, a nice looking pamphlet that contains all the detailed information oF our service would be necessary distributed to people. Estimating the Demand I believe the idea is a new one in Lebanon. There are no direct competitor to this business around. But, indirect competitors like "Khadamat" ,which provide somehow a different service than ours (home delivery), still has some negative effect on our market share. However, I randomly chose 150 person to answer this question: "If there is a company that deliver to you the product you need in less time and at a lower price, Do you think that you personally would benefit from this service? 79% of people said yes. 17% of people said uncertain. 4% said No. So , I believe it is a good idea specially because Lebanese people like to be served. This idea is done also in many other countries. Estimating the cost: 1-Opening this Business: apply for a bank loan 80000 $ lease an apartment 1000$ Per month furnished it, and buy all the equipment needed 7000$ Get the license from the government (unknown) Recruitment, training the employees 2000$ Printing the index (unknown) promotions and advertising costs 20000$ A telephone line that could be easily remembered by people 1000$. The business contains these departments: -Marketing department which responsible of make deals with the companies or people who provide services. -Customers department , a number of trained ladies who reply the consumer calls and register their information. -Research and development department which is responsible on getting the feedback and develop the business -Accounting department -Lawyer -General manager who supervises the whole business. Forecasted balance sheet for the 1st year Assets Liabilities Cash 74500 Note Payable 80000 Office Furniture 3000 less: Depreciation 300 2700 Owners equity Equipment: 4000 Iman Itani's capital 1800 less: Depreciation 400 3600 _______ 81800$ 81800$ Income Statement for the 1st year Revenue 140000$ Less: General expenses 3000$ Salaries 100000 telephone and electricity 3000 Lease apartment 12000 Advertising 20000 138000 Income before taxes 2000 Less: tax (10%) 200 _____ Net Profit 1800$ Forecasted balance sheet for the 2nd year Assets Liabilities Cash 95480 Note payable 80000 Office Furniture 2700 less: Depreciation 270 2430 Owners equity Equipment: 3600 Iman Itani's capital 21150 less: Depreciation 360 3240 _______ 101150$ 101150$ Income Statement for the 2nd year Revenue 160000$ Less: General expenses 1000$ Salaries 100000 telephone and electricity 3500 Lease apartment 12000 Advertising 10000 126500 Income before taxes 23500 Less: tax (10%) 2350 ______ Net Profit 21150$ f:\12000 essays\business & economics (632)\Marketing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marketing The Brand/Product: 1.Attributes: The attributes are the product's primary characteristics, both physical and functional. They are what the consumer might recognize first about the product through the five senses. The physical attributes are what make the product what it is. They are scent, texture, package, contents, variety and price. The functional attributes are shown by how the products work. They include sun protection, moisture for the skin and an attractive promotion. 2. Benefits: Benefits are what the actual product attributes can do for the consumer. It is important to make these benefits different from the competition's. Each physical attribute possesses certain benefits that satisfy the consumers wants. The scent of our product is what makes our lotion so different. None of our competition brands have a scented sun tan lotion on the market that is targeted at our segment; the only other is Coppertone Kids' varieties (5). Our lotion comes in a very appealing scent that makes the consumer feel comfortable and excited about putting sun tan lotion on their bodies. There is no overbearing or strong oily scent like some lotions, and there is no fake odor like the "coconut" tanning oils that are on the market today (1). All of this was taken into consideration when we came out with our light, refreshing and mild- scented fragrance called "Summer Rain." All of our varieties of lotion will be in this scent because it is one that can be appealing to all different types of people, not just our target market. The texture is non-oily and does not feel too heavy on the skin. This is important because when people use our product, they will be pleased that they do not have to worry about clogs pores that may lead to acne. It also leaves the skin feeling healthier because of the natural moisturizers. Our lotion comes in three different varieties for different skin types. We have lotion for normal skin, dry skin, and oily skin. Each lotion has certain amounts of Vitamin E, aloe and vera and other moisturizers so that the skin will "always return to its natural balance" as it is used (4). The contents of our product are always organic and pure. We use only the finest and botanical ingredients, all carefully tested for purity and effectiveness. (4) This makes the product safer to use for the consumer and for the earth. It is clean and refreshing, not oily and irritating. Plus, we keep in mind the earth and all creatures by never testing on any animal. This is important with the current market trend of products that are pure, safe, and friendly to animals. (4) The package is also another factor that defines Herbal Essence. The clear bottles allow the consumer to see the purity of this product. This feature also allows brand loyal customers to easily identify our product by its signature clear bottle. Sun protection is a big issue today with the wide spread fear of skin cancer. Our lotions include the ingredients needed to protect the sun's UV rays (2). Each SPF is recommended by the FDA for certain skins and how they burn or tan. For example, our SPF of 4 is for those who do not burn much and tan quite easily (3). The SPF's offered are 4, 8, 15, 30 and 45. The price of our product allows an affordable and competitive way to protect the skin and, but without sacrificing quality or quantity. The sun tan lotions on the market today have a price trend of between $3.79 to $11.99 (1). We offer our lotion in two sizes: 4oz and 8 oz, which should retail for $5.19 and $7.95 respectfully. We feel comfortable with these prices because we place our selves around the middle of the pack, but we do not want to be identified as a "cheap" brand. We want our customers to know that they are buying a high quality product. The last important benefit or our product is its great variety. We offer three textures for different skin types, five different SPF's, in two sizes. This gives our customers great selection in how they want their skin to be protected. 3. The Most Levergable Benefits and Attributes Versus The Competition: § Scent- Herbal Essence is known for their extra refreshing botanical fragrances more than any other brand. § Organic and pure contents- The consumers now want safer products for the environment. Our competition does not offer organic products. § Variety- The consumer has a great selection in texture, protection, and size of how they want to purchase their Herbal Essence sun tan lotion. § Price- The consumer can buy a high quality product at a reasonable price, something that is rare today. Scources: note: these spaces in the addresses are underscores 1.www.planetrx.com/product/nonrx/shelf/info/200440149-6_introduction.html 2.www.planetrx.com/product/nonrx/shelf/add_info/200440149_ingredient.html 3.www.fda.gov/fdac/features/sunchart.html 4.www.clairol.com/products/hrbalnoframes/herbalbody/herbalbody.html 5.www.planetrx.com/product/nonrx/shelf/topbrands/200440149_filter_193.html#shelf f:\12000 essays\business & economics (632)\Marx.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In Karl Marx's early writing on "estranged labor" there is a clear and prevailing focus on the plight of the laborer. Marx's writing on estranged labor is an attempt to draw a stark distinction between property owners and workers. In the writing Marx argues that the worker becomes estranged from his labor because he is not the recipient of the product he creates. As a result labor is objectified, that is labor becomes the object of mans existence. As labor is objectified man becomes disillusioned and enslaved. Marx argues that man becomes to be viewed as a commodity worth only the labor he creates and man is further reduced to a subsisting animal void of any capacity of freedom except the will to labor. For Marx this all leads to the emergence of private property, the enemy of the proletariat. In fact Marx's writing on estranged labor is a repudiation of private property- a warning of how private property enslaves the worker. This writing on estranged labor is an obvious point of basis for Marx's Communist Manifesto. The purpose of this paper is to view Marx's concept of alienation (estranged labor) and how it limits freedom. For Marx man's freedom is relinquished or in fact wrested from his true nature once he becomes a laborer. This process is thoroughly explained throughout Estranged Labor. This study will reveal this process and argue it's validity. Appendant to this study on alienation there will be a micro-study which will attempt to ascertain Marx's view of freedom (i.e. positive or negative). The study on alienation in conjunction with the micro-study on Marx's view of freedom will help not only reveal why Marx feels labor limits mans freedom, but it will also identify exactly what kind of freedom is being limited. Karl Marx identifies estranged labor as labor alien to man. Marx explains the condition of estranged labor as the result of man participating in an institution alien to his nature. It is my interpretation that man is alienated from his labor because he is not the reaper of what he sows. Because he is never the recipient of his efforts the laborer lacks identity with what he creates. For Marx then labor is "alien to the worker...[and]...does not belong to his essential being." Marx identifies two explanations of why mans lack of identity with labor leads him to be estranged from labor. (1) "[The laborer] does not develop freely his physical and mental energy, but instead mortifies his mind." In other words labor fails to nurture mans physical and mental capacities and instead drains them. Because the worker is denied any nurturing in his work no intimacy between the worker and his work develops. Lacking an intimate relation with what he creates man is summarily estranged from his labor. (2) Labor estranges man from himself. Marx argues that the labor the worker produces does not belong to him, but to someone else. Given this condition the laborer belongs to someone else and is therefore enslaved. As a result of being enslaved the worker is reduced to a "subsisting animal", a condition alien to him. As an end result man is estranged from himself and is entirely mortified. Marx points to these to situations as the reason man is essentially estranged from his labor. The incongruency between the world of things the worker creates and the world the worker lives in is the estrangement. Marx argues that the worker first realizes he is estranged from his labor when it is apparent he cannot attain what he appropriates. As a result of this realization the objectification of labor occurs. For the worker the labor becomes an object, something shapeless and unidentifiable. Because labor is objectified, the laborer begins to identify the product of labor as labor. In other words all the worker can identify as a product of his labor, given the condition of what he produces as a shapeless, unidentifiable object, is labor. The worker is then left with only labor as the end product of his efforts. The emerging condition is that he works to create more work. For Marx the monotonous redundancy of this condition is highly detrimental because the worker loses himself in his efforts. He argues that this situation is analogous to a man and his religion. Marx writes, "The more man puts into God the less he retains in himself....The worker puts his life into the object, but now his life no longer belongs to him but to the object." The result of the worker belonging to the object is that he is enslaved. The worker belongs to something else and his actions are dictated by that thing. For Marx, labor turns man into a means. Workers become nothing more than the capital necessary to produce a product. Labor for Marx reduces man to a means of production. As a means of production man is diminished to a subsisting enslaved creature void of his true nature. In this condition he is reduced to the most detrimental state of man: one in which he is estranged from himself. To help expand on this theme it is useful to look at Marx's allegory of man's life-activity. Of the variety of reasons Marx argues man is estranged from his labor, probably the most significant is his belief that labor estranges man from himself. Marx argues that the labor the worker produces does not belong to the worker so in essence the worker does not belong to the worker. By virtue of this condition Marx argues the worker is enslaved. Enslavement for Marx is a condition alien to man and he becomes estranged from himself. For Marx, man estranged from himself is stripped of his very nature. Not only because he is enslaved but because his life-activity has been displaced. For Marx mans character is free, conscious activity, and mans pursuit of his character is his life-activity. Mans life-activity is then the object of his life. So by nature, mans own life is the object of his existence. This is mans condition before labor. After labor mans life-activity, that is, his free conscious, activity, or his very nature, is displaced. In a pre-labor condition mans life was the object of his condition; in a labor condition man exists to labor and his life-activity is reduced to a means of his existence so he can labor. In effect labor necessitates itself in man by supplanting mans true nature with an artificial one that re-prioritizes mans goals. Man's goal then is not to pursue his life but to labor. He becomes linked to his labor and is viewed in no other way. Man is reduced to chattel, a commodity, the private property of another individual. For Marx labor limits the freedom of man. Labor becomes the object of man's existence and he therefore becomes enslaved by it. In considering the validity of Marx's argument I feel Marx is correct that man's freedom is limited by the fact that he is a laborer. But in opposition to Marx I believe that man's freedom is no more limited as a laborer than as a farmer. Agrarian worker or laborer man's freedom is limited. Whether he is identified by the product he creates in a factory or in a wheat field in either case he is tied to his work and is not viewed beyond it. In either instance the product is objectified because in either instance the worker works only to create more work. Just as the laborer must continue to work without end to subsist, so must the agrarian worker. The implication then is that alienation is not the culprit that limits mans freedom, it is work itself. Do not mistake this as an advocation for laziness. Instead consider the implications of not working. If one did not work at all he or she would live a life of poverty and would be far less free than if he did work. Working, either as a laborer or a farmer, offers greater financial means and with greater financial means comes greater freedom. This point of the argument stands up of course only if you believe money can by freedom. I argue it can. Surely my freedom to buy something is limited if I do not have the financial means. On the other hand if I have greater financial means I have more freedom to buy things. So although labor limits freedom to the extent that the worker becomes tied to his work, labor also offers a far greater freedom than that of indigence. Laboring is no less acceptable than agrarian work because the implications of partaking in either are uniform to both and alienation holds no relevancy. Marx's view of freedom would seem a rather broad topic, and I'm sure it is. For our purposes it is convenient to have just an idea of what type of freedom Marx favors. For the sake of ease the scope of this study will be limited to two (2) classifications of freedom: prescribed (positive) freedom and negative liberties. Prescribed freedom would be guided freedoms, or freedoms to do certain things. Negative liberties would be freedom to do all but what is forbidden. In Marx's writing On The Jewish Question he identifies (but does not necessarily advocates) liberty as "...the right to do everything which does not harm others." In further argument Marx's states that "liberty as a right of man is not founded upon the relationship between man and man; but rather upon the separation of man from man." By this definition liberty is negative liberty, and for Marx it is monistic and solitary. Marx then argues that private property is the practical application of this negative liberty. He states "...[private] property is...the right to enjoy ones fortune and dispose of it as one will; without regard for other men and independently of society." Private property for Marx is the mechanism by which man can be separate from other men and pursue his (negative) liberty. Marx's writings on estranged labor and in The Communist Manifesto are a clear repudiation of private property. What can be deduced then is that Marx does not favor negative liberties. Negative liberties require private property to exist and private property is for Marx the enslaver of the proletariat. With negative freedom eliminated from the discussion we are left with Positive or prescribed freedoms. Positive freedom, as was identified above, is the freedom to pursue specified options. That is, freedom to do certain things. Man is not necessarily given a choice of what these options are, he is simply free to pursue them whatever they may be. Positive freedoms then are the freedoms Marx likely wishes to uphold by denouncing estranged labor.Bibliography 1Marx, Karl, The Early Marx, 2Marx, Karl and Engles, Freidrich, The Communist Manifesto, London, England, 1888 f:\12000 essays\business & economics (632)\Marxism and Economic Theory.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Marxism and Economic Theory Human relationships have always been dynamic. Change and adaptability have gone hand in hand with the passage of time for human society. Systems have been developed to regulate, direct and control the resources of this society. The systems are referred to as governments and the resources as the populace or inhabitants and forces of production. A government must be dynamic in its nature reflecting the change in society. At times these systems have resisted the necessity to adapt with its components (Society) creating a deficit between the system and those it regulates. As the deficits develop, they cause instability, and could lead to revolution.1 Theories have been developed to explain the systemic phenomenon called revolution. This paper will discuss three modern theories and apply them to the English revolution of 1640. The first theory, developed by Carl Marx (Marxism), will address the economic evolution in English society. This theory will emphasize and explain how the shift from a feudal/mercantile system to capitalism affected English society. The second, called the Resource Mobilization Theory (RMT) developed by Charles Tilly, will explain how the English organizations (the Crown and the Parliament) effectively obtained, amassed and managed resources. Samuel Huntington's, "Institutional Theory", will argue that the existing government at that time was unable to incorporate the demands and personnel that the socio-economic changes created. Marxism was formulated in the 19th century. Carl Marx and his associate Frederick Engels observed the socio-economic changes that were transpiring in Britain. England was the dominant world power and had the largest industrialized economy during the 1800's. The development of the factory and the institution of the assembly line created a large demand for workers. This demand was satiated by migrating peasant from the rural areas in England and Ireland to developing urban centers. As these urban centers or cities evolved using industry as the economic backbone for the population, a large number of factory workers were accumulated to operate the machinery in horrid conditions. These workers, which would be termed as the peasantry under a feudal system, were now the working class or proletariat. They entered cities with hopes of bettering their lives and survival. Though revolution never took place in England during this period, it allowed Marx to study industrialization, urbanization and imperialism. The theory of Marxism has three basic concepts: historic materialism, forces of production and relations of production. Historic materialism is defined as a society's past performance and present capabilities of satisfying the basic means of life. Humankind's basic needs of eating, drinking and shelter need to be met properly. The forces of production (technology, capital, the infrastructure of society, etc.) are important for the simple fact of who ever controls them controls the society. The last aspect of Marxism, the relations of production, deals directly with the relationships between classes of people (the aristocracy, the middle-class and the working class).2 Marxism includes a predictive analysis of socio-economic structures. Using history, logic and the dynamic nature of humankind as guidelines, Carl Marx attempts to map out a sequence of events which will eventually lead to utopia (anarchy). In his work, Das Capital, Marx details the six steps. These steps are primitive socialism, feudalism, capitalism, socialism, communism and then anarchy. The evolution of the English economic system during the 16th and 17th centuries points to a shift from feudalism to capitalism. This shift is exemplified by the enclosures. The landlords began to fence their property in the common land areas. The "commons" were large plots of grazing and farmable lands that were used by both farmers and artisans. When the land-owners and manorial lords began to partition these lands the concept of private ownership of property was introduced to the socio-economic system.3 During the time period of the 16th and 17th centuries the crown's economic base began a gradual decline. This economic shrinkage came to a spearhead during the reign of Charles I. The monarchy favored a monopoly market system over a competitive one. The purpose for this position was for taxation and control of the profits. As the artisan and merchant populations increased, the policy of the crown began conflicting with economic growth. This created instability in three areas. First, the English monarchy needed money to support its army which insures social compliance. The second area of contention was the restraints and interference the Crown initiated on the rising middle-class. Thirdly, the rise of the bourgeoisie created competition for the state sanctioned monopolies, reducing its profit. Howard Erskine-Hill refutes Marxism. He states that neither ... "the 'rise of the gentry' ... ideas concerning resistance to rulers ... nor even the narrowing financial base of the Tudor and Stuart monarchy ... determined the outbreak of the Civil War ... They are circumstances . . . contributing to an outcome which was not inevitable."4 Jack A. Goldstone, in his work Revolutions, argues that once historical data is carefully examined Marxism falls short. The Marxist reasons for the revolution are factors, but its scope of analysis is to narrow. "...the neo-Marxist view... with its focus on elite politics and the failings of Charles I run into difficulties when confronted with evidence."5 An example of this "evidence" that Goldstone refers to, are the enclosures. The land owners had support from the farmers who resided on the land. The parties that were affected by enclosure movement were the artisans and merchants. These merchant and artisan, or rather Marxism rising bouroeisie, were the unfortunate targets of this policy. The rising English Bourgeoisie used the land to satisfy there needs for resources (i.e. wood for fire and craftsmanship). Thus, a new theory must be introduced to explain the factors leading to and the Revolution itself. Charles Tilly, in his work, Political Conflict Theory, introduce the theory of "Resource Mobilization"(RMT). The two aspects of RMT are government and those who contend with the government for power. Power is defined as control of the resources. The resources are capital, means of production and personnel. 6 There are three characteristics to the RMT7 that help further explain the revolution. First, two or more organizations (government included) must claim the right to rule and control government. The conflict between the Crown and the Parliament during the 1640's meet this criteria. King Charles I during his rule attempted to close the rift between Catholics and Protestants. This policy was disturbing to the English populace. However, the brunt of this new policy was felt in Scotland and perceived was a direct assault on their religious organizations. The Scots rebelled and amassed a army to invade England an emancipate themselves from Charles I's authority. The King needed to acquire funds to raise an army so he called Parliament into session. After 6 years of silence, Parliament was aggressive against the crown. Instead of strong support for the King, they came with a list of grievances which needed to be addressed.8 It is this aggression which characterizes an organization contending for power in the government. The second characteristic, is the commitment of a significant amount of the population to each organization. In January 1642, the King attempted to arrest five MP's (Members of Parliament). Having failed, the King traveled north to an important port which was also a military stronghold, as well. Parliament denied him access. This was a definite sign of the waning power of the King. Charles I traveled to Nottingham to raise his standard. People began to rally behind the King. Parliament severely underestimated the influence of the Charles I and the idea of the monarchy. A significant amount of people rallied behind the King and the Civil War soon followed9. The third, and the most applicable, is the incapacity of and/or the unwillingness of the government to suppress the challenges for power. The King was desirous to put down the Scots, and eventually Parliament, after it was called into session (long Parliament). He was incapable in raising an army earlier without Parliament's appropriation of the necessary funds to pay an army.10 Therefore, the opponents of the Crown were given space to develop and acquire resources. Resource Mobilization Theory focuses on the leadership of both the revolutionary organization and the government in power. The three above stated characteristics of England in the 1640's, only emphasizes the short term factors for the revolution The fact that Parliament is actually part of the government provides a complication in the application of RMT. However, Parliament was struggling against the King to acquire more control over resources. The King showed himself as a bungling statesman in dealing with parliaments demands and grab for power. This is a classic example that shows what happens when "carrot ideas"11 are implemented without discretion and supervision. It could be argued that Charles I lack of sensitivity to the people was the cause for this lack of discretion. Even with the application of two theories, a satisfactory explanation of both the factors leading to the uprising and the revolution itself are lacking. A third theory must be brought to this case study. Samuel Huntington's, "Institutional theory", argues that there are inherent tensions between political and economic developments. If there are large economic changes in society then there must be political change to guide the modifications which are taking place, as well as, incorporating new social developments.12 England's Crown during the 17th century was lacking in ability to be dynamic. Trade and production began to increase so did the population. This increase created a middle-class in England. The middle-class consisted of artisans, merchants, land owners and landlords (these classifications are not all inclusive). Competition between the middle-class and state encouraged monopolies became evident during this time. There was a definite power shift away from property to the people. 13 Another long term factor lies within the King's policy toward the Catholics. This relaxing of tensions between the Protestants and Catholics was not viewed as favorable by the rising gentry (Middle-class). A form of Protestantism referred to as Puritanism was the main belief system of the gentry. This was an extremely conservative sect of protestantism, religious toleration was not acceptable to them14. This was another social development which Charles I "over-looked". Institutionalization was never a reality in British politics during this period in history. The organizations that existed in the English monarchy during the early 1600's were unable to promote value and stability. The system became rigid and unadapting to the demands for change made by new socio-economic factors. The constant attempts by both the Crown and the Parliament to subordinate one another removed their ability to reach a compromise. Thus, there is not one theory that can be used to satisfy all of the causal factors, institutional developments and socio-economic changes of the English revolution of 1640. Marxism addressed the changes the English economy made creating capitalist markets and free trade. It maps out the general factors which helped lead to capture and execution of the King of England, Charles I. Resource Mobilization Theory argued in more specific terms, defining that the organization which controls the resources has the power. It clarifies the power struggle between the Crown and the Parliament. Short term factors, present before and during the revolution, were emphasized by RMT. The last theory presented by this paper was Institutional Theory. It explained, in long term factors, the causes leading to the revolution by discussing the rise of the gentry, economics and religious intolerance. There is no single theory to explain every relevant factor present in revolution. However, the application of a select number or combination of theoretical approaches, helps to establish a proper framework for analysis of revolutions. Despite all of the ground breaking research and theorizing being done on revolution, it still remains a phenomenon and can not be predicted. f:\12000 essays\business & economics (632)\MAthematical Logic.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ MAthematical Logic Mathematical logic is something that has been around for a very long time. Centuries Ago Greek and other logicians tried to make sense out of mathematical proofs. As time went on other people tried to do the same thing but using only symbols and variables. But I will get into detail about that a little later. There is also something called set theory, which is related with this. In mathematical logic a lot of terms are used such as axiom and proofs. A lot of things in math can be proven, but there are still some things that will probably always remain theories or ideas. Mathematical Logic is something that has a very long history behind it. It has been debated on for many centuries. If someone were to divide mathematical logic into groups they would get two major groups. Both groups are very long. One is called "The history of formal deduction" and it goes all the way back to Aristotle and Euclid and other people who lived at that time. The other is "the history of mathematical analysis" which goes back to the times of Archimedes, who was in the same era as Aristotle and Euclid. These to groups or streams were separate for a long time until Newton invented Calculus, which brought Math and logic together. Somebody who studies mathematical logic and gives his or her own concepts about it is called a logician. Some well known logicians include Boole and Frege. They were trying to give a definite form to what formal deduction really was. Aristotle had already done such a thing but he had done it with language, Boole wanted to do it with only Symbols. Frege came up with "Predicate Calculus". As time went on people did not make new theories as much as they used to in the time of Aristotle. They mostly concentrated on expanding on theories that have been said centuries ago, proving those theories or putting them into symbolic form. Table of Logicians* Boole Frege Newton Gödel Aristotle Euclid Archimedes Leibnitz *This Table has a few of the Logicians listed in my book Words that have to do with logic like and, or, not are given symbols like &, V, or an upside down L reversed. The Letters X, Y, Z and so on are commonly used as variables and P, Q, R are used as predicates, properties or relations. Sometimes there are theories that have to do with machines that do not exist and usually have things in them that are infinite and they usually work with letters and numbers. For example in Chapter 4 which is "Turning Machines and recursive Functions" it talks about a machine that has a tape running through it. (This is not a real machine) The tape is endless from both sides. It is divided into little squares and in each square there is a small letter of the alphabet and a number under it. The machine reads this, changes it moves it one to the right ort one to the left. This experiment was conducted in 1936. Model theory is the study of different formal languages and their relations with each other. They get a normal sentence and they turn it into variables and symbols, then they compare it with other languages. For example if you take: If the boss is in charge and Joe is the boss, then Joe is in charge. If you convert that you get: P(b)&E(j,b)-->P(j). This gets very confusing but the way they get the formula is that they do something with the "Predicate Letter". Then they turn it into variables and symbols. In one section it talks about how there are an infinite number of fractions between two rational numbers on the number line such as 1 and two. It goes like 1/2 1/3 1/4 1/5 ... and so on infinitely. It also compares that to a different kind of number line. Gödel was a different logician then the rest. He concentrated more on expanding on other people's theories then anything else. Although he has said many good theories himself. That is why many people consider him one of the best logicians and a very good mathematician. To conclude I want to say that I found this book very difficult and I understood about 20% of it so I read the whole thing and wrote about the parts I understood. It is a 77-page book and it is very interesting. In one part it said something like -I assume you have some sort of knowledge in Predicate calculus. I have always found Mathematical Logic very interesting and I hope to study about it much more in the future. f:\12000 essays\business & economics (632)\McDonalds.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ McDonald's INTRODUCTION: McDonald's Corporation is the world's leading food service organization. The corporation started out as a small drive-through in 1948 by two brothers, Dick and Mac McDonald. Raymond Albert Kroc, a salesman, saw a great opportunity in this market and advised Dick and Mac to expand their operation and open new restaurants. In 1961 Kroc bought out the McDonald brothers. By 1967 McDonalds expanded its operations to countries outside the U.S.A. This unyielding expansion led the Corporation to open 23,000 McDonald's restaurants in 110 countries in 1994, producing $3.4 bn in annual revenues. In addition, McDonald's opens a new restaurant every three hours. Also, McDonald's has twice the market share of its closest U.S. competitor, Burger King, representing 7% of total U.S. eating-out sales. Similarly, McDonald's serves about 1% of the world's population on any given day through its 23,000 restaurants internationally. "Big Mac", the world's most sold hamburger was developed by Jim Delligutti in 1967 to feed construction workers. 'Big Mac' is the biggest attraction and backbone of the corporation. Moreover, McDonald's maintains its competitive advantage by constantly creating new items to add onto its menu. This shows us that McDonald's practices an analyzer type of strategy, introducing new items and defending its existing ones. McDONALD'S MISSION AND VISION: "We serve people with good quality food, fast and at low cost." McDonald's vision is to dominate the global food-service industry. Global dominance means setting the performance standard for customer satisfaction and increases market share and profitability through successfully implementing our convenience, value and execution strategies. THESIS STATEMENT: To have a clear picture of McDonald's corporation we need to look at its Task Environment, which includes its: .Customers .Competitors .Strategic Allies .Suppliers .Regulators We shall also explore McDonald's Workforce Diversity and its Total Quality Management. CUSTOMERS: Customers are those who pay money to acquire an organization's goods or services. For many years McDonald's mostly targeted the young people, however this has changed in this decade; McDonald's has turned towards a more general market. By doing this McDonald's concentrates on the family, targeting a diverse market which includes consumers ranging from children to elderly people, using products such as the "happy Meal" for children and "Egg McMuffin" for the elderly. McDonald's also realized the changing world we live in and the need for healthier food, since there is an ever changing demographic group, who demand fast, top quality food that is low in calories. McDonald's responded to this opportunity and introduced a new and innovative product. This new product was a regular hamburger that tasted like the real thing but was made of plant material like Soya beans. This same product also targets another demographic group, vegetarians. McDonald's mostly uses psychographic segmentation targeting the working and middle classes. These are the people that are more susceptible to enter a fast food restaurant, since these are the people that lead a fast moving life and thus require a fast meal. In brief McDonald's customers are of all classes, but largely working and middle classes, and people of all ages. COMPETITORS: A competitor is an organization that competes with other organizations for resources. In our findings, McDonald's has two types of competitors in the Lebanese market: ..Indirect ..Direct Indirect Competitors: Indirect refers to firms producing one or two products that compete with McDonald's products and therefore be a threat to the company. We have identified four indirect competitors: Henry J. Beans, T.G.I. Friday, K. F. C. and Popeye's. Henry J. Beans offers hamburgers and fries on its menu, therefore competing with McDonalds for customers of these products. However, Henry J. Beans also known as Hank's is a more of a bar restaurant and therefore a hang out place, as a result charging more money for its products. Hank's targets middle to upper class customers, so where most of these customers overlap are in the middle class. T.G.I Friday is another indirect competitor reflecting the same characteristics as Henry J. Beans. Other indirect competitors are K. F. C. and Popeye's, both competing for the chicken nuggets and fries customers. In brief, Hank's and T.G.I. Friday's competes with McDonald's by offering hamburgers and fries, whereas K. F. C. and Popeye's compete with McDonald's by offering chicken nuggets and fries. Direct Competitors: Direct competitors refers to firms producing the same products or services as McDonald's does. Here we found that McDonald's has three direct competitors: Burger King, Wendy's and Hardee's. McDonald's closest rival is Burger King, which operates a total of 9644 restaurants in 110 countries. Wendy's is McDonald's second largest rival, which is also in the fast food business, where Wendy's operates 6776 restaurants in 32 countries. Hardee's, McDonald's third largest rival is also in the fast food business and is the only direct competitor apart from Juicy Burger in the Lebanese market. Hardee's operates 3080 restaurants in 20 countries. As we have illustrated McDonald's faces stiff competition from three major competitors, Burger King, Wendy's and Hardee's. Suppliers: Suppliers is an organization that provides resources for other organizations. McDonald's has practiced a backward vertical integration, by replacing most of its suppliers. It has done so for two reasons, 1) To reduce costs, and 2) To ensure that its products are of top quality. These supplies include beef and milk to be used in its products, which it gets from its farms. Other suppliers include local grocery stores that supply McDonald's with fresh vegetables. Soft drinks are supplied exclusively by Coca-Cola, which is also its ally. McDonald's supplies also include raw material such as flour, sugar, yeast, etc.,. Strategic Allies: A strategic ally is an organization working together with one or more other organizations is a joint venture or a similar arrangement. McDonald's has formed a strategic alliance with: Walmart, Chevron, Amoco, Disney and Coca-Cola. Walmart, which is a large shopping mall chain in the U..S. and several neighboring countries, is allied with McDonald's, which offers great opportunities for both companies. McDonald's has restaurants in each Walmart, offering its customers conveniences and excellent fast food at a low cost ease of accessibility. McDonald's corporation describes it best in this scenario: "Imagine a busy shopping day at your local Walmart and having the ability to sit down with the kids and enjoy many of our McDonald's favorites, like 'Big Mac' sandwiches, world famous fries and kids favorite 'Happy Meal'. McDonald's understands your busy lifestyles and the demands on your time. That's why we are making it easier for you to do more things in less time." McDonald's is engaged in an alliance with two petrol companies, Chevron and Amoco. This alliance represents the ultimate in convenience. At these locations, one finds a full-menu McDonald's restaurant with dining room service. Nothing can be more convenient, because one can fill up the car with gas and get a meal all in one stop. Another important alliance that McDonald's has is with Disney. Here McDonald's has the sole right to sell fast food in Disney's theme parks around the U..S. and other Disney operations in the world. Under the terms of the agreement, McDonald's will operate restaurants and Disney will promote its films through McDonald's. Regulators: Regulators are groups or governmental agencies that can control and influence the organization's policies and practices. An example is Lebanon a few years ago when the U..S. government banned all U..S. citizens and organizations to come or operate in Lebanon. Another good example would be the embargo imposed on Iran where U..S. organizations were banned to operate in this country. Another group of regulators called interest groups can and have influenced McDonald's to treat its animals (cow and chickens) in a much more humane manner, which resulted in the restructuring of McDonalds' farms throughout its operations around the world. The summary of the task environment which is by definition a specific organizations or groups that affect the organization, which includes competitors, suppliers, customers, strategic allies and regulators. Here we described the task environment's importance to McDonald's, where McDonald's faces both opportunities and has threats in its environment. Workforce Diversity: Diversity exists in a group or organization when its members differ from one another along one or more important dimensions such as age, gender, and ethnicity. Diversity is very important for McDonald's. Here millions of teens start out by working at McDonald's. Here some of the teenagers move on to get various jobs such as movie stars, skilled workers, famous athletes, management positions and other educated positions in society. At McDonald's two thirds of middle and upper management started out as crewmembers in a McDonald's restaurant. There are opportunities for everybody in McDonald's from teenagers to elderly workers, and from people just entering or reentering the job market. Moreover, McDonald's offers special jobs for people who have disabilities, such as people who are in wheel chairs and those who must use crutches permanently. Furthermore, McDonald's offers their workers flexible working hours. For example, hours for people seeking just a few hours of work per week and those who seek full time positions. The work force at McDonald's also have some say in their working hours, such as if they prefer the morning, mid-day, or evening shifts in the restaurant. So, McDonald's uses diversity to create a good atmosphere in their work places among workers and management. Here they offer work to all kinds of people without discrimination and the workers have flexible hours that provides customer satisfaction. Top Quality Management: Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. For McDonald's, total quality management (TQM) involves that the employees are at work on time, are neatly dressed, and are clean. The employees must make sure that the customers constantly receive safe food, which implies that the employees must wash their hands often to remain clean. Moreover, the employees must follow certain Standard Operational Procedures, so the customers always receive exceptional quality and service. This includes the employees using plastic gloves when they prepare the food, that the meat and fries are properly fried, and that the vegetables are thoroughly washed when used in the food. Another TQM is that the employees rely on teamwork and high energy to get the job done, so that the customers do not have to wait long for their food. Furthermore, McDonald's management emphasizes that their restaurants should be clean. This involves that the restaurants are tidy, sparkling and spotlessly clean. As McDonald's illustrates the quality is that the employees delivers fast, accurate and friendly service with a smile. f:\12000 essays\business & economics (632)\Met North Energy Corporation 4 Year.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Met North Energy Corporation: 4 Year Net Profit Projections The current budget figures for the four year period 1996 - 1999 show a steady decrease in profits eventually resulting in a loss during the fourth year. The graph shows the decrease in net profit while gross profit remains virtually static and expenses increase. After an initial loss during the first year the figures indicate a healthy profit at the end of the period. The figures in this graph from the spreadsheet clearly show the long term benefits gained by the additional $50,000 when it is added to the 1996 advertising budget. Despite a loss of $10,000 in the first year the projected profit for the 4 year period is $160,500. The results of the spreadsheet showing both budget options can be reduced to just one simple graph. This supported by market research would convince management as to which option to choose. Met North Energy Corporation Net Profit Projections Year 1996 1997 1998 1999 Sales $450,000 $455,000 $455,000 $460,000 Projected Sales $450,000 $523,250 $523,250 $529,000 Cost of Goods Sold $180,000 $185,000 $180,000 $185,000 Projected Cost $180,000 $203,500 $198,000 $203,500 Gross Profit $270,000 $270,000 $275,000 $275,000 Projected Gross Profit $270,000 $319,750 $325,250 $325,500 Less Expenses: Salaries $80,000 $90,000 $100,000 $110,000 Advertising $50,000 $50,000 $50,000 $50,000 Increase in Advertising $100,000 $50,000 $50,000 $50,000 / 1996 Interest $60,000 $60,000 $60,000 $60,000 Depreciation $40,000 $50,000 $55,000 $65,000 Total Expenses $230,000 $250,000 $265,000 $285,000 Projected Expenses $280,000 $250,000 $265,000 $285,000 Net Profit $40,000 $20,000 $10,000 -$10,000 Projected Net Profit -$10,000 $69,750 $60,250 $40,500 Increase in profit $160,500 f:\12000 essays\business & economics (632)\Mexico and International Trade.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Mexico and International Trade IV. International Trade IV.1 History During World War II Mexico had very good business relations with the United States. They provided a lot of raw materials, which were necessary to support American military needs. In that time the U.S. had an agreement with Mexico specifying that the country would export its resources only to the Allies. After WW II Mexico restricted imports in an attempt to promote domestic growth, while resisting foreign domination. In 1948 the government striving to reverse the unfavorable balance of trade, devalued the peso. Imports not essential for industrial development were sharply restricted. They did this to reach a stage of self-sufficiency. But still they obtained in 1950 an Export-Import Bank loan of $150 million for the financing of several projects to improve transportation, agriculture, and power facilities. This helped to improve the whole economic situation. This policy led to an average annual growth rate of about 6 % for the next two decades. By the late sixties it was realized, that the domestic industries have become lethargic and inefficient because of the shelter from international competition. 1965: The Maquiladoras Program To help its manufacturing sector, Mexico settled the Mexico's Border Industrialization Program. The BIP allows US and foreign companies to ship components and production equipment into Mexico, free of duty, for assembly or processing utilizing Mexican labor. These Mexican facilities are commonly referred to as Maquiladoras, or in-bond assembly plants. The BIP sought to attract foreign manufacturing facilities, technology and know-how. Over the past years, a large portion of US-Mexican trade has been attributed to rapid growth in the Mexican Maquiladora industry. In 1992, Maquiladora Plants numbered 2,113, employing 469,614 Mexican workers. The 1980's: the diversification In order to promote a merchandise trade surplus, which would help service the foreign debt, and offset shrinking oil revenues, Mexico adopted a policy of diversifying its economic base away from petroleum. The government's program of promoting non-traditional manufactured exports was highly successful. Whereas crude oil and oil products accounted for some 75% of Mexican export in 1983, their share dropped to a low 34 % by 1988. Thus, non-petroleum exports increased to 66% of exports. Automotive products, machinery and equipment, chemicals, iron and steel products, electrical and non-electronic goods, and textiles and clothing became major clothing items. Late 1980's: Liberalized Trade in Mexico In 1986, Mexico became a full member of the GATT, General Agreement on Tariffs and Trade, the international body then responsible for governing most international trade, now replaced by the WTO, the World Trade Organization. Since Mexico's accession to the organization, its tariff and non-tariff barriers have been substantially reduced. Mexico has eliminated many import license requirements, in many cases converting them to tariffs, allowing for their eventual reduction. Growth of Mexican-US Trade From 1986 to 1991, US exports to Mexico shot up by 167 %. During this same period, exports to Mexico increased at nearly twice the rate of overall growth in US exports. Manufactured goods have accounted for over three-quarters of US exports to Mexico. Mexican imports from the US accounted roughly 70% of total Mexican imports. From 1982 to 1990, the United States ran a merchandise trade deficit with Mexico. IT peaked to a high of $7.7billion in 1983. In 1991, The United States turned the bilateral deficit into a merchandise trade surplus. The most of this trade was effected with Texas, then California and Michigan. Foreign Investment environment The new openness of the Mexican economy in the late 1980's also showed through the fact that more than two-thirds of Mexico's total gross domestic product (GDP) was made accessible to 100 percent foreign ownership. This provided for unlimited opportunities to US investors. While US-based firms continue to rank as the largest source of foreign investment in Mexico (1990 total US direct foreign investment was $9. 4 billion), a growing list of companies from the United Kingdom, Germany, Japan, France, Switzerland, Spain and others are taking advantage of Mexico's new business opportunities. NAFTA; the opening of markets In December 1992, Presidents Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement -NAFTA-. The Mexican Legislature ratified NAFTA in 1993 and the treaty went into effect on January 1 1994, creating the largest free-trade zone in the world. All barriers to trade such as tariffs have been abolished in the zone. Goods and services are moving freely. Most of the trade occurs between Canada and the United States and The United States and Mexico. Indeed, Mexico and Canada don't trade a lot. Because of the impact of NAFTA, Mexico has experienced many changes in the way the foreign policy is conducted: legalistic policy has changed to realistic policy, independence to interdependence, the political approach to a commercial one, Latin Americanism to North Americanism. Indeed, NAFTA didn't only have commercial consequences but also political ones. A negative impact of NAFTA: the division of Mexico NAFTA has created an economic disparity between the northern and southern portions of Mexico. American manufacturers have favored putting up factories near the US-Mexican border since the products manufactured in their facilities have to be shipped to the US and therefore have to be near the boundary. This preference is disadvantageous to southern and central Mexico. Disinvestment is certain to result in unemployment and poverty, which in turn is expected to lead to a rise in crime in the region. The ultimate result of this inequitable distribution of investment is the creation of two Mexicos, one of which becomes more Americanized while the other remains a Third World entity. An example of Mexico's international trade performance: Government policy and the export performance of the Mexican automobile industry. The Mexican automobile industry is slowly strengthening its foothold in the international market. This trend can be attributed to government policies geared toward global competitiveness and adjustments made by multinational companies to change in technology and production methods. In 1980, Mexico was producing 490,000 motor vehicles whereas the production had risen to 821,000 units in 1990. This represents an increase of almost 100%. Mexico's main trading partners In 1993, Mexico's imports accounted for US$65,366,500,000 divided as follow: - manufactured products 94.2% - food and food products 4.2% - Minerals and minerals products 0.6%. On the other side, its exports accounted for US$60,882,000,000, with: - metallic products, machinery, and equipment 58.0% - crude petroleum 12.2% - metal and metal products 6.3% - Processed food, beverages and tobacco 3.3%. Evolution of Exports and Imports since NAFTA: If Mexico's Trade Balance was still in deficit in 1997, the situation has greatly improved since1995 as the deficit has decreased of 40%. Word Count: 1100 f:\12000 essays\business & economics (632)\Mexico.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Mexico Mexico Country Profile Country Formal Name: United Mexican States (Estados Unidos Mexicans). Short Form: Mexico. Term for Citizen(s): Mexican(s). Capital: Mexico City (called Mééxico or Ciudad de Mééxico in country). Date of Independence: September 16, 1810 (from Spain). National Holidays: May 5, commemorating the victory over the French at the Battle of Puebla; September 16, Independence Day. Mexico Geography Size: 1,972,550 square kilometers--third largest nation in Latin America (after Brazil and Argentina). Topography: Various massive mountain ranges including Sierra Madre Occidental in west, Sierra Madre Oriental in east, Cordillera Neovolcáánica in center, and Sierra Madre del Sur in south; lowlands largely along coasts and in Yucatan Peninsula. Interior of country high plateau. Frequent seismic activity. Drainage: Few navigable rivers. Most rivers short and run from mountain ranges to coast. Climate: Great variations owing to considerable north-south extension and variations in altitude. Most of the country has two seasons: wet (June-September) and dry (October-April). Generally low rainfall in interior and north. Abundant rainfall along east coast, in south, and in Yucatan Peninsula. Society Population: Estimated population of 94.8 million persons in mid-1996. Annual rate of growth 1.96 percent. Language: Spanish official language, spoken by nearly all. About 8 percent of population speaks an indigenous language; most of these people speak Spanish as second language. Knowledge of English increasing rapidly, especially among business people, the middle class, returned emigrants, and the young. Ethnic Groups: Predominantly mestizo society (60 percent); 30 percent indigenous; 9 percent European; 1 percent other. Education and Literacy: Secretariat of Public Education has overall responsibility for all levels of education system. Compulsory education to age sixteen; public education free. Government distributes free textbooks and workbooks to all primary schools. Official literacy rate in 1990 was 88 percent. Health and Welfare: Health care personnel and facilities generally concentrated in urban areas; care in rural areas confined to understaffed clinics operated mostly by medical graduate students. Life expectancy in 1996 estimated at seventy-three years. Infant mortality twenty-six per 1,000 live births. Leading causes of death infections, parasitic diseases, and respiratory and circulatory system failures. Religion: About 90 percent of population Roman Catholic, according to 1990 census. Protestants (about 6 percent) ranked second. Number of Protestants has increased dramatically since 1960s, especially in southern states. Mexico Economy Overview: From a colonial economy based largely on mining, especially silver, in the twentieth century, the economy has diversified to include strong agriculture, petroleum, and industry sectors. Strong growth from 1940-80 interrupted by series of economic crises, caused in part by massive overborrowing. 1980s marked by inflation and lowering standard of living. Austerity measures and introduction of free-market policies led to a period of growth from 1990-94. Membership in North American Free Trade Agreement (NAFTA) in 1993 led to hopes of continued economic growth. However, growing trade deficit and overvalued exchange rate in 1994 financed by sale of short-term bonds and foreign- exchange reserves. Series of political shocks and devaluation of new peso in late 1994 caused investor panic. Inflation soared, and massive foreign intervention was required to stabilize situation. Although overall economy remains fundamentally strong, lack of confidence makes short-term prospects for strong growth unlikely. Gross Domestic Product (GDP): Estimated at US$370 billion in 1994; approximately US$4,100 per capita. Currency and Exchange Rate: Relatively stable throughout most of twentieth century, the peso (Mex$) began to depreciate rapidly during economic crisis of 1980s. In January 1993, peso replaced by new peso (NMex$) at rate of NMex$1 = Mex$1,000. Exchange rate in January 1993, US$1 = NMex$3.1; rate in April 1997, US$1 = NMex$7.9. Agriculture: Contributed 8.1 percent of GDP in 1994. Main crops for domestic consumption corn, beans, wheat, and rice. Leading agricultural exports coffee, cotton, vegetables, fruit, livestock, and tobacco. Industry: Mining, manufacturing, and construction contributed 28 percent of GDP in 1994. Industrialization increased rapidly after 1940. By 1990 large and diversified industrial base located largely in industrial triangle of Mexico City, Monterrey, and Guadalajara. Most industrial goods produced, including automobiles, consumer goods, steel, and petrochemicals. World's sixth largest producer of petroleum and major producer of nonfuel minerals. Energy: More than 120 billion kilowatt-hours produced in 1993, about 75 percent from thermal (mostly oil-burning) plants, 20 percent from hydroelectric, and the rest from nuclear or geothermal plants. One nuclear plant with two reactors at Laguna Verde in Veracruz State. Huge petroleum deposits discovered in Gulf of Mexico in 1970s. In 1995 sixth-largest producer of oil and had eighth-largest proven reserves. Exports: US$60.8 billion in 1994. Manufactured exports include processed food products, textiles, chemicals, machinery, and steel. Other important export items are metals and minerals, livestock, fish, and agricultural products. Major exports to United States are petroleum, automotive engines, silver, shrimp, coffee, and winter vegetables. Imports: US$79.4 billion in 1994. Main imports are metal-working machines, steel-mill products, agricultural machines, chemicals, and capital goods. Leading imports from United States include motor vehicle parts, automatic data processing parts, aircraft repair parts, car parts for assembly, and paper and paperboard. Debt: Massive foreign debt. Buoyed by discovery of large petroleum reserves, government borrowed heavily in 1970s. When severe recession hit in 1982, government declared moratorium on debt payments, precipitating international economic crisis. Austerity measures and renegotiation of the debt eased crisis, but in 1995 debt stood at US$158.2 billion. Balance of Payments: Large trade deficits from 1989 to 1993 pushed current account deeply into deficit. Dramatic improvement in trade balance in 1994 and 1995, however, nearly eliminated deficit. Heavy international borrowing allowed international reserves to rise to US$15.7 billion at end of 1995. Mexico Transportation and Telecommunications Roads: Extensive system of roads linking all areas. More than 240,000 kilometers of roads, of which 85,000 paved (more than 3,100 kilometers expressway). Heaviest concentration in central Mexico. Many roads in poor condition as result of lack of maintenance and heavy truck traffic. Railroads: More than 20,000 kilometers. Standard gauge, largely government-owned. System concentrated in north and central areas. Numerous connections to United States railroads; system largely used for freight and in need of modernization. Extensive, heavily used subway system in Mexico City; smaller subway in Guadalajara. Ports: No good natural harbors. On east coast, Veracruz is principal port for cargo; Tampico, Coatzacoalcos, and Progreso handle petroleum. Guaymas, Mazatláán, and Manzanillo are principal ports on Pacific. Air Transport: Adequate system of airlines and airports. More than 1,500 airstrips in 1994, of which 202 had permanent-surface runways. Principal international airport in Mexico City; other international airports in Monterrey, Guadalajara, Méérida, and Cancúún. Aééromexico is main domestic airline. Telecommunications: Highly developed system undergoing expansion and privatization. Long-distance telephone calls go via mix of microwave and domestic satellite links with 120 ground stations. International calls via five satellite ground stations and microwave links to United States. Demand still exceeds supply for new telephones in homes, but situation improving. More than 600 mediumwave amplitude modulation (AM) stations, privately owned. Twenty-two shortwave AM stations. Almost 300 television stations, most organized into two national networks. Government and Politics Government: Constitution of 1917 in force in 1997. Formally a federal republic, although federal government dominates governments of thirty-one states and Federal District. Central government power concentrated in president, who directs activities of numerous agencies and state-owned business enterprises. Bicameral legislature (128-member Senate and 500-member Chamber of Deputies) relatively weak. Federal judiciary headed by Supreme Court of Justice. State governments headed by elected governors; all states have unicameral legislatures; state courts subordinate to federal courts. Federal District governed by mayor (regente) indirectly elected by legislative body of the Federal District beginning in 1996; more than 2,000 local governments headed by elected municipal presidents and municipal councils. Politics: Authoritarian system governed by president, who cannot be reelected to another six-year term. Major political organization Institutional Revolutionary Party (Partido Revolucionario Institucional--PRI), which incorporates peasant groups, labor unions, and many middle-class organizations within its ranks. Many opposition parties have had limited electoral success; largest is the conservative Party of National Action (Partido de Accióón Nacional--PAN). Direct elections at regular intervals; rule of no reelection applies to most offices. Election by majority vote, except for 200 seats in Chamber of Deputies reserved for opposition parties chosen by proportional representation. Extensive participation by interest groups and labor unions in government and PRI affairs. Foreign Relations: Major attention devoted to United States. Trade and immigration along shared border subjects of continuing negotiations. Foreign policy traditionally based on international law; nonintervention the major principle. Widely active in hemispheric affairs, including good relations with Cuba. International Agreements and Memberships: Party to Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Membership in international organizations includes Organization of American States and its specialized agencies, United Nations and its specialized agencies, Latin American Alliance for Economic Development, and Latin American Economic System. Joined NAFTA in 1993. Mexico National Security Armed Forces: Total strength in 1996 about 175,000 active-duty personnel. Army, 130,000; air force, 8,000; and navy (including naval aviation and marines), 37,000. Approximately 60,000 conscripts, selected by lottery. Reserve force of 300,000. Women serving in armed forces have same legal rights and duties as men but in practice not eligible to serve in combat positions, be admitted to service academies, or be promoted beyond rank equivalent of major general in United States armed forces. Military Units: Two government ministries responsible for national defense: Secretariat of National Defense and Secretariat of the Navy. Country divided into nine military regions with thirty-six military zones. Each military zone usually assigned at least two infantry battalions composed of some 300 troops each; some zones also assigned cavalry regiments (now motorized) or one of three artillery battalions. Personnel assigned to air force also within command structure of Secretariat of National Defense, distributed among air base installations throughout country. Principal air base, Military Air Base Number 1, located at Santa Lucíía in state of Mééxico. Personnel under command of Secretariat of the Navy assigned to one of seventeen naval installations located in each coastal state. Equipment: Under modernization program begun in 1970s, armed forces began to replace aging World War II-vintage equipment. Attention also given to development of domestic military industry. Mexican navy benefited significantly in terms of new vessels--most domestically built. Plans for additional acquisitions from abroad constrained by country's economic problems. Police: Various federal, state, and local police provide internal security. Senior law enforcement organization is Federal Judicial Police, controlled by attorney general, with nationwide jurisdiction. More than 3,000 members in 1996. Each state and the Federal District has its own force, as do most municipalities. Low pay and corruption remain serious problems at all levels. Protection and Transit Directorate--known as "Traffic Police"--major Mexico City police force; in 1996 employed some 29,000 personnel. The Economy FROM THE 1940s UNTIL THE MID-1970s, the Mexican economy enjoyed strong growth averaging more than 6 percent, single-digit inflation, and relatively low external indebtedness. These conditions all began to change during the 1970s. Expansionary government policies generated higher inflation and severe external payments problems while failing to produce sustained growth. Government spending outpaced revenues, generating steep budget deficits and increased external indebtedness. Low real interest rates also discouraged domestic saving. A brief financial and economic crisis in 1976 signaled the need to address the economy's fundamental problems, but subsequent petroleum discoveries reduced incentives for reform and postponed the inevitable day of reckoning. The government expanded its debt-financed spending in the late 1970s in anticipation of continued low interest rates and high oil revenue. It also maintained a highly overvalued peso (for value of the peso--see Glossary), aggravating balance of payments problems, undermining private-sector confidence, and encouraging capital flight. External conditions turned sharply against Mexico in the early 1980s, producing a deep recession that forced a fundamental change in the country's decades-old development strategy. Higher interest rates and falling oil prices combined with rising inflation, massive capital flight, and an unserviceable foreign debt to provoke an economic collapse. Lacking access to international capital markets, the government of Miguel de la Madrid Hurtado (1982-88) had to generate huge nonoil trade surpluses to restore macroeconomic balance. Import volume fell sharply at the expense of fixed investment and consumption. As a result of the government's stringent economic stabilization program, the fiscal deficit was eliminated, international reserves rebuilt, and export growth restored, but at the cost of lower real wages and extensive unemployment. Economic output remained flat between 1983 and 1988, and inflation remained high, reaching more than 140 percent in 1987. Real exchange-rate depreciation boosted the country's debt-to-gross domestic product (GDP--see Glossary) ratio by almost 30 percentage points between 1982 and 1987. To control persistently high inflation and restore growth and international competitiveness, the government pursued a major policy reorientation in the late 1980s. It reduced state involvement in economic production and regulation and integrated Mexico more fully into the world economy. An anti-inflation plan was introduced in late 1987 under which the government, the private sector, and organized labor agreed to limit wage and price increases. In 1989 the government reached agreement with its external creditors on extensive debt restructuring and reduction. In an effort to restore self-sustaining growth, the administration of Carlos Salinas de Gortari (1988-94) boosted investment as a share of GDP. It also accelerated the privatization of state-owned productive enterprises, both to raise state revenue and to promote economic restructuring and modernization. The government eased foreign investment regulations, stabilized the currency, deregulated the prices of most goods, and enacted extensive trade liberalization measures, including the reduction or elimination of import barriers and the pursuit of free-trade agreements with Mexico's trading partners, especially the United States. The Salinas government allowed the currency to become increasingly overvalued during 1994, despite mounting trade and current account deficits resulting from trade liberalization and economic growth. It kept real interest rates high to ensure sufficient inflows of foreign (mainly short-term portfolio) investment to cover the current account deficit. During 1994 the government treasury issued a large number of dollar-denominated bonds (tesebonos ) to reinforce its capital position. By the end of 1994, the almost total disappearance of Mexico's international reserves made the government's exchange-rate policy no longer tenable. The new administration of President Ernesto Zedillo Ponce de Leon was forced in December 1994 to devalue the new peso (for value of the new peso--see Glossary), despite promises to the contrary. The government's mismanaged new peso devaluation cost the currency nearly half of its value and the government much of its credibility and popular support. Inflation and interest rates rose sharply in subsequent weeks, throwing millions of Mexicans out of work and putting many consumer goods beyond the reach of the middle class, to say nothing of the impoverished majority. Public and private investment plummeted, and Mexico entered its worst economic recession since the 1930s. By early 1996, however, the economy had begun to recover, as capital inflows increased and most productive sectors registered positive growth rates. Mexico Industry Manufacturing In the early 1950s, the manufacturing sector eclipsed agriculture as the largest contributor to Mexico's overall GDP. Largely because of extensive import substitution, manufacturing output expanded rapidly from the 1950s through the 1970s to satisfy rising domestic demand. The value added by manufacturing rose from 20 percent of GDP in 1960 to 24 percent in 1970, and again to 25 percent by 1980. Manufacturing output grew at an annual average of 9 percent during the 1960s, and by a slightly lower annual rate of 7 percent in the 1970s. This forty-year trend of manufacturing growth abruptly stopped and then reversed itself during the early 1980s. Sharp reductions in both exports and internal demand caused manufacturing output to fall by 10 percent between 1981 and 1983. After recovering briefly in 1985, manufacturing output fell again by 6 percent the following year. Production of consumer durables suffered especially, with the domestic electrical goods and consumer electronics goods sectors losing between 20 percent and 25 percent of their markets during the mid-1980s. Government industrial policies began to favor manufactured goods destined for the export market, in particular machinery and electrical equipment, automobiles and auto parts, basic chemicals, and food products (especially canned vegetables and fruit). In the late 1980s, the manufacturing sector began to recover. In 1988 manufacturing output grew by a modest 4 percent. After expanding a robust 7 percent in 1989, manufacturing output steadily slowed; it grew by only 2 percent in 1992, as a result of weak export growth and falling domestic demand. After contracting by 2 percent in 1993, manufacturing output expanded by 4 percent in 1994. The most dynamic manufacturing subsectors in 1994 were metal products, machinery, and equipment (9 percent growth), followed by basic metals industries (9 percent growth). In 1994 the manufacturing sector accounted for 20 percent of the country's total GDP and employed about 20 percent of all Mexican workers. Mexico's export base for manufactured goods is narrow, with three subsectors (vehicles, chemicals, and machinery and equipment) accounting for more than two-thirds of non-maquiladora foreign earnings. The value of Mexico's imports of manufactured goods rose sharply following trade liberalization, from US$11 billion in 1987 to US$48 billion in 1992 (US$62 billion including maquiladora imports). Increased foreign competition has seriously threatened many Mexican manufacturing enterprises, almost all of which are small and medium-sized companies employing fewer than 250 workers. In 1991 Mexico had 137,200 manufacturing enterprises, some 90 percent of which employed no more than twenty workers. The principal industrial centers of Mexico include the Mexico City metropolitan area (which includes the Federal District), Monterrey, and Guadalajara. In the early 1990s, the capital area alone accounted for about half of the country's manufacturing activity, nearly half of all manufacturing employment, and almost one-third of all manufacturing enterprises. About one-third of formal-sector workers in the capital area were engaged in manufacturing. Manufacturers have been drawn to greater Mexico City because of its large and highly skilled work force, large consumer market, low distribution costs and proximity to government decision makers and the nation's communications system. In the early 1990s, the chemical, textile, and food processing industries accounted for half of all manufacturing activity in the Federal District, and metal fabrication accounted for another one-quarter. Heavy industry (including paper mills, electrical machinery plants, and basic chemical and cement enterprises) tended to locate in the suburbs of Mexico City, where planning and environmental restrictions were less rigorous. By the late 1980s, more than two-thirds of all foreign investment in Mexico was concentrated in maquiladora zones near the United States border. In 1965 the government began to encourage the establishment of maquiladora plants in border areas to take advantage of a United States customs regulation that limited the duty on imported goods assembled abroad from United States components to the value added in the manufacturing process. The maquiladora zones offered foreign investors both proximity to the United States market and low labor costs. Most maquiladora plants were established in or near the twelve main cities along Mexico's northern border. Some of these enterprises had counterpart plants just across the United States border, while others drew components from the United States interior or from other countries for assembly in Mexico and then reexport. The maquiladora sector grew nearly 30 percent annually between 1988 and 1993. By the latter year, more than 2,000 maquiladora businesses were in operation, employing 505,000 workers. These plants generated US$4.8 billion in value added during 1992. Their main activities included the assembly of automobiles, electrical goods, electronics, furniture, chemicals, and textiles. To increase their purchase of domestic materials, the Mexican government decided in December 1989 to exempt local sales to maquiladoras from the value-added tax and to let these enterprises sell up to half of their output on the domestic market. Nevertheless, almost all in-bond products have been exported to the United States. In 1994 food processing, beverages, and tobacco products constituted the leading manufacturing sector in terms of value, accounting for about 26 percent of total manufacturing output and employing 17 percent of manufacturing workers. Food, beverage, and tobacco output expanded by an annual average of 3 percent between 1990 and 1994, largely as a result of export growth. In 1994 it expanded by less than 1 percent. In the early 1980s, well over 50 percent of Mexico's productive units were involved in food processing, and Mexico's beer industry was the world's eighth largest. Metal products, machinery, and transportation equipment accounted for 24 percent of manufacturing GNP in 1994. The automobile subsector was among the most dynamic manufacturing sectors in the early 1990s and led among manufacturing exporters. Mexico's automobile manufacturers were led by Volkswagen, General Motors (GM), Ford, Nissan, and Chrysler. Ford expanded production by 33 percent during 1991, Chrysler by 17 percent, and GM by 10 percent. Volkswagen controlled 25 to 30 percent of the domestic automobile market, and Nissan another 15 to 20 percent. Mexican automobile exports earned US$6.1 billion in 1992, not counting maquiladora production, which earned an additional US$1.3 billion. Export revenue from passenger vehicle sales rose by 21 percent in 1993 and by 22 percent in 1994, while domestic sales fell by some 14 percent in 1993 and rose by less than 1 percent in 1994. In 1983 the government encouraged the automobile industry to shift from import substitution to export production. It lowered national content requirements for exporters and required assemblers to balance imports of auto parts with an equivalent value of automobile exports. In 1990 the government eliminated restrictions on the number of production lines that automobile producers could maintain and allowed producers to import finished automobiles (although they were required to earn US$2.50 in automobile exports for every US$1 spent on imports). In the early 1980s, automobile exports increased as domestic demand fell. Export growth leveled off in the early 1990s as the domestic market recovered. Growth of total vehicle output slowed from 21 percent in 1991 to 9 percent in 1992. In 1994 vehicle production totaled more than 1 million units, of which 850,000 were cars. Production fell by 16 percent between January and November 1995. During those months, exports rose by 37 percent to 700,000 units, while domestic sales fell by 70 percent, to 140,000 units. Textiles, clothing, and footwear together accounted for 9 percent of manufacturing output in 1994 and employed about 7 percent of all manufacturing workers. Textile and clothing production stagnated throughout the 1980s because of low domestic demand, high labor costs, antiquated and inefficient technology, more competitive export markets (especially in Asia), and heavy import competition resulting from trade liberalization. In the early 1990s, the textile industry operated at just 60 percent of capacity. Import competition caused footwear and leather output to decline 4 percent annually between 1982 and 1989. In 1990 domestic footwear enterprises produced almost 200,000 pairs of shoes per week. In 1992 footwear and leather goods accounted for 4 percent of manufacturing GDP. Non-maquiladora export earnings for textile, clothing, and footwear sales rose from US$499 million in 1990 to US$890 million in 1992. Imports also rose sharply to almost US$2 billion in 1992. The sector showed signs of strong recovery in late 1993, following its forced modernization. The chemicals sector (including oil products, rubber, and plastics) accounted for 18 percent of manufacturing GDP in 1994. Its output increased by 5 percent during 1994. In 1990 this sector employed 130,000 workers. Although the chemical industry was the most important foreign-exchange earner in the manufacturing sector, its output fell far short of domestic demand. Exports of non-maquiladora chemicals and petrochemicals earned US$2.5 billion in 1992, but the country imported US$5.8 billion worth of chemicals and petrochemicals. The imbalance resulted partly from domestic price controls, inadequate patent protection, and high research and development costs. Chemicals and petrochemicals accounted for 72 percent of total non-maquiladora export revenues in 1992. The chemical industry slumped in early 1993, as sales fell by 10 percent, operating profits by 61 percent, and net profits by 59 percent. Petrochemicals accounted for less than 2 percent of overall GDP in 1992. The state oil monopoly, Mexican Petroleum (Petróóleos Mexicanos--Pemex), dominated the country's more than 200 petrochemical companies, which together operated more than 700 plants. The petrochemical subsector enjoyed robust annual growth of 7 percent between 1982 and 1988, but output slowed thereafter. Pemex produced 18.5 million tons of petrochemicals in 1993, down from 19 million tons in 1992. In 1992 the Salinas government reduced the number of basic petrochemicals reserved for Pemex to just eight and lifted restrictions on foreign investment in "secondary" petrochemicals to improve the oil company's cost-effectiveness, raise the industry's productivity, and attract new private investment. Although Mexico's pharmaceutical industry consisted of some 450 companies, the largest ten enterprises accounted for 30 percent of all sales in 1993. In the early 1990s, some fifty-six firms controlled three-quarters of pharmaceutical production. Nonmetallic minerals (excluding oil) accounted for 7 percent of manufacturing gross national product (GNP--see Glossary) in 1994. The subsector concentrated on production of cement, glass, pottery, china, and earthenware. Total cement output in 1993 was 27 million tons. Cement exports fell from 4.5 million tons in 1988 to 1.4 million tons in 1992 because of higher domestic demand and United States antidumping sanctions. A new cement plant came into operation in Coahuila in early 1993, and the expansion of two other plants in Hidalgo was completed. Mexico's largest cement producer is the privately owned Mexican Cement (Cementos Mexicanos--Cemex). By 1994 Cemex had become the world's fourth largest cement company, with annual earnings of US$3 billion. In an effort to establish itself as a major multinational corporation, Cemex expanded its operations during the early 1990s into the United States and twenty-five countries in Europe, Asia, and Latin America. The basic metals subsector (dominated by iron and steel) accounted for 6 percent of manufacturing GNP in 1994. Mexico's iron and steel industry is one of the oldest in Latin America, comprising ten large steel producers and many smaller firms. The industry is centered in Monterrey, where the country's first steel mills opened in 1903. Steel plants in Monterrey (privatized in 1986) and nearby Monclova accounted for about half of Mexico's total steel output in the early 1990s. Most of the rest came from the government's Láázaro Cáárdenas-Las Truchas Steel Plant (Sicartsa) and Altos Hornos de Mééxico (Ahmsa) steel mills, which were sold to private investors in 1991. Export revenue from steel and steel products fell from US$1.03 billion in 1991 to US$868 million in 1992. Spurred by rising demand from the automobile industry, crude steel output rose 6 percent to 9 million tons in 1993. During the first half of 1993, output rose 10 percent over the same period in 1992, to 4 million tons. Production of semifinished steel rose 86 percent, reaching 573,000 tons, and rolled steel production expanded 5 percent to more than 2.6 million tons. Pipe production fell 13 percent to 174,400 tons. In 1993 Mexico was Latin America's second largest steel producer after Brazil, accounting for some 20 percent of Latin America's total steel production of 43 million tons. Paper, printing, and publishing contributed about 5 percent of manufacturing output in 1994. Mexico produced almost 3 million tons of paper and 772,000 tons of cellulose in 1990. The country had some 760 publishing enterprises in 1990, 48 percent of which published books, 44 percent periodicals, and 8 percent both. These companies produced a total of 142 million books and 693 million periodicals. Trade liberalization hurt the domestic publishing industry in 1992, as imports rose to US$1.6 billion from US$1.3 billion in 1991. Exports of Mexican publications declined in value from US$232 million in 1991 to US$217 million in 1992. Finally, wood products contributed 3 percent of manufacturing GDP in 1994. Although output of wood products fell in the late 1980s because of high investment costs and other adverse conditions in the primary forestry industry, it began to recover in 1993. Output of wood products increased by 2 percent during 1994. Mexico Television Introduced in 1950, television reached some 70 percent of the Mexican population by the early 1990s. In 1995 Mexico had 326 television stations (almost 25 percent of all stations in Latin America), most of them owned by or affiliated with the Mexican Telesystem (Telesistema Mexicano--known popularly as Televisa) and the state-run Mexican Institute of Television (Instituto Mexicano de Televisióón--Imevisióón). In 1996 Mexico had about 800 television transmitters and an average of one television set per 8.9 viewers. In the early 1990s, Televisa was reportedly the largest communications conglomerate in the developing world. Although a private corporation, Televisa is very close to the ruling PRI. It operates three commercial television networks in Mexico and four stations in the United States. Its main network broadcasts twenty-four hours a day, and the others broadcast between twelve and eighteen hours daily. Televisa's flagship news program is "24 Horas," which has long been the most important source of news for many Mexicans. Televisa exports 20,000 hours of television programming to other Latin American countries. In addition to television and radio, Televisa has interests in newspaper and book publishing; production of records and home videos; motion picture distribution, advertising and marketing; and real estate, tourism, and hotels. The state-run Imevisióón operates two national television networks, as well as several regional and specialized channels. The government also operates Mexican Republic Television (Televisióón de la Repúública Mexicana), which broadcasts news and educational and cultural programs to rural areas, and Cultural Television of Mexico (Televisióón Cultural de Mééxico). A competing network, Televisióón Independiente, operates seven stations. There are also some twenty independent stations. In November 1993, the government granted licenses for sixty-two new local television stations, increasing Televisa's total number of stations from 229 to 291. Most of the new stations are concentrated in northern Mexico. Televisa showed considerable financial strength in 1993, with third-quarter profits of some US$120 million, up 43 percent from the same period of 1992. The company planned additional large investments in an effort to maintain its 90 percent share of Mexico's television market. Televisa's main competitor is Televisióón Azteca, which owns 179 stations in two national networks. Although it commanded less than 10 percent of the national television market in 1993, it is attempting to increase its market share to 24 percent by 2000. Tourism During the 1970s and 1980s, tourism generated more than 3 percent of Mexico's GNP and between 9 percent and 13 percent of its foreign-exchange earnings. Only petroleum generated more net foreign exchange. The number of arriving tourists rose steadily from more than 5 million in 1987 to 7 million in 1990, despite the peso's overvaluation during those years. The number of arrivals subsequently fell to about 6 million in 1991 and 1992 as the overvalued peso raised costs for United States visitors. Mexico had 7 million foreign arrivals in 1994, and tourism generated total revenue of US$4.2 billion. Eighty-three percent of foreign visitors to Mexico in 1993 came from the United States, many of them from the border states for short visits. Eight percent of foreign visitors came from Europe, and 6 percent from other Latin American countries. In 1990 United States residents made some 70 million visits to Mexico's border towns, and Mexicans made 88 million visits to United States border towns. In 1984 visitors to Mexican border areas spent some US$1.3 billion, compared with US$2.0 billion spent by all tourists in the interior. By 1990 border visitors spent more than US$2.5 billion, while visitors to the interior spent approximately US$4.0 billion. In 1991 each foreign tourist spent an average amount of US$594. In 1992 Mexico had some 8,000 hotels and some 353,000 hotel rooms. In the early 1990s, Mexico City was the most popular destination for foreign tourists, followed by Acapulco. In the mid-1970s, the official tourist development agency, Fonatur, began to promote new tourist areas, including Zihuatanejo, Ixtapa, and Puerto Escondido on the Pacific coast, and Cancúún on the Caribbean coast. In 1986 and 1987, work began on the new Pacific coast tourist resort of Huatulco. Mexico's tourist industry is particularly vulnerable to external shocks such as natural disasters and bad weather, international incidents, and variations in the exchange rate, as well as changes in national regulations. For instance, a 1985 earthquake that had an epicenter near Acapulco damaged many of Mexico City's central hotels. In September 1987, Hurricane Gilbert struck Cancúún, causing US$80 million worth of damage that took three months to repair. Mexico Foreign Trade Stabilization and adjustment policies implemented by the Mexican government during the 1980s caused a sharp fall in imports and a corresponding increase in exports. Average real exchange rates rose, domestic demand contracted, and the government provided lucrative export incentives, making exportation the principal path to profitable growth. The 1982 peso devaluation caused Mexico's imports to decline 60 percent in value to US$8.6 billion by the end of 1983. After years of running chronic trade deficits, Mexico achieved a net trade surplus of US$13.8 billion in 1993. Imports After 1983 the government eliminated import license requirements, official import prices, and quantitative restrictions. This trade liberalization program sought to make Mexican producers more competitive by giving them access to affordable inputs. By 1985 the share of total imports subject to licensing requirements had fallen from 75 percent to 38 percent. In 1986 Mexico acceded to the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization (WTO), and in 1987 it agreed to a major liberalization of bilateral trade relations with the United States. As a consequence of trade liberalization, the share of domestic output protected by import licenses fell from 92 percent in June 1985 to 18 percent by the end of 1990. The maximum tariff was lowered from 100 percent in 1985 to 20 percent in 1987, and the weighted average tariff fell from 29 percent in 1985 to 12 percent by the end of 1990. The volume of imports subject to entry permits was reduced from 96 percent of the total in 1982 to 4 percent by 1992. The remaining export controls applied mainly to food products, pharmaceuticals, and petroleum and oil derivatives. The value of Mexico's imports rose steadily from US$50 billion in 1991 to US$79 billion in 1994 (19 percent of GDP). It rose in response to the recovery of domestic demand (especially for food products); the new peso's new stability; trade liberalization; and growth of the nontraditional export sector, which required significant capital and intermediate inputs (see table 11, Appendix). As a result of the new peso devaluation of December 1994, Mexico's imports in 1995 were US$73 billion, 9 percent lower than the 1994 figure. In 1995 Mexico imported US$5 billion worth of consumer goods (7 percent of total imports), US$9 billion worth of capital goods (12 percent), and US$59 billion worth of intermediate goods (81 percent). Renewed growth and the new peso's real appreciation were expected to increase demand for foreign products during 1996. Imports rose by 12 percent in the first quarter of 1996 to US$20 billion. The government tried to curb the early 1990s' rise in imports by acting against perceived unfair trade practices by other countries. In early 1993, Mexico retaliated against alleged dumping of United States, Republic of Korea (South Korean), and Chinese goods by imposing compensatory quotas on brass locks, pencils, candles, fiber products, sodium carbonate, and hydrogen peroxide. Antidumping duties were applied to steel products, and all importers were required to produce certification of origin. But Mexico also was subject to complaints by other countries, which charged that Mexico itself engaged in unfair practices. The European Community (now the European Union--EU) and Japan lodged complaints with the GATT about Mexico's invocation of sanitary standards in late 1992 to limit meat imports. Mexico Exports The mid-1980s decline in world petroleum prices caused the value of Mexico's exports to fall from US$24 billion in 1984 to US$16 billion in 1986, reflecting the country's continued heavy dependence on petroleum export revenue. Lower oil earnings helped to reduce Mexico's trade surplus to almost US$5 billion in 1986. Export revenue rose slightly to US$21 billion in 1987, as oil prices began to recover. Exports continued to rise modestly but steadily thereafter, reaching US$28 billion in 1992. The government promoted exports vigorously in an effort to close a trade gap that began in 1989 and widened in subsequent years. The state-run Foreign Commerce Bank channeled finance to a wide range of potential exporters, especially small and medium-sized firms and agricultural and fishing enterprises. In 1993 it provided US$350 million for the tourist sector, representing a 35 percent increase over 1992. The value of Mexico's exports rose steadily from US$43 billion in 1991 to US$61 billion in 1994, despite the new peso's overvaluation. The currency devaluation of late 1994 contributed to a significant jump in the value of Mexico's exports to US$80 billion in 1995, a 31 percent increase over the previous year. Total export earnings for the first quarter of 1996 were US$22 billion. Manufactures accounted for US$67 billion (84 percent) of Mexico's exports in 1995, followed by oil exports (US$9 billion or 11 percent), agricultural products (US$4 billion, or 5 percent), and mining products (US$545 million, or less than 1 percent). This improved export performance resulted from the new peso devaluation, weak domestic demand because of the recession, new export opportunities opened by NAFTA, and improved commodity prices. Export growth was expected to slow during 1996, as a result of recovery of domestic demand, expected drops in the prices of oil and other nonfood items, capacity constraints, and strengthening of the new peso. Composition of Exports The 1985 peso devaluations and the 1986 oil price collapse produced a dramatic shift in the composition of Mexico's exports. The value of Mexico's oil exports plummeted from US$13 billion in 1985 to less than US$6 billion in 1986. The oil sector's share of total export revenue consequently fell from 78 percent in 1982 to 42 percent in 1987. Oil export revenue recovered in 1987 to US$7.9 billion as petroleum prices rose. Prompted by the peso devaluation and low domestic demand, nonoil exports rose 41 percent in 1986 and an additional 24 percent in 1987. In 1987 manufactured exports (especially engineering and chemical products) constituted 48 percent of total exports by value, eclipsing petroleum and reducing Mexico's vulnerability to fluctuations in the world oil price. Between 1988 and 1991, petroleum exports fell 22 percent in value because of lower world oil prices and declining sales, while nonoil exports rose 15 percent in value. By 1992 petroleum contributed only 30 percent of total exports by value. In 1994 petroleum and its derivatives accounted for US$7 billion, or 12 percent, of Mexico's total export revenue of US$62 billion. Transport equipment and machinery exports earned US$33 billion, or 54 percent of total exports. Chemicals earned US$3 billion, or 5 percent, and metals and manufactured metal products earned US$3 billion, or 5 percent. Agricultural, processed food, beverage, and tobacco products accounted for US$3 billion, or 5 percent of total exports. Mexico Foreign Investment Regulation Restrictions on direct foreign investment were eased during the administrations of presidents de la Madrid and Salinas. In 1990 the government revised Mexico's 1973 foreign investment law, opening up to foreign investment certain sectors of the economy that previously had been restricted to Mexican nationals or to the state. The new regulations permitted up to 100 percent foreign ownership in many industries. However, in 1992 the government continued to retain sole rights to large parts of the economy, including oil and natural gas production, uranium production and treatment, basic petrochemical production, rail transport, and electricity distribution. Economic sectors reserved for Mexican nationals included radio and television, gas distribution, forestry, road transport, and domestic sea and air transport. The government limited foreign investors to 30 percent ownership of commercial banks, 40 percent ownership of secondary petrochemical and automotive plants, and 49 percent ownership of financial services, insurance, and telecommunications enterprises. However, foreign investors could obtain majority ownership of certain activities by means of a fideicomiso , or trust. In November 1993, the government announced a new foreign-investment law that vastly expanded foreign-investment opportunities in Mexico. The new law replaced Mexico's protectionist 1973 investment code and united numerous regulatory changes that Salinas previously had imposed by decree without congressional approval. The new law allowed foreigners to invest directly in industrial, commercial, hotel, and time-share developments along Mexico's coast and borders, although such investment had to be carried out through Mexican companies. Foreigners previously had been prohibited from owning property within fifty kilometers of Mexico's borders, and their investments in areas beyond fifty kilometers had to be carried out through bank trusts. In practice, however, foreigners already had invested in many of the listed border industries and areas through complex trust and stock ownership arrangements, although risk and bureaucratic requirements had deterred some potential investors and financiers. The new investment code also opened the air transportation sector to 25 percent direct foreign investment and the secondary petrochemical sector to full 100 percent direct foreign investment. Mining also was opened to 100 percent direct foreign ownership; previously foreigners could provide 100 percent investment but had to invest through bank trusts for limited periods of time. Other sectors opened to foreign investors included railroad-related services, ports, farmland, courier services, and cross-border cargo transport. The new code eliminated performance requirements previously imposed upon foreign investors, along with minimum domestic content requirements. The Future of the Economy The market-oriented structural reforms of the 1980s and early 1990s transformed Mexico's economy from a highly protectionist, public-sector-dominated system to a generally open, deregulated "emerging market." President Salinas's moves to privatize and deregulate large sectors of the Mexican economy elicited widespread support from international investors and the advanced industrial nations. With its positive effect on trade and capital flows, NAFTA was widely interpreted by Mexican decision makers as a validation of their market-oriented economic policies. The currency collapse of December 1994 and the ensuing deep recession, however, erased the economic gains that Mexico had achieved in previous years, shook the nation's political stability, and depressed hopes for an early return to growth. Although Mexico remained in a difficult economic condition in mid-1996, the worst of the recession had passed and the country appeared headed toward recovery. The economy registered positive growth in the second quarter of 1996, inflation and interest rates abated, and portfolio investment returned, as reflected in Mexico's rising stock exchange index. Despite continuing problems exacerbated by low investor confidence, analysts agreed that Mexico's economy in the mid-1990s was fundamentally sound and capable of long-term expansion. * * * Mexico's postwar economic growth and development policies are reviewed in James M. Cypher's State and Capital in Mexico , Roger Hansen's The Politics of Mexican Development , and Clark W. Reynolds's The Mexican Economy . The best examinations of Mexican economic policy during the 1970s and 1980s are John Sheahan's Conflict and Change in Mexican Economic Strategy and Nora Lustig's Mexico: The Remaking of an Economy . Denise Dresser's Neopopulist Solutions to Neoliberal Problems: Mexico's National Solidarity Program offers an in-depth analysis of the structure and political implications of Pronasol, the Salinas administration's major anti-poverty program. The United States Department of Agriculture maintains extensive statistical data on a variety of Mexican agricultural products, and its annual reports on various crops provide detailed information on specific sectors. Among the best treatments of Mexico's agricultural policy are the volume edited by James Austin and Gustavo Esteva, Food Policy in Mexico , and Steven Sanderson's The Transformation of Mexican Agriculture . Government-business relations are examined in Roderic A. Camp's Entrepreneurs and Politics in Twentieth-Century Mexico and The Government and Private Sector in Contemporary Mexico , edited by Sylvia Maxfield and Ricardo Anzaldua. The United States Department of Energy's International Energy Annual provides statistical data on Mexican oil production and reserves. Petroleum policy is examined in Judith Gentleman's Mexican Oil and Dependent Development and Laura Randall's The Political Economy of Mexican Oil . Among the best examinations of Mexico's international economic relations are David Barkin's Distorted Development and Van R. Whiting, Jr.'s The Political Economy of Foreign Investment in Mexico. f:\12000 essays\business & economics (632)\Microsoft Antitrust Paper.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Microsoft Antitrust Paper Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible Personal Computer (PC) operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows, the operating system of all PC's. Microsoft enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market. Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market. Microsoft possesses a dominant, persistent, and increasing share of the world-wide market for Intel-compatible PC operating systems. Every year for the last decade, Microsoft's share of the market for Intel-compatible PC operating systems has stood above ninety percent. For the last couple of years the figure has been at least ninety-five percent, and analysts project that the share will climb even higher over the next few years. Even if Apple's Mac OS were included in the relevant market, Microsoft's share would still stand well above eighty percent. Microsoft's dominant market share is protected by the same barrier that helps define the market for Intel-compatible PC operating systems. As explained above, the applications barrier would prevent an aspiring entrant into the relevant market from drawing a significant number of customers away from a dominant - 1 - incumbent even if the incumbent priced its products substantially above competitive levels for a significant period of time. Because Microsoft's market share is so dominant, the barrier has a similar effect within the market: It prevents Intel-compatible PC operating systems other than Windows from attracting significant consumer demand, and it would continue to do so even if Microsoft held its prices substantially above the competitive level. Microsoft's actual pricing behavior is consistent with the proposition that the firm enjoys monopoly power in the market for Intel-compatible PC operating systems. The company's decision not to consider the prices of other vendors' Intel-compatible PC operating systems when setting the price of Windows 98, for example, is probative of monopoly power. One would expect a firm in a competitive market to pay much closer attention to the prices charged by other firms in the market. Another indication of monopoly power is the fact that Microsoft raised the price that it charged Original Equipment Manufacturer's (OEM's) for Windows 95, with trivial exceptions, to the same level as the price it charged for Windows 98 just prior to releasing the newer product. In a competitive market, one would expect the price of an older operating system to stay the same or decrease upon the release of a newer, more attractive version. Microsoft, however, was only concerned with inducing OEMs to ship Windows 98 in favor of the older version. It is unlikely that Microsoft would have imposed this price increase if it were genuinely concerned that OEMs might shift their business to another vendor of operating systems or hasten the development of viable alternatives to Windows. Finally, it is indicative of monopoly power that Microsoft felt that it had substantial discretion in setting the price of its Windows 98 upgrade product (the operating system product it - 2 - sells to existing users of Windows 95). A Microsoft study from November 1997 reveals that the company could have charged $49 for an upgrade to Windows 98 -- there is no reason to believe that the $49 price would have been unprofitable -- but the study identifies $89 as the revenue-maximizing price. Microsoft thus opted for the higher price. Microsoft's first response to the threat posed by Netscape Navigator was an effort to persuade Netscape to structure its business such that the company would not distribute platform-level browsing software for Windows. Netscape's assent would have ensured that, for the foreseeable future, Microsoft would produce the only platform-level browsing software distributed to run on Windows, Internet Explorer. This would have eliminated the prospect that non-Microsoft browsing software could weaken the applications barrier to entry. Executives at Microsoft received confirmation in early May 1995 that Netscape was developing a version of Navigator to run on Windows 95, which was due to be released in a couple of months. Microsoft's senior executives understood that if they could prevent this version of Navigator from presenting alternatives, the technologies branded as Navigator would cease to present an alternative platform to developers. Even if non-Windows versions of Navigator exposed Internet-related Application Programming Interfaces (APIs), applications written to those APIs would not run on the platform Microsoft executives expected to enjoy the largest installed base, i.e., Windows 95. So, as long as the version of Navigator written for Windows 95 relied on Microsoft's Internet-related APIs instead of exposing its own, developing for Navigator would not mean developing cross-platform. Developers of network-centric applications thus would not be drawn to Navigator's APIs in - 3 - substantial numbers. Therefore, with the encouragement and support of Gates, a group of Microsoft executives commenced a campaign in the summer of 1995 to convince Netscape to halt its development of platform-level browsing technologies for Windows 95. Most harmful of all is the message that Microsoft's actions have conveyed to every enterprise with the potential to innovate in the computer industry. Through its conduct toward Netscape, IBM, Compaq, Intel, and others, Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products. Microsoft's past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft. The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest. - 4 - Bibliography New York Times: "How Microsoft Sought Friends In Washington." 7 November 1999: A33 "Microsoft's Horizon." 7 November 1999: A33A "A Breakup Of Microsoft? Possibly, but Investors Shrug It Off." 9 November 1999: C1-C16 "Prosecutors Seeking To Break The Grip Of Windows System." 10 November 1999: A1-C30 "Microsoft Faces A Class Action On 'Monopoly.'" 22 November 1999: A1-A16 USA Today: "Conservative judge at helm of Microsoft talks." 22 November 1999: B1-B2 "Microsoft findings spur lawsuit findings." 23 November 1999: B2 The Wall Street Journal: "Microsoft Hopes for GOP Savior, but States Are Problem." 9 November 1999: A28 Financial Times: "Experts say Microsoft case will drag on." 9 November 1999: 11 - 5 - f:\12000 essays\business & economics (632)\Microsoft.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Microsoft I feel this example shows supply and demand in addition to monopolistic competition. This entire ordeal is over a free browser that Microsoft includes with windows for free and gives out on the Internet for free just as Netscape and most other browser companies do. The government feels that Microsoft is creating a demand purely for their products by forcing its browser on suppliers and controlling prices. I have yet to see where Microsoft is charging extraordinary prices for any of these free programs nor do I see how Netscape, in using the governments definition, a "monopoly" itself, is "being forced out of business" by Microsoft's free browser. Remember: the charge is against including Internet Explorer with Windows, not the Windows monopoly itself. It is much better to have one operating system than 20 or even two. Software compatibility, technical support, and setup are much more simplified with one operating system. Programs today are specifically designed to be "Windows compatible." Would you rather have 20 (local) phone companies, each with a different line and number running into your house or one, as is the case now? Internet Explorer brings browser competition to a market that is essentially monopolistic itself. Internet Explorer gives Netscape a competitive product where before virtually none existed. The purpose of antitrust laws is to prevent only harmful monopoly. Microsoft's operating system near monopoly is harmful in very few ways. Nor is Intel's chip near monopoly harmful, nor is Netscape's browser near monopoly. Other reasons easily explain how Microsoft came about to its size and how new companies constantly spring up in the computer industry. Computer software is a very volatile industry. To succeed in this industry all you basically need is a good program and a way to offer it for sale. All they have to do is make a program and copy it on a disk. Since making an extra disk containing the program costs all of 2 cents, it is more costly for the software company to print the box and manuals, than it is to make one extra disk. But it does cost Microsoft to develop a new program. No matter how cheap a disk is, capital investment such as salaries, factories, storage, and programmers always exist. Even though development costs are sunk and additional production costs are nonexistent, other costs are incurred. Besides, supply and demand determines where a price will fall. Another thing about the computer market is its ever-changing program market. For all we know, anyone literate in programming may develop a better program than Windows. If consumers like it, we may soon find another browser monopolist. For reasons similar to this, computer industry leaders have vastly changed in just a few years. At times Apple, IBM, Intel, Netscape, AT&T and even Commodore, have or had large, sometimes monopolist-like markets. Characteristics of monopolies that cause trouble are: (1) Restriction of output. (2) Higher prices along with this restriction. (3) Restriction of entry to a particular market and, in a few cases. (4) Lack of innovation due to lack of competition. Not a single one of these problems is experience with Microsoft. These problems are only drastic when an item is in a secluded market with no close substitutes. Computers are definitely not necessities and there are few barriers to entry in the computer market (the only noticeable being computer literacy). Microsoft certainly does not restrict output and hold prices at extreme levels. If they did, nobody would buy Windows 95 or 98 when it came out. There is no reason to buy an upgrade except that people are looking for something new or something bigger and better. New versions of Windows do not sell because consumers aren't forced to buy them. They sell because consumers want them. Many of Microsoft's major products are included with Windows. Giving products away at no monetary cost is certainly not restricting output? Netscape had an almost full monopoly (90%) and still has a semi-monopoly at 65-70% of the browser market. So what they are worried about? They use the same methods of distribution of their software by offering it for free and having Internet providers include it with their registration software. Before Internet Explorer came along, we sat for long periods waiting for browser upgrades. There was essentially one browser - Netscape. Upgrades have been almost constant since the introduction of Explorer. The result: two companies with advanced browsers competing to build a better browser. Microsoft is not the only operating system to choose from. While very practical and well suited for the current computer industry, Windows is not alone. Many other operating systems, some even free, are available. There are around nine in the US alone: Linux, Caldera, Unix, OS/2 etc. Globally there are bigger companies that have more of the global market. I don't feel the government has the right to tell Microsoft how it can or cannot configure its own software. Once Windows is installed, consumers have the option of disabling as much of Windows as they like. If you don't like Explorer, disable it and get Netscape for free. Washington should not be able to get in the way of a successful company over Microsoft's right to include their free software with their own program. BIBLOYOGRAPHY · Microsoft Corporation Official homepage of Microsoft Corporation http://www.microsoft.com · Sympathy for the Devil: Microsoft the Monopoly Judging by the muted reaction from Silicon Valley to the ruling that Microsoft is a monopoly, Bill Gates's enemies may have finally realized that they have formed a circular firing squad. http://www.spark-online.com/december99/esociety/lau.htm... · Microsoft Research http://www.research.microsoft.com f:\12000 essays\business & economics (632)\Milton Friedman 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Milton Friedman is known as one of the top economists in the world. He has a Ph. D. from Columbia University, won a Noble Memorial Prize in economics and has also been awarded many honorary degrees by other Universities in the United States. As you can tell, Milton Friedman has played a significant part in helping to solve the economy problems of the world. You've probably heard all about his accomplishments and awards he has received, but what about how Milton Friedman played a very important role in helping us get into a huge national debt? This paper will discuss how Milton Friedman played a negative role in our economy. When the Great Depression hit worldwide, it was up to the economists to explain it and to devise a cure for it. A person named John Maynard Keynes came up with an explanation to the economic slump that was so simple people did not think it would work. Keynes explanation was something like this; in a normal economy, there is a high level of employment, and everyone is spending their earnings as usual. This means there is a circular flow of money in the economy, as my spending becomes part of your earnings, and your spending becomes part of my earnings. Suppose something happens to alter consumers confidence in the economy. Worried consumers may then try to weather the coming economic hardship by saving their money, but because my spending is part of your earnings, my decision to hoard money makes things worse for you and you, responding to your own difficult times, will start hoarding money too, making things even worse for me. So actually, everything is related. People hoard money in difficult times, but times become more difficult when people hoard money. That was basically how Keynes explained the recession. He also came up with a solution to it. The cure for this, was for the central bank to expand the money supply. Keynes said, "by putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished(Keynes, 232)." That was the cure and explanation to the recession, but what about the depressions? Keynes believed that depressions were recessions that had fallen into a "liquidity trap(Keynes, 240)." A liquidity trap is when people hoard money and refuse to spend no matter how much the government tries to expand the money supply. In these circumstances, Keynes believed that the government should do what people were not, basically, spend. In seven short years, under the Keynesian policy, the U.S. went from the greatest depression it has ever known to the greatest economic boom it has ever known. The success of Keynesian economics was so astounding that almost all capitalist governments around the world started using it. And the result was the extinction of the economic depression! Before World War II, eight U.S. recessions worsened into depressions (1807, 1837, 1873, 1882, 1893, 1920, 1933, and 1937). Since World War II, under Keynesian policies, there have been nine recessions (1945-46, 1949, 1954, 1956, 1960-61, 1970, 1973-75, 1980-83, 1990-92 ), but not one has turned into a depression. The success of Keynesian economics was such that even Richard Nixon once said, "We are all Keynesians now(Keynes, 289)." Well, that was the theory the governments were using at the time to control the economy. Obviously there were some people who objected against use of this theory. One of them was Milton Friedman. He believed that the only function the government should be allowed is to control the circulation of cash. Although he accepted Keynes' definition of recessions, he rejected the cure. He believed that the government should butt out of the business of expanding or contracting the money supply. It should keep the money supply steady, expanding it slightly each year only to allow for the growth of the economy and a few other basic factors. Inflation and unemployment would adjust themselves according to market demands. In other words, Milton wanted the government to keep the money supply steady and only increase it by 3-5 percent each year to allow growth for the economy. Inflation and unemployment would supposedly adjust themselves to the market demands, thus giving the economy low inflation and high stability. He called this theory Monetarism. Milton preached Monetarism for a long period of time until it was finally tried in Great Britain during the 80's. His theory was a big disaster. Milton's theory did not work. For almost seven years, the Bank of England tried its best to make it work. According to monetarist theory, the British economy should have enjoyed low inflation and high stability. But in fact, it went berserk. The economy sank into deep recession. Although inflation came down, this was at the price of rising unemployment, which soared from 5.4 to 11.8 percent. Between 1979 and 1984, manufacturing output fell 10 percent, and manufacturing investment fell 30 percent. Eventually, the Bank of England had to abandon monetarism, which it did in 1986. During this time period, Milton was an advisor to Ronald Reagan. He had also convinced Reagan to try out his theory. Well, under the Monetarism policy, government borrowing and spending exploded under Reagan, with the national debt rising to $3 trillion by the time he left office. Paul Volcker, Chairman of the Federal Reserve Board, battled inflation during the severe recession of 1980-82 through the Keynesian method of raising interest rates and tightening the money supply. When inflation looked defeated in 1982, he immediately got rid of the interest rate and flooded the economy with money. A few months later, the economy came to life, in a recovery that would last over seven years. The American experience was in direct contrast to Great Britain's. As a result, most economists abandoned monetarist theory. In the end, Milton's Monetary theory was proven unfeasible. Instead of helping fight the recession, Milton helped put us in it. After reading this paper, one would think that Milton Friedman is a bad economists, but the truth is, he is a highly intelligent man. Even though he was partly responsible for putting our economy into a recession during the Reagan administration, he is also responsible for helping our economy through many other hardships. Although Milton Friedman is considered as one of the worlds greatest Economists, we all make mistakes sometimes right? f:\12000 essays\business & economics (632)\Milton Friedman.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Milton Friedman Milton Friedman is known as one of the top economists in the world. He has a Ph. D. from Columbia University, won a Noble Memorial Prize in economics and has also been awarded many honorary degrees by other Universities in the United States. As you can tell, Milton Friedman has played a significant part in helping to solve the economy problems of the world. You've probably heard all about his accomplishments and awards he has received, but what about how Milton Friedman played a very important role in helping us get into a huge national debt? This paper will discuss how Milton Friedman played a negative role in our economy. When the Great Depression hit worldwide, it was up to the economists to explain it and to devise a cure for it. A person named John Maynard Keynes came up with an explanation to the economic slump that was so simple people did not think it would work. Keynes explanation was something like this; in a normal economy, there is a high level of employment, and everyone is spending their earnings as usual. This means there is a circular flow of money in the economy, as my spending becomes part of your earnings, and your spending becomes part of my earnings. Suppose something happens to alter consumers confidence in the economy. Worried consumers may then try to weather the coming economic hardship by saving their money, but because my spending is part of your earnings, my decision to hoard money makes things worse for you and you, responding to your own difficult times, will start hoarding money too, making things even worse for me. So actually, everything is related. People hoard money in difficult time s, but times become more difficult when people hoard money. That was basically how Keynes explained the recession. He also came up with a solution to it. The cure for this, was for the central bank to expand the money supply. Keynes said, "by putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished(Keynes, 232)." That was the cure and explanation to the recession, but what about the depressions? Keynes believed that depressions were recessions that had fallen into a "liquidity trap(Keynes, 240)." A liquidity trap is when people hoard money and refuse to spend no matter how much the government tries to expand the money supply. In these circumstances, Keynes believed that the government should do what people were not, basically, spend. In seven short years, under the Keynesian policy, the U.S. went from the greatest depression it has ever known to the greatest economic boom it has ever known. The success of Keynesian economics was so astounding that almost all capitalist governments around the world started using it. And the result was the extinction of the economic depression! Before World War II, eight U.S. recessions worsened into depressions (1807, 1837, 1873, 1882, 1893, 1920, 1933, and 1937). Since World War II, under Keynesian policies, there have been nine recessions (1945-46, 1949, 1954, 1956, 1960-61, 1970, 1973-75, 1980-83, 1990-92 ), but not one has turned into a depression. The success of Keynesian economics was such that even Richard Nixon once said, "We are all Keynesians now(Keynes, 289)." Well, that was the theory the governments were using at the time to control the economy. Obviously there were some people who objected against use of this theory. One of them was Milton Friedman. He believed that the only function the government should be allowed is to control the circulation of cash. Although he accepted Keynes' definition of recessions, he rejected the cure. He believed that the government should butt out of the business of expanding or contracting the money supply. It should keep the money supply steady, expanding it slightly each year only to allow for the growth of the economy and a few other basic factors. Inflation and unemployment would adjust themselves according to market demands. In other words, Milton wanted the government to keep the money supply steady and only increase it by 3- 5 percent each year to allow growth for the economy. Inflation and unemployment would supposedly adjust themselves to the market demands, thus giving the economy low inflation and high stability. He called this theory Monetarism. Milton preached Monetarism for a long period of time until it was finally tried in Great Britain during the 80's. His theory was a big disaster. Milton's theory did not work. For almost seven years, the Bank of England tried its best to make it work. According to monetarist theory, the British economy should have enjoyed low inflation and high stability. But in fact, it went berserk. The economy sank into deep recession. Although inflation came down, this was at the price of rising unemployment, which soared from 5.4 to 11.8 percent. Between 1979 and 1984, manufacturing output fell 10 percent, and manufacturing investment fell 30 percent. Eventually, the Bank of England had to abandon monetarism, which it did in 1986. During this time period, Milton was an advisor to Ronald Reagan. He had also convinced Reagan to try out his theory. Well, under the Monetarism policy, government borrowing and spending exploded under Reagan, with the national debt rising to $3 trillion by the time he left office. Paul Volcker, Chairman of the Federal Reserve Board, battled inflation during the severe recession of 1980-82 through the Keynesian method of raising interest rates and tightening the money supply. When inflation looked defeated in 1982, he immediately got rid of the interest rate and flooded the economy with money. A few months later, the economy came to life, in a recovery that would last over seven years. The American experience was in direct contrast to Great Britain's. As a result, most economists abandoned monetarist theory. In the end, Milton's Monetary theory was proven unfeasible. Instead of helping fight the recession, Milton helped put us in it. After reading this paper, one would think that Milton Friedman is a bad economists, but the truth is, he is a highly intelligent man. Even though he was partly responsible for putting our economy into a recession during the Reagan administration, he is also responsible for helping our economy through many other hardships. Although Milton Friedman is considered as one of the worlds greatest Economists, we all make mistakes sometimes right? f:\12000 essays\business & economics (632)\Minimum wage 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ It sounds simple raise the minimum wage, reward hard work, and strike a blow against the society's inequalities. It's an emotional argument that blurs out the truth and make's people forget one important economic lesson: There's no such thing as a free lunch. The minimum wage has not been increased since the industrial welfare commission raised it to $4.25 an hour. The IWC and the legislature have not agreed since that time that any additional increase is justified because of California's recession and the downward turn in the business climate. There was a measure out on this last ballot called prop 210 which passed and increased the minimum wage from $4.25 an hour to $4.75 an hour and on March 1, 1997 it will raise to $5.00 an hour and beginning March 1, 1998 it will increase to $5.75. The minimum wage in California has increased nine times in the past thirty years rising from $1.30 per hour in the mid 1960's to $4.25 per hour as of July 1996. The increase has been less than the rate of inflation during this period. The vast majority of the 22,000 members of the American Economic Association agree that increasing the minimum wage will increase unemployment among young, unskilled workers. This 35% hike in the minimum wage paid by the business will be one of the biggest increases in California history. And, it will hit just when the state is recovering from a long recession. Approximately 2 million of California's nearly 13 million workers earn less than $5.75 per hour. Most of these workers would be directly affected by this increase. Roughly one-forth of those earning less than the proposed $5.75 minimum wage are teenagers, while the remaining three-fourths are adults age 20 and over. Industries employing significant numbers of these workers include retail stores, child care facilities, restaurants, and fast food franchise. Much of the fiscal impacts of this measure would be related to its various effects on the economy, including changes in employment, prices and profits. For example, most employees earning less than the proposed minimum wage would earn more. They would also spend more on goods and services, thereby generating certain increases in economic activities. At the same time, however, employers would face higher wage costs, which they would either absorb in the form of lower profits or attempt to offset through a variety of means. For instance, they may attempt to shift or pass along the cost of higher wages to the consumer by rasing prices of the goods and services they sell. Alternatively, some employers may offset the cost of the increase in wages by automating, hiring fewer employees, reducing the hours, or limiting fringe benefits. Some businesses that are not able to shift the effects of the higher minimum wage may reduce economic activity in California. This would most likely occur in industries that have a large share of expenses for low-wage workers or that are subject to competition from other states and other countries. In my view, an increase in the minimum wage would result in some decline in employment and business activity in California relative to what would otherwise have occurred. This increase would have varying effect on state and local revenues. For instance, a reduction in business activity, employment, and income in California would result in lower income tax revenues. These declines could be offset, however, by increased spending on goods subject to the sales tax. Higher sales tax would occur if business raised prices of taxed goods in response to the increase in the minimum wage, and this increase is not offset by reducing quantities of goods sold. Sales tax could also increase if those receiving the higher minimum wage spent a relatively high portion of their new earnings on goods subject to the sales tax. How the minimum wage should be changed, in California minimum wages increases have usually occurred in one of two ways. The first is a change in the federal minimum wage, which results in an increase in California minimum wage to the new higher federal level. The second is a state administrative process. Under this process, the California Industrial Welfare Commission can, by a majority vote of its members, issue wage orders to raise the state minimum wage for workers in any occupation, trade, or industry. The commission considers information from business, labor, and the public through a series of hearings. This process was last used by the commission in 1988, when it increased the minimum wage from $3.35 per hour to $4.25 per hour. This measure would require the Industrial Welfare Commission to issue minimum wage orders consistent with the proposed minimum wage increase. This increase in wages was to steep of an increase nobody is really benefiting from this, although it makes the employees earning the higher wage feel better. I think a slow increase over time would have been better for the employee because you would actually see your increase of money staying in your pocket. Right now with your wages rising, your cost of living is also rising so in actuality you are spending more. f:\12000 essays\business & economics (632)\Minimum Wage Legislation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Minimum Wage Legislation I am going to pose the question to you the students of Sir Sandford Fleming College, do you really want the minimum wage legislation left in affect? As college students you are not benefiting or gaining anything from minimum wage legislation. The minimum wage legislation requires all employees to be paid at least some fixed given dollar amount per hour. This sounds good, but it isn't all that it seems! Minimum wage is an example of government intervention. The government has put a minimum on the dollar amount that employers can pay their employees. Unfortunately when we implement solutions like the minimum wage, it is too late to actually fix the problem, so in most cases it has effects that we cannot foresee as it is a reaction instead of a prevention method. Minimum wage actually helps very few people. The only ones that benefit from minimum wage are those unskilled workers who are currently employed. Minimum wage restricts employment opportunities for the young, unexperienced, and those people with educational disadvantages. They will continue to find themselves handicapped in the job market as long as the minimum wage legislation remains in affect. In society today the demand for "unskilled" workers is low and the supply is high, therefore there is a surplus of unskilled workers in the job market. The effect of a surplus drives down an individuals reservation wage, as they are willing to do and take anything for work. Minimum wage only makes this fact more severe, as it increases the supply of workers. Minimum wage increases the cost of doing business, and unfortunately in today's economic conditions employers are not able to pass on the extra costs to the consumer. Minimum wage is not helping workers, it is hurting businesses, and to maintain any profit, and follow legislation companies have to cut labour costs somehow. Companies are being forced to take other alternatives because of higher labour costs for unskilled workers. Businesses are forced to: 1. Cut back current employees hours 2. Not hire any more employees 3. Let employees go As you can see the reactions to minimum wage actually decrease opportunities for the "unskilled" workers, instead of providing them. With any change in the in the minimum wage the demand will decrease/increase dramatically, and exactly the opposite for skilled workers. When the minimum wage changes the demand for skilled workers remains the same regardless, but if there is a change it is very minute. Overall the amount of job opportunities are decreasing, because of the costs of labour is increasing for the unskilled worker, and it will be the unskilled workers who are the first to go in these situations because they do not have the specialized skills that make them irreplaceable. Wages are used to compensate workers for their time, skill, and money that they have invested into themselves. The trend is for higher education, which in return receives higher wages. The reservation wage of skilled workers is higher then unskilled because they would like to receive some return on their investment, their education. As college students we should be able to relate to this concept as we have put more time, effort and money in to ourselves then some others, like high school students and we should be compensated for this by of course a better rate of pay. After one year of college you should receive more then minimum wage as you have bettered your skills and invested at least $3000 to do so. This is the only direct cost, you also have to take into consideration the opportunity costs you would have. The opportunity costs for a college student is the wages you could have been earning instead of attending school as well as the time you could be travelling or starting a family, or whatever you gave up to go to college, and you want to be compensated for them. We would like to encourage more people into getting a better education, but unfortunately minimum wage is working against us. The opportunity costs for some people to attend college seems to high, so if we decreased minimum wage maybe more people would attend college. This would help out people individually as well as society, it would actually spread out the supply of labour a bit more, and turn decrease the level of unemployment and poverty. Wages are compensation for your skills, effort, responsibility, and working conditions, and they should be rated and fluctuated by these categories. Unfortunately minimum wage disregards all of this. Regardless of your education, skills, effort, you can still receive minimum wage. Minimum wage is a fixed dollar amount that is paid for many jobs that can not even be compared. Most of these jobs should have different pay rates, especially when the degree of skill is higher, but they don't. The government keeps increasing minimum wage, and making it tougher on businesses and at the same time discouraging unskilled workers from bettering themselves, and for what. The economy is not booming, and even with increasing minimum wage rates the economy is not seeing any extra money being put back into circulation. As well, the higher minimum wage rate keeps raising the level of unemployment. I feel that if we put the burden on the people of Ontario to be and do the best they can that we would not need minimum wage. The skills that we could produce would be widely demanded, so it would be to the benefit of many other unskilled minimum wage earners to support the abolishment of minimum wage legislation. You could receive better wages, and at the same time decrease the unemployment rate. f:\12000 essays\business & economics (632)\Minimum Wage.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Minimum Wage Legislation I am going to pose the question to you the students of Sir Sandford Fleming College, do you really want the minimum wage legislation left in affect? As college students you are not benefiting or gaining anything from minimum wage legislation. The minimum wage legislation requires all employees to be paid at least some fixed given dollar amount per hour. This sounds good, but it isn't all that it seems! Minimum wage is an example of government intervention. The government has put a minimum on the dollar amount that employers can pay their employees. Unfortunately when we implement solutions like the minimum wage, it is too late to actually fix the problem, so in most cases it has effects that we cannot foresee as it is a reaction instead of a prevention method. Minimum wage actually helps very few people. The only ones that benefit from minimum wage are those unskilled workers who are currently employed. Minimum wage restricts employment opportunities for the young, unexperienced, and those people with educational disadvantages. They will continue to find themselves handicapped in the job market as long as the minimum wage legislation remains in affect. In society today the demand for "unskilled" workers is low and the supply is high, therefore there is a surplus of unskilled workers in the job market. The effect of a surplus drives down an individuals reservation wage, as they are willing to do and take anything for work. Minimum wage only makes this fact more severe, as it increases the supply of workers. Minimum wage increases the cost of doing business, and unfortunately in today's economic conditions employers are not able to pass on the extra costs to the consumer. Minimum wage is not helping workers, it is hurting businesses, and to maintain any profit, and follow legislation companies have to cut labour costs somehow. Companies are being forced to take other alternatives because of higher labour costs for unskilled workers. Businesses are forced to: 1. Cut back current employees hours 2. Not hire any more employees 3. Let employees go As you can see the reactions to minimum wage actually decrease opportunities for the "unskilled" workers, instead of providing them. With any change in the in the minimum wage the demand will decrease/increase dramatically, and exactly the opposite for skilled workers. When the minimum wage changes the demand for skilled workers remains the same regardless, but if there is a change it is very minute. Overall the amount of job opportunities are decreasing, because of the costs of labour is increasing for the unskilled worker, and it will be the unskilled workers who are the first to go in these situations because they do not have the specialized skills that make them irreplaceable. Wages are used to compensate workers for their time, skill, and money that they have invested into themselves. The trend is for higher education, which in return receives higher wages. The reservation wage of skilled workers is higher then unskilled because they would like to receive some return on their investment, their education. As college students we should be able to relate to this concept as we have put more time, effort and money in to ourselves then some others, like high school students and we should be compensated for this by of course a better rate of pay. After one year of college you should receive more then minimum wage as you have bettered your skills and invested at least $3000 to do so. This is the only direct cost, you also have to take into consideration the opportunity costs you would have. The opportunity costs for a college student is the wages you could have been earning instead of attending school as well as the time you could be travelling or starting a family, or whatever you gave up to go to college, and you want to be compensated for them. We would like to encourage more people into getting a better education, but unfortunately minimum wage is working against us. The opportunity costs for some people to attend college seems to high, so if we decreased minimum wage maybe more people would attend college. This would help out people individually as well as society, it would actually spread out the supply of labour a bit more, and turn decrease the level of unemployment and poverty. Wages are compensation for your skills, effort, responsibility, and working conditions, and they should be rated and fluctuated by these categories. Unfortunately minimum wage disregards all of this. Regardless of your education, skills, effort, you can still receive minimum wage. Minimum wage is a fixed dollar amount that is paid for many jobs that can not even be compared. Most of these jobs should have different pay rates, especially when the degree of skill is higher, but they don't. The government keeps increasing minimum wage, and making it tougher on businesses and at the same time discouraging unskilled workers from bettering themselves, and for what. The economy is not booming, and even with increasing minimum wage rates the economy is not seeing any extra money being put back into circulation. As well, the higher minimum wage rate keeps raising the level of unemployment. I feel that if we put the burden on the people of Ontario to be and do the best they can that we would not need minimum wage. The skills that we could produce would be widely demanded, so it would be to the benefit of many other unskilled minimum wage earners to support the abolishment of minimum wage legislation. You could receive better wages, and at the same time decrease the unemployment rate. f:\12000 essays\business & economics (632)\Minimum Wages.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Minimum Wages It sounds simple raise the minimum wage, reward hard work, and strike a blow against the society's inequalities. It's an emotional argument that blurs out the truth and make's people forget one important economic lesson: There's no such thing as a free lunch. The minimum wage has not been increased since the industrial welfare commission raised it to $4.25 an hour. The IWC and the legislature have not agreed since that time that any additional increase is justified because of California's recession and the downward turn in the business climate. There was a measure out on this last ballot called prop 210 which passed and increased the minimum wage from $4.25 an hour to $4.75 an hour and on March 1, 1997 it will raise to $5.00 an hour and beginning March 1, 1998 it will increase to $5.75. The minimum wage in California has increased nine times in the past thirty years rising from $1.30 per hour in the mid 1960's to $4.25 per hour as of July 1996. The increase has been less than the rate of inflation during this period. The vast majority of the 22,000 members of the American Economic Association agree that increasing the minimum wage will increase unemployment among young, unskilled workers. This 35% hike in the minimum wage paid by the business will be one of the biggest increases in California history. And, it will hit just when the state is recovering from a long recession. Approximately 2 million of California's nearly 13 million workers earn less than $5.75 per hour. Most of these workers would be directly affected by this increase. Roughly one-forth of those earning less than the proposed $5.75 minimum wage are teenagers, while the remaining three-fourths are adults age 20 and over. Industries employing significant numbers of these workers include retail stores, child care facilities, restaurants, and fast food franchise. Much of the fiscal impacts of this measure would be related to its various effects on the economy, including changes in employment, prices and profits. For example, most employees earning less than the proposed minimum wage would earn more. They would also spend more on goods and services, thereby generating certain increases in economic activities. At the same time, however, employers would face higher wage costs, which they would either absorb in the form of lower profits or attempt to offset through a variety of means. For instance, they may attempt to shift or pass along the cost of higher wages to the consumer by rasing prices of the goods and services they sell. Alternatively, some employers may offset the cost of the increase in wages by automating, hiring fewer employees, reducing the hours, or limiting fringe benefits. Some businesses that are not able to shift the effects of the higher minimum wage may reduce economic activity in California. This would most likely occur in industries that have a large share of expenses for low-wage workers or that are subject to competition from other states and other countries. In my view, an increase in the minimum wage would result in some decline in employment and business activity in California relative to what would otherwise have occurred. This increase would have varying effect on state and local revenues. For instance, a reduction in business activity, employment, and income in California would result in lower income tax revenues. These declines could be offset, however, by increased spending on goods subject to the sales tax. Higher sales tax would occur if business raised prices of taxed goods in response to the increase in the minimum wage, and this increase is not offset by reducing quantities of goods sold. Sales tax could also increase if those receiving the higher minimum wage spent a relatively high portion of their new earnings on goods subject to the sales tax. How the minimum wage should be changed, in California minimum wages increases have usually occurred in one of two ways. The first is a change in the federal minimum wage, which results in an increase in California minimum wage to the new higher federal level. The second is a state administrative process. Under this process, the California Industrial Welfare Commission can, by a majority vote of its members, issue wage orders to raise the state minimum wage for workers in any occupation, trade, or industry. The commission considers information from business, labor, and the public through a series of hearings. This process was last used by the commission in 1988, when it increased the minimum wage from $3.35 per hour to $4.25 per hour. This measure would require the Industrial Welfare Commission to issue minimum wage orders consistent with the proposed minimum wage increase. This increase in wages was to steep of an increase nobody is really benefiting from this, although it makes the employees earning the higher wage feel better. I think a slow increase over time would have been better for the employee because you would actually see your increase of money staying in your pocket. Right now with your wages rising, your cost of living is also rising so in actuality you are spending more. f:\12000 essays\business & economics (632)\Modern Economic Theories.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Modern Economic Theories Two controversial economic policies are Keynesian economics and Supply Side economics. They represent opposite sides of the economic policy spectrum and were introduced at opposite ends of the 20th century, yet still are the most famous for their effects on the economy of the United States when they were used. The founder of Keynesian economic theory was John Maynard Keynes. He made many great accomplishments during his time and probably his greatest was what he did for America in its hour of need. During the 1920's, the U.S. experienced a stock market crash of enormous proportions which crippled the economy for years. Keynes knew that to recover as soon as possible, the government had to intervene and put a decrease on taxes along with an increase in spending. By putting more money into the economy and allowing more Americans to keep what they earned, the economy soon recovered and once again became prosperous. Keynes ideas were very radical at the time, and Keynes was called a socialist in disguise. Keynes was not a socialist, he just wanted to make sure that the people had enough money to invest and help the economy along. As far as stressing extremes, Keynesian economics pushed for a "happy medium" where output and prices are constant, and there is no surplus in supply, but also no deficit. Supply Side economics emphasized the supply of goods and services. Supply Side economics supports higher taxes and less government spending to help economy. Unfortunately, the Supply Side theory was applied in excess during a period in which it was not completely necessary. The Supply Side theory, also known as Reganomics, was initiated during the Regan administration. During the 1970's, the state and local governments increased sales and excise taxes. These taxes were passed from business to business and finally to the customer, resulting in higher prices. Along with raised taxes for the middle and lower classes, this effect was compounded because there was little incentive to work if even more was going to be taxed. People were also reluctant to put money into savings accounts or stocks because the interest dividends were highly taxed. There was also too much protection of business by the government which was inefficient and this also ran up costs, and one thing the Supply Side theory was quite good at was reinforcing inflation. The two opposites of the Supply Side and Keynes' theories are well matched theories, but it was the time of use that made them good and bad. Keynes' theory was used during that aftermath of the Great Depression, a catastrophe America will never forget and will never be able to repay Keynes for the economic assistance in recovering from it. The Supply Side theory was used after a long period of prosperity, and although seeming to continue the practices of the past administration, was the cause of a fearful recession. The success of those or any economic theory is based on the time at which it is implemented. f:\12000 essays\business & economics (632)\Monetary Fiscal Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Monetary/Fiscal Policy Government monetary and fiscal policies change all the time. These policies are installed or fixed for the betterment of trade, inflation, unemployment, the budget, or many other economic factors. In my opinion, it seems like two people have the majority of the control when it comes to forming these policies. The first person who influences these policies is President Bill Clinton who proposes tax cuts, to balance the budget (Clinton's budget proposal should be given to congress soon), minimum wage increases, or other legislation to improve the economy. The second person who influences policy is the Federal Reserve Board Chairman Alan Greenspan who can truly destroy our economy by a slight miscalculation. Greenspan is so influential that the mere speculation of his making a move can cause panic buying or selling in the open markets. Alan Greenspan has the power to increase or decrease the money supply by changing reserve requirements, by changing the discount rate, or by buying or selling U.S. Securities over the open market. The major governmental problem is trying to balance the budget. The United States government is currently in debt $5,262,697,717,000 as of February 7. This number grows about $10,000 per second(see charts 2,3,and 7). President Clinton, Chairman Greenspan, and Congress are all working towards a balanced budget by the year 2002. As many economists explain , the need is for legislation to keep the budget balanced for years to come and not look for a quick fix to balance the budget for only a few months to quiet critics. The government takes steps constantly to balance the budget; economists say that the chances of inking a deal this year are better than ever. President Clinton has currently proposed an offer of $100 billion in tax cuts through 2002. These cuts are aimed at giving relief to middle class citizens. A few of his other proposals include: $500.00 child tax credit, tax deduction for post high school education, increasing the limits of individual retirement accounts, and elimination of the capital gains tax. Despite these cuts, he still believes a balanced budget will be achieved by the year 2002. Greenspan, in an effort to shave billions of dollars off the deficit, explained to Congress that they are overpaying Social Security recipients. Greenspan's testimony sets the stage to successfully balance the budget. His reasoning behind these allegations is that the cost of living is overstated and he is urging Congress to correct the problem which would affect inflation, gross national product, and the budget. Inflation The fourth quarter results have been calculated and the economy is in great shape. The Commerce Department released fourth quarter numbers which show a 4.7% annual growth rate and a 1.8% rise in inflation. This 1.8% fourth quarter rate is lower than the 2.1% third quarter rate. The gain in the fourth quarter is due to higher exports and higher consumer spending. The fact of the matter is that 1996 ended with strong growth and no problem with inflation(see chart 6). Many economists showed concern over steady inflation growth and are worried about 1997. They believe investors may be tricked because the economy is really hot and it is just a facade. Many are concerned that the impressive growth in 1997 could start a dangerous domino effect that could push up inflation. Demand and production are very strong which is always a good point for economic growth. Many retailers moaned about a slower Christmas buying season but consumer spending showed a rise of 3.4%. Many analysts expected unfortunate product overloads. It does not look like businesses will be stuck trying to clear out their stock rooms. As for 1997, I get mixed reactions. Many investors seem split about their predictions and are not too sure about the future. Where does Alan Greenspan, chairman of the Federal Reserve, stand on inflation? As indicated earlier in this report, a few weeks ago, he urged Congress to revamp the method by which the government measures inflation. He believes that the consumer price index overweighs inflation by approximately one percent per year. He pointed out that the cost of living increases are overstated and urged politicians to appoint a commission to correct the problem. Gross National Product The gross national product is a measure of the market value of goods and services produced during a specific time period. The GNP is the most widely used factor of economic performance. GNP are estimates that are prepared after each quarter. The GNP estimate after the fourth quarter in 1996 was . GNP can be calculated by adding the total cost of supplying the goods and services, including the income of the producer. An average breakup of Real GNP can be divided as such: 64.5% from consumption of goods and services, 19.8% from government purchases, 16.6% from gross investment, and -0.9% from net exports. It is tough to keep up with technology and the products that consumers spend their money buying. It is tough to tell if the consumer has the money to buy luxury items or necessities, but there are many goods and services from here and abroad that are readily available and worth looking into. Domestic demand is rebounding and even foreign demand is picking up for our products. Many manufacturers are feeling the pressure in their order books. Unfilled orders and consumer demand are increasing and forcing producers to lengthen their workweeks; increase their payrolls, and speed up production. Overall orders so far as the fourth quarter can tell are well above their third quarter average. Orders for capital goods are high as well as durable goods, which include long-lasting items like air-conditioners, microwaves, stoves, and airplanes. This rebound is why the new year looks to be promising. Consumers have a to do with the manufacturing upbeat look. Despite the majority of products being goods and services, Government spending also makes up a large part of our GNP. Military is a major spender and with the competition over B-2 bombers, money is being exchanged in large amounts. President Clinton is also expected to propose a 20% increase in spending for education which would raise the total to some $51 billion. Other examples of Government spending which will be addressed in Clinton's Budget for 1997 will be International Affairs, Transportation, and Medicare(to name a few). The prospect of stronger world growth clearly is a plus for exports, especially capital goods. Foreign sales of capital goods have risen 10.4% from a year ago. Cheaper exports means cheaper imports will allow foreign goods producers to expand their already record share of the U.S. market. Unemployment The unemployment report is released periodically and it contained a big surprise for many economists in 1996. Over the past months the reports showed the economy doing quite well. This economy has been doing so well that some economists were worried about reaching full employment rather quickly. Although the jobless would love that to happen, full employment would lead to high inflation and destruction of the economy. The consensus on Wall Street was that the Fed would have to raise rates until word got around about the report. By day's end, the mainstream were afraid of an economy that will grow so slowly that rates will have to go lower. The current unemployment rate is 5.3%. President Clinton is trying to create new jobs to get everyone earning real wages. People want to know that he is opening job opportunities but he also does not want full employment. This is a prime example of politics. Tell people what they want to hear but do not let the economy stagnate. I guess that is his hidden agenda. In effect, Clinton plans to strengthen employment and business investments in poverty stricken urban areas. He plans to triple funds to lend to city banks in order to foster economic development in poor neighborhoods. He will also try to triple employment in public housing projects through a $10 million project involving HUD, Rockefeller Foundation, and Chase Manhattan. Many Southern states, seven to be exact, are about to cut their unemployment insurance taxes by hundreds of millions of dollars. The Southern economy has seen tremendous growth and people are forgetting the bad economic times. The region has also been adding jobs at a constant pace. Unemployment has dropped to record lows in some of these states. This risky act may spell disaster. New Happenings President Clinton sent his opening proposal to congress in his attempt to balance the budget by 2002. Economists say Clinton is right on track with his proposals. Areas that are being hit hard are: Medicare, Defense, and Welfare (check chart one for breakdown). Also new, the unemployment breakdown came out and the economy has not lost a step. Despite the unemployment rate increasing from 5.2% to 5.3%, there is no fear of inflation. Payrolls also showed growth while the labor force expanded and the workers' hours decreased. f:\12000 essays\business & economics (632)\Money and Inflation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Money and Inflation The nation's economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specific examples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuable on the foreign exchange market and the gold standard is moved to higher prices; which simply means that more currency is needed to exchange for gold. Any slight change in investments or a company's cost premium could change the entire economy because of the domino effect acting on the rest of society. For an example, flooding in a particular region of the country could cause inflation. In the long run, the flooding may be catastrophic for businesses because it could cause a shortage of products. In order for the businesses to make up for any lost income, they must boost their prices and make the profit margins go up. The profit margins make up for the lost income and balance out that particular company, but everyone else must suffer the consequences. In the business world; the more they produce, the less they can sell for; the less they produce, the more they sell the product for. Profit margins can have a direct impact on the consumer. The more an item cost, the less a consumer will want to purchase that particular good. Higher profit margins may be able to balance a company's budget, but unless their product is in very high demand, most people will want to buy the product. The lack of people purchasing the item may cause the company to lose money and have no alternative other than to lay off workers. People out of work means that less consuming will take place, meaning that other businesses will hurt due to the lack of sales, perhaps causing those other businesses to move up their own profit margin, in turn creating the same cycle at a faster rate. With businesses under, the unemployment rate would be phenomenal. People would be seeking government assistance while the government itself is so far in debt and tied up in credit. The government assistance would add to the already huge problem of the federal government spending more than it has. The result of all the hand outs would cause an enormous dent on the federal deficit. The deficit is already bad enough, but in a case like this, the government would try to do something to prevent a long recession. The Federal Reserve bank tries to balance the economy out by influencing other banks to print up more money to make up for the losses. This may stop the ship from sinking all the way, but this decreases the value of the dollar because of the excessive amount of money in circulation. The dollar is less valuable on our own market, so prices rise. The dollar is also less valuable on the foreign market which means that it takes more money to equal a yen, mark, or pound. Also, the value of an ounce of gold is worth less due to the gold standard, which lets gold be redeemed for dollars. Inflation has occurred and value of the dollar has decreased. If most people wouldn't panic and just stay calm, less stress would be spread, making the entire economic industry a safer and easier thing to live with. f:\12000 essays\business & economics (632)\Money in America.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The nation's economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specific examples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuable on the foreign exchange market and the gold standard is moved to higher prices; which simply means that more currency is needed to exchange for gold. Any slight change in investments or a company's cost premium could change the entire economy because of the domino effect acting on the rest of society. For an example, flooding in a particular region of the country could cause inflation. In the long run, the flooding may be catastrophic for businesses because it could cause a shortage of products. In order for the businesses to make up for any lost income, they must boost their prices and make the profit margins go up. The profit margins make up for the lost income and balance out that particular company, but everyone else must suffer the consequences. In the business world; the more they produce, the less they can sell for; the less they produce, the more they sell the product for. Profit margins can have a direct impact on the consumer. The more an item cost, the less a consumer will want to purchase that particular good. Higher profit margins may be able to balance a company's budget, but unless their product is in very high demand, most people will want to buy the product. The lack of people purchasing the item may cause the company to lose money and have no alternative other than to lay off workers. People out of work means that less consuming will take place, meaning that other businesses will hurt due to the lack of sales, perhaps causing those other businesses to move up their own profit margin, in turn creating the same cycle at a faster rate. With businesses under, the unemployment rate would be phenomenal. People would be seeking government assistance while the government itself is so far in debt and tied up in credit. The government assistance would add to the already huge problem of the federal government spending more than it has. The result of all the hand outs would cause an enormous dent on the federal deficit. The deficit is already bad enough, but in a case like this, the government would try to do something to prevent a long recession. The Federal Reserve bank tries to balance the economy out by influencing other banks to print up more money to make up for the losses. This may stop the ship from sinking all the way, but this decreases the value of the dollar because of the excessive amount of money in circulation. The dollar is less valuable on our own market, so prices rise. The dollar is also less valuable on the foreign market which means that it takes more money to equal a yen, mark, or pound. Also, the value of an ounce of gold is worth less due to the gold standard, which lets gold be redeemed for dollars. Inflation has occurred and value of the dollar has decreased. If most people wouldn't panic and just stay calm, less stress would be spread, making the entire economic industry a safer and easier thing to live with. f:\12000 essays\business & economics (632)\Money Laundering 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Financial Accounting For Financial Services Assignment Money Laundering The word money laundering, according to the myth, is derived from Al Capone's practice of using a string of coin-operated launderettes in Chicago to disguise his revenues from gambling, prostitution and protection rackets. It's a nice story but not true, money laundering is so called because it perfectly describes the process of removing the stains and smells which money acquires when criminals earn it. In this report I will go on to discuss the topic of money laundering in the following order; firstly, I will begin by explaining what is money laundering?, why it is done?, and how it is done? I will then go on to explain the effects of money laundering and the institutions/organisations that are at risk from these activities. I will also be discussing the current situation in the UK regarding money laundering and whether anything can be done to prevent or restrict laundering activities, and will then go on to conclude my findings. Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. If they are successful they can then maintain control over the proceeds and, so, provide a legitimate cover for their source of income. J.D. Mclean defined money laundering in the International Judicial Assistance as: "Although the proceeds of crime will be kept as capital for further criminal ventures, the sophisticated offender will wish to use the rest for other purposes. If this is to done without running a risk of detection, the money which represents the proceeds of the original crime must be "laundered"; put into a state in which it appears to have an entirely respectable provenance" It is important to bear in mind that money laundering is a process (often a highly complex one) rather than a single act. In an effort to expose and analyse this phenomenon it has become common to use a three-stage model which encompasses an ideal money laundering scheme. The three stages are as follows: * Placement Stage This is where cash derived directly from criminal activity (e.g. from sales of drugs) is first placed either in a financial institution or used to purchase an asset. * Layering Stage The stage at which there is the first attempt at concealment or disguise of the source of the ownership of funds. * Integration Stage The stage at which the money is integrated into the legitimate economic and financial system and is camouflaged with all other assets in the system. Money launderers try to prevent authorities from tracing the source of their ill-gotten gains by moving their funds around financial and economic system. The funds are then spent as if they were legitimate money. The more blatant by the money launderer will directly involve a person or a business in the crime. i.e. A launderer could simply ask someone for permission to use their account for deposits in return for a fee. Another scenario is for the money launderer to approach a business and ask them to set up transactions in which a sum of money is regularly deposited in the company's account. The business will then send the money back as a fictitious payment for non-existent goods. Although this method is very popular amongst the criminal underworld, there are other ways of laundering money without a business becoming aware of being involved in a crime. e.g. The money launderer could place an order for an industrial machine/robot to be manufactured to a specific standard. The company may ask for a 60% deposit with the understanding that the order won't be put through for three months. Before the three months are up the money launderer cancels the order and gets the deposit refunded minus a penalty. The money launderer will always be willing to pay the penalty because although he/she will want to get as much back as possible, what he/she really wants is the money back clean. Money Laundering is said to be the third biggest industry by value world-wide. Research in the USA has shown that 90% of currency bills in circulation are contaminated with narcotics. In the UK, similar research showed 40% to be contaminated. In 1994, about 15,000 suspicious transactions were reported to the National Criminal Intelligence Service's (NCIS) economic crimes unit. About one in five was found to have some criminal connection. In the UK the following organisations are most vulnerable to fall prey to the money launderers: * Deposit-taking institutions Because of the money launderers need to get rid of cash, deposit taking institutions are particularly vulnerable to being used. i.e. Banks, Building Societies, Post offices etc. Hence, many of the efforts to combat money laundering have concentrated on the procedures adopted by deposit takers. * Non-bank financial institutions The introduction of measures to prevent banks being readily used for purposes of money laundering has, without doubt, made life more difficult by increasing the costs and the risks for those involved. These are businesses that provide bank-like services, but are historically less closely supervised than traditional financial institutions. i.e. Bureau de Change, cheque cashers, money transmission services, commodities brokers etc. The law is, as in so many areas, complex and set out in various different statutes and regulations. It deals with the proceeds of drugs trafficking, terrorist crime and non-terrorist crime slightly differently, but the thrust of the law for each is similar. Offences are created for those who launder the money and those who assist them in any way. It also obliges those in the financial community to take preventative measures. The Criminal Justice Act 1993 widened the law by extending the expression "criminal conduct" to any indictable offence committed in the UK. The preventative measures are contained in the Money Laundering Regulations 1993 ("the Regulations") which implement the EC Money Laundering Directive. There are five money laundering offences. These are: assistance, concealment, acquisition, failure to disclose and tipping off. Assistance occurs where a person is involved in an arrangement with another person and knows or suspects that the other person is or has been involved in or has benefited from drug trafficking or criminal conduct if the arrangement helps the other person to retain or control proceeds directly or indirectly or enables the other person to use the proceeds or to invest them for his benefit. Concealment is disguising, removing or transferring proceeds (direct or indirect of drug trafficking or criminal conduct) in order to avoid or help someone else to avoid prosecution. The offence is committed by a person who assisted in the offence if he/she knows or has reasonable grounds to suspect the nature of the property. Acquisition is the offence of use or possession of assets which you know or have reasonable grounds to suspect to be the proceeds of drug trafficking or criminal conduct and have acquired at less than full value. The Act now makes it a specific and separate offence in cases involving drugs or terrorism not to report a suspicion if the information came to the person's attention in the course of his trade, profession, business or employment. Effectively the duty to report is extended to employees of business institutions where it is the institutions who may become involved in the arrangements and not the employees themselves. The question arises as to whether disclosure is a waiver of professional privilege or a breach of any express or implied duty of confidentiality owed to a customer or client. It is clear that disclosure to the police (although not third parties) will not constitute a waiver of professional privilege nor will it give actionable grounds for a claim for breach of confidence. Reporting to the police is not much help if the suspect is tipped off about the investigation. Tipping off, therefore, constitutes an offence when information or any other matter which might prejudice an investigation is disclosed to the subject of the investigation (or anyone else) by someone who knows or suspects (or, in the case of terrorism, has reasonable cause to suspect) that: a police investigation into money laundering has begun or is about to begin, or the police have been informed of suspicious activities, or a disclosure has been made to another employee under internal reporting procedures. The Regulations require any person who carries out relevant financial business in a business relationship or a one-off transaction with an applicant for business to maintain certain administrative and training procedures designed to prevent money laundering occurring. It is a criminal offence not to maintain the necessary procedures although it is a defence if the person concerned took all reasonable steps and exercised all due diligence to avoid committing this offence. This applies to banks and building societies, investment businesses and insurance business. Clearly some of this laundering will be assisted by people who know what they are doing but may not know of the penalties they are risking if they are caught. Some of it will be helped by people who are not sure what is going on but are prepared to turn a blind eye for the commission they will earn. Many advisers will be representing clients who appear to be running perfectly respectable businesses but are not. The dirty proceeds of drugs trafficking alone throughout the world are estimated to be around £500bn annually. £2bn each year is thought to be laundered through Britain. Businesses must know their legal obligations and in particular providers of financial services must be aware of the new rules they must obey. Even though you can take effective steps to prevent hackers breaking into your computers, financial crime often involves insiders. Even using the unique features of a computer security system, you can only prevent fraud where a person acts outside his authority. No system prevents a senior officer with full system access walking off with money or records in his custody. But now a threat is posed not only by the staff member setting out to steal from you but also to staff members being susceptible to third party pressure to use your bank to launder money - by doing nothing outside their normal authority. Another major problem with the prevention of money laundering is that it is now spread over an international network and this makes it very difficult to control or regulate. One countries regulation may prevent/decrease money laundering but will just drive it towards unregulated territories or economies that have a vary relaxed attitude towards money laundering. E.g. In exchange for a minimum $10m "subscription", the Seychelle islands will grant diplomatic status to "investors", making them invulnerable to action by international law enforcers. This clearly becomes a haven for drug barons and crime bosses, where they can launder millions and escape prosecution. The world's third largest industry continues to grow rapidly and uncontrollably. Factors that affect this growth are the increasing emerging technologies, international barriers being removed, improved communications networks and last but not least individual/organisational greed that allows blind eyes to be turned in order to keep revenue coming in. Bibliography Dirty Money William C. Gilmore Money Laundering - A practical guide to the new legislation Rowan Bosworth-Davies and Graham Saltmarsh Crooks paradise Frank Kane, Adrian Levy, and Steve Haynes Sunday Times, 14th January 1996. Steps against cash crime Jimmy Burns The Times, 5th June 1996. Governments gunning for money launderers Oliver August The Times, 1st October 1996. f:\12000 essays\business & economics (632)\Money Laundering.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Money Laundering The word money laundering, according to the myth, is derived from Al Capone's practice of using a string of coin-operated launderettes in Chicago to disguise his revenues from gambling, prostitution and protection rackets. It's a nice story but not true, money laundering is so called because it perfectly describes the process of removing the stains and smells which money acquires when criminals earn it. In this report I will go on to discuss the topic of money laundering in the following order; firstly, I will begin by explaining what is money laundering?, why it is done?, and how it is done? I will then go on to explain the effects of money laundering and the institutions/organisations that are at risk from these activities. I will also be discussing the current situation in the UK regarding money laundering and whether anything can be done to prevent or restrict laundering activities, and will then go on to conclude my findings. Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. If they are successful they can then maintain control over the proceeds and, so, provide a legitimate cover for their source of income. J.D. Mclean defined money laundering in the International Judicial Assistance as: "Although the proceeds of crime will be kept as capital for further criminal ventures, the sophisticated offender will wish to use the rest for other purposes. If this is to done without running a risk of detection, the money which represents the proceeds of the original crime must be "laundered"; put into a state in which it appears to have an entirely respectable provenance" It is important to bear in mind that money laundering is a process (often a highly complex one) rather than a single act. In an effort to expose and analyse this phenomenon it has become common to use a three-stage model which encompasses an ideal money laundering scheme. The three stages are as follows: * Placement Stage This is where cash derived directly from criminal activity (e.g. from sales of drugs) is first placed either in a financial institution or used to purchase an asset. * Layering Stage The stage at which there is the first attempt at concealment or disguise of the source of the ownership of funds. * Integration Stage The stage at which the money is integrated into the legitimate economic and financial system and is camouflaged with all other assets in the system. Money launderers try to prevent authorities from tracing the source of their ill-gotten gains by moving their funds around financial and economic system. The funds are then spent as if they were legitimate money. The more blatant by the money launderer will directly involve a person or a business in the crime. i.e. A launderer could simply ask someone for permission to use their account for deposits in return for a fee. Another scenario is for the money launderer to approach a business and ask them to set up transactions in which a sum of money is regularly deposited in the company's account. The business will then send the money back as a fictitious payment for non-existent goods. Although this method is very popular amongst the criminal underworld, there are other ways of laundering money without a business becoming aware of being involved in a crime. e.g. The money launderer could place an order for an industrial machine/robot to be manufactured to a specific standard. The company may ask for a 60% deposit with the understanding that the order won't be put through for three months. Before the three months are up the money launderer cancels the order and gets the deposit refunded minus a penalty. The money launderer will always be willing to pay the penalty because although he/she will want to get as much back as possible, what he/she really wants is the money back clean. Money Laundering is said to be the third biggest industry by value world-wide. Research in the USA has shown that 90% of currency bills in circulation are contaminated with narcotics. In the UK, similar research showed 40% to be contaminated. In 1994, about 15,000 suspicious transactions were reported to the National Criminal Intelligence Service's (NCIS) economic crimes unit. About one in five was found to have some criminal connection. In the UK the following organisations are most vulnerable to fall prey to the money launderers: * Deposit-taking institutions Because of the money launderers need to get rid of cash, deposit taking institutions are particularly vulnerable to being used. i.e. Banks, Building Societies, Post offices etc. Hence, many of the efforts to combat money laundering have concentrated on the procedures adopted by deposit takers. * Non-bank financial institutions The introduction of measures to prevent banks being readily used for purposes of money laundering has, without doubt, made life more difficult by increasing the costs and the risks for those involved. These are businesses that provide bank- like services, but are historically less closely supervised than traditional financial institutions. i.e. Bureau de Change, cheque cashers, money transmission services, commodities brokers etc. The law is, as in so many areas, complex and set out in various different statutes and regulations. It deals with the proceeds of drugs trafficking, terrorist crime and non-terrorist crime slightly differently, but the thrust of the law for each is similar. Offences are created for those who launder the money and those who assist them in any way. It also obliges those in the financial community to take preventative measures. The Criminal Justice Act 1993 widened the law by extending the expression "criminal conduct" to any indictable offence committed in the UK. The preventative measures are contained in the Money Laundering Regulations 1993 ("the Regulations") which implement the EC Money Laundering Directive. There are five money laundering offences. These are: assistance, concealment, acquisition, failure to disclose and tipping off. Assistance occurs where a person is involved in an arrangement with another person and knows or suspects that the other person is or has been involved in or has benefited from drug trafficking or criminal conduct if the arrangement helps the other person to retain or control proceeds directly or indirectly or enables the other person to use the proceeds or to invest them for his benefit. Concealment is disguising, removing or transferring proceeds (direct or indirect of drug trafficking or criminal conduct) in order to avoid or help someone else to avoid prosecution. The offence is committed by a person who assisted in the offence if he/she knows or has reasonable grounds to suspect the nature of the property. Acquisition is the offence of use or possession of assets which you know or have reasonable grounds to suspect to be the proceeds of drug trafficking or criminal conduct and have acquired at less than full value. The Act now makes it a specific and separate offence in cases involving drugs or terrorism not to report a suspicion if the information came to the person's attention in the course of his trade, profession, business or employment. Effectively the duty to report is extended to employees of business institutions where it is the institutions who may become involved in the arrangements and not the employees themselves. The question arises as to whether disclosure is a waiver of professional privilege or a breach of any express or implied duty of confidentiality owed to a customer or client. It is clear that disclosure to the police (although not third parties) will not constitute a waiver of professional privilege nor will it give actionable grounds for a claim for breach of confidence. Reporting to the police is not much help if the suspect is tipped off about the investigation. Tipping off, therefore, constitutes an offence when information or any other matter which might prejudice an investigation is disclosed to the subject of the investigation (or anyone else) by someone who knows or suspects (or, in the case of terrorism, has reasonable cause to suspect) that: a police investigation into money laundering has begun or is about to begin, or the police have been informed of suspicious activities, or a disclosure has been made to another employee under internal reporting procedures. The Regulations require any person who carries out relevant financial business in a business relationship or a one-off transaction with an applicant for business to maintain certain administrative and training procedures designed to prevent money laundering occurring. It is a criminal offence not to maintain the necessary procedures although it is a defence if the person concerned took all reasonable steps and exercised all due diligence to avoid committing this offence. This applies to banks and building societies, investment businesses and insurance business. Clearly some of this laundering will be assisted by people who know what they are doing but may not know of the penalties they are risking if they are caught. Some of it will be helped by people who are not sure what is going on but are prepared to turn a blind eye for the commission they will earn. Many advisers will be representing clients who appear to be running perfectly respectable businesses but are not. The dirty proceeds of drugs trafficking alone throughout the world are estimated to be around £500bn annually. £2bn each year is thought to be laundered through Britain. Businesses must know their legal obligations and in particular providers of financial services must be aware of the new rules they must obey. Even though you can take effective steps to prevent hackers breaking into your computers, financial crime often involves insiders. Even using the unique features of a computer security system, you can only prevent fraud where a person acts outside his authority. No system prevents a senior officer with full system access walking off with money or records in his custody. But now a threat is posed not only by the staff member setting out to steal from you but also to staff members being susceptible to third party pressure to use your bank to launder money - by doing nothing outside their normal authority. Another major problem with the prevention of money laundering is that it is now spread over an international network and this makes it very difficult to control or regulate. One countries regulation may prevent/decrease money laundering but will just drive it towards unregulated territories or economies that have a vary relaxed attitude towards money laundering. E.g. In exchange for a minimum $10m "subscription", the Seychelle islands will grant diplomatic status to "investors", making them invulnerable to action by international law enforcers. This clearly becomes a haven for drug barons and crime bosses, where they can launder millions and escape prosecution. The world's third largest industry continues to grow rapidly and uncontrollably. Factors that affect this growth are the increasing emerging technologies, international barriers being removed, improved communications networks and last but not least individual/organisational greed that allows blind eyes to be turned in order to keep revenue coming in. Bibliography Dirty Money William C. Gilmore Money Laundering - A practical guide to the new legislation Rowan Bosworth- Davies and Graham Saltmarsh Crooks paradise Frank Kane, Adrian Levy, and Steve Haynes Sunday Times, 14th January 1996. Steps against cash crime Jimmy Burns The Times, 5th June 1996. Governments gunning for money launderers Oliver August The Times, 1st October 1996. f:\12000 essays\business & economics (632)\Money.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Money Money has screwed up society a lot. The times long ago were not focused around a green piece of paper that we have labeled as money. This piece of paper got an amount and then finally you have to have it. True, money buys you things. Things that you want. Things that you need. To me, money is just that; a thing. A thing to which we treat like a God. A piece of paper that we carry around and every now and then do something worth while with it. Money does three things. It brings on greed which in turn leads to unhappiness and then not caring for anything but cash. Most Americans earn between $20,000-$50,000 a year. The people in this category seem to be somewhat content with their salary. Then you come to those that make less then this or those who make more. The individuals who make less always want more. If these people had more they could buy something a little bit nicer than they had before. Now those who have more money than the average person seem to want more also. If they get more, they can get better. The more they have the better they are. It's all a power trip. The people who do not make too much are not too happy. They do not have that the nice new car that their neighbor has. They always want something that someone else has because they think it'll make them better. Now, those who have money are unhappy a lot. They can never get enough. Everything that they have needs to be updated and when they get the item it's already old so they end up replacing it. The rich never get to sit back and enjoy what they have. They are to busy buying. Soon the individuals who make hardly anything somehow find a way to make more. Their focus becomes a way to keep the money coming. The focus disappears from their activities and family. The wealthy loose interest in time spent with their families also. Many loose interest in their life. The main focus becomes what to spend the hundred grand on today and then how to make more to make up for what they just blew. I am not stereo-typing all Americans. Some are content with their lives and the way they live. Many don't worry about the money situation. The ones who do though, stick out in our society. If we could all appreciate the way life is, the fun, and the beauty I think America would be better. If people weren't power hungry maybe we'd have a lesser demand for money. Those few people who are money hungry and power hungry need to relax. Money can't buy you happiness. These few individuals need to understand that. Hopefully, in the near future money will become less important and we will begin to focus more on other things like enjoying our beautiful country. f:\12000 essays\business & economics (632)\MoneyThe root of all evil.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Money has screwed up society a lot. The times long ago were not focused around a green piece of paper that we have labeled as money. This piece of paper got an amount and then finally you have to have it. True, money buys you things. Things that you want. Things that you need. To me, money is just that; a thing. A thing to which we treat like a God. A piece of paper that we carry around and every now and then do something worth while with it. Money does three things. It brings on greed which in turn leads to unhappiness and then not caring for anything but cash. Most Americans earn between $20,000-$50,000 a year. The people in this category seem to be somewhat content with their salary. Then you come to those that make less then this or those who make more. The individuals who make less always want more. If these people had more they could buy something a little bit nicer than they had before. Now those who have more money than the average person seem to want more also. If they get more, they can get better. The more they have the better they are. It's all a power trip. The people who do not make too much are not too happy. They do not have that the nice new car that their neighbor has. They always want something that someone else has because they think it'll make them better. Now, those who have money are unhappy a lot. They can never get enough. Everything that they have needs to be updated and when they get the item it's already old so they end up replacing it. The rich never get to sit back and enjoy what they have. They are to busy buying. Soon the individuals who make hardly anything somehow find a way to make more. Their focus becomes a way to keep the money coming. The focus disappears from their activities and family. The wealthy loose interest in time spent with their families also. Many loose interest in their life. The main focus becomes what to spend the hundred grand on today and then how to make more to make up for what they just blew. I am not stereo-typing all Americans. Some are content with their lives and the way they live. Many don't worry about the money situation. The ones who do though, stick out in our society. If we could all appreciate the way life is, the fun, and the beauty I think America would be better. If people weren't power hungry maybe we'd have a lesser demand for money. Those few people who are money hungry and power hungry need to relax. Money can't buy you happiness. These few individuals need to understand that. Hopefully, in the near future money will become less important and we will begin to focus more on other things like enjoying our beautiful country. f:\12000 essays\business & economics (632)\More Ethics in Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ethics in Business From a business perspective, working under government contracts can be a very lucrative proposition. In general, a stream of orders keep coming in, revenue increases and the company grows in the aggregate. The obvious downfalls to working in this manner is both higher quality expected as well as the extensive research and documentation required for government contracts. If a part fails to perform correctly it can cause minor glitches as well as problems that can carry serious repercussions, such as in the National Semiconductor case. When both the culpable component and company are found, the question arises of how extensive these repercussions should be. Is the company as an entity liable or do you look into individual employees within that company? From an ethical perspective one would have to look at the mitigating factors of both the employees and their superiors along with the role of others in the failure of these components. Next you would have to analyze the final ruling from a corporate perspective and then we must examine the macro issue of corporate responsibility in order to attempt to find a resolution for cases like these. The first mitigating factor involved in the National Semiconductor case is the uncertainty, on the part of the employees, on the duties that they were assigned. It is plausible that during the testing procedure, an employee couldnt distinguish which parts they were to test under government standards and commercial standards. In some cases they might have even been misinformed on the final consumers of the products that they tested. In fact, ignorance on the part of the employees would fully excuse them from any moral responsibility for any damage that may result from their work. Whether it is decided that an employees is fully excused, or is given some moral responsibility, would have to be looked at on an individual basis. The second mitigating factor is the duress or threats that an employee might suffer if they do not follow through with their assignment. After the bogus testing was completed in the National Semiconductor labs, the documentation department also had to falsify documents stating that the parts had surpassed the governmental testing standards. From a legal and ethical standpoint, both the testers and the writers of the reports were merely acting as agents on direct orders from a superior. This was also the case when the plant in Singapore refused to falsify the documents and were later falsified by the employees at the have California plant before being submitted to the approval committees (Velazquez, 53). The writers of the reports were well aware of the situation yet they acted in this manner on the instruction of a supervisor. Acting in an ethical manner becomes a secondary priority in this type of environment. As stated by Alan Reder, . . . if they [the employees] feel they will suffer retribution, if they report a problem, they arent too likely to open their mouths. (113). The workers knew that if the reports were not falsified they would come under questioning and perhaps their employment would go into jeopardy. Although working under these conditions does not fully excuse an employees from moral fault, it does start the divulging process for determining the order of the chain of command of superiors and it helps to narrow down the person or department that issued the original request for the unethical acts. The third mitigating factor is one that perhaps encompasses the majority of the employees in the National Semiconductor case. We have to balance the direct involvement that each employee had with the defective parts. Thus, it has to be made clear that many of the employees did not have a direct duty with the testing departments or with the parts that eventually failed. Even employees, or sub-contractors, that were directly involved with the production were not aware of the incompetence on the part of the testing department. For example, the electrical engineer that designed the defective computer chip could act in good faith that it would be tested to ensure that it did indeed meet the required government endurance tests. Also, for the employees that handled the part after the testing process, they were dealing with what they believed to be a component that met every governmental standard. If it was not tested properly, and did eventually fail, isnt the testing department more morally responsible than the designer or the assembly line worker that was in charge of installing the chip? Plus, in large corporations there may be several testing departments and is some cases one may be held more responsible than another depending on their involvement. A process like this can serve the dual purpose of finding irresponsible employees as well as those that are morally excused. The fourth mitigating factor in cases of this nature is the gauging of the seriousness of the fault or error caused by this product. Since National Semiconductor was repeatedly being reinstated to the listed of approved government contractors, one can safely assume that the level of seriousness, in the opinion of For the contractor approval committees, is not of monumental importance. Yet one has to wonder how this case would have been different if the lack of testing did cause the loss of life in either a domestic or foreign military setting. Perhaps the repercussions would have come faster much more stringent. The fact that National Semiconductor did not cause a death does not make them a safe company. They are still to be held responsible for any errors that their products cause, no matter the magnitude. As for the opposition to the delegating of moral responsibility, mitigating factors and excusing factors, they would argue that the entity of the corporation as a whole should be held responsible. The executives within a corporation should not be forced to bring out all of the employees responsible into a public forum. A company should be reprimanded and be left alone to carry out its own internal investigation and repercussions. From a business law perspective this is the ideal case since a corporation is defined as being a separate legal entity. Furthermore, the opposition would argue that this resolution would benefit both the company and the government since it would not inconvenience either party. The original resolution in the National Semiconductor case was along these lines. The government permanently removed National from its approved contractors list and then National set out to untangle the web of culpability within its own confines. This allowed a relatively quick resolution as well as the ideal scenario for National Semiconductor. In response, one could argue that the entity of a corporation has no morals or even a concept of the word, it is only as moral and ethical as the employees that work in that entity. All of the employees, including top ranking executives are working towards advancing the entity known as their corporation (Capitman, 117). All employees, including the sub-contractors and assembly line workers, are in some part morally responsible because they should have been clear on their employment duties and they all should have been aware of which parts were intended for government use. Ambiguity is not an excusing factor of moral responsibility for the workers. Also, the fact that some employees failed to act in an ethical manner gives even more moral responsibility to that employee. While some are definitely more morally responsible than others, every employee has some burden of weight in this case. In fact, when the government reached a final resolution, they decided to further impose repercussions and certain employees of National Semiconductor were banned from future work in any government office (Velazquez, 54). Looking at the case from the standpoint of National Semiconductor, the outcome was favorable considering the alternate steps that the government could taken. As explained before, it is ideal for a company to be able to conduct its own investigation as well as its own punishments. After all, it would be best for a company to determine what specific departments are responsible rather than having a court of law impose a burden on every employee in its corporation. Yet, since there are ethical issues of dishonesty and secrecy involved, National Semiconductor should have conducted a thorough analysis of their employees as well as their own practices. It is through efforts like these that a corporation can raise the ethical standard of everyone in their organization. This case brings into light the whole issue of corporate responsibility. The two sides that must ultimately be balanced are the self interests of the company, with main goal of maximum profit, and the impacts that a corporation can cause on society (Sawyer, 78). To further strengthen this need, one could argue that there are very few business decisions that do not affect society in way or another. In fact, with the plethora of corporations, society is being affected on various fronts; everything from water contamination to air bag safety is a concern. The biggest problem that all of us must contend with is that every decision that a business makes is gauged by the financial responsibility to their corporation instead of their social responsibility to the local community, and in some cases, the international community. This was pointed out on various occasions as the main reason why National Semiconductor falsified their reports. The cost that the full tests would incur did not outweigh their profit margins. Their business sense lead them to do what all companies want . . . maximum profit. In the opinion of the executives, they were acting in a sensible manner. After all, no executive wants to think of themselves as morally irresponsible. (Capitman, 118). The question that naturally arises, in debating corporate responsibility, is what types of checks and balances can be employed within a company to ensure that a corporation and all of its agents act in an ethical manner. Taking the example of the National Semiconductor case, one can notice many failures in moral responsibility. National Semiconductor would have to review its employees, particularly the supervisors, for basic ethical values such as honesty. example, ultimately it was the widespread falsification of the testing documentation that caused the downfall of National Semiconductor, not the integrity of their components. In the synopsis of the case it is never mentioned that the employees initiated this idea, it would seem that it was the supervisors that gave the order to falsify the documents. In order to accomplish this, the company executives would have to encourage their employees to voice their concerns in regards to the advancement of the company. Through open communication, a company can resolve a variety of its ethical dilemmas. As for the financial aspects of the corporation, it has to decide whether the long term effects that a reprimand from the government can have outweighs their bottom line. In other words, corporations have to start moving away from the thought of instant profit and start realizing both the long term effects and benefits. These long term benefits can include a stronger sense of ethics in the work force as well as a better overall society. To conclude, I must say that I agree with the use of mitigating factors in determining moral responsibility. A company, as defined by law, is only a name on a piece of paper. The company acts and conducts itself according to the employees that work in that entity. I use the word employee because in ethical thinking there should be no distinction of rank within a company. There are times when executives can be held directly responsible and at the same time, there are cases where employees are acting unethically without the executives knowing. Neither title of executive or employee equates to moral perfection. Therefore, when a company has acted irresponsibly, its employees must be held liable in a proportionate amount. As for the future of ethics in business I would speculate that if employees started to think more in long term benefits and profits, many of the ethical dilemmas that we face today would be greatly reduced. As mentioned before, businesses today uses the measuring stick of profitability. There needs to be a shift to the thinking of total utility for the social community in order to weigh business decisions. Opponents would argue that this is a long term plan that require too many radical changes in the face of business. Also, there is no way that an industry wide standard can be set since there are too many types of corporations. Plus, companies have different needs and every moral rule is subjective according to the type of business that everyone conducts. In response, I would argue that although there are no industry standards that are feasible, it is possible for every company to examine their practices as well as the attitude of their employees. There will be companies that find that they are doing fine with employees that are aware of their moral values. Yet other companies will find that they do have areas that need improvement. It is steps like these that start implementing changes. Once a few companies start to see the benefits of changes, it can help to encourage other companies to follow suit. After all, as seen in the case of National Semiconductor, mistakes in one department can cause the deterioration of an entire corporation. When the costs that are possible are taken into account, the changes required to rectify this are small in comparison. Bibliography Capitman, William. 1973. Panic In the Boardroom. New York: Anchor Press-DoubleDay Publishing Harris, Kathryn, Chips Maker Feels Attack on Four Sides Los Angeles Times April 4, 1982. Pg. B1 Pava, Moses. 1995. Corporate Responsibility and Financial Performance. London Quorum Books Reder, Alan. 1944. In Pursuit of Principle and Profit. New York: G.P. Putnams Sons Publishing Sawyer, George. 1979. Business and Society: Managing Corporate Social Impact. Boston Houghton Mifflin Publishing Schuyten, Peter. To Clone A Computer. New York Times February 4, 1979. Pg. 1 Velazquez, Manuel. 1992. Business Ethics: Concepts and Cases. New Jersey Prentice Hall Publishing Please send feedback on this paper to: dsalguer@gwis2.circ.gwu.edu f:\12000 essays\business & economics (632)\My Vision of Tommorrow.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Submitted to the Cheat House By: Jupin (I perfer to leave my name unknown) My Vision of Tomorrow Tomorrow's world will be much different and also, much better in many ways. We will have developed much better technology. We will have made huge medical advancements. The general quality of life will be much better, and living will also have become much easier. Still, nothing can ever be perfect, and in a world of the future, we will experience many complex and unavoidable problems such as depletion of resources, overpopulation, and the threat of nuclear and biological warfare. The solutions to these dilemmas will not be immediately apparent; but, we will have to overcome them. The future could hold great opportunities for many people, but we will need to work at it. In the future, technology will have advanced so much and so fast that many new possibilities will arise. Most likely, we will enjoy interplanetary space travel frequently in the future and we may even develop communities on other planets, such as mars, or perhaps on the moon. Numerous scientists and writers have already also predicted this. Life will also be made much, much easier in the future for humans by robots, computers, and other automatons. Many simple tasks done today by humans such as cooking, cleaning, and repairing household items will be done by these machines much more quickly and efficiently and with less pollution. Almost all of the current manual labor jobs, especially in the United States, will become obsolete and robots will do all of the work for us. The advantages of using robots and computers include no pay, no time off, and no complaints or questions asked. Also, nearly every job in the future will require extensive knowledge and skills of computers and anyone without them will be completely lost. At the pace that doctors and medical researchers have been moving at, in the next few generations we will have developed treatments and/or cures for all of the diseases that plague the world's people today. These diseases include; AIDS, cancer, the common cold, Alzheimer's disease, and even the most exotic and deadly diseases like Ebola. But, the practice of medicine will not be eliminated because these diseases will be continually mutating. Things that doctors cannot even comprehend today will become clear to us in the not so distant future. Everyone will also be living longer due to the knowledge of more remedies and of enhanced wellness. People will also be much different in the future. They will become more separate from each other (linked only by computer and telephone). They will become even more materialistic and our society will move closer and closer to complete capitalism. Rules and laws will also be much stricter and the kind of crime that is commonly seen today will become rare in the future. The days to come will not be without problems and stress though. To overcome problems like waste disposal, depleted natural resources, world nuclear and biological warfare, and global warming will be no easy task. Everyone around the world will have to join together and help each other to solve problems that will eventually effect all of us. One of the biggest problems that we will have to deal with is the deterioration of the average family and its values. If the human race cannot get out of the hole that is has dug, everyone in it will be doomed to extinction. So, to sum it up, the future can and will most likely be great, but to achieve this greatness, humans will have to make some personal sacrifices and they will have to face many hardships. For now, we can look forward to the world of tomorrow; but, when it really comes, life, as everyone knows it, will have drastically changed. f:\12000 essays\business & economics (632)\My Vision of Tomorrow.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ My Vision of Tomorrow Tomorrow's world will be much different and also, much better in many ways. We will have developed much better technology. We will have made huge medical advancements. The general quality of life will be much better, and living will also have become much easier. Still, nothing can ever be perfect, and in a world of the future, we will experience many complex and unavoidable problems such as depletion of resources, overpopulation, and the threat of nuclear and biological warfare. The solutions to these dilemmas will not be immediately apparent; but, we will have to overcome them. The future could hold great opportunities for many people, but we will need to work at it. In the future, technology will have advanced so much and so fast that many new possibilities will arise. Most likely, we will enjoy interplanetary space travel frequently in the future and we may even develop communities on other planets, such as mars, or perhaps on the moon. Numerous scientists and writers have already also predicted this. Life will also be made much, much easier in the future for humans by robots, computers, and other automatons. Many simple tasks done today by humans such as cooking, cleaning, and repairing household items will be done by these machines much more quickly and efficiently and with less pollution. Almost all of the current manual labor jobs, especially in the United States, will become obsolete and robots will do all of the work for us. The advantages of using robots and computers include no pay, no time off, and no complaints or questions asked. Also, nearly every job in the future will require extensive knowledge and skills of computers and anyone without them will be completely lost. At the pace that doctors and medical researchers have been moving at, in the next few generations we will have developed treatments and/or cures for all of the diseases that plague the world's people today. These diseases include; AIDS, cancer, the common cold, Alzheimer's disease, and even the most exotic and deadly diseases like Ebola. But, the practice of medicine will not be eliminated because these diseases will be continually mutating. Things that doctors cannot even comprehend today will become clear to us in the not so distant future. Everyone will also be living longer due to the knowledge of more remedies and of enhanced wellness. People will also be much different in the future. They will become more separate from each other (linked only by computer and telephone). They will become even more materialistic and our society will move closer and closer to complete capitalism. Rules and laws will also be much stricter and the kind of crime that is commonly seen today will become rare in the future. The days to come will not be without problems and stress though. To overcome problems like waste disposal, depleted natural resources, world nuclear and biological warfare, and global warming will be no easy task. Everyone around the world will have to join together and help each other to solve problems that will eventually effect all of us. One of the biggest problems that we will have to deal with is the deterioration of the average family and its values. If the human race cannot get out of the hole that is has dug, everyone in it will be doomed to extinction. So, to sum it up, the future can and will most likely be great, but to achieve this greatness, humans will have to make some personal sacrifices and they will have to face many hardships. For now, we can look forward to the world of tomorrow; but, when it really comes, life, as everyone knows it, will have drastically changed. f:\12000 essays\business & economics (632)\NAFTA 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Hand over the rights to Jen schriver NAFTA - Canada's & Mexico's Viewpoints When the Canada/U.S. free trade agreement came into effect, the Mexican's were very impressed by the provision and opportunities that opened for both sides. Mexico then approached the U.S., seeking to form a similar agreement with them. This brought forth a new issue in Canada, should they let Mexico and the U.S. form an agreement without them? Or should they participate, thus transforming their deal with the U.S. into a trilateral agreement including Mexico. On June 12, 1991, the trade ministers of Canada, the United States and Mexico met in Toronto to open negotiations for a North American Free Trade Agreement (NAFTA). This was an historic occasion. For the first time ever, a developing country agreed to sit down with two industrial countries to craft an agreement that would open its economy to full competition with the other two countries. If successful, the agreement promised to make the whole North American continent into one economic zone and set an important precedent for trade and economic cooperation between the wealthy countries of the North and less developed countries of the South. The challenge before them was both exciting and daunting. A little more than a year later, the three trade ministers met again in Washington, to put the finishing touches on a new North American Free Trade Agreement. In just over a year the negotiators from the three countries had successfully met the challenge and put together a new trading frame work for North America. The North American Free Trade Agreement (NAFTA) was set to be implied. The North American Free Trade Agreement often raises questions regarding the new economic trading blocs around the world. The twelve-nation European Community (EC), a Central American free trade zone, and a four-nation South American group, as well as preliminary discussions regarding an Asian trading bloc, all point to the fact that new economic realities already exist. NAFTA promises to have a major impact on the people in all three nations. There will obviously be short-term costs of adjustment, which will certainly hit some industries, regions, and workers harder than others. There will be definite winners in the agreement, and definite losers in the agreement. There even might be disputes. Whether as workers, investors, consumers, or ordinary citizens in all three countries they may be affected. The final verdict on the North American Free Trade Agreement, may in fact not fully be realized for many weeks, months, or even years. However, in the following essay, the advantages to both Mexico and Canada will be analyzed, as well as the disadvantages to Mexico. It is safe to say that the advantages clearly outweigh the disadvantages, and that it will in fact be beneficial for both countries to be involved in this unique deal. *** Benefits to Canada Canada's goals in the negotiation of NAFTA were very simple. They wanted to improve their access for their goods and services to Mexico and the United States. Canada wanted to guarantee their position as a prime location for investors seeking to serve all of North America. The NAFTA deal has realized these objectives set by Canada and will supply Canada with a new and sharper edge to their international competitiveness. The agreement has set a path for Canada widening their trade horizons, while also giving them a bigger stage on which to demonstrate their economic expertise and leadership. An advantage for Canada is that the reduction of Mexican barriers will provide new markets and opportunities for Canadian goods and services. Canadian firms will be able to participate in, and expand sales in, sectors that were previously highly restricted, such as autos, financial services, trucking, energy and fisheries. Mexican tariffs and import licensing requirements will be eliminated, some immediately and others over 5 to 10 years, providing barrier free access to 85 million consumers. The North American Free Trade Agreement covers virtually every field of business in Canada. NAFTA provides many provisions as well as both real and potential advantages to Canadians in all most all places in the work place. Agriculture products play a significant role in Canada's exports to other countries. Canada's excellent and fertile farming land has produced many great results. A very superior livestock and excellent crops have contributed to a productive and prosperous trade of their agricultural products and services around the world. Canada's total exports surpasses $13 billion a year. Under NAFTA Canada and Mexico have worked out a separate agreement between themselves. Over all Canadian exports will enjoy immediate access to the Mexican market under the deal. Mexican import licenses on wheat, barley and table potatoes will be eliminated over a period of time. Also tariffs on lentils, honey, dried peas, millet, raspberries, rye and buckwheat will be dropped. All these items are important crops to Canadian farmers and with these costs cut they will enjoy a greater profit and more trade. NAFTA also opens up great opportunities for livestock farmers. Because Mexico lacks an adequate fresh water supply their livestock operations aren't very big. Therefore Mexico must rely on imports from Canada. NAFTA helps Canadian farmers and farm related businesses to a much greater ease to an ever growing market that will benefit them in the future. There are well over 140 000 Canadians employed in the auto manufacturing industry. As well, approximately 32 per cent of Canada's manufacturing exports is directly related to the auto industry. The Mexican market however, is highly restricted, while 95 per cent of Mexican automotive imports enter Canada completely duty free. NAFTA addresses this imbalance, and more importantly corrects it. By the year 2003, Canada will have open access to the fastest growing automotive market in North America. Canada's service industry is the fastest growing sector of its economy. More than nine million Canadians, which is about two thirds of their work force are employed by the service sector. Cross border trade in services was dealt with for the first time in the Canada-U.S. Free Trade Agreement. The NAFTA deal has included provisions for this type of trade and spells out procedures aimed at encouraging the recognition of licenses and certificates through the development of mutually acceptable professional standards and criteria such as education, experience and professional development. Under NAFTA a temporary entry across the border will be available for about 60 professions. Oceanographers, geographers and statisticians are three groups who can benefit from the NAFTA agreement. When Canada was negotiating NAFTA one of their key objectives was to maintain the Free Trade Agreement rules with the U.S. with respect to energy trade. "Canada wanted to ensure that rules for investment, service and procurement affecting the energy and petrochemical sectors in Mexico provided the same opportunities for Canadian business as previously enjoyed in the U.S." NAFTA contributed to the removal of many investment and trade restrictions on petrochemicals. New opportunities will open up for Canadian business in private power generation. Also, Canadian businesses will be able to bid for service and drilling contracts with the Mexican state - owned company Petroleos Mexicanos (PEMEX). The manufacturers of equipment that relates to the industry will also have easier access to the Mexican market. More than 500 000 Canadians are employed in the "four pillars" of the financial industry. These pillars consist of banking, insurance, securities firms and trust companies. Mexico's financial markets have opened up for Canada due to the NAFTA deal. "Canadian banking, insurance, and security firms will be able to operate wholly owned subsidies that will allow Canadian businesses to service their clients throughout the NAFTA region." Canada's financial sector, which is already strong and hearty, will realize new opportunities under NAFTA that will allow it to further expand and flourish. Canada's financial institutions have a lot to offer Mexico. Canada's strength, such as its technological know-how and it's experience in operating large, integrated banking networks, are areas in which Mexico needs immediate and consistent strategic advice. Foreign investment has played an important role in Canada's development as a nation. Investment is an important tool for Canada's growth and prosperity. It will continue to aid Canada's goal of maintaining and enhancing their competitiveness in the world marketplace. Under the free trade agreement with the U.S., Canada agreed to raise the thresholds for the review of foreign takeovers by U.S. investors. With NAFTA Mexico will enjoy the same access as the U.S. investors. Canada has reserved its right to review large foreign takeovers. In addition, the NAFTA allows Canada to continue safeguarding key factors like culture, social services, basic telecommunications and some modes of transportation by permitting Canada to maintain restrictions on foreign participation. Telecommunications is definitely going to play a crucial role in integrating the North American economy under NAFTA. A smooth transfer of data and the instantaneous electronic exchange of information via telecommunications networks are an essential tool of international trade. This will benefit Canada, fore they are a recognized world leader in the telecommunications field. This will directly provide a market for Canadian developers in services such as electronic messaging, advanced data networks, and electronic mail. Mexico is in the process of modernizing its services so that they are compatible with Canadian and U.S. networks. By the year 2000, Mexico's demand for imported telecommunications products is expected to grow by 42 per cent. Anyone can plainly see the potential opportunities here for Canada. 1n 1991, more than one hundred and thirty five thousand Canadians were employed by the textiles and apparel industry, mostly in Montreal, Toronto and Winnipeg. The NAFTA sets out strict rules of origin for most yarns, fabric and clothing. These new levels will help Canadian textile and apparel manufacturers expand their exports of products to the profitable U.S. market. With the NAFTA, Canadian and Mexican tariffs on apparel will be eliminated within 10 years. Many might worry in Canada and query if this is really an advantage for Canada. Arguably it really doesn't affect Canada because Mexican apparel is geared to cheaper, lower quality products. While the Canadian industry is moving toward producing higher value textiles and quality designer fashions. The North American Free Trade Agreement has "streamlined" transportation between the three countries involved. Within six years, trucks and buses can crisscross the North American continent with virtually no border restrictions. Under NAFTA, for instance, a Canadian driver can take a load from Calgary, to Mexico city, with a stop in Texas for more goods. And on the way home, the same driver can deliver Mexican goods to both Canadian and U.S. destinations. This freedom of movement will increase the efficiency of our land carriers and will also enhance the competitiveness of our goods. *** Disadvantages to Canada: The implementation of the North American Free Trade Agreement may have many negative connotations towards social and environmental issues involving the trading nations. "One effect from the enactment of NAFTA is the loss of manufacturing jobs which would occur from the shift of multinational corporations to Mexico." This will cause many corporations to move their plants over the border. By doing this, it will let them produce goods at lower costs. This is because Mexico has cheaper, unskilled labor due to non-existent minimum wage rates. In almost every case money usually leads the way. In NAFTA's case this is down to Mexico. With this movement of multinational corporation over to Mexico, the rate of unemployment will fall in Mexico but will rise in Canada. A rise in unemployment for Canada is not a good thing especially with the situation that already has plagued them. From a Canadian business point of view, it makes sense for them to produce there good or service where labor is cheaper and their total costs are lower. Still, this short term loss of jobs will be a tremendous strain to the Canadian economy. This might cause a short term problem and still is yet to be seen if they Canada can overcome it. There are many advocates of free trade. Since NAFTA was introduced, a plethora of companies have left Canada and relocated in Mexico. This loss of jobs in Canada might force Canadians to become more innovative and entrepreneurial. These new ventures will require new technology, new investment, new capital and new infrastructure. These new innovations could only improve Canada's global competitiveness. In comparison to other industrialized countries, Canada spends considerably less on research and development. *** Benefits to Mexico: The movement of companies to Mexico has some positive long term effects on environmental and human rights. Under NAFTA, North American countries will be working together. With all the new expansion to Mexico this will help to stabilize the Mexican economy. A lot of Canadian and American businesses will relocate across the Mexican border. Employment and environmental regulations are lacking in Mexico, but with a rapid expansion over the Mexican border will help stabilize and develop regulations. A result of this Mexico's future labor and environmental problems will decrease. There are five important conditions stemming from the NAFTA deal. These conditions are intended to increase the degree of Mexico's competitiveness. These five conditions are, "certainty of rule, economies of scale, economies of scope, wide choice of technologies, and finally, availability of a wide range of services at reasonable cost" . The first condition mentioned was certainty of rule. The reason that this makes Mexico a more competitive nation is due to the fact that their business people are able to operate in a stable environment. They know the "rules of the game", and do not have to worry about them changing in the future. This is the only way that they can make wise and proper decisions on how to best allocate their resources. They must know that the rules are permanent, and that there will be permanence, stability, and continuity in economic policies. The second condition that is important for Mexican competitiveness is economies of scale. This gives Mexico the ability to lower average costs by serving a extremely larger market. In fact, NAFTA will create the largest regional market in North America. 360 million people and more than $7 trillion in regional production will therefore allow North American firms to grasp the advantages of lower average production costs. It is also important for the competitiveness of everyone involved in the deal to know exactly when tariffs will be eliminated, so particular firms will know when they are able to enter the larger market. For example, since day one of the deal, over forty per cent of Canadian exports entering Mexico were duty free. Tariffs on the remaining sixty per cent will be phased out over the next ten years or so, with the majority of them being eliminated within the first five years of the deal. These timetables will not change, so individual firms will know exactly when a particular market will be fully open. This is a very important competitive element. The third element is directed towards Mexico's smaller, and medium-sized firms, that do not have the resources to take advantage of economies of scale. NAFTA offers these smaller businesses something called economies of scope. Economies of scope is the ability of these "smaller" firms to become very competitive by specializing in a given segment of the market, and knowing that segment "inside-out". The best example of this area is the market niche Mexico has created selling refrigerators to the United States. It may be hard to comprehend but Mexico is the largest supplier of refrigerators in the United States. One may query why and how did this happened, and think that the U.S. would be the number one supplier, however Mexico is very proud of what they accomplished. They selected a niche in the American market and acted upon it. They started supplying smaller refrigerators to offices, businesses and colleges of dorms. By specializing in this one niche, a small Mexican firm can react quickly and efficiently to changing tastes, technologies, and trends. Allowing the firms to stay competitive in a ever growing market. Surprisingly, with NAFTA in place a lot of niches like the one mentioned above will open up around North America. The typical Mexican consumer is a lot different than the Canadian consumer in a lot of respects. In Canada there are numerous niches based on income levels, taste, and culture. NAFTA will give firms in Mexico a greater margin of competitiveness than they are already enjoying. The fourth element, and arguably the most important one, is the ability to have a wide choice of technologies. It is for this element that the lessons learned from Japan come into effect. People often believe that the reason for Japans great competitiveness is the quality of Japan's work force, and the attitude of Japanese management. Although this is all true, what is often overlooked is that 35 per cent of Japan's exports are made through production sharing. In other words, Japan is taking advantage of a wide range of technologies. The whole concept to this is very simple. If a job is labor-intensive, a firm should have access to adequate labor. If, on the other hand, a job is capital-intensive, a firm should have access to capital. Finally, the fifth condition for competitiveness is to have available a range of services at a reasonable cost. In a modern economy we have to recognize the importance of services, like transportation, telecommunications, and financial services. In a second world country like Mexico, these services still carry a very high cost, which puts Mexico at a competitive disadvantage. But NAFTA will have to play a dramatic role in lowering the cost of services because it achieves the most comprehensive opening of the services market of any trade agreement. One example of the availability of services as a result of NAFTA is, that it opens land transportation throughout the entire region. Prior to the deal if certain cargo had to go from Mexico to Canada, it would have to travel to the border, then sit there while the cargo was re-loaded onto a Canadian or American truck, then shipped to Canada. The Mexican merchant who had to ship the cargo is thus placed at a competitive disadvantage. Now, under new NAFTA rules, that truck is able to go directly from the Mexican plant, straight to it's final destination, thus saving both money and time. A second example is in the area of telecommunications, such as phones, faxes, and other information services. This is most definitely becoming more and more important in the production process of modern society, and NAFTA opens the North American market in this area as well. This will make industries more competitive by providing reasonable priced and reliable communications. A very important issue that is always featured in the NAFTA debate is the environment. Developed countries like Canada often take for granted, that environmental protection requires considerable economic resources. A Princeton University study confirmed that, "When a country is very poor, there is no pollution because there is no industry. As a country's industry grows and it's per capita income begins to rise, environmental degradation comes into effect." True, this has been the recent history in Mexico, However, a country ultimately reaches the turning point, where it has grown to the level where it has the resources to devote to environmental protection. As well, the agreement itself contains many environmental provisions. It is often called the "Greenest" multilateral trade agreement ever negotiated. NAFTA specifically prohibits any of the three countries involved from loosening environmental rules in order to attract new investments. *** Mexico's Disadvantages: "NAFTA will simply compound the ills created by the administrations policy of monopolistic free trade." In the short run the U.S. and Canada would hardly feel any effect, while Mexico would face great disruptions as a result of opening its borders. This is because of the small size of the Mexican economy would barely create a crease in the economies of its northern neighbours. The problem is that unemployment may soar in Mexico because of the large inflow of manufacturers from its new trading partners. Indeed, Mexico's economy could collapse. In fact, in the last two years the number of unemployed in Mexico has increased by more than 1.1 million, while salaries have lost more than 41.6% of their dollar value. In 1993, 8.5% of the economically active population of Mexico earned less than the minimum salary; today 11.9 percent find themselves in the very same position. Much like East Germany, Mexico suffers from "backward technology and inefficient, bloated state monopolies. The trauma of exposure to giant northern firms could be fatal to Mexican manufacturing." NAFTA proposes to open Mexican markets to Canada and the U.S. gradually, thus constraining the "foreign onslaught," however, the short run suffering that Mexico would endure would be massive. Especially since Mexico which has been buried in a deep slump since 1982, will not, unlike East Germany, receive huge financial aid. The biggest disadvantage incurred on Mexico as a direct result of the deal is the amount of money and capitol needed to be spent on up grading their telecommunications, equipment in the workplace, as well as their transportation routes. This needs to be do done in order to become competitive in the North American Market. This however, may not be viewed upon as a benefit, fore it is going to increase it's productivity in the global market. What ever short term disadvantages are induce due to the deal, will eventually be nullified over the long run. *** Mexico's role in the North American Free Trade Agreement, looks to be a great step in their country's potentially great future. For Mexico to stay with NAFTA they have to continue the dramatic turnaround their country has experienced in the past decade. The economy in Mexico is growing faster than their population, and with NAFTA they could only expect better things to come their way. Inflation is under control, foreign debt has been reduced, more than 1,000 state owned industries have been privatized. Mexico is finally showing a fiscal surplus for the first time in a quarter of a century. With NAFTA it will help Mexico consolidate these economic reforms, secure the confidence of the world's investors and allow Mexico's economic turnaround to continue for many more years. Economic integration initiatives like NAFTA offer positive benefits to Canada and to other trade partners. They promote efficiency of scale, eliminate expensive and time consuming trade restrictions between nations, and discourage government intervention. "NAFTA in particular is in tune with the twin imperatives of globalization and global development. It embodies the historical logic of earlier movements toward Canada/U.S. economic alliances." True, the deal is not perfect, but to retreat from it now would be a step backwards. In conclusion, we feel that when all the pros and cons have been weighed, and all has been said and done, NAFTA will eventually become a positive step in North America's future. f:\12000 essays\business & economics (632)\NAFTA 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ NAFTA The North America market is one of the richest in the world. Measured in terms of GDP, it is the equivalent of Western Europe. But with a somewhat smaller population, GDP per capita in North America, Canada, Mexico and the U.S., is around 12 percent higher than in Western Europe. The North American Free Trade Agreement (NAFTA), which came into effect January 1, 1994, sets out the schedule for tariff elimination for members.. As a small country, Canada has always been careful in it's dealings it's large neighbor, the U.S., however, compliance to this agreement threatens our very existence. Canada was unfairly taken advantage of in the singing of this agreement, our identity of a sovereign nation is at risk. The North American market is also one of the most sophisticated and demanding. It is an excellent base from which to develop and launch new products. From a Canadian base, companies can establish a solid market position throughout North America and then reach out to serve global markets. This agreement, which and contains many key provisions to facilitate the conduct of business among the three countries, has been a benefit to Canada-U.S.-Mexico trade. The continent-wide transportation system that binds this market together is efficient and cost-effective. Carriers of all modes are investing in more sophisticated technology and entering into strategic alliances to improve service. Border crossings are becoming easier. Canada provides an ideal location for serving the entire North American market. Companies based in Canada have preferred access to a market of 380 million people, with a combined Gross Domestic Product (GDP) of more than $10 trillion (Canadian dollars). However, our participation in the agreement allows the U.S. unobstructed to our market. This poses a serious problem when looking at pure numbers. Canada is a country of approximately 28,000,000 people and the U.S. a country of about 280,000,000. The extra "0" means the U.S. in ten times greater then Canada in population size. The implications of this are enormous. Because of the difference in size it is logical to assume that the average Canadian firm is about ten times smaller then its U.S. counterpart. As an example, Bell Canada (Canada's major telecommunications company) is worth an estimated 9 billion dollars. AT&T (U.S. major telecommunications company) is worth approximately 108 billion. These numbers should speak for them selves. Although it hasn't happened yet, AT&T could attempt a competition war on Bell Canada There are many ways to view North American markets. Initially, they can be viewed as three national markets, with certain differentiating characteristics in terms of tastes, preferences, disposable incomes and spending patterns. Because national accounts are the source of much of the general information on domestic markets, this is often how North American markets are portrayed. In fact, though, North America is increasingly a collection of regional markets that cut across national boundaries. Companies based in east-central Canada view the north-eastern U.S. states as their proximate market area, and companies in Vancouver, for example, look southward to the U.S. states of Washington, Oregon and California for market opportunities. Although east-west transportation routes are well developed and national characteristics of markets are still important, there is no escaping the geographic pull of the north-south axis. Increasingly, North America will be viewed as a single market. The market opportunities for products and services produced by a Canadian-based company are as likely to be in Chicago, Houston, and Mexico City, as in Canadian cities. Thus, although some general characteristics of the three national markets are highlighted here, potential investors should also be attuned to the many cross-border regional markets that constitute the North American market, and to the fact that North America is in many ways a single market. Canada Although many investors see Canada as an excellent base from which to export to North American and other global markets, the rich domestic market holds numerous growth opportunities as well. Canada's population, which is increasing at a little over 1 percent annually, is fast approaching 30 million. The two central provinces of Ontario and Quebec account for over 60 percent of the total, but the western provinces of British Columbia and Alberta, with 22 percent, have the highest population growth. The majority of Canadians live in urban centres located within 100 kilometres of the U.S. border. This creates a string of regional market clusters along the Canada-U.S. border that can be served from a Canadian location. Even on their own, though, several Canadian cities located close to the Canada-U.S. border are large markets. The Toronto metropolitan area has a population of 4 million, Montreal has more than 3 million, and Vancouver has just under 2 million. The average family income in Canada is about $54,000. With the sharp increase in the proportion of working-age women who have entered the labour market since the mid-1970s, the typical family tends to have two income-earners. In the first half of the 1990s, growth in personal incomes has been 2-3 percent annually, a rate which has been affected by the recession and smaller increases in wage settlements. There are regional income differentials, with Ontario,British Columbia, Alberta and Quebec having the highest levels of per capita income. But income redistribution programs limit the variations between the richer and poorer parts of the country. Canadians spend some $450 billion on consumer goods and services each year. The amount of discretionary income that is available for purchases of "non-essential" goods such as electronic products, and services such as travel, sports and recreation has been increasing. The market for consumer products related to information technologies has been especially buoyant. Between 1981 and 1994, computers and audio/visual electronics enjoyed the fastest growth in sales. In the service sector, an ageing and increasingly affluent population is increasing demand for home maintenance, health services, financial services, travel and leisure activities. Among the trends shaping the Canadian consumer marketplace of the future are increasing ethnic diversity and multiculturalism; continued expansion of the service sector; greater public awareness of environmental issues and values; increasing consumer demands for convenience; and a trend toward differentiating, segmenting and customising consumer markets. The United States There is no other national market for consumer and industrial products and services that is near the size of the U.S. In terms of GDP, Japan comes closest, with a GDP that is two thirds that of the U.S., which in 1994 stood at US $6,738 billion. The demand for imports in the U.S., at US $669 billion in 1994, was about double that of Germany, the second largest market for imports. Simply put, the U.S. market is a magnet for companies around the world. What is less appreciated about the U.S. market is that it is all easily accessible from Canada. There are more than 110 million consumers within a day's drive of southern Ontario. Montreal, Halifax and Moncton are within a day's drive of New York, Boston and Philadelphia. Winnipeg is just 17 hours by road from Chicago and eight hours from Minneapolis. From Vancouver, markets all along the Pacific coast of the U.S. can be easily served. It takes about 48 hours to ship by truck from Vancouver to Los Angeles. With increasingly efficient transportation routes, even the southern U.S. states are considered to be close to major Canadian cities. In 1994, the population of the U.S. reached 261.5 million. This is dispersed across four large regional markets: the Northeast has 19.9 percent of the total, the Midwest 23.6 percent, the West 21.7 percent, and the largest, the South, has 34.7 percent. The GDP of each of these regions is larger than individual countries of Western Europe, with the single exception of Germany. As a share of total U.S. GDP, the Northeast, Midwest and West each has roughly 23 percent. The South's share is around 31 percent. In 1994, per capita GDP in the U.S. was US $25,820, second to Japan among the G7 countries. Median household income was about US $32,200, with married-couple households having a significantly higher US $45,041. Generally speaking, consumer markets in the U.S. are similar to those in Canada, and spending patterns do not vary considerably. For companies offering consumer products and services, these similarities provide an opportunity to test products in the Canadian market before making an entry into the U.S. If a foreign company is considering an investment in North America to, among other things, tap the rich U.S. market, a Canadian location is eminently attractive. When cost-effective access to the U.S. market is combined with the range of other business advantages -- generally lower corporate tax rates, the most advantageous investment tax credits for R&D activity, and a quality of life that is recognised as one of the best in the world -- the foreign investor has the best of all worlds. Mexico In contrast to the advanced economies of Canada and the U.S., Mexico is an emerging market. Mexico's GDP per capita is 15 percent that of the U.S. and 20 percent of Canada's, and in terms of income levels and income distribution, Mexico resembles a developing country. On the other hand, with a population of about 92 million, most of which is young, a growing middle class of educated Mexicans, and programs of political and economic reform, there is a dynamism in Mexico that is inviting. With dynamism comes volatility, and Mexico is no stranger to this. The plunge of the peso that began at the end of 1994 and continued through the first quarter of 1995 created a financial crisis that has led to a significant decline in economic activity and real incomes. But the economy is recovering and investor confidence is being restored. In the coming years, there will probably be more vacillations as the economy goes through periods of rapid growth and then slows to keep inflation under control. Throughout these cycles, Mexico will undoubtedly be relying more on international trade and investment as engines of growth. In 1994, total trade was the equivalent of almost 40 percent of the country's GDP. Mexico will remain a significant import market in the years ahead. A potential foreign investor in North America should therefore consider the advantages of locating in Canada, and supplying the Mexican market from a Canadian location. In approaching the Mexican market, companies should be aware of its diversity. There are large disparities in incomes, regional markets vary considerably, and there is demand for basic infrastructural needs as well as more sophisticated consumer and industrial products. The largest regional markets are those of metropolitan Mexico City, with a population of almost 20 million; Guadalajara, the capital of the central-western state of Jalisco; and Monterrey, the capital of the north-eastern state of Nuevo León. Mexico City is the country's economic, financial and industrial centre. With upper and middle-income groups numbering in the vicinity of five to six million, it offers the largest consumer market in the country. Guadalajara, with a population of around 3.5 million, is an important commercial and financial centre. Monterrey, of roughly the same size as Guadalajara, is one of the country's most important industrial centres, with 53 percent of Mexico's top 500 businesses. Despite Mexico's current economic difficulties, there are many business opportunities in the Mexican market. Perhaps most enticing, though, is Mexico's potential. Since the end of World War II, Canada-U.S. trade grew steadily into the largest bilateral trading relationship in the world. One of the more significant developments in the history of the two countries' trading relationship came in 1965 with the signing of the Canada-U.S. Auto Pact, which governed duty-free trade in automobiles and parts. Largely as the result of this agreement, trade in this sector has remained a central part of the two countries' overall trade. The Free Trade Agreement The Canada-U.S. Free Trade Agreement (FTA) took economic co-operation between the two countries to a new level. Effective January 1, 1989, under the terms of the FTA, tariffs on goods manufactured in Canada and the U.S. would be gradually eliminated over a ten-year period, provided the goods met "rules-of-origin" requirements. Many of the tariffs would be eliminated before the end of the ten-year time frame, and the initial phase-out schedule for products could be accelerated if the two sides agreed. The FTA also provided Canadian products with "national treatment" on most sales to U.S. government departments and gave equal access to potential suppliers on tendering and bidding information. A number of other sectoral and institutional issues were included in the Agreement to facilitate trade, identify exceptions and clarify other aspects of the trading relationship. In addition to the trade-creating provisions of the FTA, Canada and the U.S. have been working on the harmonisation of standards, testing and certification procedures. Prior to signing the FTA, most of Canada-U.S. trade was duty-free under GATT rules. Nevertheless, the FTA had a dramatic effect on the volume of two-way trade. Between 1988 and 1993, trade between the two countries increased by 40 percent, to $257 billion, with a strong 46 percent growth in Canadian exports to the U.S. These gains were registered despite an economic recession in the middle of this period. Specific sectors, such as office, telecommunications and precision equipment; chemical products; pharmaceuticals; and textiles showed particularly strong growth in trade. The North American Free Trade Agreement (NAFTA) Effective January 1, 1994, the NAFTA improved the FTA and added Mexico to the free trade zone. By this time, Canada-U.S. trade was overwhelmingly duty-free. Under NAFTA, a tariff-reduction schedule was worked out for trade with Mexico whereby tariffs would be reduced over a ten-year period from the implementation date. Most of Mexico's non-tariff barriers, such as import licences, will also be eliminated during this period. The key provisions of the NAFTA are: Elimination of Tariffs: Tariffs on Canadian exports to Mexico will be phased out over 10 years. Mexico has provided immediate duty-free access for many of Canada's key export interests. National Treatment: Canada, the U.S. and Mexico treat each others' goods, services, and investors as they treat their own. International investors with investments in Canada are covered by the NAFTA if they use Canada as a "home base" to make investments in the U.S. or Mexico. Secure Market Access: The NAFTA provides secure access for Canadian exports to the U.S. and Mexico. Dispute Settlement: Settlement or determination of remedies regarding anti-dumping and countervailing disputes is by bi-national panels, not domestic courts. Disagreements between investors and NAFTA governments may be settled through international arbitration. Government Procurement: All three countries have agreed to provide substantially increased access to government procurement opportunities not only in goods, but also in services, including construction services. Business Travel: Simplified procedures expedite business travel. Eligible business people can be granted temporary entry without prior approval procedures. Intellectual Property: The NAFTA includes comprehensive coverage of intellectual property rights to encompass standards of rules and enforcement. Under the NAFTA, many Mexican tariffs were eliminated immediately, including those on a range of Canada's key exports: agricultural and fish products, many metals and minerals, most telecommunications equipment, many types of machinery, and certain wood and paper items. (For more information on NAFTA, see the FaxLink document 60170.) The first year of NAFTA saw a large jump in Canada's trade with the U.S. and Mexico. Canada's two-way trade with the U.S. rose by 21 percent, to reach $311 billion, while that with Mexico grew at a similar rate, to total $5.5 billion. These growth rates were higher than the increase in Canada's overall trade, meaning that North America is becoming even more important for Canadian exporters and importers. In 1994, 82 percent of Canadian exports went to the U.S. and Mexico, and 70 percent of imports were from these countries. North-south Transportation Links North-South linkages by road, rail, marine, air, pipeline, and intermodal services permit easy access to North American markets, especially the U.S. Since transborder business is a vital part of their operations, Canadian carriers get goods to the U.S. quickly and inexpensively. "The continent has shrunk to overnight delivery by air and three days by truck from all of the major industrial centres. We look at North America as one big country." Max Persaud, Manager Corporate Logistics, Customs and Traffic Philips Electronics Ltd. Road Road transport is dominant, a fact which reflects the large flow of manufactured goods and the integration of regional markets. The trucking industry has adapted well to the demands of just-in-time (JIT) manufacturing. The Canadian for-hire trucking industry earns about one fifth of its intercity revenues from transborder business. Several trucking companies specialise in this increasingly competitive area. North American Truck Delivery (in hours) New YorkChicagoSan FranciscoMexico CityHalifax to:2456144120Montreal to:1825120110Toronto to:1220108115Winnipeg to:72368470Calgary to:82465878Vancouver to:108703688 Rail In preparation for expanded traffic throughout North America, rail networks are expanding on a continental scale. Strategic alliances between Canadian and U.S. railways speed the flow of goods to market, expedite border crossings, and provide quality intermodal services. Canadian rail carriers have co-ordinated Canada-Mexico freight services through agreements with the Mexican state railway and with U.S. railways and barge lines. North American Rail Delivery (in hours) New YorkChicagoSan FranciscoMexico CityHalifax to:9677180205Montreal to:4836144169Toronto to:4824130155Winnipeg to:7236120191Calgary to:1026696215Vancouver to:1209672250 Source: CN North America Marine Several of Canada's deep-water ports are strategically located near large U.S. markets. Many of these facilities are open year-round. Marine travel is concentrated in the Great Lakes/St. Lawrence Seaway system and on the east and west coasts of North America. The St. Lawrence Seaway serves an area containing some 61 million people in much of the industrial heartland of North America. Air Flights from Canadian airports serve all major North American centres, allowing for overnight delivery by air cargo. Following the signing of the 1994 "Open Skies" agreement, Canadian carriers have unlimited rights to fly from anywhere in Canada to any point in the United States. U.S. airlines enjoy similar rights to destinations other than Toronto, Montreal and Vancouver. Equal access for U.S. carriers will be phased in over three years. The arrangement will mean better connections and more competitive pricing for both passengers and cargo. Complementing the agreement is the "Border Management Accord," a planned expansion of pre-clearing facilities to allow travellers to the U.S. to clear customs before leaving Canada. North American Air Links (in hours/minutes) New YorkChicagoLos AngelesMexico CityHalifax to:2:152:546:017:15Montreal to:1:172:186:246:40Toronto to:1:261:405:164:50Winnipeg to:3:351:505:456:15Calgary to:5:053:053:006:29Vancouver to:5:533:522:456:19 Intermodal Intermodal transportation combines the attributes of more than one mode. Increasingly, intermodal services are competing with trucking companies for transborder traffic. Railways are making important investments in intermodal terminals and equipment to ensure their competitiveness. Specialised container trains provide timely, high-quality service to Canadian and U.S. cities. CP Rail has direct access to the port of Philadelphia via one of its U.S. subsidiaries. Access to other U.S. ports is available through interchanges with U.S. carriers. Strong Support Services Massive North American trade flows have spawned extensive support services for Canadian companies that ship to the U.S. and Mexico. Customs brokers are familiar with all aspects of international shipping, from packaging and labelling requirements to the relative cost-effectiveness of different routings to and from Canada. Freight forwarders consolidate shipments from several sources to take advantage of volume discounts and design efficient and cost-effective distribution systems. Companies doing business in Canada also benefit from a nation-wide system of 142 privately-owned warehouses licensed and bonded by the federal government. Warehouses in all large metropolitan centres offer on-site customs inspection, bar-coded storage and handling, and after-hours clearance. Efficient Border Crossing The Canadian and U.S. governments are actively co-operating to streamline the border crossing process. Programs that use electronic data interchange, bar-coding technology and pre-clearance of goods are speeding up the release of shipments. These innovations make it even easier for companies located in Canada to export to the U.S. "Pratt & Whitney has a world-wide distribution network. Customs operations have been streamlined to the point that the Canada-U.S. border plays no role in our distribution system..." Brian McGill, Director of Transportation Pratt & Whitney Canada Inc. Future Directions With the NAFTA and the modernised, efficient transportation links throughout the continent, the entire North American market is easily served from a Canadian-based company. Foreign investors from outside North America should therefore look upon a Canadian location as an entry into all regional markets of the NAFTA countries. A number of U.S. multinational enterprises -- 3M, Dow, DEC, IBM, Bell Helicopter-Textron, and Procter and Gamble -- have already made moves toward serving the North American market from Canadian subsidiaries. To create economies of scale in manufacturing, these subsidiaries are being given North American or global mandates. There will undoubtedly be more examples of this trend in the near future. As the number of NAFTA signatory countries expands, the market will become even more attractive. Negotiations are currently under way for Chilean accession to the NAFTA, and other South American countries have expressed interest. The North American Free Trade Agreement--An Overview Background The North American Free Trade Agreement, (NAFTA) has, since it became effective on January 1, 1994, created a free trade area comprised the United States, Mexico and Canada. The agreement's major objectives are to eliminate tariffs, to improve market access to the goods and services among NAFTA countries, to eliminate barriers to manufacturing, agricultural and services trade, to remove investments restrictions, and to protect intellectual property rights. It also addresses labor and environmental concerns. The U.S.-Canada Free Trade Agreement (CFTA) has been effective since January 1, 1989, and the NAFTA expands this agreement within services, investment, land transport, intellectual property and government procurement, but keeps the status quo in agriculture and energy. NAFTA negotiations represented an opportunity for the U.S. to achieve its economic objectives: expanding sales opportunities in Mexico for U.S. companies; formalizing recent Mexican market liberalization initiatives; and enhancing North American international competitiveness by permitting companies to establish operations anywhere in North America without facing the obstacles caused by trade or investments barriers. For Mexico, the agreement represented a turning point in its relations with the U.S. By entering NAFTA, Mexico turned its back on decades of nationalism and economic protectionism and culminated its move from a nationalized, protected economy to one governed by market-oriented principles. Canada's participation in the Agreement can be seen as a defensive maneuver to ensure that NAFTA would not dilute the Canadian benefits of origin of goods so that free trade status is effective among the NAFTA countries. Generally, 50 % of the tariffs between the U.S. and Mexico has been eliminated immediately, 65 % will be by 1999. Most U.S.-Canada tariffs will be phased out by 1998. f:\12000 essays\business & economics (632)\NAFTA Canada & Mexico's Viewpoints.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ NAFTA: Canada's & Mexico's Viewpoints When the Canada/U.S. free trade agreement came into effect, the Mexican's were very impressed by the provision and opportunities that opened for both sides. Mexico then approached the U.S., seeking to form a similar agreement with them. This brought forth a new issue in Canada, should they let Mexico and the U.S. form an agreement without them? Or should they participate, thus transforming their deal with the U.S. into a trilateral agreement including Mexico. On June 12, 1991, the trade ministers of Canada, the United States and Mexico met in Toronto to open negotiations for a North American Free Trade Agreement (NAFTA). This was an historic occasion. For the first time ever, a developing country agreed to sit down with two industrial countries to craft an agreement that would open its economy to full competition with the other two countries. If successful, the agreement promised to make the whole North American continent into one economic zone and set an important precedent for trade and economic cooperation between the wealthy countries of the North and less developed countries of the South. The challenge before them was both exciting and daunting. A little more than a year later, the three trade ministers met again in Washington, to put the finishing touches on a new North American Free Trade Agreement. In just over a year the negotiators from the three countries had successfully met the challenge and put together a new trading frame work for North America. The North American Free Trade Agreement (NAFTA) was set to be implied. The North American Free Trade Agreement often raises questions regarding the new economic trading blocs around the world. The twelve-nation European Community (EC), a Central American free trade zone, and a four-nation South American group, as well as preliminary discussions regarding an Asian trading bloc, all point to the fact that new economic realities already exist. NAFTA promises to have a major impact on the people in all three nations. There will obviously be short-term costs of adjustment, which will certainly hit some industries, regions, and workers harder than others. There will be definite winners in the agreement, and definite losers in the agreement. There even might be disputes. Whether as workers, investors, consumers, or ordinary citizens in all three countries they may be affected. The final verdict on the North American Free Trade Agreement, may in fact not fully be realized for many weeks, months, or even years. However, in the following essay, the advantages to both Mexico and Canada will be analyzed, as well as the disadvantages to Mexico. It is safe to say that the advantages clearly outweigh the disadvantages, and that it will in fact be beneficial for both countries to be involved in this unique deal. *** Benefits to Canada Canada's goals in the negotiation of NAFTA were very simple. They wanted to improve their access for their goods and services to Mexico and the United States. Canada wanted to guarantee their position as a prime location for investors seeking to serve all of North America. The NAFTA deal has realized these objectives set by Canada and will supply Canada with a new and sharper edge to their international competitiveness. The agreement has set a path for Canada widening their trade horizons, while also giving them a bigger stage on which to demonstrate their economic expertise and leadership. An advantage for Canada is that the reduction of Mexican barriers will provide new markets and opportunities for Canadian goods and services. Canadian firms will be able to participate in, and expand sales in, sectors that were previously highly restricted, such as autos, financial services, trucking, energy and fisheries. Mexican tariffs and import licensing requirements will be eliminated, some immediately and others over 5 to 10 years, providing barrier free access to 85 million consumers. The North American Free Trade Agreement covers virtually every field of business in Canada. NAFTA provides many provisions as well as both real and potential advantages to Canadians in all most all places in the work place. Agriculture products play a significant role in Canada's exports to other countries. Canada's excellent and fertile farming land has produced many great results. A very superior livestock and excellent crops have contributed to a productive and prosperous trade of their agricultural products and services around the world. Canada's total exports surpasses $13 billion a year. Under NAFTA Canada and Mexico have worked out a separate agreement between themselves. Over all Canadian exports will enjoy immediate access to the Mexican market under the deal. Mexican import licenses on wheat, barley and table potatoes will be eliminated over a period of time. Also tariffs on lentils, honey, dried peas, millet, raspberries, rye and buckwheat will be dropped. All these items are important crops to Canadian farmers and with these costs cut they will enjoy a greater profit and more trade. NAFTA also opens up great opportunities for livestock farmers. Because Mexico lacks an adequate fresh water supply their livestock operations aren't very big. Therefore Mexico must rely on imports from Canada. NAFTA helps Canadian farmers and farm related businesses to a much greater ease to an ever growing market that will benefit them in the future. There are well over 140 000 Canadians employed in the auto manufacturing industry. As well, approximately 32 per cent of Canada's manufacturing exports is directly related to the auto industry. The Mexican market however, is highly restricted, while 95 per cent of Mexican automotive imports enter Canada completely duty free. NAFTA addresses this imbalance, and more importantly corrects it. By the year 2003, Canada will have open access to the fastest growing automotive market in North America. Canada's service industry is the fastest growing sector of its economy. More than nine million Canadians, which is about two thirds of their work force are employed by the service sector. Cross border trade in services was dealt with for the first time in the Canada-U.S. Free Trade Agreement. The NAFTA deal has included provisions for this type of trade and spells out procedures aimed at encouraging the recognition of licenses and certificates through the development of mutually acceptable professional standards and criteria such as education, experience and professional development. Under NAFTA a temporary entry across the border will be available for about 60 professions. Oceanographers, geographers and statisticians are three groups who can benefit from the NAFTA agreement. When Canada was negotiating NAFTA one of their key objectives was to maintain the Free Trade Agreement rules with the U.S. with respect to energy trade. "Canada wanted to ensure that rules for investment, service and procurement affecting the energy and petrochemical sectors in Mexico provided the same opportunities for Canadian business as previously enjoyed in the U.S." NAFTA contributed to the removal of many investment and trade restrictions on petrochemicals. New opportunities will open up for Canadian business in private power generation. Also, Canadian businesses will be able to bid for service and drilling contracts with the Mexican state - owned company Petroleos Mexicanos (PEMEX). The manufacturers of equipment that relates to the industry will also have easier access to the Mexican market. More than 500 000 Canadians are employed in the "four pillars" of the financial industry. These pillars consist of banking, insurance, securities firms and trust companies. Mexico's financial markets have opened up for Canada due to the NAFTA deal. "Canadian banking, insurance, and security firms will be able to operate wholly owned subsidies that will allow Canadian businesses to service their clients throughout the NAFTA region." Canada's financial sector, which is already strong and hearty, will realize new opportunities under NAFTA that will allow it to further expand and flourish. Canada's financial institutions have a lot to offer Mexico. Canada's strength, such as its technological know- how and it's experience in operating large, integrated banking networks, are areas in which Mexico needs immediate and consistent strategic advice. Foreign investment has played an important role in Canada's development as a nation. Investment is an important tool for Canada's growth and prosperity. It will continue to aid Canada's goal of maintaining and enhancing their competitiveness in the world marketplace. Under the free trade agreement with the U.S., Canada agreed to raise the thresholds for the review of foreign takeovers by U.S. investors. With NAFTA Mexico will enjoy the same access as the U.S. investors. Canada has reserved its right to review large foreign takeovers. In addition, the NAFTA allows Canada to continue safeguarding key factors like culture, social services, basic telecommunications and some modes of transportation by permitting Canada to maintain restrictions on foreign participation. Telecommunications is definitely going to play a crucial role in integrating the North American economy under NAFTA. A smooth transfer of data and the instantaneous electronic exchange of information via telecommunications networks are an essential tool of international trade. This will benefit Canada, fore they are a recognized world leader in the telecommunications field. This will directly provide a market for Canadian developers in services such as electronic messaging, advanced data networks, and electronic mail. Mexico is in the process of modernizing its services so that they are compatible with Canadian and U.S. networks. By the year 2000, Mexico's demand for imported telecommunications products is expected to grow by 42 per cent. Anyone can plainly see the potential opportunities here for Canada. 1n 1991, more than one hundred and thirty five thousand Canadians were employed by the textiles and apparel industry, mostly in Montreal, Toronto and Winnipeg. The NAFTA sets out strict rules of origin for most yarns, fabric and clothing. These new levels will help Canadian textile and apparel manufacturers expand their exports of products to the profitable U.S. market. With the NAFTA, Canadian and Mexican tariffs on apparel will be eliminated within 10 years. Many might worry in Canada and query if this is really an advantage for Canada. Arguably it really doesn't affect Canada because Mexican apparel is geared to cheaper, lower quality products. While the Canadian industry is moving toward producing higher value textiles and quality designer fashions. The North American Free Trade Agreement has "streamlined" transportation between the three countries involved. Within six years, trucks and buses can crisscross the North American continent with virtually no border restrictions. Under NAFTA, for instance, a Canadian driver can take a load from Calgary, to Mexico city, with a stop in Texas for more goods. And on the way home, the same driver can deliver Mexican goods to both Canadian and U.S. destinations. This freedom of movement will increase the efficiency of our land carriers and will also enhance the competitiveness of our goods. *** Disadvantages to Canada: The implementation of the North American Free Trade Agreement may have many negative connotations towards social and environmental issues involving the trading nations. "One effect from the enactment of NAFTA is the loss of manufacturing jobs which would occur from the shift of multinational corporations to Mexico." This will cause many corporations to move their plants over the border. By doing this, it will let them produce goods at lower costs. This is because Mexico has cheaper, unskilled labor due to non-existent minimum wage rates. In almost every case money usually leads the way. In NAFTA's case this is down to Mexico. With this movement of multinational corporation over to Mexico, the rate of unemployment will fall in Mexico but will rise in Canada. A rise in unemployment for Canada is not a good thing especially with the situation that already has plagued them. From a Canadian business point of view, it makes sense for them to produce there good or service where labor is cheaper and their total costs are lower. Still, this short term loss of jobs will be a tremendous strain to the Canadian economy. This might cause a short term problem and still is yet to be seen if they Canada can overcome it. There are many advocates of free trade. Since NAFTA was introduced, a plethora of companies have left Canada and relocated in Mexico. This loss of jobs in Canada might force Canadians to become more innovative and entrepreneurial. These new ventures will require new technology, new investment, new capital and new infrastructure. These new innovations could only improve Canada's global competitiveness. In comparison to other industrialized countries, Canada spends considerably less on research and development. *** Benefits to Mexico: The movement of companies to Mexico has some positive long term effects on environmental and human rights. Under NAFTA, North American countries will be working together. With all the new expansion to Mexico this will help to stabilize the Mexican economy. A lot of Canadian and American businesses will relocate across the Mexican border. Employment and environmental regulations are lacking in Mexico, but with a rapid expansion over the Mexican border will help stabilize and develop regulations. A result of this Mexico's future labor and environmental problems will decrease. There are five important conditions stemming from the NAFTA deal. These conditions are intended to increase the degree of Mexico's competitiveness. These five conditions are, "certainty of rule, economies of scale, economies of scope, wide choice of technologies, and finally, availability of a wide range of services at reasonable cost" . The first condition mentioned was certainty of rule. The reason that this makes Mexico a more competitive nation is due to the fact that their business people are able to operate in a stable environment. They know the "rules of the game", and do not have to worry about them changing in the future. This is the only way that they can make wise and proper decisions on how to best allocate their resources. They must know that the rules are permanent, and that there will be permanence, stability, and continuity in economic policies. The second condition that is important for Mexican competitiveness is economies of scale. This gives Mexico the ability to lower average costs by serving a extremely larger market. In fact, NAFTA will create the largest regional market in North America. 360 million people and more than $7 trillion in regional production will therefore allow North American firms to grasp the advantages of lower average production costs. It is also important for the competitiveness of everyone involved in the deal to know exactly when tariffs will be eliminated, so particular firms will know when they are able to enter the larger market. For example, since day one of the deal, over forty per cent of Canadian exports entering Mexico were duty free. Tariffs on the remaining sixty per cent will be phased out over the next ten years or so, with the majority of them being eliminated within the first five years of the deal. These timetables will not change, so individual firms will know exactly when a particular market will be fully open. This is a very important competitive element. The third element is directed towards Mexico's smaller, and medium-sized firms, that do not have the resources to take advantage of economies of scale. NAFTA offers these smaller businesses something called economies of scope. Economies of scope is the ability of these "smaller" firms to become very competitive by specializing in a given segment of the market, and knowing that segment "inside-out". The best example of this area is the market niche Mexico has created selling refrigerators to the United States. It may be hard to comprehend but Mexico is the largest supplier of refrigerators in the United States. One may query why and how did this happened, and think that the U.S. would be the number one supplier, however Mexico is very proud of what they accomplished. They selected a niche in the American market and acted upon it. They started supplying smaller refrigerators to offices, businesses and colleges of dorms. By specializing in this one niche, a small Mexican firm can react quickly and efficiently to changing tastes, technologies, and trends. Allowing the firms to stay competitive in a ever growing market. Surprisingly, with NAFTA in place a lot of niches like the one mentioned above will open up around North America. The typical Mexican consumer is a lot different than the Canadian consumer in a lot of respects. In Canada there are numerous niches based on income levels, taste, and culture. NAFTA will give firms in Mexico a greater margin of competitiveness than they are already enjoying. The fourth element, and arguably the most important one, is the ability to have a wide choice of technologies. It is for this element that the lessons learned from Japan come into effect. People often believe that the reason for Japans great competitiveness is the quality of Japan's work force, and the attitude of Japanese management. Although this is all true, what is often overlooked is that 35 per cent of Japan's exports are made through production sharing. In other words, Japan is taking advantage of a wide range of technologies. The whole concept to this is very simple. If a job is labor- intensive, a firm should have access to adequate labor. If, on the other hand, a job is capital-intensive, a firm should have access to capital. Finally, the fifth condition for competitiveness is to have available a range of services at a reasonable cost. In a modern economy we have to recognize the importance of services, like transportation, telecommunications, and financial services. In a second world country like Mexico, these services still carry a very high cost, which puts Mexico at a competitive disadvantage. But NAFTA will have to play a dramatic role in lowering the cost of services because it achieves the most comprehensive opening of the services market of any trade agreement. One example of the availability of services as a result of NAFTA is, that it opens land transportation throughout the entire region. Prior to the deal if certain cargo had to go from Mexico to Canada, it would have to travel to the border, then sit there while the cargo was re-loaded onto a Canadian or American truck, then shipped to Canada. The Mexican merchant who had to ship the cargo is thus placed at a competitive disadvantage. Now, under new NAFTA rules, that truck is able to go directly from the Mexican plant, straight to it's final destination, thus saving both money and time. A second example is in the area of telecommunications, such as phones, faxes, and other information services. This is most definitely becoming more and more important in the production process of modern society, and NAFTA opens the North American market in this area as well. This will make industries more competitive by providing reasonable priced and reliable communications. A very important issue that is always featured in the NAFTA debate is the environment. Developed countries like Canada often take for granted, that environmental protection requires considerable economic resources. A Princeton University study confirmed that, "When a country is very poor, there is no pollution because there is no industry. As a country's industry grows and it's per capita income begins to rise, environmental degradation comes into effect." True, this has been the recent history in Mexico, However, a country ultimately reaches the turning point, where it has grown to the level where it has the resources to devote to environmental protection. As well, the agreement itself contains many environmental provisions. It is often called the "Greenest" multilateral trade agreement ever negotiated. NAFTA specifically prohibits any of the three countries involved from loosening environmental rules in order to attract new investments. *** Mexico's Disadvantages: "NAFTA will simply compound the ills created by the administrations policy of monopolistic free trade." In the short run the U.S. and Canada would hardly feel any effect, while Mexico would face great disruptions as a result of opening its borders. This is because of the small size of the Mexican economy would barely create a crease in the economies of its northern neighbours. The problem is that unemployment may soar in Mexico because of the large inflow of manufacturers from its new trading partners. Indeed, Mexico's economy could collapse. In fact, in the last two years the number of unemployed in Mexico has increased by more than 1.1 million, while salaries have lost more than 41.6% of their dollar value. In 1993, 8.5% of the economically active population of Mexico earned less than the minimum salary; today 11.9 percent find themselves in the very same position. Much like East Germany, Mexico suffers from "backward technology and inefficient, bloated state monopolies. The trauma of exposure to giant northern firms could be fatal to Mexican manufacturing." NAFTA proposes to open Mexican markets to Canada and the U.S. gradually, thus constraining the "foreign onslaught," however, the short run suffering that Mexico would endure would be massive. Especially since Mexico which has been buried in a deep slump since 1982, will not, unlike East Germany, receive huge financial aid. The biggest disadvantage incurred on Mexico as a direct result of the deal is the amount of money and capitol needed to be spent on up grading their telecommunications, equipment in the workplace, as well as their transportation routes. This needs to be do done in order to become competitive in the North American Market. This however, may not be viewed upon as a benefit, fore it is going to increase it's productivity in the global market. What ever short term disadvantages are induce due to the deal, will eventually be nullified over the long run. *** Mexico's role in the North American Free Trade Agreement, looks to be a great step in their country's potentially great future. For Mexico to stay with NAFTA they have to continue the dramatic turnaround their country has experienced in the past decade. The economy in Mexico is growing faster than their population, and with NAFTA they could only expect better things to come their way. Inflation is under control, foreign debt has been reduced, more than 1,000 state owned industries have been privatized. Mexico is finally showing a fiscal surplus for the first time in a quarter of a century. With NAFTA it will help Mexico consolidate these economic reforms, secure the confidence of the world's investors and allow Mexico's economic turnaround to continue for many more years. Economic integration initiatives like NAFTA offer positive benefits to Canada and to other trade partners. They promote efficiency of scale, eliminate expensive and time consuming trade restrictions between nations, and discourage government intervention. "NAFTA in particular is in tune with the twin imperatives of globalization and global development. It embodies the historical logic of earlier movements toward Canada/U.S. economic alliances." True, the deal is not perfect, but to retreat from it now would be a step backwards. In conclusion, we feel that when all the pros and cons have been weighed, and all has been said and done, NAFTA will eventually become a positive step in North America's future. f:\12000 essays\business & economics (632)\NAFTA.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ NAFTA The North America market is one of the richest in the world. Measured in terms of GDP, it is the equivalent of Western Europe. But with a somewhat smaller population, GDP per capita in North America, Canada, Mexico and the U.S., is around 12 percent higher than in Western Europe. The North American Free Trade Agreement (NAFTA), which came into effect January 1, 1994, sets out the schedule for tariff elimination for members.. As a small country, Canada has always been careful in it's dealings it's large neighbor, the U.S., however, compliance to this agreement threatens our very existence. Canada was unfairly taken advantage of in the singing of this agreement, our identity of a sovereign nation is at risk. The North American market is also one of the most sophisticated and demanding. It is an excellent base from which to develop and launch new products. From a Canadian base, companies can establish a solid market position throughout North America and then reach out to serve global markets. This agreement, which and contains many key provisions to facilitate the conduct of business among the three countries, has been a benefit to Canada-U.S.-Mexico trade. The continent- wide transportation system that binds this market together is efficient and cost-effective. Carriers of all modes are investing in more sophisticated technology and entering into strategic alliances to improve service. Border crossings are becoming easier. Canada provides an ideal location for serving the entire North American market. Companies based in Canada have preferred access to a market of 380 million people, with a combined Gross Domestic Product (GDP) of more than $10 trillion (Canadian dollars). However, our participation in the agreement allows the U.S. unobstructed to our market. This poses a serious problem when looking at pure numbers. Canada is a country of approximately 28,000,000 people and the U.S. a country of about 280,000,000. The extra "0" means the U.S. in ten times greater then Canada in population size. The implications of this are enormous. Because of the difference in size it is logical to assume that the average Canadian firm is about ten times smaller then its U.S. counterpart. As an example, Bell Canada (Canada's major telecommunications company) is worth an estimated 9 billion dollars. AT&T (U.S. major telecommunications company) is worth approximately 108 billion. These numbers should speak for them selves. Although it hasn't happened yet, AT&T could attempt a competition war on Bell Canada There are many ways to view North American markets. Initially, they can be viewed as three national markets, with certain differentiating characteristics in terms of tastes, preferences, disposable incomes and spending patterns. Because national accounts are the source of much of the general information on domestic markets, this is often how North American markets are portrayed. In fact, though, North America is increasingly a collection of regional markets that cut across national boundaries. Companies based in east-central Canada view the north-eastern U.S. states as their proximate market area, and companies in Vancouver, for example, look southward to the U.S. states of Washington, Oregon and California for market opportunities. Although east-west transportation routes are well developed and national characteristics of markets are still important, there is no escaping the geographic pull of the north-south axis. Increasingly, North America will be viewed as a single market. The market opportunities for products and services produced by a Canadian-based company are as likely to be in Chicago, Houston, and Mexico City, as in Canadian cities. Thus, although some general characteristics of the three national markets are highlighted here, potential investors should also be attuned to the many cross- border regional markets that constitute the North American market, and to the fact that North America is in many ways a single market. Canada Although many investors see Canada as an excellent base from which to export to North American and other global markets, the rich domestic market holds numerous growth opportunities as well. Canada's population, which is increasing at a little over 1 percent annually, is fast approaching 30 million. The two central provinces of Ontario and Quebec account for over 60 percent of the total, but the western provinces of British Columbia and Alberta, with 22 percent, have the highest population growth. The majority of Canadians live in urban centres located within 100 kilometres of the U.S. border. This creates a string of regional market clusters along the Canada-U.S. border that can be served from a Canadian location. Even on their own, though, several Canadian cities located close to the Canada-U.S. border are large markets. The Toronto metropolitan area has a population of 4 million, Montreal has more than 3 million, and Vancouver has just under 2 million. The average family income in Canada is about $54,000. With the sharp increase in the proportion of working-age women who have entered the labour market since the mid-1970s, the typical family tends to have two income-earners. In the first half of the 1990s, growth in personal incomes has been 2-3 percent annually, a rate which has been affected by the recession and smaller increases in wage settlements. There are regional income differentials, with Ontario,British Columbia, Alberta and Quebec having the highest levels of per capita income. But income redistribution programs limit the variations between the richer and poorer parts of the country. Canadians spend some $450 billion on consumer goods and services each year. The amount of discretionary income that is available for purchases of "non- essential" goods such as electronic products, and services such as travel, sports and recreation has been increasing. The market for consumer products related to information technologies has been especially buoyant. Between 1981 and 1994, computers and audio/visual electronics enjoyed the fastest growth in sales. In the service sector, an ageing and increasingly affluent population is increasing demand for home maintenance, health services, financial services, travel and leisure activities. Among the trends shaping the Canadian consumer marketplace of the future are increasing ethnic diversity and multiculturalism; continued expansion of the service sector; greater public awareness of environmental issues and values; increasing consumer demands for convenience; and a trend toward differentiating, segmenting and customising consumer markets. The United States There is no other national market for consumer and industrial products and services that is near the size of the U.S. In terms of GDP, Japan comes closest, with a GDP that is two thirds that of the U.S., which in 1994 stood at US $6,738 billion. The demand for imports in the U.S., at US $669 billion in 1994, was about double that of Germany, the second largest market for imports. Simply put, the U.S. market is a magnet for companies around the world. What is less appreciated about the U.S. market is that it is all easily accessible from Canada. There are more than 110 million consumers within a day's drive of southern Ontario. Montreal, Halifax and Moncton are within a day's drive of New York, Boston and Philadelphia. Winnipeg is just 17 hours by road from Chicago and eight hours from Minneapolis. From Vancouver, markets all along the Pacific coast of the U.S. can be easily served. It takes about 48 hours to ship by truck from Vancouver to Los Angeles. With increasingly efficient transportation routes, even the southern U.S. states are considered to be close to major Canadian cities. In 1994, the population of the U.S. reached 261.5 million. This is dispersed across four large regional markets: the Northeast has 19.9 percent of the total, the Midwest 23.6 percent, the West 21.7 percent, and the largest, the South, has 34.7 percent. The GDP of each of these regions is larger than individual countries of Western Europe, with the single exception of Germany. As a share of total U.S. GDP, the Northeast, Midwest and West each has roughly 23 percent. The South's share is around 31 percent. In 1994, per capita GDP in the U.S. was US $25,820, second to Japan among the G7 countries. Median household income was about US $32,200, with married-couple households having a significantly higher US $45,041. Generally speaking, consumer markets in the U.S. are similar to those in Canada, and spending patterns do not vary considerably. For companies offering consumer products and services, these similarities provide an opportunity to test products in the Canadian market before making an entry into the U.S. If a foreign company is considering an investment in North America to, among other things, tap the rich U.S. market, a Canadian location is eminently attractive. When cost-effective access to the U.S. market is combined with the range of other business advantages -- generally lower corporate tax rates, the most advantageous investment tax credits for R&D activity, and a quality of life that is recognised as one of the best in the world -- the foreign investor has the best of all worlds. Mexico In contrast to the advanced economies of Canada and the U.S., Mexico is an emerging market. Mexico's GDP per capita is 15 percent that of the U.S. and 20 percent of Canada's, and in terms of income levels and income distribution, Mexico resembles a developing country. On the other hand, with a population of about 92 million, most of which is young, a growing middle class of educated Mexicans, and programs of political and economic reform, there is a dynamism in Mexico that is inviting. With dynamism comes volatility, and Mexico is no stranger to this. The plunge of the peso that began at the end of 1994 and continued through the first quarter of 1995 created a financial crisis that has led to a significant decline in economic activity and real incomes. But the economy is recovering and investor confidence is being restored. In the coming years, there will probably be more vacillations as the economy goes through periods of rapid growth and then slows to keep inflation under control. Throughout these cycles, Mexico will undoubtedly be relying more on international trade and investment as engines of growth. In 1994, total trade was the equivalent of almost 40 percent of the country's GDP. Mexico will remain a significant import market in the years ahead. A potential foreign investor in North America should therefore consider the advantages of locating in Canada, and supplying the Mexican market from a Canadian location. In approaching the Mexican market, companies should be aware of its diversity. There are large disparities in incomes, regional markets vary considerably, and there is demand for basic infrastructural needs as well as more sophisticated consumer and industrial products. The largest regional markets are those of metropolitan Mexico City, with a population of almost 20 million; Guadalajara, the capital of the central-western state of Jalisco; and Monterrey, the capital of the north-eastern state of Nuevo León. Mexico City is the country's economic, financial and industrial centre. With upper and middle-income groups numbering in the vicinity of five to six million, it offers the largest consumer market in the country. Guadalajara, with a population of around 3.5 million, is an important commercial and financial centre. Monterrey, of roughly the same size as Guadalajara, is one of the country's most important industrial centres, with 53 percent of Mexico's top 500 businesses. Despite Mexico's current economic difficulties, there are many business opportunities in the Mexican market. Perhaps most enticing, though, is Mexico's potential. Since the end of World War II, Canada-U.S. trade grew steadily into the largest bilateral trading relationship in the world. One of the more significant developments in the history of the two countries' trading relationship came in 1965 with the signing of the Canada-U.S. Auto Pact, which governed duty-free trade in automobiles and parts. Largely as the result of this agreement, trade in this sector has remained a central part of the two countries' overall trade. The Free Trade Agreement The Canada-U.S. Free Trade Agreement (FTA) took economic co-operation between the two countries to a new level. Effective January 1, 1989, under the terms of the FTA, tariffs on goods manufactured in Canada and the U.S. would be gradually eliminated over a ten-year period, provided the goods met "rules-of-origin" requirements. Many of the tariffs would be eliminated before the end of the ten- year time frame, and the initial phase-out schedule for products could be accelerated if the two sides agreed. The FTA also provided Canadian products with "national treatment" on most sales to U.S. government departments and gave equal access to potential suppliers on tendering and bidding information. A number of other sectoral and institutional issues were included in the Agreement to facilitate trade, identify exceptions and clarify other aspects of the trading relationship. In addition to the trade-creating provisions of the FTA, Canada and the U.S. have been working on the harmonisation of standards, testing and certification procedures. Prior to signing the FTA, most of Canada-U.S. trade was duty-free under GATT rules. Nevertheless, the FTA had a dramatic effect on the volume of two-way trade. Between 1988 and 1993, trade between the two countries increased by 40 percent, to $257 billion, with a strong 46 percent growth in Canadian exports to the U.S. These gains were registered despite an economic recession in the middle of this period. Specific sectors, such as office, telecommunications and precision equipment; chemical products; pharmaceuticals; and textiles showed particularly strong growth in trade. The North American Free Trade Agreement (NAFTA) Effective January 1, 1994, the NAFTA improved the FTA and added Mexico to the free trade zone. By this time, Canada-U.S. trade was overwhelmingly duty-free. Under NAFTA, a tariff-reduction schedule was worked out for trade with Mexico whereby tariffs would be reduced over a ten-year period from the implementation date. Most of Mexico's non-tariff barriers, such as import licences, will also be eliminated during this period. The key provisions of the NAFTA are: Elimination of Tariffs: Tariffs on Canadian exports to Mexico will be phased out over 10 years. Mexico has provided immediate duty-free access for many of Canada's key export interests. National Treatment: Canada, the U.S. and Mexico treat each others' goods, services, and investors as they treat their own. International investors with investments in Canada are covered by the NAFTA if they use Canada as a "home base" to make investments in the U.S. or Mexico. Secure Market Access: The NAFTA provides secure access for Canadian exports to the U.S. and Mexico. Dispute Settlement: Settlement or determination of remedies regarding anti- -dumping and countervailing disputes is by bi-national panels, not domestic courts. Disagreements between investors and NAFTA governments may be settled through international arbitration. Government Procurement: All three countries have agreed to provide substantially increased access to government procurement opportunities not only in goods, but also in services, including construction services. Business Travel: Simplified procedures expedite business travel. Eligible business people can be granted temporary entry without prior approval procedures. Intellectual Property: The NAFTA includes comprehensive coverage of intellectual property rights to encompass standards of rules and enforcement. Under the NAFTA, many Mexican tariffs were eliminated immediately, including those on a range of Canada's key exports: agricultural and fish products, many metals and minerals, most telecommunications equipment, many types of machinery, and certain wood and paper items. (For more information on NAFTA, see the FaxLink document 60170.) The first year of NAFTA saw a large jump in Canada's trade with the U.S. and Mexico. Canada's two-way trade with the U.S. rose by 21 percent, to reach $311 billion, while that with Mexico grew at a similar rate, to total $5.5 billion. These growth rates were higher than the increase in Canada's overall trade, meaning that North America is becoming even more important for Canadian exporters and importers. In 1994, 82 percent of Canadian exports went to the U.S. and Mexico, and 70 percent of imports were from these countries. North-south Transportation Links North-South linkages by road, rail, marine, air, pipeline, and intermodal services permit easy access to North American markets, especially the U.S. Since transborder business is a vital part of their operations, Canadian carriers get goods to the U.S. quickly and inexpensively. "The continent has shrunk to overnight delivery by air and three days by truck from all of the major industrial centres. We look at North America as one big country." Max Persaud, Manager Corporate Logistics, Customs and Traffic Philips Electronics Ltd. Road Road transport is dominant, a fact which reflects the large flow of manufactured goods and the integration of regional markets. The trucking industry has adapted well to the demands of just-in-time (JIT) manufacturing. The Canadian for-hire trucking industry earns about one fifth of its intercity revenues from transborder business. Several trucking companies specialise in this increasingly competitive area. Rail In preparation for expanded traffic throughout North America, rail networks are expanding on a continental scale. Strategic alliances between Canadian and U.S. railways speed the flow of goods to market, expedite border crossings, and provide quality intermodal services. Canadian rail carriers have co-ordinated Canada-Mexico freight services through agreements with the Mexican state railway and with U.S. railways and barge lines. Marine Several of Canada's deep-water ports are strategically located near large U.S. markets. Many of these facilities are open year-round. Marine travel is concentrated in the Great Lakes/St. Lawrence Seaway system and on the east and west coasts of North America. The St. Lawrence Seaway serves an area containing some 61 million people in much of the industrial heartland of North America. Air Flights from Canadian airports serve all major North American centres, allowing for overnight delivery by air cargo. Following the signing of the 1994 "Open Skies" agreement, Canadian carriers have unlimited rights to fly from anywhere in Canada to any point in the United States. U.S. airlines enjoy similar rights to destinations other than Toronto, Montreal and Vancouver. Equal access for U.S. carriers will be phased in over three years. The arrangement will mean better connections and more competitive pricing for both passengers and cargo. Complementing the agreement is the "Border Management Accord," a planned expansion of pre-clearing facilities to allow travellers to the U.S. to clear customs before leaving Canada. Intermodal Intermodal transportation combines the attributes of more than one mode. Increasingly, intermodal services are competing with trucking companies for transborder traffic. Railways are making important investments in intermodal terminals and equipment to ensure their competitiveness. Specialised container trains provide timely, high-quality service to Canadian and U.S. cities. CP Rail has direct access to the port of Philadelphia via one of its U.S. subsidiaries. Access to other U.S. ports is available through interchanges with U.S. carriers. Strong Support Services Massive North American trade flows have spawned extensive support services for Canadian companies that ship to the U.S. and Mexico. Customs brokers are familiar with all aspects of international shipping, from packaging and labelling requirements to the relative cost-effectiveness of different routings to and from Canada. Freight forwarders consolidate shipments from several sources to take advantage of volume discounts and design efficient and cost- effective distribution systems. Companies doing business in Canada also benefit from a nation-wide system of 142 privately-owned warehouses licensed and bonded by the federal government. Warehouses in all large metropolitan centres offer on-site customs inspection, bar-coded storage and handling, and after-hours clearance. Efficient Border Crossing The Canadian and U.S. governments are actively co-operating to streamline the border crossing process. Programs that use electronic data interchange, bar- coding technology and pre-clearance of goods are speeding up the release of shipments. These innovations make it even easier for companies located in Canada to export to the U.S. "Pratt & Whitney has a world-wide distribution network. Customs operations have been streamlined to the point that the Canada-U.S. border plays no role in our distribution system..." Brian McGill, Director of Transportation Pratt & Whitney Canada Inc. Future Directions With the NAFTA and the modernised, efficient transportation links throughout the continent, the entire North American market is easily served from a Canadian- based company. Foreign investors from outside North America should therefore look upon a Canadian location as an entry into all regional markets of the NAFTA countries. A number of U.S. multinational enterprises -- 3M, Dow, DEC, IBM, Bell Helicopter-Textron, and Procter and Gamble -- have already made moves toward serving the North American market from Canadian subsidiaries. To create economies of scale in manufacturing, these subsidiaries are being given North American or global mandates. There will undoubtedly be more examples of this trend in the near future. As the number of NAFTA signatory countries expands, the market will become even more attractive. Negotiations are currently under way for Chilean accession to the NAFTA, and other South American countries have expressed interest. The North American Free Trade Agreement--An Overview Background The North American Free Trade Agreement, (NAFTA) has, since it became effective on January 1, 1994, created a free trade area comprised the United States, Mexico and Canada. The agreement's major objectives are to eliminate tariffs, to improve market access to the goods and services among NAFTA countries, to eliminate barriers to manufacturing, agricultural and services trade, to remove investments restrictions, and to protect intellectual property rights. It also addresses labor and environmental concerns. The U.S.-Canada Free Trade Agreement (CFTA) has been effective since January 1, 1989, and the NAFTA expands this agreement within services, investment, land transport, intellectual property and government procurement, but keeps the status quo in agriculture and energy. NAFTA negotiations represented an opportunity for the U.S. to achieve its economic objectives: expanding sales opportunities in Mexico for U.S. companies; formalizing recent Mexican market liberalization initiatives; and enhancing North American international competitiveness by permitting companies to establish operations anywhere in North America without facing the obstacles caused by trade or investments barriers. For Mexico, the agreement represented a turning point in its relations with the U.S. By entering NAFTA, Mexico turned its back on decades of nationalism and economic protectionism and culminated its move from a nationalized, protected economy to one governed by market-oriented principles. Canada's participation in the Agreement can be seen as a defensive maneuver to ensure that NAFTA would not dilute the Canadian benefits of origin of goods so that free trade status is effective among the NAFTA countries. Generally, 50 % of the tariffs between the U.S. and Mexico has been eliminated immediately, 65 % will be by 1999. Most U.S.-Canada tariffs will be phased out by 1998. f:\12000 essays\business & economics (632)\Netscape Analysis Report 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Netscape Analysis Report Accounting 2 Honors I. History Netscape Communications Corporation, originally named Mosaic Communications Corporation (MCOM) was founded in April 1994 by Jim Clark and Marc Andreessen. They released their first browser products free to Internet users in September 1994. Jim Clark is chairman of Netscape Communications Corporation. Before founding the company, Clark was the chairman of Silicon Graphics, a computer hardware manufacturer he founded in 1982. Marc Andreessen is vice president of technology for Netscape Communications. He helped develop the original graphical World Wide Web browser, Mosaic, while he was at the University Of Illinois at Urbana/Champlain. The Internet is a global network connecting thousands of networks by use of high speed digital lines called ATMs, T3s and T1s. It was just being introduced to the general public at the time of Netscape's conception and they would NOT have been successful if they had not had this timing advantage. II. Location Netscape's corporate headquarters are in Mountain View, California -- in the heart of the Silicon Valley. However, due to the nature of the global networks its software transmits over, Netscape is able to sell worldwide via the Internet. There are virtually no walls to its "retail outlets." Its software products are also distributed through computer stores worldwide. III. Product Line Netscape Navigator is a software program to browse information available on the Internet. It is available for all common computer system platforms, including 16-bit PC, 32-bit PC, Macintosh, and all UNIX systems. Navigator also allows people to check their e-mail on the Internet through use of a password (MIME) encoding scheme. Netscape Server is a piece of software that installs on UNIX and Windows NT based systems that allows serving of data on the Internet's World Wide Web. It also provides for secure transactions such as those involving credit cards. IV. Corporate Structure The founders, Jim Clark and Marc Andreessen, own 35% of the company. There are other major shareholders, and it is also publicly held. The board of directors and other executive management are listed in the following table: James H. Clark- Chairman of the Board James L. Barksdale- President, Chief Executive Officer and Director Marc L. Andreessen- Vice President, Technology and Director Peter L.S. Currie- Vice President and Chief Financial Officer Conway Rulon-Miller-Vice President, Sales and Field Operations Michael J. Homer- Vice President, Marketing Roberta R. Katz-Vice President, General Counsel and Secretary Richard M. Schell- Vice President, Engineering James C.J. Sha- Vice President and General Manager, Integrated Applications Kandis Malefyt- Vice President, Human Resources L. John Doerr- Director John E. Warnock- Director V. Competition Netscape has 4 major competitors: Spry Mosaic, Spyglass Mosaic, Microsoft Internet Explorer, and Sun's HotJava. However, Netscape dominates its market with an approximate 80% market share. It is the current industry standard for WWW browsing software, due to its support of new HTML features such as frames, JavaScript, and plug-ins. Spry Mosaic is a piece of WWW Browser software designed by CompuServe's Spry division. It poses no threat to Netscape because of its inability to process e-mail and Usenet news. Spyglass Mosaic is a WWW browser developed by part of the team that worked on the original web browser (NCSA Mosaic). It is a major competitor because of its slightly superior user interface as well as its alliance with Microsoft. Microsoft Internet Explorer is a browser that was originally developed for use with the Microsoft Network. It is comparable to Netscape in every aspect but one: There is NO user support. HotJava is a browser designed by Sun Microsystems. However, it is not technically a competitive product, as it is mostly used to run Java applets (little WWW programs built into the "pages"). The competition in the web browser market involves little to no advertising, as well as a good eye for the market. VI. Publicity The company has received a tremendous amount of publicity about its recent public offering of stock, as well as its incredibly low cost software. Any publicity about the Internet usually centers on Netscape and its web browsers and servers. Also, there usually is an article about Netscape in the paper every day. The only negative publicity about Netscape describes how its stock is way overvalued. VII. Financial Statements According to the balance sheet, the current ratio as of December 31, 1995, is 3 to 1. As of December 31, 1994, the ratio was only 1.4 to 1. This shows significantly improved liquidity between 1994 and 1995. This is due to Netscape's public offering of stock in August 1995, which increased their current assets (specifically cash and cash equivalents). The company received approximately $130,000,000 from the stock offering. It has very little long-term debt, at $1.2 million. One could conclude Netscape is a very financially sound company. According to the income statement, Netscape's 1995 revenue, at $80 million, is significantly higher than its 1994 revenue, which was $1.4 million. Netscape's 1995 gross profit was $69.5 million, at a gross profit percentage of 861/4%. This is an incredible gross profit percentage, but not unexpected, given that Netscape sells software that has a very minimal manufacturing cost. Netscape's net loss decreased between 1994 and 1995, from $12 million to $3.4 million, respectively. Netscape spends a substantial amount of resources on Research & Development Expense and Sales & Marketing Expense. Netscape, although still unprofitable, has great potential for the next 5 years. In fact, in the 4th quarter of 1995, Netscape showed a profit. VIII. Graph Please see attached sheet IX. Other Information A. Netscape is involved in a project to put all of California's public schools on the Internet. (Star Ledger, "Net Day '96") B. America Online entered into a partnership with Netscape to have Netscape's browser software available to AOL users. (3/12/96, DJIN) C. CompuServe entered into a licensing agreement with Netscape to let CompuServe's users use Netscape as their primary browser software. (3/11/96, DJIN) X. Conclusion · I would suggest this stock as a good investment in the Stock Market Game because its price fluctuates enough to earn a decent profit from trading it. · I would not, however, suggest Netscape as a good investment in real life until its price becomes lower, because it seems to be on a downward trend. (Although Netscape is a good long-term investment as well, because of its potential and the demand for the Internet) Works Consulted Netscape 10Q Quarterly Report (4th quarter 1995) Netscape 1995 Annual Report Netscape Prospectus for Public Offering Of Stock Star Ledger, "Net Day '96", ? Dow Jones News Retrieval Service, (3/11/96, 3/12/96) f:\12000 essays\business & economics (632)\Netscape Analysis Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Netscape Analysis Report I. History Netscape Communications Corporation, originally named Mosaic Communications Corporation (MCOM) was founded in April 1994 by Jim Clark and Marc Andreessen. They released their first browser products free to Internet users in September 1994. Jim Clark is chairman of Netscape Communications Corporation. Before founding the company, Clark was the chairman of Silicon Graphics, a computer hardware manufacturer he founded in 1982. Marc Andreessen is vice president of technology for Netscape Communications. He helped develop the original graphical World Wide Web browser, Mosaic, while he was at the University Of Illinois at Urbana/Champlain. The Internet is a global network connecting thousands of networks by use of high speed digital lines called ATMs, T3s and T1s. It was just being introduced to the general public at the time of Netscape's conception and they would NOT have been successful if they had not had this timing advantage. II. Location Netscape's corporate headquarters are in Mountain View, California -- in the heart of the Silicon Valley. However, due to the nature of the global networks its software transmits over, Netscape is able to sell worldwide via the Internet. There are virtually no walls to its "retail outlets." Its software products are also distributed through computer stores worldwide. III. Product Line Netscape Navigator is a software program to browse information available on the Internet. It is available for all common computer system platforms, including 16-bit PC, 32-bit PC, Macintosh, and all UNIX systems. Navigator also allows people to check their e-mail on the Internet through use of a password (MIME) encoding scheme. Netscape Server is a piece of software that installs on UNIX and Windows NT based systems that allows serving of data on the Internet's World Wide Web. It also provides for secure transactions such as those involving credit cards. IV. Corporate Structure The founders, Jim Clark and Marc Andreessen, own 35% of the company. There are other major shareholders, and it is also publicly held. The board of directors and other executive management are listed in the following table: James H. Clark- Chairman of the Board James L. Barksdale- President, Chief Executive Officer and Director Marc L. Andreessen- Vice President, Technology and Director Peter L.S. Currie- Vice President and Chief Financial Officer Conway Rulon-Miller-Vice President, Sales and Field Operations Michael J. Homer- Vice President, Marketing Roberta R. Katz-Vice President, General Counsel and Secretary Richard M. Schell- Vice President, Engineering James C.J. Sha- Vice President and General Manager, Integrated Applications Kandis Malefyt- Vice President, Human Resources L. John Doerr- Director John E. Warnock- Director V. Competition Netscape has 4 major competitors: Spry Mosaic, Spyglass Mosaic, Microsoft Internet Explorer, and Sun's HotJava. However, Netscape dominates its market with an approximate 80% market share. It is the current industry standard for WWW browsing software, due to its support of new HTML features such as frames, JavaScript, and plug-ins. Spry Mosaic is a piece of WWW Browser software designed by CompuServe's Spry division. It poses no threat to Netscape because of its inability to process e-mail and Usenet news. Spyglass Mosaic is a WWW browser developed by part of the team that worked on the original web browser (NCSA Mosaic). It is a major competitor because of its slightly superior user interface as well as its alliance with Microsoft. Microsoft Internet Explorer is a browser that was originally developed for use with the Microsoft Network. It is comparable to Netscape in every aspect but one: There is NO user support. HotJava is a browser designed by Sun Microsystems. However, it is not technically a competitive product, as it is mostly used to run Java applets (little WWW programs built into the "pages"). The competition in the web browser market involves little to no advertising, as well as a good eye for the market. VI. Publicity The company has received a tremendous amount of publicity about its recent public offering of stock, as well as its incredibly low cost software. Any publicity about the Internet usually centers on Netscape and its web browsers and servers. Also, there usually is an article about Netscape in the paper every day. The only negative publicity about Netscape describes how its stock is way overvalued. VII. Financial Statements According to the balance sheet, the current ratio as of December 31, 1995, is 3 to 1. As of December 31, 1994, the ratio was only 1.4 to 1. This shows significantly improved liquidity between 1994 and 1995. This is due to Netscape's public offering of stock in August 1995, which increased their current assets (specifically cash and cash equivalents). The company received approximately $130,000,000 from the stock offering. It has very little long- term debt, at $1.2 million. One could conclude Netscape is a very financially sound company. According to the income statement, Netscape's 1995 revenue, at $80 million, is significantly higher than its 1994 revenue, which was $1.4 million. Netscape's 1995 gross profit was $69.5 million, at a gross profit percentage of 861/4%. This is an incredible gross profit percentage, but not unexpected, given that Netscape sells software that has a very minimal manufacturing cost. Netscape's net loss decreased between 1994 and 1995, from $12 million to $3.4 million, respectively. Netscape spends a substantial amount of resources on Research & Development Expense and Sales & Marketing Expense. Netscape, although still unprofitable, has great potential for the next 5 years. In fact, in the 4th quarter of 1995, Netscape showed a profit. VIII. Graph Please see attached sheet IX. Other Information A. Netscape is involved in a project to put all of California's public schools on the Internet. (Star Ledger, "Net Day '96") B. America Online entered into a partnership with Netscape to have Netscape's browser software available to AOL users. (3/12/96, DJIN) C. CompuServe entered into a licensing agreement with Netscape to let CompuServe's users use Netscape as their primary browser software. (3/11/96, DJIN) X. Conclusion I would suggest this stock as a good investment in the Stock Market Game because its price fluctuates enough to earn a decent profit from trading it. I would not, however, suggest Netscape as a good investment in real life until its price becomes lower, because it seems to be on a downward trend. (Although Netscape is a good long-term investment as well, because of its potential and the demand for the Internet) Works Consulted Netscape 10Q Quarterly Report (4th quarter 1995) Netscape 1995 Annual Report Netscape Prospectus for Public Offering Of Stock Star Ledger, "Net Day '96", ? Dow Jones News Retrieval Service, (3/11/96, 3/12/96) f:\12000 essays\business & economics (632)\New Financial and Statistical Measures to Monitor The Success of GE.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ New Financial and Statistical Measures to Monitor The Success of GE To : The Board of Directors, GENERAL ELECTRIC COMPANY Subject : NEW FINANCIAL AND STATISTICAL MEASURES TO MONITOR THE SUCCESS OF GENERAL ELECTRIC COMPANY After Mr. Weltch announced my new assignment, I pondered how I could go about guaranteeing the best possible result: a creditable and well organized work that is going to help you, the Board of Directors, plan for the future of the company in a better way. Before starting my analysis, I must specify that my target is not to abolish the traditionally used financial and statistical measures but to develop new ones to be used as guidance for the corporation's future development. Our Chairman recently wrote that "the hottest trend in business in 1995 -- and the one that hit closest to home -- is the rush toward breaking up multi- business companies and spinning off their components, under the theory that their size and diversity inhibited their competitiveness ... breaking up is the right answer for some big companies ... for us it is the wrong answer.²1 For us the new trend is the entrance into the service industry. The question must then be: is this the right answer? GE is expecting to increase its revenue by the year 2000 to $120 billion compared with $58 billion in 1990. In other words, if the forecast proves to be correct, it will obtain an average annual rate of growth of 7.5%. This high rate is mainly attributed to the expansion of the services sector of the company, which is estimated to increase by an average annual rate of 13% compared with a corresponding one of 2.1% for manufacturing. Today nearly 60% of GE's profits comes from services -- up from 16.4% in 1980.2 This is our new direction and therefore my target is to find these measures that are going to help us understand how the business is going to perform in that particular field. I also consider that our attempt to expand internationally is extremely important and in a way is something new for us. International operating profit was $3.0 billion for 1995 compared with $2.3 billion in 1993.3 This extremely rapid expansion hides a lot of dangers, and at the same time shows another new "trend" of our corporation. In my analysis I will include the international sector. I will also narrow in on employees, stockholders, goodwill and on potential investors. 1) MIEC (Manufacturing Industry Expenses Comparison) As we know, the basic organization of the company Œs continuing operations consists of 12 key businesses, which contain management units of different sizes.4 From these only three are specified in the service field, including: (a) Capital Service, (b) NBC, and (c) Information Service. On the other hand, the manufacturing industry is divided into nine different segments, some of which will be mentioned later. Although it is not our main concern, the manufacturing segment of GE can be used as the yardstick for the success of the service industry. This is so because this sector of General Electric has been extremely successful and very well established during the past few years. Almost $40,000 million in revenue and almost $9,110 million in profit came this year from manufacturing operations.5 We know that what we have achieved in manufacturing is success. So the question that arises is why should we stop investing in "success" and enter a completely different field. The first measure which we are going to analyze in this part of the discussion attempts to answer that question. MIEC, the manufacturing industry expenses comparison, compares the amount of money spent for the service industry to the expenses made for the manufacturing industry. Thus it is equal to : Expenses made for the service industry MIEC = -------------------- Expenses made for the manufacturing industry Therefore, according to the financial statements of the previous years we would have6: MIEC 1992 = 15842/29991= 0.52 MIEC 1993 = 18560/30657= 0.60 MIEC 1994 = 19787/30890= 0.64 MIEC 1995 = 26156/33152= 0.78 By establishing the MIEC, we can see the relationship between the amount of money spent on service and the amount of money spent on manufacturing. MIEC is a simple number that is does not seem to have a very important use on its one. However, if this ratio is combined with other facts we can come to several conclusions about what the company's future decisions should be. For example, if we combine MIEC with the return on assets,7 we can see that the return on assets is higher for the service industry than it is for the manufacturing industry, and thus are able to infer that a good decision would be to increase the ratio by spending more money on the service industry. On the other hand, if the return on assets is lower for the service industry than it is for the manufacturing segment, then we should decrease this ratio by investing more in the latter. What we want to create by using this measure is some sort of equilibrium between the two main parts of our corporation. Mr. Welch has recently said that he would have wished for the percentage of profit coming from the service industry to have attained a staggering 80% instead of 60%, today's figure.8 In order to achieve this, we should invest more in the service industry, thereby increasing the MIEC ratio. The question for the future would be: by how much should we increase this ratio? From what we have said up to this point, we should adjust the MIEC ratio up to the point where: return on assets from the service industry = return on assets from the manufacturing industry. Of course, this equilibrium cannot really occur, but it can only be approached; however, it can help us make future decisions in the best possible way. To give an example, let us suppose that : Return on assets from the service industry =15%, and Return on assets from manufacturing industry =12%. From the above we can conclude that more investments should be made to strengthen the service industry. However after a certain point the "good ideas" would be eliminated. The firm would have to invest in less profitable areas and the return on assets from the service industry would fall, then begin approaching the return on assets of the manufacturing industry, which is already satiated. At this point we should stop increasing MIEC, and we should keep it stable, ceteris paribus. To expand the share of the services GE had to transform its assets form buildings, machinery and equipment into well trained intelligent employees, software experts, service networks, etc. This transition will cost a lot to the company, and the MIEC shows us just how much it will cost in comparison to the well-established manufacturing industry. It also helps us estimate if this ratio has the value that it should really have for our corporation to be efficient. 2) EC = The Employees Comparison The EC (Employees comparison) has to do with the profit that each employee brings to the corporation. This ratio is equal to : Net Income EC = ----------------------------------------------------- Number of Employees in the Firm For this year EC= $6.6 billion / 222,000 =$30,000.9 In a way, EC shows how much profit is generated by each employee. That measure can be used in a lot of different ways. First it can be used to judge if the average salary in the company is settled in the right way. If for example we find out that during the year 199x the average salary was $60,000, and our other expenses were equal to $250,000 (if divided per employee) then the return on our investment would be less than 9%, which is not good enough due to our goal -- double digit earnings. If we find out that our other expenses are reasonable, then we can suppose that either salaries should be decreased or the firm might have to reduce the total number of employees. During the 1980s, General Electric had to pare payrolls for most of its departments because the salaries where considered to be too high for the income generated.10 But as the corporation is getting bigger and stronger, there might be people working in the newly purchased companies that the corporation controls whose salaries are higher than the actual service that they offer to the company. In order to avoid that, we should find the EC for each of the companies individually and compare them. We could also compare the EC between the two industries, the service and the manufacturing industries. Since the manufacturing industry is older, many changes have been taken place in difficult times for the company.11. Thus, we can suppose that the number of employees was adjusted during the years in such a way that the corporation could function efficiently. Therefore, a good target for the newly bought service firms would be managing to reach the EC of the manufacturing firms that belong to General Electric. The same can happen with firms in the USA and international firms, the majority of which have been acquired during recent years. For example in 1995 we would expect that the 72,000 employees working abroad12 would bring in approximately: 72000 x 30000 = $2,160 billion (as mentioned above $30,000 was the value EC for 1995). On the other hand we can see if the measures to increase the profits of an organization are too harsh for the employees, or are not rewarding the employees well enough. For example, if an outsider can describe a salary of $80,000 as high, no one can say if this salary is high enough unless he/she takes the EC into account. So by using the EC we can estimate the correct amount of bonus that an employee can receive for performing well, or even the bonus for the entire firm that performed well. We should not forget that salaries considered to be too harsh will lead valuable employees to quit in order to find better paying jobs. To summarize, we can say that the salary level should be well balanced so that it does not disappoint employees by paying them less then they believe that they should to be paid, nor should it reach levels that would cause losses or sizable reductions in investment, as this might bring future losses as a result. The EC measure can help us create this balance more accurately. 3) In the third part of our analysis, I am going to discuss dividends. As we all know, it is very important to keep our stockholders satisfied. Until today, there have been measures that have been gauging what stockholders receive only in a mathematical way. For example, we could say that in 1995 the dividend declared was $1.69. But what does this really mean? Let us take another example. Some would say that if for example we offer the 50% or more of the corporation's profit to the stockholders, they will be satisfied. Can we be certain that this is true? How can we judge? With the new measure that I am going to introduce, we are going to be able at any time to estimate the utility that each of our stockholders receives by the dollar amount of the dividend that we pay to him/her. In order to create such a measure, we have to take many factors under consideration. First, we must clarify that when we talk about stockholders, we are not referring to people who are just investing in the stock market for the purpose of gaining money from the short term ups and downs of GE's common stock market price. We are referring to the people that in some part of their lives wanted to invest their accumulated wealth and decided to buy shares of GE. In order to see if the investors are satisfied in choosing our stock, we must take into consideration what their situations would be if they had chosen another form of investment or another corporation in which to invest their money.13 I will suppose that the closest investment, for a household, to buying shares of GE is buying bonds. Bonds certainly do not have a great potential for very large profits. In addition the risk when buying a bond is very low. Therefore the new measure should combine these two characteristics of buying a bond and compare them with the profits from buying shares of stock that have the same value as one bond. I will name the new measure: Stockholders Comparable Utility = profit from buying shares of the company / profit from buying a bond.14 As you see in the above ratio, risk is not taken into consideration. This may not be correct for another corporation, but it is the correct choice for GE. If we wanted to take risk into consideration, we could create an index where: risk from buying a bond = 1, risk of buying shares of stock of the same value = X. We would have to examine the financial position of the company and we would assign a value to the risk of buying the shares. Then we would multiply that value with the SCU ratio. However, in the case of GE the risk of buying shares of the company is as low as the risk of buying a bond (from the company or from the government). Hence, for GE the SCU ratio depends only on the profits (or losses which will be calculated as negative numbers in the SCU ratio) derived from the two possible investments. To close we have to say that since: RISKbond = RISK shares of GE = 1 any SCU > 1, any dividend that would give higher return than a return that a bond should satisfy our long term stockholders. However, if for any reason during the next few years we find that the above equation is not correct, we should make the appropriate changes. 4) Besides the long term investors there are a lot of people that closely watch GE's performance, such as creditors and short term investors. All of these read our annual reports but at the same time try to find any sort of information about the actions that we take. We know how important it is to show to the indirect users of the financial information that we are doing well and that we should never cause any suspicions of fraudulent financial reporting. That can be partially achieved if we use creditable and conservative financial procedures, but that is usually not enough. We can take for example a newly formed corporation that creates its first financial reports by using the commonly accepted accounting methods. At the same time lets suppose that this company reports huge earnings for the first year which are real. What is the reaction of the market going to be? Certainly not as substantial as if General Motors, or Unilever reported a huge increase in profits. There will be mistrust. In my opinion what could make the investors and the creditors trust a corporation " blindly " is the company's prestige. Of course these two huge corporations may have achieved much respect but they should definitely make anything possible to keep up with that good name that they have created. One can say the effort to do that is only related to an attempt, for example, not to create pollution or not to be guilty of any kind of racist attitude in the company. Of course, it is true that if we were guilty of any of these actions we would probably be humiliated in the eyes of the consumers. Many of them would not prefer us any longer and we would therefore be a weaker company. Thus we would loose a lot of our potential creditors or investors. However, we can see that the above have only an indirect connection to what the investors would feel about our firm and it is related to what the financial statements show about GE. If we report lower earnings, banks will not give us as many loans as the are giving us now. With the new ratio that I am going to introduce I am making an attempt to help eliminating any kind of mistrust to the company due to reasons which are not related to the financial statements and have a direct connection to the investors. That mean that there are several actions that we should consider making that are not actually going to increase our earnings by satisfying our customers but are going to increase our "prestige" -- our goodwill. I will focus on one of them, the ability to participate in bids, and to be the preferred company. Therefore the new ratio equals: Goodwill Creating Ability (GCA) = number contracts signed / number offers made. The number of offers made refers to the number of bids at which the company participated. If we manage to be the preferred company in a lot of bids then it will be commonly known that we have the power not only to show good past and present financial data but also to continue in doing so through the next years. The question that arises is how this measure is going to affect our movements for the following years. In my opinion the idea of this measure and its effect on the creditability of the company will first of all affect the way we think before entering a bid. We often try to make a deal for which there are great doubts if it is going to offer any earnings in the future and at the same time our chances to be preferred are quite limited. If we do not take the above ratio under consideration the only risk related to our entrance to the bid would be the chance not to make enough earnings to cover our expenses after actually being the preferred company. However the GCA shows that the actual risk is much higher and therefore we should possibly reconsider entering into several risky bids (that can be lost easily). There are some times, however, when our estimations were not correct and although we entered the bid, yet other rival firms appear to have strong chances of actually being the "preferred ones." For example lets suppose that local CHANNEL X enters an auction to buy a studio in the Providence area. NBC, on the other hand, the huge broadcasting company which we recently acquired wishes to buy the same studio so it enters the bid. After a few days, secret information are offered to GE which reveal that CHANNEL X is going to offer the price of $10,000,000 to buy the studio. We also know that the maximum revenues that this studio can create for the next 20 years are $9,000,000. That is a good indicator that it is not a smart move for us to make a higher offer. Someone would think that the best thing to do would be to make a lower offer and hope that the information given to the company is incorrect. This choice does not seem to be irrational, because of the commonly accepted cost benefit analysis. But in this case, is this the right answer? Lets suppose that we do give a lower offer. The following day we see that CHANNEL X, offered $10,000,000 to buy the studio. The result would be losing from a channel that hardly anyone knows and that is much weaker than NBC. How is this going to sound to all these that on a daily base watch the actions that we take? Channel X reported operating profit of $2,000,000 for the financial period ending December 1995. For the same period NBC reported operating profit equal to 738 million dollars.15 What could someone think then about the creditability of our financial statement? I am not suggesting that nobody is going to realize what has actually happened but can we be sure that nobody who is very important to us will think differently? How can a multi-million dollars firm loose by an unknown company? Our prestige would not be so high any longer. That is why, in several cases, we should reconsider offering a price that might give us profits if we win, but it does not guarantee that we will actually do so. In some cases we might have to lose money in order to make our company prestigious. To prove why this is correct take under consideration all the expenses that we make and that are made only because we want to create a better name and consequently to receive the benefits of that. A good example is advertising. In my opinion as long as we realize that a firm is not only buildings and equipment but also a name we can realize why the GCA ratio is very important as a new way of thinking. We should make sure that this ratio only increases. 5) I have already referred to a measure that is affiliated with stockholders, the Stockholders Comparable Utility. I justified the creation of this measure by saying that it is very important to monitor on a constant basis the utility of our stockholders which derives from the dividend that we give to them. The question that can arise out of this statement and could be partially answered by the creation of the last measure is, "how much power do the stockholders actually have over the corporation -- or put another way, how important is it to keep them happy?" It can be said that the larger our need to find cash in order to expand the larger the importance of investors for us. However, such a measure would refer to future investors and not to the ones that already have claims over the assets of the business. In order to see the actual power that the latter have over the corporation we have to consider the Claims of the Stockholders Ratio which is equal to: Number of Shares Outstanding / Number of Shares Issued. For example for 1993 the CSR was equal to: 1,707,302 / 1,853,128 = 92.1%, for 1994: 1,705,967 / 1,857,013 = 91 % and for 1995: 1,666,512 / 1,857,013 = 89.7%.16 From the above facts it is obvious that the stockholders' equity is decreasing over the years and, consequently, so is the control that they have over the corporation. The question that arises is what is going to be affected because of that and how is it going to be affected. The answer is given in the following hypothesis. As we know the corporation issues shares of stock if the cash available for investments is not enough for the planned expansion of the company. If GE manages to have better cash flow results, then it will not have the need to issue a many shares of stock as before. At the same time GE will be able to buy some portion of its outstanding common stock (as mentioned in footnote 16, GE does not have any preferred stock) and, therefore, reduces the stockholders' equity over the assets of the company. If this procedure continues successfully during the next few years, then it will be obvious that GE does not "need" its stockholders or the potential investors that much. On the other hand, we know that when a company wants to attract more investment has to offer a high dividend to its stockholders. Thus, if the corporation does not need to attract as much investment, and can rely more on its own power to invest, then the amount of money given to the stockholders should be decreased. To close we can say that if the CSR is a simple measure based on the simple supply - demand convention. I hope that the five measures that I have created will be useful to you, Members of the Board of Directors, in planning for the future of GE. I have confidence that the firm is going to continue putting forth its best efforts towards growth and expansion, which will bring outstanding results. I believe that the measures that I have suggested will help in that direction, and will be crucial in attaining our future goals. Thank you. f:\12000 essays\business & economics (632)\Night.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Night Night Religion has always explained the unknown in knowable terms. It has created symbols for that which could not be known. This symbolism is so deeply imbedded in our minds, cultures, and cosmology that it is rarely questioned from inside the religious paradigms. From outside that paradigm, the religious imagery loses its impact, its subliminal meaning. Religion functions to relieve the anxiety of the absolute fact for each of us that we will die, that our family will die, that our friends will die. Religion promises us that although we may die, we will continue. And, if we believe, then our afterlife will be glorious. Spirituality offers another perspective to this 'man-made' solution. The spiritualistic belief is that of love for the fellow man instead of god; hospitals instead of churches; deeds done rather than prayers said. Spirituality, although bordering on atheism, seeks to understand and love, to find an ethical way of life rather than turning to a higher being for the easy way out. In "Night" by Elie Wiesel we see death of religion in a child because of absolute evil and consequently, the embrace of spirituality. Separated from man made institutions, the core of religion and spirituality must be preserved, if one is to survive in the midst of horror. The Jewish religion was a key motivation to the citizens of Sighet. To Jews religion is not only a method to achieve immortality, but a way of life that must be holistically embraced. This all-consuming religion demands total obedience and is a key motivation in the Jewish deportation and personal surrender to Germany . Analyzing history, one sees the pattern of a Jewish nomad lifestyle ,so deep is their faith, and moving on. "Night" is the first episode where this blind faith could not save them. Spawning from this failure of God is the genocide of millions at the hands of the Nazis. As young Eliezer visits Auschwitz and witnesses this genocide first hand, his blind faith is quickly revoked and in its place remains doubt, question and bitterness. "Never shall I forget that night, the first night in camp, which has turned my life into one long night, seven times cursed and seven times sealed. Never shall I forget that smoke. Never shall I forget the little faces of the children, whose bodies I saw turned into a wreath of smoke beneath a silent blue sky." The novel highlights the internal conflict Eliezer faces: the problem of religious conscience in all aspects of his life. The problem that grows out of the religious conscience is the division of life and the world. This is the inner division of our impulses, desires, and aggressions bordering with the conditioned behavior of our religion. Eliezer struggles with this guilt as he sees the failings of his God in the midst of the horror. Torn between the refined perception of God, merciful and loving , and the punishing God he witnesses in the camps, Eliezer attempts to dissect his feelings and knowledge in order to determine whether God is indeed compassionate or chastising. "What are you, my God" I thought angrily, "compared to this afflicted crowd, proclaiming to you their faith, their anger, their revolt? What does your greatness mean lord of the universe, in the face of all this weakness, this decomposition and this decay? Why do you still trouble their sick minds, their crippled bodies?" As Eliezer, a young child, witnesses the slow agonizing death of the "young, sad angel", the reader sees the emergence of his growing existentialism. No longer does he feel kinship with the Almighty: instead feelings of loneliness and abandonment dominate the young child's psyche. As the man behind him asks where God is, the young soul responds with brutal truth: "God is dead." The death of this innocent child at the hands of an unmerciful God reduces Eliezer's faith further, causing him to lose sight of the Jewish faith that has been his foundation for so many years. "The child was still alive...For more than half an hour he stayed there, struggling between life and death, dying in slow agony under our eyes and we had to look him full in the face. He was still alive when I passed in front of him. His tongue was still red, his eyes were not glazed... Behind me I heard the same man asking: "Where is God now?" and I heard a voice within me answer him: "Where is He? Here He is, He is hanging on this gallows." As the novel comes to a conclusion God, and religion as an institution, assume a cynical role: Eliezer recognizes the failings of the Almighty. Rather than seeking sanctuary within the confines of a higher deity, the author seeks revenge and a need to lay blame. Religion has fallen by the wayside highlighting the void due to the millions of dead Jews. A pessimistic young man , who recognized the lack of God as a savior, replaces the young child with blind faith. Eliezer is faced with his own mortality as he realizes his individual strength. This strength however, is ironic as it is all he has left: the deity has deserted him altogether. "This day I had ceased to plead. I was no longer capable of lamentation. On the contrary, I felt very strong. I was the accuser, God the accused. My eyes were open and I was alone - terribly alone in a world without God and without man, without love or mercy. I had ceased to be anything but ashes, yet I felt myself to be stronger than the Almighty, to whom my life had been tied for so long." As the groundwork of Eliezer's youth is repeatedly annihilated, Eliezer becomes more disillusioned. This disillusionment leads to further denunciation of God and religion. The core of Eliezer's morality is preserved and manifests in the form of spirituality. No longer do man-made dogmas dictate Eliezer's actions, but rather the innate morals he has, are persevered. God loses significance as earthly effects take precedent: loyalty to is father, family and man are become his main priority. "To break the ranks, to let oneself slide to the edge of the road... My father's presence was the only thing that stopped me ... He was running at my side, out of breath, at the end of his strength, at his wit's end. I had no right to let myself die. What would he do without me? I was his only support. " At a very poignant time in Eliezer's life, we see the revival of a god. Although religion and God are no longer of significance, the familiar act of sending a prayer signifies the importance of reinforcing his values of commitment and loyalty to his father. Eliezer recognizes the abandonment of the Rabbi's son, and Eliezer's prayer, although directed to God, keeps shape of a personal vow. Eliezer no longer relies on the values and beliefs of the institution of religion, but rather bases his values on personal spiritualistic beliefs. It is at this key transitional period in Eliezer's growth that he recognizes the death of God and religion, but maintains an ethical way of life: that of love and loyalty, consistent with his spirituality. "His son had seen him losing ground, limping, staggering back to the rear of the column. He had seen him. And he had continued to run on in front. Letting the distance between them grow greater. A terrible thought loomed up in my mind: he had wanted to get rid of his father! He had felt his father was growing weak, he had believed the end was near and had sought separation in order to get rid of the burden... and in spite of myself, a prayer rose in my heart, to that God in whom I no longer believed. My God, Lord of the Universe, give me strength never to do what Rabbi Eliahou's son has done." Mankind will always be a mixture of good and evil, it is in this balance however that we find the internal conflict that Eliezer struggled with throughout the novel. "Night" presents its audience with a range of beliefs: atheism bordering on spirituality, bordering on orthodox religion. Although making no hard-line judgments about the preferred path to follow, the significance of having morals and maintaining a value system is not overlooked. As Elie illustrates, in the midst of absolute evil, when all else is stripped away, who you are and what you f:\12000 essays\business & economics (632)\Nike.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Nike In 1957, a Coach and an athlete met at the University of Oregon, and together they went on to establish the most successful athletic footwear company in the world. Bill Bowerman and Phil Knight are these founders. The history of Nike can be split up into sections of three decades. From 1961 to 1971, Knight decided that dealing Tiger, a Japanese company, would break up the World domination in athletic shoes by Germany. He traveled to Japan and met with the executives for Tiger. When asked what company he represented, Knight, caught off guard, uttered the words "Blue Ribbon Sports," giving birth to the forerunner of Nike. Soon the revenue on the company began to rise, and finally in 1971, student Carolyn Davidson designed the Swoosh for $35.00. From 1972 to 1980, Blue Ribbon Sports underwent quite a few changes. BRS split from Tiger and became Nike, named after the Greek Goddess of Victory. Nike also expanded to Australia, Europe, and Asia. By 1979, Nike claims 50 percent of the running market, and in 1980, the 2,700-employee company went public. Between 1981 and 1991, Nike began to expand their marketing strategies by sponsoring top athletes. Some of these athletes include Carl Lewis who won four gold metals at the L.A. Olympics and John McEnroe. In 1985, Nike discovered a rookie for the Chicago Bulls who would later become one of their biggest sellers, Michael Jordon. Air Jordon was established, and the next year, the revenue reached the 107 billion-dollar mark. By 1989, the Just Do It campaign had been in effect for two years From 1991 and on, Nike continues to grow. Not only does Nike corner the market in The United States, but also in other countries, including Canada, Japan, and Taiwan. f:\12000 essays\business & economics (632)\No you cannot come in.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ No! You Cannot Come in Garrett Hardin writes about saving the poor in his essay"Lifeboat Ethics: The Case Against the Poor" found in The Blair Reader. Hardin writes about how the rich countries are in the lifeboat and the poor countries are swimming in the ocean. He also writes about how the United States helps other countries. Hardin feels that if the government keeps helping other countries and letting people in then America will also drown. "We must convince them if we wish to save at least part of the world form environmental ruin"(page 765). Why should I help the poor countries? Why should I let the immigrants in? I see no reason for helping someone that is not an American. These non Americans are taking my hard-working money that they did not earn. I am tired of the United States of America giving my money to the poor countries. The government is giving these people my money for which I worked hard. The government does not ask for my permission to give these people my money. By letting these people on our lifeboat the government is drowning us all. "If we do let an extra 10 people in our lifeboat, we will have lost our 'safety factor,' an engineering principle of critical importance" (page 757). I cannot take a chance in helping people if it is going to put me in risk. Instead of giving the money to non Americans it should be used only in America. The money used to help the poorer countries can be very useful in the United States. The middle class people in America get no help. More of that money can go toward the middle class families. The middle class families work had for their money. The government helps poor families with food, housing, education and many more things. The rich have more money than they need, but the middle class is left struggling. The middle class people cannot move up. The middle class cannot get ant help from the government. It makes me mad that the poor Americans do not take advantages of some of the opportunities available for them. The middle class people sometimes work two or three jobs to pay for their own or their children's college education. The government should use the money they are sending to other countries to help the taxpayers. In my family we have just enough money to get by. I do not see the government knocking on my door handing me food or money. Why should they give my money to other countries? The government will not help my family because our gross income is too high to receive any help. Well true maybe our gross income is high, but we do not take all that money home. The government is taking money out of my paycheck, money that I struggle for, and giving it to other countries. I have my own dependents to take care of. I should not have to take care of other people. It was my decision to have my children. If I wanted more dependents, I would have them. The government also tells me that if I had gotten a used car with cheap payments then I would have extra money left over. Why should I have to get a used car? If I get a used car, I will only be spending more money getting it fixed. I am tired of the government giving me excuses on why I do not need any help. The only reason the government cannot help me is because they do not have the money. The only reason the government does not have the money is because they are giving it to other countries. I am tired of the immigrants coming into this country. Hardin says "But aren't we all immigrants, or the descendants of immigrants?"(page 764). Well yes, I am a descendant of immigrants and I understand that. Nevertheless, what gives the immigrants the right to come in my boat and take my money? I have no objections to those immigrants who come here to work or bring work. What I do have a problem is with those that come here and take advantage of our welfare system. These new immigrants did not deposit money into the welfare system so why should they be allowed to withdrawal.If the immigrants were not taking our tax money then there would be more money for our people. Who is going to help me? No body is going to help me, not even my own country. The chances of me getting social security when I am old are slim. Meanwhile, these immigrants are getting my money. While my money is being spent on non Americans, I might be living in a shack going through Dumpsters to get by, when I am old. Garrett Hardin in "Lifeboat Ethics: The Case Against the Poor" writes that if America keeps trying to save other people from different countries then America will also drown. I do not want these people in my lifeboat. America is already starting to drown. I want my money to be used to help only American families. Leave American money in America! f:\12000 essays\business & economics (632)\none.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ English 102 P Buss Essay 1 A Closer Look at Character In any literay work, it is absolutely essential to have characters, whether major or minor. It is also necessary to develop these characters through out the story. Character development gives the reader insight to the more important meanings or lessons of the story. These lessons are usually brought out by the events that take place within the story. Looking at Guy De Maupassant's piece "The Necklace", we see a very clear development of the main character Mathidle. In the story, we see a change in her attitude about life. This change come about when she has to learn one of life's little lessons the hard way. She and her husband are forced to live a life of hard work and struggle because of her own selfish desires. Mathilde changes from a woman who spends her time dreaming of all the riches and glory she doesn't have, to realizing that she over looked all the riches she did have. The story opens with the description of how miserable Mathilde is. Maupassant describes her as "suffering constantly, feeling herself destined for all delicacies and luxeries." (Pg 4) She sits dreaming of silent rooms nicely decorated and her own private room, scented with perfume to have intimate "tete-a-tetes" with her closest friends. Then she is awakened, only to realize that she is in her own grim apartment. In her eyes, she lives a tortured and unfair life. Mathidle has a husband named Losiel. He is much the opposite of his wife. He is completely content with his lifestyle. He seems to be a very passive person, who doesn't let status or riches effect him. Of course, if he had the chance to be rich he would, but he doesn't dwell on the fact that he is part of the middle class. He seems ot be a hard worker and does his best to provide for his wife. He demonstrates is simplicity the one night at dinner Losiel and Mathilde sit down to eat. Mathidle is dreaming of fancy four course meals, while he is ecstatic because they are eating boiled beef. Losiel is aware that his wife has not yet adjusted to her status. One night, he had come home from work very excited. He had worked extra hard to get he and his wife invited to one of the biggest parties ever. Losiel thought this would be please his wife, when in fact it only made her upset. Here was Losiel trying to please his wife and she just started to cry. This just goes to show how ungreatful she really is. When Losiel had inquired about why she was upset, she had said it was because she had nothing to wear. She was hinting to her husband that she needed a dress. Then Losiel, because he wanted his wife to be happy had willingly given up his vacation money so his wife could have a dress to wear. Still, that wasn't good enough for her. Mathilde wanted more. Luckily, Mathilde had a friend in the upper class. She had gone to her friend and had asked to borrow jewlery for the occasion. This just helped to prove her need to have more. When she arrived at her friends house she had many things to choose from. Mathilde had seen all kinds of things that delighted her but one thing imparticular had caught her eye. "In a black satin box, a superb diamond necklace, and her heart throbbed with desire for it. Her hands shook as she picked it up. She fastened it around her neck, watched it gleam at her throat and looked at herself ecstatically." (Pg 6) She had gotten all she wanted. Once again, Mathilde's selfish desires had been fulfilled. After going to the ball and basically being the "life of the party", she returned home to her drab apartment, only to remember the events of the evening where she was in the sporlight and people looked at her. It was at that moment that she had noticed that the necklace was missing. She and her husband had searched everywhere for it yet, the necklace was no where to be found. For the next ten years Loisel and Mathilde worked their fingers to the bone to repay Mathilde's friend for the necklace that Mathilde had carelessly lost. They had to move to a different apartment, this worse than the last. They also had to borrow money from the various people to pay some of the finance charges they had aquired from owing loan sharks. It was in this time, that Mathilde had began to change. Psysically, "she had become the strong, hard , rude, woman of poor households. " (pg 9) But also there was a change on the inside , too . Sometimes she still sat and thought about her moment of glory and then thought about what her life would have been like if she would have never lost the necklace. She realized that her selfishness and desire to be "on top" had caused her to expierence the major down fall that she did. She also realized that she was at rock bottom now, her and her husband both, and she had put them there. Losiel in this time really didn't change. He just did what had to be done in order to pay for his wife's mistake. I don't think he complained about it either. He saw that she was working hard to correct her mistake and indeed was learning from it. Once again, Losiel was demonstrating his passiveness. Maupassant uses Mathilde as a round chacter. She is the one who changes or evolves with the events of the story. She learns that "one should be content with what one has" and " it's ok to dream, but not to let your dreams keep you from seeing reality. " Losiel then, is a flat character. He remains the same or is constant. With all the comotion in the story, Losiel manages to keep the same character traits. His life is effected yet, he's still the same person. Another example of a flat character is Mrs. Forriester. Even though her necklace is lost, it really doesn't have an impact on her character. She too, remains constant. Mathilde dreams of unattainable wealth and comfort yet, fails to see that her dream life ends up harming her real life. Maupassant does and exellent job of showing the transformation of Mathilde's character from a person who is selfish and ungreatful to a person who realizes that her mistakes and pays for it the rest of her life. Even though the story is fiction, Maupassant has made it believeable and lifelike. Someone reading this story could benefit greatly from it. We all must deal with selfishness at some point in our lives. Why not learn from other peoples mistakes , fiction or not. De Maupassant, Guy. "The Necklace." Literature : An Introduciton to Reading and Writing , Edgar V. Roberts and Henry E. Jacobs. Upper Saddle River, NJ. Prentice Hall, 1995. 3-10. f:\12000 essays\business & economics (632)\Nuclear Power 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Nuclear Power Most of the world's electricity is generated by either thermal or hydroelectric power plants. Thermal power plants use fuel to boil water which makes steam. The steam turns turbines that generate electricity. Hydroelectric power plants use the great force of rushing water from a dam or a waterfall to turn the turbines. The majority of thermal power plants burn fossil fuels because thermal power plants are cheaper to maintain and have to meet less of the governments requirements compared to nuclear power plants. Fossil fuels are coal and oil. The downfall of using fossil fuels is that they are limited. Fossil fuels are developed from the remains of plants and animals that died millions of years ago. Burning fossil fuels has other downfalls, too. All the burning that is required to turn the turbines releases much sulfur, nitrogen gases, and other pollutants into the atmosphere. The cleanest, cheapest, and least polluting power plant of the two types is the hydroelectric power plant. The main reason most countries use thermal versus the hydroelectric is because their countries don't have enough concentrated water to create enough energy to generate electricity. (World Book vol. 14, 586) Nuclear power plants generate only about eleven percent of the world's electricity. There are around 316 nuclear power plants in the world that create 213,000 megawatts of electricity. (INFOPEDIA) Radioactive, or nuclear, waste is the by-product of nuclear fission. Fission occurs when atoms' nucleus' split and cause a nuclear reaction. (General Information) When a free neutron splits a nucleus, energy is released along with free neutrons, fission fragments that give off beta rays, and gamma rays. A free neutron from the nucleus that just split splits another nucleus. This process continues on and is called a chain reaction. (World Book vol. 14, 588) The fission process is used to create heat, which boils water inside the nuclear reactor. The steam that boiling the water makes is used to turn turbines, which in turn, generate electricity. Fission happens inside a carefully monitored nuclear reactor, when being used in a nuclear power plant. The fission process that nuclear power plants use spends approximately 30,000 tons of highly radioactive waste a year. (General Information) In a nuclear power plant, Uranium is used as fuel to boil the water for the steam that makes the turbines turn. So, uranium is, in a sense, the coal of a coal-fired power plant. When fueling nuclear power plants, the uranium arrives as uranium-enriched pellets. These pellets are an equivalent to one ton of coal. The pellets are sealed in tubes that are made of a strong heat- and corrosion-resistant metal alloy. This metal alloy will protect people and the environment from the high levels of radiation that the uranium is giving off. The tubes are bundled together to make a fuel assembly. The assemblies are put inside the reactor to create heat that will boil the water. The fuel assemblies are used until they are depleted. A fuel assembly is depleted when it no longer gives off enough energy to turn the turbines. Once every year, one third of the nuclear fuel in a reactor is replaced with fresh fuel. The used-up fuel is called spent fuel. Spent fuel is highly radioactive and is the primary form of high-level nuclear waste. (General Information) High-level radioactive waste is the by-product of commercial nuclear power plants generating electricity, and from nuclear materials production at defense facilities. This high-level waste must be isolated in a safe place for thousands of years so its radioactivity can die down and not be harmful to people and the environment. The name of the "safe place" that the Department of Energy is trying to make is called a repository. But until a repository is made, spent fuel and high-level waste is being stored in temporary storage facilities called dry casks and cooling pools. By the end of the year 2000, there will be more than 40,000 metric tons of high-level waste in casks and storage pools. There will also be more than 8,000 metric tons of high-level waste from defense programs. The high-level waste from defense programs is currently being stored in Idaho, South Carolina, and Washington. (General Information) Reprocessing is the chemical process by which uranium and plutonium are recovered from spent fuel. This means that it is the recycling process of high-level waste. The reason private industries aren't reprocessing their high-level waste is because reprocessing costs more than mining and making new fuel. Several countries that actually care about their environment reprocess their high-level waste. (General Information) Dry casks and cooling pools are being used to store spent fuel in power plants everywhere. (Shulman, 14) Dry casks and cooling pools are only meant to be temporary storage facilities until a permanent repository is made. The need for a permanent disposal for high-level radioactive waste is becoming more urgent every year because the dry casks and cooling pools at nuclear power plants are filling up. A dry cask is a concrete of steel container that protects the outside world from its radioactive innards. A cooling pools is a pools of water that the spent fuel is put into. The water is a radioactive shield and coolant. (General Information) The cooling pools were supposed to contain no more than 400 fuel assemblies, approximately 80,000 rods. The pools contain over four times as much of the spent fuel that they're supposed to. Nearly all of the nations older power plants are in this state of overload. In the late 1980's, government industry researchers became concerned that if the rods were too closely stored in the pools, a nuclear reaction would occur. When researched further, the chain reaction theory became very remote. News of this resulted in even more densely packed cooling pools. (Shulman, 14) The cooling pools are a type of concrete warehouse. Inside the warehouses are steel caskets containing the spent fuel rods and cooling pools. Scientists say that the cooling pool prevents the spent fuel to explode, but the extreme weight of the fuel inside the warehouses might cause the structures to rupture, especially in the case of an earthquake. (Shulman, 15) A repository is a storage facility that stores high-level nuclear waste deep underground so the waste can not harm or effect people or the environment. (DOE's Yucca Mountain Studies) With the technology that we [humankind] have toady. Scientists believe it to be possible to make a repository somewhere. The guidelines of a repository are mainly if the geologic location will work out (i.e. will an earthquake be able to rupture it, will water be able to corrode the repositories outer wall.). To make sure that the repository would be able to stay unscathed for thousands of years, scientists in all areas of science are making predictions of what could happen over the time period. According to U.S. Environmental Protection Agency (EPA) standards, a repository may pose no greater threat than unmined uranium from which the high-level waste was produced. The repository the DOE is wanting to make has to be proven that it will still be isolated underground in 10,000. After this extensive time, the high-level waste should no longer be radioactive enough to harm the public health. (General Information) A rem is a unit scientist use to measure radiation exposure. Over a persons lifetime, they usually receive 7-14 rems of natural sources of radiation, such as cosmic rays and ultraviolet rays from the sun. On a single exposure of 5-75 rems, there are few to no noticeable symptoms. For someone to receive 75-200 rems of exposure, vomiting, fatigue, and loss of appetite would occur. Recovery would take a few weeks. If someone were to be exposed to more than 300 rems, severe changes in blood cells and hemorrhage takes place. If someone were to receive more than 600 rems, symptoms would be hairloss, loss in your bodies ability to fight infection and usually results in death. (World Book vol. 16, 79) As you can see, the effects of radiation sickness is not too pleasant. The main reason for building a repository is to keep people and the environment safe from deadly radiation. Bibliography "DOE's Yucca Mountain Studies." A repository is an enormous challenge. URL: http://www.ymp.gov/faq/facts/geninfo/y0343p.htm (4 Feb. 1997) "General Information." What is nuclear fuel and waste? URL: http://www.ymp.gov/faq/facts/geninfo/Y338P.HTM (4 Feb. 1997) INFOPEDIA. Vers. 1.5. Computer software. Future Vision Multimedia, 1995. IBM Windows 3.1, 30KB, CD-ROM. Shulman, Seth. "Waiting Game for Nuclear Waste." Technology Review Aug. - Sept. 1992: 14-15. World Book. 22 Volumes. Vol.14 and 16. Chicago: World Book, Inc., 1988 f:\12000 essays\business & economics (632)\Nuclear Power.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Nuclear Power Most of the world's electricity is generated by either thermal or hydroelectric power plants. Thermal power plants use fuel to boil water which makes steam. The steam turns turbines that generate electricity. Hydroelectric power plants use the great force of rushing water from a dam or a waterfall to turn the turbines. The majority of thermal power plants burn fossil fuels because thermal power plants are cheaper to maintain and have to meet less of the governments requirements compared to nuclear power plants. Fossil fuels are coal and oil. The downfall of using fossil fuels is that they are limited. Fossil fuels are developed from the remains of plants and animals that died millions of years ago. Burning fossil fuels has other downfalls, too. All the burning that is required to turn the turbines releases much sulfur, nitrogen gases, and other pollutants into the atmosphere. The cleanest, cheapest, and least polluting power plant of the two types is the hydroelectric power plant. The main reason most countries use thermal versus the hydroelectric is because their countries don't have enough concentrated water to create enough energy to generate electricity. (World Book vol. 14, 586) Nuclear power plants generate only about eleven percent of the world's electricity. There are around 316 nuclear power plants in the world that create 213,000 megawatts of electricity. (INFOPEDIA) Radioactive, or nuclear, waste is the by-product of nuclear fission. Fission occurs when atoms' nucleus' split and cause a nuclear reaction. (General Information) When a free neutron splits a nucleus, energy is released along with free neutrons, fission fragments that give off beta rays, and gamma rays. A free neutron from the nucleus that just split splits another nucleus. This process continues on and is called a chain reaction. (World Book vol. 14, 588) The fission process is used to create heat, which boils water inside the nuclear reactor. The steam that boiling the water makes is used to turn turbines, which in turn, generate electricity. Fission happens inside a carefully monitored nuclear reactor, when being used in a nuclear power plant. The fission process that nuclear power plants use spends approximately 30,000 tons of highly radioactive waste a year. (General Information) In a nuclear power plant, Uranium is used as fuel to boil the water for the steam that makes the turbines turn. So, uranium is, in a sense, the coal of a coal-fired power plant. When fueling nuclear power plants, the uranium arrives as uranium- enriched pellets. These pellets are an equivalent to one ton of coal. The pellets are sealed in tubes that are made of a strong heat- and corrosion- resistant metal alloy. This metal alloy will protect people and the environment from the high levels of radiation that the uranium is giving off. The tubes are bundled together to make a fuel assembly. The assemblies are put inside the reactor to create heat that will boil the water. The fuel assemblies are used until they are depleted. A fuel assembly is depleted when it no longer gives off enough energy to turn the turbines. Once every year, one third of the nuclear fuel in a reactor is replaced with fresh fuel. The used-up fuel is called spent fuel. Spent fuel is highly radioactive and is the primary form of high-level nuclear waste. (General Information) High-level radioactive waste is the by-product of commercial nuclear power plants generating electricity, and from nuclear materials production at defense facilities. This high-level waste must be isolated in a safe place for thousands of years so its radioactivity can die down and not be harmful to people and the environment. The name of the "safe place" that the Department of Energy is trying to make is called a repository. But until a repository is made, spent fuel and high-level waste is being stored in temporary storage facilities called dry casks and cooling pools. By the end of the year 2000, there will be more than 40,000 metric tons of high-level waste in casks and storage pools. There will also be more than 8,000 metric tons of high-level waste from defense programs. The high-level waste from defense programs is currently being stored in Idaho, South Carolina, and Washington. (General Information) Reprocessing is the chemical process by which uranium and plutonium are recovered from spent fuel. This means that it is the recycling process of high- level waste. The reason private industries aren't reprocessing their high-level waste is because reprocessing costs more than mining and making new fuel. Several countries that actually care about their environment reprocess their high-level waste. (General Information) Dry casks and cooling pools are being used to store spent fuel in power plants everywhere. (Shulman, 14) Dry casks and cooling pools are only meant to be temporary storage facilities until a permanent repository is made. The need for a permanent disposal for high-level radioactive waste is becoming more urgent every year because the dry casks and cooling pools at nuclear power plants are filling up. A dry cask is a concrete of steel container that protects the outside world from its radioactive innards. A cooling pools is a pools of water that the spent fuel is put into. The water is a radioactive shield and coolant. (General Information) The cooling pools were supposed to contain no more than 400 fuel assemblies, approximately 80,000 rods. The pools contain over four times as much of the spent fuel that they're supposed to. Nearly all of the nations older power plants are in this state of overload. In the late 1980's, government industry researchers became concerned that if the rods were too closely stored in the pools, a nuclear reaction would occur. When researched further, the chain reaction theory became very remote. News of this resulted in even more densely packed cooling pools. (Shulman, 14) The cooling pools are a type of concrete warehouse. Inside the warehouses are steel caskets containing the spent fuel rods and cooling pools. Scientists say that the cooling pool prevents the spent fuel to explode, but the extreme weight of the fuel inside the warehouses might cause the structures to rupture, especially in the case of an earthquake. (Shulman, 15) A repository is a storage facility that stores high-level nuclear waste deep underground so the waste can not harm or effect people or the environment. (DOE's Yucca Mountain Studies) With the technology that we [humankind] have toady. Scientists believe it to be possible to make a repository somewhere. The guidelines of a repository are mainly if the geologic location will work out (i.e. will an earthquake be able to rupture it, will water be able to corrode the repositories outer wall.). To make sure that the repository would be able to stay unscathed for thousands of years, scientists in all areas of science are making predictions of what could happen over the time period. According to U.S. Environmental Protection Agency (EPA) standards, a repository may pose no greater threat than unmined uranium from which the high-level waste was produced. The repository the DOE is wanting to make has to be proven that it will still be isolated underground in 10,000. After this extensive time, the high- level waste should no longer be radioactive enough to harm the public health. (General Information) A rem is a unit scientist use to measure radiation exposure. Over a persons lifetime, they usually receive 7-14 rems of natural sources of radiation, such as cosmic rays and ultraviolet rays from the sun. On a single exposure of 5-75 rems, there are few to no noticeable symptoms. For someone to receive 75- 200 rems of exposure, vomiting, fatigue, and loss of appetite would occur. Recovery would take a few weeks. If someone were to be exposed to more than 300 rems, severe changes in blood cells and hemorrhage takes place. If someone were to receive more than 600 rems, symptoms would be hairloss, loss in your bodies ability to fight infection and usually results in death. (World Book vol. 16, 79) As you can see, the effects of radiation sickness is not too pleasant. The main reason for building a repository is to keep people and the environment safe from deadly radiation. Bibliography "DOE's Yucca Mountain Studies." A repository is an enormous challenge. URL: http://www.ymp.gov/faq/facts/geninfo/y0343p.htm (4 Feb. 1997) "General Information." What is nuclear fuel and waste? URL: http://www.ymp.gov/faq/facts/geninfo/Y338P.HTM (4 Feb. 1997) INFOPEDIA. Vers. 1.5. Computer software. Future Vision Multimedia, 1995. IBM Windows 3.1, 30KB, CD-ROM. Shulman, Seth. "Waiting Game for Nuclear Waste." Technology Review Aug. - Sept. 1992: 14-15. World Book. 22 Volumes. Vol.14 and 16. Chicago: World Book, Inc., 1988 f:\12000 essays\business & economics (632)\Obstacle to Development.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In this every day changing world, many of us are living in a comfortable home, have enough food to eat, well clothed, healthy, and financially independent. All these are provided to us because we are living in a well-developed country. Others in the third world nation are not so lucky. They may have no shelter, limited food supply, and unemployed. This is because their country is not well developed like ours. Problems that stop these countries from developing are 1. Low levels of living, comprising low incomes, high inequality, poor health and inadequate education. 2. Low levels of productivity. 3 High rates of population growth and Dependency Burdens. 4. High levels of Unemployment and Underemployment. 5. Significant dependence on agricultural production and primary product exports. 6. Dominance, dependence, and vulnerability in international relations. Low levels of living is one of the major obstacles toward development. Low levels of living is comprised of low incomes, high inequality, poor health and inadequate education. The gross national product (GNP) is the most commonly used measure of the overall level of economic activity. The gross domestic product (GDP) measures the total value for final use of output produced by an economy, by both residents and nonresidents. Thus GNP comprises GDP plus the differences between the income residents receive from abroad for factor services (labor and capital) fewer payments made to nonresidents who contribute to the domestic economy. Many Third World countries have a low level of per capital income, in addition there is a slower GNP growth compare to the developed nations. Secondly, many people in third world countries are unhealthy and constantly battle with disease while trying to stay alive. The infant mortality rate is very high compared to the developed countries. One reason that leads to this is that they do not have the access to safe drinking water and health service. Clean drinking water is one of the major factors necessary to avoid illness. Water-borne diseases such as typhoid fever, cholera, and a wide array of serious or fatal diarrheal diseases are responsible for more than 35% of the deaths of young children Africa, Asia, and Latin America. Most of these diseases and resulting deaths can be eliminated with safe water supplies. In addition, health service is very limited in the least developed countries. It is limited in the number of doctors and beds provided for the patients. Also, all the hospitals and medical facilities are located in the urban areas. People who are not living in the urban areas will have trouble getting to hospital and use the medical facilities provide. Thirdly, many people who live in the third world countries lack education. This is due to the limited budget the government provides. In most countries, education takes the largest share of the government budget. Besides low levels of living, low level of productivity is also a major obstacle toward development. A production function is often used to describe the way in which societies go about providing for their material needs. In the developing countries, the levels of labor productivity are very low compared with those in developed countries. The reason which lead to this is that they lack capital and experienced management. Developed countries have enough capital and experience to buy machinery to increase their productivity. To raise productivity for third world countries, domestic savings and foreign finance must be used to generate new investment in physical capital goods. This will give more opportunity to the workers in terms of education and training and have more high tech machinery to increase in the productivity. The high rate of population growth is the third obstacle toward development. The birth rate in the third would country is so high that it is counted as three-fourths of the population out of the whole world. Children under the age of 15 is close to 40% of the total population in the third countries as opposed to 21% in the developed countries. Older people and children are often referred to as an economic dependency burden because they are the nonproductive members in the society and therefore must be supported financially by the government or the country's labor force. The dependency burden in developed countries is one-third of their population, whereas 45% in the less developed countries. The high dependency burden is stopping the country from developing because most of the money generated in the country goes to children and older people. If the country can reduce the population, then the dependency burden will decrease, and the money that was generated by the country's our force can be used to develop the country. Another factor that affects the development of a country is the high level of unemployment and underemployment. Underemployment where a person who is working less that he/she could or working full-time but the productivity is so low that there is a reduction in hours. The second one is unemployment, where the person is able to work and often eager to but there is no suitable job available for him/her. Underemployment and unemployment are the major impact to low output. People that have no job will not have any income. Therefore people are not willing to spend money on merchandise such as cloth, and other. The percentage of unemployment and underemployment is 35% of the labor force in the least developed countries. If a country has a low export and high import, the country is losing their currencies to other countries. The way to eliminate unemployment is to have foreign investment. It can create more jobs for people in the third world. Another factor that affect development of a country is the substantial dependence on agricultural production and primary product exports. There is a big difference between the proportionate size of the agricultural population in the third world countries (75%) versus the developed countries (5%). People in the third world countries are concentrating in production of agricultural and other primary production activities because at low level of income, their first priorities are food, clothing and shelter. Their agricultural productivity is low not only because of the large number of people involve in agricultural production but their limited technologies, poor organization, and limited physical and human capital input. For their primary product exports, they have a high exports rate. Most developing countries are exporting basic foodstuffs, nonfood cash crops, and raw materials. Most of their earning is come from export. Although they earned many foreign exchanges through exports but they used the money to pay the interest they borrow from other developed countries. In the recent years, their foreign currency is flowing out more than they received. This is because their export is lower than their import. The last factor is Dominance, Dependence, and Vulnerability in International Relations. Often the rich nations control the pattern of international trade but also control where technology, foreign aid, and private capital are transferred to developing countries. Colonial powers left their values, attitudes, and institutions in the developing countries. Example such as inappropriate education structure, inappropriate government administrative systems, western style trade unions and curative medicine rather than preventive medicine. The penetration of rich-country attitudes, values, and standards also contributed to a problem widely recognized and referred to as the international brain drain. The problems of poverty, low productivity, population growth, unemployment, primary product export dependence, and international vulnerability are the major obstacles for the development in a third world country. In order to eliminate the problem, modification of the present international economic order is needed. Many countries have use the same method and have succeeded in raising incomes, lowering infant mortality, improving educational access, and increasing life expectancy. If the third world countries continue to modify their present international economic order, eventually they will be the same, and people who live in the third world countries will have a better life. Bibliography ----------------- Todaro, Michael P., Economic Development, 5th editon, Longman, 1994. McConnell, Brue and Barbiero, Microeconomics and Macroeconomics, McGraw-Hill Ryerson , 1993, or any other introductory economics text. Gillis, Pwerkins, Roemer, Snodgrass, Economics of Development, W. W. Norton and Co., 1996 Hogendorn, Economic Development, Harper Collins, 1996. f:\12000 essays\business & economics (632)\Obstacles Toward Development.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Obstacles Toward Development In this every day changing world, many of us are living in a comfortable home, have enough food to eat, well clothed, healthy, and financially independent. All these are provided to us because we are living in a well-developed country. Others in the third world nation are not so lucky. They may have no shelter, limited food supply, and unemployed. This is because their country is not well developed like ours. Problems that stop these countries from developing are 1. Low levels of living, comprising low incomes, high inequality, poor health and inadequate education. 2. Low levels of productivity. 3 High rates of population growth and Dependency Burdens. 4. High levels of Unemployment and Underemployment. 5. Significant dependence on agricultural production and primary product exports. 6. Dominance, dependence, and vulnerability in international relations. Low levels of living is one of the major obstacles toward development. Low levels of living is comprised of low incomes, high inequality, poor health and inadequate education. The gross national product (GNP) is the most commonly used measure of the overall level of economic activity. The gross domestic product (GDP) measures the total value for final use of output produced by an economy, by both residents and nonresidents. Thus GNP comprises GDP plus the differences between the income residents receive from abroad for factor services (labor and capital) fewer payments made to nonresidents who contribute to the domestic economy. Many Third World countries have a low level of per capital income, in addition there is a slower GNP growth compare to the developed nations. Secondly, many people in third world countries are unhealthy and constantly battle with disease while trying to stay alive. The infant mortality rate is very high compared to the developed countries. One reason that leads to this is that they do not have the access to safe drinking water and health service. Clean drinking water is one of the major factors necessary to avoid illness. Water-borne diseases such as typhoid fever, cholera, and a wide array of serious or fatal diarrheal diseases are responsible for more than 35% of the deaths of young children Africa, Asia, and Latin America. Most of these diseases and resulting deaths can be eliminated with safe water supplies. In addition, health service is very limited in the least developed countries. It is limited in the number of doctors and beds provided for the patients. Also, all the hospitals and medical facilities are located in the urban areas. People who are not living in the urban areas will have trouble getting to hospital and use the medical facilities provide. Thirdly, many people who live in the third world countries lack education. This is due to the limited budget the government provides. In most countries, education takes the largest share of the government budget. Besides low levels of living, low level of productivity is also a major obstacle toward development. A production function is often used to describe the way in which societies go about providing for their material needs. In the developing countries, the levels of labor productivity are very low compared with those in developed countries. The reason which lead to this is that they lack capital and experienced management. Developed countries have enough capital and experience to buy machinery to increase their productivity. To raise productivity for third world countries, domestic savings and foreign finance must be used to generate new investment in physical capital goods. This will give more opportunity to the workers in terms of education and training and have more high tech machinery to increase in the productivity. The high rate of population growth is the third obstacle toward development. The birth rate in the third would country is so high that it is counted as three-fourths of the population out of the whole world. Children under the age of 15 is close to 40% of the total population in the third countries as opposed to 21% in the developed countries. Older people and children are often referred to as an economic dependency burden because they are the nonproductive members in the society and therefore must be supported financially by the government or the country's labor force. The dependency burden in developed countries is one-third of their population, whereas 45% in the less developed countries. The high dependency burden is stopping the country from developing because most of the money generated in the country goes to children and older people. If the country can reduce the population, then the dependency burden will decrease, and the money that was generated by the country's our force can be used to develop the country. Another factor that affects the development of a country is the high level of unemployment and underemployment. Underemployment where a person who is working less that he/she could or working full-time but the productivity is so low that there is a reduction in hours. The second one is unemployment, where the person is able to work and often eager to but there is no suitable job available for him/her. Underemployment and unemployment are the major impact to low output. People that have no job will not have any income. Therefore people are not willing to spend money on merchandise such as cloth, and other. The percentage of unemployment and underemployment is 35% of the labor force in the least developed countries. If a country has a low export and high import, the country is losing their currencies to other countries. The way to eliminate unemployment is to have foreign investment. It can create more jobs for people in the third world. Another factor that affect development of a country is the substantial dependence on agricultural production and primary product exports. There is a big difference between the proportionate size of the agricultural population in the third world countries (75%) versus the developed countries (5%). People in the third world countries are concentrating in production of agricultural and other primary production activities because at low level of income, their first priorities are food, clothing and shelter. Their agricultural productivity is low not only because of the large number of people involve in agricultural production but their limited technologies, poor organization, and limited physical and human capital input. For their primary product exports, they have a high exports rate. Most developing countries are exporting basic foodstuffs, nonfood cash crops, and raw materials. Most of their earning is come from export. Although they earned many foreign exchanges through exports but they used the money to pay the interest they borrow from other developed countries. In the recent years, their foreign currency is flowing out more than they received. This is because their export is lower than their import. The last factor is Dominance, Dependence, and Vulnerability in International Relations. Often the rich nations control the pattern of international trade but also control where technology, foreign aid, and private capital are transferred to developing countries. Colonial powers left their values, attitudes, and institutions in the developing countries. Example such as inappropriate education structure, inappropriate government administrative systems, western style trade unions and curative medicine rather than preventive medicine. The penetration of rich-country attitudes, values, and standards also contributed to a problem widely recognized and referred to as the international brain drain. The problems of poverty, low productivity, population growth, unemployment, primary product export dependence, and international vulnerability are the major obstacles for the development in a third world country. In order to eliminate the problem, modification of the present international economic order is needed. Many countries have use the same method and have succeeded in raising incomes, lowering infant mortality, improving educational access, and increasing life expectancy. If the third world countries continue to modify their present international economic order, eventually they will be the same, and people who live in the third world countries will have a better life. Bibliography Todaro, Michael P., Economic Development, 5th editon, Longman, 1994. McConnell, Brue and Barbiero, Microeconomics and Macroeconomics, McGraw-Hill Ryerson , 1993, or any other introductory economics text. Gillis, Pwerkins, Roemer, Snodgrass, Economics of Development, W. W. Norton and Co., 1996 Hogendorn, Economic Development, Harper Collins, 1996. f:\12000 essays\business & economics (632)\Oligopolists.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Oligopolists There are four market structures in our economy today : Perfect competition, monopolistic competition, oligopolies and monopolies. This essay shall describe the oligopoly market. The definition of an oligopoly states that in an industry, a small number of firms dominate the market. There are a low number of firms in the industry, becasue and adding to the barriers to entry. The barriers of entry to an oligopolistc market include the financial resources needed to enter and such regulations from the government or patents. In this market, there is a high degree of differentiated products, and so with all of the above factors combined in this market, the competition is of sales, not of price. There is also a factor of concern from the firms in an oligopolistic market - where the actions of one firm will subsequently effect the other firms in the industry. This results in each oligopolist watching its competitors closely, and is a method of competition between the firms, other than by price wars. The Kinked Demand Curve, is the economical graph that shows why oligopolists tend to adopt a common price -to achieve the greatest price and output. The Hilmer committe, estabilished 1993, is a government body who acts in the interests of recommendations of National Competition policies. In 1995, the Trade Practises Act (T.P.A.) was introduced. The T.P.A. sets out the general responsibilities of sellers, such as the firms of oligopolies, and out laws actions that may be unfair to the consumers. This includes misleading advertising, market sharing and collusion. Collusion is where the firms of an industry meet a set, common price, or agree not to come into each other in the market area. These two above practises are ways of government intervention that regulate the conduct of oligopolies. Australian examples of oligopolies include, Hoyts, Kelloggs, Bridgestone, Dunlop, Carlton United, Dulux and Coca Cola. In conclusion, Oligopolists tend to adopt a similar price, for similar products, If price is to be raised, the firms find it best to do so together. Oligopolists avoid price wars. Sales competition, not price competition is their area. f:\12000 essays\business & economics (632)\Oligopoly Markets in Australia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ There are four market structures in our economy today : Perfect competition, monopolistic competition, oligopolies and monopolies. This essay shall describe the oligopoly market. The definition of an oligopoly states that in an industry, a small number of firms dominate the market. There are a low number of firms in the industry, becasue and adding to the barriers to entry. The barriers of entry to an oligopolistc market include the financial resources needed to enter and such regulations from the government or patents. In this market, there is a high degree of differentiated products, and so with all of the above factors combined in this market, the competition is of sales, not of price. There is also a factor of concern from the firms in an oligopolistic market - where the actions of one firm will subsequently effect the other firms in the industry. This results in each oligopolist watching its competitors closely, and is a method of competition between the firms, other than by price wars. The Kinked Demand Curve, is the economical graph that shows why oligopolists tend to adopt a common price -to achieve the greatest price and output. The Hilmer committe, estabilished 1993, is a government body who acts in the interests of recommendations of National Competition policies. In 1995, the Trade Practises Act (T.P.A.) was introduced. The T.P.A. sets out the general responsibilities of sellers, such as the firms of oligopolies, and out laws actions that may be unfair to the consumers. This includes misleading advertising, market sharing and collusion. Collusion is where the firms of an industry meet a set, common price, or agree not to come into each other in the market area. These two above practises are ways of government intervention that regulate the conduct of oligopolies. Australian examples of oligopolies include, Hoyts, Kelloggs, Bridgestone, Dunlop, Carlton United, Dulux and Coca Cola. In conclusion, * Oligopolists tend to adopt a similar price, for similar products, * If price is to be raised, the firms find it best to do so together. * Oligopolists avoid price wars. * Sales competition, not price competition is their area. f:\12000 essays\business & economics (632)\Operating Strategy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Operating Strategy Apollo Hospitals, India Considering the elements of a strategic service vision, the following are the factors applicable to the Apollo Hospitals of India. The service vision framework are according to an exhibit from "Lessons in the Service Sector" by James L. Heskett, Harvard Business Review, March/April 1987, p. 120. 1. Target Market segments · Population Statistics : Population above 920 mill. people with wide variety of economic levels, social statuses, and cultures. Lowest per capita GNP $255, population growth 2% p.a. Growth real GNP 4.5%. Middle class 270 mill. Wealthy 30 million people. · Target Market Segment : Upper middle class, the wealthy, and company employees with health insurance (108 million in 1994 ). Half of the middle class able to pay for private health care. · Current Market Status : Most hospitals are state run at very low cost, low tech, and low quality. Private medical facilities are available - highly specialized, charging market rate (not latest technology but provides privacy and intimacy). Treatment of a complex ailment in a private institution is more time consuming and expensive. · Economic liberalization : domestic and multinational companies - more competition · Demography : urban, high income as dictated by upper middle class and elite class, neighboring countries. · Psychography : Targeting people who can afford comprehensive high quality service; who are ready to pay more money for the comfort and treatment by more reputed doctors. · Market Growth (income + segments growth) : Sizable market of 30 million (wealthy ) and 135 million upper middle class person. · Proposed Plan : Comprehensive hospital emphasizing on tertiary care -- advance therapy and surgery, complicated medical problems. Primary care is stressed mainly through preventive measures. High quality medical care through the latest medical technology and the best qualified staff. 2. Service Concept · The aim is to provide outstanding value to patient through superior medical results, quick treatment, and a low total cost of care relative to competitors. This can be achieved through the Five stars management philosophy : medical personnel, medical technology, employees, value and hospitality. · Customers' perception : high quality, comprehensive service at 10-15% below than the top hospitals in Bombay and Delhi in a shorter time period (on average 7 days versus industry's average of 9-12 days). · Superior medical treatment: success rate at par with highest international standard, competitive total cost of care. 3. Operating Strategy · Hospital operates under the Five Stars philosophy. 1. Medical personnel : Highly skilled and experienced doctors mostly returning from western countries (well known both academically and clinically). Well trained and motivated junior doctors, technicians, nurses, and other supporting staff. 2. Medical technology: Latest available technology, constant and quick update, high utilization and availability. Large capital investment emphasis in this area. 3. Employees: Constant interaction between all levels. The environment promotes a sense of family/community. Upper management recognizes attendance, punctuality, achievements in sport, and honesty through awards. A 10-20% higher wage for the employees than local, private hospitals. Flexible atmosphere, free medical care, and other economic benefits (loan, wedding gift, subsidize meals) attract competent employees. 4. Hospitality : Customer oriented/centered service, 30 hrs/year training, well established guidelines (Induction manual). 5. Value : Care/contact after even being released from the hospital. Guest relations department improves quality of service and maintains relationship with patients. · Emphasis on continuous improvements (CHANGE), avoiding a stagnation. · Operation: Symbiotic relationship between doctors and the hospital: Doctors pay only rents for the room, but set their own rate (within set boundaries from hospital management.) and keep all of the fees received. The hospital earns revenues from running the supporting facilities (room, board, x-rays etc.) · Additional services to doctors: excellent and most recent library system (on- line system), hospital supported technical conferences in and out house, weekly research colloquiums, newsletter (Apollo Heartbeat), arrange visits/training session of recognized doctors from abroad. · Continuous improvements effort at all levels · Employee training and compensations and other benefits · Finance : Initially from own money and stocks, Expansion and operation from revenue generated from existing facilities, licensing, and insurance package. · Marketing: major efforts focused on women in individual consumer market (Well Women Clubs), outreach programs for schools, low price preventive check-up packages for families. · Different categories of rooms to accommodate different economic level of patients. There is a long term trusting relationship with patients. · Referring doctors : There is a strong effort to keep referring doctors aware of the hospital's advances. Advertisements of the hospital's capabilities and facilities exists. Organizing medical conferences and publications like Apollo Heartbeat (distributed free of cost to referrals) keep referring doctors attached to the hospital. And allowing referrals to maintain close contact with own patients in the hospitals promotes the notion that Apollo does not attempt to compete with them. · Contracts with 150 companies for providing preventive care and advanced treatment (Master Health Check). · Organization Structure of Apollo Hospitals : · Apollo Madras, Hyderabad · Training wing/division (Apollo Institute of Hospital management) · IHC (Indian Hospitals Corporations) consulting services · Within each hospital : · consulting doctors (independent) · administrative and supporting staffs, different departments (Guest relationship) commensurate with normal hospital practices. · Human Resources: good compensation, good training. · Control: CHANGE committees, guest relation department, employee empowerment. · Measurement: Patients' health most important yardstick for success. 4. Service Delivery System · The people from all levels due to their high skills, training and motivation contribute towards the hospital's vision of providing high quality service and care at competitive price. · Most updated technology and equipment with standardize procedures for operations high quality contribute to high quality service. · Differentiation based on multidimensional strategy which are high quality, reliable and quick treatment at competitive price. · Barrier to entry to the industry is high, mainly because of high capital investment, brand name, well established marketing, referral network, presence in almost all aspects of business within the health care industry, and contracts with highly recognized doctors. · Expansion vehicle promises most effectively to enhance Apollo Hospitals' profits while expanding recognition of the Apollo name. Some the expansion efforts: · Building more hospitals and control over entire operation · Limited growth, high capital intensive, no risk sharing by others, no advantage of experience of local channels. · Consulting service: Indian Hospital Corporation (IHC) which share experience in hospital management, license Apollo trade name to doctors and entrepreneurs and quicker expansion. · Health maintenance organization (Insurance and medicare HMO) which promote high quality health care through a large network of doctors and hospitals. General information about Apollo Hospital: · Fonder Dr. Pratap Reddy in 1983 in Madras · First corporate hospital in India · Offers : sophisticated treatment in comprehensive range of medical specialties and state of the Art medical technology, skilled and motivated and dedicated technicians, superior highly skilled/ foreign trained and famous in their fields doctors, supporting staff. · Providing top quality medical care f:\12000 essays\business & economics (632)\Operation Analysis of Apollo Hospitals India.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Apollo Hospitals, India Considering the elements of a strategic service vision, the following are the factors applicable to the Apollo Hospitals of India. The service vision framework are according to an exhibit from "Lessons in the Service Sector" by James L. Heskett, Harvard Business Review, March/April 1987, p. 120. 1. Target Market segments · Population Statistics : Population above 920 mill. people with wide variety of economic levels, social statuses, and cultures. Lowest per capita GNP $255, population growth 2% p.a. Growth real GNP 4.5%. Middle class 270 mill. Wealthy 30 million people. · Target Market Segment : Upper middle class, the wealthy, and company employees with health insurance (108 million in 1994 ). Half of the middle class able to pay for private health care. · Current Market Status : Most hospitals are state run at very low cost, low tech, and low quality. Private medical facilities are available - highly specialized, charging market rate (not latest technology but provides privacy and intimacy). Treatment of a complex ailment in a private institution is more time consuming and expensive. · Economic liberalization : domestic and multinational companies - more competition · Demography : urban, high income as dictated by upper middle class and elite class, neighboring countries. · Psychography : Targeting people who can afford comprehensive high quality service; who are ready to pay more money for the comfort and treatment by more reputed doctors. · Market Growth (income + segments growth) : Sizable market of 30 million (wealthy ) and 135 million upper middle class person. · Proposed Plan : Comprehensive hospital emphasizing on tertiary care -- advance therapy and surgery, complicated medical problems. Primary care is stressed mainly through preventive measures. High quality medical care through the latest medical technology and the best qualified staff. 2. Service Concept · The aim is to provide outstanding value to patient through superior medical results, quick treatment, and a low total cost of care relative to competitors. This can be achieved through the Five stars management philosophy : medical personnel, medical technology, employees, value and hospitality. · Customers' perception : high quality, comprehensive service at 10-15% below than the top hospitals in Bombay and Delhi in a shorter time period (on average 7 days versus industry's average of 9-12 days). · Superior medical treatment: success rate at par with highest international standard, competitive total cost of care. 3. Operating Strategy · Hospital operates under the Five Stars philosophy. 1. Medical personnel : Highly skilled and experienced doctors mostly returning from western countries (well known both academically and clinically). Well trained and motivated junior doctors, technicians, nurses, and other supporting staff. 2. Medical technology: Latest available technology, constant and quick update, high utilization and availability. Large capital investment emphasis in this area. 3. Employees: Constant interaction between all levels. The environment promotes a sense of family/community. Upper management recognizes attendance, punctuality, achievements in sport, and honesty through awards. A 10-20% higher wage for the employees than local, private hospitals. Flexible atmosphere, free medical care, and other economic benefits (loan, wedding gift, subsidize meals) attract competent employees. 4. Hospitality : Customer oriented/centered service, 30 hrs/year training, well established guidelines (Induction manual). 5. Value : Care/contact after even being released from the hospital. Guest relations department improves quality of service and maintains relationship with patients. · Emphasis on continuous improvements (CHANGE), avoiding a stagnation. · Operation: Symbiotic relationship between doctors and the hospital: Doctors pay only rents for the room, but set their own rate (within set boundaries from hospital management.) and keep all of the fees received. The hospital earns revenues from running the supporting facilities (room, board, x-rays etc.) · Additional services to doctors: excellent and most recent library system (on-line system), hospital supported technical conferences in and out house, weekly research colloquiums, newsletter (Apollo Heartbeat), arrange visits/training session of recognized doctors from abroad. · Continuous improvements effort at all levels · Employee training and compensations and other benefits · Finance : Initially from own money and stocks, Expansion and operation from revenue generated from existing facilities, licensing, and insurance package. · Marketing: major efforts focused on women in individual consumer market (Well Women Clubs), outreach programs for schools, low price preventive check-up packages for families. · Different categories of rooms to accommodate different economic level of patients. There is a long term trusting relationship with patients. · Referring doctors : There is a strong effort to keep referring doctors aware of the hospital's advances. Advertisements of the hospital's capabilities and facilities exists. Organizing medical conferences and publications like Apollo Heartbeat (distributed free of cost to referrals) keep referring doctors attached to the hospital. And allowing referrals to maintain close contact with own patients in the hospitals promotes the notion that Apollo does not attempt to compete with them. · Contracts with 150 companies for providing preventive care and advanced treatment (Master Health Check). · Organization Structure of Apollo Hospitals : · Apollo Madras, Hyderabad · Training wing/division (Apollo Institute of Hospital management) · IHC (Indian Hospitals Corporations) consulting services · Within each hospital : · consulting doctors (independent) · administrative and supporting staffs, different departments (Guest relationship) commensurate with normal hospital practices. · Human Resources: good compensation, good training. · Control: CHANGE committees, guest relation department, employee empowerment. · Measurement: Patients' health most important yardstick for success. 4. Service Delivery System · The people from all levels due to their high skills, training and motivation contribute towards the hospital's vision of providing high quality service and care at competitive price. · Most updated technology and equipment with standardize procedures for operations high quality contribute to high quality service. · Differentiation based on multidimensional strategy which are high quality, reliable and quick treatment at competitive price. · Barrier to entry to the industry is high, mainly because of high capital investment, brand name, well established marketing, referral network, presence in almost all aspects of business within the health care industry, and contracts with highly recognized doctors. · Expansion vehicle promises most effectively to enhance Apollo Hospitals' profits while expanding recognition of the Apollo name. Some the expansion efforts: · Building more hospitals and control over entire operation · Limited growth, high capital intensive, no risk sharing by others, no advantage of experience of local channels. · Consulting service: Indian Hospital Corporation (IHC) which share experience in hospital management, license Apollo trade name to doctors and entrepreneurs and quicker expansion. · Health maintenance organization (Insurance and medicare HMO) which promote high quality health care through a large network of doctors and hospitals. General information about Apollo Hospital: · Fonder Dr. Pratap Reddy in 1983 in Madras · First corporate hospital in India · Offers : sophisticated treatment in comprehensive range of medical specialties and state of the Art medical technology, skilled and motivated and dedicated technicians, superior highly skilled/ foreign trained and famous in their fields doctors, supporting staff. · Providing top quality medical care f:\12000 essays\business & economics (632)\Organization Change.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ It is intended that this organizational review, will provide the Districts with a better understanding of the changing process computer hardware and software support needs. Also to review the department location for the Plant Automation Group (Group), and develop recommendations on the proposed reporting relationships. ¨ Review the background information. ¨ Identify the primary and secondary functions of the Plant Automation Group ¨ Review possible location of the Plant Automation Group. ¨ Identify and review reporting relationships options DEFINITIONS Definitions used within this organizational review. SCADA Supervisory and Data Acquisition System PLC Programmable Logic Controller HMI Human Machine Interface ITD Information Technology Department PAG Plant Automation Group GM General Manager BACKGROUND When the Districts first began consideration to form a focal group with responsibility for Plant Automation, a task force was formed to make recommendations. The one recommendation this task was unable to come to agreement on was the location of this new Plant Automation Group (PAG). An executive decision was made by the General Manager to center the PAG in the Information Technology Department (ITD). In September 1994, the Joint Board contracted with Ernst & Young to produce a "Management Review of the Proposed Plant Automation Group for the Sanitation Districts of Orange County". Their report recommended the location be with ITD but noted that for the duration of the J-31 project, some engineering-related activities would be involved and require close coordination with the Engineering Department. As late as July 1995 when Ernst & Young performed the Finance Function Review (which included the Information Services Division), they echoed their previous recommendation but provided a timeline of approximately two years to revisit the issue of PAG's location. However, this was not a firm recommendation. Over the past several months, a number of problems have made it clear that the two year time frame identified in the Ernst & Young report may have been optimistic. The problems of budget management, close coordination and communication have placed a strain on the existing management of the ITD, creating frustration and numerous problems throughout many parts of the organization. Primary Functions The charter of the Plant Automation focuses on: ¨ Support of the Operations Division ¨ Providing engineering integration assistance through software and hardware analysis and the setting of standards ¨ Support of the Maintenance Division regarding system and software modifications and changes ¨ Assisting in the roll-out of the J-31 contract so that a transfer of knowledge between CH2M Hill and the Districts occurs ¨ Analyzing and the recommendation of system and network architecture, system design, and integration proposals. The Plant Automation Group is made up of a number of disciplines. Process control programming is very different from the type of programming which Information Technology has been doing and requires different education, skills, and experience. These skill sets all need to be integrated and unified for the purposes of process control. Skills required include the administration of VAX computer environments, configuration, computer operations, data communications for Ethernet and report generation. The Plant Automation Group also covers PLC development and programming, HMI development, and data communications required for PLCs. It is also necessary to perform software development for process control systems, either personally or by assuming oversight responsibility for contractual development. Once a system is in place, this is a task which cannot be contracted out due to the highly customized nature of the process control software (Square D, CRISP SCADA) design. The Plant Automation Group is also required to be on-call 24 hours a day in support of the Operations and Maintenance Departments; and is a resource to all other departments, providing technical support which primarily focuses on control system and data integration. Secondary Functions The Plant Automation Group was chartered with an additional task, outside of their normal work responsibilities, the design of the J-31 Projects. These projects were expanded to include the development of a set of working software programming standards including CRISP, Human Machine Interfaces, Programmable Logic Controller Ladder Logic, and documentation at the conclusion of this project. Location of The Plant Automation Group Considerable debate has surrounded the location of the Plant Automation Group and the J-31 Project. Each of the four departments has a vested interest in this function: A. Operation's interest is as a natural outgrowth of being the primary recipient of our group's effort, and the department most concerned with its success. B. Maintenance's interest is due to its existing responsibilities in PLC maintenance through its Instrumentation Maintenance Division. C. The Engineering Department's interest is due to their staff's concern in the proper design of treatment processes, and facilities to optimize the treatment of wastewater by the Districts. D. Information Technology is concerned with the management of the Districts' computing and communication resources for the benefit of all of these departments. Reporting Relationship There are three basic options, at this point in time: 1. The first option is to maintain the Plant Automation Group, as presently defined, but change its organizational structure. At the present time it is organized as a separate group within Division 2430, the Software Support and Plant Automation Division. This has not worked well at all as the activities are too varied to be able to manage adequately. If no other change is forthcoming, it should be proposed that the Plant Automation Group be split so that the Software Support Division and the Plant Automation Division be two separate divisions. The new Plant Automation Division would be staffed with a Division Manager whose role would be to provide the appropriate direction, coordination, administration, and budgetary oversight to this important role. The advantage of this approach is that, given the right manager, many of the problems which have been experienced to date should be alleviated. The disadvantage is that it may only bury the problems in another layer of bureaucracy -- much will hinge on the management abilities of the new Division Manager. 2. The second option is to transfer the Plant Automation Group, in its entirety, to the Engineering Department. Within Engineering, it should enable the proper coordination and communication to occur for the elements of the PAG's activities that involve design. The disadvantage of this approach is that the only design element of PAG left is the remaining portion of J-31. When this project is completed, no further engineering-related activities will remain. At the present time, PAG is beginning to assume a 24-hour, on-going support function which is not consistent with the Engineering Department's normal activities. The most important role that the Plant Automation Group fulfills is that of System Integration for Plant Automation. This activity is intimately attuned to the activities of the Information Technology Department, although for a uniquely different application than what the rest of the ITD is involved with. 3. The third option is to immediately transfer what small portion remains of the J-31project to the Engineering Department for the duration of the project. The PAG will then continue in ITD and become a separate Division, as outlined in Option 1 above. The new Plant Automation Division would immediately assume the sole function of supporting plant automation and make recommendations to Engineering regarding future construction projects, in the same way that Operations and Maintenance have always done. The advantage of this approach is to allow Engineering to manage this project and get the Plant Automation Group out of the business of Engineering. The only disadvantages are that a change in project management mid-stream might result in some loss of momentum and coordination difficulties. The other possible disadvantage may be a lack of staffing in Engineering. Naturally, some support staff should be loaned to Engineering from the Plant Automation Group to enable this transition to succeed. RECOMMENDATION The Plant Automation Group will only succeed through the combined effort of all the departments. It must be allowed to focus on selected critical objectives. Initially, it must focus on: ¨ Making Operations its primary customer ¨ Learning and analyzing new system architectures, hardware, and software ¨ Understanding and learning how to support and maintain the new systems arising from the J-31 contracts ¨ Reviewing and participating on proposed projects, writing and testing software standards for the entire organization to use. The location of the Plant Automation Group should be based on its primary work function, which is mainly computer software and hardware support. The J-31 Projects have two very distinct parts - Traditional Design and Software Integration. For the J-31 projects to be successful, cooperation and assistance must be fostered between the departments. A team-like approach to problem resolution is fundamental to building a responsive organization. The Districts should employ the concept of "Concurrent Engineering," which solicits the input and commitment of all relevant departments in the conception and design stages. Concurrent Engineering allows for all parts of an organization to be included in the initial phases of a project, in order to identify and address problems early before change involves a great expense. Involving participants together enriches the final product. The best solution will center the traditional design portion of J-31 in the Planning and Design Group of the Engineering Department, and Software Integration within the Plant Automation Group. This same approach should be used for any future follow-on projects involving automation for Plant Operations. This dual responsibility will reduce each department's exposure and vulnerability in dealing with skill sets outside of their normal working environment. Option 3 should be adopted as being the best solution to the problems identified and I would recommend implementation of this option. REFERENCES Banner, D. K., Gagné, E. T. (1996). Designing Effective Organizations. Thousand Oaks, CA: Sage Publications. Robbins, S. (1996). Organizational Behavior: Concepts, Controversies, Applications. Englewood Cliffs, NJ: Prentice-Hall Inc. Fisher, D. (1993). Communication in Organization. St. Paul, MN: West Publishing Co. Purchased: Hersey, P. (1996). Management of Organizational Behavior. Englewood Cliffs, NJ: Prentice-Hall Inc. Steers, R. (1993). Organizational Behavior. Glenveiw, IL: Scott, Foresman and Company. Timm, P. (1992). Supervision. St. Paul, MN: West Publishing Co. Smeltzer, L., Leonard, D. (1994). Managerial Communication: Strategies and Applications f:\12000 essays\business & economics (632)\Organizational Culture.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Organizational Culture Organizational culture is something that is very important to consider when you are looking for an employment opportunity. Organizational culture can drastically effect how much you like your job and how long you will stay with your job. I have worked in the Campus Visits department at the Office of Admissions for a little over a year now and have a good understanding of the organizational culture that we have. The organizational culture of this job suits my needs, wants, and expectations very well. Sociability within our office is very high. Approximately 50 students are employed in the office and most students know most or all of the other students working there. Many of the students in my department get together on the weekends to do various social events. Sociability is not limited to the student workers. Every Friday a department is responsible for bringing in snacks and drinks to our break room where everyone in the office is welcome to go back to the room and enjoy them, while socializing of course. It is not uncommon for both student workers and full time staff to sit and talk about non-work related subjects for up to hours at a time when things are slow and there's no work to be done. The power distribution and job autonomy of the office is clear-cut with many different levels. The student workers, of course, are at the bottom power level. Every department has one or two students who are "undergraduate assistants" and have authority over the other students in that department. There is a single "director of admissions" who is in charge of the whole office. The power level directly beneath the director of admissions is the assistant director of admissions. There are a total of eight assistant directors of admissions, one for each department. The departments include the following: New Student Enrollment, Campus Visits, Processing, Honors Recruitment, Eastern Recruitment, Western/Central Recruitment, National Recruitment, and Minority Recruitment. In our department, the assistant director also has her own assistant, who ranks directly above myself and the other undergraduate assistant, Todd. Todd and I have fifteen students that we are responsible for delegating responsibility to. As a mentioned earlier, there are titles and certain responsibilities given to employees, but the degree of structure isn't as high as it might first appear. Crossing over "department lines" is very common and somewhat necessary. One example of this is Red Letter Days. Red Letter Days are the responsibility of our department, Campus Visits. Though we are the largest department with about 20 employees, it would be virtually impossible for us to host the 800 or more people that attend any given Red Letter Day. All of the recruiting departments help us out on these days by simply filling in the gaps where we need help. In return, we help them with their work when they need help. The degree of structure is much higher when it comes to certain policies. For example, a student in our department may have to look at the computer records of 60 different students when preparing information, but if just one student's information is accessed without purpose, the student employee would be fired without further explanation. Achievement awards is an element of our office's culture that could use some improvement. Monetary awards do not exist at any level. Our boss is pretty good about giving praise where it's due, but she can't do anything about our pay. Every student starts at $5.65 per hour, and, regardless of job performance, won't receive a raise until they have worked for a full year. The final element of organizational culture I will discuss is tolerance for risk and change. Our work environment is not only tolerant for change, change is highly encouraged. We are constantly evaluating and changing our procedures for doing things. Every visitor to the campus is asked to fill out an evaluation, which is in turn used to help us improve. An example of a fairly recent change just took place this semester. We used to have about eight students come in at about nine in the morning. Maybe two or three of these would give a tour, and the rest would all be around the office doing many different, random tasks. It is now more structure so that certain individuals are assigned specifically to give tours, answer the phone, or work on making folders. We have found this to be more efficient and result in fewer mistakes. f:\12000 essays\business & economics (632)\Organizational Review of Plant Automation Group.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Organizational Review of Plant Automation Group It is intended that this organizational review, will provide the Districts with a better understanding of the changing process computer hardware and software support needs. Also to review the department location for the Plant Automation Group (Group), and develop recommendations on the proposed reporting relationships. ¨ Review the background information. ¨ Identify the primary and secondary functions of the Plant Automation Group ¨ Review possible location of the Plant Automation Group. ¨ Identify and review reporting relationships options DEFINITIONS Definitions used within this organizational review. SCADA Supervisory and Data Acquisition System PLC Programmable Logic Controller HMI Human Machine Interface ITD Information Technology Department PAG Plant Automation Group GM General Manager BACKGROUND When the Districts first began consideration to form a focal group with responsibility for Plant Automation, a task force was formed to make recommendations. The one recommendation this task was unable to come to agreement on was the location of this new Plant Automation Group (PAG). An executive decision was made by the General Manager to center the PAG in the Information Technology Department (ITD). In September 1994, the Joint Board contracted with Ernst & Young to produce a "Management Review of the Proposed Plant Automation Group for the Sanitation Districts of Orange County". Their report recommended the location be with ITD but noted that for the duration of the J-31 project, some engineering-related activities would be involved and require close coordination with the Engineering Department. As late as July 1995 when Ernst & Young performed the Finance Function Review (which included the Information Services Division), they echoed their previous recommendation but provided a timeline of approximately two years to revisit the issue of PAG's location. However, this was not a firm recommendation. Over the past several months, a number of problems have made it clear that the two year time frame identified in the Ernst & Young report may have been optimistic. The problems of budget management, close coordination and communication have placed a strain on the existing management of the ITD, creating frustration and numerous problems throughout many parts of the organization. Primary Functions The charter of the Plant Automation focuses on: ¨ Support of the Operations Division ¨ Providing engineering integration assistance through software and hardware analysis and the setting of standards ¨ Support of the Maintenance Division regarding system and software modifications and changes ¨ Assisting in the roll-out of the J-31 contract so that a transfer of knowledge between CH2M Hill and the Districts occurs ¨ Analyzing and the recommendation of system and network architecture, system design, and integration proposals. The Plant Automation Group is made up of a number of disciplines. Process control programming is very different from the type of programming which Information Technology has been doing and requires different education, skills, and experience. These skill sets all need to be integrated and unified for the purposes of process control. Skills required include the administration of VAX computer environments, configuration, computer operations, data communications for Ethernet and report generation. The Plant Automation Group also covers PLC development and programming, HMI development, and data communications required for PLCs. It is also necessary to perform software development for process control systems, either personally or by assuming oversight responsibility for contractual development. Once a system is in place, this is a task which cannot be contracted out due to the highly customized nature of the process control software (Square D, CRISP SCADA) design. The Plant Automation Group is also required to be on-call 24 hours a day in support of the Operations and Maintenance Departments; and is a resource to all other departments, providing technical support which primarily focuses on control system and data integration. Secondary Functions The Plant Automation Group was chartered with an additional task, outside of their normal work responsibilities, the design of the J-31 Projects. These projects were expanded to include the development of a set of working software programming standards including CRISP, Human Machine Interfaces, Programmable Logic Controller Ladder Logic, and documentation at the conclusion of this project. Location of The Plant Automation Group Considerable debate has surrounded the location of the Plant Automation Group and the J-31 Project. Each of the four departments has a vested interest in this function: A. Operation's interest is as a natural outgrowth of being the primary recipient of our group's effort, and the department most concerned with its success. B. Maintenance's interest is due to its existing responsibilities in PLC maintenance through its Instrumentation Maintenance Division. C. The Engineering Department's interest is due to their staff's concern in the proper design of treatment processes, and facilities to optimize the treatment of wastewater by the Districts. D. Information Technology is concerned with the management of the Districts' computing and communication resources for the benefit of all of these departments. Reporting Relationship There are three basic options, at this point in time: 1. The first option is to maintain the Plant Automation Group, as presently defined, but change its organizational structure. At the present time it is organized as a separate group within Division 2430, the Software Support and Plant Automation Division. This has not worked well at all as the activities are too varied to be able to manage adequately. If no other change is forthcoming, it should be proposed that the Plant Automation Group be split so that the Software Support Division and the Plant Automation Division be two separate divisions. The new Plant Automation Division would be staffed with a Division Manager whose role would be to provide the appropriate direction, coordination, administration, and budgetary oversight to this important role. The advantage of this approach is that, given the right manager, many of the problems which have been experienced to date should be alleviated. The disadvantage is that it may only bury the problems in another layer of bureaucracy -- much will hinge on the management abilities of the new Division Manager. 2. The second option is to transfer the Plant Automation Group, in its entirety, to the Engineering Department. Within Engineering, it should enable the proper coordination and communication to occur for the elements of the PAG's activities that involve design. The disadvantage of this approach is that the only design element of PAG left is the remaining portion of J-31. When this project is completed, no further engineering-related activities will remain. At the present time, PAG is beginning to assume a 24-hour, on-going support function which is not consistent with the Engineering Department's normal activities. The most important role that the Plant Automation Group fulfills is that of System Integration for Plant Automation. This activity is intimately attuned to the activities of the Information Technology Department, although for a uniquely different application than what the rest of the ITD is involved with. 3. The third option is to immediately transfer what small portion remains of the J-31project to the Engineering Department for the duration of the project. The PAG will then continue in ITD and become a separate Division, as outlined in Option 1 above. The new Plant Automation Division would immediately assume the sole function of supporting plant automation and make recommendations to Engineering regarding future construction projects, in the same way that Operations and Maintenance have always done. The advantage of this approach is to allow Engineering to manage this project and get the Plant Automation Group out of the business of Engineering. The only disadvantages are that a change in project management mid-stream might result in some loss of momentum and coordination difficulties. The other possible disadvantage may be a lack of staffing in Engineering. Naturally, some support staff should be loaned to Engineering from the Plant Automation Group to enable this transition to succeed. RECOMMENDATION The Plant Automation Group will only succeed through the combined effort of all the departments. It must be allowed to focus on selected critical objectives. Initially, it must focus on: ¨ Making Operations its primary customer ¨ Learning and analyzing new system architectures, hardware, and software ¨ Understanding and learning how to support and maintain the new systems arising from the J-31 contracts ¨ Reviewing and participating on proposed projects, writing and testing software standards for the entire organization to use. The location of the Plant Automation Group should be based on its primary work function, which is mainly computer software and hardware support. The J-31 Projects have two very distinct parts - Traditional Design and Software Integration. For the J-31 projects to be successful, cooperation and assistance must be fostered between the departments. A team-like approach to problem resolution is fundamental to building a responsive organization. The Districts should employ the concept of "Concurrent Engineering," which solicits the input and commitment of all relevant departments in the conception and design stages. Concurrent Engineering allows for all parts of an organization to be included in the initial phases of a project, in order to identify and address problems early before change involves a great expense. Involving participants together enriches the final product. The best solution will center the traditional design portion of J-31 in the Planning and Design Group of the Engineering Department, and Software Integration within the Plant Automation Group. This same approach should be used for any future follow-on projects involving automation for Plant Operations. This dual responsibility will reduce each department's exposure and vulnerability in dealing with skill sets outside of their normal working environment. Option 3 should be adopted as being the best solution to the problems identified and I would recommend implementation of this option. REFERENCES Banner, D. K., Gagné, E. T. (1996). Designing Effective Organizations. Thousand Oaks, CA: Sage Publications. Robbins, S. (1996). Organizational Behavior: Concepts, Controversies, Applications. Englewood Cliffs, NJ: Prentice-Hall Inc. Fisher, D. (1993). Communication in Organization. St. Paul, MN: West Publishing Co. Purchased: Hersey, P. (1996). Management of Organizational Behavior. Englewood Cliffs, NJ: Prentice-Hall Inc. Steers, R. (1993). Organizational Behavior. Glenveiw, IL: Scott, Foresman and Company. Timm, P. (1992). Supervision. St. Paul, MN: West Publishing Co. Smeltzer, L., Leonard, D. (1994). Managerial Communication: Strategies and Applications f:\12000 essays\business & economics (632)\Overview regarding the current situation of AWC Inc.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Overview regarding the current situation of AWC Inc. The company that will be analyzed in this report is that of AWC Inc. AWC Inc., is an aluminum manufacturing company located in Southwestern Ontario. The company has been around since 1950, and was founded by Mr. Jim MacDonald, father of the current president Mr. Alex MacDonald. AWC specializes in the fabrication of aluminum windows, doors, storefronts, and curtain wall products. AWC has 100 committed staff with 45 in production, and 55 in the offices. The company is well known for the high quality of it's products and their competitive prices. AWC Inc. is facing a decision regarding air treatment in the welding portion of the plant, as new government regulations are introduced to the industry. Currently there is a recession in the construction industry, and it is projected to last another three years. Buying the air cleaning equipment would devastate the companies profits and cash flows. Fines are ever-present, however highly unlikely. The air cleansing equipment is between $240,000 and $400,000. SWOT analysis of the current issue Strengths with respect to the current issue are. - Quality design and competitive prices. - Popularity of the new aluminum doors. - Extremely committed employees. - Experienced and family owned (since 1950). - Not located where neighbors would complain ( near cement quarry). Weaknesses of AWC Inc. with regard to the issue are. - no current ventilation systems. - Alex MacDonald has limited experience (1 year running company). - Limited money to spend due to 3% profit margins on normal contracts. - Contemplating costly second shift for welding line. Opportunities for AWC Inc. too look at externally. - AWC can earn up to 20% on specified contracts. - Interest in commercial aluminum doors (high volume). - free trade agreement with U.S. (tariff free contract opportunities). - One third of it's competitors are out of business. - Fines are highly unlikely. Threats externally to AWC Inc. - Cost of cleaning equipment devastating to cash flow, and profits. - Government regulations (Inspectors snooping around). - U.S. competition (new), local competition (37 firms in Southwestern Ontario). - Recession in the construction industry could last up to three years. - up to $500,000 fine for non-compliance. Lets Identify The Problem The problem that AWC faces is that of compliance. Shall the company comply with the regulations, and face the possibility of going bankrupt, or, do nothing and face possible fines. The problem has been caused by increased public awareness of industrial pollution. The concern of the government is to improve worker safety. The emissions caused by welding have been linked to health concerns associated with the tiny particles of metal released in the emissions. The government studies have concluded that this is a cancer risk and as dangerous as, "smoking a whole pack of cigarettes" as one government official put it. There is some questions as per the legitimacy of these studies however. Alex's father has advised him that the government is not likely to come down hard on AWC, in light of the local economy performing poorly as of late. The local officials would fear losing 100 jobs, and a company that provides honest work to the local citizens. The risk of non-compliance appears to be considerably low at this time. Alternatives to AWC's current problem The three most viable solutions for resolving this issue are. - Acquiring a ventilation system and proper licensing (starting cost $240,000). - Acquiring a recirculating filtration system, licensing & training, (startup cost $400,000) - Status Quo, no new system in the current period. It is truly a shame that there is no clear alternative to the problem at this point. Which ever one is chosen, there will be definite questions to be answered about AWC's future. Criteria upon which a decision will be made. The three most important criteria to AWC Inc. are. - Financial Stability - Job Security for employees - Maintaining current production. Financial stability is obviously the top priority in this case. The solution must be cost effective in order to insure that AWC survives the impending recession. Job security is also important. Being a family business, nurturing long term relationships with employees is key. The company must also be able to maintain the current production, and efficiency that will be paying the bills. The company is at a very fragile state in light of the recession. Decision Matrix (Analysis of the Alternatives) -Table Form Beneath is a matrix comparing the three Alternatives ,to the decision Criteria. Financial Job Security Production Ventilation Medium Medium Medium Recirculation Worst Worst Worst Status Quo Best Best Best Analysis of the Alternatives based on the three criteria Alternative one is a Ventilation system, venting fumes outside of the plant. This system would satisfy health and safety regulations, however, would be subject to Ministry of Environmental regulations concerning external emissions of by-products. It is by no means cost effective at a price of $ 240,000, which would cripple AWC financially, and eventually force the layoff of workers. It would also be difficult to maintain production with such an injured cashflow, and debt incurred. Alternative number two is a recirculation filtration system. The cost of the system that AWC would require is $400,000, and approval from the Ministry of Labor. The cost of this system may potentially bankrupt AWC. The recirculating system would also require additional training in waste disposal. The two litres of toxic sludge that the system creates every week costs $500.00 to dispose of with a cost of $200 to test. AWC is not licensed to store or transport toxic waste, forcing them to pay to have it disposed of. AWC simply could not afford this system, it would be devastating to the current production, and probably put one hundred people on employment insurance. The third alternative is Status Quo. AWC is a smaller company compared to some of it's larger competitors. Also, the pollution that AWC creates is obviously not as visible as some of these larger firms. Alex had found that a thousand companies had been charged for releasing harmful emissions. Of these companies, only one hundred were fined an average of $30,000 each, and one person incarcerated. It was estimated that 50,000 companies were affected by the law, and 70-80% were in violation of it. The chances of being caught are slim. Recommendation and Most Likely outcomes from this decision. The recommendation chosen based on the available criteria is, the third one, Status Quo. In order to survive this recession AWC cannot risk paying hundreds of thousands of dollars on a ventilation system. A new system may be feasible in the future, however, it presents too great of a financial risk at this time. The company will continue to operate as normal. If pressures do arise from the government, AWC will simply state that without financial help, a air cleaning system would not be feasible at this time. There is a good chance of appeasement from the government. The government loves to keep people working, now more than ever. In Addition, they have never seen a government inspector snooping around the plat, why would there be one now. The reaction to this decision will be limited, due to the lack of change it creates. The employees of AWC are not likely to complain, they are extremely faithful. It is a good decision financially for the company, all management should be happy. I have confidence that a cheaper alternative may also show up in the future. Action/Implementation Plan Step 1 Inform the employees of the regulations and open the floor for suggestions to the problem. Step 2 Inform the employees of the decision made, and take in feedback. Step 3 Get some fresh air into the welding area (Cut Hole/ Vents). Step 4 Continue full speed production of aluminum doors. Step 5 Continue to run the company at a high level of efficiency and lets make it through this recession. It is not likely or feasible to do anything about the ventilation at this time. This ventilation idea, may be saved for more prosperous times. No one seems to be complaining at the factory, so there is no immediate cause for alarm. AWC Inc. is a relatively small company, and the government has bigger fish to fry. Also, the chance of getting caught is next to nothing. The systems would be installed in two years, which doesn't attach much urgency to the situation either. AWC Inc. should re-evaluate the problem after the recession. f:\12000 essays\business & economics (632)\Paul A Samuelson.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2516 BIG ISSUES OF ECONOMIC CONCERN Samuelson has offered the world many economic theories. One area he is widely known for is his views on the spending multiplier. Samuelson has presented a way through his aggregate demand model to demonstrate how the spending multiplier affects individual types of spending. There are several components of aggregate demand. The basis for understanding this model is as follows:  An increase in prices causes a drop in household assets, thus causing consumers to spend less.  Increases in domestic prices reduce exports, which causes an increase in spending on imports.  The interest rate effect is when prices increase, as does the demand for money, thus increasing the interest rate. This forces a downward pressure on investment and purchases of durable goods. Therefore, investment, exports and consumption are all inversely related to pricing. In Samuelson's model, government spending was the only constant. This means the government will always buy the same amount of goods no matter what the price. The aggregate demand schedule is therefore, the sum of consumption, investment, government purchases and exports. The chart below depicts the aggregate demand schedule. Price Level Consumption Investment Gov. Purchases Exports Real Expenditures (1986 $ billions) 160 400 75 100 25 600 140 450 100 100 50 700 120 500 125 100 75 800 100 550 150 100 100 9000 80 600 175 100 125 1000 Samuelson used this model to demonstrate how changes in these components would impact real expenditures. For example, the chart below shows the results if the government increased its purchases by $200 billion. Price Level Consumption Investment Gov. Purchases Exports Real Expenditures (1986 $ billions) 160 700 75 300 -75 1000 140 750 100 300 -50 1100 120 800 125 300 -25 1200 100 850 150 300 0 1300 80 900 175 300 25 1400 A $200 billion rise in government purchases leads to a $300 billion increase in consumption. It will also reduce exports by $100 billion. When the total changes in the components have taken place, the real expenditures will increase by $400 billion at each price level. Samuelson also used this model to demonstrate the effect changes in tax amounts could have. Taxes are not one of the components of the aggregate demand formula, but they do impact consumption and imports. If taxes increase, households have less money for domestic purchases. Following is a chart that depicts a $200 billion increase in taxes: Price Level Consumption Investment Gov. Purchases Exports Real Expenditures (1986 $ billions) 160 100 75 100 125 400 140 150 100 100 150 500 120 200 125 100 175 600 100 250 150 100 200 700 80 300 175 100 225 800 A $200 billion increase in taxes would therefore result in a decrease in consumption and an increase in exports. The real expenditures would then be $200 billion less in each price level. This model was once the standard for forecasting these types of adjustments. It has been criticized, however, for not including any of the indirect ways in which government spending and taxes can affect the economy. The model still has relevance when examining how the government can provide stabilization to the overall economy. FREE MARKET CAPITALISM In his book Foundations of the Free Market System, Paul Anthony Samuelson emphasized the importance of mathematics concepts in the study of economics. Samuelson was also swept up in the Keynesian revolution. The Nobel prizewinner in economics in 1970, Samuelson considered it a "priceless advantage to have received a thorough grounding in classical economics" (Samuelson, PG). Samuelson, like Keynes, was a total conservative. He agreed that Keynes had two basic motivations, one of which was to destroy the labor unions and the other one was to maintain the free market. Samuelson seemingly went along with Keynes, whose whole idea was to have an impotent government that would do nothing but, through tax and spending policies, maintain the equilibrium of the free market. Keynes was known as the real father of the neoconservatism movement (Anonymous bio.html). Samuelson was opposed to the world of unregulated free market capitalism. He felt that if we were to look at the behavior of financial markets, we would find that instead of tending toward equilibrium, prices continue to fluctuate relative to the expectations of buyers and sellers. There are prolonged periods when prices are moving away from any theoretical equilibrium. Even if they eventually show a tendency to return, the equilibrium is not the same as it would have been without the intervening period. Yet the concept of equilibrium endures. It is easy to see why: without it, economics could not say how prices are determined (Soros 45). Samuelson stressed that in the absence of equilibrium, the contention that free markets lead to the optimum allocation of resources loses its justification. The supposedly scientific theory that has been used to validate it turns out to be an axiomatic structure whose conclusions are contained in its assumptions and are not necessarily supported by the empirical evidence. The resemblance to Marxism, which also claimed scientific status for its tenets, was, Samuelson felt, too close for comfort (Soros 45). TOTALITARIAN SOCIETY An open society is equated to a Market Economy. Private individuals own land and businesses, and operate them for profit, and the market determines what goods are sold at what prices. Wages are set between employees and management, with workers sometimes represented by unions. The Government stimulates output through incentives and usually provides tax benefits to businesses. A closed, sometimes referred to as totalitarian, society is also known as a Command Economy. The state owns the sources of production, which are managed by bureaucrats. Central planners set production quotas, and the Government sets wages; employee unions are non-existent. The Government is run by the Communist party, which rules with a dictatorial hand. Totalitarianism is defined as domination by a single, like-minded governing elite of all organized political, economic, social and cultural activities in a country by means of a single-party monopoly of power. Does Paul A. Samuelson support an open or closed society? In his economics textbook, Economics: An Introductory Analysis, Samuelson spends many chapters on the socialist economics of the Soviet Union. He believed Soviet central planning could work and that the Soviet Union had growth rates exceeding the United States. However, Samuelson was not a socialist. He frequently declared his optimism about the future of capitalism and rejected doomsday predictions about another Great Depression. He believes free trade should be considered and is critical of Karl Marx's economics. In his recent editions of his textbook he says Soviet central planning was a "failed" model. Samuelson made these comments in an interview with U.S. News & World Report in December 1960: "I never look upon the government as something in Washington that does something to us or for us. I think of public policy as a way in which we organize our affairs." Therefore, we believe Samuelson supports an open society. SUPPORT OF VIEWS Paul Samuelson's contributions can be divided into four main areas. These are dynamic theory and stability analysis; consumption theory; general equilibrium theory; and capital theory. Samuelson's dynamic theory and stability analysis departed from the traditional thinking that the analysis should not be solely in static analysis which are limited to equilibrium positions. His theory advanced the idea that analysis should also take into consideration how the economic system performs outside equilibrium and how the economy develops following a chain of development phases. This particular theory bridged a gap between static and dynamic analysis. Under this theory, Samuelson defined the conditions of a stable economic system and the methods by which the economy will return itself to equilibrium following a disturbance. An example would be when an increase in demand will bring about a rise in the prices. Samuelson's consumption theory defined consumer preferences on the basis of observable behavior. Previous theory looked at the effects of consumption based on incomes and prices. Samuelson believed that households would reveal their preferences by observing their purchasing behavior. This theory provided an important tool of observable behavior for economist to analyze consumption theory. The equilibrium theory developed by Samuelson studied the interaction between all prices and quantities in an economic system. Under this theory Samuelson demonstrated that free trade is superior to protection by tariffs. Even though it is a known fact that foreign trade causes redistribution within countries, it is more beneficial for individuals benefiting from free trade to completely compensate those who lose in international trade. This method is more beneficial to all involved than the use of tariffs which raise the price of the product and reduce the rewards for international trade. Traditional thinking regarding capital theory was that there must be an application of an aggregate stock of capital to determine the capital goods of a society. Samuelson, working with Robert Solow, developed a logical capital theory. This theory is based on the assumption that all capital goods in a society can be equated to a sum of money. (http://www.nobel.se/laureates/economy-1970-press.htlm) INFLUENCES The influence of Paul Samuelson can be pinpointed to one man. In his economics textbook, Economics: An Introductory Analysis, he teaches his economic philosophy based on the theories of economist John Maynard Keynes. Samuelson's textbook is said to be the most influential presentation of the Neoclassical/Keynesian synthesis. Keynes lived from June 5, 1883 to April 21, 1946. He was a British economist, journalist, and financier, best known for his revolutionary economic theories (Keynesian economics) on the causes of unemployment and level of national income. Samuelson makes his mathematical formulations in the context of neo-Keynesian economic theory. Another influence of Samuelson is his own life. He lived through significant events such as the depression and World War II. During these years, economic conditions varied from one extreme to another. Because Samuelson lived during these times his work centers on these types of issues. Whom did Paul Samuelson influence? Millions of college undergraduates study economics using Samuelson's textbook Economics: An Introductory Analysis. Since its first edition in 1948, Economics has sold more than 4 million copies and has been translated into 41 languages. It is the most successful economics textbook ever written. A lot of policy is still being made and a lot of journalism written by people who learned economics from Paul Samuelson. He has set the style for several generations of economists during the last decades. An individual Samuelson influenced was Joseph E. Stiglitz, who he was a mentor to. Stiglitz is said to be the most prominent economic theorist of this generation. He is a professor at Stanford University, and is the chief economist and senior vice president at the World Bank. He was also an economic Advisor to President Bill Clinton. He uses mathematics and computer models to simulate economic behavior. Stiglitz studied under and highly respected Paul Samuelson for his work in economics and mathematics. Samuelson also influenced presidents of the United States. He served as an advisor to Presidents John F. Kennedy and Lyndon B. Johnson. Samuelson has had a lasting effect on the economy and political leaders of this century. SIGNIFICANT CRITICISMS It is believed that in the area of microeconomics Samuelson's development of diagrams of supply and demand, or cost curves set the disciplines standard. However, in the area of macroeconomics, there are some criticisms of Samuelson's theories. One of these critics is Professor Mark Skousen of Rollins College in Winter Park, Florida. Professor Skousen believes that Samuelson created a false sense that there is a unified way of thinking on how economies work. Skousen states that in Samuelson's book, "Economics" he was introducing John Maynard Keynes' beliefs about economics that advocate the need for active government and skepticism about market outcomes. Skousen believes that people are denied the opportunity to be exposed to the trends of privatization and supply-side economics that have significantly boosted economic activity in other nations. Skousen's strongest criticisms of Samuelson are about Samuelson's belief that the Soviet's economy was proof that a Socialist command economy can function and thrive. Shortly after that statement, the Berlin Wall was torn down and the Soviets economy collapsed. Skousen's other strong criticism is in regard to Samuelson's "paradox of thrift" that states that excessive savings could cause recession or worse. (Skousen, p.11) COMPARSION/IMPACT Samuelson's influence was felt all over the world. Indeed, his textbooks have sold more than a million copies and have been translated into French, German, Italian, Hungarian, Polish, Korean, Portuguese, Spanish and Arabic. "The book's emphasis on different themes has changed with the changing of the nation's economic problems," wrote Business Week in 1959" (Anonymous bio.html). The first edition was dominated by the end-of-the-war worry that widespread unemployment would return while later editions put growing stress on fiscal and monetary controls over inflation. In the later editions Samuelson has worked toward what he calls a 'neoclassical synthesis' of ancient and modern economic findings. In short, his synthesis is that nations today can successfully control either depression or inflation by fiscal and monetary policies. It is the feeling of some economists that Samuelson's book is really his greatest contribution. It has gone a long way toward giving the world a common economic language" (Anonymous, bio.html). Some of Samuelson's students and fellow theorists who joined him in his theories were Joan Robinson of Cambridge University who was a colleague and student of Keynes, as well as J. R. Hicks of Oxford who was not only substantially influenced but also made significant contributions to the Keynesian theory. Samuelson had a global impact in that he communicated with many politicians including President Kennedy. In one report to Kennedy, Professor Samuelson made certain minimal policy recommendations "that need to be pushed hard even if the current recession turns out to be one that can be reversed by next summer at the latest." He urged that there be strong support of pledged expenditure programs, including such things as increasing defense expenditures and foreign aid on a basis of merit and need. He also recommended pushing educational programs, high priority for urban renewal and health and welfare programs, highest priority on improving unemployment compensation, acceleration of useful public works and highway construction programs, help for depressed areas programs, and natural resource development projects (Anonymous bio.html). Because of Samuelson's Keynesian viewpoint on the aspect of taxation, and his unique beliefs on the theory of equilibrium in economic theory, it is obvious that his outlooks as far as taxation were concerned were at distinct odds with those of the classicists. Samuelson would favor an equilibrium tax, feeling that 'all things being equal' that equal taxation for the masses would be the most fair way to tax the people. The Keynesian theories were well thought out but unfortunately, have not withstood the true test of time. While the theory exists well on paper, it just does not work out to be as balanced in the actuality; therefore, the tax policies are not realistic and are not a valid theory to support. BIBLIOGRAPHY Lovewell. Play it again: Paul Samuelson and the Spending Multiplier [online]. Available: http://www.ryerson.ca/lovewell/PIAG2.html Anonymous at http://nobel.sdsc.edu/laureates/economy-1970-1-bio.html Samuelson, Paul A., Foundations of Economic Analysis, Enlarged Edition, Harvard University Press, Cambridge, Massachusetts, August 1983. Samuelson, Paul A. and William D. Nordhaus, Economics, 16th Edition, University Press, Cambridge, Massachusetts, December 1997. Soros, George. "The capitalist threat." The Atlantic Monthly, (1997): February, pp. 45(11) http://www.nobel.se/laureates/economy-1970-press.html Skousen, Mark. "Samuelson retreats (slightly) from socialism." Human Events, 4/194, Vol.50 Issue 12, p11, 3/4p, lbw f:\12000 essays\business & economics (632)\Pay Them.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Pay Them There was a time when men played for the love of the game; when competition alone satisfied the male ego. This age of basketball featured greats such as Wilt Chamberlain, Bill Russell, and Oscar Robinson. These gladiators, and those like them, battled repeatedly winning league championships, MVP's, scoring titles, and other accolades. Then, the product of James Naismith moved into an era where the love continued, but money was added. Clyde Drexler, Charles Barkely, Reggie Miller and Tim Hardaway have become league "poster-boys" for commercials and shoe contracts. Each of them has continued the competitive fire's burning while adding a flare of green. Today, the league seems to be completely entrenched in money. Multi-million dollar contracts, million dollar endorsements, and billion dollar television deals are the focus of the league now. Some criticize on the players for being so concerned about money while others argue the players should be compensated for their God given talents. These "some" are mostly owners' of NBA franchises and the "others" are the players. There are some that petition that the players bring in the money, so they should receive it while others say that they are already compensated enough for a game. In this instance, the "some" are pro player fans and the "others" are allies of the owners. With the large amounts of money that pass through the hands of the owners of NBA franchises and the precedent that has been set by other professional athletic leagues, NBA players should receive substantial compensation for their services. Employee-Employer relations have been rigid since the beginning of time. For this reason, laborers started labor unions to rectify the problem. Labor unions, are associations of workers for the purpose of improving economic status through collective bargaining, formed out of the Industrial Revolution of the 19th Century (Labor). Collective bargaining is defined as the negotiation between the representatives of organized workers and their employer(s) to determine wages, hours, rules, and working conditions. The conditions under which these former farmers had to work were unbearable. The farmer got tired of the treatment and banded to together. Labor unions sprouted in the US around the 1830's; however, the first major group was the Knights of Labor that organized in 1869 (Labor). Within the last six years there has been much discussion about the National Basketball Association and it's labor agreement. The NBA labor agreement, the cause of the current lockout, does not meet the approval of the owners. The details are tedious, but the overall discrepancy looms over how much the players are worth and how much the owners should pay them. In the summer of 1995 the owners opened the collective bargaining agreement. Their fear, the same fear that caused this year's lockout, is that the players are receiving too much of the BRI, or basketball related income. In 1988 the collective bargaining agreement allotted the players forty-eight percent of BRI, they earned fifty-two percent. The owners, not happy with these figures, locked the players out until a better contract was agreed upon. The players, eager to play and start the season, accepted a six-year deal that stated:  The average daily salary will increase from $1.7 million to $3 million over six years ("NBA Votes...").  The minimum salary will increase from $150,000 to $225,000 next season and will increase by ten percent each season thereafter ("NBA Votes...").  The creation of a $1 million exception for those teams exceeding the salary cap ("NBA Votes...").  The retention of the Larry Bird exception, which states that players completing two seasons with a team can re-sign with that team for any amount regardless of the salary cap ("NBA Votes...").  The elimination of the luxury tax ("NBA Votes...").  The players shall be allocated forty-eight percent of BRI and the owners have the option of opening the agreement if it reaches over fifty-one point eight percent ("Stern..."). Sixty-three percent of the ninety percent of the player's union who were present at the meeting voted for this agreement. Two members of the player's union, union lawyer Jeffrey Kessler and Michael Jordan, foresaw the problems of this agreement. In an interview after the signing, Kessler says, "I still believe it was a terrible vote for the players and they are going to regret it for a long time,"("NBA Votes..."). Jordan had similar, but different thoughts. "I am with the majority as long as two years down the road they can live with the repercussions of what this deal is going to give them" ("NBA Votes..."). Michael Jordan and Jeffrey Kessler jinxed the agreement. On Tuesday June 30, 1998 at midnight the NBA Board of Directors locked the players out. The owners, once again frustrated over the percentage of BRI that the players received shut down all personnel transactions, workout facilities, and summer camps ("NBA Lockout..."). The immediate cause of the lockout stems from the $995 million in total salaries, or fifty-seven percent of BRI that the players received instead of their contractual forty-eight percent ("NBA Lockout..."). Still, there are other issues that caused the lockout. The league wants:  A firm salary cap that cannot be broken ("NBA Lockout...").  The Larry Bird clause to be phased out in two years ("Stern...").  The annual increase for veterans limited to five percent ("Stern...")  A guaranteed five-year rookie contract with the right of first refusal for one year ("NBA Lockout...").  A drug policy that includes heroin, cocaine, alcohol, and marijuana ("NBA Lockout..."). The owners wants are not unwarranted. They feel as though a stern salary cap will curve the large contracts that have recently taken precedence in the league. This will also help control the division of BRI. The rookie contract request stems from the amount of rookies who enter into the league and have excellent initial seasons. The rookies would then leave their drafting teams to the highest bidder where they eventually help their new team compete for a NBA Championship. The owners feel that the mandatory five-year rookie contracts will allow the drafting team to get the better years out of the rookie before he leaves for another team. Last, the owners feel that players are passing the drug tests, but still enjoy alcohol and marijuana. They feel that these substances are just as dangerous as heroin and cocaine and should not be tolerated. On the other hand, the players have good reasons for their requests, which include:  The continuation of the Larry Bird clause ("NBA Lockout...").  More freedom in free agency ("NBA Players...")  The ability to test their market - value ("NBA Players...").  Salary scale that increases with tenure ("NBA Lockout..."). The players believe that the Larry Bird clause is essential. This clause allows players the ability to remain with their original team. Many players like the current team that they are playing for and wish to remain in the city where they started their career and raised their families. The players would also like more freedom to move. Players whose contracts expire would like the chance to test their market value instead of being trapped into re-signing with their original team ("NBA Players..."). Last, too many players that have endured the National Basketball Association for over ten years are making $500,000 while players who have two-year tenures make millions. This is not ethical and the players' feel that it needs to be addressed ("NBA Players..."). As of November 20, 1998, the negotiation teams had reached a common ground. They agreed on some issues, but just needed to do some "tinkering" to make them perfect. The league Deputy Commissioner Russ Granik, had this to say about the day's progress: We concluded our negotiations I guess about forty-five minutes ago and we've been since that time meeting with our Labor Relations Committee. We started today at about ten in the morning and went through continuously until that time. It was something I guess over twelve hours of negotiations. I think we can say maybe for the first time that we feel we had a productive day. Unfortunately we are still far apart on a lot of issues but I think we did make some progress. We got closer together on some of the key issues and we just kind of concluded that we had gone about as far as we thought we were able to go for both of us today and that it didn't make any sense to push it any further ("NBA Lockout..."). ~ Russ Granik, After examining the issues of both sides, any reasonable person would see that the players deserve the millions that they currently earn. If one looks at the basic attraction of the National Basketball Association, the single reason why fans watch the game is to see players. Without the players, the owners would have no product and therefore no revenue. Many ask the question, "Exactly how much money do players bring into the league?" The answer is found in the start of the 1979-1980 season. Two future Hall of Famers and emerging superstars entered the league and took it by storm. Earvin "Magic" Johnson and Larry Bird revolutionized the NBA. Magic and Bird defined the new ideal basketball player as the "versatile big man" (Kertes 63). Both men, six feet - nine inches tall, combined their size with great shooting touch, outstanding ball handling, and tremendous passing. Magic and Bird excited the crowds with their new styles and spectacular plays, as they influenced the rest of the league to change into a league based on their styles of play. More and more fans wanted to see this new style first hand, which garnered more revenue in the ticket office. Following the entrance of Magic and Bird was another individual who America immediately embraced. In the mid 1980's, Michael Jordan emerged as one of the most, if not the most exciting professional athlete ever to have competed in sports. His high-flying, acrobatic, and seemingly gravity-defying moves earned him such nicknames as Air Jordan and "Superman in Shorts" (Donnelly 50). Jordan's exciting style of play combined with his incredible talent for the game attracted great numbers of previously uninterested NBA fans. Many of these new fans did not care about the games; they just wanted to get a chance to see Michael Jordan in action. From the time that Jordan won the league's Rookie of the Year award for the 1984-1985 season, until the end of the '80s, the overall NBA attendance rose forty-seven percent; thus, the Chicago Bulls became the most popular road team in the league (Attendance). Also during this time, the NBA's gross revenues nearly doubled to $300 million dollars, and the average attendance rose almost four thousand per game to thirteen thousand four hundred twenty. The Chicago Bulls alone sold out more games in an eighteen month period from 1987-1988 than they had in their twenty-two year history. Almost single-handedly, Michael Jordan's fame had brought the league from being mocked as the National Buffoon Association in the beginning of the decade, to one of the most popular sports attractions by the end of the decade (Donnelly 50). At this time, because the media foresaw monumental opportunities ahead from the NBA, they began to reward the league with large amounts of money. The growing interest in the NBA from fans and advertisers caused the networks to shower the league with money. In 1988, the NBA's revenue from television exceeded $130 million (Lambert, Stump, and Brown 36). The next year, Ted Turner paid $275 million to keep the NBA on Turner Network Television (TNT) for the next four years (Stump 40). Then, in late 1989, NBC outbid CBS, the network that had broadcasted the NBA for the past seventeen years. CBS's last contract was a four-year, $173 million deal. However, NBC offered a new four-year deal worth $600 million. Although this seemed like a great risk for NBC, they were very confident in the NBA. As executive Vice President at NBC Sports, Ken Schanzer said, "Right now, we think the NBA can be enormously profitable for us." This confidence in the NBA continued throughout the 80's and continues in the 90's. However, today's fan not only wants to see Michael Jordan, but also enjoys the likes of Shaquille O'Neal, Kobe Bryant, Stephon Marbury, Allen Iverson, and many more. It is evident that the players were, are, and will continue to be the reason why the owners grow wealthier. Moreover, the NBA owners are not suffering financially, but insist on claiming poor and exercising their greed. Every NBA owner has more than enough money to pay these athletes what they want and deserve. A recent article by Forbes Magazine analyzes the entire money situation with all professional athletic teams. The article lists all NBA franchises and their total values. The Chicago Bulls ranked first at $303 million, the New York Knicks ranked second at $296 million, the Los Angeles Lakers ranked third at $268 million, and the Portland Trailblazers ranked fourth at $245 million (Ozanian). The last place franchise, the Milwaukee Bucks, was estimated at $94 million. These values are relatively high and do not correspond to the owners' claims of poverty. The article also ranked the revenues that each franchise earns annually based on last year's statistics. The Portland Trailblazers ranked first with $34.2 million, the Detroit Pistons ranked second with $30 million, the Los Angeles Lakers ranked third with $24.8 million, and the Utah Jazz ranked fourth with $20.7 million (Ozanian). These figures show that owners are earning large amounts of money; enough to pay their players. Nevertheless, the Board of Directors reported that sixteen owners claimed losses in revenue last year. Why does this math, not add up? It does not add up because owners do not report all their sources of revenue. According to Forbes, which states that only ten NBA franchises actually lost money, many owners discount revenue from corporate naming rights, advertising, luxury suites, and team merchandise stores (Ozanian). Two examples of this "fraud" are Jerry Reinsdorf, owner of the Chicago Bulls, the Chicago White Sox, and the United Center, and Phillip Anschutz who owns the LA Lakers, the LA Kings, and the LA Clippers. Reinsdorf beats the system by excluding part of the revenue from United Center, the state of the arena that the Chicago Bulls call home. The United Center houses two hundred sixteen luxury suites that procure $12.7 million in revenue; sixty percent, or $7.6 million, of which he can exclude from revenue (Ozanian). Phillip Anschutz is in the process of building a new arena in downtown Los Angeles. This new arena will house the Lakers, the Kings, and the Clippers. Staples Inc. is giving Anschutz $100 million over twenty years to put their name on the arena. The one hundred sixty luxury suites should accumulate $40 million in revenue and corporate advertising should gain $5 million in revenue; all of which Anschutz will credit to The Staples Center (Ozanian). In addition to those revenues, the NBA and its television partners have agreed on a contract worth at least $2.4 billion over four years, more than double the current deal (Dubow). The contract breaks down to at least $1.6 billion for NBC and $800 million for Turner Sports. Under the current four-year contract, which expires at the end of this season, NBC paid $750 million and Turner paid $350 million (Dubow). This deal also included a revenue-sharing provision that will net the NBA additional revenue. It is a shame and a disgrace for NBA owners to be "tightfisted" with its players when it is evident that a plethora of money is available for contracts. The owners of the National Basketball Association handle monumental amounts of money that can be evenly distributed amongst the players and themselves. There is not a reason why already half, and possibly the whole season is in jeopardy of being lost. The Board of Directors and the NBAPA, NBA Players Association, need to research other professional athletic leagues and examine their respective collective bargaining agreements for ideas. For example, the National Football League enforces a complicated, but well thought out collective bargaining agreement. In their system, which expires in 2000, each NFL team is allowed to designate one franchise player and one transitional player within the years of the agreement. Clubs retain exclusive negotiating rights to a franchise player by committing no later than Feb. 13 to a minimum offer of the average of the top five salaries at the player's position, or a twenty percent salary increase, whichever is greater. This offer must be presented before the end of the restricted free-agent signing period on April 14. Franchise players offered a minimum of the average of the top five salaries at their position in the 1996 season were able to negotiate with other clubs. In the latter case, the original club may match the offer and retain the player or receive two first-round draft choices as compensation if the original club elects not to match. A transition player designation gives the club a first-refusal right to match an offer sheet given to the player by another club. In addition to the transition player option of franchise designation, each club was permitted a total of three transition designations -- two in 1993 and one in 1994. To designate a transition player, the club must offer a minimum of the average of the top ten salaries of 1996 at the player's position or a twenty percent salary increase, whichever is greater. This system, as well as others, seems to work well. The NBA needs to find a remedy for their problem so the players can do what they do best; PLAY BALL!!! f:\12000 essays\business & economics (632)\Penguin Books Introduction to Modern Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Penguin Books: Introduction to Modern Business The aim of this essay is to comment on how, over the last six years Penguin Books Limited has grown and managed external and internal changes. Sixty one years ago, Allen Lane, the managing director of the Bodley Head, a British publishing company, revolutionised reading with the introduction of the first ten Penguin paperbacks. Today, over 600 million paperbacks are sold yearly. At a time when there was still little of entertainment, paperback books brought reading to the masses. Nowadays, paperback books bring reading to the world. During the last six years (1990-1996) Penguin Books Limited was faced with many "environmentalist pressures," with a continuous change inside the company, and competitors trying to imitate its successful innovations on both sides of the Atlantic. The major achievement in 1990 was the introduction of a new computer system into several parts of the Company. The Credit Control department was the first area and Stock Management, Invoicing Systems, Warehousing, Distribution and Sales Services followed. Now the whole of the Company's systems are incorporated and networked. During this period a new lists including the Twentieth Century Classics Series complementing the Penguin Classics, Arkana, the New Age list and Fantail, the mass-market children's list were introduced. Internal change that took place during that year was the closing down of the Penguin Bookshops (that expanded to include 12 shops during the last decade), leaving just one, the specialist Beatrix Potter "House of the Tailer of Gloucester", within the Group. This change took place due to the fact that the Company was conscious that it had to concentrate on the publishing rather than on the retail. This decision brought a successful completion of a management buy-out of the shops. This action also compensated the loss that the Company faced in august 1991, when Pearson (an international enterprise quoted on the London Stock Exchange with major media interests including many well-known names apart from Penguin, such as Longman, Pitman, Addison Wesley, the Financial Times, Westminster Press, Mindscape, Thames TV and Madame Tussauds) announced pre-tax profits of Pounds 40.7m for the first half of 1991- a drop of 58 per cent on the same period of 1990. In this period books fell from a trading profit of Pounds 2.1m to a loss of Pounds 13.4m with Penguin losing Pounds 8m. In the following two years no major changes have been recorded. Although, 1993 was generally a successful year for all Penguin group companies. Penguin UK had produced a strong programme including some major best sellers and agreed to a joint venture with the BBC for mass market paperbacks and film deals with two major Hollywood studios. During 1993, Penguin accelerated its media involvement by publishing world-wide "The Viking Opera Guide" as a book and CD Rom. In 1994, the publishing industry realised that certain amount of people do choose books on the basis of who publishes them rather than who writes them. The promotion became one of the marketing tricks used by the publishing industry (that other industries have already used for decades). First came promotions for individual authors and titles, in 1994 publishers took one step further by promoting the whole brand. This move showed the change of publishers fighting for market share. "During the recession they increased margins by cutting costs, now they are desperate to build turnover," said P. Mountain, deputy editor of The Bookseller magazine. In the next months it was seen how different publishers were competing in their own different ways. Penguin and Wordsworth Editions declared a price war selling paperback classics for Pounds 1 each. These "up-market" or "down- market" were the ways of selling literature. In September 1994 Pearson brought a new change by announcing that publishing should be grouped by theme. As the result, entertainment- Ladybird Books, the children's publisher was added to Penguin and became a subsidiary of the Penguin Group. As an outcome, Penguin's world-wide business showed revenues of about Pounds 370m. A major change took place in September 1995, when the official price- fixing of books collapsed after nearly a century. Penguin Books announced its withdrawal from the net book agreement (NBA), which has restricted price competition since 1900. This took place due to the "environmentalist pressures." As Max N. Adam, a managing director of Penguin Books Limited , said: "We had to face reality. If books are going to compete against compact discs and videos, we've got to have a level playing field and be able to discount like they do." Penguin also was celebrating its 60th anniversary in 1995 with a major trade advertising campaign. This campaign included a publication of 60 Penguin Sixties, small format paperbacks, at 60p each. In the present year (1996), Penguin Company is still benefiting from repeat contracts for Penguin mini-paperbacks. In January 1996 another major political change took place, not in favour for Penguin Company. A legislation was produced which revives copyright protection to an important group of writers. This legislation meant that publishers have to pay several million pounds to the estates of writers, who died between 1925 and 1945. The change in UK legislation (introduced as part of copyright laws across the European Union) was brought in in order to cover the works which were previously out of copyright. Taking the European Union single market that is taking place into consideration, one should remember that "Nothing is "overseas" anymore," a statement by Kenichi Ohmae that clearly defines the borderless condition of current business approach. This brings up the international dimension of Penguin - a dimension which is continually growing in importance. Overseas Penguin has four major companies - Penguin USA, Penguin Canada, Penguin Australia and Penguin New Zealand. Each of these companies does its own publishing but is monitored by each other's publication programmes. There are also several smaller marketing companies which carry stock and consignment on behalf of the Group. These companies include Penguin South Africa, Penguin Italia, Penguin Netherlands, Penguin Germany, etc. They do not currently have their own publishing programmes but import from the group companies. Due to the socio-cultural differences Penguin India, for example, operate differently as there are import restrictions in operation and the solution is for Penguin India to do a large amount of its own publishing. There are also resident representatives in Hong Kong and Singapore. On the whole, one may conclude that Penguin has grown, with the help of acquisitions, for example, from a loss- making business with revenues of Pounds 37m to one which in 1995 had world-wide revenues of Pounds 360m and profits of Pounds 34m, and remains one of the world's largest book publishing groups. The result of Lane being involved in a move towards democratisation has shown that today, hundreds of thousands of books are available to millions of readers at a low price, and the market seems to be growing daily, selling into more countries than any other publisher, and providing a good example of how a company is dealing with change and success by continuing the traditions of Sir Allen Lane. BIBLIOGRAPHY 1. Snoddy, Raymond. "Pearson profits." The Financial Times, 13 Aug. 1991, p.15. 2. Snoddy, Raymond. "Pearson rises..." The Financial Times, 03 Sep. 1994, p.9. 3. Snoddy, Raymond. "Pearson shares fall." The Financial Times, 21 Sep. 1994, p.26. 4. Snoddy, Raymond. "Pearson buys stake in book distributor." The Financial Times, 27 Apr. 1995, p. 26. 5. Marsh, Peter. "Publishers face copyright disputes."The Financial Times, 03 Jan. 1996, p. 5. 6. Fishwick, Francis. "Profits left on the shelf." The Financial Times, 18 Jun. 1996, p. 14. 7. Snoddy, Raymond. "Mayer stands down at Penguin." The Financial Times, 21 Jun. 1996, p. 9. 8. Rawstorn, Alice. "Hollywood head to lead Penguin." The Financial Times, 06 Aug. 1996, p. 16. 9. Schreuders, Peter. "The book of paperbacks." London: Virgin, 1981. 10. "Fame - financial analysis made easy"(update 88.a-October 1996); CD Rom. 11. Rawsthorn, Alice. "Books cartel collapses." The Financial Times, 27 Sep. 1995, p.18. 12. Stoner, James. "Management"(sixth edition). Prentice Hall 1995. f:\12000 essays\business & economics (632)\Penguin Books LTD.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Swen Neumann Introduction to Modern Business L.Thomas and R.Cawley 15/11/96 PENGUIN BOOKS LIMITED The aim of this essay is to comment on how, over the last six years Penguin Books Limited has grown and managed external and internal changes. Sixty one years ago, Allen Lane, the managing director of the Bodley Head, a British publishing company, revolutionised reading with the introduction of the first ten Penguin paperbacks. Today, over 600 million paperbacks are sold yearly. At a time when there was still little of entertainment, paperback books brought reading to the masses. Nowadays, paperback books bring reading to the world. During the last six years (1990-1996) Penguin Books Limited was faced with many "environmentalist pressures," with a continuous change inside the company, and competitors trying to imitate its successful innovations on both sides of the Atlantic. The major achievement in 1990 was the introduction of a new computer system into several parts of the Company. The Credit Control department was the first area and Stock Management, Invoicing Systems, Warehousing, Distribution and Sales Services followed. Now the whole of the Company's systems are incorporated and networked. During this period a new lists including the Twentieth Century Classics Series complementing the Penguin Classics, Arkana, the New Age list and Fantail, the mass-market children's list were introduced. Internal change that took place during that year was the closing down of the Penguin Bookshops (that expanded to include 12 shops during the last decade), leaving just one, the specialist Beatrix Potter "House of the Tailer of Gloucester", within the Group. This change took place due to the fact that the Company was conscious that it had to concentrate on the publishing rather than on the retail. This decision brought a successful completion of a management buy-out of the shops. This action also compensated the loss that the Company faced in august 1991, when Pearson (an international enterprise quoted on the London Stock Exchange with major media interests including many well-known names apart from Penguin, such as Longman, Pitman, Addison Wesley, the Financial Times, Westminster Press, Mindscape, Thames TV and Madame Tussauds) announced pre-tax profits of Pounds 40.7m for the first half of 1991- a drop of 58 per cent on the same period of 1990. In this period books fell from a trading profit of Pounds 2.1m to a loss of Pounds 13.4m with Penguin losing Pounds 8m. In the following two years no major changes have been recorded. Although, 1993 was generally a successful year for all Penguin group companies. Penguin UK had produced a strong programme including some major best sellers and agreed to a joint venture with the BBC for mass market paperbacks and film deals with two major Hollywood studios. During 1993, Penguin accelerated its media involvement by publishing world-wide "The Viking Opera Guide" as a book and CD Rom. In 1994, the publishing industry realised that certain amount of people do choose books on the basis of who publishes them rather than who writes them. The promotion became one of the marketing tricks used by the publishing industry (that other industries have already used for decades). First came promotions for individual authors and titles, in 1994 publishers took one step further by promoting the whole brand. This move showed the change of publishers fighting for market share. "During the recession they increased margins by cutting costs, now they are desperate to build turnover," said P. Mountain, deputy editor of The Bookseller magazine. In the next months it was seen how different publishers were competing in their own different ways. Penguin and Wordsworth Editions declared a price war selling paperback classics for Pounds 1 each. These "up-market" or "down-market" were the ways of selling literature. In September 1994 Pearson brought a new change by announcing that publishing should be grouped by theme. As the result, entertainment- Ladybird Books, the children's publisher was added to Penguin and became a subsidiary of the Penguin Group. As an outcome, Penguin's world-wide business showed revenues of about Pounds 370m. A major change took place in September 1995, when the official price-fixing of books collapsed after nearly a century. Penguin Books announced its withdrawal from the net book agreement (NBA), which has restricted price competition since 1900. This took place due to the "environmentalist pressures." As Max N. Adam, a managing director of Penguin Books Limited , said: "We had to face reality. If books are going to compete against compact discs and videos, we've got to have a level playing field and be able to discount like they do." Penguin also was celebrating its 60th anniversary in 1995 with a major trade advertising campaign. This campaign included a publication of 60 Penguin Sixties, small format paperbacks, at 60p each. In the present year (1996), Penguin Company is still benefiting from repeat contracts for Penguin mini-paperbacks. In January 1996 another major political change took place, not in favour for Penguin Company. A legislation was produced which revives copyright protection to an important group of writers. This legislation meant that publishers have to pay several million pounds to the estates of writers, who died between 1925 and 1945. The change in UK legislation (introduced as part of copyright laws across the European Union) was brought in in order to cover the works which were previously out of copyright. Taking the European Union single market that is taking place into consideration, one should remember that "Nothing is "overseas" anymore," a statement by Kenichi Ohmae that clearly defines he borderless condition of current business approach. This brings up the international dimension of Penguin - a dimension which is continually growing in importance. Overseas Penguin has four major companies - Penguin USA, Penguin Canada, Penguin Australia and Penguin New Zealand. Each of these companies does its own publishing but is monitored by each other's publication programmes. There are also several smaller marketing companies which carry stock and consignment on behalf of the Group. These companies include Penguin South Africa, Penguin Italia, Penguin Netherlands, Penguin Germany, etc. They do not currently have their own publishing programmes but import from the group companies. Due to the socio-cultural differences Penguin India, for example, operate differently as there are import restrictions in operation and the solution is for Penguin India to do a large amount of its own publishing. There are also resident representatives in Hong Kong and Singapore. On the whole, one may conclude that Penguin has grown, with the help of acquisitions, for example, from a loss- making business with revenues of Pounds 37m to one which in 1995 had world-wide revenues of Pounds 360m and profits of Pounds 34m, and remains one of the world's largest book publishing groups. The result of Lane being involved in a move towards democratisation has shown that today, hundreds of thousands of books are available to millions of readers at a low price, and the market seems to be growing daily, selling into more countries than any other publisher, and providing a good example of how a company is dealing with change and success by continuing the traditions of Sir Allen Lane. Rawsthorn, Alice. "Books cartel collapses." The Financial Times, 27 Sep. 1995, p.18. Stoner, James. "Management"(sixth edition). Prentice Hall 1995. BIBLIOGRAPHY 1. Snoddy, Raymond. "Pearson profits." The Financial Times, 13 Aug. 1991, p.15. 2. Snoddy, Raymond. "Pearson rises..." The Financial Times, 03 Sep. 1994, p.9. 3. Snoddy, Raymond. "Pearson shares fall." The Financial Times, 21 Sep. 1994, p.26. 4. Snoddy, Raymond. "Pearson buys stake in book distributor." The Financial Times, 27 Apr. 1995, p. 26. 5. Marsh, Peter. "Publishers face copyright disputes."The Financial Times, 03 Jan. 1996, p. 5. 6. Fishwick, Francis. "Profits left on the shelf." The Financial Times, 18 Jun. 1996, p. 14. 7. Snoddy, Raymond. "Mayer stands down at Penguin." The Financial Times, 21 Jun. 1996, p. 9. 8. Rawstorn, Alice. "Hollywood head to lead Penguin." The Financial Times, 06 Aug. 1996, p. 16. 9. Schreuders, Peter. "The book of paperbacks." London: Virgin, 1981. 10. "Fame - financial analysis made easy"(update 88.a-October 1996); CD Rom. f:\12000 essays\business & economics (632)\People or Profits 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ People or Profits? In Almeda County, a private hospital turned away a woman in labor because the hospital's computer showed that she didn't have insurance. Hours later, her baby was born dead in a county hospital. In San Bernardino, a hospital surgeon sent a patient who had been stabbed in the heart to a county medical center after examining him and declaring his condition stable. The patient arrived at the county medical center dying, he suffered a cardiac arrest, and died. These two hospitals shifted these patients to county facilities not for medical reasons, but for economic ones -- the receiving hospitals feared they wouldn't be paid for treating the patient. What's right? People or profit? Should there be death or tragedy at the result of poverty and high health care costs, or should a business such as a hospital lose millions everyday to give health care to those who can't afford it? An average person like me would feel for the person who could not afford sufficient health insurance, and as in the case above, the baby inside that mother's womb didn't choose its financial situation, or its parents. That baby didn't ask to be born, and it wasn't given a chance to live. It wasn't necessarily the doctors fault, and it wasn't even his or her decision, because of business. Business has moved to the heart of health care, a place once relatively cushioned from the pursuit of profit that drives the rest of the U.S. economy. Throughout the history of the United States, medical institutions have largely been non-profit establishments existing primarily to serve the community. But during the past 20 years, the number of for-profit health care facilities has grown at an exceeding rate. I think that a society as wealthy as ours has a moral obligation to meet the basic needs of all of its members. I believe that every American, rich or poor, should have access to the health care he or she needs, but the rising costs of care and a growing unwillingness of insurance companies to cover these costs, along with government spending in other areas, have almost totally restricted access to health care for the poor, the aged, and those with tragic health problems. I pointed out earlier that an unborn child shouldn't be turned down for health care, but neither should a man with a knife through his heart. It is getting harder and harder for the aged and those with tragic health problems that can afford health insurance, to even get insured. Take an AIDS patient for example, as of right now, there is no cure and he is going to die. But how can he pay for the drugs and treatment to prolong his life without sufficient health care that will cover him when he's healthy, and also when he's dying. There are millions of cases, the boy who needs a new heart, the elderly man with a broken hip, or how about a girl playing hopscotch that was a victim of a drive by shooting. I believe the U.S. has got to find a system where people will have a chance and a choice to get the health care they deserve. Most people don't deserve to die, and most doctors don't deserve to make such a high profit from their services. If the services of doctors of any type become scarce, we as a society will be forced to pay higher prices for them, but these services are not scarce, the money people have to pay for them is. The commercialization of medicine will lead to the abandonment of certain virtues and ideals that are necessary to a moral community. We have to have a sense of caring, compassion, and charity toward those that have had less of a chance to succeed. If you put yourself in the shoes of the people in the cases I've mentioned, you'd want to jump out of them as soon as you could. I believe that this case comes right down to human life and greed. I believe our society has marked the poor class as unneeded and worthless. Why spend money on someone if they don't help you out in some way? The people who think this way obviously don't think of these people as being human beings, having feelings, wants, and in this case needs. When people need medical treatment to save their life, who they are, should not be important. I think that some doctors see so much of life and death from a physical standpoint, that the emotions of these people fade to an invisible lining. That invisible lining is their life. That lining is what makes us human. Proponents of for-profit enterprise in health care support their position by maintaining that all persons have a basic right to freedom and thus a right to use their property in ways they freely choose. They argue that owners of for-profits have no special obligation to provide free services to the poor. They think that it is being wrongly assumed that for-profits impose a burden on non-profits by not taking the costs of caring for the poor. They say that they, unlike non-profit, pay taxes, and in doing so, can be said to pay their share in serving the poor through tax-supported public programs. For-profit proponents also would like to argue the health care is a lot like food, clothing and shelter. Just as these "basic needs" are sold on the market and distributed according to ability to pay, so too should health care. They think that if some cannot afford to pay for such basic needs, it is up to the government or voluntary agencies to see that they secure it. I believe that for-profit hospitals have gone to the extreme with their rules and regulations. They do have an obligation just as the rest of the tax payers of this country to care for the less fortunate. A person can get by with minimal food, clothing and shelter, but they can't get away with minimal or no health care in their times of trouble. The government should work on coming up with a solution to this issue, but they should first focus on the individual businesses like the for-profit hospitals that are giving up human life for money. So, I'm asking you, how much are you worth? How much is your life and all that comes with it, worth? How much is a human life worth? Ten dollars, maybe even a hundred? Of course you can't answer this question. It is impossible and totally unethical to place a cost or dollar amount on a human life. If you take that body away, you are still left with a soul, or what that soul once was. Nothing can replace it, and a doctor or business men or women, have no right to stop care for an injured person because of their financial status. Medical businesses can't turn people into money. In this case, a loss of money is a gain of life, and a fear of a loss of money is a total loss of life, morals, and humanity. f:\12000 essays\business & economics (632)\People or Profits.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ People or Profits? In Almeda County, a private hospital turned away a woman in labor because the hospital's computer showed that she didn't have insurance. Hours later, her baby was born dead in a county hospital. In San Bernardino, a hospital surgeon sent a patient who had been stabbed in the heart to a county medical center after examining him and declaring his condition stable. The patient arrived at the county medical center dying, he suffered a cardiac arrest, and died. These two hospitals shifted these patients to county facilities not for medical reasons, but for economic ones -- the receiving hospitals feared they wouldn't be paid for treating the patient. What's right? People or profit? Should there be death or tragedy at the result of poverty and high health care costs, or should a business such as a hospital lose millions everyday to give health care to those who can't afford it? An average person like me would feel for the person who could not afford sufficient health insurance, and as in the case above, the baby inside that mother's womb didn't choose its financial situation, or its parents. That baby didn't ask to be born, and it wasn't given a chance to live. It wasn't necessarily the doctors fault, and it wasn't even his or her decision, because of business. Business has moved to the heart of health care, a place once relatively cushioned from the pursuit of profit that drives the rest of the U.S. economy. Throughout the history of the United States, medical institutions have largely been non-profit establishments existing primarily to serve the community. But during the past 20 years, the number of for-profit health care facilities has grown at an exceeding rate. I think that a society as wealthy as ours has a moral obligation to meet the basic needs of all of its members. I believe that every American, rich or poor, should have access to the health care he or she needs, but the rising costs of care and a growing unwillingness of insurance companies to cover these costs, along with government spending in other areas, have almost totally restricted access to health care for the poor, the aged, and those with tragic health problems. I pointed out earlier that an unborn child shouldn't be turned down for health care, but neither should a man with a knife through his heart. It is getting harder and harder for the aged and those with tragic health problems that can afford health insurance, to even get insured. Take an AIDS patient for example, as of right now, there is no cure and he is going to die. But how can he pay for the drugs and treatment to prolong his life without sufficient health care that will cover him when he's healthy, and also when he's dying. There are millions of cases, the boy who needs a new heart, the elderly man with a broken hip, or how about a girl playing hopscotch that was a victim of a drive by shooting. I believe the U.S. has got to find a system where people will have a chance and a choice to get the health care they deserve. Most people don't deserve to die, and most doctors don't deserve to make such a high profit from their services. If the services of doctors of any type become scarce, we as a society will be forced to pay higher prices for them, but these services are not scarce, the money people have to pay for them is. The commercialization of medicine will lead to the abandonment of certain virtues and ideals that are necessary to a moral community. We have to have a sense of caring, compassion, and charity toward those that have had less of a chance to succeed. If you put yourself in the shoes of the people in the cases I've mentioned, you'd want to jump out of them as soon as you could. I believe that this case comes right down to human life and greed. I believe our society has marked the poor class as unneeded and worthless. Why spend money on someone if they don't help you out in some way? The people who think this way obviously don't think of these people as being human beings, having feelings, wants, and in this case needs. When people need medical treatment to save their life, who they are, should not be important. I think that some doctors see so much of life and death from a physical standpoint, that the emotions of these people fade to an invisible lining. That invisible lining is their life. That lining is what makes us human. Proponents of for-profit enterprise in health care support their position by maintaining that all persons have a basic right to freedom and thus a right to use their property in ways they freely choose. They argue that owners of for- profits have no special obligation to provide free services to the poor. They think that it is being wrongly assumed that for-profits impose a burden on non- profits by not taking the costs of caring for the poor. They say that they, unlike non-profit, pay taxes, and in doing so, can be said to pay their share in serving the poor through tax-supported public programs. For-profit proponents also would like to argue the health care is a lot like food, clothing and shelter. Just as these "basic needs" are sold on the market and distributed according to ability to pay, so too should health care. They think that if some cannot afford to pay for such basic needs, it is up to the government or voluntary agencies to see that they secure it. I believe that for-profit hospitals have gone to the extreme with their rules and regulations. They do have an obligation just as the rest of the tax payers of this country to care for the less fortunate. A person can get by with minimal food, clothing and shelter, but they can't get away with minimal or no health care in their times of trouble. The government should work on coming up with a solution to this issue, but they should first focus on the individual businesses like the for- profit hospitals that are giving up human life for money. So, I'm asking you, how much are you worth? How much is your life and all that comes with it, worth? How much is a human life worth? Ten dollars, maybe even a hundred? Of course you can't answer this question. It is impossible and totally unethical to place a cost or dollar amount on a human life. If you take that body away, you are still left with a soul, or what that soul once was. Nothing can replace it, and a doctor or business men or women, have no right to stop care for an injured person because of their financial status. Medical businesses can't turn people into money. In this case, a loss of money is a gain of life, and a fear of a loss of money is a total loss of life, morals, and humanity. f:\12000 essays\business & economics (632)\Personal Management Project.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Personal Management Project Performance Appraisal "Banque SARADAR" is one of the most efficient and active in the Lebanese baking field. As most of structured companies do, "Banque Saradar" dispose of some means in order to conduct performance appraisal within the company. The bank courts on the contribution of everyone especially managers who must realize a seminar in order to prepare themselves to structure the forms and prepare the interviews and finally finishing the whole process. On annual basis, each head of department fills the appraisal form for the employees of their giver department. Employees take that form and keep it 48 hours. When the document is rendered to management 2 signed copies are registered. In parallel to that "Written procedure", a meeting is set between the employee and the manager in order to discuss and evaluate. During that meeting, each of the 2 parties gives his/her point about the previous year and they set goals and objectives for the coming year. Mutual expectations concerning performance are also highly then into consideration. According to what is evaluated personal and professional qualifications are the main pillars of the process; the employee is going to be observed through his ability to adopt a proficient attitude at work. Behavior within the company is also fundamental when appraising its "troops", don't forget that general observation and personal opinion are furthermore taken into consideration during interviews. When it comes to results graphic tables are filled by managers who are expected to give a mark out of 6 which is going to help establishing final observation the most accurate way possible; employees do not have access to the calculations and rankings but they are informed about the raise of their salaries and the feedback of their managers. The appraisal placed is a fundamental places which deliver to management teams very precious informations about the "engine" they "drive". Evaluating productivity and performance as well as noting calculating salaries increase is rendered possible. The spirit of that picture also leads to the creation of "thinking spaces" (e.g. quality circles) that help the Whole Team to merge ideas about how jobs and tasks are executed in the aim of achieving organizational mission terms. As an end we say assume that performance appraisal process is really efficient where every and each stage of the company is committed to it. The importance of creating a real and faithful team spirit is in fact the bidden but important part of the iceberg. f:\12000 essays\business & economics (632)\Pharmacist Career Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Pharmacist Career Report Pharmacists are responsible for safe transfer and drug administration for patient care; watching over technicians; order entry; drug monitoring and providing drug information to nurses and physicians. Dispenses drugs to wards, clinics, and clients; prepares special compounds and approved prescriptions and consults with medical staff about the use and control of drugs. The practice of pharmacy within each state is regulated by the laws of the state, including the regulation of licensure for pharmacy practice. To practice pharmacy in any state, a pharmacist must become a registered pharmacist (RPh), also known as a licensed pharmacist. Pharmacists are licensed by the State Board of Pharmacy. Requirements are different depending on the state, but in general, to be licensed a pharmacist must: --Bachelor's degree (5 year program) or advanced pharmacy degree (Pharm.D., M.S.) from an accredited college of pharmacy --Participate in residency or internship programs to acquire direct, "hands-on" patient care experience --Pass a an examination, known as the NABPLEX (National Association of Boards of Pharmacy Licensing Examination) ANNUAL SALARY - $44,727 to $61,224 - FULL-TIME HOURLY SALARY - $21.42 to $29.32 - INTERMITTENT I don't think I would want to be a pharmacist because it seems like too much responsibility, not that I don't want responsibility, but what if I mess up on a prescription on accident and a patient gets really sick because of me. Its the kind of job that if I mess up, it will make me feel really bad because I hurt someone physically. Also I'm not good at mixing drugs and things like that. f:\12000 essays\business & economics (632)\Players Salaries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Players Salaries Michael G. Bus law There was a time when men played for the love of the game; when competition alone satisfied the male ego. This age of basketball featured greats such as Wilt Chamberlain, Bill Russell, and Oscar Robinson. These gladiators, and those like them, battled repeatedly winning league championships, MVP's, scoring titles, and other accolades. Then, the product of James Naismith moved into an era where the love continued, but money was added. Clyde Drexler, Charles Barkely, Reggie Miller and Tim Hardaway have become league "poster-boys" for commercials and shoe contracts. Each of them has continued the competitive fire's burning while adding a flare of green. Today, the league seems to be completely entrenched in money. Multi-million dollar contracts, million dollar endorsements, and billion dollar television deals are the focus of the league now. Some criticize on the players for being so concerned about money while others argue the players should be compensated for their God given talents. These "some" are mostly owners' of NBA franchises and the "others" are the players. There are some that petition that the players bring in the money, so they should receive it while others say that they are already compensated enough for a game. In this instance, the "some" are pro player fans and the "others" are allies of the owners. With the large amounts of money that pass through the hands of the owners of NBA franchises and the precedent that has been set by other professional athletic leagues, NBA players should receive substantial compensation for their services. Employee-Employer relations have been rigid since the beginning of time. For this reason, laborers started labor unions to rectify the problem. Labor unions, are associations of workers for improving economic status through collective bargaining, formed out of the Industrial Revolution of the 19th Century (Labor). Collective bargaining is defined as the negotiation between the representatives of organized workers and their employer(s) to determine wages, hours, rules, and working conditions. The conditions under which these former farmers had to work were unbearable. The farmer got tired of the treatment and banded to together. Labor unions sprouted in the US around the 1830's; however, the first major group was the Knights of Labor that organized in 1869 (Labor). Within the last six years, there has been much discussion about the National Basketball Association and the labor agreement lockout that happened a few years ago. The details are tedious, but the overall discrepancy looms over how much the players are worth and how much the owners should pay them. In the summer of 1995, the owners opened the collective bargaining agreement. Their fear is that the players are receiving too much of the BRI, or basketball related income. In 1988 the collective bargaining agreement allotted the players forty-eight percent of BRI, they earned fifty-two percent. The owners, not happy with these figures, locked the players out until a better contract was agreed upon. The players, eager to play and start the season, accepted a six-year deal that stated: The average salary will increase from $1.7 million to $3 million over six years. The minimum salary will increase from $150,000 to $225,000 next season and will increase by ten percent each season thereafter. The creation of a $1 million exception for those teams exceeding the salary cap. The retention of the Larry Bird exception, which states that players completing two seasons with a team can re-sign with that team for any amount regardless of the salary cap. The elimination of the luxury tax. The players shall be allocated forty-eight percent of BRI and the owners have the option of opening the agreement if it reaches over fifty-one point eight percent. Sixty-three percent of the ninety percent of the player's union who were present at the meeting voted for this agreement. Two members of the player's union, union lawyer Jeffrey Kessler and Michael Jordan, foresaw the problems of this agreement. In an interview after the signing, Kessler says, "I still believe it was a terrible vote for the players and they are going to regret it for a long time,". Jordan had similar, but different thoughts. "I am with the majority as long as two years down the road they can live with the repercussions of what this deal is going to give them". Michael Jordan and Jeffrey Kessler jinxed the agreement. On Tuesday June 30, 1998 at midnight, the NBA Board of Directors locked the players out. The owners, again frustrated over the percentage of BRI that the players received shut down all personnel transactions, workout facilities, and summer camps. The immediate cause of the lockout stems from the $995 million in total salaries, or fifty-seven percent of BRI that the players received instead of their contractual forty-eight percent. Still, other issues caused the lockout. The league wants: A firm salary cap that cannot be broken. The Larry Bird clause to be phased out in two years. The annual increase for veterans limited to five percent. A guaranteed five-year rookie contract with the right of first refusal for one year. A drug policy that includes heroin, cocaine, alcohol, and marijuana. The owners wants are not unwarranted. They feel as though a stern salary cap will curve the large contracts that have recently taken precedence in the league. This will also help control the division of BRI. The rookie contract request stems from the amount of rookies who enter the league and have excellent initial seasons. The rookies would then leave their drafting teams to the highest bidder where they eventually help their new team compete for a NBA Championship. The owners feel that the mandatory five-year rookie contracts will allow the drafting team to get the better years out of the rookie before he leaves for another team. Last, the owners feel that players are passing the drug tests, but still enjoy alcohol and marijuana. They feel that these substances are just as dangerous as heroin and cocaine and should not be tolerated. On the other hand, the players had good reasons for their requests, which included: The continuation of the Larry Bird clause. More freedom in free agency. The ability to test their market - value. Salary scale that increases with tenure. The players believe that the Larry Bird clause is essential. This clause allows players the ability to remain with their original team. Many players like the current team that they are playing for and wish to remain in the city where they started their career and raised their families. The players would also like more freedom to move. Players whose contracts expire would like the chance to test their market value instead of being trapped into re-signing with their original team. Last, too many players that have endured the National Basketball Association for over ten years are making $500,000 while players who have two-year tenures make millions. This is not ethical and the players' feel that it needs to be addressed. As of November 20, 1998, the negotiation teams had reached a common ground. They agreed on some issues, but just needed to do some "tinkering" to make them perfect. The league Deputy Commissioner Russ Granik, had this to say about the day's progress: We concluded our negotiations, I guess about forty-five minutes ago and we've been since that time meeting with our Labor Relations Committee. We started today at about ten in the morning and went through continuously until that time. It was something I guess over twelve hours of negotiations. I think we can say maybe for the first time that we feel we had a productive day. Unfortunately we are still far apart on a lot of issues but I think we did make some progress. We got closer together on some of the key issues and we just kind of concluded that we had gone about as far as we thought we were able to go for both of us today and that it didn't make any sense to push it any further. ~ Russ Granik, After examining the issues of both sides, any reasonable person would see that the players deserve the millions that they currently earn. If one looks at the basic attraction of the National Basketball Association, the single reason why fans watch the game is to see players. Without the players, the owners would have no product and therefore no revenue. Many ask the question, "Exactly how much money do players bring into the league?" The answer is found in the start of the 1979-1980 season. Two future Hall of Famers and emerging superstars entered the league and took it by storm. Earvin "Magic" Johnson and Larry Bird revolutionized the NBA. Magic and Bird defined the new ideal basketball player as the "versatile big man". Both men, six feet - nine inches tall, combined their size with great shooting touch, outstanding ball handling, and tremendous passing. Magic and Bird excited the crowds with their new styles and spectacular plays, as they influenced the rest of the league to change into a league based on their styles of play. More and more fans wanted to see this new style first hand, which garnered more revenue in the ticket office. Following the entrance of Magic and Bird was another individual who America immediately embraced. In the mid 1980's, Michael Jordan emerged as one of the most, if not the most exciting professional athlete ever to have competed in sports. His high-flying, acrobatic, and seemingly gravity-defying moves earned him such nicknames as Air Jordan and "Superman in Shorts". Jordan's exciting style of play combined with his incredible talent for the game attracted great numbers of previously uninterested NBA fans. Many of these new fans did not care about the games; they just wanted to get a chance to see Michael Jordan in action. From the time that Jordan won the league's Rookie of the Year award for the 1984-1985 season, until the end of the '80s, the overall NBA attendance rose forty-seven percent; thus, the Chicago Bulls became the most popular road team in the league (Attendance). In addition, during this time, the NBA's gross revenues nearly doubled to $300 million dollars, and the average attendance rose almost four thousand per game to thirteen thousand four hundred twenty. The Chicago Bulls alone sold out more games in an eighteen month period from 1987-1988 than they had in their twenty-two year history. Almost single-handedly, Michael Jordan's fame had brought the league from being mocked as the National Buffoon Association in the beginning of the decade, to one of the most popular sports attractions by the end of the decade. At this time, because the media foresaw monumental opportunities ahead from the NBA, they began to reward the league with large amounts of money. The growing interest in the NBA from fans and advertisers caused the networks to shower the league with money. In 1988, the NBA's revenue from television exceeded $130 million. The next year, Ted Turner paid $275 million to keep the NBA on Turner Network Television (TNT) for the next four years. Then, in late 1989, NBC outbid CBS, the network that had broadcasted the NBA for the past seventeen years. CBS's last contract was a four-year, $173 million deal. However, NBC offered a new four-year deal worth $600 million. Although this seemed like a great risk for NBC, they were very confident in the NBA. As executive Vice President at NBC Sports, Ken Schanzer said, "Right now, we think the NBA can be enormously profitable for us." This confidence in the NBA continued throughout the 80's and continues in the 90's. However, today's fan not only wants to see Michael Jordan, but also enjoys the likes of Shaquille O'Neal, Kobe Bryant, Stephon Marbury, Allen Iverson, and many more. It is evident that the players were, are, and will continue to be the reason why the owners grow wealthier. Moreover, the NBA owners are not suffering financially, but insist on claiming poor and exercising their greed. Every NBA owner has more than enough money to pay these athletes what they want and deserve. A recent article by Forbes Magazine analyzes the entire money situation with all professional athletic teams. The article lists all NBA franchises and their total values. The Chicago Bulls ranked first at $303 million, the New York Knicks ranked second at $296 million, the Los Angeles Lakers ranked third at $268 million, and the Portland Trailblazers ranked fourth at $245 million. The last place franchise, the Milwaukee Bucks, was estimated at $94 million. These values are relatively high and do not correspond to the owners' claims of poverty. The article also ranked the revenues that each franchise earns annually based on previous statistics. The Portland Trailblazers ranked first with $34.2 million, the Detroit Pistons ranked second with $30 million, the Los Angeles Lakers ranked third with $24.8 million, and the Utah Jazz ranked fourth with $20.7 million. These figures show that owners are earning large amounts of money; enough to pay their players. Nevertheless, the Board of Directors reported that sixteen owners claimed losses in revenue last year. Why does this math, not add up? It does not add up because owners do not report all their sources of revenue. According to Forbes, which states that only ten NBA franchises actually lost money, many owners discount revenue from corporate naming rights, advertising, luxury suites, and team merchandise stores. Two examples of this "fraud" are Jerry Reinsdorf, owner of the Chicago Bulls, the Chicago White Sox, and the United Center, and Phillip Anschutz who owns the LA Lakers, the LA Kings, and the LA Clippers. Reinsdorf beats the system by excluding part of the revenue from United Center, the state of the arena that the Chicago Bulls call home. The United Center houses two hundred sixteen luxury suites that procure $12.7 million in revenue; sixty percent, or $7.6 million, of which he can exclude from revenue. Phillip Anschutz is in the process of building a new arena in downtown Los Angeles. This new arena will house the Lakers, the Kings, and the Clippers. Staples Inc. is giving Anschutz $100 million over twenty years to put their name on the arena. The one hundred sixty luxury suites should accumulate $40 million in revenue and corporate advertising should gain $5 million in revenue; all of which Anschutz will credit to The Staples Center. In addition to those revenues, the NBA and its television partners have agreed on a contract worth at least $2.4 billion over four years, more than double the current deal. The contract breaks down to at least $1.6 billion for NBC and $800 million for Turner Sports. Under the current four-year contract, which expires at the end of this season, NBC paid $750 million and Turner paid $350 million. This deal also included a revenue-sharing provision that will net the NBA additional revenue. It is a shame and a disgrace for NBA owners to be "tightfisted" with its players when it is evident that a plethora of money is available for contracts. The owners of the National Basketball Association handle monumental amounts of money that can be evenly distributed amongst the players and themselves. There is not a reason why already half, and possibly, the whole season is in jeopardy of being lost. The Board of Directors and the NBAPA, NBA Players Association, need to research other professional athletic leagues and examine their respective collective bargaining agreements for ideas. For example, the National Football League enforces a complicated, but well thought out collective bargaining agreement. In their system, which expires in 2000, each NFL team is allowed to designate one franchise player and one transitional player within the years of the agreement. Clubs retain exclusive negotiating rights to a franchise player by committing no later than Feb. 13 to a minimum offer of the average of the top five salaries at the player's position, or a twenty percent salary increase, whichever is greater. This offer must be presented before the end of the restricted free-agent signing period on April 14. Franchise players offered a minimum of the average of the top five salaries at their position in the 1996 season were able to negotiate with other clubs. In the latter case, the original club may match the offer and retain the player or receive two first-round draft choices as compensation if the original club elects not to match. A transition player designation gives the club a first-refusal right to match an offer sheet given to the player by another club. In addition to the transition player option of franchise designation, each club was permitted a total of three transition designations -- two in 1993 and one in 1994. To designate a transition player, the club must offer a minimum of the average of the top ten salaries of 1996 at the player's position or a twenty percent salary increase, whichever is greater. This system, as well as others, seems to work well. The NBA needs to find a remedy for their problem so the players can do what they do best; PLAY BALL! f:\12000 essays\business & economics (632)\POOPASARUS.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ POOPASARUS The Beatles were a mystical happening that many people still don't understand. Phenomenoligists had a ball in 1964 with Beatlemania, a generally harmless form of madness which came from Britain in 1963. The sole cause of Beatlemania is a quartet of young Englishmen known as the Beatles. In the less than one year that they achieved popularity in England to the time they came to America, The Beatles achieved a popularity and following that is unprecedented in the history of show business in England. They became the first recording artists anywhere in the world to have a record become a million-seller before it's release. They became the target of such adoration by their fans that they had to cancel all one-night bookings because of riots in early 1964. Beatlemania had reached unbelievable proportions in England, it became a form of reverse lend-lease and spread to the United States. Capitol records followed the Beatles' single record with the release of an album, "Meet the Beatles," in late January of 1964. That event was followed by the Beatles themselves, who arrived in New York February 8, 1964 for three appearances with Ed Sullivan. The first show was scheduled for Sunday, February 9, the second was telecast from Miami a week later, and the third pre-taped for an airing in March. These concerts were the most watched television programs ever (70 million viewers) until recently. The Beatles' arrival in the United States was presaged by a deluge of advance publicity. Newsweek, Time, and Life have chronicled Beatlemania, UPI, and the AP(Associated Press) had done their part for the cause (including an AP wirephoto of J. Paul Getty sporting a Beatle wig), and even Vogue shoved high fashion aside momentarily in it's January, 1964 issue and carried a full-page photo of the group. Baltimore's respected Evening Sun took notice of the coming of the Beatles on it's editorial page at that time. Said the Sun: "The Beatles are coming. Those four words are said to be enough to jelly the spine of the most courageous police captain in Britain... Since, in this case, the Beatles are coming to America, America had better take thought as to how it will deal with the invasion... Indeed, a restrained 'Beatles, go home,' might be just the thing." Precisely how, when, and where Beatlemania got started nobody- not even their late manager Brian Epstein(who died of a drug overdose in 1967) can say for sure. The Beatles are a product of Liverpool, which had a population of some 300 rock and roll bands( or "beat groups," as Liverpudlians are wont to call them). The beat groups hawked their musical wares in countless small cellar clubs, old stores and movie houses, even in a converted church, nearly all of which are in proximity to the Mersey River. Out of all these groups came, somehow, the Beatles. And they had to go to Germany to do it. In order to better their Liverpool take-home pay of around $15. per week apiece, John Lennon, Paul McCartney, George Harrison, and Ringo (so called because of his penchant for wearing at least four rings) Starr took a tramp steamer to Hamburg and a job which moved them up a bit financially, if not in class. There, in a raucous and rowdy strip joint, the Indra Club, the Beatles became the first entertainers to play louder than the audience. There, too, they were "discovered" by English promoter and talent agent, Brian Epstein, who has since become deservedly known as "the fifth Beatle." Under Epstein's shrewd guidance, the Beatles soon found themselves signing a contract with Britain's giant Electric & Musical Industries, Ltd., the largest recording organization in the world and major stockholder in Capitol Records, Inc.; headlining concerts throughout Britain; and appearing on television. Their first recording, "Love Me Do," was issued by EMI's Parlophone label in October, 1962. It sold a respectable 100,000 copies, and it was the last time a Beatle single sold less than half million copies. The first million-seller, "She Loves You," came out in the spring of 1963. It was followed by two albums, "Please, Please Me" and "With the Beatles." Both LP's sold over 300,000 copies.1 Then, finally, came the unprecedented success of the newest single record, "I Want to Hold Your Hand." In between there was three extended play ( a 45 r.p.m. disk containing four tunes) recordings which also racked up sales of several hundred thousand apiece. All this resulted in what is universally known in Britain as Beatlemania and, as Newsweek said of young Liverpudlians, "the sound of their music is one of the most persistent noises heard over England since the air-raid sirens were dismantled." Their popularity reached a head of sorts when, in November of 1963, at the request of the Royal Family, The Beatles headlined the annual command performance at the Prince of Wales theater. It was a glittering affair and, probably out of deference to attending royalty (including the Queen Mother-she found them "young, fresh, and vital" - and Princess Margaret), notable for the absence of even a small riot. Despite their apparent appointment as Purveyors of Rock and Roll to the Crown, the Beatles have taken the whole thing in stride. Said Beatle John Lennon to the lords and ladies at the command performance: "People in the cheaper seats clap your hands, the rest of you just rattle your jewelry." It was not only their good looks and wonderfully unique music that made them so popular with the young ladies (and men too!). It was their witty charm that was reflected in the quote from the Royal Command Performance. Here is part of what was said at LaGuardia airport on February 7, 1964: "Will you sing for us?" someone asked. "We need money first," John Lenin shot back. "What's your message for American teenagers?" "Our message is...buy some more Beatle records," returned Paul McCartney. "What about the movement in Detroit to stamp out the Beatles?" "We're starting a movement to stamp out Detroit." "Do you hope to take anything home with you?" "Rockefeller Center." "What do you think of Beethoven?" "I love him," said Ringo Starr. "Especially his poems." "Don't you guys ever get a haircut?" "I just got one yesterday," retorted George Harrison. Added Ringo: "You should have seen him the day before." There's a little bit of Beatle history. One could say that they did not just come out of nowhere , like many people believe. It took hard, diligent work to go where they went. Because of this "Came out of nowhere to steal the hearts of young girls" quote that was often used in the 1960's, many psychiatrists felt the need to examine further. Anthony Corbett, a noted English psychologist praised the Beatles as having provided "a desperately needed release for the inhibitions which exist in all of us."2 Dixon Scott of the London Daily Mirror interviewed a well-known psychiatrist (unnamed because of medical ethics) in an attempt to get to the root of Beatlemania. "We are all chaotic and mixed up inside," the psychiatrist told Scott. "We are anxious to have a greater freedom to live. We have a greater feeling of the need to express ourselves...in the past we have been controlled automatons...but you cannot hold nature back forever. All the parts in use had to seek an outlet and rhythm is one of these outlets...then along came the Beatles with their fresh beat and fresh innocence." The psychiatrist then came to the crux of the problem: "A revolution is taking place," he said. "It amounts to freedom with a sense of responsibility and honesty. The fans recognize the honesty that shines from the Beatles." "While other pop stars have thought in artificial terms of reaching out to their audiences, the Beatles are giving honestly, as well as receiving." In a lengthy article in the New York Times, Frederick Lewis of that paper's London bureau, examined the sociological implications of Beatlemania and came up with other theories. "They (The Beatles) are working class and their roots and attitudes are firmly of the north of England. Because of their success, they can act as spokesman for the new, noisy, anti-establishment generation which is become a force in British life," Lewis wrote. "The Beatles are part of a strong-flowing reaction against the soft, middle class south of England, which has controlled popular culture for so long." Beatlemania has touched all corners of English and American life and all types of people. Obviously , it had an enormous effect on America. The proof can be shown in the millions upon millions of records they have sold in the last 32 years that they have been making records (in the present tense because they are still releasing records today). In the first Beatles fanzine in America, it shows how crazy America was at this time over the Beatles. It has life stories, full page pictures, how to do the Beatle dance, and the Beatle haircut. The big contest was to win a call from the Beatles. And at the end there was some wallet size photos for the girl's purses. It is obvious that the Beatles influenced everyone's lives. From the shrieking girls, to the parents of those girls, and the police officers that tried their best to contain the uncontrollable(girls). Their popularity diminished after they stopped touring in 1966, which was due to the strain and stress of touring that they had endured. But their impact was to last forever. The wanting of the reunion has been so big that they are reuniting to collaborate for a new album. It will undoubtedly be a best seller. After all these years, people still love them. 1 According to "The Beatles"- The first American Beatle Fan-zine. 2 All quotes courtesy of "The Beatles"- The First American Beatle Fan-zine f:\12000 essays\business & economics (632)\Postal Service As a Monopoly.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Postal Service As a Monopoly In the United States economy most markets can be classified into four different markets structures. But, each and every market in the United States is completely unique from the others. Generally the best type of market structure for the general public is per-fect competition because it creates the lowest possible price for the public. There are some exceptions were perfect competition isn't the best choice for the public on account of various reasons. The United States Postal Service is one of them and since the Postal Service is a monopoly, it is its own market. This paper will discuss the budget dilemmas that the postal service has faced for the past twenty years and if it is in the best interest of the economy for the United States Postal Service to continue as a monopoly. The first time there was talk of privatizing the Postal Service was in1979 when the Postal Service was losing vast amounts of money in the long run. But since the Postal Service is a necessity for America, the government had to subsidize the service in order for it to continue in operation. In 1979 the United States Postal Service had a cash flow of $22.5 Billion and was additionally receiving $176 million from investing(#1, Intro). Even with this added revenue the Postal Service was still greatly under funded on its own (#1, Intro). During this time it was discussed to privatize the postal service and introduce competition because of the extreme losses that the service was experiencing. A positive argument for privatizing the Postal Service was with numerous competitors in the market there would be more efficiency and the public would receive lower prices. But this would also increase the usage of resources, for example airplanes and cars. One of the problems the Post Office had was its receipts from consumer purchases that were submitted the next day after the transaction (#1, i). If the receipts were submitted earlier the postal service would receive more money because they could invest that money sooner (#1, i). Another way the Postal Service could increased profits was by competitively selecting banks that would give them higher interest rates and such (#1, ii). Probably the most relevant and final way to improve the budget of the Postal Service is to improve the bookkeeping poli-cies and banking techniques (#1, ii). Not only did the Post Service propose to increase profits but they also proposed to cut costs in a number of ways. There were three methods that were proposed in 1946 for the protection of salaries that no longer exists (#2, Intro). These have to do with the rural mail carriers. Under this antiquated method of delivering mail the Postal Service was los-ing money to any mail that went to "rural" areas (#2, i) There are 48,000 mail carriers that deliver mail to millions of families that are considered to be living in rural settings; this costs the postal Service 858 million dollars a year (#2, i). This is a fairly easy problem to fix considering how much money is being lost. It was proposed that money loss could be significantly cut down if the Postal Service corrected the following problems. The rural mail carriers were assigned a certain amount of time to deliver to a specific rural area, this method was out of date and because of this the carriers have free time for which they got paid for (#2, ii). The next problem was that other mail routes based pay on how many miles the route covered, so the carriers were getting paid by the mile (#2, iii). With this problem fixed the Postal Service could saved 26.8 million a year (#2, iii). There was also an hourly rate that was in effect which indirectly promoted inefficient service (#2, iii). A stop to this could have saved the Postal Service $255,000 a year (#2, iii). From the num-bers mentioned above, it can be seen why the United States Postal Service was losing so much money. These problems did indeed eventually did get solved over the past fifteen years and now the Postal Service is making record breaking profits. Now in the first quarter of the fiscal year 1996 the Postal Service already has a net income of $1.2 billion (#3, 1). Now not only is the Postal Service just breaking even, but they are also making a profit. On top of that, the 1.2 billion dollar figure is 115 billion dollars better then the quarterly forecast predicted (#3,1). It is incredible that they are not only making a reasonable profit but it is increasing over the years. The Postal Service is also now reducing debts. An example of this is when the Postal Service redeemed a 1.5 billion dollar loan two years in advance which will save them 22 million dollars of interest in the next two years (#3,1). The Postal Service isn't stopping with the revenue that it is receiving now. The Postal Service is planning to increase its international revenues of $1.2 billion by twice the amount in the next five years and ten-fold by the year 2005 (#5, 1). The Postal Service is continually working to "streamline" their operations for the future that they are now run-ning. The Postal Service is continualy looking to cut back on borrowing money. All of the recent financial borrowing has been through the Federal Financing Bank, but the Postal Service now is looking into outside sources, such as bonds in the public markets (#5, 2). Business are starting to get jealous of the Postal Service because of the great prof-its it is experiencing. The Postal Service is now making a major impact on the United States Economy (#6, 1). Business are pointing out that in 1995 the Postal Service had records of $1.8 billion in net income and a 1.7 billion dollar debt reduction (#6, 1). The $54 billion revenue that the Postal Service is bringing in would put them in 12th place on the Fortune 500 list and 33rd on the Fortune Global 500, with the worlds largest corpora-tions (#6,1). A recent study showed that domestic direct mail sales were at $333 billion in the year 1994 (#6,1). This figure is expected to reach over $500 billion by the year 2000 (#6,1) It can be seen throughout this paper how the United States Postal Service in-creased profits and does not have to borrow as much money as before. It seems that the Postal Service is doing just fine while it is a monopoly. But there are still two arguments for and against the Postal Service continuing to remain a monopoly. On one side compe-tition is thought to make industries in the market more efficient and practice more innova-tive (#4, 1). But on the other hand the competition is also thought to lead to "a wide-spread cream skimming, with the postal service left only the high-cost, unprofitable mar-kets (#4, 1)." So who is to know which market would be better for the American econ-omy as far as the Postal Service goes. But it is speculated if the United States Postal Service does keep increasing its profits over the years, maybe it will be privatized. Bibliography 1) United States. "General Accounting Office, Changes in the U.S. Postal Service's cash management practices could increase income and reduce cost": report / by the U.S. General Accounting Office, Washington: General Accounting Office,","1979 2) United States. General Accounting Office, "Changes needed in the United States Postal Service's rural carrier pay systems": report / by the U.S. General Account-ing Office, Washington: General Accounting Office, 1978 3) http://www.usps.gov/news/press/96/96002new.htm 4) http://nutcweb.tpc.nwu.edu/research/abstracts/i.2.html 5) http://www.usps.gov/news/press/95/95090new.htm 6) http://www.usps.gov/news/press/95/95095new.htm f:\12000 essays\business & economics (632)\Poverty and Welfare.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Poverty and Welfare Today it seems as if everyone has a theory about fighting poverty, now it is not necessary to be moving in the theoretical plane. Our country has had successful anti-poverty programs that were effective back a century ago, effective because they were based on these seven points: affiliation, bonding, categorization, discernment, employment, freedom, and God. But a key element in all of them is personal involvement and challenge, both material and spiritual. If folks a hundred years ago could help others to move out of poverty, and then turn their attention to the next group of immigrants and impoverished, why can't we? Did they have more time than we do? No, even though we feel stressed, their work days on the average were longer. Did they have more money? No, we are far more affluent as a society now. Did they have more space in their homes, so they could take in another person and we cannot? No, on the average our houses are far larger. Did they have less of a drug and alcohol problem? Probably not. They did have fewer single-parenting situations - there was less illegitimacy and divorce then - but life expectancy was lower, so there were lots of orphans and half-orphans. We're more spread out now, but our travel time is not any greater. What I learned leads me to wonder: Why can't we do the same? Were Americans then a different people than we are today? Have we become so corrupted that we don't care about others? Have we become so lazy that we are unwilling to suffer with? I think not. I hope not. But we have become used to having someone else do it for us - even though we know that a professional social worker, with a case load of 200 or so, can't do much more than shuffle paper. Bad charity drives out good. My conclusion is that when we complain about a spendthrift modern welfare state, we're right about the costs but we're actually stating the problem backwards. The major flaw of the modern welfare state is not that it is extravagant, but that it is too stingy. It gives the needy bread and tells them to be content with that alone. It gives the rest of us the opportunity to be stingy also: We can soothe our consciences as we scrimp on what many of the destitute need most - love, time, and challenge. We need to recapture the optimism that a look at history can provide. We need to recapture the understanding that a true definition of compassion suggests. f:\12000 essays\business & economics (632)\Poverty Vs The economy 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Poverty is a lack of goods and services necessary to maintain a minimal adequate standard of living. The definition of the term adequate varies, however, with the general standard of living in a society and with public attitudes toward deprivation. No university accepted definition of basic needs exists because poverty is a relative concept. In poorer countries it means living at the brink of subsistence, while in our country few improvised families confront starvation, although many suffer from undernourishment. A key issue in the area of poverty is inequality. Inequality has been a problem in all societies. No society distributes income evenly. Despite all the conceptual and technical problems of measurement, the government has devised a widely cited poverty index that reflects the different consumption requirements of families depending on their size and composition, on the sex and age of the family head, and on weather they live in rural or urban areas. Based on past surveys, the designers of the poverty index determined that families of three or more person spend approximately one-third of their income on food. Thus, the poverty level for these families was, therefore, set at three times the cost of the economy food plan. For smaller families and persons living alone, the cost of the economy food plan was multiplied by higher factors in order to compensate for the larger fixed expenses of smaller households. The poverty thresholds are updated every year to reflect changes in the consumer price index but overall rises in standard of living. (levington, page 147) Another issue is that the poverty index has several flaws. First, it does not allow for regional variations in the cost of living or for higher costs in the central city areas, where many of the poor are concentrated. Second, the flood costs for the budget were designed for temporary or emergence use and are thus inadequate for a perment diet because they provide only the barest subsistence. Finally, the government statistics fall to take into consideration nonmonetary benefits and assets in determining the number of poor. If these were counted, the numbers in the official poverty ranks would be reduced. The growing gap between the poverty level and median family income demonstrates the inaccuracy of adjusting a poverty level for price increase but not for rising living standard and productivity gains. Alternative definitions and concepts also have a major impact on the poverty estimates that if transfer payments or income support programs such as social security are not counted, then about twenty percent of all American families lived in poverty during 1988, Government income transfers are, however, included in the official poverty index, and this fact reduced the relative number of destitute Americans. If in-kind programs such as Medicaid, subsidized housing, and food stamps were also included, then the percentage in poverty might have been further reduced, (Fitchen, page 97) Another issue is that some particular groups are more likely to experience poverty than others. For instance, blacks are three times as likely to be poor as whites. Families headed by women are nearly five times more likely to be poor than other families. Families where the head has no more than eight years of schooling are nearly five times as likely to be poor compared to families headed by college educated person. Minority and female headed units are not only more likely to be poor but less likely to escape from poverty. The poor face multiple impediments to self-sufficiency, including joblessness, less than a high school education, and dependence on welfare. Their are four different major groups of poor people. They are the elderly, children, employed working-age adults, and unemployed working-age adults. Each of these groups has different problems that are addressed by different programs. Few elderly people hold jobs, and that is the main cause of poverty among the elderly. Some of the elderly poor are willing and able to hold regular jobs, but most cannot. An increasing number of elderly people living alone must support themselves. As the elderly become more numerous and live longer, meeting their income needs becomes increasingly burdensome. The best and often the only practicable way to help the aged poor is to give them some form of income support. Their more costly health-care needs must be met. Two of five persons classified as poor are children under 18 years of age. This fact is of special social concern, because poor children who are denied opportunities from the start are unfairly hindered in preparing themselves for productive adult lives. Low-income families are often driven into poverty by birth of additional children. In society that ignores need in setting wages and that balks at providing child care for women who might earn needed income, a higher incidence of poverty among larger families is a logical consequence. Poor children also have special needs beyond those which can be provided by giving their families higher incomes. In particular, health care, compensatory educational, and vocational training are essential to provide permanent freedom from poverty. Although the problems is often overstated, unemployment remains a major cause of poverty. The poor are the victims of forced idleness more frequently than the nonpoor. Poor family heads are about 5.5times as likely to be unemployed as are the nonpoor.(Katz, page 71) Being employed does not in itself guarantee an adequate income. Many persons worked full time year round and still remain poor. For these people and their families, poverty results from low paying jobs as well as from large families and periods of unemployment. The working poor also experience another labor market difficulties. Many leave the work force voluntarily because of illness or disability or become discourage about the prospects of finding a job and stop looking. A greater number of the working poor are employed at low-paying jobs. In 1988, 40 percent of all poor persons worked but could not overcome poverty. One-fifth of all poor families had two or more wage earner for part of the year and remained poor. (Levitan, page 114) The problems for the working poor are frequent joblessness, low wages, deficient education, and inadequate skills. The plight of the working poor can be alleviated by employment programs that streamline the operation of the labor market, increase the productivity of low-income workers, and create opportunities for employment and advancement. Legislation to eliminate discrimination must also be enforced when such employment and training programs are implemented. Programs provide goods and services directly to the needy to supplement their income. Whatever the means of helping the poor with cash or in-kind income, public attention must usually be focused on a specific problems in order to receive political attention. The necessary goods and services sometimes are not available on the market, and direct provision is a more effective way of providing essential aid. Low-costing housing, for example, desperately needed to combat homelessness, is not profitable to construct and will not be provided by the private sector of the economy without direct government action. Granting housing to the poor in the absence an increase in an affordable housing supply might raise rents on existing units, as it did during the 1980's. In a few cases the government may be able to provide goods and services more efficiently than the private sector because of the savings that are inherent in such large-scale transactions. The government offers other services not so much to alleviate the suffering of today's poor as to enhance the opportunities of their children to escape from poverty. Helping families to avoid having more children than they desire is one of the most productive ways of eliminating poverty. Proper care for mother and child is also extremely important, so that the young will be healthy. The government also provides some compensatory education from preschool to college for poor children. Overall, is isolating the impact of these programs upon beneficiaries is not always easy. Birth control and maternal care, designed to give children a better start in life, also leave the mother in a better position to become economically self sufficient or, at least, contribute to her own support. Similarly, the difference between cash subsides and rehabilitative programs is often blurred, for instance, stipends are necessary for the poor if they are to complete an effective training program. These various strategies for helping the poor complement each other. Not only must today's poverty be alleviated through cash and in-and aid, but steps must be taken to reduce it in the future by better preparing young people and by giving the poor a better chance in the job market. Bibliography Fitchen,Janet M.(1981). Poverty and Rural America New York,York: Random house Publishing Company. Jansson, Bruce S. (1988). The Reluctant Welfare State, A History of Amercians Social Welfare Policies. Belmont, California: Wadsworth Publishing Company. Katz, Michael B. (1990) The Undeserving Poor the War on Poverty to the war on Welfare, New York, New York. Levitan, Sar A. And Shapiro, Issac. (1987), Working But Poor. New York, New York: The free Press. Poverty VS. The Economy John Matthews A. Laramie 12-16-96 f:\12000 essays\business & economics (632)\Poverty vs The Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Poverty vs. The Economy Poverty is a lack of goods and services necessary to maintain a minimal adequate standard of living. The definition of the term adequate varies, however, with the general standard of living in a society and with public attitudes toward deprivation. No university accepted definition of basic needs exists because poverty is a relative concept. In poorer countries it means living at the brink of subsistence, while in our country few improvised families confront starvation, although many suffer from undernourishment. A key issue in the area of poverty is inequality. Inequality has been a problem in all societies. No society distributes income evenly. Despite all the conceptual and technical problems of measurement, the government has devised a widely cited poverty index that reflects the different consumption requirements of families depending on their size and composition, on the sex and age of the family head, and on weather they live in rural or urban areas. Based on past surveys, the designers of the poverty index determined that families of three or more person spend approximately one-third of their income on food. Thus, the poverty level for these families was, therefore, set at three times the cost of the economy food plan. For smaller families and persons living alone, the cost of the economy food plan was multiplied by higher factors in order to compensate for the larger fixed expenses of smaller households. The poverty thresholds are updated every year to reflect changes in the consumer price index but overall rises in standard of living. (levington, page 147) Another issue is that the poverty index has several flaws. First, it does not allow for regional variations in the cost of living or for higher costs in the central city areas, where many of the poor are concentrated. Second, the flood costs for the budget were designed for temporary or emergence use and are thus inadequate for a perment diet because they provide only the barest subsistence. Finally, the government statistics fall to take into consideration nonmonetary benefits and assets in determining the number of poor. If these were counted, the numbers in the official poverty ranks would be reduced. The growing gap between the poverty level and median family income demonstrates the inaccuracy of adjusting a poverty level for price increase but not for rising living standard and productivity gains. Alternative definitions and concepts also have a major impact on the poverty estimates that if transfer payments or income support programs such as social security are not counted, then about twenty percent of all American families lived in poverty during 1988, Government income transfers are, however, included in the official poverty index, and this fact reduced the relative number of destitute Americans. If in-kind programs such as Medicaid, subsidized housing, and food stamps were also included, then the percentage in poverty might have been further reduced, (Fitchen, page 97) Another issue is that some particular groups are more likely to experience poverty than others. For instance, blacks are three times as likely to be poor as whites. Families headed by women are nearly five times more likely to be poor than other families. Families where the head has no more than eight years of schooling are nearly five times as likely to be poor compared to families headed by college educated person. Minority and female headed units are not only more likely to be poor but less likely to escape from poverty. The poor face multiple impediments to self-sufficiency, including joblessness, less than a high school education, and dependence on welfare. Their are four different major groups of poor people. They are the elderly, children, employed working-age adults, and unemployed working-age adults. Each of these groups has different problems that are addressed by different programs. Few elderly people hold jobs, and that is the main cause of poverty among the elderly. Some of the elderly poor are willing and able to hold regular jobs, but most cannot. An increasing number of elderly people living alone must support themselves. As the elderly become more numerous and live longer, meeting their income needs becomes increasingly burdensome. The best and often the only practicable way to help the aged poor is to give them some form of income support. Their more costly health-care needs must be met. Two of five persons classified as poor are children under 18 years of age. This fact is of special social concern, because poor children who are denied opportunities from the start are unfairly hindered in preparing themselves for productive adult lives. Low-income families are often driven into poverty by birth of additional children. In society that ignores need in setting wages and that balks at providing child care for women who might earn needed income, a higher incidence of poverty among larger families is a logical consequence. Poor children also have special needs beyond those which can be provided by giving their families higher incomes. In particular, health care, compensatory educational, and vocational training are essential to provide permanent freedom from poverty. Although the problems is often overstated, unemployment remains a major cause of poverty. The poor are the victims of forced idleness more frequently than the nonpoor. Poor family heads are about 5.5times as likely to be unemployed as are the nonpoor.(Katz, page 71) Being employed does not in itself guarantee an adequate income. Many persons worked full time year round and still remain poor. For these people and their families, poverty results from low paying jobs as well as from large families and periods of unemployment. The working poor also experience another labor market difficulties. Many leave the work force voluntarily because of illness or disability or become discourage about the prospects of finding a job and stop looking. A greater number of the working poor are employed at low- paying jobs. In 1988, 40 percent of all poor persons worked but could not overcome poverty. One-fifth of all poor families had two or more wage earner for part of the year and remained poor. (Levitan, page 114) The problems for the working poor are frequent joblessness, low wages, deficient education, and inadequate skills. The plight of the working poor can be alleviated by employment programs that streamline the operation of the labor market, increase the productivity of low-income workers, and create opportunities for employment and advancement. Legislation to eliminate discrimination must also be enforced when such employment and training programs are implemented. Programs provide goods and services directly to the needy to supplement their income. Whatever the means of helping the poor with cash or in-kind income, public attention must usually be focused on a specific problems in order to receive political attention. The necessary goods and services sometimes are not available on the market, and direct provision is a more effective way of providing essential aid. Low-costing housing, for example, desperately needed to combat homelessness, is not profitable to construct and will not be provided by the private sector of the economy without direct government action. Granting housing to the poor in the absence an increase in an affordable housing supply might raise rents on existing units, as it did during the 1980's. In a few cases the government may be able to provide goods and services more efficiently than the private sector because of the savings that are inherent in such large-scale transactions. The government offers other services not so much to alleviate the suffering of today's poor as to enhance the opportunities of their children to escape from poverty. Helping families to avoid having more children than they desire is one of the most productive ways of eliminating poverty. Proper care for mother and child is also extremely important, so that the young will be healthy. The government also provides some compensatory education from preschool to college for poor children. Overall, is isolating the impact of these programs upon beneficiaries is not always easy. Birth control and maternal care, designed to give children a better start in life, also leave the mother in a better position to become economically self sufficient or, at least, contribute to her own support. Similarly, the difference between cash subsides and rehabilitative programs is often blurred, for instance, stipends are necessary for the poor if they are to complete an effective training program. These various strategies for helping the poor complement each other. Not only must today's poverty be alleviated through cash and in-and aid, but steps must be taken to reduce it in the future by better preparing young people and by giving the poor a better chance in the job market. Bibliography Fitchen,Janet M.(1981). Poverty and Rural America New York,York: Random house Publishing Company. Jansson, Bruce S. (1988). The Reluctant Welfare State, A History of Amercians Social Welfare Policies. Belmont, California: Wadsworth Publishing Company. Katz, Michael B. (1990) The Undeserving Poor the War on Poverty to the war on Welfare, New York, New York. Levitan, Sar A. And Shapiro, Issac. (1987), Working But Poor. New York, New York: The free Press. f:\12000 essays\business & economics (632)\Preserve the Forests.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Preserve the Forests In agreement with Kim Stafford, who opposes the clear-cutting of old growth forests, I feel that it is necessary to preserve the profitable lumber in its natural state for future generations. Currently, the tons of lumber produced from the Pacific Northwest region of the United States are taken for granted, and most people do not realize that the forests will be destroyed within ten years at this rate of exploiting our natural resources. We must make loggers a profession of the past and divert those current ones into another sector in our society. The spotted owl is more than a *Darwinistic* survival of the fittest issue; it represents the direction of our only planet. In order to preserve the beauty of this planet, we must cease the clear- cutting of forests. All old growth forests have been around for multiple centuries and are cut down daily in a matter of hours in order to produce more buildings and houses in this already over-crowded world. If the rate at which we cut down trees is continued without any regulation, the forests will all be gone in ten years, so we should do mankind a favor and try to preserve what is left. If the old growth forests are gone, then they can never return because it takes over five generations to produce one and at the rate that the human population is increasing, there is not enough land to have a secure place for a new forest. If we realize that it is best for the human race to stop destroying the natural resources, then we must destroy, too, the existence of loggers all together. To do so, there must not be any new loggers, so all training potential loggers must be stopped. The current loggers must be diverted to another occupation. Perhaps if the public supported the notion of stopping clear-cutting, the government would be able to provide services to educate the loggers in a different field. Also, with public support, many companies will probably offer several programs for former loggers. No matter what we choose today, the loggers have seen their last Haley*s comet; they will all be gone with forests in ten years. When we stop the development and decrease the number of loggers, we will help save the spotted owl, a species that has greater importance than a mere animal towards the our species. It is a symbol of the general health of Mother Earth, a figure without which no living object can survive. If the cutting of forests at this rate remains constant, the spotted owls will disappear within the ten years along with the our forests. In order to regulate the logging industry to keep our trees intact, there must be public support for the idea. With that, the government would most likely be willing to provide educational services for the loggers who need to get new jobs. Sooner of later, this sacrifice of loggers will occur, and the latest will be in ten years. The spotted owl represents a major part of our natural resources. At this rate, that major part will disappear along with the spotted owl in a mere decade. f:\12000 essays\business & economics (632)\Principles of Budget and Finance.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Principles of Budget and Finance Overview of Concentric Brief History Concentric Network Corporation is an Internet service provider that began in 1991 under the name of Engineered Video Concepts, Inc., changed their name to Concentric Research Corporation in 1992 and began network operations in 1994. In 1995, the company changed its name to Concentric Network Corporation and reincorporated in 1997. The company offered public stocks on August 1, 1997. Since that time they have grown considerably by strategically acquiring partnerships in the industry. Concentric offers Internet and networking services. Their customers consist of individuals dial up Internet access, small to medium businesses Web hosting, remote access, Internet telephony and videoconferencing, and virtual private networks. Virtual private networks consist of enterprise networks with hardware leased from a third party which would be Concentric. Concentric relies on a high-performance, ATM-based network that covers all of North America. Through different partnerships Concentric Network now reaches South America, Europe, and the Pacific Rim. Industry The data communications services offered by public carries had limited security features, were expensive and did not offer reliable transmission. Many corporations established and maintained their own private Wide Area Networks (WANs) to provide network-based services. Today, the need for WANs has grown considerably due to companies wanting to offer better customer service and quicker, smoother data transactions. To start a WAN, a company must invest much of their capital as well as constantly maintain upgrading and supporting their own WAN. Many companies have decided to look to vendors offering already existing WANs, hardware and support instead of maintaining their own WAN. This is where companies such as Concentric get their customers. The inception of the internet has caused widespread usage of certain applications by companies, however, security and reliable performance have been a strong concern of companies. Industry analysts expect the market size for both value-added IP data networking services and Internet access to grow rapidly as businesses and consumers increase their use of the Internet, intranets and privately managed IP networks. According to industry analyst Forrester Research, Inc., the total market for these services is projected to grow from $6.2 billion in 1997 to approximately $49.7 billion in the year 2002. Concentric's Business Strategy Concentric's objective is to become the leading supplier of value-added, IP-based network services worldwide. The company has elected to implement this strategy using the following key principles: rapidly provide cost-effective, tailored network solutions, optimize network utilization, acquire complementary assets, technologies and businesses, employ leveraged marketing through strategic partners, and deploy network services internationally. Concentric offers many services to attempt to adequately attack their business strategy. One of its service that is offered to not only smaller businesses but larger companies as well is their Virtual Private Network. This network enables a business to deploy internal business applications business-to-business or business-to-customer with high-speed access to the internet. The network is secure and offers a way to access information and communicate with offices in other geographical regions as well as retrieve information from the Internet. Concentric's Concentric Server Solutions offers lines of web hosting for businesses who require outsources maintenance, management, bandwidth, and housing for their Internet Web servers. Concentric's ConcentricHost product is a suite of web-hosting products and services designed to provide solutions to the Internet needs for small to medium-sized businesses in one account. Packages range in price from $29.95 to $199.95 per month depending on the number of email accounts and the amount of server space and bandwidth the customer desires. Concentric also has Windows NT Hosting as well. This product is targeted to small to medium-sized companies as well and offers a line of Windows NT-based hosting. Strategic Business Alliances The company prides itself in aggressively pursuing alliance partnerships with other companies to expand its enterprise and consumer customer base. The following is a list of its current alliances. WebTV Networks, Inc., owned by Microsoft accounts for one-third of Concentric's sales. SBC Communications Inc., will help Concentric add to their already existing Virtual Private Network products. Williams Communications Group, Inc. is a company that Concentric is partnered with due to Williams' wide range of communication services and telecommunication equipment that will enable Concentric to meet its business strategy. In January of 1999 Concentric entered into a partnership with Covad which allows Concentric to resell Covad's DSL local loop services to Concentric's customers. Teligent is a company that Concentric formed an alliance with in order to allow Teligent to offer its high-bandwidth communication services to Concentric's customers. Concentric and Intuit, a financial software company, partnered in October of 1995 allowing Intuit to use concentric to launch integrated internet access to the Quicken Financial Network. Nortel/Bay Networks and Concentric are partnered to allow Nortel's RemoteLink users to dial into Concentric Network high-performance network to access their Intranet. Concentric has also formed an alliance with TMI which enables Concentric to get into the international market with their services. A non-comprehensive list of Concentric's other partners include: Cybercash, GRIC Communications, GX Networks, Intershop communications, Kleiner, Perkins, Caufield and Byers, MySoftware, Netopia, Northpoint, and Register.com. On September 8, 1999, Concentric purchased Britian's Internet Technology Group for $235 million in stock and cash. Concentric sees this as their doorway to Europe according to Mike Anthofer, Concentric's chief financial officer. Concentric plans to expand into Germany and France with the use of this newly acquired company. Investment Suggestion Although Concentric appears to be a solid company in the world of Internet technology, I would not recommend investing in this company. Concentric's revenues have increased from $15.6 million in December of 1996 to $82.8 million in December of 1998, however, it has not show a gross profit in all three years. The company does not have a net profit margin for the last three years. Its total assets were $100 million more than its liabilities at the end of 1998. Concentric has not paid a dividend on its stocks for over a year. In 1999 alone, its stock went from as low as $7.00 per share to as high as $53.00 per share. It is currently at $19 per share and showing a trend of dropping since April of this year. Concentric split its stock in July of 1999. I see this market being highly volatile with many competitors entering this still-yet-to-be-established market. Although Concentric seems to have a good grasp of the networking market, I do not think all the major players have entered this marketplace as of yet, which means Concentric could end up with more competition that it can handle. Concentric, themselves, in their annual report indicate the risk of the Y2K issue. They are currently evaluating all of their products to make sure they are Y2K compliant but this fear as the year draws to a close would keep me from wanting to invest in the company for fear the stock will plummet. Concentric also recognizes the risk of facing government regulation as well, which may limit their products and services. All in all, given the fact that Concentric is still a young company in an extremely volatile business subject to many risks, I would not recommend investing in this company. If, however, the investment was to be for a long period of time, this company may grow over the years to come possibly increasing their stock value over time. I could foresee Concentric being purchased by a larger networking company in years to come. f:\12000 essays\business & economics (632)\Printing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The printing business is rather hard to get into because of the high prices of the equipment and the need to have a large floor room for all the machinery. Also there is usually stiff competition within a small area. The government imposes many regulations on printing companies in the hope that it will help keep the environment clean from wastes. For protecting from water pollution the Clean Water Act is in effect for the printing industry. Businesses must give information on the locations of where chemicals are being used. They must also give a diagram showing the water flow through the facility. Also they need to give a description of the average flows and the treatment of the wastewater before it's discharged and also a estimate of the facilities production. The government also wants the companies to give them information on how much ammonia they use along with the biochemical oxygen demand, chemical oxygen demand, total organic carbon, total suspended solids, and the temperature of the water both in the winter and summer along with its pH. Along with the Clean Water Act the business must meet air guidelines and solid waste regulations. The socially important factor that the printing industry does is communicate with people in mass amounts. It allows fast transfer of data and gives people a hard copy to read. With out the printing industry we would have to rely on other methods of transferring and communication information with people such as TV, radio, billboards, and hand written documents. These would work fine but would cost businesses higher prices which in turn would cause the consumer to pay more for products. The printing business is rather hard to get into because of the high prices of the equipment and the need to have a large floor room for all the machinery. Also there is usually stiff competition within a small area. The government imposes many regulations on printing companies in the hope that it will help keep the environment clean from wastes. For protecting from water pollution the Clean Water Act is in effect for the printing industry. Businesses must give information on the locations of where chemicals are being used. They must also give a diagram showing the water flow through the facility. Also they need to give a description of the average flows and the treatment of the wastewater before it's discharged and also a estimate of the facilities production. The government also wants the companies to give them information on how much ammonia they use along with the biochemical oxygen demand, chemical oxygen demand, total organic carbon, total suspended solids, and the temperature of the water both in the winter and summer along with its pH. Along with the Clean Water Act the business must meet air guidelines and solid waste regulations. The socially important factor that the printing industry does is communicate with people in mass amounts. It allows fast transfer of data and gives people a hard copy to read. With out the printing industry we would have to rely on other methods of transferring and communication information with people such as TV, radio, billboards, and hand written documents. These would work fine but would cost businesses higher prices which in turn would cause the consumer to pay more for products. The printing business is rather hard to get into because of the high prices of the equipment and the need to have a large floor room for all the machinery. Also there is usually stiff competition within a small area. The government imposes many regulations on printing companies in the hope that it will help keep the environment clean from wastes. For protecting from water pollution the Clean Water Act is in effect for the printing industry. Businesses must give information on the locations of where chemicals are being used. They must also give a diagram showing the water flow through the facility. Also they need to give a description of the average flows and the treatment of the wastewater before it's discharged and also a estimate of the facilities production. The government also wants the companies to give them information on how much ammonia they use along with the biochemical oxygen demand, chemical oxygen demand, total organic carbon, total suspended solids, and the temperature of the water both in the winter and summer along with its pH. Along with the Clean Water Act the business must meet air guidelines and solid waste regulations. The socially important factor that the printing industry does is communicate with people in mass amounts. It allows fast transfer of data and gives people a hard copy to read. With out the printing industry we would have to rely on other methods of transferring and communication information with people such as TV, radio, billboards, and hand written documents. These would work fine but would cost businesses higher prices which in turn would cause the consumer to pay more for products. The printing business is rather hard to get into because of the high prices of the equipment and the need to have a large floor room for all the machinery. Also there is usually stiff competition within a small area. The government imposes many regulations on printing companies in the hope that it will help keep the environment clean from wastes. For protecting from water pollution the Clean Water Act is in effect for the printing industry. Businesses must give information on the locations of where chemicals are being used. They must also give a diagram showing the water flow through the facility. Also they need to give a description of the average flows and the treatment of the wastewater before it's discharged and also a estimate of the facilities production. The government also wants the companies to give them information on how much ammonia they use along with the biochemical oxygen demand, chemical oxygen demand, total organic carbon, total suspended solids, and the temperature of the water both in the winter and summer along with its pH. Along with the Clean Water Act the business must meet air guidelines and solid waste regulations. The socially important factor that the printing industry does is communicate with people in mass amounts. It allows fast transfer of data and gives people a hard copy to read. With out the printing industry we would have to rely on other methods of transferring and communication information with people such as TV, radio, billboards, and hand written documents. These would work fine but would cost businesses higher prices which in turn would cause the consumer to pay more for products. f:\12000 essays\business & economics (632)\Privatization In Russia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Privatization In Russia For some, the privatization of Russian industry has been one of the great success stories of Russia's painful economic transition: quick, firm and radical action was taken to shift the great bulk of Russian industry out of state hands, thereby laying the basis for a radical restructuring of enterprises and improvements in their performance. Others see privatization as a best a failure, at worst a catastrophe. Not surprisingly those opposed to the market and economic reform as a whole share this view. But many commentators who see themselves as supporters of reform find plenty in Russian privatization to criticize: the process led to the transfer of ownership to inappropriate people and as a consequence no beneficial restructuring of enterprises or the economy can be expected. While this paper will attempt to cover the three key facets of privatization: that enterprises be transferred to private ownership; that the new owners be able de jure and de facto to exercise ownership rights; and, finally and ultimately most importantly, that the new owners exercise their ownership rights in such a way as to bring about improvements in enterprise performance. The key issues to be surveyed, therefore, are: who as a result of privatization obtained ownership of Russian industrial assets, and are they appropriate owners; can new owners, particularly if they are appropriate owners, exercise their ownership rights; and has privatization led to improvements in enterprise performance? The paper will deal with privatization only within the industrial sector; thereby ignoring the highly controversial privatization's of the last twelve months or so in the energy and utility sectors. Who are the new owners? Global data showing about 70% of GNP being produced in the private sector reflects the high levels of privatization of industrial enterprises, with the great bulk of enterprises having been privatized by mid-1994. However privatization does not necessarily mean the complete removal of the state from an equity involvement in enterprises. State ownership. The state retains shareholdings in a significant number of privatized enterprises on the basis of government decrees declaring the 'strategic significance for national security' of the enterprise. Shareholdings range from 20 to 51 per cent or a Golden Share (a single share giving veto rights over certain strategic issues of corporate development) retained by the state for up to three years. In late 1997 the state had shareholdings in 2900 enterprises. The shareholding consisted of a Golden Share in 1351 cases, of over 50% of shares in 128, of 25-50%, in 1037, of 20-25% in 228, and less than 20% in 303 of cases. By far the largest numbers of state holdings are in the energy sector (860). Not surprisingly the defense industry sector has a significant number (260). The rest are scattered across the economy. This is a not insignificant state equity interest in Russian industry. There appears to be no particular trend towards either the strengthening or weakening of the state's holdings, primarily because there are very differing views within government over which direction any trend should take. There is a continuing dribble of disposals, but decrees extending the period for which the state can retain parcels of shares in particular enterprises are also not rare. The number of enterprises deemed to require a 'strategic' state interest increased from the original 2700 set in the government's 1995 decree, to over 3200 in early 1997, but had declined to 2900 by the end of 1997. It seems likely that a rump state presence will remain for some time to come, but not at a level that represents the basis for a significant rolling back of privatization. Majority workforce shareholdings are seen as leading to two possible outcomes: collective ownership, in which the enterprise is owned and managed in a collective way by a workforce with common interests; or management ownership, in which management in various ways gains de facto if not de jure ownership rights over workforce shares and thereby gains effective ownership of the enterprise. Collective ownership derives either from a natural alliance between managers and rank-and-file employees, probably based on Soviet traditions of paternalism and the 'social contract', or from the need of managers to pander to workers who control a majority of voting rights at shareholder meetings. Although some observers might find a collective ownership outcome desirable, on the grounds that it provides for workplace democracy and high-incentive work habits, reform-oriented commentators generally find it a form of ownership likely to lead to the maintenance of excessively high levels of underemployed staff and an over concentration on consumption at the expense of investment. The management ownership outcome derives from the ability of management to totally dominate divided, demoralized or indifferent rank-and-file employees. The argument that they do so by bribing employees with promises of secure employment and the maintenance of social welfare provisions is essentially the same as that presented in the previous paragraph on collective ownership. However, there is an increasing awareness among commentators that any Soviet paternalism and coincidence of management-worker interests that might have once existed have not survived the rigors of the transition and the self-interest of managers. As A.S. Bim puts it: "Given serious 'positional differences' between managers and other employees, it seemed reasonable as early as 1993 to draw attention to the quite peculiar nature of insider ownership in Russia and to argue against simplifications such as the statements common in 1993-1994 that privatization in Russia had proceeded de facto in favor of workers (employees) or insiders as a homogeneous group." The rigors of the transition, difficult market conditions and something close to a hard budget constraint, have made it impossible for managers to maintain employment and social welfare provision. The managers' self-interest, whether it be reflected in asset stripping or building up a profitable enterprise, pushes them in a similar direction. They then have two options. Once is to rely on coercion and manipulation, rather than bribery, to get worker owners to support them; the other is to get the workers to sell their shares to them. Coercion and manipulation have been much in evidence. The crudest approach is the threat of dismissal of those who vote against management. Another popular approach at least requires the initial support of a majority of workforce shareholders. Management sets up a holding company type structure, the paid-in capital of which consists of all the workforce shares (or all those for which the management can get approval). The articles of association of the new structure are written in such a way that management controls it and through it the enterprise.15 Gurkov writes of individual managers building up their own 'cultivated plot' of workers over whom they have most direct work-based control and influence, and the managers then forming alliances and bringing their workers' shares with them into the alliance.16 But such arrangements cannot bring complete security of control. The greatest security comes when managers own in their own right a controlling shareholding. Management appears to have had greater opportunities than rank-and-file workers and staff to obtain shares in the privatization process itself. If Option 1 were chosen top management was entitled under the privatization legislation to purchase up to 5 per cent of shares. There is evidence that under Option 2 management obtained more than a proportionate distribution of shares in the internal tenders which allocated workforce shares among individual staff. Usually this was because they had greater financial resources, including access to credit. Since privatization some managers have continued to build up holdings by buying shares from workers, often again by applying various forms of coercion. One approach is to engineer high levels of labor turnover, in the expectation that departing workers will sell their shares. Even those who remain, often not being paid for months, are forced to sell through financial exigency. It is implied that wages arrears are a deliberate ploy by managers to bring about such an outcome. Outside owners: Privatization procedures were designed to give outsiders significant access to Russian industrial assets. As we have already seen, the workforce and management could obtain major holdings, indeed controlling holdings, if they so desired. The rest, however, were disposed of through a combination of voucher auctions (since the vouchers distributed to the entire population were freely negotiable, voucher auctions attracted the participation of insiders, outside speculators and outside strategic investors) and investment tenders and auctions (in which fixed parcels of shares, usually ranging from 15-30%, were sold to a single highest bidder, whose bid would have contained an investment plan including cash injections into the enterprise). The procedures made it very difficult for a single outsider to build up a controlling shareholding. The voucher auctions distributed shares among many bidders; the parcels sold through investment auctions were too small. However it is possible, if not easy, to build up controlling shareholdings through post-privatization purchases of shares. Shareholder's Such turnover can take place only if shareholders are able to exercise their ownership rights. It is not hard to find evidence of managers making it very difficult to exercise those rights. Their misdeeds include sacking or otherwise discriminating against workers who sell their shares; putting barriers in the way of outsiders purchasing shares or refusing to register purchases that are made; and discriminating against minority shareholders in terms of dividend policy. To these can be added the refusal to allow representatives of minority shareholders onto the board of directors, diluting the holdings of existing shareholders by issuing new shares and allocating them to management cronies, refusing to call shareholder meetings, manipulating the agendas of such meetings, concealing information on enterprise performance from shareholders, and making strategic decisions without consulting shareholders. And some of the provisions of the Civil Code dealt with these abuses. The basic principles of shareholder rights and corporate governance were then set out in a consolidated piece of legislation, the Law 'On Joint-Stock Companies' (aktsionernye obshchestva, AOs), which after a long passage through parliament was passed by the Duma (the lower house) on 24 November 1995 and signed by Yeltsin on 26 December 1995, to come into legal force as of 1 January 1996. The Law clearly responds to most of the abuses of shareholders' rights, which littered the initial years of post-communist corporate governance. A summary of the legislation, especially the clauses most related to the protection of shareholders' rights follows. Some of the examples of management behavior outlined above make it clear how important the rules on notification of meetings and quorums are. Regulations on notification are contained in Article 52. It is not essential that shareholders be informed directly and personally of shareholders' meeting, although if a simple advertisement is to suffice the publication in which it is to appear must be specified in the Articles of Association. For larger AOs at least 30 days notice must be given of a meeting, with the Law containing a considerable degree of specification of the information that must be included in the notification. The board of directors of an AO with over 1,000 shareholders must have at least seven members; nine members are required for AOs with over 10,000 shareholders. Members of the management committee must be in a minority on the board, and the general director cannot simultaneously chair the board (Art.66). Although the Law makes no provisions for the representation of minority shareholders on boards of directors, the requirement that 'cumulative voting' be used in elections to boards is presumably designed to provide some protection (Art.59). The Federal Commission on the Capital Market reports an increase in outsider representation on boards since the first half of 1994, but also those outsiders are still underrepresented. One would be unwise to underestimate the ingenuity of Russian managers in finding ways around the Law, or their willingness to simply disobey it.61 Nevertheless the most obvious sources of abuse of shareholders' rights have been dealt with. The fact that the Law - one passed after all by a communist-dominated parliament - has a pro-shareholder orientation is in itself worthy of note. As Dmitrii Vasil'ev, the head of the Federal Commission on the Capital Market, put it after the passage of the Law: As a result, we can say most violations of shareholders' rights are now illegal in Russia Conclusion I am prepared nevertheless to venture, albeit tentatively, that the score card is not obviously against privatization. The suggestion that the designers of privatization were somehow conned into handing ownership over to managers does not stand up. The indications are that they knew what they were doing and judged that outside owners would eventually assert themselves. Gradually they are doing so, and gradually they are improving their ability to exercise and enforce their ownership rights. Sometimes they are doing so in ways that are no less reprehensible than the methods of the manager-owners. There are also reasons to be concerned about the long-term consequences of the sort of bank-dominated and highly integrated ownership that many of the outsiders have brought. The best that can be said at this stage is that all modern economies have at their peak a corporate sector dominated by large integrated institutions. Clearly the private sector, and thereby privatization, has to bear some responsibility for an economy in which it has a 70% share but which is unable to provide in anything like adequate proportions growth or welfare. But in this there are other factors also at work. Indeed there are some small indications, at both macro- and micro-levels, of a positive correlation between private ownership and good performance. With time that correlation could well become stronger and more evident. f:\12000 essays\business & economics (632)\Pro Performance Appraisals should be banned from use.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Pro: Performance Appraisals should be banned from use. I. Position Statement In the business world today, there are many stressors that take place in the course of a working day. Employees have things to worry about such as deadlines, meetings, presentations, and many other problems that they face during the day. Performance appraisals just add to this on growing stress and should be banned from use in organizations today. II. Identification of the Issue The definition of a performance appraisal is the evaluation of a person's performance. I submit that this definition makes the process sound easy and effortless. A performance appraisal is used for many reasons and it shows how an employee is doing according to standards that are set by the organization. Accurate appraisals help supervisors to fulfill their duties as evaluators and coaches. But the major reason that performance appraisals are being used today is because they are supposed to give employees feedback on their individual performance on the job. This process helps supervisors and managers to determine promotion candidates, termination candidates, and to determine employee satisfaction and employee needs. This process is done in different ways by different organizations. Some organizations like to do performance evaluations once every year, and some like to do it more than that. Most companies that I read about like to do them once every year. The managers sit down and think about how their employee is doing, things like attitude, effort, enthusiasm, skill, promptness, and things of this nature are just some of the criteria for performance appraisals. In order to have any validity this process must be well understood by the employees of the organization and specific goals must be set for each job. These are the basic definitions and the process that managers and supervisors must go through in order to accomplish performance evaluations. III. Arguments Senior managers and employees share a common aversion to performance appraisals. Employee evaluations was an accepted practice during the mid 1980s, it has now ceased to be a popular way of defining and rating performance. This argument can be seen from two points of view, the manager's point of view, and the employee's point of view. Managers detest the time, and paperwork involved. They are faced with many difficult choices, and discomfort that often accompany the appraisal process. "By 1993 so many people had been laid off, and so much had been written about restructuring and the many "good" people who'd been displaced, that the stigma was eroding for workers and the incentive for managers to document failure was diminished." (Kennedy PG 2) Layoffs were happening so often that managers and supervisors were using the word layoff, when it really meant "fired." Outplacement became an antidote to confrontation. "Why bother to labor over a detailed record of errors observed, assignments missed, and attitude problems when drop-kicking the individual into the layoff pool was simpler?" (Kennedy 2) Employees that were in fact fired felt that they had a shared fate with other co-workers rather than thinking about a lawsuit opportunity. One manager said, "Why fire someone when you can lay him off, complete with a goodbye party?" (Kennedy 2) Another reason that appraisals are becoming more obsolete is because of the high turnover rates. Many mangers and top managers are looking for more bodies and more employees instead of in-depth appraisals of those already in place. Should manager's waste their time doing appraisals on an employee that has only been in the organization for three months and is already looking for another job? Managers often give employees very high scores on performance appraisals just to avoid conflict. They do not want to deal with angry employees so to keep their employees satisfied they give them high ratings. Besides after managers do make their decisions they must justify their assessments face to face with their employees, which is something that most managers do not want to do. So if something were really wrong how would you know it anyway? " Since 1995, another trend has emerged to further erode the importance of the review process. Younger workers care less about performance appraisals than older workers did, because they are less competitive with peers, and their performance appraisal system in place that doesn't rank people either against an arbitrary standard or against peers." (Kennedy 3) In the work world and even sports today, people are competing against their own best efforts. Athletes strive to beat their all time best performance and businessmen and women strive to better themselves and prepare themselves for new and better things to come. Performance appraisals are often very one sided. When I talk about one sided I mean that managers can base their assessments on their attitudes towards the employees, or could just use recent examples of behavior instead of overall performance. If a manager has bad feeling or attitude towards an employee are they going to honestly assess the employee or put personal bias into play? Diane Kristen raises a very interesting point in an interview conducted by Nancy Pekala. "Differences in interpretation are particularly evident when an employee changes supervisors. A long-term employee may have been receiving superlative reviews for 15 years, but then a new supervisor will score the employee lower. Did the former supervisor score the employee too high, is there a personality conflict between the employee and the new supervisor, or does the new supervisor just have a different definition of what constitutes an "8"?" (Pekala 2) For employee appraisals to be effective managers must have constant feedback to their workers, not just at the time of the appraisal. One employee said, "Performance appraisals give my manager a chance to evaluate my performance over the past year. Sometimes the information is a surprise to me." (McCarthy 1) This is a prime example that employees are clueless as to how they are doing on a regular basis. How can employees be expected to change a certain behavior if they just find out about it at the end of the year or before they are terminated? Often at times organizations have generic appraisals not specific ones for each position. One manager says, "Our appraisals aren't relevant. They don't address the actual performance issues I have with my employees." (McCarthy 2) Employees want clarity when they are being evaluated, if they truly have the desire to improve they want to know exactly what they need to improve upon. Employee performance appraisals are definitely a controversial issue that organizations face today. Managers and employees are seeking better ways to communicate with each other, and performance appraisals just aren't cutting it. Many organizations still require performance appraisals and require their manager's to waste their time doing something that is not relevant to their employees. So why do we have such appraisals when they don't help the manager to better assess his or her employees, and they don't help the employee understand what they have to do to improve their performance on the job? f:\12000 essays\business & economics (632)\PRODUCTIVITY GROWTH HYPTHESIS.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1131 In this assignment, we will attempt to study the effects that difference in Income Ratio (henceforth known as I.R.) between the years 1980 and 1990 have on the Productivity Growth (P.G.) during the same period of time. The Income Ratio of one specific year can be found if we take the average income of the richest faction of a country (the richest 20% of the population) and divide it by that of the poorest faction (the poorest 20%). In this assignment, the Income Ratios that were used were those of 13 different countries. The I.R.'s on both 1980 and 1990 were taken for all these countries and, to find the difference between them, the I.R. for 1990 was divided by the I.R. for 1980, for each country. These new numbers illustrate the change of I.R. between the two years so that we can compare how the P.G. changes in relation to the changes in the I.R.. On this assignment, we use inductive reasoning to examine the data and find a theory (a hypothesis) that would combine the data given in a way that would make sense, based solely on our data. How do we know if the "theory" that we formulate makes sense? In this case we will plot the points (derived from the column "I.R. 1990/1980," going on the x-axis, and the column "Productivity Growth 79-90," on the y-axis). According to how the points are on the graph in relation to the Average Point (0.94,1.45) (point that is an average of all values and which divides the graph into four Quadrants), if 80% of these points are where they would be expected to be to conform to the hypothesis, then there is no reason to reject this hypothesis. If, on the other hand, the majority of the points does not conform to our hypothesis (are not where they were predicted to be), then it is rejected. Another method of reasoning frequently used by Mainstream economists is "deductive knowledge," as opposed to "inductive," described above. Their theory is formulated and only then it is applied to the data. Their theory on this subject suggests that productivity within a country grows when the population has incentives to work harder (or to work more). When the gap between rich and poor increases (an increase in I.R. form 1980-90, resulting in a larger ratio on the column I.R. 1990/1980), so does the population's eagerness to work, therefore increasing the Productivity Growth. Since when one variable goes up the other also goes up, there is a positive (or direct) correlation between the two. Mainstream economists use deductive reasoning to deduce that there exists a positive correlation between the two factors. In short, their hypothesis is that when the Income Ratio increases, the Productivity Growth also increases, since people are more motivated. For this to be true, we would expect a line going up and to the right on the graph, passing by Quadrants II and IV. Most points (80% or more) would have to be on these two Quadrants. This, however, is not the case (see graph), since only about 30.77% of the points plotted satisfy these conditions. Since the original hypothesis was rejected, we might want to see if there is a negative correlation between the two variables (that is, as one goes up, the other goes down). Our new hypothesis would then be "as the Income Ratio increases, the Productivity Growth decreases." Then, in the case of a high I.R., people in lower classes would rationally start to feel insecure and that their work is not being recognized by society, therefore losing motivation and producing less. In this case, since there's a negative correlation, one would expect the line on the graph to go downwards, from left to right, passing on Quadrants I and III. If this hypothesis were valid, 80%+ of the points would have to be on these Quadrants. This is also not the case, for only 69.32% of the points are on the appropriate Quadrants. Like the first, this second hypothesis also has to be rejected. After analyzing these two relationships and seeing that neither is valid, we conclude that there is no direct relationship between the two variables tested. That does not mean that one has no effect on the other (it probably does), only that there may be other factors and influences involved that have not been accounted for in this assignment and that one is not the only factor responsible for the changes in the other. DATA SHEET Country Income Ratio 1980 Productivity Growth 1979-90 Income Ratio 1990 Income Ratio 1990 / 1980 United States 9.0 0.4 11.0 1.2 Australia 9.6 0.8 9.6 1.0 New Zealand 8.8 1.4 8.8 1.0 Switzerland 8.7 1.0 8.0 0.91 Canada 7.0 1.1 7.0 1.0 Britain 6.8 2.0 7.0 1.03 France 6.5 2.4 6.0 0.92 Italy 6.1 2.0 5.8 0.95 Germany 5.8 1.6 5.0 0.87 Holland 5.6 1.5 5.0 0.89 Belgium 4.7 2.2 3.8 0.81 Sweden 4.7 1.5 3.8 0.81 Japan 4.2 1.0 3.6 0.85 Average Income Ratio 1990 / 1980: 0.941 Average Productivity Growth 1979-90: 1.45 No. of points conforming to first hypothesis: 4/13 = 30.77% No. of points conforming to second hypothesis: 9/13 = 69.23% By: Leonardo Santos f:\12000 essays\business & economics (632)\Profiles In American Enterprise.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2811 A.G. Edwards Inc. The industry for securities is undoubtedly an exciting and fast paced industry. This means that brokerage firms such as A.G. Edwards and Sons must always be watching the stock prices on every stock in the market so that they can give their clients maximum profit. When A.G. Edwards and Sons' clients do well then in turn so does the brokerage firm. A.G. Edwards Inc. is not the biggest corporations in America, but yet it is still a very large corporation and has great importance in the industry for which it participates. This paper will give an in depth explanation about how A.G. Edwards functions as a cor-poration. Along with competition from the government, banks and other brokerage firms there is also probably the biggest factor involved of interest rates. Interest rates are indi-rectly proportional to the activity in the stock market. This means that when the interest rates fall the market for securities becomes active. This is due to the fact that people want the highest yield on there money and when interest rates are low, investing money into a bank would yield less money then it would have before at a higher interest rate. So people tend to want to put there money into something that will give them a higher yield and stocks are just that. An example of this inversely proportional relationship is always being demon-strated and was demonstrated in the past few years. At the end of 1992 to the beginning of 1993 the volume in most businesses was at record levels obtaining a pre-tax net income for the whole industry of 9.1 billion dollars setting a new record for the second year in a row (Hoover's Company & Industry Database, 1993, p. 1 (Hoover, 1993,p.1)). This trend continued when in the beginning half of 1993 offerings (new business for the com-pany) exceeded those of 1992 (Hoover,1993, p. 2). Examples of this are as follows; more than 700 billion dollars of debt was issued in 1992 and then in the first half of 1993 an-other 440 billion dollars of debt was issued (Hoover, 1993, p. 2). More than half of this debt was due to asset-backed debt such as credit cards and other charges made to credit (Hoover, 1993, p. 2). These debts were included because the debts were more or less sold to banks and other money lending institutions who were more willing to take the risk for the high interest rate. This drop in interest rates did wonders for the brokerage firms involved and also corporations that had acquired debt over the years. The fall of interest rates was great for the brokerage firms because of the increase in business with the public's desire to invest. So the corporations used it to issue off more stock to the public to pay off their debts (Hoover, 1993, p. 2). As if interest rates didn't have enough effect on brokerage firms, there is also the heavy competition that was involved. This competition is not only from other top broker-age firms such as Merrill Lynch, Morgan Stanley, Primerica (Smith Barney Shearson), Salomon, and Goldman Sachs, but there is also competition from big banks and securities over seas. Banks have a number of ways to compete with security firms, but the most prevalent and direct is through mutual funds. Since the late 1980's banks have been ag-gressively competing with mutual fund sponsors by issuing there own mutual funds to the public (Hoover, 1993, p. 3). Mutual funds that are issued by banks are now the fastest growing part of the mutual fund industry, with 10.6 percent of total assets and 30 percent of new sales (Hoover, 1993, p. 3). There has just recently been a large amount of compe-tition from markets overseas and this competition continues to increase. There are a few theories as to what has caused so many U.S. investors to invest in foreign markets. It is supposed that it is either individual investors who want to further their portfolio or in-vesting in foreign markets to try and avoid interest rates and changes in currency (Hoover, 1993, p. 4). The investment in foreign markets has also been attributed to technology and the fact that up to date information can be obtained instantly from any place in the world (Hoover, 1993, p. 4). But whatever has caused it global securities have skyrocketed. Before the organization and structure of the company a brief history and explana-tion of the company will be discussed. A.G. Edwards & Sons was founded in 1887 by Benjamin Franklin Edwards making A.G. Edwards & Son the first St. Louis brokerage to handle trades for the local banks on the New York Stock Exchange (Flagg, 1994, p. 56). Then three years later Benjamin's younger brother joined the company changing the name to read A.G. Edwards & Sons (Flagg, 1994, p. 56). In 1898 Edwards bought a seat on the NYSE and then in 1900 opened its first office in New York (Flagg, 1994, p. 56). In 1925 Benjamin's son joined the team and later became a managing partner (Flagg, 1994, p. 56). One of A.G. Edwards & Sons greatest accomplishments in the past was the fact that on Black Thursday the single most largest lost was 5,000 dollars out of more than one million dollars (Flagg, 1994, p. 56). This well managed event proved that A.G. Edwards had what it took back then to make it in the stock brokerage industry. Later down the line A.G. Edwards & Sons formed a type of mother company entitled A.G. Edwards Inc. which now oversees many other businesses. To this day the company still displays these similar types of skills and that is why the industry has continued to excel. Despite the fact that most people haven't heard of A.G. Edwards Inc., it is actually quite a large company. The corporation is described as a "holding company (Compact Disclosure, 1996,p. 1 (CD, 1996, p.1))." The corporation contains many subsidiaries which are the following: A.G. Edwards & Sons, Inc., Ceres Investment Co., Indianapolis Historic Partners, AGE Commodity Clearing Corp., A.G. Edwards Life Insurance Co., Edwards Development Corp., A.G. Edwards Trust Co., A.G. Edwards Asset Performance Monitor, Inc., A.G.E. Properties, Inc., A.G.E. Reality Corp., A.G.E. Redevelopment Corp., Gull-Age Capital Group, Inc., AGE Investments, Inc. (CD, 1996 , p. 12). All of these subsidiaries perform the following tasks: provide security and commodity brokerage services for individual, corporate and institutional clients; distribute mutual funds, handle corporate and municipal unit trusts, tax incentive investments, life insurance and annuities; provide investment banking services for corporate, governmental and municipal clients; and operate as a futures commission merchant (CD, 1996, p.1). As you can see A.G. Ed-wards Inc. is indeed a big company and has tremendous assets. Since A.G. Edwards & Sons is the principle subsidiary, when discussing the functions of the corporation the func-tions of A.G. Edwards & Sons will mainly be discussed. A.G. Edwards Inc. is the full name of the corporation and is based out of St. Louis Missouri. The primary office of the corporation is One North Jefferson Avenue, St. Louis MO, 63103-2205. The primary SIC Code is 6211 Security Brokers and Dealers. The other two SIC Codes are: 6411 Insurance Agents, Brokers, and Service; and 6719 Hold-ing Companies, nec (CD, 1996, p. 1). A.G. Edwards Inc. currently contains 11,279 em-ployees. Since A.G. Edwards Inc. is a corporation it does contain numerous officers the following is a list of the main officers: Name Age Title Salary Edwards, Benjamin F. ,III 64 Chairman of the Board, President, Chief Executive Officer, Subsidiary Officer $1,512,627 King, Eugene J. 64 Vice President, Subsidiary Officer NA Proost, Robert L. 58 Vice President, Subsidiary Officer NA Avis, Robert 64 Vice Chairman of the board, Subsidiary Oficer $1,174,034 Dissett, Robert C. 58 Subsidiary Officer $893,849 Mesker, David W. 64 Treasure, Subsidiary Officer NA Ewdards, Mary G. 53 Treasure NA Sisler, David M. 60 Vice President NA In the subsequent paragraphs the organization of the company will be discussed. From reading over all of the sources that have been compiled for this paper it is relevant to me that A.G. Edwards Inc. is a good solid company that treats its customers well and contains employees who are on top of things. One of the biggest problems that brokerage firms are facing is the complexity and strict rules and regulations that are now being pressed upon the firms (1996 Annual Report, 1996, p. 5 (1996 Report, 1996, p. 5)). Since this is occurring in the industry of securities it is very important for A.G. Edwards to stay on top of everything in order to keep up with the competition and stay in business. The following is a quote from A.G. Edwards' annual report: To remain flexible, offer the services investors need and deliver value for what is charged. A.G. Edwards is prepared to meet these challenges. We are confident our service-oriented philosophy, along with our ongoing efforts to provide our in-vestment brokers the latest technology and support resources, will position us well as we look toward the next century (1996 Report, 1996, p. 5). From this statement A.G. Edwards declares that they are very prepared for whatever is ahead of them in the future and will make the sacrifices to stay in business and continue to have content stock holders, employees and clients. Benjamin Edwards III, the CEO of the corporation states numerous times that the number one interest of the corporation is to look out for the customer and always be placing them first. The Organization of A.G. Edwards Inc. is organized like most other corporations. The organization of A.G. Edwards Inc. can be considered centralized. As it can be seen from the preceding chart the organization is hierarchical. There is Banjamin Edwards who is the president and resides over all the other positions in the corporation. The other posi-tions include subsidiary officer, treasure, vice chairman of the board, vice president, sec-retary, and controller assistant secretary. Under the people in these positions is the board of directors and then the stock holders. The interesting aspect about A.G. Edwards Inc. is since A.G. Edwards Inc. is composed of numerous small corporations each subsidiary has its own board of directors. Integration in a business sense has been described to me as in the vertical and hori-zontal senses; vertical integration being defined as containing a general sense of one or more industries or being a full service corporation. So basically a corporation that sup-plies numerous services under one roof would be considered vertically integrated. With this in mind A.G. Edwards Inc. is definitely a vertically integrated company. A.G. Ed-wards Inc. is certainly a generalized company since is contains so many subsidiaries. Since A.G. Edwards Inc. oversees many other smaller companies, it also competes in numerous other markets. These markets are the markets for: stock, futures and com-modity brokerage, life insurance and annuities, mutual funds, corporate and municipal trusts, and investment banking. This is the section of the paper where the financial aspects of the company are dis-cussed. A chart will mostly be used in order to express the companies standing and then the chart will be explained as to what the figures for the company signify. The following chat gives a good general outlook as to what is numerically happening financially to the company. Operating Results 1996 1995 1994 1993 1992 Revenues $1,454,467 $1,178,342 $1,278,641 $1,074,388 $938,659 Net Earnings $170,582 $124,119 $154,871 $119,425 $105,532 Net Earnings as a Percent of Revenues 11.7% 10.5% 12.1% 11.1% 11.2% Earnings Per Share $2.65 $2.00 $2.57 $2.07 $1.88 Stockholders' Equity $1,088,684 $919,281 $790,367 $615,240 $492,010 Return on Average Equity 17.0% 14.5% 22.0% 21.6% 24.0% Total Assets $3,102,085 $2,224,282 $2,236,590 $2,111,192 $1,577,143 From this chart many conclusions can be drawn. Before what the actual numbers signify, the terms in the chart will be explained. Revenue is the total gross amount of money that the corporation brought in for that year. Net Earnings is the net income or the monetary value that the corporation brought in that year after expenses. The earnings per share is how much net earnings the corporation made for every share of the company. Earnings per share is more or less the earnings divided by the number of shares that have been issued by the corporation. The stockholders equity is basically what return the public has gotten for investing in the company. Then the total assets is the monetary value of the company and everything that is connected to it. There is also the statistics of the shares of A.G. Edwards Inc. The return on average equity is the return on the money that is in-vested internally. The current outstanding shares are 63,430,245. From that number the number of shares held by insiders is 2,238,256 and the number of shareholders is 21,500. On January 31, 1997 the high for the price of the stock was 34.625 and the low was 33.125 and then closing at 34.000 (CD, 1996, p. 8). The stock price for March 4, 1997 was a high for the day at 36 and a low for the day at 35 3/8 and then closed at 35 3/8 which is the unchanged price from the previous day (America Online, 1996). The earning per share for that day was 3.21 (America Online, 1996). Based on what has been presented in the preceding paragraphs I think that A.G. Edwards would be a good investment. From what I have read in the all of the materials that have been at my disposal, A.G. Edwards Inc. made a very good impression on me. They seem to be a corporation that is on a right track and once it can break away from the competition it will be huge. I also think that it is very possible for A.G. Edwards to be-come a great company if it continues with the upward trend in earnings that it has been displaying for the past decade. From the chart I can draw these conclusions just by look-ing at the net earnings and how they have increased almost 70 thousand dollars. This shows that the company has been doing something right and thus could potentially be a good investment. A.G. Edwards Inc. has done very well in the industry this year making it a record year for 1996, although much of the credit was because of the big jump in the Dow Jones average (1996 Report. 1996, p. 3). A.G. Edwards Inc.'s net earnings reached an all time high and resulted in the paying of more that 100 million dollars in current year income taxes for the first time (1996 Report, 1996, p. 3). Related to the jump in net earnings was the fact that the stockholder's net worth went to 1.1 billion dollars, or 17 dollars per share (1996 Report, p. 3). A.G. Edwards Inc. has undoubtedly experienced a great year weather or not they can be credited with their success. Because of the increase in earnings that A.G. Edwards has experienced the corporation was able to expand their office locations (1996 Report, 1996, p. 3). In the fourth fiscal quarter A.G. Edwards Inc. opened offices in Harrisburg, PA; Galesburg, Ill; Griffin, GA; granting A.G. Edwards a total of 536 locations (1996 Re-port, 1996, p. 3). Including these office locations, there were twenty more other office locations added around the United States for the year of 1996 (1996 Report, 1996, p. 23). A.G. Edwards was also able to increase its number of investment brokers to 5,757 by the end of the year, an increase of 5% from the prior year (1996 Report, 1996, p. 23). Also in the past twenty years A.G. Edwards has grown to 483 offices in 48 states (Siconolfi, 1993, p. 23). The broker sales force more than doubled since the year of 1984 (Siconolfi, 1993, p. 24). These are great changes for the corporation and shows investors that the company has a sure footing in the industry. There has also been the past changes in the corporation with the continuous adding of smaller subsidiary corporations which all per-form separate tasks under the name of A.G. Edwards Inc. From this paper the reader should have learned a great deal about A.G. Edwards Inc. A.G. Edwards Inc. is an interesting corporation because of numerous reasons. Probably the number one reason for this is the fact that its main subsidiary is a brokerage firm and brokerage firms are fast paced people working together with other people. When you have this combination the future can never be predicted with great accuracy. The corporation is so big considering that it contains so many other companies, and any corpo-ration with numerous other corporations underneath it is always fun to learn about. From this paper it is my hope that the reader has become more knowledgeable about the corpo-ration A.G. Edwards. Not only how much money the corporation has pulled in or what it does, but also about how it is run and what the attitude of the company is. References Anthony, Van "Securities Firms" 1993, September) The Securities and Exchange Com-mission Report. Hoover's Company & Industry Database. CD-ROM. September 1993. A.G. Edwards Inc. (1996, February 29). 1996 Annual Report Siconolfi, Michael. (1993 December). "Rating The Brokers" Smart Money, 23-26. "Complete Company Records" (1996, February) Compact Disclosure. CD-ROM. February 1996. "Quotes and Portfolios." (1997 March 5). America Online. Online. America Online. Keyword: Quotes. Flagg, Jonas. (1994 August/September) "A.G. Edwards: A 107-Year-Old Legacy" Securities Industry Management Magazine, 56. Other References 1). I made the graph myself from data in: "Complete Company Records" (1996, February) Compact Disclosure. CD-ROM. February 1996. 2). I made the graph myself from data in: A.G. Edwards Inc. (1996, February 29). 1996 Annual Report Table of Contents I. Industry Overview A. History of the industry B. Identification of the corporation C. Competition in the industry D. Interesting Information about the industry II. Company Overview A. History of the company B. Company Information C. Organization of the company III. Financial Information A. Financial Statistics B. Financial Analysis IV. Corporate Culture & Trends A. Key Recent Events B. How the company is holding up C. Improvements on the company V. Conclusion VI. References f:\12000 essays\business & economics (632)\Projected Profits.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Met North Energy Corporation 4 Year Net Profit Projections The current budget figures for the four year period 1996 - 1999 show a steady decrease in profits eventually resulting in a loss during the fourth year. The graph shows the decrease in net profit while gross profit remains virtually static and expenses increase. After an initial loss during the first year the figures indicate a healthy profit at the end of the period. The figures in this graph from the spreadsheet clearly show the long term benefits gained by the additional $50,000 when it is added to the 1996 advertising budget. Despite a loss of $10,000 in the first year the projected profit for the 4 year period is $160,500. The results of the spreadsheet showing both budget options can be reduced to just one simple graph. This supported by market research would convince management as to which option to choose. Met North Energy Corporation Net Profit Projections Year 1996 1997 1998 1999 Sales $450,000 $455,000 $455,000 $460,000 Projected Sales $450,000 $523,250 $523,250 $529,000 Cost of Goods Sold $180,000 $185,000 $180,000 $185,000 Projected Cost $180,000 $203,500 $198,000 $203,500 Gross Profit $270,000 $270,000 $275,000 $275,000 Projected Gross Profit $270,000 $319,750 $325,250 $325,500 Less Expenses: Salaries $80,000 $90,000 $100,000 $110,000 Advertising $50,000 $50,000 $50,000 $50,000 Increase in Advertising / 1996 $100,000 $50,000 $50,000 $50,000 Interest $60,000 $60,000 $60,000 $60,000 Depreciation $40,000 $50,000 $55,000 $65,000 Total Expenses $230,000 $250,000 $265,000 $285,000 Projected Expenses $280,000 $250,000 $265,000 $285,000 Net Profit $40,000 $20,000 $10,000 -$10,000 Projected Net Profit -$10,000 $69,750 $60,250 $40,500 Increase in profit $160,500 f:\12000 essays\business & economics (632)\Prologue of History.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Prologue of History Until statehood, Hawaii was ruled economically by a consortium of corporations known as the "Big Five": C. Brewer and Co., sugar, ranching, and chemicals, founded in 1826; Theo. H. Davies & Co., sugar, investments, insurance, and transportation, founded in 1845; Amfac Inc. (originally H. Hackfield Inc.-a German firm that changed its name and ownership during the anti-German sentiment of WW I to American Factors), sugar, insurance, and land development, founded in 1849; Castle and Cooke Inc., (Dole) pineapple, food packing, and land development, founded 1851; and Alexander and Baldwin Inc., shipping, sugar, and pineapple, founded in 1895. This economic oligarchy ruled Hawaii with a velvet glove and a steel grip. With members on all important corporate boards, they controlled all major commerce, including banking, shipping, insurance, hotel development, agriculture, utilities, and wholesale and retail merchandising. Anyone trying to buck the system was ground to dust, finding it suddenly impossible to do business in the islands. The Big Five were made up of the islands' oldest and most well-established haole families; all included bloodlines from Hawaii's own nobility and ali'i. They looked among themselves for suitable husbands and wives, so breaking in from the outside even through marriage was hardly possible. The only time they were successfully challenged prior to statehood was when Sears, Roebuck and Co. opened a store on Oahu. Closing ranks, the Big Five decreed that their steamships would not carry Sears's freight. When Sears threatened to buy its own steamship line, the Big Five relented. In the end, statehood, and more to the point, tourism, broke their oligarchy. After 1960 too much money was at stake for Mainland-based corporations to ignore. Eventually the grip of the Big Five was loosened, but they are still enormously powerful and richer than ever, though these days they don't control everything. Now their power is land. With only five other major landholders, the Big Five control 65 percent of all the privately held land in Hawaii. Why was the 1946 Strike so important? Before 1946, Hawaii's economy, politics and social structures were completely dominated by a corporate elite known as the Big Five (Alexander & Baldwin, American Factors, Castle & Cooke, C. Brewer, & Theo. Davies). The leaders of these factor companies exercised absolute control over Hawaii's plantation workers and the majority of the islands multi-ethnic workforce. The 1946 strike forever changed the balance of power between workers and the plantations. No longer would living and working conditions be set unilaterally by the plantation owners or their parent corporations. Nor was the lesson lost on the workers outside the plantation either. As sugar workers were now successful in challenging the plantations, so too would all the other employers often subsidiaries of one of the Big Five now be brought to the bargaining table to improve their wages and working conditions. The 1946 sugar strike was monumental both in terms of the numbers of people involved and the issues at stake. Never before had all the sugar workers of every ethnic group joined together in the same labor organization. Previous efforts of the workers to organize had been easily smashed because of a lack of worker solidarity across ethnic lines. Japanese workers belonged to their own higher wage association just as the Filipino sugar workers had their own union. Bitter lessons were learned from the unsuccessful 1909 and 1920 Japanese strikes and the 1920, 1924 and 1937 Filipino labor movements which failed because of ethnic unionism. The great strike of 1946 started with a new premise of organizing workers of all races into a single labor union. Never again would workers be divided and conquered because of ethnic antagonism. This strategy of ethnic solidarity was successful but it was not easy. A concerted effort to include the concerns and issues of all Hawai'i's workers, to communicate in every language was necessary for the multi-ethnic union to succeed. The legacy of the great Hawaiian sugar strike of 1946 is the success we can see today of Hawai'i's multi-ethnic workforce to bridge ethnic differences and build trust based on worker solidarity. Hawai'i's diverse workforce united in 1946 and began for the first time to form a single working class culture, unique to Hawai'i. Like today, the issues of housing, medical care, pensions and wages were key issues for the 1946 sugar workers. Previously the quality of housing, medical care and old-age pensions depended upon the whim of individual plantations. The 1946 sugar strike negotiated new labor relations establishing these important issues as contractual rights of workers, rather than as favors the plantations could wield to force worker compliance. Thus, the 1946 sugar strike is an event whose impact reaches beyond the sugar fields, into the lives of every worker in Hawai'i. Importantly, the role of the neighbor islands in the 1946 sugar strike was tremendous. Concentrated, community-based organizing made these communities a special place in the history of Hawai'is working people. The 1946 strike was the first island-wide sugar strike, the first industry-wide shut-down in Hawai'i's history. The strength of the 1946 sugar strike and the community organizing it built upon was so solid on the neighbor islands, especially Kaua'i and Hawai'i, that it soon became the bedrock of a new political order. The active support and involvement of family and workers throughout Hawai'i, made this strike a success. Appropriately, the history of the 1946 sugar strike is the history of community organizing all members of the community including wives and children. The success of the strike built upon the support of not just workers, but workers families both relatives who had left the plantations and children themselves only a few years from working for the plantations. The story of the 1946 sugar strike includes soup kitchens, morale committees with talent nights and dances, community garden, hunting and fishing parties, bumming committees to solicit from stores and other supporters, baseball teams through which organizers like Major Okada met and solicited new members. The 1946 strike is recent enough that many adults have a recollection of the events. But our young people and even many adults in their 20s and 30s have neither memories, nor access to their history in regards to this important event that changed the way workers and employers in Hawai'i interact not only sugar workers, but all workers. The legacy of the 1946 sugar strike is larger than sugar. Its legacy is the formation of a multiethnic community force working together to address social and political problems. Community organizing not only won the 1946 sugar strike, it also laid the foundation for political change including the Democratic Revolution of 1954. Alexander and Baldwin History of (A&B) Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most of its operations centered in Hawaii. It was founded in 1870 and incorporated in 1900. Ocean transportation operations and related shoreside operations of A&B are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc. ("Matson"), and several Matson subsidiaries, all of which are headquartered in San Francisco. Container leasing operations are conducted by a wholly-owned subsidiary of Matson, Matson Leasing Company, Inc. ("Matson Leasing"), which is headquartered in San Francisco. Real property and food products operations are conducted by a wholly-owned subsidiary of A&B, A&B-Hawaii, Inc. ("ABHI"), and several ABHI subsidiaries, including California and Hawaiian Sugar Company, Inc. ("C&H"), all of which are headquartered in Hawaii or California. The industry segments of A&B are as follows: A. Ocean Transportation - carrying freight primarily between various United States Pacific Coast and Hawaii ports; providing terminal, stevedoring, tugboat and container equipment maintenance services in certain of those ports; and arranging United States Mainland intermodal transportation. B. Container Leasing - leasing marine cargo containers in standard 20-foot and 40-foot lengths to transportation companies, primarily ocean carriers in the liner trades. C. Property Development and Management - developing real property in Hawaii and on the U.S. Mainland; selling residential properties; and managing, leasing, selling and purchasing commercial and industrial properties. D. Food Products - growing sugarcane and coffee in Hawaii; producing raw sugar, molasses and green coffee; refining raw sugar, and marketing and distributing refined sugar products in the western United States; marketing and distributing roasted coffee and green coffee; providing sugar and molasses hauling and storage, general freight and petroleum hauling and self-storage services in Hawaii; and generating and selling electricity. C. Brewer and Company C brewer is the parent company of Mauna Loa Chocolates. And is also the parent company of Hawaiian Isles Kona Coffee Co. The oldest of the former Big Five companies, C. Brewer and Co., plans to relocate its corporate headquarters from downtown Honolulu to Hilo. C. Brewer, one of the state's largest agricultural companies, today said it plans to move its offices and 30 employees to a former sugar mill on a 10.34-acre site at Wainaku Point, overlooking Hilo Bay. C. Brewer Chairman J.W.A. "Doc" Buyers said the relocation will probably take place in the first quarter of 1998. "This is a move for the 21st Century," Buyers said. "The move is more than just a visionary business strategy - it signifies what we've been saying for some time - the Big Island's vast potential is beginning to surface and we want to help accelerate the process." C. Brewer, founded in 1826, said it wanted to be closer to its main assets on the Big Island, which Buyers described as "the bread basket of Hawaii." The Big Island subsidiaries include Mauna Loa Macadamia Nut Corp., Hilo Coast Power Co. and Brewer Environmental Industries. The move also was prompted by the fact that the company's lease for its historic downtown headquarters expires in December 1997. The company had been paying about $1.5 million a year in rent, Buyers said. C. Brewer had leased the 65-year-old building at Fort Street Mall since 1986 after selling it to All Hawaii Holding Inc. for $8.3 million. Buyers noted that the move will mark the first time that a former Big Five company is based on a neighbor island. Other former Big Five companies, such as Dole Food Co. and the former Amfac Inc., have relocated to the mainland, he said. The Big Five companies, which also included Alexander & Baldwin Inc. and Theo Davis & Co., were agricultural concerns that dominated Hawaii industry into the 1950s. News of the relocation comes about six months after C. Brewer Homes Inc. relocated its headquarters from Honolulu to Wailuku. The company, a former unit of C. Brewer before the parent firm spun it off in late 1993, develops housing projects on Maui. Big Island Mayor Steven Yamashiro said the addition of C. Brewer will have a major impact on the county's economy. Yamashiro said that county officials had been negotiating with the company for six to eight months as part of a big push by Hawaii County to attract new business. The new headquarters will be renovated at a cost of up to $3 million. Another article states that C. Brewer Homes is Loseing money: C. Brewer Homes Inc. became the third major Hawaii home builder to report disappointing earnings for the latest quarter. C. Brewer yesterday said it had a loss of $82,000, equal to 1 cent a share, in its second quarter, compared with a profit of $327,000, or 4 cents a share, in its second quarter of last year. Revenues in the latest quarter, ending Sept. 30, were up 29.3 percent from a year earlier at $5.3 million compared with $4.1 million. But the company also said it had significant increases in costs during the quarter. C. Brewer, which is active in housing development on the neighbor islands, also said sales have been adversely affected by uncertainty among prospective buyers because of the poor condition of Hawaii's economy. C. Brewer Homes President Pete Moynahan said the company's profitability is being hurt by incentives it offers to get people to buy in a tough market. Costs soared as options such as design enhancements, air conditioners and other improvements that would usually be bought as extras were given away to encourage sales, the company said. At Kehalani, Brewer's 2,400-home project at Wailuku, Maui, the company closed sales of 24 single- family homes in the second quarter at an average price of $219,000. Sales there in the year-earlier quarter totaled 13 homes at an average of $266,000. At Iao Parkside, a Maui project in which Brewer is a 50-50 partner, 10 condominium units were sold in the latest quarter at an averageil,9p6,7p price of $129,000. In the 1995 quarter, Brewer sold 17 units at an average price of $127,000. As of Sept. 30, Brewer had a backlog of 25 homes on order but not completed at Kehalani, with a total sales value of $5.4 million, and six units at Iao Parkside, its partnership with Schuler Homes Inc., with a total value of $900,000. Brewer is the last of the three publicly held builders of Hawaii homes to report disappointing results for the latest quarter. Schuler saw its profit drop to $485,000 from $2.9 million a year earlier. Castle & Cooke Inc. had a profit of $2.1 million, but said that without the sale of some mainland commercial properties it would have reported a loss of $500,000. The previous articles show that Hawaii's Economy is declining very rapidly, unlike when they first started their company, where the economy was great. Castle and Cooke Castle & Cooke Homes Hawaii is one of several successor companies to the company founded by Amos Starr Cooke and Samuel Northrup Castle in 1851, began residential development of the company's lands in the early 1960's with the Mililani Master Plan. Castle And Cooke now owns about 99 percent of the land on the island of Lanai, and they own about 29.75 percent of the other islands. American Factors "What Amfac has to do with delicious Kona Coffee" Coffee first came to KealakeKua-Kona in 1828 by way of Reverend Samuel Ruggles, but it was actually an arabica strain of coffee from the Hamakua region of the Big Island that was actually brought to Kona in the mid 1800's and seriously propagated by a few upstart farmers Much of the coffee production in the latter half of the nineteenth century was controlled by large land owning companies such as American Factors, and worked by migrant laborers mostly from Japan. When the world coffee market collapsed at the end of this century much of the land was leased to these Japanese farmers who began operating under a barter system with many local area stores. When the coffee was harvested and sold in the fall, these farmers would then pay off their debts to these stores. Despite the maneuvering that took place between the stores and the larger mills, the coffee was still the property of those responsible for processing and selling the coffee in the mainland United States. Throughout those difficult years of barter and land leases, the Japanese farmer slowly gained control of an industry originally established by the larger corporations. Many farms around Kona began small milling operations on their property which added value to their product. The industry ran itself like this for over a half a century, but always at the mercy of what the international coffee market was doing to the price of coffee. Having no control over these prices or market value of their coffee a series of booms and busts occurred over the years making coffee farming a risky business. Coffee production was as high as 7,000 acres in 1958, but the pound price for cherry was only 12! (You will better understand this relationship between price per pound and cherry later in this article.) It wasn't until the influx of haoles (Hawaiian slang word for Caucasian main landers) in the early 1970's that the local Kona coffee industry began to monitor and administer its own market. Today's push for purity, up scaled means of production, direct marketing by the farmer and the gourmet reputation of the product has proven to be a lucrative means to achieving a stable marketplace. f:\12000 essays\business & economics (632)\Ptinciples of professional conduct for CPAs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ "Code of Professional Ethics by American Institute of Certified Public Accountants." Code of Professional Ethics by American Institute of Certified Public Accountants. Introduction "A code of professional ethics is a voluntary assumption of self discipline above and beyond the requirements of the law. The Code of Ethical Conduct serves the highly practical purpose to notify the public that the profession will protect the public interest" (Carey, Doherty: p 3). When people need a doctor, a lawyer or a certified public accountant, they seek someone whom they can trust to do a good job, not for himself but for them. People assume that the hired professional is qualified since they cannot appraise him. They must take it on faith that he is competent. That is why professionals are distinguished from businesses and why there is a need for ethical regulations. The Code of Professional Ethics The Code of Professional Ethics for public accountants was developed by the American Institute of Public Accountant and includes four different categories. The first, Concepts of Professional Ethics, establishes major requirements for CPAs in different areas of their day-to-day professional activities. The main parts of the Code are: Independence, Integrity and Objectivity in the practice of public accounting, Competence and technical standards, Responsibilities to clients, Responsibilities to colleagues and Other responsibilities and Practices. Independence has always been the fundamental concept to the accounting profession. In fact it is the most essential to the practice of all professions. The financial reports produced by CPAs would be of little value to the public unless CPAs maintain their independence. Independence has always been associated with integrity and objectivity. Since faults on financial statements may be the result of either a honest mistake or a lack of integrity it is imperative to associate the notion of independence with the objectivity and integrity. As part of the requirements by the Code of ethics, CPA should avoid any relationships that may result in the CPA's becoming dependent on the particular client. Such relationships include financial interests and client management. It is very important that the opinion of the CPA reflects the results of operating decisions taken by the client and not any underlying ideas which may be the case if a CPA takes part in the decision making process of the company. Another important issue discussed in the Code of ethics is competence and responsibility of CPAs. It establishes a basic ethical obligation that a CPA shall not render any services which he is not competent to render. Within this topic, the code mentions continuing improvement of the competence of CPAs in all areas in which they engage. In fact, the requirements of competence are established by law. If a man renders a service he is not familiar with, he commits a fraud on the public (However, CPAs are supposed in a reasonable manner to carry this principle beyond). The code of ethics assumes that in situations where CPAs face a problem he/she is not familiar with, they may ask other practitioners for help. A CPA may drop the case only when his/her efforts prove to be futile. From the other standpoint, there are always unknowns in every profession. Thus, to assume that every practitioner is completely knowledgeable would be inaccurate. Responsibilities to Clients include CPAs' maintaining their independence, integrity and objectivity regardless of any personal interest that previously exists. CPAs should hold in confidence, all the information about their clients which they acquire during engagements. However the Code states that CPAs should insist on disclosing in financial reports, all information necessary for the fair presentation of the clients' affairs. The accountancy laws in some states of the USA contain provisions which do not require disclosing information obtained during engagement by accountant in any court. These clauses directly interfere with federal jurisdiction. Federal courts have held that a "state statute conferring privileged status on communications to accountants does not apply to a Federal administrative proceedings" (Carey and Doherty: p. 133) and may require disclosure of the information by CPA. With reference to the Responsibilities to Colleagues, good relations within a profession are very important because they aid in the exchange information and opinions. "The public confidence in professional accounting is gained mainly by cumulative accomplishments of all CPAs" (AICPA, Section 55, article 01). Successful professionals in accounting do not hide secrets from what they have learned from their experience. They share their ideas with other practitioners who address them directly or publish articles in professional publications, through speeches and professional meetings. The code prescribes assisting colleagues in complying with the code of ethics and disclosing cases of its enforcement. Basically, the principles of responsibilities to fellow practitioners described in the Code do not establish the limits of professional conduct. They define the area and basic foundations of the professional courtesy. Finally the code defines general principles of ethical conduct for professional accountants. These responsibilities are not discussed in other parts of the Code but they underlie all ethical principles mentioned in the text of the Code. They establish basic regulations of rivalry inside the profession and also establish the ethical obligation of CPAs to clients in determining fair fees for their services, and other principles. The foundation of public accounting is the client confidence and those people who are using financial statements produced by CPAs. To keep the confidence of clients, CPAs shall maintain their independence and objectivity. The standards of independence require that the CPA does not subordinate his judgement on to that of the client keeping in mind that there are other CPAs who are knocking at his client's door. One of the other principles mentioned in the Code is the renunciation of promotional methods of the commercial world which increase the pressure on CPAs and will lead to conformity with the letter of the code evading its spirit. CPA shall not be involved with business activities that are incompatible with the practice of public accounting. These activities include selling securities because this may include promotional activities for a public accounting practice and consequently negatively influence the independence of CPAs. The next category of the Codes of professional ethics include Rules of Conduct which establish more detailed regulations of the principles described in the first part of the Code. These rules become effective only after approval of the membership. A member who is found guilty in enforcing Rules of conduct may be expelled or suspended by the Trial Board. The Rules of conduct have four major parts as mentioned in the first part of the Code under the Concepts of Professional ethics. Each section of the Rules of Conduct has a subset of particular cases given under Ethics Rulings. In addition to the standards described above, state CPA institutions and other government establish their own ethical standards. Conclusion Professional ethics is concerned with human behaviour and human relations. As human society becomes more complicated, so do the codes of professional conduct. The purpose of the rules is to attract and increase public confidence and discourage behaviour inconsistent with the image of profession. Public confidence may even be more important to the public accountant than to any other professional because CPAs are concerned not only about their clients but also about those who rely on their reports. The code of ethical conduct provides members of the profession with the rules that were worked out on the historical basis to attract the confidence of the public. Therefore, the rules of ethics are the foundation of public confidence. Works Cited John L. Carey and William O. Doherty. Ethical Standards of the Accounting Profession. New York: American Institute of Certified Public Accountants, 1966 American Institute of Certified Public Accountants. Code of Professional Ethics. New York: AICPA, 1977 f:\12000 essays\business & economics (632)\Purchasing A Small Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2853 Purchasing a Small Business Outline I. Deciding to buy A. Why buy a small business? B. Starting out-the nine steps C. Initial details to consider 1. Are partners needed? 2. Economic factors 3. Is the location acceptable? 4. Tax strategy II. Where to start A. How much income is needed? B. The "Thirteen Steps" to acquiring a business III. Locating a potential purchase A. The Acquisition Plan B. Beginning the search-who can help? III. Negotiating a purchase price A. Valuation of a small business 1. Why do a valuation? 2. Choosing the method that is best for your situation 3. Some different methods of valuing a business a. Ability-To-Pay Method b. Discounted Cash Flow Method c. Excess Earnings Method B. Calculating goodwill C. Setting the purchase price D. The letter of intent IV. Finding the initial capital A. Sources of financing 1. Traditional sources 2. Nontraditional sources B. Guaranteed loan programs V. Closing the deal 1. Get a lawyer 2. Audit review 3. The closing VI. The rewards of working for yourself The decision to purchase a business of your own is not an easy task. There are many things to consider before the final decision is made. First of all, exactly what do you want to accomplish? To make millions of dollars, right? Or is it to have the freedom of being your own boss? Whatever the reason, you must be sure that it is something that you are ready to devote an exorbitant amount of time and energy into and that it is something that you really want. Otherwise, you might be stuck doing something that you hate. If you are ready to commit then you must ask yourself just how far will that commitment extend. How much of your own time, energy, and money are you willing to sacrifice? After the decision is made, the acquisition of a small business can be summed-up into nine steps, in which most will be elaborated upon later. "These are the nine steps to any business acquisition, regardless of its size or industry: 1. The search, locating a business available for sale. 2. Identifying alternative candidates. 3. Valuing the business. 4. Negotiating a price and terms. 5. Investigating the company. 6. Preparing the business plan. 7. Sourcing the financing. 8. Preparing the closing documents. 9. Managing the transition period." (Tuller, 10) Some considerations that cannot be avoided when purchasing a small business include: the question of needing a partner, the current economic factors, considering alternate locations, and developing a tax strategy. When debating whether or not a partner is needed or wanted, you need to know if you're going to need additional equity as well as sharing the risk of failure. For these reasons, a partnership seems to be a great idea, but there are also many cons that should be recognized. Having too many partners can alter the ease of decision-making, shared liability can cause obvious problems, and sharing profits means less for you. Added to this, getting out of a partnership can be very difficult. Evaluating the current economic factors simply means to know what you are getting into. Be sure to have some knowledge about the business itself and it's market. Know how to make and sell the product efficiently and in a service industry, be sure to know the current and correct way things are done-sometimes they are not one in the same. Location is key. "Location of the target can be a major determinate in both the financing of the deal and probable success in managing the business after closing.There's no sense spending time, effort, and money on a target located in the wrong place." (Tuller, 12) Along with this, the personal strife of having to travel a great distance to get to work can be very frustrating. So, be sure that the location of your potential business is profitable in every way. One the greatest minds of the 20th century, Albert Einstein, once said, "tax is the most difficult thing in the world to understand". Unfortunately, with the ever-changing laws, that problem gets worse every year. This means that you should have knowledge of the current tax laws. "'You will have a unique opportunity to make decisions on exactly how much money will change hands, and how I will allocated on the payment schedule."(Smorgenburg, 112) Maximizing profit for both you and the seller can only be done through proper knowledge of tax law, if you are not comfortable handling this alone, a consultant might not bad a bad idea. After all of the above is settled, the next thing to figure is the amount of initial income is required. Not only the income required to purchase the entity (which will be elaborated upon later), but also the amount of money that you need to survive for the years to come. "If you need $100,000, then don't look at smaller companies which can only yield $30,000." (Tuller, 23) "The following 13 steps will help to locate a target and close the deal in the shortest possible time-and when buying a company, time is money. 1. Define realistic parameters. 2. Prepare a reasonable Acquisition Plan. 3. Review current tax laws for structuring the deal. 4. Develop a detailed plan for sourcing potential targets. 5. Perform a preliminary due diligence investigation. 6. Negotiate a price and terms based on a realistic valuation. 7. Perform a thorough due diligence investigation. 8. Prepare a complete business plan. 9. Develop sources for at least three alternative financing structures. 10. Arrange for the final updated due diligence investigation. 11. Write the Buy/Sell Agreement and negotiate the final contract language. 12. Plan how you will operate the company after closing. 13. Attend the closing. Yet another crucial instrument in the purchase of any business is the Acquisition Plan. This document lists every step and detail leading to the closing of the deal. Starting with the industry survey, it lists the start date, the finish date, and the cost of each of these processes. Following the survey is the target search, then on to the due diligence investigations. The importance of this plan revolves around the organization of a solid purchase. With this, you are able to enact the purchase at the right moment for you, this time being a buyer's market. If you need to wait out the bear market, you can do it much easier with everything laid out in front of you. Hence, the Acquisition Plan does the job. All of the above steps and considerations are a waste if you are unable to find a business for sale. The difficulty of finding the type of business that you will purchase is put to ease through an M & A consultant, accountant, or simply browsing the Wall Street Journal. A smaller gas station or party store-type business can usually be found in the local paper. On the other hand, if you are looking for a larger company, an M & A consultant may be pricey (2-15,000 dollars for a retainer), but this is probably the best way to go. Be sure to ask the consultant many questions regarding his or her creditability. For instance, get a list of references and ask about the number of deals he closed in the past 12 months. Negotiating a purchase price involves a thorough valuation of the projected purchase. Evaluation of a business is essential because you need to know what you are paying for and how much you should pay. " If you are a buyer, your valuation will also be helpful to you when you meet with lenders, so that you can help justify the mount you are asking to borrow. For this purpose alone, however, a valuation is not generally worth the effort." (Horn, 20) There are many different methods that you can use to properly determine the value of the entity. The most common methods are as follows: the Ability-To-Pay Method, this method is used in almost all buy/sell cases. It makes clear whether the acquisition can pay for itself out of its own cash flow. The Discounted Cash Flow Method is most often used when the company is going to be purchased as an investment and held for a limited number of years. It is also used in high-risk situations, such as highly leveraged deals that have more of a proportion of debt than usual. The third method is the Excess Earnings Method, used to value any profitable company. The Excess Earnings method "assumes that a business is worth the market value of its tangible assets, plus a premium for 'goodwill' if the earnings are high enough."(Horn, 51) Another area that must be calculated is goodwill. "Goodwill is not an operating cost and cannot be depreciated. It does not provide you with tax relief."(Smorenburg, 114) Since there is no record of the worth of goodwill, it can be fairly difficult to determine an accurate buying price. Usually the seller will set the price based on their knowledge of the company. The set price, however, should be reasonable. Negotiations can be made to produce an agreeable price. The next step is to set a purchase price. "There is no right or wrong way to value a business. Each company has different characteristics. Obviously, the seller will argue that the net asset value method is right because that's what he invested in the business."(Tuller, 103) You should consider all factors in the P/E/ ratios, liquidation value, net asset value, and historic and projected cash flow. After analyzing these aspects of the business, you should be able to determine a fair price for the entity. "The letter of intent is a document that aims to formalize the terms around which a later negotiation will revolve. As such, the letter is primarily a tentative offer that remains subject to further negotiations and confirmation of material facts through a process of due diligence.By offering a letter of intent, you tangibly solidify your resolve and thereby make the seller understand that you are a serious buyer."(Smorenburg, 126) The letter of intent covers the precise terms of the deal, the payment details, and management and other issues involving the transfer. You need to give your accountant and lawyer a draft of the letter for review. This way, you are protected from any loopholes that can harm you. It proves that you are a serious buyer and entices the seller to more openly discuss sensitive aspects of the business. The letter is a written contract that can be legally cancelled at any time without the consent of the other party, so be sure that you and the seller are in agreement. Once everything is settled and you and the seller are in agreement to the term of the letter of intent, the next task you face is finding the initial capital. Using other people's money to finance a purchase is a key ingredient if business success. Financing falls into two separate categories: debt and equity. Debt financing is the most elementary of the two. It is basically taking a loan from a lender and paying it back with interest. It is reliant on the business or individual's ability to pay the loan off. Usually, collateral will be made available to the source of the loan in the case that you cannot continue to make payments. A good credit history and reputation is another aspect that financing is reliant upon. With these, a loan is much easier to get. "Equity financing means obtaining funds in exchange for selling or giving up a part of interest in the business. Equity financing is not a loan; rather, it is the sale of a part of you business."(Fallek, 82) The popularity of equity financing has increased in the high tech industries in the past few years. However, selling a part of your newly purchased business may not be your cup of tea, so choose your type of financing wisely. Some traditional sources of capital include yourself, family and friends, commercial banks, loan companies, insurance companies, credit unions and private investors. The old saying, "don't mix business with pleasure" is applicable when dealing with family and friends. Taking a loan from these sources can cause turmoil if the loan cannot be paid back. Banks are the standard for business lending. "The amount they charge is based on two factors: the size and history of the customer and the risk the bank will take in providing the loan."(Fallek, 85) If you are able to decrease the bank's risk and have a standing credit line, you will get the most out of your loan. The other types of traditional lenders are less frequently used, but are also good sources of capital. "Nontraditional money sources are unlimited in number and type, but you need to be creative to acquire the necessary funds from them."(Fallek, 89) These sources include customers, suppliers, leasing companies, local development companies, and advertising for money. Customers or potential customers are often great sources of funding, as well as suppliers. Suppliers will furnish you with the necessary equipment and product. Leasing companies and local development companies are also good nontraditional sources of capital. "You can actively seek funding by running a display advertisement in the business section under the appropriate heading in the classified ads of your local newspaper. Specify the amount of money needed and the type of business for which it will be used."(Fallek, 91) Yet another source for funding might be through the Small Business Administration. They offer different types of loan programs to small businesses. The SBA Guaranteed Loan Program grants a loan on the basis that the individual needs more time than allotted by other lenders to pay back the loan, has insufficient credit, or lack business experience. "There are no restrictions as to the number of SBA loans a company or individual may have, as long as the SBA's exposure does not exceed $750,000."(Fallek, 96) The final step in acquisition of a business is the closing. You will need a lawyer if you don't currently have one. The search for the right lawyer requires certain questions to be answered. For instance, you want to find out the lawyer's hourly rates, experience, availability, if there is any conflict of interest between the lawyer and the seller, and any other applicable questions. The best way to find a lawyer is word of mouth, ask friends and family for references. When a lawyer is located, you must then begin the audit review. "Even thought most buyers work with their local CPA in preparing the business plan and counsel with him on tax matters relative to the acquisition, the audit review should be preformed by an independent CPA firm in the same city as the target company; preferably on of the 'Big-5' firms. The audit review consists of a comprehensive look at business since the last audit with particular emphasis on determining the adequacy of internal controls and internal reports."(Tuller, 192) Be sure to take this step, it examines all aspects of the business and insures that it is a safe investment. After this is complete, it's time to close the deal. The documents generally needed for proper closure are: a buy/sell agreement, an earn out agreement, a promissory note terms and conditions agreement, title search and title insurance, lease agreements, employment contracts, personal guarantees, and an equity agreement with the lender. These documents are dealt with and an announcement should be made to the employees, customers, and vendors of the change in ownership. "There is a mood of anticipation, of excitement, and even-if the truth be know-of fear. Of all the events which take place in the business world, nothing can match an acquisition closing for pure excitement and thrill."'(Tuller, 203) the actual signing of the transfer documents will not usually take more than an hour. The key is not to worry about what you are signing, that's what your lawyer is for. After all the money spent, the time devoted and the effort put forth, the business is finally yours. Running your own business can be very rewarding. You don't have anyone to answer to besides the government. You are in complete control. Along with this the ability to write off certain expenses is enough of a reward in itself. The effort you put forth is completely up to you. The life and death of the business is in your hands. Bibliography 1. Fallek, Max (1994). Finding Money for Your Small Business Enterprise-Dearborn: USA 2. Fluery, Robert (1995). The Small Business Survival Guide Sourcebooks, Inc.: Naperville, IL 3. Horn, Thomas (1990). Business Valuation Manual Charter Oak Press: Lancaster PA 4. Peterson, C.D. (1990). How To Leave Your Job and But A Business of Your Own SVS, Inc. (Video) 5. Smorenburg, Michael (1998) Business Buyer's Kit Career Press: Franklin Lakes, NJ 6. Tuller, Lawrence (1990) Buying In: A Complete Guide to Acquiring a Business or Professional Practice Liberty Hall Press: Blue Ridge Sumit, PA f:\12000 essays\business & economics (632)\Radio and Television Advertising 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Radio and Television Advertising We are constantly surrounded by advertising. From bus stop benches to televsion commericals. Everywhere we lookd something is being advcertised. Two of the best ways to advertise are radio and television. These two mediums effect virtually everyone. Most of us listen to the radio or watch televison at some point each day. Because of this, many of us are able to remember products by the jingles or slogans that are used. An example of this is the slogan for Charmin tissue. Anytime you see Mr. Whipple you think of Charmin, and the slogan "Don't squeeze the Charmin." This type of advertising keeps the products in the mind of the consumer. Therefore, when the consumer goes to the market, he will reach for the Charmin. Before deciding which medium youshould advertise in, there are some questions you should ask yourself. The potenetial advertiser should know who they are, what they are selling and to whom they are selling it. When you advertise you should have a realistic profile of your customers. By defining yout target audience, you will be able to aim your advertisments at them. Therefore, a business should take the time to do some research and plan their adveritising strategies. For the small advertiser rafdio is the most effective mediom. It can reach a target audience and propl are likely to herar the advetissment more than once. Most prople spend a great deal of time listening to the radio. They listen while they are commuting to work, are at the office, and while communting home. Radios greatest advantage is mobility. It can and does go everywhere. Its weakness, which can also be viewed as a strength is that it sis limited to tow things, sound and silence. Radio also works on the power of suggestion and the imagination of the listener. Radio advertising rate are determiend by the size of the listening audience. The size os the audience is determined by polls, census data and surveys. Because radio has a lost of competition for its audience, the audience you are paying for is anticipated and potenetiol, it is not guaranteed. Audvertising in radio is bought in "spots." These spots can run form 10 seconds to 60 seconds. You have the option to choose when you would lke the spot to run and how many times you would like for it to run. If you choose prime rate, the spot will cost you more, however it is guaranteed to run at a certain time. Televeiosn is the strongest medium to advertise in and also the most expensive. Like radio, the cost of advertising on television in. The television day is broken down as follows, morning, midday, early fringe, primetime and 11 pm to sign off. Morming and midday are usually filled with local shows, game show, soaps and perhaps even a midday movie. This time period is aimed at the housewife or homebody. Early fringe runs from 4pm to 7:30pm, during this time varied programs are shoenincluding news, kiddie shows or rerun comedies. Primetime is the most expensive time to advertise. This is when most people are in fromt of their televisions and the network shows are run. Primetime is from 8:00 to 11:00 pm. From 11:00pm to sign off, the audience dwindles. Most people retire for the evening. During this time the news is shown, movies and other reruns. There are seaasons in televeison programming. The most expensive season to advertise in is fall. This is when new network programming begins. During this time an abundance of back to schoold ads are shown. Then before you know it the holidays are here and there are even more reasons to advertise. Then again at the end of summer things pick up and the cycle begins again. Both radio and televiosion advertising are good ways to make your product or service known. Hoever the key to any successful advertising is to know your market. By doing this you will know the best way to promote your product. f:\12000 essays\business & economics (632)\Radio and Television Advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Radio and Television Advertising We are constantly surrounded by advertising. From bus stop benches to televsion commericals. Everywhere we lookd something is being advcertised. Two of the best ways to advertise are radio and television. These two mediums effect virtually everyone. Most of us listen to the radio or watch televison at some point each day. Because of this, many of us are able to remember products by the jingles or slogans that are used. An example of this is the slogan for Charmin tissue. Anytime you see Mr. Whipple you think of Charmin, and the slogan "Don't squeeze the Charmin." This type of advertising keeps the products in the mind of the consumer. Therefore, when the consumer goes to the market, he will reach for the Charmin. Before deciding which medium youshould advertise in, there are some questions you should ask yourself. The potenetial advertiser should know who they are, what they are selling and to whom they are selling it. When you advertise you should have a realistic profile of your customers. By defining yout target audience, you will be able to aim your advertisments at them. Therefore, a business should take the time to do some research and plan their adveritising strategies. For the small advertiser rafdio is the most effective mediom. It can reach a target audience and propl are likely to herar the advetissment more than once. Most prople spend a great deal of time listening to the radio. They listen while they are commuting to work, are at the office, and while communting home. Radios greatest advantage is mobility. It can and does go everywhere. Its weakness, which can also be viewed as a strength is that it sis limited to tow things, sound and silence. Radio also works on the power of suggestion and the imagination of the listener. Radio advertising rate are determiend by the size of the listening audience. The size os the audience is determined by polls, census data and surveys. Because radio has a lost of competition for its audience, the audience you are paying for is anticipated and potenetiol, it is not guaranteed. Audvertising in radio is bought in "spots." These spots can run form 10 seconds to 60 seconds. You have the option to choose when you would lke the spot to run and how many times you would like for it to run. If you choose prime rate, the spot will cost you more, however it is guaranteed to run at a certain time. Televeiosn is the strongest medium to advertise in and also the most expensive. Like radio, the cost of advertising on television in. The television day is broken down as follows, morning, midday, early fringe, primetime and 11 pm to sign off. Morming and midday are usually filled with local shows, game show, soaps and perhaps even a midday movie. This time period is aimed at the housewife or homebody. Early fringe runs from 4pm to 7:30pm, during this time varied programs are shoenincluding news, kiddie shows or rerun comedies. Primetime is the most expensive time to advertise. This is when most people are in fromt of their televisions and the network shows are run. Primetime is from 8:00 to 11:00 pm. From 11:00pm to sign off, the audience dwindles. Most people retire for the evening. During this time the news is shown, movies and other reruns. There are seaasons in televeison programming. The most expensive season to advertise in is fall. This is when new network programming begins. Duringthis time an abundance of back to schoold ads are shown. Then before you know it the holidays are here and there are even more reasons to advertise. Then again at the end of summer things pick up and the cycle begins again. Both radio and televiosion advertising are good ways to make your product or service known. Hoever the key to any successful advertising is to know your market. By doing this you will know the best way to promote your product. f:\12000 essays\business & economics (632)\Rainforest Cafe Inc .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ RAINFOREST CAFE, INC. OUTLINE TO RAINFOREST CAFE RESEARCH REPORT CORPORATE BACKGROUND History Formation Rainforest Cafe, Inc. was incorporated in Minnesota on February 3, 1994 to own and operate restaurant and retail facilities under the name of "Rainforest Cafe - A Wild Place to Shop and Eat." Chairman of the Board and Chief Executive Officer Election. Lyle Berman was elected Chairman and CEO of Rainforest Cafe at its inception in February 1994. Background. Berman has been Chairman and CEO of Grand Casinos, Inc. and its predecessor since October 1990. He is also CEO and a director of Stratosphere Corporation, and a director of G-III Apparel Group Ltd., Innovative Gaming Corporation of America and New Horizon Kids Quest, Inc. He previously was the President and CEO of Berman Specialty Stores, Inc. ("Bermans") from 1978 until November 1988 when Bermans was acquired by Wilson Suede and Leather, a subsidiary of Melville Corporation. President and Chief Operating Officer Election. Martin J. O'Dowd was elected in May of 1995. He is the first to hold this position. As of November 18, 1996 O'Dowd has taken a 30 day leave of absence for personal reasons. Dennis Nielson, analyst for R. J. Steichen, predicts that if the leave is only 30 days there should not be a lasting impact on the company (Nielson, November 18, 1996). Background. O'Dowd is a director of Elephant and Castle Group, Inc. He was previously the Corporate Director, Food & Beverage Services for Holiday Inn Worldwide from July 1987 to May 1995. From August 1985 to July 1987, O'Dowd was Vice President and General Operations Manager for the Hard Rock Cafe in New York. Management Philosophy. Berman and O'Dowd stated that they are committed to identifying and acquiring the resources that will allow them to continue their high rate of growth. Main Activities Rainforest Cafe has two areas of each facility, the restaurant and the retail area. Restaurant The company believes that its large menu selection is an important factor in the appeal of its restaurants. The restaurant serves lunch and dinner entrees which range in price from $7.95 to $15.95. The theme of the company is mirrored on the menu with all food and beverage selections including a jungle reference (Annual Report, 1995). The restaurant derived approximately 74 percent of the companies total revenue during the 52 week period ending December 31, 1995. Retail Area In order to enter the restaurant, all customers must pass through the retail area. The inventory includes apparel and gifts with the Rainforest Cafe logo and other items with a rainforest theme such as toys and educational games. The retail area derived approximately 26 percent of the companies total revenue during the 52 week period ending December 31, 1995. Corporate Financial Results Net Profits and Net Sales The company incurred a net loss during its first year, February 3, 1994 (inception) through January 1, 1995. It did not have any revenues during the period from the inception through October 3, 1994. At that point it had only one operating unit, at the Mall of America, until October 20, 1995, when the Woodfield Mall unit began operations. Much of the loss is attributed to development expenses (Hoover's, August 25, 1996). On April 7, 1995 the company converted $1,222,500 of promissory notes into share of Common Stock at a conversion price of $4.00 per share. This conversion resulted in a charge to earnings of $1,053,128, or $0.22 per share. Year Net Profits (millions) Net Sales (millions) 1994 $(1,628) $ 2,066 1995 $ 112 $13,451 Net Sales By Segment Locations Headquarters The executive offices of Rainforest Cafe, Inc. are located at 720 South Fifth Street, Hopkins, Minnesota 55343. The telephone number is 612 945-5400. Current Operating Units Mall of America, Bloomington, MN. This unit, which opened October 3, 1994, is 14,900 square feet with a seating capacity of 295. Woodfield Mall, Schaumburg, IL. This unit, which opened October 20, 1995, is 23,000 square feet with a seating capacity of 425. Gurnee Mills, Gurnee, IL. This unit, which opened June 2, 1996, is 20,000 square feet with a seating capacity of 300. Walt Disney World Marketplace, Lake Buena Vista, FL. This unit, which opened July 25, 1996, is 29,000 square feet with a seating capacity of 550. Tysons Corner Center I, McLean, VA. This unit, which opened October 3, 1996, is 17,400 square feet with a seating capacity of 375. Sawgrass Mills, Fort Lauderdale, FL. This unit, which opened November 21, 1996, is 19,800 square feet with a seating capacity of 400. Future Operating Units The company plans to open 10 new units in the US by fourth quarter 1998. In addition it has two newly signed licensing agreements with two separate companies. The first agreement, with Empresas de comunicacion y Entretenimiento, a Mexican based company, is to develop seven Rainforest Cafes in Mexico over a ten year period. The first unit of this agreement will open in Cancun during the second quarter of 1997. The second agreement, with Glendola Leisure, Ltd., a London based company, is to develop five Rainforest Cafes in the United Kingdom and Ireland over a ten year period. The first unit of this agreement will open in London during the third quarter of 1997 (Berry, September 6, 1996). THE RESTAURANT AND SPECIALTY RETAIL INDUSTRY Present Environmental Conditions Operational The restaurant and specialty retail businesses are highly competitive, with the competition based primarily upon price, service, food quality, location, and theme. There are many well-established restaurant chains which possess great financial, marketing, personnel, and other resources. Theme restaurants have their own highly competitive and developing market. This market is much more susceptible to shifts in consumer preferences and frequently experience a decline of revenue growth or of actual revenues as consumers tire of the related theme (Hoovers, August 25, 1996). In the retail industry competition is based primarily upon merchandise selection, price, and consumer service. Comparison of Rainforest Cafe, Inc. with the Industry Rainforest Cafe, Inc. competes on a general basis with a large variety of national and regional restaurant operations, as well as locally owned restaurants, diners, and other establishments that offer moderately priced food. The company also competes with a number of well-established specialty retailers. There can be no assurance that the company will be able to respond to various competitive factors affecting the restaurant and specialty retail industries. At this point Rainforest Cafe, Inc. has performed considerably well in the restaurant and specialty retail industry considering their size in the market. They have teamed with Walt Disney World in a shrewd business move that should change them in a very positive way. The large pull that Walt Disney World has as an theme park should boost their marketability in other areas of the country and possibly on an international level (Melcher, September 5, 1996). CORPORATE STRATEGY In their 1995 Annual Report Berman and O'Dowd state that, "Rainforest Cafe is committed to operating in an environmentally friendly manner and to raising the awareness of environmental and wildlife issues both in its units and through educational outreach programs." Strategic Goals The report also states that they have a commitment to a broad based appeal, high profile unit locations, high quality food, the retail area, a focus on customer satisfaction, and attracting and retaining quality employees. They continue a rapid expansion of locations while continuing to update their menu selections. Marketing and Promotion To date, Rainforest Cafe has primarily relied upon "word of mouth" advertising to attract customers to its units. They also utilize limited outdoor billboards and distinctive exterior signage. Employee History Rainforest Cafe has had no layoffs or closing of units to date. CONCLUSION Although I am not currently seeking a career in the restaurant industry, I would certainly consider applying for a position in the retail area of Rainforest Cafe. They are a growing business which seems to be taking advantage of their resources in the best possible manner. A person who climbs the ladder in a Rainforest Cafe is sure to have job security for years to come. In March 1996 I purchased shares of Rainforest Cafe. I plan to hold onto the shares as they continue to grow and increase my investment. BIBLIOGRAPHY Berry, Kate. "Rainforest Cafe Makes A Splash." Investors Business Daily September 6, 1996. Melcher, Richard A. and Dale Kurschner. "Entrepreneurs: Lyle Berman." Business Week September 5, 1996. Nielson, Dennis. "Rainforest Cafe," Reuter's Money Network Online. November 18, 1996. Rainforest Cafe - A Wild Place to Shop and Eat, Annual Report. Minneapolis: 1995. "Rainforest Cafe, Inc." Hoover's Master List Database August 25, 1996. f:\12000 essays\business & economics (632)\Rainforest Cafe Inc Outline to Rainforest Cafe Research Report.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rainforest Cafe, Inc: Outline to Rainforest Cafe Research Report CORPORATE BACKGROUND History Formation Rainforest Cafe, Inc. was incorporated in Minnesota on February 3, 1994 to own and operate restaurant and retail facilities under the name of "Rainforest Cafe - A Wild Place to Shop and Eat." Chairman of the Board and Chief Executive Officer Election. Lyle Berman was elected Chairman and CEO of Rainforest Cafe at its inception in February 1994. Background. Berman has been Chairman and CEO of Grand Casinos, Inc. and its predecessor since October 1990. He is also CEO and a director of Stratosphere Corporation, and a director of G-III Apparel Group Ltd., Innovative Gaming Corporation of America and New Horizon Kids Quest, Inc. He previously was the President and CEO of Berman Specialty Stores, Inc. ("Bermans") from 1978 until November 1988 when Bermans was acquired by Wilson Suede and Leather, a subsidiary of Melville Corporation. President and Chief Operating Officer Election. Martin J. O'Dowd was elected in May of 1995. He is the first to hold this position. As of November 18, 1996 O'Dowd has taken a 30 day leave of absence for personal reasons. Dennis Nielson, analyst for R. J. Steichen, predicts that if the leave is only 30 days there should not be a lasting impact on the company (Nielson, November 18, 1996). Background. O'Dowd is a director of Elephant and Castle Group, Inc. He was previously the Corporate Director, Food & Beverage Services for Holiday Inn Worldwide from July 1987 to May 1995. From August 1985 to July 1987, O'Dowd was Vice President and General Operations Manager for the Hard Rock Cafe in New York. Management Philosophy. Berman and O'Dowd stated that they are committed to identifying and acquiring the resources that will allow them to continue their high rate of growth. Main Activities Rainforest Cafe has two areas of each facility, the restaurant and the retail area. Restaurant The company believes that its large menu selection is an important factor in the appeal of its restaurants. The restaurant serves lunch and dinner entrees which range in price from $7.95 to $15.95. The theme of the company is mirrored on the menu with all food and beverage selections including a jungle reference (Annual Report, 1995). The restaurant derived approximately 74 percent of the companies total revenue during the 52 week period ending December 31, 1995. Retail Area In order to enter the restaurant, all customers must pass through the retail area. The inventory includes apparel and gifts with the Rainforest Cafe logo and other items with a rainforest theme such as toys and educational games. The retail area derived approximately 26 percent of the companies total revenue during the 52 week period ending December 31, 1995. Corporate Financial Results Net Profits and Net Sales The company incurred a net loss during its first year, February 3, 1994 (inception) through January 1, 1995. It did not have any revenues during the period from the inception through October 3, 1994. At that point it had only one operating unit, at the Mall of America, until October 20, 1995, when the Woodfield Mall unit began operations. Much of the loss is attributed to development expenses (Hoover's, August 25, 1996). On April 7, 1995 the company converted $1,222,500 of promissory notes into share of Common Stock at a conversion price of $4.00 per share. This conversion resulted in a charge to earnings of $1,053,128, or $0.22 per share. Year Net Profits (millions) Net Sales (millions) 1994 $(1,628) $ 2,066 1995 $ 112 $13,451 Net Sales By Segment Locations Headquarters The executive offices of Rainforest Cafe, Inc. are located at 720 South Fifth Street, Hopkins, Minnesota 55343. The telephone number is 612 945-5400. Current Operating Units Mall of America, Bloomington, MN. This unit, which opened October 3, 1994, is 14,900 square feet with a seating capacity of 295. Woodfield Mall, Schaumburg, IL. This unit, which opened October 20, 1995, is 23,000 square feet with a seating capacity of 425. Gurnee Mills, Gurnee, IL. This unit, which opened June 2, 1996, is 20,000 square feet with a seating capacity of 300. Walt Disney World Marketplace, Lake Buena Vista, FL. This unit, which opened July 25, 1996, is 29,000 square feet with a seating capacity of 550. Tysons Corner Center I, McLean, VA. This unit, which opened October 3, 1996, is 17,400 square feet with a seating capacity of 375. Sawgrass Mills, Fort Lauderdale, FL. This unit, which opened November 21, 1996, is 19,800 square feet with a seating capacity of 400. Future Operating Units The company plans to open 10 new units in the US by fourth quarter 1998. In addition it has two newly signed licensing agreements with two separate companies. The first agreement, with Empresas de comunicacion y Entretenimiento, a Mexican based company, is to develop seven Rainforest Cafes in Mexico over a ten year period. The first unit of this agreement will open in Cancun during the second quarter of 1997. The second agreement, with Glendola Leisure, Ltd., a London based company, is to develop five Rainforest Cafes in the United Kingdom and Ireland over a ten year period. The first unit of this agreement will open in London during the third quarter of 1997 (Berry, September 6, 1996). THE RESTAURANT AND SPECIALTY RETAIL INDUSTRY Present Environmental Conditions Operational The restaurant and specialty retail businesses are highly competitive, with the competition based primarily upon price, service, food quality, location, and theme. There are many well-established restaurant chains which possess great financial, marketing, personnel, and other resources. Theme restaurants have their own highly competitive and developing market. This market is much more susceptible to shifts in consumer preferences and frequently experience a decline of revenue growth or of actual revenues as consumers tire of the related theme (Hoovers, August 25, 1996). In the retail industry competition is based primarily upon merchandise selection, price, and consumer service. Comparison of Rainforest Cafe, Inc. with the Industry Rainforest Cafe, Inc. competes on a general basis with a large variety of national and regional restaurant operations, as well as locally owned restaurants, diners, and other establishments that offer moderately priced food. The company also competes with a number of well-established specialty retailers. There can be no assurance that the company will be able to respond to various competitive factors affecting the restaurant and specialty retail industries. At this point Rainforest Cafe, Inc. has performed considerably well in the restaurant and specialty retail industry considering their size in the market. They have teamed with Walt Disney World in a shrewd business move that should change them in a very positive way. The large pull that Walt Disney World has as an theme park should boost their marketability in other areas of the country and possibly on an international level (Melcher, September 5, 1996). CORPORATE STRATEGY In their 1995 Annual Report Berman and O'Dowd state that, "Rainforest Cafe is committed to operating in an environmentally friendly manner and to raising the awareness of environmental and wildlife issues both in its units and through educational outreach programs." Strategic Goals The report also states that they have a commitment to a broad based appeal, high profile unit locations, high quality food, the retail area, a focus on customer satisfaction, and attracting and retaining quality employees. They continue a rapid expansion of locations while continuing to update their menu selections. Marketing and Promotion To date, Rainforest Cafe has primarily relied upon "word of mouth" advertising to attract customers to its units. They also utilize limited outdoor billboards and distinctive exterior signage. Employee History Rainforest Cafe has had no layoffs or closing of units to date. CONCLUSION Although I am not currently seeking a career in the restaurant industry, I would certainly consider applying for a position in the retail area of Rainforest Cafe. They are a growing business which seems to be taking advantage of their resources in the best possible manner. A person who climbs the ladder in a Rainforest Cafe is sure to have job security for years to come. In March 1996 I purchased shares of Rainforest Cafe. I plan to hold onto the shares as they continue to grow and increase my investment. BIBLIOGRAPHY Berry, Kate. "Rainforest Cafe Makes A Splash." Investors Business Daily September 6, 1996. Melcher, Richard A. and Dale Kurschner. "Entrepreneurs: Lyle Berman." Business Week September 5, 1996. Nielson, Dennis. "Rainforest Cafe," Reuter's Money Network Online. November 18, 1996. Rainforest Cafe - A Wild Place to Shop and Eat, Annual Report. Minneapolis: 1995. "Rainforest Cafe, Inc." Hoover's Master List Database August 25, 1996. f:\12000 essays\business & economics (632)\Rapid Economic Growth in East Asia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Over the past decade, there has been rapid long-term economic growth for East Asian countries. These newly industrialising countries are experiencing growth rates in GDP per head at around 6% to 7% compared to the 2% to 3% for most industrial economies. If this growth continues, South Korea and Taiwan might take away America's distinction as the world's richest country. This rapid economic growth is a result of several economic and political factors. The pace of economic development, growth in world trade and communications, and the investment in physical capital and education have all played a role in the sudden rise of the East Asian economies. One factor which has helped the long-term economic growth of South Korea and Taiwan is the pace of economic development. The pace has accelerated over time. As time progresses, countries seem to be able to grow at a much more rapid rate. From 1780, it took Great Britain 58 years to double its real income per head. It took America 47 years to double in the 1800's while Japan took 34 years from the late 19th century. Finally, South Korea was able to double its real income per head in an amazing 11 years from 1966. It would seem that the later a country has industrialised, the faster it has been able to do so. Another important factor is the degree to which a country is behind the industrial leaders. In the case of the East Asian countries, South Korea and Taiwan, both started out with an extremely low income per head. This allowed much faster growth when copying the leaders. It is important to realize that these growth rates should slow as the countries catch up. An area in which East Asia is investing much of its GDP is in physical capital and education. Compared to the industrial leaders, the East Asian countries have sustained a much higher investment in these areas. South Korea invests 35% of its GDP which is more than double America's capital spending. The East Asian countries have placed much emphasis upon education. Education is the key to mastering the technologies which they have been borrowing from the economic leaders of the world. The standards of education for these countries have improved as rapidly as their economies. Another factor which has helped the long-term economic growth of these East Asian countries is the global market. No longer is a country's economy hurt by a small domestic market. World trade has grown tremendously over the past few decades. Exports account for about 30% of South Korea's GDP and 40% of Taiwan's. This growth in world trade has allowed technology to become more available today than in the past. The growth in international communications has helped spread new technology throughout the world. South Korea and Taiwan should continue to experience long-term economic growth in the next several years. Both countries are investing heavily in education and physical capital; areas which are key for economic development. They also are benefiting from world trade and the diffusion of new technologies. All of these factors should help continue their recent economic success. f:\12000 essays\business & economics (632)\Rapid Economic Growth In East Asian Countries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rapid Economic Growth In East Asian Countries Over the past decade, there has been rapid long-term economic growth for East Asian countries. These newly industrialising countries are experiencing growth rates in GDP per head at around 6% to 7% compared to the 2% to 3% for most industrial economies. If this growth continues, South Korea and Taiwan might take away America's distinction as the world's richest country. This rapid economic growth is a result of several economic and political factors. The pace of economic development, growth in world trade and communications, and the investment in physical capital and education have all played a role in the sudden rise of the East Asian economies. One factor which has helped the long-term economic growth of South Korea and Taiwan is the pace of economic development. The pace has accelerated over time. As time progresses, countries seem to be able to grow at a much more rapid rate. From 1780, it took Great Britain 58 years to double its real income per head. It took America 47 years to double in the 1800's while Japan took 34 years from the late 19th century. Finally, South Korea was able to double its real income per head in an amazing 11 years from 1966. It would seem that the later a country has industrialised, the faster it has been able to do so. Another important factor is the degree to which a country is behind the industrial leaders. In the case of the East Asian countries, South Korea and Taiwan, both started out with an extremely low income per head. This allowed much faster growth when copying the leaders. It is important to realize that these growth rates should slow as the countries catch up. An area in which East Asia is investing much of its GDP is in physical capital and education. Compared to the industrial leaders, the East Asian countries have sustained a much higher investment in these areas. South Korea invests 35% of its GDP which is more than double America's capital spending. The East Asian countries have placed much emphasis upon education. Education is the key to mastering the technologies which they have been borrowing from the economic leaders of the world. The standards of education for these countries have improved as rapidly as their economies. Another factor which has helped the long-term economic growth of these East Asian countries is the global market. No longer is a country's economy hurt by a small domestic market. World trade has grown tremendously over the past few decades. Exports account for about 30% of South Korea's GDP and 40% of Taiwan's. This growth in world trade has allowed technology to become more available today than in the past. The growth in international communications has helped spread new technology throughout the world. South Korea and Taiwan should continue to experience long-term economic growth in the next several years. Both countries are investing heavily in education and physical capital; areas which are key for economic development. They also are benefiting from world trade and the diffusion of new technologies. All of these factors should help continue their recent economic success. f:\12000 essays\business & economics (632)\Ray Kroc and McDonalds Marketing Strategy .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROBLEM STATEMENT : In order for McDonald's to reach its goal of "par excellence", it must use the full meaning and definition of marketing. Marketing is giving the target market what they want, when and where they want it, at a price they are willing to pay for it. REFLECTION / OPINION For McDonald's to achieve its "par excellence", they must focus on the fact that there is an ever changing market and that the wants and needs of consumers are constantly changing. Since McDonald's has been around for forty-one years, it is safe to say that they are the father of the fast food industry and that they have set an example for others to follow. When Ray Kroc bought the first McDonald's in 1955, he focused on what people wanted. With this focus came the utilization of Mr. Kroc's theory of QSC ( quality, service, and cleanliness ). QSC successfully got McDonald's off the ground, but as times changed, the company saw many more market segments and opportunities. In the 1970's and 1980's once again McDonald's lead the way in the fast food industry. The changes we saw included, for example, the fact that women were now a major part of the work force and dual income families were becoming a more common occurrence. McDonald's became a mastermind of marketing toward specific markets by pioneering ideas such as breakfast menus, healthier choices and alternatives, and "adult" foods. McDonald's has truly evolved into a world power by paying attention to the needs and wants of the changing market and adjusting to these needs. LINKING THEORY : Ray Kroc saw early on what needed to be done. He changed what was at one time a product orientation, into a marketing orientation. Back in 1955, this was still a new type of management. From the beginning, Kroc was already in the forefront of marketing. Marketing orientation focuses on the customer and what they want in a product, rather than product orientation which focuses on the product itself. McDonald's has taken every aspect of marketing orientation and utilized the philosophy to its fullest. McDonald's has focused in on the customer needs and wants, sometimes even putting the ideas into the consumer's mind before they even knew what they wanted or expected. McDonald's could deliver! They have done extensive market analysis and product development based on this analysis. They have packaged their food and priced it exactly to the market segment which they have targeted. Showing McDonald's innovations in marketing even further, is its early adaptation of societal marketing. Societal marketing takes into account the overall concerns of the target market, the environment, for example. McDonald's got rid of their one time innovative styrofoam packaging and replaced it with more environmentally sound paper packaging. They stress the fact that they are environmentally aware, by reminding us not to litter, etc., on their various forms of packaging. Another example if societal marketing is the Ronald McDonald House. This is probably McDonald's largest community service project. It demonstrates the way that McDonald's is willing to give something back to the very communities that support the company. These examples as well as the various events that McDonald's promotes, such as the Olympic Games, puts their name worldwide. This makes it difficult for us ever to forget of the existence of McDonald's. McDonald's also uses a theory referred to as relationship marketing. Relationship marketing is defined as marketing to protect the customer base. The customer is viewed as an asset and the company's marketing goal is to attract, maintain, and enhance customer relationships. There are five main criteria that must be met for a successful relationship marketing strategy and they are as follows : 1) There needs to be an ongoing and periodic desire for the product or service by the customer. 2) The service customer controls the selection of the service supplier. 3) There are alternative suppliers of the service. 4) Customer loyalty is weak and switching is common and easy. 5) Word of mouth is an especially potent form of communication about the product. All of these criteria are met by the fast food industry, and McDonald's has generally had a very successful relationship marketing strategy, especially through the implementation of the QSC program. McDonald's has definitely exceeded the definition of success. How many other businesses can say they have served billions and billions? McDonald's has done an incredible job taking an intangible product and virtually dissipating any perception of risk associated with service products. Whether someone orders a burger, McNuggets, or a fish fillet, they know that their expectations will be met every time. SOLUTION : A clear solution for McDonald's to continue its success is to stay focused. For years, McDonald's has had the unique ability to adapt to the changing market, and that, along with their QSC program and innovative product development, has kept them on top. As long as McDonald's seems to make our lives easier, by giving us a consistent, valued product, the company will always be in existence. f:\12000 essays\business & economics (632)\Ray Kroc.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Ray Kroc PROBLEM STATEMENT : In order for McDonald's to reach its goal of "par excellence", it must use the full meaning and definition of marketing. Marketing is giving the target market what they want, when and where they want it, at a price they are willing to pay for it. REFLECTION / OPINION For McDonald's to achieve its "par excellence", they must focus on the fact that there is an ever changing market and that the wants and needs of consumers are constantly changing. Since McDonald's has been around for forty- one years, it is safe to say that they are the father of the fast food industry and that they have set an example for others to follow. When Ray Kroc bought the first McDonald's in 1955, he focused on what people wanted. With this focus came the utilization of Mr. Kroc's theory of QSC ( quality, service, and cleanliness ). QSC successfully got McDonald's off the ground, but as times changed, the company saw many more market segments and opportunities. In the 1970's and 1980's once again McDonald's lead the way in the fast food industry. The changes we saw included, for example, the fact that women were now a major part of the work force and dual income families were becoming a more common occurrence. McDonald's became a mastermind of marketing toward specific markets by pioneering ideas such as breakfast menus, healthier choices and alternatives, and "adult" foods. McDonald's has truly evolved into a world power by paying attention to the needs and wants of the changing market and adjusting to these needs. LINKING THEORY : Ray Kroc saw early on what needed to be done. He changed what was at one time a product orientation, into a marketing orientation. Back in 1955, this was still a new type of management. From the beginning, Kroc was already in the forefront of marketing. Marketing orientation focuses on the customer and what they want in a product, rather than product orientation which focuses on the product itself. McDonald's has taken every aspect of marketing orientation and utilized the philosophy to its fullest. McDonald's has focused in on the customer needs and wants, sometimes even putting the ideas into the consumer's mind before they even knew what they wanted or expected. McDonald's could deliver! They have done extensive market analysis and product development based on this analysis. They have packaged their food and priced it exactly to the market segment which they have targeted. Showing McDonald's innovations in marketing even further, is its early adaptation of societal marketing. Societal marketing takes into account the overall concerns of the target market, the environment, for example. McDonald's got rid of their one time innovative styrofoam packaging and replaced it with more environmentally sound paper packaging. They stress the fact that they are environmentally aware, by reminding us not to litter, etc., on their various forms of packaging. Another example if societal marketing is the Ronald McDonald House. This is probably McDonald's largest community service project. It demonstrates the way that McDonald's is willing to give something back to the very communities that support the company. These examples as well as the various events that McDonald's promotes, such as the Olympic Games, puts their name worldwide. This makes it difficult for us ever to forget of the existence of McDonald's. McDonald's also uses a theory referred to as relationship marketing. Relationship marketing is defined as marketing to protect the customer base. The customer is viewed as an asset and the company's marketing goal is to attract, maintain, and enhance customer relationships. There are five main criteria that must be met for a successful relationship marketing strategy and they are as follows : 1) There needs to be an ongoing and periodic desire for the product or service by the customer. 2) The service customer controls the selection of the service supplier. 3) There are alternative suppliers of the service. 4) Customer loyalty is weak and switching is common and easy. 5) Word of mouth is an especially potent form of communication about the product. All of these criteria are met by the fast food industry, and McDonald's has generally had a very successful relationship marketing strategy, especially through the implementation of the QSC program. McDonald's has definitely exceeded the definition of success. How many other businesses can say they have served billions and billions? McDonald's has done an incredible job taking an intangible product and virtually dissipating any perception of risk associated with service products. Whether someone orders a burger, McNuggets, or a fish fillet, they know that their expectations will be met every time. SOLUTION : A clear solution for McDonald's to continue its success is to stay focused. For years, McDonald's has had the unique ability to adapt to the changing market, and that, along with their QSC program and innovative product development, has kept them on top. As long as McDonald's seems to make our lives easier, by giving us a consistent, valued product, the company will always be in existence. f:\12000 essays\business & economics (632)\Reasons and Consequences of the Fall of the Dollar.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ [Error] - File could not be written... f:\12000 essays\business & economics (632)\Reengineering and Total Quality Management TQM.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Click www.ondix.com to visit our student-to-student file sharing network. "Reengineering and Total Quality Management (TQM) are neither identical nor in conflict; they are complimentary" (Hammer " Champy 239). While Reengineering and Total Quality Management focus on processes, customers and higher efficiency, there are also differences between them. Reengineering moves a company where they need to be very quickly usually by radical change, whereas TQM moves a company in the same direction more slowly, usually with incremental adjustments. Reengineering is a top down, vision driven effort that requires continuous senior management participation and support, while TQM once implemented into a company's processes can work day and day out without much attention from management. Management trends have grown and died at an increasingly rapid rate throughout the decade of the 1990s. Two that became popular in the late 1980s often have been labeled as failures by organizations that did not fully implement their principles or else did not take enough care in their planning so that it would be possible to fully implement the principles of the underlying philosophies. The latest twist is that both TQM and Business Process Engineering have value, and that the initiatives can coexist for the improvement of the organization and for enhancing its competitive advantage in its market, a primary directive in today's increasingly competitive business climate. Individuals have often described quality as a philosophy and reengineering as a methodology. As is the case with most trends, organizations seem to want to chase after one, proclaim it failed before fully implementing it and certainly before allowing it time to become a part of the culture, and then chase off after another. The constant management trend chasing is demoralizing for the employees and costly for the organization in direct costs and the more indirect costs of momentarily sidetracked efficiency and productivity. Too often, there are no appreciable positive results. Nevertheless, businesses must keep working to identify those areas where change is needed and then implement changes in a well-managed method. Today's business climate is more competitive than at any other time, and it is imperative that internal processes operate as efficiently as possible and that businesses produce the product their customers want. J. Edwards Deming himself stressed that though Total Quality Management focused on manufacturing and gaining statistical control of it, the customer was at the end of each assembly line diagram and constituted the single most important section of it. This point has been either ignored or obscured in many failed attempts to implement TQM. "Business organizations can achieve a sustainable competitive advantage by integrating total quality management and business process reengineering. TQM seeks continuous improvements in product/service quality over time, while BPR takes advantage of information and telecommunication technology to achieve dramatic changes in organizational processes that facilitate performance improvements. While the two management approaches both seek to enhance performance and quality, they are often perceived as complete opposites because of their dissimilar pace, time requirements and change initiatives" (Lee and Asllani 409). Lee and Asllani however, argue that the two philosophies and approach to management control the course of the business "have many similarities and can be combined to form the 'endless quality improvement' management approach" (Lee and Asllani 409). Similarities between reengineering and TQM out number differences, both; are initiated by senior management, focus on enhanced quality, seek the contribution of all employees, are team oriented, allows the blurring of pre-existing departmental boundaries, and both requires full management commitment. However there are some differences between these concepts. "Quality programs work within the frame work of a company's existing processes and seek to enhance them by means of what the Japanese cal Kaizen, or continuous incremental improvement" (Hammer and Champy 52). The idea here is to do what you already do, however only do it better. With QTM the process is never truly completed, whereas with BPR the process can be quickly called completed. Also with QTM the process is evolutionary and utilizes a democratic management style, however with BPR more measurable results are recognized and departments do not become isolated from one another. The differences that exist are diverse and can be wide-ranging, but similarities far outnumber differences. In an ideal world, the organization with experience in neither would set out to implement TQM in full, meaning that it ensures it maintains the proper management style so that employees feel their most comfortable in contributing their thoughts based on their experience with their own jobs. After the philosophy has been fully integrated into the organization, a swift meeting with BPR can work to change all those sticking points that the time requirement of TQM has not effectively brought changes to, as the organization ensures that any BPR initiative is executed in the spirit of and under the support of TQM. TQM and BPR can peacefully coexist, as they each work for the common goal of satisfying the end customer. Both have many similarities, and some differences. One may ask, which approach is best for a company to use? This answer is not black or white and should be left for the senior manager of the company to decide. Works Cited Hammer, Michael and Champy, James. Reengineering the Corporation: A Manifesto for Business Revolution. New York: HarperCollins Publishers, Inc., 2001. Lee, Sang M. and Arben Asllani. "TQM and BPR: Symbiosis and a New Approach for Integration". Management Decision, vol. 35. May-June 1997. Manganelli, Raymond L. and Mark, M. Klein. "Your Reengineering Toolkit". Management Review, vol. 83. August 1994. Keywords: reengineering total quality management neither identical conflict they complimentary hammer champy while reengineering total quality management focus processes customers higher efficiency there also differences between them reengineering moves company where they need very quickly usually radical change whereas moves company same direction more slowly usually with incremental adjustments Keywords General: Essay, essays, termpaper, term paper, termpapers, term papers, book reports, study, college, thesis, dessertation, test answers, free research, book research, study help, download essay, download term papers f:\12000 essays\business & economics (632)\Relationships Between EOE.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Relationships Between Equal Employment Opportunity & Civil Rights Acts and Biblical Values part 1 TABLE OF CONTENTS CHAPTER 1 INTRODUCTION 1 CHAPTER 2 HISTORY & VALIDITY OF THE BIBLE 3 CHAPTER 3 OUR NATION & ITS CHRISTIAN HERITAGE 5 CHAPTER 4 ENDA: EMPLOYMENT NON-DISCRIMINATION ACT 10 CHAPTER 5 AFFIRMATIVE ACTION INITIATIVES 12 CHAPTER 6 EQUAL PAY ACT OF 1963 14 CHAPTER 7 RIGHT TO LIFE ACT (HR 1625) 17 CHAPTER 8 DOMA: DEFENSE OF MARRIAGE ACT 19 CHAPTER 9 TAX REFORM ACT OF 1986 21 CHAPTER 10 EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974 22 CHAPTER 11 TITLE VII OF THE 1964 CIVIL RIGHTS ACT 24 CHAPTER 12 CONCLUSION 26 CHAPTER INTRODUCTION: The 1960's were a time of change on the United States. There were considerable legislation and judicial changes in terms of Equal Employment Opportunity. During this time there was also a change in the role and tolerance of Biblical values in the United States. The purpose of this term report is to compare and contrast these two areas to determine the relationship between the two movements. My interest in this comparison came about because of studies showing dramatic changes in our Nation's performance in the following areas; unwed birth rates, sexually transmitted diseases, divorce, unmarried couples living together, SAT scores, and violent crime. Since 1963 America has led the World in: violent crime, divorce, teenage pregnancy, voluntary abortions, illegal drug usage, and illiteracy (an industrial world). Until 1963, this Nation's ratings had been stable or declining. Each of the following statistics allows for our Nation's Population growth: Unwed birth rates, which were stable prior to 1963, have increased nearly 500% as of 1996. Sexually Transmitted Diseases, which were stable prior to 1963, have increased dramatically and consistently as of 1996. Divorce, which was declining prior to 1963, has increased more than 117% as of 1996. Unmarried couples living together, which was stable prior to 1963, has increased nearly 350% as of 1996. SAT scores (same test since 1941), which was stable at an average of 970 prior to 1963, has consistently dropped and is now at an average of 890 as of 1996. A separate study comparing private Christian schools with public schools showed that Christian schools average 100 points higher on SATs than public schools. This places the Christian school averages on par with the pre-1963 scores of the Nation's average. Additionally, a study of 'National Merit Semi-Finalists' which represent the top 1/2 % of the Nation showed the following; public schools represent 88% of the population compared to 12% for Christian schools. However, public schools represent 60% of the National Merit Semi- Finalists compared to 39% for Christian schools. Public schools averaged $3,700 per student per year compared to $1,100 for Christian schools. Finally, violent crime, which was stable prior to 1963, has increased 544% as of 1996. My intent is to analyze several court rulings and acts pertaining to both EEO and civil rights using the values set forth in the Bible (work issues, equality issues, morality issues etc.). Before we get into our comparison, we will examine how the Bible was created and examine the Bible's role in the creation of our Nation. CHAPTER HISTORY & VALIDITY OF THE BIBLE One of the main purposes of the Bible is to provide Christians and Jews with a guide book from God on how we should live, work, and interrelate with one another. Islamic religions and Mormon religions also recognize the Bible in their religions. Islamic religions use the Bible in addition to the Quran, their main text. The Mormon religions (Jesus Christ of Latter-day Saints) also use the Bible in addition to their other texts: the Book of Mormon, the Doctrine & Covenants and Pearl of Great Price. Both the Islamic and Mormon religions say that the Bible is incorrect where their main texts are contradicted. There are 66 books which make up the Bible. They were written between 1500 B.C. and 90 A.D. The Bible is a collection for 39 Old Testament books and 27 New Testament books originally written in either Hebrew, Greek, or Aramaic, by about 40 different authors. These authors came from several different continents, in the nations of Palestine, Babylon, Greece, Rome, Asia Minor, and perhaps Arabia. Dr. Kennedy wrote the following passage concerning the divine nature of the Bible. No human publisher commissioned the writing of the books of the Bible. No editor set forth a plan; no editorial committee oversaw its development; no one distributed an outline to the different authors. Despite these facts, there is every sort of literature in the Bible, including prose and poetry; history and law; biography and travel; genealogies, theologies, and philosophies. And somehow, all of these elements combine to provide an incredible unity from Genesis to Revelation. Suppose that forty different sculptors, without any knowledge of what the others were doing, each decided to create a piece of sculpture. And when the pieces were brought together, they formed an exquisite statue of Christ. These outcomes are incomprehensible, yet the Bible is a greater accomplishment by far. Because some of the books of the Bible date as far back as 1450 B.C. and have been translated so many times, their accuracy has been understandably questioned. Archaeological findings have given considerable credibility to current translations of the Bible: most notably the New International Version. The Old Testament mentions an additional forty-seven kings in the Gentile world of Egypt, Babylon, Syria and Greece. Not a single history book mentioned even one of them. But when archaeologists dug, they found the names of every one of the forty-seven kings exactly in the places that the Bible said they reigned. Nelson Glueck, a famous archaeologist, said it can be categorically stated that not one single archaeological discovery has ever controverted a biblical text. The more we learn about the people and the times that the Bible describes, the more we see how accurate it is. I'm not saying that the archaeology proves the Bible - that it could never do - but I am saying archaeology confirms the Bible. To the question of, "Do the books of the Bible match the ancient manuscripts?" This question was completely settled with a resounding yes when the Dead Sea Scrolls were discovered in 1947. Scholars determined that the Scrolls dated back to between 200 B.C. and 200 A.D. making the manuscripts the oldest in the world. When Scholars compared the manuscripts they had been using (which dated from the eighth century) with the Dead Sea Scrolls, they were almost exact matches. The only variations were in the spelling of some words. This means that the inspired Word of God has been faithfully preserved and transmitted through the ages to this present day! Now, lets review the role of Biblical values in the shaping of our nation and how its role has changed. CHAPTER OUR NATION & ITS CHRISTIAN HERITAGE Our founding Fathers used the Bible as their number one source for developing our Country's Constitution and Legal system. It is documented that 52 of our 55 founding fathers were Christians. This statement is not difficult to believe knowing that our founding fathers the main school text was the New England Primer. The New England Primer taught American children the alphabet and how to read using Biblical quotes for nearly 200 years. A group of political science professors at the University of Houston conducted a 10-year study. They looked at more than 15,000 writings from our founding fathers. They found that the three most quoted people were Blackstone, Montique, and John Locke. The Bible made up 34% of all their direct quotes. This was four times more than Blackstone, 12 times more than Montique, and 16 times more than John Locke. The Bible was indirectly quoted an additional 60% of the total quotes. So, the Bible represented 94% of all their quotes. Blackstone's 'Commentaries on the Law' was this country's legal textbook for more than 160 years starting in 1758. This textbook gave the Bible verses where each law was based. In fact, the idea of our three branches of government came from Isaiah 33:22. No government before this had ever had this system of separation of powers. The importance of Christianity to the shaping of our Constitution can be seen in these known quotes from three of our founding fathers. John Jay, one of three writers of the Constitution and the first Chief Justice of the U.S. Supreme Court is quoted as saying "Providence has given to our people the choice of their rulers and it is the duty as well as the privilege and interest of our Christian Nation to select and prefer Christians for their rulers.". John Quincy Adams was one of our founding fathers, our second President, and a signer of the Declaration of Independence. He is quoted as saying "Our Constitution was made only for a moral and religious people, it is wholly inadequate to the government of any other." And "The American Revolution connected in one indissoluble bond, the principles of civil government with the principles of Christianity.". George Washington, in his 'Farewell Address' is quoted as saying "Of all the habits and dispositions which lead to political prosperity, religion and morality are indispensable supports." He went on to say "In vain would that man claim the tribute of Patriotism, who should labor to subvert these great pillars." These quotes from Washington have not been in text books for more than 30 years. I was recently shocked when I was told that the phrase "Separation of Church and State" was not written into our Constitution. I had been under the false impression that the First Amendment to the Constitution said exactly that phrase. The First Amendment states "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people to peaceably assemble, and to petition the Government for a redress of grievances." It was written to ensure that no single denomination of Christianity would become our Nation's religion. This deeper understanding of the purpose of the First Amendment can be gotten from the previous quotes sited, and from the upcoming case history. I found that the phrase "Separation of Church and State" first showed up in 1962 with the case of Engal v. Vitale. These five words were pulled from a letter Thomas Jefferson wrote to the Danbury Baptists. This out of context quote started a 180-degree philosophy change which has taken us away from one of the two key pillars that our nation was built upon. The following history snapshot shows how this key governmental pillar change took place. Runkel v. Wine Miller, 1796, stated "By our form of government, Christianity is the established religion and all sects and denominations of Christians are placed upon the same equal footing" Thomas Jefferson's 1801 reply letter to the Danbury Baptists stated "The First Amendment has erected a wall of separation between Church and State but that wall is a one way wall that keeps the Government from running the Church. It makes sure that Christian values will always stay in Government." Jefferson's letter was a response to a rumor that the 'Congregationalist' denomination was going to become "The" recognized religion of the United States. Vidal v. Girard, 1844, stated "Why may not the Bible and especially the New Testament be read and taught as a Divine revelation in the schools? Where can the purest principles of morality be learned so clearly or so perfectly as from the New Testament?" The Church of the Holy Trinity v. United States, 1892, stated "Our laws and our institutions must necessarily be based upon and embody the teachings of the Redeemer of Mankind. It is impossible that it should be otherwise, and in this sense and to this extent our civilization and our institutions are emphatically Christian." These cases recorded more than 87 precedents in their rulings. However, Everson v. Board of Education, 1947, took a portion of Thomas Jefferson's letter but reversed Jefferson's statement from 'protecting the Church from the Government' to 'protecting the Government from the Church' the ruling stated "The First Amendment has erected a wall between Church and State and that wall must be kept high and impregnable." This was followed by Engal v. Vitale, 1962, which created the first separation of religions from public education, stopped school prayer and began the actual phrase 'Separation of Church and State'. This ruling cited zero precedents, legal cases or historical incidents. Additionally, this ruling overturned the intent of our Founding Fathers and over 180 years of understanding of the Constitution. Abington v. Schempp, 1963, stated "If portions of the New Testament were read without explanation, they could be, and had been, psychologically harmful to the child." During this same year, a poll showed that 97% of the Nation believed in God. Yet, as a result of this ruling, the Ten Commandments could no longer be posted in schools or court rooms. Taking this shift in philosophy into account, we will once again review the Nation's dramatic shift in crime, family relations, and education. Since 1963 America has led the World in: violent crime, divorce, teenage pregnancy, voluntary abortions, illegal drug usage, and illiteracy (an industrial world). Until 1963, this Nation's ratings had been stable or declining. Each of the following statistics allows for our Nation's Population growth: Unwed birth rates, which were stable prior to 1963, have increased nearly 500% as of 1996. Sexually Transmitted Diseases, which were stable prior to 1963, have increased dramatically and consistently as of 1996. Divorce, which was declining prior to 1963, has increased more than 117% as of 1996. Unmarried couples living together, which was stable prior to 1963, has increased nearly 350% as of 1996. SAT scores (same test since 1941), which was stable at an average of 970 prior to 1963, has consistently dropped and is now at an average of 890 as of 1996. A separate study comparing private Christian schools with public schools showed that Christian schools average 100 points higher on SATs than public schools. This places the Christian school averages on par with the pre-1963 scores of the Nation's average. Additionally, a study of 'National Merit Semi-Finalists' which represent the top 1/2 % of the Nation showed the following; public schools represent 88% of the population compared to 12% for Christian schools. However, public schools represent 60% of the National Merit Semi- Finalists compared to 39% for Christian schools. Public schools averaged $3,700 per student per year compared to $1,100 for Christian schools. Finally, violent crime, which was stable prior to 1963, has increased 544% as of 1996. I would like to end this chapter with a few excerpts from the Bible concerning its use in governing people: "All Scripture is given by inspiration of God, and is profitable for doctrine, for reproof, for correction, for instruction in righteousness.", "Trust in the Lord with all your heart. Then you will win favor and a good name in the sight of God and man.", and finally, We must trust God completely in every choice we make. We should not omit careful thinking or belittle our God-given ability to reason; we should not trust our own ideas to the exclusion of Gods. We should not be wise in our own eyes. We should always be willing to listen to and be corrected by God's Word and wise counselors. , Now we will compare and contrast the Bible with the EEO and Civil Rights movement. EQUAL EMPLOYMENT OPPORTUNITY CIVIL RIGHTS ACTS THAT DO NOT SUPPORT BIBLICAL VALUES: CHAPTER ENDA: EMPLOYMENT NON-DISCRIMINATION ACT The Employment Non-Discrimination Act was introduced in the current (105th) Congress in June 1997. The purpose of ENDA is to add sexual orientation to the list of legally protected areas of the Title VII, Civil Rights Act of 1964. ENDA would prohibit workplace discrimination on the basis of sexual orientation. It would provide the same legal protection for homosexuals as is currently provided on the basis of race, color, gender, religion, or national origin under Title VII. In essence, this Act would treat homosexuality as a minority. There are several court cases being heard along this same line. This fall the US Supreme Court will hear one of them. Evans vs. Romer, challenges whether individuals practicing homosexual behavior should be granted specific protections reserved for ethnic minorities. Homosexual advocates hope that Evans vs. Romer will be the homosexual equivalent of Brown vs. Board of Education. Brown, the landmark 1954 civil rights decision, said racial segregation in public schools violated blacks' constitutional right to equal protection under the law. The Brown decision paved the way for the civil rights movement of the 1960s. The Bible discusses homosexuality in numerous places. The Bible clearly tells us that homosexual actions are sinful and unacceptable to God. It compares the act of homosexuality with being a drunkard, adulterer, or thief. The Bible clearly does not regard homosexuality as a repressed minority whose actions should be encouraged or supported, but an action which should be avoided. Do you not know that the wicked will not inherit the kingdom of God? Do not be deceived: Neither the sexually immoral nor idolaters nor adulterers nor male prostitutes nor homosexual offenders nor thieves nor the greedy nor drunkards nor slanderers nor swindlers will inherit the kingdom of God. Paul is describing characteristics of unbelievers. He doesn't mean that idolaters, adulterers, male prostitutes, homosexuals, thieves, greedy people, drunkards, slanderers or swindlers are automatically and irrevocably excluded from heaven. Christians come out of all kinds of different backgrounds, including these. They may still struggle with evil desires, but they should not continue in these practices. Those who say they are Christians but persist in these practices with no sign of remorse will not inherit the kingdom of God. Such people need to reevaluate their lives to see if they truly believe in Christ. We must not participate in sin or condone it in any way, nor may we be selective about what sin we condemn or excuse. CHAPTER AFFIRMATIVE ACTION INITIATIVES: Affirmative Action came to life as a result of Executive Orders 11246 and 11375 and is defined as: Steps that are taken for the purpose of eliminating the present effects of past discrimination. Certainly, the Bible is supportive of providing everyone the same opportunities through Christ. The Bible states, "For he himself is our peace, who has made the two one and has destroyed the barrier, the dividing wall of hostility." There are many barriers that can divide us from other Christians: age, appearance, intelligence, political persuasion, economic status, race, theological perspective. One of the best ways to stifle Christ's love is to be friendly with only those people that we like. Fortunately, Christ has knocked down the barriers and unified all believers in one family. His cross should be the focus of our unity. The Holy Spirit helps us look beyond the barriers to the unity we are called to enjoy. We should not continue to call attention to these differences, but focus on loving one another. Our effectiveness in this matter will be much more effective from changing peoples' moral base. You, my brothers, were called to be free. But do not use your freedom to indulge the sinful nature, rather, serve one another in love. The entire law is summed up in a single command: Love your neighbor as yourself. If you keep on biting and devouring each other, watch out or you will be destroyed by each other. My main Biblical related concern to Affirmative Action is that it calls attention and resulting hard feelings to our physical differences. Perhaps, we are taking a wrong approach to doing the right thing. CHAPTER EQUAL PAY ACT OF 1963: The Equal Pay Act of 1963 made it unlawful to discriminate in pay on the basis of sex when jobs involve equal work -- equivalent skills, effort, and responsibility -- and are performed under similar working conditions. The Bible shows in several locations that women were created in God's image just as man. "So God created man in his own image, in the image of God he created him; male and female he created them." Although the Bible highlights most of the women in their roles as wives and mothers, it does record women in key positions outside the home and inside the Church. The Bible records several women who held national leadership positions, and Deborah was an exceptional woman. Obviously she was the best person for the job, and God chose her to lead Israel. God can choose anyone to lead his people, young or old, man or woman. Don't let your prejudices get in the way of those God may have chosen to lead you. In my research I could find nothing that would go against the concept of the Equal Pay Act. However, my only biblically related concern would be the Nation's current prejudiced view against women s' role as a housewife and mother. It is in part, this same prejudice against women s' role as a housewife and mother which the Equal Pay Act was created. The Bible is very clear that the main, and most honorable, role for women is that of a housewife and mother. The Bible states "I will therefore that the younger women marry, bear children, guide the house, give none occasion to the adversary to speak reproachfully." Our Nation's shift in focus from the moral upbringing of our children, to the desire for a larger family income and materialism, is clearly not in accordance with the Bible, or good for our future. EQUAL EMPLOYMENT OPPORTUNITY ACTS THAT SUPPORT BIBLICAL VALUES: CHAPTER RIGHT TO LIFE ACT (HR 1625) The Right to Life Act was recently introduced by Senator Dornan. It is currently being reviewed by the House Subcommittee on the Constitution. This act would effectively overturn Roe v. Wade by prohibiting any state or federal law that denies the personhood of the unborn and subsequently prohibit the federal government from funding abortions with taxpayer money. Dornan is quoted with the following: Section 1 of the Fourteenth Amendment to our Constitution includes among its provisions that no state will "deprive a person of life, liberty, or property without due process of law." I have no doubt that the unborn enjoy these constitutional rights. However, the Supreme Court, in its decision in the case of Roe v. Wade, tragically disagreed. "The Supreme Court refused to decide when human life begins and therefore found nothing to indicate that the unborn are persons protected by the Fourteenth Amendment." When our laws tell people that what lies behind the thin wall of a woman's abdomen during pregnancy is not a human being and that the destiny of a pre born child lie with the private conscience of the mother, we are essentially telling society that life itself is not important enough to be called an inalienable right. If life itself is not the most fundamental of all rights, then what is. The Court went further by conceding that, "If the suggestion of personhood is established, the appellants' case collapses for the fetus' right to life would then be guaranteed specifically by the Amendment." In this point, the Court is actually admitting that if personhood were to be established, then abortion would indeed be murder. There is Biblical evidence that unborn children are thinking, feeling people. At that time Mary got ready and hurried to a town in the hill country of Judea, where she entered Zechariah's home and greeted Elizabeth. When Elizabeth heard Mary's greeting, the baby leaped in her womb, and Elizabeth was filled with the Holy Spirit. In a loud voice she exclaimed: "Blessed are you among women, and blessed is the child you will bear! But why am I so favored, that the mother of my Lord should come to me? As soon as the sound of your greeting reached my ears, the baby in my womb leaped for joy." The Bible states in numerous locations that we should not commit murder. This commandment was one of the original Ten Commandments given to Moses by God and is unacceptable to God (Exod. 20:13, Mat. 5:21, Mat. 15:19, Rom. 13:9). Additionally, the Bible strictly forbids us from sacrificing children. During biblical times, child sacrifice was common practice in several ancient religions. These children were taken from the womb in some cases. The Lord said to Moses, "Say to the Israelites: 'Any Israelite or any alien living in Israel who sacrifices any of his children to Molech must be put to death.' "If the people of the community close their eyes when that man gives one of his children to Molech and they fail to put him to death, I will set my face against that man and his family . . . " I will finish this chapter with a couple of definitions. Murder is defined in the Bible and Webster's dictionary as the unlawful killing of one human being by another, especially with premeditation. In relationship to our Constitution, the term person is defined in Webster's dictionary as a living human body. CHAPTER DOMA: DEFENSE OF MARRIAGE ACT The Defense of Marriage Act or DOMA was passed by the 104th Congress. This Act denies Federal recognition and benefits to same sex marriage. Historically, homosexual marriages have not been an issue. This is because, by definition, marriage is the union of a man and a woman. According to the Bible and our country's previous rulings, marriage is an establishment of God. It sited numerous times in the bible is that one man and one woman join together in marriage to become one (Gen. 2:18, Gen. 2:24, Prov. 18:22, Jer. 29:6, Hos. 2:19,20, 1 Cor. 7:2-4, 1 Tim. 5:14, Heb. 13:4, Eph. 5:22-33, 1 Pet. 3:1,7). Additionally, the bible sites numerous times that any sexual relations outside of marriage and sexual relations between two men or between two women is wicked in Gods eyes (Gal. 5:19, Col. 3:5, 1 Cor. 6:8-10). However, DOMA is currently being challenged by the Baeher v. Miike case in Hawaii. The Baeher case is expected to allow same sex marriages and marriage benefits to people in the state of Hawaii. The Hawaii Supreme Court ruled that the denial of marriage licenses to same-gender couples appear to violate the Hawaii state Constitution's prohibition against sex discrimination. The Court held that the state's "different-sex" restriction on marital choice amounts to unconstitutional sex discrimination, similar to "same-race" restrictions prohibiting interracial marriages were declared by the U.S. Supreme Court to be racially discriminatory in 1967 in Loving v. Virginia. (Simply put, sex discrimination has occurred when men are allowed to do something women are not allowed to do, or vice versa. According to the Court's reasoning in Baeher v. Lewin, by denying marriage licenses to same-gender couples, the state commits sex discrimination because while it will allow a man to marry a woman, it will not allow a woman to marry a woman.) The Hawaii Supreme Court returned the case to trial court and directed it to examine the state's marriage statute. Ultimately, if the state cannot demonstrate a compelling interest in same sex marriage, it must stop refusing them marriage licenses. CHAPTER TAX REFORM ACT OF 1986: The Tax Reform Act of 1986 increased benefits coverage for rank-and-file employees while reducing tax-favored benefits that can be provided to highly paid employees. The Bible states that we should give in accordance with what we have. Along with the central Christian requirement of 'loving your fellow man' comes the requirement to help others who are less fortunate. The Bible states the following: And the people asked him, saying, What shall we do then? He answereth and saith unto them, He that hath two coats, let him impart to him that hath none; and he that hath meat, let him do likewise. Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good to be rich in good deeds, and to be generous and willing to share. In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold of the life that is truly life. Clearly, the Bible expects people who have more to give more for the benefit of the less fortunate. CHAPTER EMPLOYMENT RETIREMENT INCOME SECURITY ACT OF 1974: The Employment Retirement Income Security Act of 1974 created government protection of pensions for all employees with company pension plans and regulated vesting rights. The Bible states that we should exhort our elders as if they were our parents and provide for them in their old age. As stated earlier, we have a Christian requirement to help others who are less fortunate. The Bible states the following: Do not rebuke an older man harshly, but exhort him as if he were your father. Treat younger men as brothers, older women as mothers, and younger women as sisters, with absolute purity. Give proper recognition to those widows who are really in need. The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching. For the Word Count: 4899 f:\12000 essays\business & economics (632)\Removal of GM Jobs In Flint.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Removal of GM Jobs In Flint A strong culture is one that has dependency upon itself along with outside resources. The economy is hard if nearly impossible to predict, and this puts severe strain on a community that is dependent on one employer. Cleveland, Pittsburgh, and Flint are examples of these types of communities. When a manufacturing process or company pulls out of a city, many problems arise. Flint is a city which has had a significant portion of an industry leave. GM used to be the heart of Flint, until the decision to downsize was made. This caused approximately 40 thousand of the 80 thousand GM employees to loose their jobs. Recently there was a debate pitting two sides of an issue. The question consisted of the decline of General Motors in Flint. Is it a catastrophe or does it provide an opportunity for the community. Members of the panel included Bill Donahue (pro-opportunity), Larry Thompson (pro-opportunity), Dorothy Reynolds (catastrophe supporter) and Ruben Burks (catastrophe supporter). In the beginning, there were many advantages of having GM as the dominate employer in Flint. The quantity of GM jobs in Flint provided for an economic boom town in the 1960's and 1970's. Money from General Motors trickled down from the workers to every part of the economy of Genesse county. The population was on the rise which meant more homes, roads, and businesses. It was all to good to be true. When Roger Smith (then President of GM) decided to relocate numerous jobs from the Buick City, it was time for Flint to pay the piper. The large dependency on GM brought upon a rapid decline in the economy unparalleled by any city in United States history. The removal of jobs from GM caused many problems in Flint. Dororthy Reynolds gave many statistics which proved how much the decline of GM hurt Flint. She pointed out that since the removal of GM jobs, Flint has become the 2nd most dangerous city in America while being the 6th most segregated. The lack of economic development since the early 1980's has also had a terrible impact on the children of Flint and Genesse county. Thirty percent of the children in Genesse county live at or below the poverty level where the graduation rate in the schools has shrunk to 57%. Mrs. Reynolds also pointed out the fact that only three new home developments have been started in the last 18 months. Ruben Burks was also invited to share his opinions on the catastrophe surrounding Flint. Unfortunately for the audience, his relationship with the United Auto Workers was at a level to where he couldn't expand on his negative GM opinions. The other side of the issue brought Bill Donahue and Larry Thompson to the podium. First to speak was Mr. Donahue. He brought several points of opportunity for Flint. The first point concentrated on the stabilization of GM employment in Genesse county. Secondly, he pointed out the need to diversify the economy. His third point was to align the schools, colleges, and churches to work together for the common goal. Larry Thompson also had several points of his own on the opportunity that Flint possess. Again, the need to diversify the economy was a major point. He pointed out that the finger pointing between the two sides is not productive and is actually inhibiting Flint from looking past what happened in the early 1980's. Mr. Thompson's quote of "Growing as a person is when you suffer some sort of loss" provides the opportunistic attitude that is lacking in the Flint. Both sides presented arguments that supported their respective feelings. It would be great if the majority of the citizens of the county possessed some sort of opportunistic attitude. For instance, the diversification of the economy will be very difficult as many of the former GM workers will not be willing to work for less than $18 dollars an hour. Unfortunately, many of the new jobs, when and if they come to Flint, will pay quite a bit less than General Motors. The inclusion of the poor community will also take time as many of the lower class would prefer to milk the welfare and public assistance programs. Perhaps the only sure thing about Flint is that it will take time to heal the wounds left by the General Motors Corporation. f:\12000 essays\business & economics (632)\Rent Control in New York.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 11. Evaluate the pros and cons of rent control and rent stabilization in NYC. Rent control is the government imposition of price ceilings on rent for apartments in certain areas of a city. The goal is usually to protect the rights of the poor. Thus, in a rent controlled or rent stabilized building, the amount of rent will not increase as quickly as inflation. While the moral side of rent control may have some appeal, in the long run the disadvantages far outweigh the advantages. Those who argue in favor of rent control say that it is the only way to protect lower-income tenants from landlords who overprice, and from being forced to move out of a neighborhood because they cannot afford the rent. Limiting the price that a landlord can demand helps maintain a city's ethnic diversity and prevents the creation of slums on the outskirts of the main city. Another thing that proponents say is that by linking rent prices to apartment maintenance and material improvements, rent control actually improves the state of housing. Overall, they argue that the goals of rent control can be reached if they are administered in a careful and just way. The opponents, though, have both theoretical and practical experience on their side. First, rent control creates a market that is unfair for everyone. Since the rent is set at a lower than normal level, an unsatisfied demand is created. This increase in demand leads to an increase in the cost of rents in the uncontrolled sector. Thus, two types of rents are created: those that are unfairly cheap, and those that are unfairly expensive. Another problem that is created is that landlords who own rent controlled apartments are often not able to earn enough money to adequately maintain buildings. This leads to run-down, poor quality housing. In many cases, landlords lose so much money that they are not able to even pay the debt on the properties, and they abandon them. Both of these effects have been documented in New York and elsewhere, and go against the goals of rent control. Finally, rent control has the bad side effect of turning away new construction. This is because even if rent controls don't include new constructions, owners are afraid to build any new buildings if in a few years those too will be taken over by rent control. Rent control thus leads to less construction and an even greater unsatisfied demand. This, in turn, increases the rents of uncontrolled apartments even more. New constructions are also avoided because banks and insurance companies don't want to invest in areas where rent control is in effect, because they know that it is likely that landlords will not be able to pay for the building, and they will lose their investment. For all of these reasons, I believe that rent control should be abandoned in New York City. The situation we have is of many run-down buildings that are rent controlled, and other areas where rent is so expensive that no one from the middle class can afford to live in them. On top of all this, in New York, many people rent out their rent controlled apartments for a profit - a practice which is opposite to the initial spirit of rent control legislation. Without rent control, the housing situation in New York would be more equitable for everyone, and the city would benefit. 3. Critically evaluate the issues in the people versus places controversy. The people versus places controversy is concerned with two basic philosophies of distributing benefits with the goal of improving living standards and local economic development. In basic terms, the "people" approach tends to emphasize assistance to individuals, giving them tax breaks, financial help, job training, and migration (to areas of better employment) assistance. The "places" approach focuses on improving the quality of a place, in the hope that the people who live there will benefit from the change. In my opinion, both of the approaches have drawbacks, and a mixture of the two is the best way to solve the problems of local economic development. The people approach, based on making individuals more prosperous, is based on the rationale that only people matter. Those who support it argue that if you improve the lives of people, it doesn't matter where they live. Thus, they would argue for job training programs and not for strategies that would try to bring factories into a certain city. One of the main negative effects of the people centered approach is that it encourages migration. This is a disadvantage in the big picture for three reasons. First, migration away from problem areas of the most qualified only worsens the situation of those areas. If a city spends money on training people to become more efficient and better skilled workers, and those people then move on to find better job opportunities, then that city hasn't succeeded in its primary goal: to improve the quality of life in its borders. In the end, the skill level of the local population doesn't improve, in fact, it may decrease. Another disadvantage of migration is the fact that it leads to the disintegration of families and communities. When it becomes easy for people to move from one place to another, then the bonds which strengthen communities fall apart, and the nation as a whole loses a valuable asset. Finally, politicians, who rely on the support of their constituents to be elected, are not likely to support people centered approaches because of migration. There is no reason why they would want to spend tax money on training people when they cannot be sure that those same people won't leave the community and enrich another city with their new skills. Place centered approaches also have drawbacks. First, much of the benefits go to the non-poor. This is because the subsidies for industry or other incentives for growth and improvement are given to those who already have money. These are the people with enough capital to make a difference in the quality of a place. While the place centered approach does not foster migration, and therefore it has the support of politicians, it still is not very popular. Another problem is the fact that place centered programs often do not help the areas that are in the most need of help. This is because the aid from these programs goes to the places with the most potential, not the most need. Finally, a problem with place strategies is that they do not let the market function freely, and therefore many economists would argue that efficiency on a national level is reduced. This would defeat the goal of the program in the big picture. Overall, both the people and place approaches have advantages and disadvantages. In choosing which one is best, it is wise to look at the particular needs of each community, and develop a mixture of the two solutions. For example, in an area that is very poor, where it is unlikely that business will invest, even with subsidies, then a people approach may be the only way to improve the local economic situation. On the other hand, in an area that shows some promise, and which could improve with the arrival of more jobs, the place approach may be best suited. In any case, it is impossible to say that one or the other is better in all instances; and it is essential to remember that neither of them can offer a perfect solution to the age-old problem of improving a community's economic health. f:\12000 essays\business & economics (632)\Rent Control.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rent Control: Pros and Cons Evaluate the pros and cons of rent control and rent stabilization in NYC. Rent control is the government imposition of price ceilings on rent for apartments in certain areas of a city. The goal is usually to protect the rights of the poor. Thus, in a rent controlled or rent stabilized building, the amount of rent will not increase as quickly as inflation. While the moral side of rent control may have some appeal, in the long run the disadvantages far outweigh the advantages. Those who argue in favor of rent control say that it is the only way to protect lower-income tenants from landlords who overprice, and from being forced to move out of a neighborhood because they cannot afford the rent. Limiting the price that a landlord can demand helps maintain a city's ethnic diversity and prevents the creation of slums on the outskirts of the main city. Another thing that proponents say is that by linking rent prices to apartment maintenance and material improvements, rent control actually improves the state of housing. Overall, they argue that the goals of rent control can be reached if they are administered in a careful and just way. The opponents, though, have both theoretical and practical experience on their side. First, rent control creates a market that is unfair for everyone. Since the rent is set at a lower than normal level, an unsatisfied demand is created. This increase in demand leads to an increase in the cost of rents in the uncontrolled sector. Thus, two types of rents are created: those that are unfairly cheap, and those that are unfairly expensive. Another problem that is created is that landlords who own rent controlled apartments are often not able to earn enough money to adequately maintain buildings. This leads to run-down, poor quality housing. In many cases, landlords lose so much money that they are not able to even pay the debt on the properties, and they abandon them. Both of these effects have been documented in New York and elsewhere, and go against the goals of rent control. Finally, rent control has the bad side effect of turning away new construction. This is because even if rent controls don't include new constructions, owners are afraid to build any new buildings if in a few years those too will be taken over by rent control. Rent control thus leads to less construction and an even greater unsatisfied demand. This, in turn, increases the rents of uncontrolled apartments even more. New constructions are also avoided because banks and insurance companies don't want to invest in areas where rent control is in effect, because they know that it is likely that landlords will not be able to pay for the building, and they will lose their investment. For all of these reasons, I believe that rent control should be abandoned in New York City. The situation we have is of many run-down buildings that are rent controlled, and other areas where rent is so expensive that no one from the middle class can afford to live in them. On top of all this, in New York, many people rent out their rent controlled apartments for a profit - a practice which is opposite to the initial spirit of rent control legislation. Without rent control, the housing situation in New York would be more equitable for everyone, and the city would benefit. Critically evaluate the issues in the people versus places controversy. The people versus places controversy is concerned with two basic philosophies of distributing benefits with the goal of improving living standards and local economic development. In basic terms, the "people" approach tends to emphasize assistance to individuals, giving them tax breaks, financial help, job training, and migration (to areas of better employment) assistance. The "places" approach focuses on improving the quality of a place, in the hope that the people who live there will benefit from the change. In my opinion, both of the approaches have drawbacks, and a mixture of the two is the best way to solve the problems of local economic development. The people approach, based on making individuals more prosperous, is based on the rationale that only people matter. Those who support it argue that if you improve the lives of people, it doesn't matter where they live. Thus, they would argue for job training programs and not for strategies that would try to bring factories into a certain city. One of the main negative effects of the people centered approach is that it encourages migration. This is a disadvantage in the big picture for three reasons. First, migration away from problem areas of the most qualified only worsens the situation of those areas. If a city spends money on training people to become more efficient and better skilled workers, and those people then move on to find better job opportunities, then that city hasn't succeeded in its primary goal: to improve the quality of life in its borders. In the end, the skill level of the local population doesn't improve, in fact, it may decrease. Another disadvantage of migration is the fact that it leads to the disintegration of families and communities. When it becomes easy for people to move from one place to another, then the bonds which strengthen communities fall apart, and the nation as a whole loses a valuable asset. Finally, politicians, who rely on the support of their constituents to be elected, are not likely to support people centered approaches because of migration. There is no reason why they would want to spend tax money on training people when they cannot be sure that those same people won't leave the community and enrich another city with their new skills. Place centered approaches also have drawbacks. First, much of the benefits go to the non-poor. This is because the subsidies for industry or other incentives for growth and improvement are given to those who already have money. These are the people with enough capital to make a difference in the quality of a place. While the place centered approach does not foster migration, and therefore it has the support of politicians, it still is not very popular. Another problem is the fact that place centered programs often do not help the areas that are in the most need of help. This is because the aid from these programs goes to the places with the most potential, not the most need. Finally, a problem with place strategies is that they do not let the market function freely, and therefore many economists would argue that efficiency on a national level is reduced. This would defeat the goal of the program in the big picture. Overall, both the people and place approaches have advantages and disadvantages. In choosing which one is best, it is wise to look at the particular needs of each community, and develop a mixture of the two solutions. For example, in an area that is very poor, where it is unlikely that business will invest, even with subsidies, then a people approach may be the only way to improve the local economic situation. On the other hand, in an area that shows some promise, and which could improve with the arrival of more jobs, the place approach may be best suited. In any case, it is impossible to say that one or the other is better in all instances; and it is essential to remember that neither of them can offer a perfect solution to the age-old problem of improving a community's economic health. f:\12000 essays\business & economics (632)\Reorganization.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Reorganization A Company which have 100 people, has just gone into liquidation, being unable to manufacture furniture of sufficient quality and provide enough to satisfy the demand for it. In order to solve the problem, we have already thought up a plan. The bank manager have already accepts the financial and marketing aspects of the plan, but he is unsure of my management ability and how I would improve the organisation and management of the collectively brought about the company's downfall. So I am now have to reassure him and persuade him that I know not only how to manage people, but also how to set up and organise appropriate business processes. For the business problem that we are working with. It is require a range of skilful and craft workers, So that the aim of the plan is to provide a good quality and sufficient amount of products. Satisfy the demand for it. Show that plan to the bank manager, give him a confidence. So that we can borrow this budget form him then we can put the company on track again. These are all internal problems within the company; management of workers, suppliers, costs and budget. THE OBJECTIVE. FIRST the workers. Due to the fact that it must have the following problem in suppliers area. The quality of the raw material must have not reach the standard that is aimed. For examples: the may ordered some cheap materials or expensive raw materials where they can have poor quality of work done with the expensive materials and good quality of materials done by poor quality of work or it could be the other way round. So it need to reorganise and have real thought about it. For the problem which just mention can be relayed to the workers. The workers also have problem in; not happy with their salary, relationship problems between all workers themselves (neighbour trouble), also not happy with their raw materials where they are working with. To solve the problem above I must monitor in depth on the suppliers. Look at their raw material that they are provided and communicate with the craft workers and see if the materials are what they really want and what really keen on working with e.g. a worker may not be happy working with pine wood because he thing pine wood is not the right raw material e.g. too light or not met specification for the furniture or some other strange reason and where I must really consider about his thought rather than just do what I wanted to do. In other words if I've ordered some expensive raw materials, but it still end up with poor quality of product. There may be a problem something like between the relationship of workers (neighbour trouble). Some one may have argue with some body and cause problem with the communication. Other possible case where they have neighbour troubles are, not happy with their working environment e.g. the working environment are too cold or too hot, bad air condition etc. These all have got to be done even those need to cost more overhead. Sometimes workers will unhappy with the company with sensitive saturation like asking to increase their salary. So that we must try convince them, tell them the saturation, but not telling them we are in liquidation saturation. But something like the quality of our product aren't good enough at the moment so that we need all of you to give twice as much as effort to the furniture that you are working with and guarantee you will have more salary. One other strategy is to set up a competition for getting a premium salaries race between workers. Also buying machinery are important for the apposite. That will help the workers do less work and save their power and energy. We will take action straight away soon we have got the money. However the workers must be satisfied. And work happily in their working environment and give them the best morality to let them achieve their best performance on the products. Another saturation is where the worker are really not very good for their work i.e. poor of work which I will go through them, ask them a lot of questions. Or by employing a supervisor for the responsibility for all workers see if their really can do the job up to the standard. And if they did really bad things to the company then sack them and employ new workers. All new workers are going to be well train before they are going to do the actual job even those they have lots of experiment in this area. SECOND the supplier. We must have a good relationship between the company and the supplier in order to reduce the cost of overhead. For example, order a large amount of the raw materials, let the supplier make more profits at a time. THIRD cut the cost. This is probably the most important thing in our case. For above solution e.g. buying good raw material, machinery, employing supervisor etc. these all need quite a lot of extra money by the time we have solve the above salutation. Cost could be cut on the overhead, e.g. the electricity we are using, administration expenses, factory expenses etc. just any thing that could be think of but it won't affect the workers and the products. e.g. salary. FOURTH the budget. We now gone into liquidation. One of the reason is from the budget. If this time we can borrow the money from the bank manager. We must have a budget forecast. A forecast of fix cost must be done in the coming year (a cash flow forecast) to keep the budget right. We have to think positive. So if there is a big increase like wood are more expensive in the coming year, workers ask for more salary, machine down time and the fixing cost are more than what we thought or any thing on that line. We must first think how we going to attain more money to match it. A cash flow forecast can be done by Regression by collecting all raw data. And put all the data into a computerise system. Than we look at the expenses. And the expenses have got to match. If we have an incidence next year that couldn't match the cost. We have to increase the price. However it is better than nothing. f:\12000 essays\business & economics (632)\Reorganize a company who has just gone into liquidation .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A Company which have 100 people, has just gone into liquidation, being unable to manufacture furniture of sufficient quality and provide enough to satisfy the demand for it. In order to solve the problem, we have already thought up a plan. The bank manager have already accepts the financial and marketing aspects of the plan, but he is unsure of my management ability and how I would improve the organisation and management of the collectively brought about the company's downfall. So I am now have to reassure him and persuade him that I know not only how to manage people, but also how to set up and organise appropriate business processes. For the business problem that we are working with. It is require a range of skilful and craft workers, So that the aim of the plan is to provide a good quality and sufficient amount of products. Satisfy the demand for it. Show that plan to the bank manager, give him a confidence. So that we can borrow this budget form him then we can put the company on track again. These are all internal problems within the company; management of workers, suppliers, costs and budget. THE OBJECTIVE. FIRST the workers. Due to the fact that it must have the following problem in suppliers area. The quality of the raw material must have not reach the standard that is aimed. For examples: the may ordered some cheap materials or expensive raw materials where they can have poor quality of work done with the expensive materials and good quality of materials done by poor quality of work or it could be the other way round. So it need to reorganise and have real thought about it. For the problem which just mention can be relayed to the workers. The workers also have problem in; not happy with their salary, relationship problems between all workers themselves (neighbour trouble), also not happy with their raw materials where they are working with. To solve the problem above I must monitor in depth on the suppliers. Look at their raw material that they are provided and communicate with the craft workers and see if the materials are what they really want and what really keen on working with e.g. a worker may not be happy working with pine wood because he thing pine wood is not the right raw material e.g. too light or not met specification for the furniture or some other strange reason and where I must really consider about his thought rather than just do what I wanted to do. In other words if I've ordered some expensive raw materials, but it still end up with poor quality of product. There may be a problem something like between the relationship of workers (neighbour trouble). Some one may have argue with some body and cause problem with the communication. Other possible case where they have neighbour troubles are, not happy with their working environment e.g. the working environment are too cold or too hot, bad air condition etc. These all have got to be done even those need to cost more overhead. Sometimes workers will unhappy with the company with sensitive saturation like asking to increase their salary. So that we must try convince them, tell them the saturation, but not telling them we are in liquidation saturation. But something like the quality of our product aren't good enough at the moment so that we need all of you to give twice as much as effort to the furniture that you are working with and guarantee you will have more salary. One other strategy is to set up a competition for getting a premium salaries race between workers. Also buying machinery are important for the apposite. That will help the workers do less work and save their power and energy. We will take action straight away soon we have got the money. However the workers must be satisfied. And work happily in their working environment and give them the best morality to let them achieve their best performance on the products. Another saturation is where the worker are really not very good for their work i.e. poor of work which I will go through them, ask them a lot of questions. Or by employing a supervisor for the responsibility for all workers see if their really can do the job up to the standard. And if they did really bad things to the company then sack them and employ new workers. All new workers are going to be well train before they are going to do the actual job even those they have lots of experiment in this area. SECOND the supplier. We must have a good relationship between the company and the supplier in order to reduce the cost of overhead. For example, order a large amount of the raw materials, let the supplier make more profits at a time. THIRD cut the cost. This is probably the most important thing in our case. For above solution e.g. buying good raw material, machinery, employing supervisor etc. these all need quite a lot of extra money by the time we have solve the above salutation. Cost could be cut on the overhead, e.g. the electricity we are using, administration expenses, factory expenses etc. just any thing that could be think of but it won't affect the workers and the products. e.g. salary. FOURTH the budget. We now gone into liquidation. One of the reason is from the budget. If this time we can borrow the money from the bank manager. We must have a budget forecast. A forecast of fix cost must be done in the coming year (a cash flow forecast) to keep the budget right. We have to think positive. So if there is a big increase like wood are more expensive in the coming year, workers ask for more salary, machine down time and the fixing cost are more than what we thought or any thing on that line. We must first think how we going to attain more money to match it. A cash flow forecast can be done by Regression by collecting all raw data. And put all the data into a computerise system. Than we look at the expenses. And the expenses have got to match. If we have an incidence next year that couldn't match the cost. We have to increase the price. However it is better than nothing. f:\12000 essays\business & economics (632)\Reprt on advantages and aspects of advertising.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Report for the attention of Mr Pakanawa Why launch an advertisement campaign? To start off, when your company is just becoming established in the British market, consumers will have no knowledge of your product, we must encourage or persuade the consumer to buy your product. To make customers aware of the product we must advertise. Large scale advertising mainly consists of advertising on TV, Radio, newspapers and other large scale media. This ensures that advertising reaches the largest amount of people in the shortest amount of time. It is likely that the consumer will be more interested in the product if they hear of on a national level such as TV or Radio. We must watch out for other companies in Britain that sell a similar product or overseas companies that sell in Britain so Pakanawa can analyse the British marketing strategy and improve upon it. Market Segmentation is also another factor to take notice of. Market segmentation helps to differentiate products for different age groups. For most product, there are segments of the market that you need to specifically advertise to. Fore example, different methods of advertising would be needed if you were to advertise to parents than to the children. For a lot of products their are a lot of age groups that you need to advertise for and these must be taken into consideration. We must analyse the different market segments that are applicable to Pakanawa and investigate how we can exploit these different market segments. An ad campaign is a very sensible idea because no-one will know about our products without the use of advertising. This means that we must concentrate on a good ad campaign so people will know about our products. Approximate prices are shown below for large scale advertising: TV Price agreed with company (500,000 + ) Radio (250,000 + ) Newspaper lineage ad 250 Newspaper full page 700-900 Cinema booklets 650.00 per cinema Flyers 0.08 per flyer As is shown above, advertising is very expensive when done on a large scale so to justify any form of large scale advertising it must be proven to be effective. At Pakanawa(tm) we must consider all angles of the media and come to a conclusion about advertising. What sort of advertising should you use? By far the most far reaching of these strategies is Television advertising. A large amount of people watch TV and this type of advertising will reach many social groups. Although this type of advertising is very expensive and even more so during peak times, TV advertising should be seen by the masses and encouraging a lot of new customers, so in time, TV advertising will pay for itself. This will prove to be a very effective form of advertising media and should be adopted in the Pakanawa situation. To boost sales even more, and to prolong the life of the Pakanawa product line, another form of advertising should be taken aboard. Newspaper advertising would also be a good idea. Newspaper advertising would reach another section of the consumer market and would also be very effective in the right context. A full page newspaper advert is a lot of money but would bring in a lot more customers and make many more people aware of the product. It is important to make people aware of the product so they will buy it, there are many advantages of the Television over the newspaper, such as the fact that TV is a captive market and if you can vary the showing times of the advertisement then you can vary the consumer group that will be receiving them. A bad point, however, as is with most forms of advertising, is the delay between seeing the advertisement and buying the product. There is also a delay similar to this with newspaper advertisements but the delay is not usually as long as is the one with TV advertising. Below the line promotion Below the line promotion refers to advertising that does not rely on large scale media such as TV or Radio. Forms of this are direct mailing, exhibitions and trade fairs, sales promotions and product placing. In the case of Pakanawa it would be sensible to follow some of these ideas but not all of them. For example, it would not really be a good idea to exhibit the product at a trade fair without first having a sales promotion or product placing. The only form mentioned that would not be suitable would be direct mailing, to which the general public refer to a junk mail. The question arises whether you would mail the children that are likely to want the product or whether to mail the parents that would buy the product for their children. If you were to mail the children then the parents could get very annoyed at the fact that you went directly to the children instead of through their guardians. Although if you were to mail the parents there would not be a very large chance that it would also reach the children, who would be the driving force of the sale of the product. Sales promotion or endorsements would be a good idea as this would ensure that more people heard about the product and it would be more appealing if a well known children's presenter was to endorse the product. Branding Multiple product branding would be the best idea for Pakanawa as with multiple branding the firm is not always known as the same one and with Pakanawa's toys, the different products under different brands could inhibit the sale of the other brands. With multiple product branding the company would be recognised as selling all these products and with a well established market this would benefit the company although multiple branding has one advantage over this, if the company has had bad publicity, with the other brands, a knock on effect of the other products is limited. Therefore, I think that the best form of branding for Pakanawa's toys would be multiple product branding. Product Development We must also consider product development to extend the product life cycle and retain interest in the series of products produced by Pakanawa. To fully conduct a product development scheme we must conduct some market research into the attitudes of the customers and what they think can be done to improve the products provided by Pakanawa. We must come up with new ideas fairly frequently and brainstorming should be encouraged. Safety must always be improved on in Pakanawa products and a team of designers must be considering product development all of the time. Merchandising and packaging Merchandising is an attempt to influence customers at the point of sale. The point of sale is anywhere that a customer buys a product. Customers are intended to buy based on what they see rather from a sales assistant. Therefore at Pakanawa a vital factor in influencing customers is the way in which the items are displayed. To sell the products effectively we must take into consideration the effect that the packaging should have on the customers and the way in which displays of this particular product are arranged. A good idea would be to have a 'space ship' or something similar to encourage people to look and to buy the product. To influence customers at the point of sale, a number of tactics must be employed as we must first draw the customers attention to the display and to the product, and finally, to the price of the product. Why a sales team? The job of a sales team is to create interest in the product with the public and retailers. The overall aim of a sales team is to create the highest level of distribution of the product and to promote the product so representatives of a firm are interested in purchasing this product to sell it in their shops. They should initially aim to start small and encourage interest in the media, the public and shareholders. The whole image of the company rests on the sales team as it is their job to promote the product and the company and to stop any bad press about the company. They should try and convince buyers with market research that there product will sell and that buying this product is a good investment. They could offer commission or discounts to firms for bulk buying and high sales. A sales team should also be allowed full control over the bartering of the goods and should set there own guidelines within a broad range of company guidelines. Legal and Public problems A few problems may be made of the fact that the product is cuddly yet violent in its own kind of way, with the image being of a scary bear. Some extremists may consider this to be unacceptable and may want the bear banned from sale or put out a campaign against the product. This should easily be solved with a well briefed PR team that have a capacity to lie. All doubts should be dispelled and children illustrated playing happily with the bear and there should be no other legal or PR problems, but it helps to have a well briefed PR team. f:\12000 essays\business & economics (632)\RIAA vs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ RIAA vs. Napster The debate over whether or not Napster Inc. is in violation of existing copyright infringement laws is a complex issue. Napster's defense attorneys claim that because music is shared between users, and Napster is never actually in possession of these files (the company is merely providing the service by which these files can be shared), Napster is in fact, not guilty of compromising copyright infringement laws. According to these same lawyers, the Audio Home Recording Act of 1992, which rules that it is entirely legal for a consumer to record and to share copyrighted music providing it not be done for monetary gain, protects Napster Inc. On the opposing side, The Recording Industry Association of America asserts that Napster is indirectly acting as a distributor of copyrighted music, thereby violating the Home Recording Act of 1992. Napster Inc. was founded in 1999 by nineteen year-old Shawn Fanning. Fanning dropped out of Northeastern University in order to devote the entirety of his time to developing Napster's revolutionary software. The company, who was financed by venture capital firm Hummer Winblad, totaled $0.0 in sales for 1999. Napster Inc, however, is currently exploring ways to utilize their over 35 million users in order to turn a profit. Napster can be accessed from any computer with Internet capabilities, allowing the user to download virtually any song. This technology does not only threaten the recording industry, but also any other industry that involves the sale of intellectual property. One might speculate that the publishing and the movie making industries are next in line to fall victim to file sharing. It would be in the best interest of both Napster and the RIAA to reach some agreement. A federal court ruling allowing Napster to remain in business will only hurt the consumer. Record companies will be forced to protect themselves, which could, for example, lead to the introduction of copyright protected compact disks. This would make it impossible for new music to be copied and distributed over the Internet. In addition, the increase in production cost would, in turn, cause CD prices to rise, thereby hurting the consumer. While the technology pioneered by Napster is potentially harmful to the United States economy, this does not mean that it should be prevented from being used. If the RIAA and Napster come to an agreement, then file-sharing technology could prove to be profitable for all. Just as television and radio are profitable because of tremendous amounts of money generated through advertising, the free distribution of music over the Internet could do the same for record companies. The Internet has already proven to be extremely profitable for companies such as alladvantage.com, whose profits come solely from advertising. Through great amounts of money made through advertising, services such as Napster could pay artists and record companies for the rights to their music. In conclusion, Napster's technology should be carefully embraced. In other words, rather than destroy the record industry, Napster should include it. The RIAA would be smart in striking a deal with Napster. Technology is moving at such a rapid speed, that the industry can only stay profitable if they choose to move into new markets. With the overwhelming popularity of Mp3's, it seems as though Internet distribution is the future of the music. The record industry can choose to evolve, and profit from advancements made in technology, or they can fight technology and stand to loose. f:\12000 essays\business & economics (632)\Rise and Fall of Communism in Russia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Communism in the Soviet Union and why it Failed Communism is defined as "a system of political and economic organization in which property is owned by the community and all citizens share in the enjoyment of the common wealth, more or less according to their need." In 1917 the rise of power in the Marxist-inspired Bolsheviks in Russia along with the consolidation of power by Vladimir Lenin and Joseph Stalin, the word communism came to mean a totalitarian system controlled by a single political party. This came to justify that the means of production is controlled and the wealth is distributed with the goal of producing a classless or possibly a stateless society. The ideological meaning of communism arose in 1848 with the publication of the Communist Manifesto by Karl Marx and Friedrich Engels. They believed that communism is inevitable and is an outcome of the historical process. They believed that the "struggle between an exploiting class, the capatalists at present age, and an exploited class, the workers, would enter a crucial stage in the period of capitalism where industrialization occurs and that the effects of industrialization is to heighten and intensify the internal contradictions in capitalism." To put it bluntly they believed that the ownership of industry would be in fewer and fewer hands where the workers would plunge into a state of ever-increasing misery. These impoverished workers grow in numbers and organize themselves into a political party which would lead a revolution in which they dispose of the capitalists. The proletariat would establish a society governed by a " dictatorship of the proletariat" based on communal ownership of the wealth. According to Marx this phase of human society is referred to as socialism. Communism is the final transcendence of this revolution in which there is a break up and elimination of the state and no class division. That is the primary reason that it was called the Union of Soviet Socialist Republics. In 1991 the Soviet Union collapsed. What was the problem with this system of government, if this is a workers paradise what happened ? What did the Soviet Union do wrong to cause a breakdown of their ideal system ? In this paper I will explore the rise of the Soviet power and causes of the 1991 breakup. The person who started the whole transition into a communist empire was Vladimir Lenin. He felt that the working class was not capable of starting this revolution on their own and needed a professional group of revolutionaries to guide it. This led to Lenin and Bolsheviks coming into power in 1917. The Bolsheviks renamed themselves the Communist party and under the leadership of Lenin took control of government and outlawed all of the other political parties. In 1918 they became the ruling party of Russia and formed a dictatorship so they could ensure the Soviet transition from capitalism to socialism. The communist party arose in opposition to both capitalism and socialists of the Second International who had supported their capitalist governments during World War I. The name communists was specifically taken to distinguish Lenin's followers in Russia and abroad from such Socialists. Following their victory in the Russian Civil War in 1918, the Soviet Communists followed a cautious policy of limited capatalism during the New Economic Program until Lenin's death in 1924. Lenin's successor, Joseph Stalin, forcibly accomplished the transition from capitalism to socialism. During his years in power the party grew from about 470,000 to millions. He nationalized the Soviet industries and agriculture. A rapid industrialization program was pushed on the people even though they lacked materials. Police terror was also used to suppress dissent and opposition. This became known as Stalinism. Communist rule was confined to the Soviet Union until the end of World War II. The Soviet Red Army liberated several countries in eastern Europe from the Nazi Germany control. The soviets sponsored and helped form the communist governments in Bulgaria, Czechoslovakia, Hungary, Romania, Poland, East Germany, and North Korea. Stalinism became the basic model for most of these new governments. After Stalin's death in 1953, Nikita Khrushchev began a rapid rise and in 1956 repudiated Stalin's "tyrannical excesses" in his famous "Secret Speech" at the 20th party congress. The next year he became the parties leader. Krushchev ended the practice of "bloody purges" of the party membership, but his rule aroused dissatisfaction among the other party leaders. He was kicked out in 1964. Leonid Brezhnev succeeded him and was general secretary until his death in 1982, when he was succeeded by Yuri Andropov. Andropov died in 1984 and the position was passed to Konstantin Chernenko. After Chernenko's death in 1985 the leadership was passed on to Mikhail Gorbachev. Both as an ideology and a practical system for the organization of a state, communism entered a period of crisis in the late 20th century. By the 1980's it had become quite clear that state-owned systems of economic production were unable to provide the same standards of living obtained in many countries with free market economies. The unequal concentrations of wealth in capitalist countries were matched by glaring concentrations of power in communist ones. It had become clear that the maintenance of a one party communist rule tended to limit personal freedoms in a way unknown in parliamentary democracies. The rise to power in the Soviet Union of leader Mikhail Gorbachev in the mid-1980's set in motion a farther reaching reassessment of the efficiency of the communist ideals and practices. In 1989-90 the communist parties of eastern Europe abandoned their monopoly of power and the communist governments in these nations either fell or submitted themselves to free multiparty elections. In the Soviet Union Gorbachev's attempts to liberalize the Soviet politico-economic system provoked that system's collapse altogether in 1991, after which communism rapidly withered as a viable ideology in Russia and the other former Soviet Republics. In the winter of 1990-91 many asked how the Soviet Union would end . While Mikhail Gorbachev was arrested the real target escaped, Boris Yeltsin. The failure was not only contributed to the myth surrounding the new Russian state but it also pushed the Soviet Union beyond any parameters envisioned by the process of reform they were attempting to stem. When Gorbechev came into power he knew that his country was stagnating but they termed it a "pre-crisis situation". They did not realize the depth of this problem and believed that their nation only needed reform. Six and a half years later the Soviet Union and Soviet Communism were dead. The Soviet Economic crisis was clearly visible in the declining growth rates, increasing scarcity of exploitable resources, and the worsening imbalance between military production and that for the general economy, especially consumer goods. The Soviet economy seemed ready and mobilized for war. In the consumer sector a very large portion of the capital stock was not only under productive but was also at the limit of its physical capacity. According to the Russian Prime minister Ivan Silayev, "only 15 percent of investment in the Russian republic went to consumer industries. Military industry, on the other hand, was constantly being supplied with new technology." Several Generals, especially ones involved in technical services, tried to break the hold of traditional strategy that emphasized numerical superiority, only to be shot down by high command. The Soviet bureaucracies shifted from the Stalinist era into a more corporatist system. They neglected their goal of service to the state and society in favor of self interest. Political and economic corruption, which has existed throughout Soviet History, increased systematically in the years prior to Gorbachev. The size of the "second" or illegal "shadow" economy eventually accounted for 25-30 percent of the market and became essential for the economy to function as a whole. By the end of the Brezhnev era many politicians where accepting bribes openly. This corruption of the bureaucracies only separated them further from the people they where put in place to serve. Not only was corruption a problem but the quality of leadership deteriorated as well. This was not only true in intelligence and organizational talent but also in a physical sense. Most of the members of the central committee were aged and lacked spark. The respect and fear they once generated was rapidly declining in an increasingly young and educated country. This weakness of political dissent within the Soviet Union was also important to the crisis. It planted seeds of antitotalitarianism and anticommunism in the native soil. Also the potential for political action sunk to an all time low in the community. The final problem that they encountered was in their relationships with other nations and ethnic groups. This may have been the most potent flaw in their system. Non-Russian ethnic regions contained under developed, peasant cultures. These groups were able to resist with surprising force subordination to Russian culture or submersion into the Soviet state. This lack of development led to cultivation of old ethnic identities and the process of modernization only created new strains. The Soviet Union lost all of its internal vitality, the powers of the regime were still intense. Decay was probably unavoidable but the disintegration did not seem immediate. The counter actions to the already failing government are what caused the final demise of the nation, the actions only accelerated the demise of communism. f:\12000 essays\business & economics (632)\Roatcap Cattle Company.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Roatcap Cattle Company Roatcap Cattle Company, Ltd. (RCC) faces changing the focus of its cattle operations. The options are (1) to maintain the cattle operations at the current level, (2) to expand to 100 cows, (3) to expand to 200 cows, or (4) to get out of the cattle business altogether. RCC currently uses a cash or tax based method to account for its cattle operations, RCC has employed our accounting firm to modify, based on RCC's approval, its accounting methods for the following four objectives: financial, cost/systems, audit, and tax. RCC recognizes that the company may require audited GAAP basis financial statements to secure financing for future operations. The following analysis contains our recommendation regarding how to set up GAAP based financial statements, the cost accounting system to support these financials, and the audit issues related to the financials. Additionally, RCC has requested our analysis of tax issues related to the company's options for its cattle operations. FINANCIAL Heading Here RCC has requested the financial experts of our firm to create GAAP based financial statements for 1996. Our primary concern is how to account for the cattle as assets. We have researched the AICPA's Audit and Accounting Guide for Audits of Agricultural Producers and Cooperatives (cited as AAG-APC) and developed these recommendations. Balance Sheet Disclosure RCC maintains two types of cattle operations-breeding and disposition. Bulls and mature cows produce calves. Female calves are held through maturity, at which point they are also used for breeding. All cattle intended for breeding should be classified as fixed assets. Male calves are sold at six months of age. The male calves held for disposition should be classified as inventory (AAG-APC 26, 29). RCC would expend too much time accounting for each cattle unit individually. RCC should record the cattle assets in four major asset categories: bulls, breeding cows, immature breeding cows, and male calves. Bulls should be recorded separately from the cows because (1) the market value of each bull is substantially greater than that of each cow, and (2) costs associated with bulls are different than costs associated with cows (AAG-APC). Because there are only three bulls, we suggest that each bull be accounted for individually. However, breeding cows, immature female cows, and male calves should be recorded in three asset pools, rather than each animal recorded as an individual asset. Cattle Valuation Total costs of cattle operations should be allocated on a rational basis to establish valuation amounts for young animals. Total costs of cattle operations include costs of feed, veterinary care, medicines, labor, land and pasture rent, and depreciation of the herd and facilities (AAG-APC). The costs of immature breeding cows prior to maturation should be accumulated and capitalized (AAG-APC). The capitalization of these costs parallel the capitalization of self-constructed assets as outlined in FAS 7. Capitalization periods should be determined as outlined in FAS 34 for capitalization of interest. These capitalized costs can be allocated on a per unit basis. Part of the total cattle costs should be allocated to inventory for the male calves. This allocation is subject to the lower of cost or market (AAG-APC). Income Statement Disclosure The cost of males calves sold is expensed as cost of goods sold once per reporting period. However, not all calves survive to maturity or disposition. Costs of maintenance and repairs that do not improve or extend asset lives should be expensed in the period incurred and reported on the income statement. These costs can be determined using a rational allocation of total cattle costs. Normal losses may be provided for in an allowance account or included in annual cattle maintenance costs, but abnormal losses of calves should be written off in the period in which the losses occur (AAG-APC). The breeding animals, bulls and cows, are fixed assets and thus depreciated over their useful lives. Developing female calves are not considered to be in service until they reach maturity, at which time their accumulated costs become subject to depreciation. RCC should depreciate the bulls and mature cows using the straight line method (AAG-APC 82). Depreciation expense, cost of goods sold, and revenue from calf sales should be reported on the income statement. Other Issues / Concerns Discrepancy exists for breeding cow and immature breeding cows' valuation and depreciation. Each developing female calf and her mother is considered to be one animal unit, until the calf reaches maturity. Under the pooling method, the developing female calf's costs are included in the mature cow's costs, thereby subject to depreciation. This contradicts the valuation and depreciation procedures outlined in the Audit and Accounting Guide for Agriculture. We suggest that immature breeding cows be recorded separately from their mothers in a separate non-depreciable asset account. Upon maturation, immature breeding cows will be transferred to the breeding cows asset pool. This transfer amount, subject to the lower of cost or market, will be determined by the rational allocation of total cattle costs (AAG-APC). Tax Expense Disclosure Most agricultural producers receive special tax treatment, including the right to elect to use the cash method of accounting, the right to use certain inventory valuation methods not in accordance with GAAP, and the right to deduct certain capital expenditures. This special treatment may cause discrepancies from GAAP tax calculations. This discrepancy should be recorded as deferred income taxes in the financial statements (AAG-APC 37). Cost / Systems Relevant Costs Associated with the Cattle Business Cattle industry costs can be broken down into two primary areas, direct materials and overhead. First, under the current herd size, direct materials would include only the hay eaten by the cows in the winter. Since RCC is able to self-produce an average of 60 tons of winter hay, the variable cost associated with hay would be only the hay consumed by the cows in excess of 60 tons during the winter (therefore making it a step variable cost). Second, overhead would include at least these four primary drivers: ? Depreciation expense on purchased cows. ? Depreciation expense on capitalized cows (those self-constructed). ? Land maintenance expense on land purchased in 1995. ? Veterinary expenses required for routine maintenance of the herd. Current Cost System The current cost system is a simple cash based system that incurs all expenses as they occur, depreciating only purchased assets as required under the uniform capitalization rules of the IRS. However, by incurring all expenses as they occur, no allocation of costs exists. This means that all expenses are spread over cows with different intended uses. The primary problem is the determination of what costs must be allocated to fixed assets (and therefore capitalized) and which should be allocated to inventory (and therefore expensed as cost of goods sold). Concepts Underlying a Possible New Cost System The male calves sold for revenues are the only products that RCC sells and therefore must be treated as inventory when created. The cows in the breeding herd which were not purchased, but born while on the ranch from the existing breeding herd must be viewed as self-constructed assets. The intent is to use these cows for breeding and not to actually sell them. The third classification is made up of the cows and bulls purchased in order to grow the breeding herd. Like the self-constructed cows in the herd, these cows and bulls are also treated as assets because the intent is to use them to produce more male calves. However, since these animals were purchased, a basis to depreciate from is available, and does not have to be calculated in order to allocate costs over the useful life. Cost Flow under the New Cost System The first type of cost flow is the cost attributable to the male calves sold by the farm. Since these animals make up all of RCC's revenues, the costs attributable to them must be expensed as cost of goods sold. These costs include the direct materials and overhead previously stated. The important distinction is that they are ordinary and necessary business expenses to produce inventory and as such should not be capitalized. The second type of cost flow is the cost attributable to those cows self-constructed through breeding. The intended use of these cows is not to generate revenues through their sale, but to create more male calves that ultimately create the revenues. However, under the current cost system, these cows have no basis and would not be classified as assets on the balance sheet. All of the expenses related to them have been expensed as incurred leaving no basis. A possible solution to this problem is the capitalization of all costs associated with the creation of the cows put into the cattle herd through breeding. The capitalization period would begin when the rancher has intent to breed a cow and a bull to produce an offspring. However, it is impossible to determine whether or not the offspring will be a fixed asset (cow) or a piece of inventory to be sold (male calf). Regardless of this uncertainty, the costs would be tracked. If upon birth the offspring is male, all expenses accumulated up until that point would be transferred to inventory and expensed as cost of goods sold. However, if a female cow were born, the capitalization period would continue until the cow was ready to breed (thus fulfilling its intended use). At this point of maturity, the accumulated capitalized costs would be depreciated over the estimated useful life of the cow. *From a management viewpoint, the costs attributable to those cows in the breeding stock would be valuable information. First and foremost, a proper allocation would paint a clear picture of whether growing the breeding herd through births or through purchases is better. If the costs required to self-construct the cattle exceed those of buying new breeding cows, then the best decision would be to sell all calves (both male and female) and purchase all cows for the breeding herd. However, if it is cheaper to grow the herd through breeding than through purchases, future purchases of cows should not occur and the growth should continue through births. Second, the allocation of costs allows RCC to see exactly where costs are flowing. This will allow RCC to see any inefficiencies and determine if the ranch as a whole is profitable. The third type of cost flow would be those expenses required to maintain the cows and bulls which were purchased and not self-constructed. First the variable costs associated with the amount of purchased hay must be accounted for. These would include the cost of hay purchased in addition to the 60 tons you can currently provide. In the case of RCC, expenses have been incurred and completely depreciated based on the five-year tax requirement. The only purchased animal that is not completely depreciated is the bull acquired in early 1997. A better approach would be to adjust the depreciation expense to be taken for this animal based on its true estimated useful life (if different than the tax life) and not its tax life. Costs that can be attributed to the purchased cows and bulls should be expensed as incurred. These are ordinary and necessary operating expenses associated solely with maintaining fixed assets already paid for. Different Herd Sizes and Cost Flow Implications Based on the cost flow system with direct materials and overhead, any expansion of the herd will not effect the treatment of the costs. Costs of self-produced assets would still be capitalized and inventory calves would be expensed as cost of goods sold. However, if the herd expands, current constraints require that a new step variable cost be included in direct materials and additional costs be added to the operating overhead of the cattle ranch. If the herd expands to a size in which US Forest Service permits must be used to accommodate summer pasturing of the cows, a step variable cost of $2.00 per month per animal unit must be introduced. However, this would only effect animals in excess of the current summer capacity of 100 animal units. Unless more private land is purchased, government grazing fees must be paid on all cattle using government land. This does not mean that all animals with government permits must pay the grazing fee. If RCC is able to purchase the 70 additional permitted cows, the herd size would be raised from 53 animal units to 123 animal units. However, current summer pasturage can support 100 animal units. This means that only 23 animals will be using their permits and the remaining 47 permits (70 total permitted cows - 23 permits actually in use) could be leased to another rancher or simply held for further expansion. The costs related to the unused permits, whether subleased or not, would not be included in overhead calculations until actually put into use. This would simply be looked at as a separate gain or loss, depending on if they are subleased for a gain. The cost of the government permits must also be included in the overhead of the cattle ranch. Since a full payment is made at the beginning of the ten-year life of the permits, the cost associated with that payment must be spread over the ten years as a prepaid asset. Every year the expense will be incurred evenly as a fixed cost of operations and added to overhead. Another possible concern would be the current manpower constraint on RCC. Current labor can support a herd of up to 100 animal units, but anything from 100 to 200 animal units would require one additional laborer. The $800.00 estimated yearly cost of the laborer would be a yearly fixed cost put into overhead. Since ranching work is seasonal and the worker would be doing different amounts of work during different times of year, it would not be cost effective to match his wages directly with the male calves produced and sold as a direct labor cost. The worker will require the same outflow of cash regardless of the time of year and the number of calves actually produced and sold Expansion of operations means that more fixed assets would have to be produced and or purchased. Whether this is to increase winter hay production, increased fencing due to more animals, or new equipment to streamline operations, the costs must all be allocated to the overhead rates of the animals. This operation has only one direct material, which is hay. All other costs are indirect and as such should be allocated to overhead. Make or Buy Winter Hay Currently, RCC has the capacity to support 100 cows in the summer, but only 30 cows in the winter without buying additional hay. This means that at current levels hay must be purchased from an outside party (at $80.00/ton) to support any volume of cattle above 30 during the winter months. Recently, RCC has been faced with the opportunity to expand self-produced hay in two different manners. First, RCC can buy a parcel of land that will produce an additional 100 tons of hay per year. This would bring total winter hay production to 160 tons per year. Second, RCC can install an irrigation system on current hay producing land to maximize its hay producing potential. With an irrigation system you can produce an extra 40 tons of hay per year. This would bring total winter hay production to 100 tons per year The choice of what combination of purchased and self-produced hay effects the direct materials in the cost flow of cows. First, if RCC decides to continue purchasing all hay and not to expand self-producing capabilities at all, the variable rate for purchased hay will be the highest of the three scenarios. No new costs will be incurred except the variable price paid for every cow past a capacity of 30. Second, if RCC decides to purchase the adjacent land and raise the total capacity to 160 tons of winter hay the opposite effect on costs will occur. Since RCC will be able to self-produce hay for 80 animals (160 total tons of hay per year / 2 tons average consumption per year per animal unit) the step to reach the variable cost will be 80 animals rather than 30 animals. This means that of the three options, this will produce the lowest variable cost. Since the land is not depreciable the cost of its purchase would not be included in the overhead rates of the cows. However, the lease expense is a substantial cash outflow and its total expense (including interest) must be weighed in a final decision. Third, if RCC decides to install the irrigation system, winter hay production will increase to 100 total tons of hay per year. This option means that only hay for a herd in excess of fifty cows (100 tons/2 tons per animal) must be purchased from an outside party. The variable cost will begin when the herd reaches fifty cows instead of the current thirty-cow threshold. Also, the costs associated with installing a well are substantially lower than purchasing the large parcel of land. This means the overhead rate will increase above its current level because the depreciation of the land must be included in overhead. *From a cost perspective, the installation of the well seems like the safest of the three propositions. Direct materials costs decrease (due to a raised threshold) and overhead increases only marginally. However, if RCC wants to increase the current herd size, this does not seem like the best logical decision. The parcel of 160 acres that you purchased in 1995 for $240,000 has appreciated in two years to a fair market value of $320,000. It is our recommendation that if RCC wants to expand hay producing capacities that RCC purchase the adjacent parcel of land rather than install the irrigation system. Although operating overhead will be substantially higher, land in RCC's area seems to be appreciating rather quickly and the cost could be looked at not only as an operating expense, but a long-term investment. Regardless of what the ultimate size of your breeding herd is, the purchase of the land should be considered for investment purposes if not for hay production. If RCC chooses to install the irrigation system, appreciation is not an option. There will be maintenance costs associated with the irrigation and well; at some point in the future the system will have to be scrapped and replaced. Other than the hay that is produced, RCC receives no return on its costs. Additional Information Necessary to Complete the Cost System In order to complete the cost system, further information is necessary. First, in order to calculate appropriate depreciation, the true useful life of the cows is necessary. Right now they are depreciated over a 5-year useful life in accordance with tax law. If the true useful life is longer that number should be used in place of the five-year figure for the cost allocation system. Second, in order to make a completely accurate estimation of the make or buy scenarios, the well depth must be pinpointed exactly. The current estimates of a necessary depth between 200 and 500 feet leaves an open cost margin for this project. Third, costs associated with self-produced hay must be determined. Whether these include seed costs, or routine land maintenance, the costs must be included in the various overhead rates. Fourth, the number of male calves sold and the price they were sold would be very helpful to determine future revenues. These numbers could be compared to the cost system to determine whether or not a true profit exists. Finally, the costs related only to specific animals must be identified. Certain costs are only attributable to breeding cows (birthing costs), male calves (freight-out expense), and bulls (extra hay). These costs must be identified and separated to the three cost flow systems. AUDIT Determining Audit Risk and the Related Costs Estimating the audit risk and the cost of a first time audit of RCC involves an in depth look at potential areas of risk and the costs associated with identifying these risks, hrough planning and gaining an understanding of the business. In order to assess the audit risk of the RCC the auditor needs to: ? understand the environment and industry in which RCC operates ? apply the audit assertions to the material areas of RCC ? analyze the level of detection risk, control risk, and inherent risk of RCC. HEADING HERE Gaining an understanding of RCC and the industry in which it operates is the initial step in planning the audit. Although this is not a major cost of the audit beyond the price of the auditor's time, it is necessary before the audit can begin. Reviewing trade journals and publications of the industry provide the auditor with basic knowledge of the business. Potential problems that have future ramifications such as the environmental issues regarding grazing restrictions and leases, diseases affecting cattle herds, and market trends in cattle sales, are noted. Touring the cattle ranch allows the auditor to observe the cattle and other major assets including farm equipment and the land used for grazing. Material assets become the focus of the audit based on their monetary value either as an asset producer or a revenue producer. The breeding stock, the cattle held for sale, and the property, plant, and equipment owned by RCC makeup the largest portion of the company and are of concern due to the potential materiality of misstatements, errors, and exposure to risk. Auditing the Major Assets The audit objectives for the breeding cows include determining the existence, the valuation, and the proper classification of the cows on the financial statements. With the herd of currently at 50 cattle, taking an actual count to verify their physical existence is reasonable. Counting the cattle however, does not guarantee RCC's rights to these animals. Cattle purchased or produced by RCC are accompanied by certification of the ownership of the cows. Reviewing these certificates, as well as checking ear tags and brands on the cows, would further identify RCC's rights to these animals with more reliability due to legality of the certificates and the permanence of the brands. A confirmation should be sent to the State Board of Stock Inspection Commissioners to verify that RCC owns the rights to the brand and that it is properly registered. It is likely that much of the necessary information needed to read brands and test the validity of the certification process is beyond the level of the auditor and requires the assistance of a specialist (SAS 22). The breeding cows, either purchased or constructed, held for longer than a year, are classified as fixed assets. Valuation of these cows is based on their accumulated costs, depreciated over their useful life. Determining the amounts of costs allocated to such animals involves an understanding of the cost system and reviewing the costs accumulated and applied. The Depreciation schedule holds relevant information regarding the depreciation method and the determination of the cow's useful life. Analytical tests and recalculations are effective in determining the accuracy of the depreciation methods, but RCC's reasoning behind the depreciation choices should also be known. There are other factors influencing the valuation of the cows including the potential disease and fertility problems, which could result in unseen risk. Again, due to the limited knowledge of the auditor in this area, the assistance of a specialist is beneficial in identifying risks that might have gone unnoticed. The audit objectives for the male calves held for disposition include valuation, for the breeding cows, but applied differently due to the differences of the assets. The existence of the calves can be determined by taking a physical count. The valuation of the calves is based on the market value, not through Determining the existence of these calves ????????????????????????????????????????????????????????????????????????????????? Although the farm equipment owned by RCC is not directly used in the production of the cows, it is necessary and is a major asset on the financial statements due to its large monetary value. Potential risks involving this equipment include: the overstatement of the assets value on the balance sheet, the inclusion of nonexistent or impaired assets, and the improper application of depreciation methods of the assets. The main audit objectives regarding this equipment include verifying its existence and its proper valuation. Physically viewing the equipment is the initial step in determining its existence, but is not enough. Not only must the auditor have reasonable assurance that the stated equipment physically exists, but that it is in working condition and is used in the operations of RCC. Valuation of the equipment depends on the cost of the asset, less the accumulated depreciation. Reviewing the depreciation not only allows the auditor to verify which depreciation method RCC uses, but can also be used to gain a reasonable assurance that the depreciation is calculated properly. Assessing the Audit Risk As a relatively small, family-owned operation, internal controls involving sales are minimal, and with few employees, the segregation of duties is limited. Although the internal risk level appears to be high, testing the audit assertions and forming an audit plan lowers the risk of not detecting errors due to the weak internal controls. HEADING HERE Both the costs and risks of the audit are lowered if the auditor has adequate knowledge of the RCC. Gaining knowledge of the industry, applying audit assertions to the material assets of the company, and assessing the risk level based on the findings will be the major costs of the audit and require the most of the auditors time. The costs of the audit and determining the risks are not abnormally high, beyond the added cost of the specialist, which is minimal. The benefits of the initial audit of RCC will far outweigh the costs in future years. TAX Facts Our firm has been tasked with analyzing RCC's propositioned acquisition of 70 permitted cows for $70,000 and the current possession of 30 leases for summer pasturage which were acquired in1995 from the U.S. National Forest Service for $7,500. These federal permits are attractive in the long run since the monthly grazing fee is a mere $2 per animal unit per month, rather than the $10 per animal unit per month fee for private land. RCC is currently subletting the 30 leases to another rancher for $1.35 per animal unit per month. The firm is tasked to research the proper treatment of the proposed acquisition of 70 permitted cows and the 30 federal permits already in possession. RCC is also seeking research regarding how much of the purchase price can be capitalized for tax purposes and over what period of time RCC can recover these costs as tax deductions. Authorities Regarding the proper treatment of the grazing rights acquired through permit by the U.S. National Forest Service. Section 1.167(a) of the Income Tax Regulations provides for the amortization of intangible assets known to be of limited use for a period of length which can be estimated with reasonable accuracy. An intangible asset, the useful life which is not limited, is not subject to the allowance for depreciation (FIC, 1137). In the tax court case Shuffelbarger v. Commissioner, the court held that federal grazing permits were of indefinite duration and not assets exhausted through use or the passage of time (Shuffelbarger v. Commmissioner). The grounds for cancellation or revocation were wholly contingent and might never happen. There was reasonable certainty of renewal of the permit or continuation of the permit. In Ranching Co. v. Commissioner, petitioners were not entitled to amortization of state or federal land leases because it was not established that such leases were of a limited duration which could be estimated with reasonable accuracy. The lessee had the preferred right to renew the lease (Ranching Co. V. Commissioner). In a similar case, Kimble v. Stuart, the leases and permits were limited to definite terms on their faces without expressing an absolute right of renewal for additional terms; but there was no basis for assuming that the State of Arizona or the Forest Service would refuse to renew the leases and permit. The court held that there could be no allowance for amortization or depreciation because there was a lack of evidence as to any correct amortization period (Kimble v. Stuart). Congress enacted §197 effective for acquisitions after August 10, 1993. All "Section 197 Intangibles" must be amortized over 15 years. Section 197(d)(D) of the Internal Revenue Code recognizes permits granted by a government unit, but the firm does not believe §197 provides an exception applicable to RCC's disposition (FIC, 169). The 70 cows to be acquired would be classified as §1245 property, which includes livestock, irrespective of the use to which they are put or the purpose for which they are held. Analysis The firm believes that RCC will not be able to amortize $21,000 (70 X $300) of the proposed acquisition of 70 permits or the $7,500 expended for the 30 leases currently held. The purchase of 70 cows would be held in the Modified Accelerated Recovery System's (MACRS) 5 year (01.21) asset class and be depreciated accordingly. Depending on which portion of the year the depreciable tangible personal property are acquired, you ma Word Count: 4859 f:\12000 essays\business & economics (632)\Robert Reich and Sybolic Analysts.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Reich uses the term of "symbolic analysts" to describe what he feels one of the three main job classifications of the future will be. The symbolic analysts will be someone who is a problem identifier, a problem solver, or an innovator who can visualize new uses of existing technologies. This class of workers includes scientists, engineers, and other scientific or technical specialties as well as marketers, investors, some types of lawyers, developers and a wide variety of consultants. The symbolic analysts will have a high level of education, both in the classroom and on the job experience. Reich believes that this new, actually redefined, class of workers will be the best bet for job growth and success into the next century. Opportunities for job growth will remain rather high. This is a result of two factors, a slowing growth in population and the future retirement of the baby boomer generation (Reich, 203). It is not the number of jobs in the future that is the problem, its the quality of those jobs. On the whole, Reich identifies two trends in job quality. The number of mundane, manufacturing jobs will decrease as well as the number of in-person service jobs e.g. bank tellers, but growth in the number of symbolic analytical positions. The loss of repetitive manufacturing is primarily a cost saving plan of American corporations. Corporations seeking to lower their costs of labor move their large, low-skilled manufacturing to points all over the globe in attempt to find the lowest wages. Replacement of some in-person services is attributed to technological change. Examples of this cutting of numbers can be seen in the blossoming of automated teller machines, unmanned self service gas stations, and home shopping capabilities. The symbolic analyst, however, contains a commodity that is both valuable and irreplaceable. This is the human thinking and problem solving abilities that is becoming ever more important in international business. Specialized groups of problem identifiers and solvers will sprout all over the globe, selling their services to a wide variety of customers. This growth might not seem beneficial for America in the traditional sense, as analysts will work for foreign companies just as easily as American ones, but the intangible gains of knowledge and experience stay within our country. People cannot be shipped and marketed as easily as a new VCR. The interesting point of Reichs theory for the future is that it offers no easily visible solutions of raising the standard of living for those who reside in the United States. In fact, I believe his symbolic analyst will only enlarge the growing income inequality between the rich and poor. Unless you are benefited by a high education and superior thinking abilities, your potential to earn good money in the future is dark indeed. With fewer low skill jobs around, those who are not prepared will be scrapping to find enough work to get by. Meanwhile, the symbolic analyst, with respect to their abilities, could be raking in the dough. Reich suggests that the United States is in the best position to capture the growth of the symbolic analyst, allowing for the coming boom. The U.S. has the best university system on the globe. While most elementary education is still backward, there are also some schools which prepare young minds for their futures as analysts. The U.S. also has an advantage over developing countries in that the analyst has been here already for some time. There are specific zones of learning and innovation already present in our country that will take years to develop elsewhere. This gives the United States a jump-start heading into the next century. f:\12000 essays\business & economics (632)\Role of Government in Mixed Economies Such As Australia.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Role of Government in Mixed Economies Such As Australia What role do governments have in modern mixed economies such as Australia? Using appropriate indicators (macro economic aggregates) outline the present state of the economy. In what ways is the Commonwealth government using fiscal and monetary policies to influence the Australian economy? What are the main features of the government's micro economic policy? Why is the government concerned about microeconomic reform? Synopsis: The role of government in Australia today has less influence on the market than they did a decade ago. It function now is to provide a stable internal and external balance under which the market can function. This is achieved through the use of fiscal, monetary and microeconomic reform. Australia currently operates under a mixed economic system. This means that the government has partial control over the economy and has the ability to influence the markets. Recent moves by the government that shows the government's role in the economy to be shrinking includes the privatisation of government business enterprises (GBE) and deregulation of the financial market. The main roles that the Australian government plays today are to ensure: 1) The efficient and even distribution of income (though CSSB, tax) 2) Provide a limited range of goods and services (Aust post) 3) General economic management through macro and micro economic policies. In 96/97 the CAD fell to $20.9bn from the $27bn blowout during 95/96. This was largely due to a fall in domestic spending which lead to a slight rise in national savings. Inflation remained low and fell between the RBA's 2-3% target. This gave way to the RBA's 3 consecutive drops in interest rates to stimulate the economy. Economic growth has stabilised between 3-4%. Although this is a reasonable figure, a higher growth rate is required if unemployment is to fall from the 8.6% is has averaged for the past year. Overall economic performance has been reasonable but current figures show the problems with our external balance and unemployment will not be solved any time soon. Fiscal policy is the government's use of the Budget to achieve its economic management goals. This is done through revenue collection and government spending. In recent years there has been a shift away from the Keynesian view that fiscal policy is used to stabilise short-term fluctuations in demand. This refers to a contractionary stance during a boom period to dampen economy and an expansionary stance during a bust period to stimulate the economy. Current fiscal policies are aimed at the medium and long-term goals of resource allocation, income distribution and external balance. This is because fiscal policy is relatively inflexible and is adjusted on an annual basis. One of the government's objectives in using fiscal policy is to reduce the Public Sector Borrowing Requirement (PSBR). To do this the government has had a $3.9bn cut in discretionary spending during the 96/97 budget. This cut may be the first of several in a bid to achieve a budget surplus. One reason behind this goal is to maintain external stability. For the past decade (except for the late 80's boom) the public debt has been on a continual rise. This was largely due to a succession of budget deficits. The result of this was a large increase in net income as a component of the current account, which in turn became a burden on the next budget. A surplus budget can be used to pay of the public debt thereby easing interest obligations. At the same time a reduction in the deficit will increase national savings. By reducing the deficit, the government does not need as much national savings in order to finance the budget. This will leave a larger pool of savings to fund investment. Although a contractionary fiscal stance will increase public saving, they may decrease private savings. Cuts in government spending to programs aimed at increasing private savings (such as Austudy) have meant that the private sector must cover the costs, forgoing saving opportunities. This will mean a lower level of private savings but not enough to offset the increase in public saving. On the whole national saving increases. Due to the multiplier effect, a reduction in government spending will impact the level of economic activity. The recent cut in government spending has dampened aggregate demand. This in turn produced low levels of inflation and economic growth. By reducing the amount of government participation in the market, it hopes to achieve the 'crowding in' effect. This means that the private sector will invest in functions that the government once provided (CES facilities). Monetary policy is the raising or lowering of interest rates to dampen or stimulate the economy. It is concerned with internal balance (ie. economic activity, employment and price stability). Unlike fiscal policy, monetary policies influence the economy indirectly through changes in financial conditions. This follows the belief that the level of financial activity plays a major role in determining the level of economic activity. The main indicator of monetary policy stance is the level of short-term interest rates. The government is currently using monetary policy to boost the level of economic activity. By easing interest rates the private sector will be more inclined to borrow money for investment. Small businesses will expand and this should lead to an increase in employment opportunities and a decreasing unemployment rate. A fall in interest rates will also increase the level of spending in the economy. This is due to the increase in the availability of credit. A boost in spending increases aggregate demand followed by an increase in retail sales but will also fuel inflation. Interest rate drops in the latter half of the year has not had much effect on the economy. Economic growth slowed to 3%, investment dell from 17% to 10% between 94/95 and 95/96, profit growth fell from 16% to 3%, unemployment rose from 8.4% to 8.8%, the growth of retail sales has slowed and both business sentiment and consumer confidence has fallen. This poor performance may be attributed to the reduction of government spending during the 96/97 budget. Only inflation managed to drop to the RBA's target of 2-3% underlying inflation. New figures released in early March 97 show an increase in retail sales and economic activity. This may be a response to the drop in interest rates from the previous year. Microeconomic reforms (MER) are initiatives taken by the government to improve resource allocation and efficiency. By doing so they improve productivity, international competitiveness, economic efficiency and long-run economic growth. A growing economy provides an environment in which the success of MER is high. The government uses macroeconomic policies to provide this type of environment. There are three main objectives to MER, they are: 1) To raise the supply potential of the economy. This will lead to higher economic growth, domestic demand and living standards. 2) Reduction in interference with price signals in the labour and product markets to enhance economic efficiency, competition and lower inflationary pressures. 3) To facilitate the stabilisation of external debt and to reduce the demand for domestic savings without lowering living standards. The government currently aims to internationalise the domestic economy. Their aim is to promote greater competition by exposing businesses to the international market and to encourage innovation and flexibility. Tariff reforms are a part of this process. These programs are to reduce protection to industries that are deemed inefficient and to allocate funds to other causes. The Garnaut Report released in 1989 proposed that all tariffs should be gradually eliminated. This will allow enterprises to take advantage of economies of scale. There have been plans to provide long term solutions to the trade imbalance. The government now place emphases on producing manufactured tradeable that provide a more stable export base to replace the volatile commodity markets. Greater diversification of products and more productive rather than speculative capital inflow have also been emphasised. Before internationalising the economy, there must first be an efficient domestic market structure in Australia. MER has been introduced to the domestic economy to increase the international competitiveness of our industries and its workers. Fiscal reform seeks to reduce the budget deficit to 1 percent of GDP. To do this, tax reforms were introduced. These were aimed at increasing economic incentives and creating a better environment for business investment. GBEs were also targeted for their inefficiencies. The aim was to ensure cost effective production of goods and services and that prices charged reflected the cost of supply. It is estimated that a $9bn increase in GDP would occur if GBE inefficiencies were eliminated. Part of the Hilmer Report is based on reforming GBEs at a national level. The proposals included: - Placing GBEs under the Trade Practice Act. - Structural reform of public monopolies. - Regulation of pricing. - Competition neutrality between GBEs and the private sector pricing structure. These reforms are paying off with lowered costs, improved productivity, and improved returns but the reform process has been slow. Problems such as a low level of labour productivity and high domestic cost structure have seen labour market reform to be focusing on enterprise bargaining. This process allows for individual workplace agreements and wage increases are more in line with economic circumstances and productivity improvements. Enterprise bargaining is seen by the government as the key to labour productivity improvements. MER has had significant achievements in the economy. Significant improvements have been made in particular areas such as maintaining a highly skilled future workforce, and productivity improvements in the waterfront and shipping industry. There is a down side to MER. Job loss has risen as reforms are implemented; displaced workers usually lack the skills required for employment in other industries. This leads to a growth in the rate of structurally unemployed. Reforms will also increase inequalities in income distribution; workers relying on safety net wage rises will be disadvantaged to those who have formal agreements. The government is concerned about these factors but believe that MER was not designed to fix social issues. They believe its function is to improve productivity in key industries that will benefit the economy as a whole. In the 90's, the government's role in the economy is shrinking. Its main function is to provide a stable environment in which the market can function. To achieve this, the government uses a policy mix containing fiscal, monetary and MER which implemented in conjunction with one another will provide a platform where Australian firms can compete successfully in the international market. f:\12000 essays\business & economics (632)\Rough Dissertation Outline.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rough Dissertation Outline Introduction Chapter 1: Cather as Drama Critic in Lincoln Chapter 2: Cather as Editor: The celebrity world of muckraking journalism at McClures Chapter 3: Cather and Houghton Mifflin/Knopf.(tie in Song of the Lark) Chapter 4: The Highs and Lows of Celebrity: Pulitzer Prize & A Lost Lady Film Chapter 5: Cather & Steichen Photo Conclusion f:\12000 essays\business & economics (632)\Rudolph Christian Karl Diesel.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rudolph Christian Karl Diesel Rudolph Diesel was born on March 18, 1858 in Paris. On September 4, 1870 Rudolph's family moved to England. In late November they decided it would be better for Rudolph to continue his schooling in Germany so he moved there on his own and stayed with a young professor. The problems Rudolph was trying to solve were the noise, size and unreliability of the steam engine. he wanted to create something that superheated ammonia gas could take the place of steam in a steam engine. He wanted to enable much higher compression pressures to be used than was able with conventional steam engines. In this way he could make greater use of heat energy. Rudolph was 32 when he finally accomplished his goal of creating the first ever Diesel Engine. To create the Diesel engine which made Rudolph famous he had to take the original steam engine and give it exhaust valves water cooling for the cylinder head and barrel and a compressed air fuel-injection system to ensure that the liquid fuel was forced into the combustion space with sufficient pressure to overcome the air in the cylinder. This basic idea of how to go about creating the engine was modified and improved many times before finally prefected in 1896. To do this Rudolph had to have a great understanding of Thermodynamics. He had to know basic principles of engines and how they work. Rudolph got help from many people. Some of the people that helped him are Machine-fabric Augsburg, Gasmotoren-Fabric Deutz and Mannesmann-Werke. It took them six years to finish the Diesel Engine. It was important because it gave a new and easier way of using engines. It gave a way for large vehicles to transport goods safely. It is easier to make than the steam engine. All we did was benefit from the invention. If Rudolph had not invented the diesel engine my life would be quite different, for example there would not big trucks for delivering mass amounts of goods. It would be more complicated for stores and other companies to get goods. It also supplies jobs for many people. f:\12000 essays\business & economics (632)\Rudolph Diesel.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Rudolph Christian Karl Diesel Rudolph Diesel was born on March 18, 1858 in Paris. On September 4, 1870 Rudolph's family moved to England. In late November they decided it would be better for Rudolph to continue his schooling in Germany so he moved there on his own and stayed with a young professor. The problems Rudolph was trying to solve were the noise, size and unreliability of the steam engine. he wanted to create something that superheated ammonia gas could take the place of steam in a steam engine. He wanted to enable much higher compression pressures to be used than was able with conventional steam engines. In this way he could make greater use of heat energy. Rudolph was 32 when he finally accomplished his goal of creating the first ever Diesel Engine. To create the Diesel engine which made Rudolph famous he had to take the original steam engine and give it exhaust valves water cooling for the cylinder head and barrel and a compressed air fuel-injection system to ensure that the liquid fuel was forced into the combustion space with sufficient pressure to overcome the air in the cylinder. This basic idea of how to go about creating the engine was modified and improved many times before finally prefected in 1896. To do this Rudolph had to have a great understanding of Thermodynamics. He had to know basic principles of engines and how they work. Rudolph got help from many people. Some of the people that helped him are Machine-fabric Augsburg, Gasmotoren-Fabric Deutz and Mannesmann-Werke. It took them six years to finish the Diesel Engine. It was important because it gave a new and easier way of using engines. It gave a way for large vehicles to transport goods safely. It is easier to make than the steam engine. All we did was benefit from the invention. If Rudolph had not invented the diesel engine my life would be quite different, for example there would not big trucks for delivering mass amounts of goods. It would be more complicated for stores and other companies to get goods. It also supplies jobs for many people. f:\12000 essays\business & economics (632)\Russia Economic Transition.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Russia' Economic Transition In August of 1991, the collapse of the communist system in the USSR and it's neighboring republics occurred. Out of the smoke emerged fifteen new republics and a union known as the Commonwealth of Independent States. These new regimes faced formidable obstacles. The collapse brought massive inflation which in turn forced the economy into a spiraling decline and a state of almost worthless value. Many people were quick to point the finger at their communist past, and even more eager to lay blame. Traditional communist ideology was to "provide for every individual an equal amount of goods and services, thus creating a state of equality amongst the populous" (Leveler, 16). Many people felt as if their current hardships could be blamed on the communists and their economic policies, specifically their "Core-Periphery" plan. The communist sponsored "Core-Periphery" economic policy that was evident in Russia was quite simplistic in nature. The theory, traditionally used to describe inter-continental trading and production, was adapted for use in the Russian economic zones. The theory was as follows; Areas which surround the capital (core region), usually rich in one material or another, would be used for the extraction of raw materials. These materials would then be shipped back to the capital in order to be manufactured into goods. From there, the manufactured products would be shipped back to the surrounding regions (periphery region) for resale. The citizens of Russia were surviving on this system, but barely. The Core-Periphery policy was not efficient, nor effective, for usually a product needed on one side of the federation, was produced at the other end. Factors such as transportation costs and adequate use of human resources was very inefficient and cost-consuming. Strong influences from the world urged Russia to make the transition into the market-oriented economy. This seemed tempting, for the market-oriented economy preached individual wealth and prosperity. Seeing no better solution to their current economic woes, Russian policy-makers took the plunge. By 1995, 4 years since the beginning of the transition into a market- oriented economy, no satisfactory economic improvment had taken form. Productivity in many states such as Turkmenistan and Belarus continued to fall (Table 2), and inflation was still at high levels. Many new Russian capitalists in the regions chose to exploit what had already been exploited in the past; raw materials. Looking to make a fast income, these new Russian capitalists sold whatever they could get their hands on, for practically no cost at all (Co- Existence, 146). Expropriation of state property, shady deals, and corruption were rampant. Productivity in industries such as agriculture declined as farmers did not want to take care of their land (Co-Existence, 146). Nobody had money to buy their goods, so they questioned as to whether or not they should take the time to produce them. The economy was contracting and in turn, people were actually getting poorer. The newly separated states were yearning for economic growth and prosperity. This would hopefully bring stability and a much needed improvement in the standard of living as well as individual wealth. This however, has not been the case. Many of the breakaway republics have actually experienced considerable negative growth. Many of the republics made the transition to the market economy hoping to make the individual citizen wealthier. In many of the republics this did not actually take place. In 1995, all but 2 of the 15 countries saw their net exports per capita fall drastically. Lithuania, once with a net export per capita rating of 49.2, was experiencing one of -54.1 in 1995 (Table 1). On average the citizens now had less than before. Many countries began to realize that they were in many ways still dependent on so-called "mother Russia". The past Core-Periphery policy had made them heavily rely on internal domestic trade. Being nothing more than satellite states in the centrally planned economy, these countries were traditionally used for the extraction of materials or the production of a singular industry. Their economies were not diversified. Traditionally supplies had to be brought in, and this was still the case. Import statistics in the newly independent republics have seen a drastic rise in totals. In 1992, the Ukraine with a population of approximately 51 million people imported a total of 2.2 billion million dollars worth of goods (Table 1). In 1995 however, the Ukraine with a population less than what it had been in 1992, actually imported more; 5.6 billion dollars worth of goods (Table 1). This rise in imports was also evident in Georgia, Lithuania, and Uzbekistan (Table 1). For these countries, importing more than they are actually exporting is proving to be a tough economic obstacle to overcome. In order to import, they have had to borrow heavily from international sources. Without exports, they have been lacking sufficient funds to make these re-payments. Diversification was not happening rapidly enough to help them cope. Many feared that their debts will become so large, that no matter what diversification occurred, it will be too late, thus making is almost impossible to repay what they have borrowed. The economic transition occurring in Russia has also led to political strife. Diplomatic relations between many of the republics and the Russian nation have been drastically reduced, if not completely severed. Ukraine, and Georgia have officially laid out in their constitution that they will have no formal ties with their Soviet past (McLelland 108). The Ukraine was fortunate to border one of the only Soviet access points to a large body of water; the Black Sea. It was from this port that the former Soviet Union established one of it's larger naval divisions, known as the Black Sea Fleet. Consisting of over 1700 warships of various sizes (McLelland 63), this fleet was one of the most dreaded in the world. Aboard those ships, there were approximately 430 thousand employed operational personnel (McLelland 66). Indirectly, in areas such as food production, and maintenance staff at the shipyards, there were approximately 15 thousand people employed (McLelland 66). When the dissolution occurred, the Russian government declared that the Black Sea would fall under its permanent control. To the newly formed Republic of Ukraine, this was very alarming. To lose the Black Sea would mean to lose all the jobs that were directly or indirectly associated with it. Knowing that the upcoming years may be harsh in terms of economics, the Ukraine was not readily willing to accept a sharp blow to it's employed work force. The Ukraine already had an unemployment rate of 7% (McLelland 24), and this was straining the limited social safety nets. The last thing the Ukraine was prepared to do was pay out more to it's people without getting anything in return. The Ukrainians were yearning for a future free of any Russian grip. The Russians, on the other hand, were still deeply in favour of upholding their Tsarist ancestors conquestial territorial gains. Ultimatums were sent back and forth between Moscow and the Ukraine. Neither side was willing to budge. Finally Russia backed down, and control was left to the Ukraine. Nevertheless, during that period of stalemate, Russo-Ukrainian relations, diplomatic and more importantly economic, suffered a great lose. Slander and many outcries of corruption had been directed at many of the policy makers in both countries. Trade between the two nations has also dropped to an all time low. Out of Russia's total exports, only a meager 1.7% gets shipped to the Ukraine (Dart, 117). In these harsh times of economic transition in the region, one would expect that the two countries would be more willing to co-operate for the goal of greater good. The Russian republic has also seen it's fair share of strife; internally. Harsh economic times, and less than admirable results from the transition to the market oriented economy have paved the way for much political opposition. Communists, the former leaders of the Soviet Union, were one of the first political movements to wage war against the newly formed liberal government. Traditionally, communist ideology preached that "no citizen will be in any greater position of status or economic wealth that that of another citizen" (Perdues, 66), and that "all citizens shall live with ample food on the plate, and little worries as to life" (Perdues, 93). For the communists the time of economic hardship was heaven sent. Capitalizing on the citizens disgust in the shape of the country would be no challenge. This has led to the communists waging wars inside of the Russian parliamentary house. The Duma as it is known, is where most legislation and debate over domestic and foreign policy goes on. It is in this institution that the Communists have on numerous occasions attempted to gather support to impeach the liberal government. The Communists' goal: dissolution of the current government, and establishment of the old. Instead of attempting to reform and fine tune the new economic policies, they wished to return to policies more consistant with the Communist ideology. The Communists are not alone. In Russia itself, there has been a spawning of over 12 new political parties (Co-Existence, 147) that pose threats to the current government's stability. Amongst those parties, over 86% of the individuals do not approve of the market-place economy (Co-Existence, 149). Though Russia is constantly hindered by economic downfall in many aspects, that is not to say that all is bad . Some of the new countries who have embarked on the long road to growth, have in fact showed signs of improvement. Many of them have realized that diversification is needed desperately. Both Uzbekistan and Georgia were traditionally used as resource extraction states in the Core-Periphery economic plan of the centrally planned economy. Since the establishment of independence, Uzebekistan now promotes a large degree of exploration, and thus has a large oil and gas industry (Blij, 321) they have also experienced growth in their new found service sector. Georgia is also experiencing diversification. With its fertile lands, Georgia has harnessed it's agricultural sector into producing tabacco, various fruits, and even timber (Blij, 150). It also has a booming tourist industry because of it's warm climate and scenic beauty (Blij, 150). Recent statistics show that in the year 1995, because of this diversification, countries such as Uzbekistan and Georgia have drastically improved their overall Gross Domestic Product when compared to statistics recorded in 1992. Uzbekistan had a rating in 1992 of -11.1% and Georgia had a whopping -45.6%. In 1995, the totals showed signs of great improvement; both at -5.0% (Table 2). Contraction was still occuring, but at a slower rate. This in turn provided some hope. There was even a larger increase in the country of Armenia where the 1992 statistic for GDP was -52.4%, and in 1995, it had improved to a +5.0% (Table 2). The question of economic coexistance between Russia and its former republics still remains a mystery. There are many stronger, much more controversial issues in Russia's republics, when it comes to the issue of economics, independance, and growth. Many of the citiznes in the breakaway republics are not eager to have peace and open relations with their russian counterparts. The republics have yearned for independance for sometime now. Russian Census data showed the majority (60 to 80 percent) of the ethnic populations in Russia itself have supported movements for more autonomy. The root of the turnaround in opinion from supporting the federation to wanting soverign nation states, has been caused by one simple reason; nationalism. Oppressed for many years, culturally speaking, the republics wanted to bring rise to their ethnic beliefs and values. The intelligentsia, long considered instigators threatening the Russian Federation, have been primarily concerned with cultural objectives, such as defending the use of national languages or controlling the local educational system, to ensure that history is taught from the perspective of indigenous peoples (Drobizheva, 2). There is a direct relationship between identity and peace. In an oppressed society, ethnicity assumes a stronger role, however, when democracy and ethnicity are balanced, political stability is possible. As a result of a lack of democratic institutions and means for dialogue, the former Union's inhabitants were increasingly identifying themselves as members of ethnic groups rather than as citizens of the Russian Federation. Many of the breakway republics are filled with ethnic russians; Kazakhstan 41%, Lithuania 8%, and the Ukraine 21% (Wells, 31). Hatred and distrust of these Russians is infact growing. This is especially true when Russians are in the minority, as in the republic of, for example, where Russians comprise 30 percent of the population (Drobizheva, 2). In such circumstances, many perceieve the Russians as developing a "hyperidentity," characterized by a low degree of tolerance for others and a feeling of being threatened (Drobizheva, 3). Many of these Russians tend to consider themselves members of a higher ethnic group whose rights are above others (Drobizheva, 3). This has fueled mch anger towards the Russians, and in many regions the Russians are now being alienated. Due to past abuse of rnatural and human resources, opression of fundamental rights such thought, voice, and opinion, has led to a severe feeling of disgust towards the Russians, and more importantly distrust. In Short, the market economy did not bring any good to Russia immediately following its implementation. That is not to say however, that growth and prosperity will not occur in Russia and it's former states. Statistics as recent as 1995 have shown that since 1992, on average, there has been an upward trend. Overcoming the obstacle of the core-periphery based economy that was imbedded in the Russian culture, and the ideology aswell, has proven to be no easy task. Relying on imports has taken its toll on many of the nations. To combat this, the republics must build their own production base, and produce goods domestically. Diversification will mean continued growth, and who is to say that the newly sperated republics and Russia itself can not join forces in an effort to produce one large core zone, with the world as it's periphery. As the nations utilizing the market driven economy continue to increase and reap it's benefits, it was only a matter of time before the inefficeint bankrupt communist system would have to topple. The key to success in the region is not to expect too much too soon. Ultimately everything must start somewhere, and in today's fast paced, market oriented global economy, so too must the newborn Russian capitalist baby. WORKS CITED Drobizheva, Leokadia. Democratization and Nationalism in the Russian Federation. Moscow:Russian Academy of Sciences, 1995 Mclelland, Kelter. Russia At It's Peak. New York:Puffin, 1995 Russia And The Republics. Co-Existence. 1994-1995 Edition. Leveler, Eisen. Crash and Burn. London:Earl Of Johnstonson, 1995 Wells, Michael. Harsh Economic Transition. New York:The Regency, 1995 Blij, Muller. Geography; Realms Regions and Concepts. New York:Wiley And Sons. Eighth Edition Perdues, Gregory. The Red Menace?. Chicago:Bantam, 1995 Dart, Simon. A Seat At The Global Table. London:Willamson, 1996 f:\12000 essays\business & economics (632)\Russian Reform and Economics The Last Quarter of the 20th Ce.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Russian Reform and Economics: The Last Quarter of the 20th Century Outline Thesis: As the reformation of the USSR was becoming a reality, Russia's economy was crumbling beneath it. Russia began its economic challenge of perestroika in the 1980's. The Russian people wanted economic security and freedom, while the government was trying to obtain democracy. The previous management styles needed to be changed along with the way that most businesses in Russia operated. I. Reformation of USSR A. The change from communism to democracy. B. The change in government has had a great effect on the Russian people and workers. C. The reformation left the Russian economy upside down. II. Post-Reform economy versus Pre-Reform economy. A. There were many steps in the reformation of the economy. B. What are some of the effects of a reforming economy? C. There are many changes that are still needed in order for the Russian economy to grow. III. What will be the future of Russia's Economy? Main Body As the reformation of the USSR was becoming a reality, Russia's economy was crumbling beneath it. Russia began its economic challenge of perestroika in the 1980's. The Russian people wanted economic security and freedom, while the government was trying to obtain democracy. The previous management styles needed to be changed along with the way that most businesses in Russia operated. The Russian Federation consists of 17,075,400 square km, which is roughly 76.2 percent of the former USSR, and covers about 12 percent of the earth's land surface. The Russian Federation's population in 1991 was 147.3 million (Smith, A., 7). During the 1980's the Russian government started a reformation process called "perestroika," meaning restructuring (Aganbegyan, 1). Perestroika signifies qualitative changes and transformation in the government and in the economy. The four stages of perestroika are the "Preliminary stage (March 1985-February 1986)," the "Stabilizing stage (March 1986 - January 1987)," the "Expansive stage (January - November 1987)," and the "Regrouping stage (November 1987 onwards)" (Hill & Dellenbrant, 140). The government also identified two other processes. "Glasnost," which means openness, supported the strong economic reform (Aganbegyan, 1; Hill & Dellenbrant, 54). The acceleration of economic reform was called "uskorenie" (Aganbegyan, 1). Many changes took place during the years contained in each of the stages of perestroika. This changes ranged from government policies and structure to industrial production procedures to economic policies. The major change came in 1991 with the breakup of USSR. This freed the individual states and allowed them to become independent countries. All of these new countries went through radical government changes. Many of them, including Russia, chose to implement democracy. This change from a central military based structure into democracy effected all of the former soviet states' centralized economic departments. The assets were owned by the people and were distributed by the state during the communist reign in Russia. All of the resources were also distributed by the state for the betterment of the people. The government ran all state budgeted enterprises. All of the private enterprises, that marketed consumer goods, were taxed by the government and were also closely regulated. Before the democratic government, Russian workers received the same pay whether they worked hard or not, causing wages to be low and work conditions to be very poor. Russian workers would steal from the government in order to supplement their low wages. The Russian theory was that people were motivated by their collective interests. This proved to be very wrong. The actual growth for national income in 1987 was 1.6 percent less than what the government had predicted (Hill & Dellenbrant, 106). With all of the changes going on in each of the stages of perestroika there was a lot of political, bureaucratic, managerial, and intellectual opposition to what the leaders were establishing. This goes to show that people will always resist change. Perestroika identified many problems with the existing government, economics, and living conditions of the people. The lack of overall government regulations like unemployment insurance, a decent taxation system, and a centralized market caused many of the conditions. Another problem was the lack of legal infrastructure and protected property rights. The old factories in Russia couldn't keep up with the new technology of the Information Age. In 1987 Russia had less than 200,000 computers compared to the United States' 25,000,000 (Smith, H., 239). Innovation in Russia was looked at as a disruption of the flow of production even though technological modernization was needed badly. The idea of quantity overruled quality in most of the factories. Many pieces of machinery were built but not the parts to replace broken ones, millions of shoes produced in the odd sizes, and exploding TV's were common place under this idea. Russia had a total economic collapse in 1990-1991 causing total imports to fall under 1988's 135.9 billion roubles and exports down from 1988's 102.5 billion roubles (Smith, A., 199-200). Russia exported 76 percent of USSR's total exports and imported 68.4 percent (204). In 1988, Russia's produced 569 million tons of oil, 590 million cubic meters of natural gas, and 425 million tons of coal (206). Industrial output was down 13 percent in the first quarter of 1992 (Smith, A., 178). National income was down 14 percent and retail prices were up to six times the previous prices (178). 13 percent of the industry was subsidized to make up for operating losses (Smith, H., 238). There was many reasons for the economic growth rate falloff including centralized price determination, centralized allocation of resources and products, to many exchange rates, hard currency problems, and retention quotas. Glasnost revealed many of the problems dealing with issues in the society and the peoples' living conditions. The people of Russia had very little income and very little food. The food supply was very limited and caused the government to resort to rationing. The lack of food caused many health problems for the people. The outcome of Russia's problems are based on the decisions and policies taken in the first steps of perestroika. 1988 to 1990 was the transition phase for the Russian government and economy. During this time Russian leaders were forecasting a full recovery from the economic collapse by the year 2000 (Colton & Legvold, 70). Russian leaders started changing the government from the top down. In the preliminary phase they changed the highest levels of the administration. In the stabilizing stage change was in the lower levels and was had an emphasis on politics instead of the economy. 563 of 965 party members were replaced between March 1985 and August 1988 (Hill & Dellenbrant, 144). In the expansive stage changes brought about a wider democracy, decentralization in politics and the economy, vertical and horizontal reform, electoral reform, and the rights of information act. The electoral voting system began experimentation during June 1988 (Hill & Dellenbrant, 101). Reform brought about the allowance of protesting government and political abuses. Other government regulations also needing reform were commercial and financial codes, the existing tax system, and private property rights. A policy in 1991 approved the establishment of a free market economy called the "Memorandum on the Economic Policy of the Russian Federation" (Smith, A., 177). This policy contained the removal of government constraints, privatization, and economic assistance from the west. Boris Yeltsin proceeded to create a real economic market system. The Russian government was pushing for the adoption of the International Monetary Fund among the new nations of the former USSR. Russia was attempting to change to one fixed exchange rate by July 1, 1992 (Smith, A., 191). The creation of a stabilization fund of $6 billion was to help price reform and stabilize the economy. Several major reform laws were passed between November 1986 and June 1987. The first was the "Law on Individual Labour Activity" in November 1986, "Formation of Cooperatives" between October 1986 and February 1987, and "Law on Cooperatives" in May 1988 (Hill & Dellenbrant, 93). The "Law on State Enterprises" passed in June 1987 allowed state enterprises more independence, profits, and investments by the government (93,98). A reform in the foreign trade system allowed for new joint ventures in Russia. Many of these joint ventures were between Russia and the United States. These joint ventures proved to be very difficult to operate at first. Cooperative enterprises were also started to help boost the economy. Many of these cooperatives were restaurants, bakeries, and repair shops were profits and member voting are equally shared. The cooperatives were modeled after the cooperatives established in Hungary. All cooperatives set their own prices based on demand not by the state pricing system. The future outlook of the cooperatives is that they should help to keep unemployment down during the reformation years. Many private enterprises were allowed to produce consumer goods and consumer services. The private enterprises were only allowed to hire workers if they were in the family. Most of the workers were required to use it as a second job to their existing state directed job. The goods produced by these private enterprises were mostly hand made items. Most services included repair type services like home repair, car repair, appliance repair, etc. The new private enterprises are looking to be very successful. Private farms have become more productive than the state run collective farms. President Gorbachev addressed the private enterprise managers "Be your own bosses, run your own businesses, do your own investments, keep your profits, and make your plants efficient" (Smith, H., 241). This gave independence and accountability to the industrial producers and other private enterprises. Gorbachev also stated that the use of uskorenie on science and technology would help to boost the economy (Smith, H., 178). Many of the positive outcomes of the economic reformation have helped to justify the process to the people and the administrators. Gorbachev promised that unemployment would not be an outcome of the new economic reform, while consumers are now able to choose imported or domestic goods in the newly created open economy. The Russian television programs now covered more and are becoming more exciting. They are covering international news, doing investigative type reports, and are even having phone-in programs on controversial topics. All of the new implementations are bringing in new technology and money. Some of the problems to the economic reformation have been the side effects and opposition to the reform. Most of the opposition has come from the political, bureaucratic, managerial, and intellectual sides of the government and industrial producers. There has been strong resistance to farm reform from several government leaders. One side effect of the reformation has been an unstable rouble, which has fluctuated from 70 roubles to $1.00 all the way to 230 roubles to $1.00 causing much chaos (Colton & Legvold, 57). There has been a large number of negative trends in trade and production (Colton & Legvold, 61). High inflation rates have resulted from fighting over control of the supply of credit and money amongst the former soviet states. Prices of consumer based products and services have tripled and then doubled within a very short period of time (Colton & Legvold, 55). All of these problems has pushed the actual implementation dates the 1990s. What will it take for Russia to end the slumping economy while trying to achieve a free market and democracy? Some economists have predicted that in order for Russia to stabilize its economy and achieve capital equality of European countries that an estimated $1.7 trillion dollars or $1.2 trillion invested at 7 percent or $571 billion per year was needed (Smith, A., 218). Works Cited Aganbegyan, Abel. The Economic Challenge of Perestroika. Bloomington, IN: Indiana UP, 1988. Pg 1,6,17-18 Colton, Timothy J. and Robert Legvold. After the Soviet Union: From Empire to Nations. New York: W.W. Norton, 1992. Pg 51,54-57,59-62,64-65,70,74,78 Hill, Ronald J. and Jan Ake Dellenbrant. Gorbachev and Perestroika: Towards a New Socialism. England: Edward Elgar, 1989. Pg 51,54-55,93-101,104-107,115,140- 142,144 Lawrence, Paul R. and Charalambos A. Vlachoutsicos. Behind the Factory Walls: Decision Making In Soviet and US Enterprises. Boston: Harvard Business SP, 1990. Pg 3-4,11,39,43,45-47 Smith, Alan. Russia and the World Economy: Problems of Integration. London: Routledge, 1993. Pg 1,7,177-178,187-188,191,199-200,204-206,218,221 Smith, Hedrick. The New Russians. New York: Random House, 1990. Pg 178,187,209, 220,236-242 f:\12000 essays\business & economics (632)\Russian Reform and Economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Russian Reform and Economics: The Last Quarter of the 20th Century Outline Thesis: As the reformation of the USSR was becoming a reality, Russia's economy was crumbling beneath it. Russia began its economic challenge of perestroika in the 1980's. The Russian people wanted economic security and freedom, while the government was trying to obtain democracy. The previous management styles needed to be changed along with the way that most businesses in Russia operated. I. Reformation of USSR A. The change from communism to democracy. B. The change in government has had a great effect on the Russian people and workers. C. The reformation left the Russian economy upside down. II. Post-Reform economy versus Pre-Reform economy. A. There were many steps in the reformation of the economy. B. What are some of the effects of a reforming economy? C. There are many changes that are still needed in order for the Russian economy to grow. III. What will be the future of Russia's Economy? Main Body As the reformation of the USSR was becoming a reality, Russia's economy was crumbling beneath it. Russia began its economic challenge of perestroika in the 1980's. The Russian people wanted economic security and freedom, while the government was trying to obtain democracy. The previous management styles needed to be changed along with the way that most businesses in Russia operated. The Russian Federation consists of 17,075,400 square km, which is roughly 76.2 percent of the former USSR, and covers about 12 percent of the earth's land surface. The Russian Federation's population in 1991 was 147.3 million (Smith, A., 7). During the 1980's the Russian government started a reformation process called "perestroika," meaning restructuring (Aganbegyan, 1). Perestroika signifies qualitative changes and transformation in the government and in the economy. The four stages of perestroika are the "Preliminary stage (March 1985- February 1986)," the "Stabilizing stage (March 1986 - January 1987)," the "Expansive stage (January - November 1987)," and the "Regrouping stage (November 1987 onwards)" (Hill & Dellenbrant, 140). The government also identified two other processes. "Glasnost," which means openness, supported the strong economic reform (Aganbegyan, 1; Hill & Dellenbrant, 54). The acceleration of economic reform was called "uskorenie" (Aganbegyan, 1). Many changes took place during the years contained in each of the stages of perestroika. This changes ranged from government policies and structure to industrial production procedures to economic policies. The major change came in 1991 with the breakup of USSR. This freed the individual states and allowed them to become independent countries. All of these new countries went through radical government changes. Many of them, including Russia, chose to implement democracy. This change from a central military based structure into democracy effected all of the former soviet states' centralized economic departments. The assets were owned by the people and were distributed by the state during the communist reign in Russia. All of the resources were also distributed by the state for the betterment of the people. The government ran all state budgeted enterprises. All of the private enterprises, that marketed consumer goods, were taxed by the government and were also closely regulated. Before the democratic government, Russian workers received the same pay whether they worked hard or not, causing wages to be low and work conditions to be very poor. Russian workers would steal from the government in order to supplement their low wages. The Russian theory was that people were motivated by their collective interests. This proved to be very wrong. The actual growth for national income in 1987 was 1.6 percent less than what the government had predicted (Hill & Dellenbrant, 106). With all of the changes going on in each of the stages of perestroika there was a lot of political, bureaucratic, managerial, and intellectual opposition to what the leaders were establishing. This goes to show that people will always resist change. Perestroika identified many problems with the existing government, economics, and living conditions of the people. The lack of overall government regulations like unemployment insurance, a decent taxation system, and a centralized market caused many of the conditions. Another problem was the lack of legal infrastructure and protected property rights. The old factories in Russia couldn't keep up with the new technology of the Information Age. In 1987 Russia had less than 200,000 computers compared to the United States' 25,000,000 (Smith, H., 239). Innovation in Russia was looked at as a disruption of the flow of production even though technological modernization was needed badly. The idea of quantity overruled quality in most of the factories. Many pieces of machinery were built but not the parts to replace broken ones, millions of shoes produced in the odd sizes, and exploding TV's were common place under this idea. Russia had a total economic collapse in 1990-1991 causing total imports to fall under 1988's 135.9 billion roubles and exports down from 1988's 102.5 billion roubles (Smith, A., 199-200). Russia exported 76 percent of USSR's total exports and imported 68.4 percent (204). In 1988, Russia's produced 569 million tons of oil, 590 million cubic meters of natural gas, and 425 million tons of coal (206). Industrial output was down 13 percent in the first quarter of 1992 (Smith, A., 178). National income was down 14 percent and retail prices were up to six times the previous prices (178). 13 percent of the industry was subsidized to make up for operating losses (Smith, H., 238). There was many reasons for the economic growth rate falloff including centralized price determination, centralized allocation of resources and products, to many exchange rates, hard currency problems, and retention quotas. Glasnost revealed many of the problems dealing with issues in the society and the peoples' living conditions. The people of Russia had very little income and very little food. The food supply was very limited and caused the government to resort to rationing. The lack of food caused many health problems for the people. The outcome of Russia's problems are based on the decisions and policies taken in the first steps of perestroika. 1988 to 1990 was the transition phase for the Russian government and economy. During this time Russian leaders were forecasting a full recovery from the economic collapse by the year 2000 (Colton & Legvold, 70). Russian leaders started changing the government from the top down. In the preliminary phase they changed the highest levels of the administration. In the stabilizing stage change was in the lower levels and was had an emphasis on politics instead of the economy. 563 of 965 party members were replaced between March 1985 and August 1988 (Hill & Dellenbrant, 144). In the expansive stage changes brought about a wider democracy, decentralization in politics and the economy, vertical and horizontal reform, electoral reform, and the rights of information act. The electoral voting system began experimentation during June 1988 (Hill & Dellenbrant, 101). Reform brought about the allowance of protesting government and political abuses. Other government regulations also needing reform were commercial and financial codes, the existing tax system, and private property rights. A policy in 1991 approved the establishment of a free market economy called the "Memorandum on the Economic Policy of the Russian Federation" (Smith, A., 177). This policy contained the removal of government constraints, privatization, and economic assistance from the west. Boris Yeltsin proceeded to create a real economic market system. The Russian government was pushing for the adoption of the International Monetary Fund among the new nations of the former USSR. Russia was attempting to change to one fixed exchange rate by July 1, 1992 (Smith, A., 191). The creation of a stabilization fund of $6 billion was to help price reform and stabilize the economy. Several major reform laws were passed between November 1986 and June 1987. The first was the "Law on Individual Labour Activity" in November 1986, "Formation of Cooperatives" between October 1986 and February 1987, and "Law on Cooperatives" in May 1988 (Hill & Dellenbrant, 93). The "Law on State Enterprises" passed in June 1987 allowed state enterprises more independence, profits, and investments by the government (93,98). A reform in the foreign trade system allowed for new joint ventures in Russia. Many of these joint ventures were between Russia and the United States. These joint ventures proved to be very difficult to operate at first. Cooperative enterprises were also started to help boost the economy. Many of these cooperatives were restaurants, bakeries, and repair shops were profits and member voting are equally shared. The cooperatives were modeled after the cooperatives established in Hungary. All cooperatives set their own prices based on demand not by the state pricing system. The future outlook of the cooperatives is that they should help to keep unemployment down during the reformation years. Many private enterprises were allowed to produce consumer goods and consumer services. The private enterprises were only allowed to hire workers if they were in the family. Most of the workers were required to use it as a second job to their existing state directed job. The goods produced by these private enterprises were mostly hand made items. Most services included repair type services like home repair, car repair, appliance repair, etc. The new private enterprises are looking to be very successful. Private farms have become more productive than the state run collective farms. President Gorbachev addressed the private enterprise managers "Be your own bosses, run your own businesses, do your own investments, keep your profits, and make your plants efficient" (Smith, H., 241). This gave independence and accountability to the industrial producers and other private enterprises. Gorbachev also stated that the use of uskorenie on science and technology would help to boost the economy (Smith, H., 178). Many of the positive outcomes of the economic reformation have helped to justify the process to the people and the administrators. Gorbachev promised that unemployment would not be an outcome of the new economic reform, while consumers are now able to choose imported or domestic goods in the newly created open economy. The Russian television programs now covered more and are becoming more exciting. They are covering international news, doing investigative type reports, and are even having phone-in programs on controversial topics. All of the new implementations are bringing in new technology and money. Some of the problems to the economic reformation have been the side effects and opposition to the reform. Most of the opposition has come from the political, bureaucratic, managerial, and intellectual sides of the government and industrial producers. There has been strong resistance to farm reform from several government leaders. One side effect of the reformation has been an unstable rouble, which has fluctuated from 70 roubles to $1.00 all the way to 230 roubles to $1.00 causing much chaos (Colton & Legvold, 57). There has been a large number of negative trends in trade and production (Colton & Legvold, 61). High inflation rates have resulted from fighting over control of the supply of credit and money amongst the former soviet states. Prices of consumer based products and services have tripled and then doubled within a very short period of time (Colton & Legvold, 55). All of these problems has pushed the actual implementation dates the 1990s. What will it take for Russia to end the slumping economy while trying to achieve a free market and democracy? Some economists have predicted that in order for Russia to stabilize its economy and achieve capital equality of European countries that an estimated $1.7 trillion dollars or $1.2 trillion invested at 7 percent or $571 billion per year was needed (Smith, A., 218). Works Cited Aganbegyan, Abel. The Economic Challenge of Perestroika. Bloomington, IN: Indiana UP, 1988. Pg 1,6,17-18 Colton, Timothy J. and Robert Legvold. After the Soviet Union: From Empire to Nations. New York: W.W. Norton, 1992. Pg 51,54-57,59-62,64-65,70,74,78 Hill, Ronald J. and Jan Ake Dellenbrant. Gorbachev and Perestroika: Towards a New Socialism. England: Edward Elgar, 1989. Pg 51,54-55,93-101,104- 107,115,140- 142,144 Lawrence, Paul R. and Charalambos A. Vlachoutsicos. Behind the Factory Walls: Decision Making In Soviet and US Enterprises. Boston: Harvard Business SP, 1990. Pg 3-4,11,39,43,45-47 Smith, Alan. Russia and the World Economy: Problems of Integration. London: Routledge, 1993. Pg 1,7,177-178,187-188,191,199-200,204-206,218,221 Smith, Hedrick. The New Russians. New York: Random House, 1990. Pg 178,187,209, 220,236-242 f:\12000 essays\business & economics (632)\Satellites.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Satellites Satellites orbit the earth doing our bidding in ways that enrich the lives of almost all of us. Through electronic eyes from hundreds of miles overhead, they lead prospectors to mineral deposits invisble on earth's surface. Relaying communications at the speed of light, they shrink the planet until its most distant people are only a split second apart. They beam world weather to our living room TV and guide ships through storms. Swooping low over areas of possible hostility, spies in the sky maintain a surveillance that helps keep peace in a volatile world. How many objects, exaclty, are orbiting out there? Today's count is 4,914. The satellites begin with a launch, which in the U.S. takes place at Cape Canaveral in Florida, NASA's Wallops Flight Center in Virginia, or, for polar orbiters, Vandenberg Air Force Base in California. One satellite in 20 is crippled by the jolt of lift-off, or dies in the inferno of a defective rocket blast, or is thrust into improper orbit. A few simply vanish into the immensity of space. When a satellite emerges from the rocket's protective shroud, radiotelemety regularly reports on its health to round-the-clock crews of ground controllers. They watch over the temperatures and voltages of the craft's electronic nervous system and other vital "organs", always critical with machines whose sunward side may be 300 degress hotter than the shaded part. Once a satellite achieves orbit--that delicate condition in which the pull of earth's gravity is matched by the outward fling of the crafts speed--subtle pressures make it go astray. Solar flares make the satellite go out of orbit. Wisps of outer atmosphere drag its speed. Like strands of spiderweb, gravity feilds of the earth, moon, and sun tug at the orbiting spacefarer. Even the sunshine's soft caress exerts a gentle nudge. Should a satellite begin to wander, ground crews fire small fuel jets that steer it back on course. This is done sparingly, for exhaustion of these gases ends a craft's useful career. Under such stresses, many satellites last 2 years. When death is only a second away, controllers may command the craft to jump into a high orbit, so it will move up away from earth, keeping orbital paths from becoming too cluttered. Others become ensnarled in the gravity web; slowly they are drawn into gravitational that serve as space graveyards. A satellite for communications would really be a great antenna tower, hundreds or even thousands of miles above the earth, capable of transmitting messages almost instantaneously across the oceans and continents. Soon after the launch of ATWS-6, "the Teacher in the sky", (a satellite designed to aid people) NASA ground controllers trained its antenna on Appalachia. There is brought evening college classes to schoolteachers whose isolation denied opportunity for advancement. The use of Satellites is growing rapidly and so is the different jobs for them. f:\12000 essays\business & economics (632)\Save the Owls!.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Preserve the Forests In agreement with Kim Stafford, who opposes the clear-cutting of old growth forests, I feel that it is necessary to preserve the profitable lumber in its natural state for future generations. Currently, the tons of lumber produced from the Pacific Northwest region of the United States are taken for granted, and most people do not realize that the forests will be destroyed within ten years at this rate of exploiting our natural resources. We must make loggers a profession of the past and divert those current ones into another sector in our society. The spotted owl is more than a *Darwinistic* survival of the fittest issue; it represents the direction of our only planet. In order to preserve the beauty of this planet, we must cease the clear-cutting of forests. All old growth forests have been around for multiple centuries and are cut down daily in a matter of hours in order to produce more buildings and houses in this already over-crowded world. If the rate at which we cut down trees is continued without any regulation, the forests will all be gone in ten years, so we should do mankind a favor and try to preserve what is left. If the old growth forests are gone, then they can never return because it takes over five generations to produce one and at the rate that the human population is increasing, there is not enough land to have a secure place for a new forest. If we realize that it is best for the human race to stop destroying the natural resources, then we must destroy, too, the existence of loggers all together. To do so, there must not be any new loggers, so all training potential loggers must be stopped. The current loggers must be diverted to another occupation. Perhaps if the public supported the notion of stopping clear-cutting, the government would be able to provide services to educate the loggers in a different field. Also, with public support, many companies will probably offer several programs for former loggers. No matter what we choose today, the loggers have seen their last Haley*s comet; they will all be gone with forests in ten years. When we stop the development and decrease the number of loggers, we will help save the spotted owl, a species that has greater importance than a mere animal towards the our species. It is a symbol of the general health of Mother Earth, a figure without which no living object can survive. If the cutting of forests at this rate remains constant, the spotted owls will disappear within the ten years along with the our forests. In order to regulate the logging industry to keep our trees intact, there must be public support for the idea. With that, the government would most likely be willing to provide educational services for the loggers who need to get new jobs. Sooner of later, this sacrifice of loggers will occur, and the latest will be in ten years. The spotted owl represents a major part of our natural resources. At this rate, that major part will disappear along with the spotted owl in a mere decade. f:\12000 essays\business & economics (632)\Senators Pain.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Tommie Porter English Com. 2 Sec. 19 Dr. Chichester 12/11/95 Paper 4 - Final Draft A Senator's Pain Most Californians know exactly what they were doing when the historical were read that acquitted the four LAPD officers, and sparked the civil unrest in Los Angeles. Anna Deavere Smith does an excellent job representing Los Angeles citizens in her theatrical piece entitled Twilight: Los Angeles 1992. Smith writes, "Every person I include in the book, and who I perform, has a presence that is much more important than the information they give" (Smith: xxiv). In this statement Smith tells the reader that the facts each character gives is not as important as his her presence, because anyone can give facts about an event. Smith wants the reader to pay close attention to the feelings expressed by each individual she interviewed, because feelings tell more about a person and an event than the facts. In Twilight: Los Angeles 1992 the monologue by Bill Bradley entitled "Application of the Law" contributes more to Smith's piece than does the monologue by Elaine Brown entitled "Ask Saddam Hussein," because when a Senator notices the reality of racism it seems authentic. Although both Bradley and Brown give similar information it is ironic that a white Senator showed more anger toward racism than the former Black Panther. When Senator Bradley begins telling his story his he points out how our society still has inequalities as he says, "I mean, you know, it's still... There are people who are, uh, who the law threats in different ways" (Smith: 214). The following statements Bradley makes during his interview shows his anger for racial differences. When Bradley informs the reader about an African-American Harvard Law School student who experienced unjust treatment by the police. Bradley's anger is expressed through his statement, as he says, "He pulls over. Police car pulls in front...behind...beside of him. Police jump out, guns, pull him out of the car, throw him to the floor, put a handcuff on him...All the while pointing a gun out at him" (Smith: 215). It is not fair that this African-American Law School student has to put up with racism just because his skin color and the "well-to-do" neighborhood he was driving through. Bradley's anger shows the reader that racism should not exist because our Constitution says, "all men are created equal." Bradley is an important character to Smith's theatrical piece because he is a white Senator who can help influence decision making. Bradley lets the reader know that he is doing all he can to make the "theory" of equality a reality for all races. Unlike Senator Bradley, Elain Brown's reality was growing up as a black woman in an "unequal" society. In Brown's interview she tries to convince young brothers to pick up the books instead of the guns. Brown a former Black Panther leader shows a personal sympathy for Jonathan Jackson, as she says, "I think that this idea of picking up the gun and going into the street without a plan and without any more rhyme or reason than rage is bizarre and so, uh...And it's foolish" (Smith: 228). Brown's contribution to Smith's theatrical piece is limited because she does not show the authentic anger like Senator Bradley. Even though both Senator Bill Bradley and former Black Panther leader Elaine Brown gave similar messages, their presence affects the reader in a different way. After reading Bradley's monologue, I felt elated and anger. When Bradley questioned the partner at the law firm as he ask, "What did the partner of the law firm do on Monday? Did the partner call the police commissioner?" (Smith: 216). When Bradley begins asking question he lets the reader know that he is also bother by racism. Yet in Brown's monologue racism is not the problem. Brown wants to convince the reader that guns are not worth his or her life. Brown tells the reader, "all one has to do is ask, to ask the Vietnamese or Saddam Hussein about the power...of the United States" and how they take down threats (Smith: 228). Brown wants young brothers to realizes how important their lives are to our society. In Twilight: Los Angeles 1992 when Anna Deavere Smith says, "Every person I include in the book, and who I perform, has a presence that is much more important than the information," Bill Bradley and Elaine Brown are just a few of the characters Smith is describing. Bill Bradley was a white Senator who people might have thought would have agreed with the actions of the LAPD but ironically he was angry. Senator Bradley's monologue contributes more to Smith's theatrical piece because of this irony. I wonder what our world would like if we had more Senator's like Bill Bradley? f:\12000 essays\business & economics (632)\Shoe Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Shoe Industry The shoe industry is one of the biggest moneymakers in the market, but it's facing many changes, rushes, and difficulties. The big power in the industry is Nike inc. which all the other companies are trying to be like. Some changes are the industry as a whole is moving there factories to the far east such as China. The reason for this is they are trying to save costs for producing there shoes by paying there workers less because they are in the far east. Nike and Reebok have already been in the east. The shoe industry not including Nike inc. is trying to make rushes to be number one, two, and three. Another rush the industry is making, is the rush for the deadline of sports shoes. In other words coming up with shoes for the sports that are in season. The difficulties the shoe industry has are making shoes that all people wear such as setting a style for both inner city people and suburb people. Another difficulty the shoe industry has is getting its stock value to rise again because all but Nike and Fila's stock has dropped. This is what the shoe industry is all about and the difficulties, problems, and advances it has. There are four major companies in the shoe industry. The dominant industry is Nike inc.. Then going down the line is Reebok, Fila, and Adidas. Nike being the superpower has been in front of all the other industries for many years. Right now Reebok is the closest company to Nike and is $2,459 behind in value in MIL. Nike's earnings in the last quarter leaped 24% which has pleased Wall Street investors. With such earnings Nike announced a 2-to-1 stock split, its second in many years. Nike and Reebok are far ahead than the other companies because there factories are already in the far east, and other companies are just starting to build them. With Nike's earnings so high it'll be very hard for any of the companies to take over the number one spot. Also, it'll be hard to get the people's support in there products because most people have faith in Nike. Reebok number two in the industry is facing many problems. First, there is friction between the management spots for Reebok. Second, Reebok is having difficulty finding sports stars to endorse there products. Finally, Reebok's stock has dropped and is still dropping. The reason for this is the people do not prefer the shoes in how they look and how comfortable they are. If Reebok's stock continues to drop don't be surprised if Fila takes the number two spot. Fila has been spectacular in the market in the last four years Fila has increased its profits and taken the number three spot from Adidas. There are a few causes for this smart management, popular endorsers, and shoes. The shoes I am talking about are the Grant Hill's. These shoes made everything happen for Fila including getting the support of people behind there product. Fila plans to launch another offensive so it can surpass Reebok in the market, this offensive will include new Grant Hill shoes and many others. Finally, there is Adidas who is in the hunt for its number three spot back. After losing its three spot Adidas launched there own offensive rising there stock from 2% to 5%. In there offensive Adidas signed such stars as John Starks and Jalen Rose to endorse there products. Even with this offensive Adidas will not be able to compete with Nike and Fila. There are two things that will have an effect on these companies in the future, changing tastes and new competitors. I feel if you are going to buy stock in any of these companies you should buy stock in Nike and Fila. My reasons for you to buy in Nike are many. First, its stock keeps on rising suffering very small losses at few times a year. Second, Nike has always done well in meeting the consumers wants and needs. Finally, Nike has the number one endorsers who bring in profits. Such endorsers are Michael Jordan, Deion Sanders, and Penny Hardaway. The reasons for you to buy stock in Fila are very persuading. First, Fila has jumped up in the market passing such big names as Adidas, and Converse not hesitating to look back. Second, Fila has rising stars to endorse there products such as Allen Iverson, Jamal Mashburn, Mike Powell, and Grant Hill. Finally, Fila's next offensive sounds to be successful and could raise Fila to number two in the market. My reasons for you not to buy stock in Reebok are very strong. First, Reebok has kept on falling in the market not being able to stop itself. Second, Reebok has not been able to meet its consumers needs and wants. Finally, Reebok's management has a conflict which is not very pleasing to investors. At last Adidas would not be wise to invest in for two reasons. First, Adidas is just starting to move there factories to the far east putting them behind the top two. Finally, Adidas has not produced a shoe that has broke through and given themselves a boost in profits and in the market. f:\12000 essays\business & economics (632)\Shooting the Hippo a book review.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ World Issues Book Review Shooting The Hippo by Linda McQuaig Linda McQuaig's most recent book, "Shooting the Hippo" is about the causes and results of the debt. It is a look at both the factual causes and the arguments which are merely presented to us through the various elements of the media. McQuaig delivers an insightful overview of the extensive media coverage which has bombarded us over the past few years. "With the excitement of a mystery writer, McQuaig tells the real story behind the debt." . This book explains the history of the deficit myth, and enables people such as myself who are not experienced in these types of problems to get to the heart of the arguments presented so frequently about our financial situation. I found her book an inspiration which will hopefully help us all to devote ourselves to the enormous challenge which we will face in the future. We are responsible to inform and educate ourselves, our friends, our families and neighbours in the difficult days ahead. To explain McQuaig's title I'll briefly describe the beginning of the "mystery." A baby hippo, born in a zoo, is to be shot because of recent government cutbacks which leave nothing to feed or care for the hippo. This image grabs the attention of the reader and leads to numerous other examples which McQuaig uses to break down the popular myths about the deficit. McQuaig, determined to expose one by one, several of the current myths about the state of the Canadian economy, backs up her arguments with interviews and publications. These include: a chief statistician at Statistics Canada who has been working on the statistics of social spending since the middle '60s; the man at Moody's bond rating service in New York who is in charge of setting the credit rating on our federal debt; and noted economists, among others. The book goes on in its investigation as to why the recession in Canada was the worst of the world's most powerful nations. It is noted that if there is a simple way to explain the reason for most of the recession then it will in turn account for most of the increase in the debt. McQuaig also presents a bit of history of banking, monetary systems, and the struggle of the conflicts between the rich minority and the rest of us. All of this is presented in a very readable and interesting manner. McQuaig asks an intriguing question to all of us. Are we prepared to see our social programs sacrificed in order to reduce the deficit? Our political figures would have us believe that there is quite simply no other option but to give them up, a view which McQuaig effectively destroys in the 285 pages of this book. In the end, McQuaig warns us not to let our achievements as a society be sacrificed in the name of deficit reduction. Her fear is that we, as a society will not be able to find the determination needed in order to succeed. Over the past few years it has been nearly impossible to open a newspaper without seeing an article on the deficit. The subject of the deficit has been terribly misunderstood, and it continues to be one of our largest problems. McQuaig delivers the message, which is consequently backed up by her interviews, that the deficit is not caused by social spending. Contrary to popular belief McQuaig argues that we are no where near hitting the "debt-wall". She delivers and backs up the argument that fighting the recession, rather than eliminating social programs, would do the most in the attempt to eliminate the deficit. McQuaig criticizes the media's uncanny ability to deliver only half the story, and in doing so points out that the media has created a negative image of spending on certain social programs. In reality, spending on social program has not contributed much at all to the increase in deficit. This is according to a study put out by Statistics Canada. McQuaig relates that Hideo Mimoto, chief of the social security section, who in fact wrote the study, shows that increases in social spending have done very little to nothing at all in terms of increasing the federal debt. The wrong suspects are being brought in for questioning. Unemployment insurance, which is portrayed so poorly in the media, has created only one percent of debt growth. In comparison one of the largest weights on the deficit was police, military and prison spending. McQuaig delivers the message that if people were really concerned about chipping away at the debt wall, they would be cutting back on police and prisons. McQuaig effectively presents arguments which give impressive evidence that we are continually being misled by the people in power. I believe this book has been an important step for me in considering the future of our country. It is my generation who will benefit from McQuaig's detective work. McQuaig delivers her findings and her opinions in a clear and concise manner. Her book is well written and is a refreshing change to the one sided arguments that are delivered by our corporate leaders. McQuaig effectively analyzed the problem of the deficit in a book that was easy to read because of its voice. At no point did I feel that McQuaig was speaking on an elevated level. She was truthful and if an opinion was voiced it was also proven. McQuaig delivers the problem as she sees it after all the misleading information delivered from others, has cleared away. She poses certain solutions, some of which are unrealistic, such as her suggestion for less police and military funding, and some of which make terrific sense. She points out that the "powers that be" are not interested in open debate, perhaps they fear they will be contradicted. In the end, I feel this a worthwhile piece of work, it has broadened my understanding of the deficit as well as my understanding that just because somebody holds the power doesn't mean that they are doing good. This book helped explain to me the history of the deficit, and enabled me to get to the heart of the arguments, without having to weed through a lot of high power terms, that usually through me for a loop. I have learned we are responsible to inform and educate ourselves, our friends, our families and neighbours on the road to a solid economical future. Bibliography 1. McQuaig, Linda. Shooting The Hippo. Toronto: Penguin Books Canada Ltd., 1995. 2. Stockley, Les. Http://www.wordplay.com:80/books/newreleases/shooting.html f:\12000 essays\business & economics (632)\Should Gambling Be Legalized.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Should Gambling Be Legalized? Over the past twenty or so years, great wealth and improved economic and social conditions have been promised to the communities that have embraced legalized gambling. However, with twenty years of experience it is time to look back and analyze whether this is true or not. It could easily be said that gambling is as American as apple pie. Gambling has shaped American history since its beginning. Lotteries were used by The First Continental Congress to help finance the Revolutionary war. Many of our founding fathers, such as Benjamin Franklin, Thomas Jefferson, and George Washington, have sponsored private lotteries. It has been said that "Our founding fathers were just numbers guys in wigs" At one time baseball would have seemed to be the American pastime. This is not so now. In recent years, the attendance at casinos has nearly doubled the attendance at all major league baseball games, with close to 130 million people visiting casinos every year.1 With so much money at stake, the average gambler does not stand a chance against this big business. The casinos go to every length to analyze what makes a gambler bet, stay longer, and loose as much money as possible. Gamblers who come to casinos with the intention of winning money are habitually disappointed. As casino crime lord, Meyer Lansky's universal gambling truth states; "Gamblers never win, the house never loses"2 Slot Machines and most table games allow players to make bets where the probability of winning is relatively high. Frequent wins are characterized by low payouts. These frequent wins encourage further gambles with low payouts. Frequent winning, low paying games are not the only way casinos get people to keep playing. Nothing less that psychological warfare is going on at casinos across the country. "The days of shaved dice, missing face cards and rigged roulette wheels are long gone. But the pursuit of profitability in the corporate era of gambling has turned the average casino into a financially hazardous place for betters"3 The casino's beliefs are all based on the fact that since the house has an advantage over the player, the longer the house can keep the player playing, the more money the house will make. The gambling industry spends millions each year to whether wider isles, fresher air, and back rests on the chairs at slot machines make a player stay longer.4 And why would the casino care if somebody is comfortable? Because if each better stays for just a few more minutes, it could mean millions for the casinos. Casinos have false ceilings with rooms above them where some people watch for cheats and swindlers. From these same vantage points, are other people with alternate jobs. They are hired to observe and study what situations encourage gamblers to play longer. And as stated before, the longer people play, the more money casinos receive. These tricks of the trade are not just directed at the comfort level of the players, but also at their subconscious. Adding a certain scent into the air can make slot players spend up to fifty percent more than average at times. When money is turned into chips, in the player's mind, it decreases it's value. When a gambler asks a dealer for change for a hundred dollar bill, the dealer is under orders to give the player the lowest denomination possible, in five dollar chips. The player would easily spend the twenty chips as pocket change. But a twenty-five dollar chip is much more likely to be saved or even cashed in. Colors are a very important part of the subconcience mind. Betters are easily drawn to bright red machines, but tire of them quickly. Many casinos now put bright red machines on the outside of isles. Inside the isles are the more calm cool blue and greens that seem to encourage the player to stay longer. Gamblers are at the mercy of the big business casinos. Most people do not fully realize how much they are controlled by institutions who have made a science of studying gamblers behavior at the gaming tables. It is a fact that the economic status of a gambler, usually determines the psychological meaning of gaming for him or her. "The higher one's income , the more one will tend to see gambling as entertainment or as a way to socialize with other people. Conversely, the lower one's income, the more gambling tends to be seen as an investment"5 With the poor who cannot afford such investments as the stock market or real estate, gambling is meant to be less as play and more as a sincere chance to transform their lives for the better. While the poor do not spend much more than gambling than middle income families, they do spend a much higher percentage of their income. Another disturbing situation in the gambling community is the changing percentage of women and young people who are becoming problem gamblers. At this time gambling is called "the fastest-growing teenage addiction, with the rate of pathological gambling among high-school and college-age youth about twice that of adults." In Atlantic City, the lure of gambling is so strong that over thirty thousand underage people are either thrown out, or stopped from entering the casino.6 Lobbyists for the gambling industry have made exorbitant claims about the benefits that states will receive from the legalization of gambling. Among the many claims made by lobbyists are the increase in jobs, millions in revenue from gambling taxes, and an overall better economy. On the surface these statements seem beneficial. But underneath lies a misconstrued group of half- truths that support the gambling industry. This is only because the studies that came up with these findings were funded entirely by companies that have interests in promoting gambling.7 There is a consistency in most of the stories the lobbyists for the gambling industry. They usually involve the myth that says that big spenders will spend money on local businesses and therefore boost the economy. This myth is false. In fact, most local economies are actually hurt by the existence of a casino. This is due to the actuality that the majority of the people to go to casinos are the people form the surrounding area. Instead of spending their expendable money in local stores on clothing or appliances, they gamble it away. So what the casino is really doing is recycling the money of the city and filtering out its profits. It is like running an engine to power a generator, to in turn power the engine; eventually it will run out. The reason such gambling Meccas as Las Vegas and Atlantic City are so successful is because they are tourist attractions. "The casino explosion elsewhere has helped , by simply whetting the appetite of a whole new generation of gamblers to try Las Vegas"8 The gambling industry has also taken advantage of people's indecision. They do this by stating that there is much potential demand for gambling, and without acting on it, casinos in neighboring communities and Indian reservations will open and take business away from them. They claim that casinos in nearby cities are presently reaping the benefits from a gambling based economy. Indecisive communities are told that by not acting, they are in fact losing money. Money that could be used to finance schools, police, and city services. So by forcing voters to make a quick decision, they are actually forcing them to open Pandora's box. There are two general ways in which the gambling industry encourages crime. The fact that gambling leads to crime has even been measured. In 1994 the national crime rate fell two percent, while in the thirty-one places that got new casinos the year before, saw a 7.7 percent increase in crime.9 The people that commit these crimes are not usually mobsters. "People who engage in crime to support their compulsive gambling behavior generally have no prior record of criminal behavior."10 Governments are creating environments where normal people, without criminal backgrounds, are being lured into activities that could lead them to commit serious crimes. The average compulsive gambler who resorts to crime to support his or her habit is someone with a good job, better than average intelligence, and had stable relationships. With state governments sending the subtle message of "gambling is OK", the public lowers its defenses against it. According to a national survey conducted by Harrah, a large casino company, "51 percent of American adults believe "casino entertainment is acceptable for everyone." Another 35 percent say that it is "acceptable for others but not for me"11 Some five percent of gamblers are compulsive, and to support their habit, some of these gamblers turn to crime. According to a 1992 report by the Minnesota state planning agency, about sixty percent of all pathological gamblers engage in crime to support their habit. Another 10 percent, go to jail or are on probation.12 Different crimes are committed by different ages of gamblers. Adults tend toward white collar crimes like writing bad checks, while teenagers are more prone to steal from their parents. The second way gambling effects crime is by attracting organized crime. Organized crime is probably not as prevalent on the surface of the gambling industry as it was in the forties, but it is still there. One of the claims made by gambling promoters, is that legal gambling shifts illegal gambling dollars into public fund. But, organized crime, by offering better odds and nontaxable payouts, has remained an active supplier of gambling products with its own niche in the market. The illegal gambling market is so enormous that its profits each year, surpass that of the top 100 American corporations combined.13 This includes IBM, all the automotive industries, and many more. To help gamblers pay for these billions lost, organized crime sets up loan sharks. These loan sharks together are a ten billion dollar a year business , with ninety percent of the earrings coming from gamblers.14 Casinos have been the financial savior of many Native American tribes in the past decade. Taking what they thought as their sovereign rights, which exempted them from the laws of the states, tribes began putting card rooms and bingo halls in their reservations. Before long many people were coming by the busload to play. Many tribes such as the Mashantucket Pequots, who are only 350 in number, began to seriously cash in on these casinos. The Pequots own the largest and most profitable casino in the western world, with an estimate income of 2.6 billion dollars.15 The incoming money from the casinos helps with the living conditions of the tribe. The members see huge benefits such as better health care, subsidized mortgages, scholarships, and of course jobs. With such benefits, there is bound to be some people who would like to be members of the tribe. People come to the tribe with forged documents in an attempt to become Indian but "you just can't leap over and become an instant Indian" says Rick Hill of the National Indian Gaming Association.16 However, in the long run, tribal casinos may not be a sustained source of economic benefit. In the future, Tribal casinos will face stiffer competition from the non-indian gambling industry, as well as from more tribal casinos. "The Indian people can't have things too long before the white man begins coveting them.17 People only have a certain amount of discretionary money. This is the extra money that they have to spend on items other than their monthly bills and necessities. When casinos are introduced into an economy, it tends to "Cannibalize" consumer dollars that wound go to other local businesses. If this money was instead diverted to the local economy, it would not only strengthen the local businesses, but it would greatly diminish the costs of caring for compulsive gamblers. In 1994, The Illinois Economic and Fiscal Commission reported on five locations who received new gambling operations. They found that "no community demonstrated any real identifiable increase in general merchandise sales. In specific locations there were actually indications of losses."18 According to one local in Joliet, the behavior of the gambling crowd consists of this: "they on the boat, get off the boat, get in the car and drive home."19 Not only do casinos divert money away from legitimate businesses, but they also steal it from other forms of gambling. The public has only so much money to spend solely on entertainment. Horse and dog racing have competed against Casinos and suffered in communities where they have been implemented. One of the single hardest hit businesses by the gambling industry is the restaurants around the casinos. Casinos offer an enormous amount of cheap food at the casinos to attempt to keep people inside. Many casinos have such specials as "Women eat free at 6:00" to cover the slower times of the day. The losers are the neighborhood restaurants, many of whom soon go out of business. In Atlantic city, the number of restaurants dropped from 243 to 146 between 1977 and 1987.20 As convenience gambling increases, not only do local businesses loose consumer dollars, but governments loose the sales taxes they would have received if citizens would have made these purchases. All of this adds to the drain on local government. Probably the most devastating consequences of the gambling industry are the hidden social costs imposed on the gamblers and on their families. Gambling is an addicting habit which should be controlled, but for the most part is not. Perhaps this is because widespread legalization of gambling is such a relatively new phenomenon that the long term effects have not been totally seen. The vast majority of citizens do not have a problem with gaming, but problem can be acquired. A study in Iowa showed that in 1989, only 1.7 percent of residents had a history of compulsive gambling. In 1995, four years after Iowa became the first state to admit riverboat gambling, the number of compulsive gamblers had jumped to 5.4 percent.21 This may be that some people had a tendency toward compulsive gambling but until it came to their community they did not have an opportunity to act upon this trait. It seems that when these people with inclination towards the addiction are allowed to gamble, their gambling problem comes to the surface. Compulsive gamblers will bet until nothing is left: savings, family assets, personal belongings-anything of value that may be pawned, sold, or borrowed against. They will borrow from co-workers, credit unions, family, and friends, but will rarely admit that it is for gambling. They may take personal loans and possibly drive themselves into bankruptcy. A good example of this is that in the past two years since gambling began in South Dakota, the state has experienced significant increases in chapter seven bankruptcies, and small claims filings.22 Personal debt is by far not the only problem for compulsive gamblers. In the same two years that bankruptcy increased in South Dakota, the number of divorces increased nearly six percent, a jump of nearly 500 percent over the 1 percent yearly increase in the three years preceding the introduction of about 80 casinos in the small town of Deadwood, and of thousands of electronic gambling machines throughout the state.23 Gambling often leads to other destructive behavior. Compulsive gamblers also have a much higher rate of auto accidents. Some people attribute many of these accidents to suicide attempts, another costly behavior of problem gamblers. On average, compulsive gamblers have suicide rates that are five to ten times higher than the rest of the population. To add to the victim list are the people who get hit by the cars of gamblers. Many problem gamblers have driven themselves so far into debt that they do not have any auto insurance to pay for the damage that they have done. Child abuse and neglect are high among the crimes that compulsive gamblers commit. While parents are in the casinos, their children are in the car parked outside. With numerous gamblers turning to alcohol to try to ease their pain, the number of child abuse cases goes upas well. There are many economic costs of compulsive gamblers as well. By combining costs produced by problem gamblers such as fraud, embezzlement, unpaid debts, bankruptcies, and increases in criminal justice expenses, large sums of money are found the cost of legalized gambling. In fact, some estimated to be between twenty and thirty thousand dollars for each gambler, with some estimates that go as high as 52 thousand. These figures when multiplied by the number of problem gamblers in a large state such as California, the total jumps to nearly 900 million dollars.24 It is a fact that the economic status of a gambler, usually determines the psychological meaning of gaming for him or her. "The higher one's income , the more one will tend to see gambling as entertainment or as a way to socialize with other people. Conversely, the lower one's income, the more gambling tends to be seen as an investment"25 With the poor who cannot afford such investments as the stock market or real estate, gambling is meant to be less as play and more as a sincere chance to transform their lives for the better. While the poor do not spend much more than gambling than middle income families, they do spend a much higher percentage of their income. Another disturbing situation in the gambling community is the changing percentage of women and young people who are becoming problem gamblers. At this time gambling is called "the fastest-growing teenage addiction, with the rate of pathological gambling among high-school and college-age youth about twice that of adults." In Atlantic City, the lure of gambling is so strong that over thirty thousand underage people are either thrown out, or stopped from entering the casino.26 A few years ago, the costs of counseling problem gamblers was relatively low. This was because relatively few states allotted much money for the treatment of them. With the number of compulsive gamblers increasing, the money for the treatment of gamblers will increase. At one time, most health insurance companies viewed compulsive gambling as a moral problem, and refused to pay for treatment. As the number of gamblers grow with the promotion of more state promoted gambling enterprises, there is likely to be even more lobbying pressure for increased government and insurance money for treatment and research. This will cumulatively increase the money that taxpayers will have to pay. After thorough examination of the gambling industry, we find that it is not in the best interest of anyone for numerous reasons. For starters, it is not good for the individual because the legalization of gambling is closely related with the increase of many compulsive gamblers. It is also unfavorable for the individual, because it will lead a person who would never commit a crime on their own, to steal to finance their habit. Gambling is also not very prudent for the families of gamblers. Many gamblers are also alcoholics who would beat their spouse and neglect or abuse their children. The community that the casino resides in is also hurt. Money that gambling was supposed to come, never came. And instead of tourists coming in to gamble the majority of gamblers came from the town itself. Money that could have been spent on goods from local stores was gambled away in the casinos. Finally the state and local governments lose on this deal. Compulsive gamblers cost the state an enormous amount of money each year, and with the number of problem gamblers growing with the casinos, this is a problem that will not go away. It is probably put best in the quote "once gambling starts, it does not slow down and there can be no standing in it's place for those who would stop it's spread"27 Bibliography Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) Annin, Peter, "Looking for a Peice of the Action," Newsweek (June 13, 1994), p. 44 Eichenwald, Kurt, "Fool's Gold in American Gambling," Newsweek (March 21, 1993) p.33 Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.36 Lester, David, Gambling Today, Thomas, (1989) Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.42 Sasuly, Richard, Bookies and Bettors, 200 years of Gambling, Holt, Rinehart and Winston, New York (1987) Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.52 Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.159 Weinstein, David and Lillian Deitch, The Impact of Legalized Gambling: The Socioeconomic Consequences and Off-Track Betting, Praeger, New York (1991) Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion-Dollar- A-Day Habit, Prentice-Hall, (1984) Endnotes 1. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.57 2. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion- Dollar-A-Day Habit, Prentice-Hall, (1984) p.54 3. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.48 4. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.49 5. Lester, David, Gambling Today, Thomas, (1989) p.37 6. Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.162 7. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.39 8. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.58 9. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.73 10. Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) p.97 11. Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.36 12. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.60 13. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion- Dollar-A-Day Habit, Prentice-Hall, (1984) p.42 14. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion- Dollar-A-Day Habit, Prentice-Hall, (1984) p.57 15. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.104 16. Annin, Peter, "Looking for a Peice of the Action," Newsweek (June 13, 1994), p. 44 17. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.110 18. Solotaroff, Ivan, "The Book on Gambling," Esquire (September 1995), p.175 19. Eichenwald, Kurt, "Fool's Gold in American Gambling," Newsweek (March 21, 1993) p.38 20. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.56 21. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.74 22. Hirshey, Gerri, "Gambling Nation," The New York Times Magazine (July 17, 1994) p.38 23. Popkin, James, "America's Gambling Craze," U.S. News and World Report (March 14, 1994), p.56 24. Abt, Vicki, James F. Smith, and Eugene Martin Christiansen, The Business of Risk, Commercial Gambling in Mainstream America, University Press of Kansas, Lawrence, (1986) p.45 25. Goodman, Robert, The Luck Business, The Devastating Consequences and Broken Promises of America's Gambling Explosion, Free Press, (1995) p.39 26. Winston, Stewart, Harriet Harris, Nation of Gamblers: America's Billion- Dollar-A-Day Habit, Prentice-Hall, (1984) p.33 27. Shapiro, Joseph P., "America's Gambling Fever," U.S. News and World Report (January 15, 1996), p.61 f:\12000 essays\business & economics (632)\Should our economy be run by a doctrine.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1646 Should our economy be run by a doctrine that was made popular by a group of French writers called physiocrats in the mid-1700s? This doctrine is called laissez-faire and it literally means to let or allow to do(The Family Education Network). It is a theory of economic policy which states that government generally should not interfere with decisions made in an open competitive market. These decisions include policies such as setting prices and wages. According to the doctrine of laissez-faire, workers are most productive and a nation's economy functions most efficiently when people can pursue their own economic interest freely. The economy of the United States is no where close to being a laissez-faire system. In fact, government spending and intervention in the economic sector has ballooned. According to the Federal Money Retriever, in 1998 alone, the government spent over $37,733,526,000 in agricultural commodities, loans, marketing, and stabilization. The role of government has grown to a point where the benefits of government intervention are far outweighed by the negative effects on the economy as a whole. One of the major areas in which the government intervenes is in the agricultural sector of the economy. The government has three ways it can intervene and help its producers. These ways include price policies, direct payments, and input policies. Price policies have the largest effect on producers. Tariffs, quotas, and taxes are just a few examples of price policies. While these policies bring revenue into the government, in the end they hurt consumers. Each of these policies raise the prices of both imported and native goods. They are designed to help stabilize prices and give the native producers a chance to compete with foreign goods. Under the doctrine of laissez-faire, the government would not interfere with prices and the native producers would be forced to lower their prices, giving the nation's citizens a better deal in the market. The use of taxes is one of the government's favorite ways to make its presence known in the economy. While this method seems blatantly obvious, many of the ways the government uses the money collected by taxation is not. Some of the money it takes is used to fund other programs designed to "protect" consumers and to "create" jobs. Because of the money taken away from the consumer through taxes, there is less money movement in the economy. This money movement is what creates jobs in the economy. "So, each person's money lost to taxes helps fail to create their part of a job" (Kaz). Direct payments are another way in which the government attempts to help its producers. Deficiency payments, diversion payments, disaster payments, and marketing loans are all types of direct payments. Deficiency payments are payments based on the difference between the legislatively set target price and the lower national average market price during a specified time. Diversion payments are payments made to farmers who voluntarily reduce their planted acreage of a program crop and devote the land to a conservation use. Disaster payments are payments made to a producer when a disaster, such as a flood or drought, occurs and the producer's crop is either destroyed or severely damaged. Marketing loans allow producers to repay nonrecourse loans at less than the announced loan rates whenever the world price or loan repayment rate for the commodity is less than the loan rate(Arthur & Mabbs-Zeno, 2). There are many different types of input payments implemented by the government. They range from below-market grazing fees and below-cost rural electrification to fertilizer and irrigation subsidies to loan interest rebates. These input policies are designed to give the nation's native producers an edge by making various commodities more accessible to them. Many of these input payment tactics are implemented to lower costs and maximize output for producers. These policies help the producers, but the consumers feel the draw-backs. The consumers are forced to pay for the policies. In a sense, the way the government is involved in the agricultural sector is a necessity. If these procedures and policies were not in place, the native producers would quickly go bankrupt. While the people are now forced to "pick up the bill" for these policies, it would be very difficult to completely dismantle the current system. If it were dismantled, the goods the producer produces would come at a much higher price to consumers, and yet government spending in the sector would decline. Of course, through taxes, consumers had already been paying to have lower priced goods. The government not only intervenes in the agricultural sector of the economy, it also intervenes in the business sector. The ways it can do this are innumerable, but some of them are strict safety and health regulations, tariffs, and subsidies and government loans (Ringer, 149-151). Politicians always try to make everyone "happy." Because of this, lobbying by special interest groups normally brings about stringent safety and health regulations. In this sense, the government is allowing itself to be manipulated by people who feel others should go along with their ideas. The use of tariffs is another way that government intervenes in the business sector. They help inefficient domestic producers by forcing consumers to pay unnecessarily high prices for imported goods. The use of tariffs forces people to pay higher prices for certain goods and thus resulting in less money the consumer has to spend on other goods and services. This results in less employment in the industries that produce such goods and services. The hidden reality is that a job protected by a government tariff is at the expense of a worker in another industry(Ringer, 150). Subsidies and government loans are another method of intervention for the government. In this method, money is taken from efficient producers and workers to keep inefficient producers in business. Consumers pay for this method in the form of high prices. "As Henry Hazlitt has noted, it is important that antiquated, inefficient companies die out so that new, efficient companies can grow faster; i.e., so capital and labor will find their way into more modern industries" (Ringer, 151). A country cannot grow if modernization and technological advances cannot be made because of an immobile work-force. Small and big businesses are guilty of inviting government intervention in the free market. They continually ask the government to step in and "protect" them. Small businesses ask for less regulation on small business and more regulation on big business. Fair-pricing laws are a way both large and small businesses keep the government involved and hurt the consumer. These laws keep prices high and hurt efficient competitors. Wage-and-price controls are another way government can intervene in the business sector of the economy. Of course, these controls never fully work It is impossible to put price restrictions on every product and service that exists in an economy. "The result is that producers will produce fewer of those products that are restricted, thus people will have more money available for other products, which in turns will cause the prices of the non-restricted products to rise faster than normal" (Ringer, 167). High wage levels are a compilation of minimum-wage laws and laws which force employers to negotiate with unions. By simple laws of supply and demand, if wages are forced up, businesses hire less people, thus increasing the unemployment level. Once again, government intervention has hurt those whom it was designed to protect. Price-fixing is a policy designed to help the "poor" and "needy" in the economy. In this policy, the price of a product is "fixed," or set at a level below the equilibrium point, so as to allow each consumer the ability to afford it. To be able to pull this off, the government must provide the producers with help in the form of subsidies in order for the producers to maintain the supply. This method is very expensive, and there are many cheaper alternative ways to help the "poor." Cash allowances to the needy would be a much cheaper way than trying to fix prices (Robbins, 112). The negative effects of government intervention in the economic sector outweigh the benefits of policies and methods implemented to help the consumer. These policies are found in both the agricultural and business sectors of the economy. On the agricultural side, these policies range from price policies to direct payments to input policies. On the business side, the government can intervene by implementing strict safety and health regulations, tariffs, and subsidies and government loans. While all of this policies seem to have beneficial short-term effects, they never have positive long-term effects. In the end, the government's spending and intervention in the economy is detrimental. So, should the government stay out of the economy and let it be run by the doctrine of laissez-faire, or is government intervention necessary to the survival of the economy? Many would argue that some intervention is necessary, but in a completely competitive market, there is no need for the government to intervene. works cited: Dommen, Arthur & Carl Mabbs-Zeno. 1989. Subsidy Equivalents: Yardsticks of Government Intervention in Agriculture for the GATT. United States Department of Agriculture: Washington D.C. Federal Money Retriever. 1998. U.S. Federal Funding Numbers/ By Subject Terms. "http://www.fedmoney.com/fs-subj2.html" Kaz. 1998. How the Government Spending Creates Jobs. "http://hotbot.lycos.com/director.asp?target=http%3A%2F%2Fwww%2Esmart%2Enet%2F%7Ekaz%2Fspending%2Ehtml%3Fpt&id=10&userid=4EvOxepkQhws&query=MT=government" Ringer, Robert J. 1979. Restoring the American Dream. Harper & Row: New York. Robbins, Lord. 1976. Political Economy: Past and Present. Columbia University Press: New York. The Family Education Network. 2000. "Laissez-faire." "http://www.infoplease.com/ce5/CE029401.html" f:\12000 essays\business & economics (632)\SHOULD TOP EXECUTIVES MAKE THE MONEY THEY DO .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SHOULD TOP EXECUTIVES MAKE THE MONEY THEY DO? Prepared for Prepared by April 4, 1997 CONTENTS Abstract ........................................................................................................... iii Introduction ..................................................................................................... 1 High Pay Seems Small When Compared To Company Profits .......................... 2 Top Executives Are Under A Lot Of Pressure .................................................. 3 US Executives Paid Three Times More Than Other Countries For A Reason .... 4 Pay Should Reflect Performance ...................................................................... 5 Conclusions And Recommendations ................................................................ 6 Notes ............................................................................................................. 8 Bibliography ................................................................................................... 9 ii ABSTRACT This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a company is not an easy job. There is all kinds of pressure for a person in such a position to succeed. If they do not, then it is their job on the line. Therefore, they deserve to receive a large sum of money for the work that they do. It is the only way to compensate these employees for the tremendous strain that their job puts on them. It is essential that the employees get paid the amount of money that they deserve. Pay Should Reflect Performance When CEOs are being given big paychecks, they are expected to perform at a high level. There success is impeccable. However, this does not always happen. There should be some way of connecting pay to job performance. The best way of doing this would be to award bonuses to those workers who are at the top of their class. This would not only motivate workers to do a good job, but also reward the employees that do succeed. TOP EXECUTIVES DESERVE THE MONEY THAT THEY MAKE INTRODUCTION It is a well known fact that many people holding high positions in companies make an exorbitant amount of money. Some, however, say that they do not deserve the amount that they are paid. They feel that for the amount of work that is done by these executives, their paycheck is simply too high. Also, they believe that these high paid workers often do a mediocre job, while still managing to reap the benefits of being an executive. While these are viable arguments against this issue, the other side of the spectrum shows that this is not so. There is an equal amount of evidence, if not more, that suggests that executives earn every penny of their paychecks. The CEOs of companies are under an extraordinary amount of pressure. They face the task of making sure that a company pulls in a profit, or possibly losing their job. There are few, if any other positions that put an employee in this situation. Important decisions are made by them everyday, many of which decide whether a company will prosper, or go under. Many of these men had to work their way to the top. They usually have extensive business backgrounds, and know their field well. There are very few people qualified, or knowledgeable enough to perform well in executive positions. That makes the ones that are, a hot commodity. Thus allowing them to demand the high pay that they earn. High Pay Seems Small When Compared To Company Profits When the public sees a salary that they consider to be too big, they are usually looking at only half of the picture. It is impossible to look at just the salary, without taking any other factors into consideration. One must look at the amount of earnings, compared to the profits of the company. For instance, Robert Allen, who runs ATT was recently pointed out by 60 Minutes as being an overpaid executive. Their major problem was that he had been responsible for laying off 40,000 employees, while still managing to give himself a large pay increase. At first glance, this situation may appear to be one involving a greedy and overpaid executive. However, upon closer examination, it proves to be much to the contrary. The situation wherein the 40,000 employees were laid off, was not a matter of getting rid of people for an unfounded reason. It was more a matter of getting rid of an excessively large work force, and getting the same job done with fewer people. This not only benefited ATT, but also, the customers receiving service from ATT. "For exactly the same service in 1996, the average family will be paying $11 less."1 This is due to the fact that the consumer's money was not going to a larger number of employees, but going directly to the minimal cost of performing the job. Robert Allen has a total salary of 20 million dollars. This salary seems to be extremely high when put as a statistic by itself. This changes, though, when you compare it to the total earning of ATT. His salary calculates to be 1/3,450 of ATT's gross. All of the sudden, the 20 million dollars does not seem like such a high figure after all. Another factor that serves to make his salary a valid amount, is that even if his total pay was split between all of the laid off workers, they would only receive about $500, not much more than a weeks pay. When all of the cards are on the table, a salary of 20 million dollar starts to look quite reasonable. Top Executives Are Under A Lot Of Pressure Most jobs are clear-cut. A person has a designated task to perform, and the method of performing this task is clearly laid out. If all directions are followed, then there is not too much that can go wrong. This, unfortunately, is not the situation for top executives in companies. They are in the tough position of making decisions that may affect the whole company. With one bad move, they can bring a multi-million dollar business under. On the same level, though, that can bring in an infinite amount of profit by making a good move. All executives realize this, and this puts an superfluous amount of pressure on them. Most people could not handle this on a day in, day out basis. It would eventually catch up to them. Seeing that one person is given so much power, what guarantee is there that they will do a good job? There is none. That is why there has to be a large amount of money involved. If a person did a job such as this, and received a small amount of pay, then there would not be much incentive for them to do a good job. They could always find another job, with a similar amount of pay, that did not put them under the stress that executive jobs put them under. Once an immense salary comes into play, then that gives a person reason to thrive in such an industry. When a person has a goal such as this, it tends to elevate their performance to a higher level. This means a company succeeds, and pulls in a profit. It seems that whenever money becomes a factor, a much greater importance is put on things, and a much smaller margin of error is tolerated. The top executives are the ones who are affected by this, and it is they who are rewarded, or punished depending on the outcome of their company. US Executives Paid Three Times More Than Other Countries For A Reason US executives receive a substantially larger pay than their worldwide colleagues. One report on earnings showed that "US CEOs were earning 3.2 times more than their British counterparts."2 This is a tremendous difference, when one considers that these people are doing the same job. This contrast in salaries leads one to ask the question: Why do Americans earn so much more? The quality of work is not an issue. There are many quite successful businessmen in Britain, as there are in America. It is not a question of talent, because if a person can be successful in one field or situation, then they will most likely be able to cross it over into another area. In other words, if a businessman is able to be successful in Britain, then they will presumably be able to succeed in America. The reason why Americans are paid more is really quite simple. America does things on a much larger scale than other countries. This does not only concern salaries, but just about all other fields as well. The problem is not finding qualified people that will work for lower wages. However, it is more an issue of companies realizing the magnitude of the job being done, and rewarding the employee with an amount of money that they deserve. This is an acknowledgment by businesses, that CEOs of companies should be getting the pay that they get. If a company in America wanted to, they could easily hire an executive from another country at a lower rate. In fact, many workers from other countries are hired. However, when this happens, it is not a decision designed to save money. It is a decision that is meant only to bring in quality workers. The new employees are usually started off with an "American" level of pay. It is the company, not the worker, that is responsible for high wages. This negates the idea that quality workers can not be found at a reasonable rate. It is the decision of the company to pick pay rates that are high, rather than a result of worker demands. If people in the industry decided that executives were not worth the money that they earn, it is up to them to lower their pay. Pay Should Reflect Performance Now that is has been established that CEOs deserve their paychecks, it is time to examine problems with the system. It is not perfect, but for that matter, neither is anything else. One major setback is the fact that most wages are not representative of the productivity of that employee. Whether a worker is a model employee who is very prolific, or a poor worker who is unproductive, they still are given the same treatment by a companies far as pay is concerned. This can lead to a business losing vast amounts of money, while the CEO fills his pockets with money. For example, Varity Corporation was a business that was once one of Canada's biggest and highest profiting companies. However, it struggled greatly during the eighties, and lost money most years. That did not stop its chairman Victor Rice from earning "more than $1-million in annual compensation".3 This is clearly an abuse of power. If an employee is allowed to continuously do a poor job, while still benefiting from his job, then there is little reason for them to attempt and do a good job. In the case of Victor Rice, there was obviously no correlation between the quality of his work, and the pay that he received. If he did such a bad job though, then how come he still had a job. This answer to this is one that affects many businesses. Many times it actually costs a company more to get rid of an unwanted employee, than it would to keep them on as a worker. "When Paul Stern stepped down as CEO of Northern Telecom last year, he left with $164,112 for two months of employment, a cash compensation package totaling $6 million and another $1.5 million in stock options."4 The reason for this is that many times, when a position such as CEO come into play, a contract is written up. That means that the worker is supposed to be with the company for a certain amount of time. If this time period is cut short, then that is a breach of their contract. By law, they must be compensated for their removal from the company. This may cause a business to hold onto an employee that is unwanted, because it is such a hassle to get rid of them. One solution is to make a direct connection between the amount of money that a person is paid, and the quality of work that the person does. This would not only put pressure on that individual to do a good job, but it would also give them incentive to produce more. The best possible way to implement this would be to start people off with a low base salary, and award large bonuses for any goals that they meet. Right now, there are many hard working employees. They appear to be putting their full effort into their job. However, it is amazing to see how much more can be done when monetary awards are on the line. It may mean the difference between an employee staying focused on his job and making his business successful, rather than an employee slipping a little bit and forcing his company to lose money. This technique of linking pay to performance is practiced often in countries such as Germany, but is discouraged in place such as America and Japan. This is definitely a policy that should be considered in countries across the world. CONCLUSIONS AND RECOMMENDATIONS It has been established that top executives do make a lot of money. It has also been established that they deserve the money that they receive is well deserved. These employees are making important decisions everyday. They are under a tremendous amount of pressure to succeed. It is their job to make sure that large corporations. Their jobs are arguably some of the most important in the world. This certainly allows them to be presented with such large salaries. There are a few steps, however, that can be taken to regulate the salaries that are executives are paid. This is necessary because only the select workers that do their job on a superior level deserve the high amount of money that they get. 1. Give employees a base salary, and award bonuses on top of that for any profitable work done by that employee. This would not only give them a reason to bring their work up to a premium level, but also create a distinction between those employees who are successful, and the ones who are not. This would also serve as a way to weed out those employees who can't cut it. 2. In order to guarantee that workers are paid based on performance, there needs to be more legislature passed to put restrictions on method of salary payment. Right now, Clinton gives a tax break for the companies that pay their employees based on how they do their job, but even those who do not are able to find ways, through the use of accountants, to get such tax breaks. There must be stricter laws in place, with no loopholes. 3. The world on a whole, should agree on a standard level of pay for executives. It is not fair that people in countries other than the US, receive 1/3 of the pay, for doing the same job. This would help to give the executives around the globe, the amount that they should be getting. 4. It should be easier for a corporation to get rid of an unwanted employee. Right now, many are tied into contracts that require a large sum of money be paid if the employee is released early. There needs to be escape clauses if that employee performs lower than expectations. This will keep only the best employees running businesses, meaning that these companies will be more successful. If all of these ideas were implemented, then the world of high paid executives would run smoothly, without and controversy, or dispute concerning amount of pay. NOTES 1. "Rich-Baiting Time," National Review, 62 May 5, 1996 2. "Random Numbers," Maclean's, 42 May 9, 1994 3. "Giving Capitalism An Obscene Reputation," 35 May 9, 1994 4. "On The Right," Economist 62 June 3,1995 BIBLIOGRAPHY 1. "Rich-Baiting Time," National Review, 62 May 5, 1996 2. "Random Numbers," Maclean's, 42 May 9, 1994 3. "Giving Capitalism An Obscene Reputation," 35 May 9, 1994 4. "On The Right," Economist 62 June 3,1995 f:\12000 essays\business & economics (632)\Should Top Executives Make The Money They Do.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Should Top Executives Make The Money They Do? CONTENTS Abstract ........................................................... iii Introduction ....................................................... 1 High Pay Seems Small When Compared To Company Profits .............. 2 Top Executives Are Under A Lot Of Pressure ......................... 3 US Executives Paid Three Times More Than Other Countries For A Reason ..................................................... 4 Pay Should Reflect Performance ..................................... 5 Conclusions And Recommendations .................................... 6 Notes .............................................................. 8 Bibliography ....................................................... 9 ABSTRACT This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a company is not an easy job. There is all kinds of pressure for a person in such a position to succeed. If they do not, then it is their job on the line. Therefore, they deserve to receive a large sum of money for the work that they do. It is the only way to compensate these employees for the tremendous strain that their job puts on them. It is essential that the employees get paid the amount of money that they deserve. Pay Should Reflect Performance When CEOs are being given big paychecks, they are expected to perform at a high level. There success is impeccable. However, this does not always happen. There should be some way of connecting pay to job performance. The best way of doing this would be to award bonuses to those workers who are at the top of their class. This would not only motivate workers to do a good job, but also reward the employees that do succeed. INTRODUCTION It is a well known fact that many people holding high positions in companies make an exorbitant amount of money. Some, however, say that they do not deserve the amount that they are paid. They feel that for the amount of work that is done by these executives, their paycheck is simply too high. Also, they believe that these high paid workers often do a mediocre job, while still managing to reap the benefits of being an executive. While these are viable arguments against this issue, the other side of the spectrum shows that this is not so. There is an equal amount of evidence, if not more, that suggests that executives earn every penny of their paychecks. The CEOs of companies are under an extraordinary amount of pressure. They face the task of making sure that a company pulls in a profit, or possibly losing their job. There are few, if any other positions that put an employee in this situation. Important decisions are made by them everyday, many of which decide whether a company will prosper, or go under. Many of these men had to work their way to the top. They usually have extensive business backgrounds, and know their field well. There are very few people qualified, or knowledgeable enough to perform well in executive positions. That makes the ones that are, a hot commodity. Thus allowing them to demand the high pay that they earn. High Pay Seems Small When Compared To Company Profits When the public sees a salary that they consider to be too big, they are usually looking at only half of the picture. It is impossible to look at just the salary, without taking any other factors into consideration. One must look at the amount of earnings, compared to the profits of the company. For instance, Robert Allen, who runs ATT was recently pointed out by 60 Minutes as being an overpaid executive. Their major problem was that he had been responsible for laying off 40,000 employees, while still managing to give himself a large pay increase. At first glance, this situation may appear to be one involving a greedy and overpaid executive. However, upon closer examination, it proves to be much to the contrary. The situation wherein the 40,000 employees were laid off, was not a matter of getting rid of people for an unfounded reason. It was more a matter of getting rid of an excessively large work force, and getting the same job done with fewer people. This not only benefited ATT, but also, the customers receiving service from ATT. "For exactly the same service in 1996, the average family will be paying $11 less."1 This is due to the fact that the consumer's money was not going to a larger number of employees, but going directly to the minimal cost of performing the job. Robert Allen has a total salary of 20 million dollars. This salary seems to be extremely high when put as a statistic by itself. This changes, though, when you compare it to the total earning of ATT. His salary calculates to be 1/3,450 of ATT's gross. All of the sudden, the 20 million dollars does not seem like such a high figure after all. Another factor that serves to make his salary a valid amount, is that even if his total pay was split between all of the laid off workers, they would only receive about $500, not much more than a weeks pay. When all of the cards are on the table, a salary of 20 million dollar starts to look quite reasonable. Top Executives Are Under A Lot Of Pressure Most jobs are clear-cut. A person has a designated task to perform, and the method of performing this task is clearly laid out. If all directions are followed, then there is not too much that can go wrong. This, unfortunately, is not the situation for top executives in companies. They are in the tough position of making decisions that may affect the whole company. With one bad move, they can bring a multi-million dollar business under. On the same level, though, that can bring in an infinite amount of profit by making a good move. All executives realize this, and this puts an superfluous amount of pressure on them. Most people could not handle this on a day in, day out basis. It would eventually catch up to them. Seeing that one person is given so much power, what guarantee is there that they will do a good job? There is none. That is why there has to be a large amount of money involved. If a person did a job such as this, and received a small amount of pay, then there would not be much incentive for them to do a good job. They could always find another job, with a similar amount of pay, that did not put them under the stress that executive jobs put them under. Once an immense salary comes into play, then that gives a person reason to thrive in such an industry. When a person has a goal such as this, it tends to elevate their performance to a higher level. This means a company succeeds, and pulls in a profit. It seems that whenever money becomes a factor, a much greater importance is put on things, and a much smaller margin of error is tolerated. The top executives are the ones who are affected by this, and it is they who are rewarded, or punished depending on the outcome of their company. US Executives Paid Three Times More Than Other Countries For A Reason US executives receive a substantially larger pay than their worldwide colleagues. One report on earnings showed that "US CEOs were earning 3.2 times more than their British counterparts."2 This is a tremendous difference, when one considers that these people are doing the same job. This contrast in salaries leads one to ask the question: Why do Americans earn so much more? The quality of work is not an issue. There are many quite successful businessmen in Britain, as there are in America. It is not a question of talent, because if a person can be successful in one field or situation, then they will most likely be able to cross it over into another area. In other words, if a businessman is able to be successful in Britain, then they will presumably be able to succeed in America. The reason why Americans are paid more is really quite simple. America does things on a much larger scale than other countries. This does not only concern salaries, but just about all other fields as well. The problem is not finding qualified people that will work for lower wages. However, it is more an issue of companies realizing the magnitude of the job being done, and rewarding the employee with an amount of money that they deserve. This is an acknowledgment by businesses, that CEOs of companies should be getting the pay that they get. If a company in America wanted to, they could easily hire an executive from another country at a lower rate. In fact, many workers from other countries are hired. However, when this happens, it is not a decision designed to save money. It is a decision that is meant only to bring in quality workers. The new employees are usually started off with an "American" level of pay. It is the company, not the worker, that is responsible for high wages. This negates the idea that quality workers can not be found at a reasonable rate. It is the decision of the company to pick pay rates that are high, rather than a result of worker demands. If people in the industry decided that executives were not worth the money that they earn, it is up to them to lower their pay. Pay Should Reflect Performance Now that is has been established that CEOs deserve their paychecks, it is time to examine problems with the system. It is not perfect, but for that matter, neither is anything else. One major setback is the fact that most wages are not representative of the productivity of that employee. Whether a worker is a model employee who is very prolific, or a poor worker who is unproductive, they still are given the same treatment by a companies far as pay is concerned. This can lead to a business losing vast amounts of money, while the CEO fills his pockets with money. For example, Varity Corporation was a business that was once one of Canada's biggest and highest profiting companies. However, it struggled greatly during the eighties, and lost money most years. That did not stop its chairman Victor Rice from earning "more than $1-million in annual compensation".3 This is clearly an abuse of power. If an employee is allowed to continuously do a poor job, while still benefiting from his job, then there is little reason for them to attempt and do a good job. In the case of Victor Rice, there was obviously no correlation between the quality of his work, and the pay that he received. If he did such a bad job though, then how come he still had a job. This answer to this is one that affects many businesses. Many times it actually costs a company more to get rid of an unwanted employee, than it would to keep them on as a worker. "When Paul Stern stepped down as CEO of Northern Telecom last year, he left with $164,112 for two months of employment, a cash compensation package totaling $6 million and another $1.5 million in stock options."4 The reason for this is that many times, when a position such as CEO come into play, a contract is written up. That means that the worker is supposed to be with the company for a certain amount of time. If this time period is cut short, then that is a breach of their contract. By law, they must be compensated for their removal from the company. This may cause a business to hold onto an employee that is unwanted, because it is such a hassle to get rid of them. One solution is to make a direct connection between the amount of money that a person is paid, and the quality of work that the person does. This would not only put pressure on that individual to do a good job, but it would also give them incentive to produce more. The best possible way to implement this would be to start people off with a low base salary, and award large bonuses for any goals that they meet. Right now, there are many hard working employees. They appear to be putting their full effort into their job. However, it is amazing to see how much more can be done when monetary awards are on the line. It may mean the difference between an employee staying focused on his job and making his business successful, rather than an employee slipping a little bit and forcing his company to lose money. This technique of linking pay to performance is practiced often in countries such as Germany, but is discouraged in place such as America and Japan. This is definitely a policy that should be considered in countries across the world. CONCLUSIONS AND RECOMMENDATIONS It has been established that top executives do make a lot of money. It has also been established that they deserve the money that they receive is well deserved. These employees are making important decisions everyday. They are under a tremendous amount of pressure to succeed. It is their job to make sure that large corporations. Their jobs are arguably some of the most important in the world. This certainly allows them to be presented with such large salaries. There are a few steps, however, that can be taken to regulate the salaries that are executives are paid. This is necessary because only the select workers that do their job on a superior level deserve the high amount of money that they get. 1. Give employees a base salary, and award bonuses on top of that for any profitable work done by that employee. This would not only give them a reason to bring their work up to a premium level, but also create a distinction between those employees who are successful, and the ones who are not. This would also serve as a way to weed out those employees who can't cut it. 2. In order to guarantee that workers are paid based on performance, there needs to be more legislature passed to put restrictions on method of salary payment. Right now, Clinton gives a tax break for the companies that pay their employees based on how they do their job, but even those who do not are able to find ways, through the use of accountants, to get such tax breaks. There must be stricter laws in place, with no loopholes. 3. The world on a whole, should agree on a standard level of pay for executives. It is not fair that people in countries other than the US, receive 1/3 of the pay, for doing the same job. This would help to give the executives around the globe, the amount that they should be getting. 4. It should be easier for a corporation to get rid of an unwanted employee. Right now, many are tied into contracts that require a large sum of money be paid if the employee is released early. There needs to be escape clauses if that employee performs lower than expectations. This will keep only the best employees running businesses, meaning that these companies will be more successful. If all of these ideas were implemented, then the world of high paid executives would run smoothly, without and controversy, or dispute concerning amount of pay. . NOTES 1. "Rich-Baiting Time," National Review, 62 May 5, 1996 2. "Random Numbers," Maclean's, 42 May 9, 1994 3. "Giving Capitalism An Obscene Reputation," 35 May 9, 1994 4. "On The Right," Economist 62 June 3,1995 BIBLIOGRAPHY 1. "Rich-Baiting Time," National Review, 62 May 5, 1996 2. "Random Numbers," Maclean's, 42 May 9, 1994 3. "Giving Capitalism An Obscene Reputation," 35 May 9, 1994 4. "On The Right," Economist 62 June 3,1995 f:\12000 essays\business & economics (632)\SIVB.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SIVB Silicon Valley Bancshares (SIVB) NASDAQ Silicon Valley Bancshares is helping to fund the high-tech revolution. The Santa Clara, California firmly established parent of Silicon Valley Bank, which essentially serves companies in the high-tech and entertainment industries. This bank provides lines of credit, cash management, factoring, and foreign exchange services through 17 offices throughout California and other high growth areas. The bank specializes in offering startup scratch (in the form of short-term loans, and lines of credit) to nascent Net nabobs waiting for their venture capital to come through. In exchange, startup clients are counted upon to deposit venture funds in Silicon Valley Bank accounts. As a part of its lending, the bank also pursues warrants to buy equity stakes in its clients. Silicon Valley Bancshares' key competitors are Bank One, Bank of America, Bank of West Comerica, FleetBoston, Imperial Bancorp, Mitsubishi Trust and Banking U.S., Bancorp, and Wells Fargo. These are some of Silicon Valley Bancshares targeted industries; communications, online services, computers, emerging technologies, life sciences, semiconductors, software, venture capital, entertainment, premium wineries, and real estate. The Silicon Valley Bank brought into existence by Roger Smith in 1983, which provided bank services to tech startups in San Jose. The bank grew along with tech companies, and was a main lender to Cisco Systems. Silicon Valley was introduced to Boston's technology companies in 1990, and was also being used Oregon and Washington. The bank has also expanded to residential and commercial real estate lending. The recession of 1989-1991 found Silicon Valley Bancshares with an overextended loan portfolio, and in 1992 the bank booked a loss due to non-performing loans. In 1993, Silicon Valley Bancshares was put under Federal Supervision. To gain stockholder confidence Silicon Valley brought in new management and reduced its lending and diversified into factoring, foreign exchange, and executive banking for venture capitalists and clients' upper management. In 1999, Silicon Valley Bancshares created a web-site targeted at technology firms in need of financing, employees, office space, and equipment. But, the problem with non-performing loans has continues to affect the company's profits. f:\12000 essays\business & economics (632)\Skittles.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Skittles OVERVIEW Skittles is a variety entertainment and dining establishment located in Washington, D.C. . Our mission is to provide our patrons with a unique blend of live entertainment while delivering a top quality dining experience. We will do this by emphasizing service excellence and the highest level of performance in all aspects of our operations and services. Our prominent services include live entertainment, ranging in form from comedy to jazz performances to poetry recitals and others. We also offer lunch, dinner, drinks and dancing to our customers. The restaurant is operated by its several partners who have an equal share in ownership. The partners are Tracy Jackson, James Johnson, Sonja Dawkins, Kevin Brown and Steffi Carr. The restaurant is ideally located on the D.C. waterfront. There it will be easily accessible to a large cross section of consumers and make it possible to provide patrons with a safe and controlled environment. Our establishment brings a relatively new concept to the Districts restaurant industry. What we provide is an everchanging mix of live entertainment to customers while serving all of their drinking and dining needs as well. We are somewhat of a one stop, night on the town, in that we provide not only the drinking and dining needs of person going out but we also provide, in the same location and depending on the night, everything from dancing to live music performances to a night of comedy entertainment. Because of its uniqueness to the marketplace in D.C., Skittles has an excellent opportunity to establish itself and become a force in the restaurant/entertainment community in the District. This is partly because of the limited direct competition the company has to face. Although direct competition is limited, there are several establishments which we feel will pose competition to us in the market. They include Blues Alley, Hogates, H.I. Ribsters, Phillips, Gang Plank, The Wharf, and Club 721. Despite the threats which the competition poses to the restaurant, we are still very confident in the ability of this concept and restaurant to thrive and succeed in the District. SITUATION ANALYSIS We, the owners of Skittles, are very enthusiastic about our chances of success with this new and exciting restaurant concept. Our enthusiasm was bolstered even more by what was revealed to us after performing a situation analysis for the company. The analysis showed that as a company, our strengths and the opportunities that exist, far outweigh our weaknesses and the threats we perceive ourselves having to face. This indicates to us that with hard work and a total team commitment, Skittles will be a definite success. As for the particulars that were revealed through the analysis they are as follows. First, the businesses internal strengths include the location of the restaurant, because of its convenient access to all the residents in the Metro Area. Another strength is the room for growth that we have as a company, because without it the company would reach its maximum potential in a relatively short time and then have no where to go but down. Also we have a strength in our prices which, for the services and the variety of entertainment we provide, are better than favorable when compared with the competitions prices. Finally, our internal strengths include the variety which we provide for our customers, both in the services and in the entertainment which we deliver. Next, there are the internal weaknesses that we have as a business and they include, first our inexperience with being managers and operators of a business as well as the inexperience in dealing with the real world, unforeseen problems that are bound to arise with a new business. Secondly, there is the fact that as of yet we don't have an established customer base to rely on. Also, we also don't have a loyal market of consumers whom we can depend on even during the most difficult economic periods. Finally, there is the fact that we don't have the established reputation for service and excellence that some of our competitors may have with the consumers in the area. Next, the situation analysis turned to the external factors that would be affecting our establishment. These factors include both our opportunities and the threats that we will have to face. First, there were the opportunities which include, the economic situation in the district which has the mayor and other prominent officials encouraging and supporting the formation of new businesses in the District in hopes of creating more revenue for the city. This is an opportunity because with the cooperation from the city and the powers that be, it will be less difficult to deal with all of the red tape and bureaucracy one has to go through when starting a business. Secondly, there the opportunity to become a tourist attraction, because we are located in the nations capitol which receives millions of visitors on a yearly basis. By becoming a city hot spot, it would enhance our reputation not only with the local residents but nation wide as well. It would increase our business revenue drastically if we could become one of the "must see" places for visitors to the capitol. The second opportunity has a direct relationship with the third and final opportunity which is to franchise and branch out. If we are successful in becoming a tourist attraction, that would open up markets for us all over the country in places where people don't have but want the services and entertainment concept which we provide to our customers. The final segment covered in our analysis was the threats we perceived ourselves having to deal with. They include, first the many hassles and the bureaucracy we would have to deal with, such as obtaining the proper licenses, zoning and building permits and meeting the required health, building and safety codes and regulations. Secondly, there is the threat posed by the slow economy we are currently faced with. It is causing more people to opt to stay at home rather than going out. Finally there is the threat posed by the competition in the District for disposable income. Because D.C. is the U.S. Capitol, there are many establishments which provide a variety of things to do for the consumer which will make attracting those disposable dollars all the more difficult for a new business. Over the coming year, it will be our goal to build on the strengths that we posses and to take full and complete advantage of the opportunities that exist for Skittles in the D.C. market. We also plan, to the best of our ability, to overcome the threats which await us and to eliminate as many, if not all, of our internal weaknesses. This will be achieved through strong management leadership, dedication to the company and careful decision making and planning on the part of Skittles owners and all of our employees. ORGANIZATION OBJECTIVES Since we are a new organization , there are many marketing objectives that we have yet to achieve and which we will strive to accomplish within the next year of business. Three of the more prominent objectives we have include first, establishing and maintaining a high level of customer loyalty and a large loyal market base in the D.C. metro area. Secondly, we seek to eliminate all of our internal weaknesses. Third and most importantly, we want to provide our customers with the most outstanding and superior quality of service found anywhere. As a new business, we are faced with the task of having to find a place for ourselves in the market among consumers. We can best make a place for ourselves by establishing a large , loyal base of consumers. We plan to achieve this objective by providing patrons with an experience like no other and by delivering top quality entertainment. We will be able to determine if the objective has been achieved by monitoring the increase or decrease in the level of regular repeat customers over the next year. Our second objective is one in which we have a great deal of concern. It is to eliminate our internal weaknesses. While we are concerned, we feel most confident about getting it achieved. This is because internal weaknesses are those which we have the most ability to influence and change. Currently our internal weaknesses include inexperience in management and a lack of a loyal customer base, to name a few. We will determine if the objective has been reached by performing a second situation analysis at the end of the year and comparing it with our current analysis. The third objective we have is probably the one most essential to determining our future in the marketplace. It is to provide our customers with the most outstanding quality of service found anywhere. By achieving this objective we will have little problem with achieving our first objective of developing a loyal customer base. This is because if we deliver a high quality of service excellence to our patrons, they will only naturally think highly of us and want return to our establishment. Also, by delivering outstanding quality in all aspects of the company, it will help to develop a positive reputation in the eyes of the consumers which will lead to more business for the restaurant which will in turn lead to more profits for the business. We will determine if the objective has been accomplished by getting feedback from customers after they've had the Skittles experience. Surveys will be taken randomly throughout the year to determine if service and overall quality is being maintained, improving, or getting worse. In any event we feel the achievement of these goals are essential to our remaining a viable venture in the marketplace and we plan to do everything within our powers to make certain that they are achieved. PERCEPTION OF GOODS Skittles target market will find the restaurant to be ideal for their dining and entertainment pleasure. This is because our services as well as our marketing are geared towards attracting and satisfying the wants and needs of our target market. Through our reasearch, we have found that our target demographics enjoy jazz, live music, and comedy, as well as full course dining when going out. By inquiring of the specific target market demographics, we have determineed exactly what they want in terms of entertainment and dining. As a result, we have focused our endeavors to meet those needs. HOW IS USP MANIFESTED? The unique selling position of Skittles will be manifested by our ability to provide a variety of live entertainment forms. It will further be manifested in our ability to provide for our customers, dining excellence as well as fun and excitement, all in the same location. In addition, our ability to cater not only to those looking for live entertainment fun but also those who wish to use our establishment for business purposes as well as other private functions will add to creating a distinct U.S.P. for Skittles. BRAND NAME DISCUSSION Skittles was chosen as the name of our establishment because the word skittles has now become synonymous with a variety of flavors. This is, we feel the most appropriate name to describe what it is that we have to offer our consumers in terms of goods and services, a wide variety. In the entertainment, as well as in the dining options and the overall concept of our business, ,Skittles the restaurant much like Skittles the candy, will provide a rainbow of variety and flavors to its customers. ADVERTISING OVERALL PLAN Skittles overall campaign will utilize several mediums and techniques in order to get the publics awareness of our existence up. The mediums we plan to utilize include flyers, posters, billboards and newspapers. The advertising campaign will be somewhat aggressive in its approach because we are a new entity trying to create a niche for ourselves in a very competitve environment. The advertisements will be targeted to appeal to the wantrs and sensibilities of our specific target market. We will accomplish this by focusing the ads on the entertainment and the variety aspects of our restaurant. Likewise, we will convey through our ads a sense of the atmosphere and ambiance which exists at Skittles. The ads will be run in major papersd tri-weekly, while billboards, posters and metro ads will be continuos in their display. We will make use of free passes for entertainment and meal discount coupons as well. As with any product , we are hoping that word of mouth will also help in establishing the reputation of Skittles as a great place for entertainment and dinning. DISCUSSION OF SUPPLY TO RESTAURANT The supply of Skittles' food and beverages will be handled through a combination of several wholesale and retail suppliers. For our beef, pork, lamb and veal supply we will utilize the National Beef and Provision Co. of Baltimore MD. The prince Wm Co. Poultry and Egg Company will provide our needs in those areas. Our seafood will be acquired fresh from the D.C. Wharf. Finally, our liquor and alcoholic beverages will be providerd by two suppliers. The F Wine Specialists will supply our wine needs while the International Distribution Corportion will supply all of our other alcohic beverages and the Pepsi Bottling Co. will supply our Fountain Sodas/beverages. To insure for our customers, the freshest food posible. Our meats, seafood, poultry and vegatables will be ordered weekly. To add, because all of our suppliers are in the D.C. area and in such close proximity, we will receive our supplies by way of refrigerated trucks. Again with the furthest supplier being in Baltimore, we are assured that our oders will be delivered within 24 hours of the reciept by the suppliers. PERSONAL SELLING MESSAGE Skittles servers will be trained to provide customers with both quality service and congeniality. To ensure that our employees are both courteous and respectful when dealing with customers, we will establish an incentive program for our employees which will be based on customer responses toward the service they receive. Ideally, the interaction of a Skittles server and a customer should be similar to the following dialogue: Server: Good evening, my name is Jacque and I'll be your waiter for this evening. Would you care for any appetizers or Drinks at this time? Cust.: No thank you, we're not quite ready to order yet so could you give us a few minutes please. Server: Certainly. (returns shortly) Are you ready to order now? Cust.: Yes, we are ready to order. Server: May I recommend our specials. Cust.: Thank you, but we would like to order ... Server: Would you like anything to drink? Cust.: We'll have ... Server: O.K. I'll be right back with your drinks.(returns) Here are your drinks and your dinner will be ready shortly. (leaves and returns w/ food) Here is your dinner, I hope you enjoy it. If there is anything that I can get you please let me know. Cust.: Thank You. The server will then check regularly to see if everything is fine with the customers and after they are finished with their meals, he will again check with them. Server: Would you like any dessert or is there anything else that I can do for you? Cust.: No thank you, we are ready for the bill please. Server: Of course. The server then will deliver through our computerized billing process, the bill to the customer. f:\12000 essays\business & economics (632)\Small Business Management A Case Study.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Enterprise & Entrepreneuralism 'Bridgetown Newsagents' - A Small Business Case Study Introduction Dillons newsagents is a late closing local shop with a 'Mini-Mart' service. The 'Mini-Mart' side of the business is franchised from Dillons to a registered partnership: Mr Charles Pettifer and Mr Marc Devis. Full services are provided in the shop, a paper delivery service is also available along with the full complement of groceries, fresh sandwiches, confectionery, videos, cigarettes and alcohol etc.. The newsagents is located in Stratford upon Avon, on the Birmingham road, approximately half a mile from the town centre and situated within a very residential area. Tesco's are the immediate traders to the newsagents. Nine years ago, the newsagents was expanded with the intention of providing the local inhabitants with a friendly convenient service. Lack of competition at the time provided excellent stability and potential for expansion which was enjoyed until two years ago when a superstore was opened nearby offering a major threat to business. Business growth, structure, strategies and competition are to be addressed in the following document. Entirety of information sources and research are obtained from two year's part-time employment at Dillon's newsagents. Growth of Dillons: In 1988, Dillons employed Mr Charles Pettifer as the operational manager, from this date the shop solely provided newspapers and magazines for approximately eighteen months. During this period Dillons were developing their own 'Mini-Mart' theme and as such decided to expand the facilities to supply a range of groceries and other common consumer goods as well as the usual news literature. The shop opening hours were also increased from the regular evening licensing hours of 5:30pm, to a more substantial one of 11pm. At this point, Mr Pettifer decided to take on the shop franchise offered by Dillons with the help of a silent partner Mr Devis. Mr Devis has shares in the business, but does not have authority to make unsupported decisions. The franchise resulted in Mr Pettifer being able to obtain many goods for the newsagents at discounted prices. The entirety of the shop was responsibility of Mr Pettifer provided that Dillons' standards were not infringed. At the stage of development outline here, it can be seen that Dillons newsagents is akin to stage one of the business growth cycle. Key Issues: Mr Pettifer strongly believed in providing a personal and friendly service to all customers and from the outset instigated this within the shop environment. Recognition within the local community and attraction of regular customers resulted from this and thus so did a modest, small shop turnover. Management Styles: The style of management was very individualistic; only Mr Pettifer's wife, Fatima was employed initially in running the shop (issues in employing family friends and relatives are recapitulated later). Because of this, only limited professional management skills were required. Market Research: This was initially achieved by close relationships with the regular local customers, providing key information to a number of customer needs, although no formal research was carried out. Systems and Controls: Due to Dillons' requirements, the accountancy was in advance of a role model stage-1 business, providing efficient systems and controls for Dillons' auditing. All secondary audits were made into a fully computerised relational-database system. Sources of finance: A great boost for the business was the initial investment by Dillons, this was followed by continued investments by the silent partner, Mr Devis, to enable increased expansion of the store. Major Investments: At this stage, no further investments were made due to the limited product range and turnover within the shop. Major investment here was therefore not justified. Products: The product range was initially limited due to floor space, and the occupying range purchased, in bulk, at a recommended cash and carry outlet. Dillons had now become a very stable stage-1 business due mainly to the support and expertise of Dillons' management. Also, the newsagent's position was integral to the initial success it achieved, being the sole organisation providing the previously mentioned services in the local area. ((Both businesses in the area also added tremendously to the custom in the shop.)) After one year, Mr Pettifer decided that there simply wasn't enough room to expand the shop product range to the domains revealed by his marketing strategy (albeit a very limited one!). A proposal was made to Dillons' management to expand the shop premises approximately by four-fold. After the initial success of the shop and the predicted potential, Dillons agreed to finance the expansion and also improve the presentation of the shop. Again, the improved video services aided to further boost the custom to the shop. The shop now had the space to dramatically increase the product range as desired, although with this expansion, stage 2/3 considerations of the growth cycle were required at the very least to re-establish the business. Key Issues: Now, maintaining original customers and expanding the customer base was imperative to ensure maximum stock turnover. Further resources could now be exploited due to the expansion. Increased size and stock suggests that further staff are needed. Management Styles: Due to employing more staff, a professional style of management should have been adopted. 'Friends' were employed thus keeping the managerial position an informal one. Market Research: Research techniques had not improved in any way from the original methods and because of this (see later) a product stagnation was induced. Sales representatives suggested leads and ideas, however, these ideas were instigated for other reasons. Systems and Controls: The book keeping and control records were now of a very high standard with full accounting systems in operation. The entire business system was professionally audited by Dillons on a bi-yearly basis. Suppliers also checked control and display systems on their relevant products. Products: The entire product range was now entering an established market in itself. Each product was purchased from the main suppliers on a sale or return agreement (this agreement was a key principle to Mr Pettifer entering a new product into his range). The shop had an impressive product range at this stage, the customer base was well established and supplier relations were improving all the time. Bridgetown newsagents now enjoyed economic success. Personnel Structure and Culture The following tree structure demonstrates the personnel hierarchy throughout the newsagents: [diagram of management hierarchy goes here] Explanation of the company hierarchy: Dillons enforce company policies on all sides of the business. They deal with all supervision of goods delivered and provide regular audits. Visits from the area management are frequent and always stringent. Dillons also provide major investments throughout the Bridgetown store. Mr Pettifer works a typical day between 9am and 5pm, provided there are no anomalies. He is solely responsible for book keeping, reports, control systems and ordering of tobacco, alcohol and video supplies. Being the operational manager, Mr Pettifer is continually managing and assessing the store. Fatima Pettifer works similar hours to her husband and is responsible for all stock orders except the above mentioned. General shop maintenance is also an ongoing task. There are shifts designated to each of the workers: 5am - 11am 11am - 5pm 5pm - 11pm The above shifts were maintained so that someone was constantly available to man the shop. Employees are expected to work beyond their shift time occaisionally in the event of a subsequent shift worker not being on time. Each shift is covered seven days a week, with the exception of Christmas day. The labour involves till-operation, re-stacking shelves, petroleum regulatory checks and general shop duties. Shelf stackers are generally employed together to ensure that all stock is efficiently replaced. Both work six evenings per week and are responsible for re-stacking the enirety of the shop. Due to the individualistic style of management, problems arose when Mr Pettifer was not present within the shop (anytime between 10am and 5pm daily) since no management issues could be delegated to anyone else. Any sick or holiday leave would result in a further backlog of paper work and reduced stock in the areas for which he was concerned. As previously stated, all the personnel employed were family or friends. This greatly helped in promoting a friendly shop environment for the customers; good working relationships prevailed and common interest in the success of the business was reflected in the workers' attitudes. Although this method of employment assisted in creating a friendly atmosphere, the following internal management problems soon became apparent: Exploitations of relationships between manager and personnel was intrinsic in many staff related issues, e.g., salaries, hours worked, holidays etc.. Till and cashing-up procedures were informal due to the trust between employees. This may have proved to be a dangerous operation because of the liberation of that trust, i.e., opportunities were made available to all employees disregarding their status. Overlapping the boundaries between personal life within the family and business life were often perceivable since husband and wife were working within the same environment. Although this situation was occaisionally embarrassing and no doubt detremental, the shop definitely benefitted overall by the traditionality and local friendliness. No formal business strategies were evident to cater for family integrations and because of this a unique, informal shopping environment was created but it was inefficient and poorly structured; small problems continuously plagued Mr Pettifer, drawing him away from managerial responsibilities that were consequently not being dealt with effectively. Competition: Although the above problems prevailed since the expansion of the shop, Bridgetown newsagents were still economically successful until the introduction of competition in the local market. As Dillons was the sole convenience store within the local area, prices tended to be expensive because of the lack of price wars with competition. This proved to be an almost fatal error when the competition entered as they were able to effectively compete with all of Dillons' price range. In the early stages of 1996 a Tesco superstore opened less than a mile along the same stretch of road as Dillons. Since Tesco is an extremely large shopping chain (and not a small business), large financial backing was employed and the product range was undoubtedly greater. Prices considerably undercut those presented by Mr Pettifer, drawing away regular shoppers and leaving mainly those who frequented the store even before it was expanded. Tesco opened during Dillons' most profitable times (i.e., 7-10am and 4-7pm), and this reduced a high percentage of custom from the shop, threatening the profit margins that had been developed. Within six months of operation, major recruitment of captial was required by Dillons just to help the business survive. Mr Pettifer was forced to reduce all staff salaries (including his own) dramatically. Business Life Cycle: Applying the business life-cycle to Dillons newsagents, it can be seen that progression from the Inception stage to the Expansion stage was unnaturally ??? and only certain key elements of the life cycle were addressed or implemented. During Inception, Dillons was actually similar to the life cycle model, with products tending towards expensive so the company would gain more profit. This point is re-enforced seeing that the business opening hours were 5am to 11pm during all days of the week; not taking into account 'overtime', it is obvious that the newsagents is already a very large commitment for Mr Pettifer. Dillons soon drifts from the business theory since there was very little time spent in the survival stage. Here, the business structure should be improved and strengthened, but as no survival issues were presented to Dillons, this vital stage of the life cycle was missed presenting future problems. Even as Dillons grew and expanded into new markets, no new competition was encountered thus diverging further from the life cycle and making the organisation even more fragile and vulnerable. Management did not develop at all throughout the life cycle and remained individualistic and supervisory instead of developing towards a more distanced and decentralised managerial operation. Conclusion: Currently Dillons is still under major financial threat and business is not returning since the introduction of the Tesco store. In analysing the structure of the business it can be seen that very little long term strategies were employed and no foresight of major competition was predicted, although this seemed inevitable. The original success of the business seems to be largely due to the major investments made by Dillons management, location of the shop and the lack of any similar shops in the local environment. At all stages of the business life cycle it appears that there is never a great financial threat to Mr Pettifer. During expansion, nearly all the risk involved was presented to Dillons management and Mr Devis in their capital investments. After expansion, good trading and a good relationship with the priciple supplier of the shop's products enabled a sale or return method on all products (within a reasonable time period). This method proved ideal since it diminished any anxieties in regard to development of the shop's product range and ensured that there would be no profit loss on over ordering of goods, reduced slaes or changes in the market culture. Pricing strategy was governed by the motivation of increasing the profit margins. Short term risks such as the time to acheive profit on turnover were reduced whilst the risk of being dramatically undercut and pushed out of the market was increased exponentially. Ironically, this risk factor being the single largest reason for crisis was not recognised. External issues exasperated Dillons due to the neglect of any long term planning. f:\12000 essays\business & economics (632)\social security 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The purpose of this paper is to analyze social security so as to show the reader what makes it beneficial to us today. . Throughout my life the words social and security have meant little more to me than the representation of a small blue card in my wallet, a consistent and increasingly significant deduction of funds from my weekly pay-check, and a vague academically-instilled recollection of the potential for long-term future benefit. In fact, it was not until I researched pertinent material for this particular project that I truly learned how markedly beneficial social security will be after my eventual retirement. Reflecting on precisely how ignorant I had been to the issue prior to my investigation, I realized a tragic irony which exists quite commonly within our society today; young people are not taught to save for retirement. I think that many of my friends do not even think much of saving for their college graduation, let alone for their retirement. Eventually, however, most of us will reach a point in our lives where work shall come to an end, yet the existence of living expenses will not. Social security, many of us find out; will provide us with a monthly check at this point. What we do not realize, however, is that this amount is not intended to be used as our sole source of income. Unfortunately, the tragic irony is that many of us reach retirement and realize too late how impossible it would be to live by no other means except social security. The reality is, that the program is but one benefit, one addition, and one financial supplement. Its intent is to be combined with other savings, IRA's, retirement funds and the like. Many senior citizens retire not fully realizing this and consequently, they are forced to seek part-time employment to supplement their income. This defeats the purpose of retirement all together. Since people often expect social security to pay for all or most of their living expenses, the disappointment that comes with retirement leads them to maintain negative feelings against the social security program which is actually at no fault whatsoever. Once you have reached your retirement age you must notify your employer and the government agency responsible for paying you benifits. This is the Social Security Administration. Arrangements must be made to carry private health insurance over into retirement, and applications must be filed for government health coverage. While social security is of great financial benefit to retirees, it must not be mistaken as a financial entity on which people can live without any other sources of income or savings. Rather, social security income should be supplemented by money from pensions, investments such as Individual Retirement Accounts (IRAs) or other means. In addition to providing financial aid to the retired, social security has two other aspects: Should the worker die before retirement, benefits go to survivors: to widows or widowers and to children until they reach a specific age, usually 18. Should a worker become disabled, income maintenance is provided. Temporary injury, however, is usually covered by workmen's compensation programs. In the United States social security is a contributory system. Workers and their employers both make contributions in the form of payroll taxes. A few countries maintain universal pension plans paid from general revenues. Other countries have assistance for those not covered by social security or for those whose benefits are inadequate. There are some exceptions to social security coverage. Government workers, including the military, often have their own pension plans. The self-employed and those who work for nonprofit organizations have also been excluded, but in the United States this policy has been changing. . In the United States there was no general government-supported health plan until the passage of Medicare and Medicaid in 1965 as amendments to the Social Security Act. (The exception was the medical service offered through Veterans Administration hospitals.) Medicare, however, is not a general health plan available to the whole population. Its benefits are for retired persons who have been part of the social security system. And Medicare does not cover the whole cost of hospitalization or other services. Therefore, similar to the notion that retirees must not rely solely on income from social security, they also must not rely solely on related health insurance. The social security benefit formula is designed so that if an individual who maintains average earnings all through their working life and retires at full retirement age, (currently 65), will have a social security benefit equalling approximately 4 0% of their earnings just prior to retirement. If, however, a retiree had minimum wage earnings all of their life, social security f:\12000 essays\business & economics (632)\Social Security with Baby Boomers.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Social Security with Baby Boomers Social Security The problem within Social Security is that the ratio of worker's paying Social Security taxes to retirees receiving the benefits is getting worse. There were 16.5 worker's for each Social Security recipient in 1950. Today there are only 3.2 workers per recipient of Social Security. According to the "Social Security Legislative Bulletin", According to current projections, in 2030 there will be fewer than 2 workers per recipient. There are various strategies for changing the Social Security System. One way, according to an article title "Social Security or Social Insecurity", is to increase employment. It states that "We must allow additional Employment Based immigration of young, professional college educated workers who, through their employer contributions will continue to support Social Security." One strategy is to triple the number of employment based immigrants, primarily increasing the number of higher earning priority workers and professionals. They will require that sponsors of new immigrants demonstrate incomes of at least twice the current poverty level, and eliminate loopholes, which allow illegal immigrants to remain in the U.S. I feel that the trust fund is only a fraud used to mask the size of the federal deficit. Any surpluses are spent immediately on other federal programs. Now the "Baby Boomers" have to depend on the taxpayers, not the fund. "Come 2020, Congress will have to raise taxes to pay off the loans."(N.Y Times, March 1991) I think that the government definitely has to stop the borrowing of the money to pay for the budget deficit. I feel that the Social Security would be fine if the government would stop borrowing the money. f:\12000 essays\business & economics (632)\Social Security.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Social Security The purpose of this paper is to analyze social security so as to show the reader what makes it beneficial to us today. . Throughout my life the words social and security have meant little more to me than the representation of a small blue card in my wallet, a consistent and increasingly significant deduction of funds from my weekly pay-check, and a vague academically-instilled recollection of the potential for long-term future benefit. In fact, it was not until I researched pertinent material for this particular project that I truly learned how markedly beneficial social security will be after my eventual retirement. Reflecting on precisely how ignorant I had been to the issue prior to my investigation, I realized a tragic irony which exists quite commonly within our society today; young people are not taught to save for retirement. I think that many of my friends do not even think much of saving for their college graduation, let alone for their retirement. Eventually, however, most of us will reach a point in our lives where work shall come to an end, yet the existence of living expenses will not. Social security, many of us find out; will provide us with a monthly check at this point. What we do not realize, however, is that this amount is not intended to be used as our sole source of income. Unfortunately, the tragic irony is that many of us reach retirement and realize too late how impossible it would be to live by no other means except social security. The reality is, that the program is but one benefit, one addition, and one financial supplement. Its intent is to be combined with other savings, IRA's, retirement funds and the like. Many senior citizens retire not fully realizing this and consequently, they are forced to seek part-time employment to supplement their income. This defeats the purpose of retirement all together. Since people often expect social security to pay for all or most of their living expenses, the disappointment that comes with retirement leads them to maintain negative feelings against the social security program which is actually at no fault whatsoever. Once you have reached your retirement age you must notify your employer and the government agency responsible for paying you benifits. This is the Social Security Administration. Arrangements must be made to carry private health insurance over into retirement, and applications must be filed for government health coverage. While social security is of great financial benefit to retirees, it must not be mistaken as a financial entity on which people can live without any other sources of income or savings. Rather, social security income should be supplemented by money from pensions, investments such as Individual Retirement Accounts (IRAs) or other means. In addition to providing financial aid to the retired, social security has two other aspects: Should the worker die before retirement, benefits go to survivors: to widows or widowers and to children until they reach a specific age, usually 18. Should a worker become disabled, income maintenance is provided. Temporary injury, however, is usually covered by workmen's compensation programs. In the United States social security is a contributory system. Workers and their employers both make contributions in the form of payroll taxes. A few countries maintain universal pension plans paid from general revenues. Other countries have assistance for those not covered by social security or for those whose benefits are inadequate. There are some exceptions to social security coverage. Government workers, including the military, often have their own pension plans. The self-employed and those who work for nonprofit organizations have also been excluded, but in the United States this policy has been changing. In the United States there was no general government-supported health plan until the passage of Medicare and Medicaid in 1965 as amendments to the Social Security Act. (The exception was the medical service offered through Veterans Administration hospitals.) Medicare, however, is not a general health plan available to the whole population. Its benefits are for retired persons who have been part of the social security system. And Medicare does not cover the whole cost of hospitalization or other services. Therefore, similar to the notion that retirees must not rely solely on income from social security, they also must not rely solely on related health insurance. The social security benefit formula is designed so that if an individual who maintains average earnings all through their working life and retires at full retirement age, (currently 65), will have a social security benefit equalling approximately 4 0% of their earnings just prior to retirement. If, however, a retiree had minimum wage earnings all of their life, social security f:\12000 essays\business & economics (632)\Society Influence on the American.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Society's Influence on the American Dream "Do as most do, and men will speak well of thee." [Thomas Fuller (1654-1734):Gnomologia] Men have a dream to improve their lives and better their social status but each man does not realize that he pursues this dream in hopes of pleasing others and not for his own well being. Fuller's quotation demonstrates that people find success and social mobility if they act and do what others want them to do. The American dream of success and happiness can not be reached independently because people need to feel accepted to achieve satisfaction. Each man strives to improve his place in the community oblivious to the hypocrisy around him. Everyone works to impress others rather than pleasing himself. Paralleling Fullers quotation, Sinclair Lewis' Babbit is a satirical portrayal of a man in search of himself enveloped by a society of hypocrisy . George F. Babbit, a middle class man, struggles to find social mobility and beatitude. Babbit overlooks the essential items of life and concentrates his attention towards material goals and impressing the upper class. Due to the loss of his best friend, Babbit realizes his life has no meaning and rebels against society's conformity destroying his reputation. Lacking the courage to be independent, Babbit's dream of true ecstasy crumbles when he succumbs to hypocritical lifestyle realizing that he needs conformity. Strongly influenced by a sanctimonious society, Babbit, a man in search for himself, realizes that he needs conformity to live. Babbit dreams of improving his status in the community, not realizing that hypocrisy is influencing every decision or action he makes. Babbit concentrates his time and energies towards activities and events that impress the upper class. His life revolves around material items and goals. Mr. and Mrs. Babbit host a dinner party, only inviting the utmost respectable couples. They plan a "highbrow affair...with evening clothes required" in hopes of impressing their prosperous guests. The evening is filled with meaningless conversation and the men tell crude and unsophisticated jokes. Everyone seems to be having a wonderful time even though there is no real meaning in the evening. Shortly afterwards Babbits "name and face" become noticed throughout the city. In another attempt to impress the upper class, Babbit delivers a stirring speech and suddenly finds that he has become one of the most "popular and well-known figures" at the convention. Babbit's dream of improving his position is coming true, although Babbit is oblivious to society's hypocrisy. From a solid citizen, Babbit becomes an important citizen and volunteers his services as an orator for a political campaign. Babbits spirits rise because he "visualizes himself entering Zenith's most fashionable circles." In addition to his involvement in politics, Babbit gets involved with the church because he feels it is a "highly respectable activity to engage in." Babbit concentrates on the improvements the church makes in his business life when he should be concentrating on important elements such as religion. Babbits soul concerns are not for the well-being of the church but rather to make sure that "prospective customers see that he is an active church member." Babbit becomes enveloped by hypocrisy in society and focuses his attention on materialistic goals rather than thinking about his friends and family. Although an active member of Zenith society, many incidents increase Babbits discontent with life and he revolts against conformity. After the imprisonment of his best friend Paul, Babbit realizes that his life has no meaning. His dream of acceptance becomes irrelevant so he engages in a short period of rebellion from everyday society. Not having the relationship of a good wife or a best friend, Babbit drinks and parties excessively hoping to end his frustrations but his anxiety's remains. He realizes that besides material comfort a man needs "someone to easily talk to...and someone who appreciates him" so he has an affair with a local woman. Nothing positive evolves from the temporary relationship and Babbit is not able to truly feel joy. Although Babbit recognizes that a change has occurred he also notices that "nothing has been gained by his rebellion" and is unsatisfied with his new situation. Even though unhappy, Babbit "asserts his new independence [and]...refuses to join" a new respected organization formed in Zenith. This takes much courage and Babbit prides himself for his perseverance. Although Babbit is proud of his independence, many people end their friendships with him because he will not conform to their liking. Babbit uses his free time to think through and organize his life. He realizes that he needs "the mechanical friendships [and]... organizations" in Zenith. Babbit's rebellion ends in failure because Babbit does not have the courage and persistence it takes to rebel against conformity. Lacking the heart to be independent and live a lifestyle of nonconformity, Babbit succumbs to a hypocritical lifestyle, and eventually regains his position in society. He ultimately "agrees to join" the new club, conforming to the community's desires, realizing that the consequences of not joining would be harsher than the embarrassment of facing his old friends. Babbit realizes he needs to accept the image society wants and conform to that image if he wants to succeed. Within a few weeks Babbit regains his old position in the community. Once more he is a loud vocal speaker in the Good Citizens' League and "all the prosperous citizens and business leaders" also devote themselves to this establishment. Babbit soon regains the esteem of his old friends and things return to normal. Babbit uses what he has learned by telling his son to "be unafraid of the conventions...of the outside world and do what one sees as the right course for himself." Babbit is sorry that he has learned this valuable lesson so late in his own life. He realizes that he has grown accustomed to the daily occurrences and that he needs a regular routine. Babbit decides that he is "going to run things to...suit himself", which actually means conforming to the middle class lifestyle and to the values of men like himself. Babbit learns a valuable lesson too late. He now knows that he needs to live a life of conformity and he can not live his dream of success and happiness without the influences of a hypocritical society. Babbit struggles with himself and the community to find a way to make himself happy and to make a place for himself in a society overshadowed by hypocrisy. He must rebel against conformity and hypocrisy and try to find activities that actually suit him. Babbit understands that the community is completely hypocritical but also discovers that it is the only way he knows how to live. He succumbs to conformity, realizing that he does not have the strength and courage to live his dream through independence. Babbit realizes that middle class Americans behave, talk and amass unnecessary material objects. American society is oblivious to the false faces they put on each day to impress others and people do not realize that they are using all their energies to reach materialistic goals. Society's conformity influences the actions, beliefs and dreams of each American. f:\12000 essays\business & economics (632)\Societys influence on the American Dream.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Society's Influence on the American Dream "Do as most do, and men will speak well of thee." [Thomas Fuller (1654-1734):Gnomologia] Men have a dream to improve their lives and better their social status but each man does not realize that he pursues this dream in hopes of pleasing others and not for his own well being. Fuller's quotation demonstrates that people find success and social mobility if they act and do what others want them to do. The American dream of success and happiness can not be reached independently because people need to feel accepted to achieve satisfaction. Each man strives to improve his place in the community oblivious to the hypocrisy around him. Everyone works to impress others rather than pleasing himself. Paralleling Fullers quotation, Sinclair Lewis' Babbit is a satirical portrayal of a man in search of himself enveloped by a society of hypocrisy . George F. Babbit, a middle class man, struggles to find social mobility and beatitude. Babbit overlooks the essential items of life and concentrates his attention towards material goals and impressing the upper class. Due to the loss of his best friend, Babbit realizes his life has no meaning and rebels against society's conformity destroying his reputation. Lacking the courage to be independent, Babbit's dream of true ecstasy crumbles when he succumbs to hypocritical lifestyle realizing that he needs conformity. Strongly influenced by a sanctimonious society, Babbit, a man in search for himself, realizes that he needs conformity to live. Babbit dreams of improving his status in the community, not realizing that hypocrisy is influencing every decision or action he makes. Babbit concentrates his time and energies towards activities and events that impress the upper class. His life revolves around material items and goals. Mr. and Mrs. Babbit host a dinner party, only inviting the utmost respectable couples. They plan a "highbrow affair...with evening clothes required" in hopes of impressing their prosperous guests. The evening is filled with meaningless conversation and the men tell crude and unsophisticated jokes. Everyone seems to be having a wonderful time even though there is no real meaning in the evening. Shortly afterwards Babbits "name and face" become noticed throughout the city. In another attempt to impress the upper class, Babbit delivers a stirring speech and suddenly finds that he has become one of the most "popular and well-known figures" at the convention. Babbit's dream of improving his position is coming true, although Babbit is oblivious to society's hypocrisy. From a solid citizen, Babbit becomes an important citizen and volunteers his services as an orator for a political campaign. Babbits spirits rise because he "visualizes himself entering Zenith's most fashionable circles." In addition to his involvement in politics, Babbit gets involved with the church because he feels it is a "highly respectable activity to engage in." Babbit concentrates on the improvements the church makes in his business life when he should be concentrating on important elements such as religion. Babbits soul concerns are not for the well-being of the church but rather to make sure that "prospective customers see that he is an active church member." Babbit becomes enveloped by hypocrisy in society and focuses his attention on materialistic goals rather than thinking about his friends and family. Although an active member of Zenith society, many incidents increase Babbits discontent with life and he revolts against conformity. After the imprisonment of his best friend Paul, Babbit realizes that his life has no meaning. His dream of acceptance becomes irrelevant so he engages in a short period of rebellion from everyday society. Not having the relationship of a good wife or a best friend, Babbit drinks and parties excessively hoping to end his frustrations but his anxiety's remains. He realizes that besides material comfort a man needs "someone to easily talk to...and someone who appreciates him" so he has an affair with a local woman. Nothing positive evolves from the temporary relationship and Babbit is not able to truly feel joy. Although Babbit recognizes that a change has occurred he also notices that "nothing has been gained by his rebellion" and is unsatisfied with his new situation. Even though unhappy, Babbit "asserts his new independence [and]...refuses to join" a new respected organization formed in Zenith. This takes much courage and Babbit prides himself for his perseverance. Although Babbit is proud of his independence, many people end their friendships with him because he will not conform to their liking. Babbit uses his free time to think through and organize his life. He realizes that he needs "the mechanical friendships [and]...organizations" in Zenith. Babbit's rebellion ends in failure because Babbit does not have the courage and persistence it takes to rebel against conformity. Lacking the heart to be independent and live a lifestyle of nonconformity, Babbit succumbs to a hypocritical lifestyle, and eventually regains his position in society. He ultimately "agrees to join" the new club, conforming to the community's desires, realizing that the consequences of not joining would be harsher than the embarrassment of facing his old friends. Babbit realizes he needs to accept the image society wants and conform to that image if he wants to succeed. Within a few weeks Babbit regains his old position in the community. Once more he is a loud vocal speaker in the Good Citizens' League and "all the prosperous citizens and business leaders" also devote themselves to this establishment. Babbit soon regains the esteem of his old friends and things return to normal. Babbit uses what he has learned by telling his son to "be unafraid of the conventions...of the outside world and do what one sees as the right course for himself." Babbit is sorry that he has learned this valuable lesson so late in his own life. He realizes that he has grown accustomed to the daily occurrences and that he needs a regular routine. Babbit decides that he is "going to run things to...suit himself", which actually means conforming to the middle class lifestyle and to the values of men like himself. Babbit learns a valuable lesson too late. He now knows that he needs to live a life of conformity and he can not live his dream of success and happiness without the influences of a hypocritical society. Babbit struggles with himself and the community to find a way to make himself happy and to make a place for himself in a society overshadowed by hypocrisy. He must rebel against conformity and hypocrisy and try to find activities that actually suit him. Babbit understands that the community is completely hypocritical but also discovers that it is the only way he knows how to live. He succumbs to conformity, realizing that he does not have the strength and courage to live his dream through independence. Babbit realizes that middle class Americans behave, talk and amass unnecessary material objects. American society is oblivious to the false faces they put on each day to impress others and people do not realize that they are using all their energies to reach materialistic goals. Society's conformity influences the actions, beliefs and dreams of each American. f:\12000 essays\business & economics (632)\Soft Drink Industry Case Study.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Soft Drink Industry Case Study Table of Contents Introduction 3 Description 3 Segments 3 Caveats 4 Socio-Economic 4 Relevant Governmental or Environmental Factors, etc. 4 Economic Indicators Relevant for this Industry 4 Threat of New Entrants 5 Economies of Scale 5 Capital Requirements 6 Proprietary Product Differences 7 Absolute Cost Advantage 8 Learning Curve 8 Access to Inputs 8 Proprietary Low Cost Production 8 Brand Identity 9 Access to Distribution 9 Expected Retaliation 9 Conclusion 10 Suppliers 10 Supplier concentration 10 Presence of Substitute Inputs 11 Differentiation of Inputs 12 Importance of Volume to Supplier 13 Impact of Input on Cost or Differentiation 13 Threat of Backward or Forward Integration 13 Access to Capital 14 Access to Labor 14 Summary of Suppliers 14 Buyers 15 Buyer Concentration versus Industry Concentration 15 Buyer Volume 15 Buyer Switching Cost 15 Buyer Information 16 Threat of Backward Integration 16 Pull Through 16 Brand Identity of Buyers 17 Price Sensitivity 17 Impact on Quality and Performance 17 Substitute Products 18 Relative price/performance relationship of Substitutes 18 Buyer Propensity to Substitute 18 Rivalry 18 Industry Growth Rate 20 Fixed Costs 21 Product Differentiation 21 Brand Identity 21 Informational Complexity 22 Corporate Stakes 22 Conclusion 23 Critical Success Factors 23 Prognosis 24 Bibliography 26 Appendix 27 Key Industry Ratios 27 Introduction Description The soft drink industry is concentrated with the three major players, Coca-Cola Co., PepsiCo Inc., and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996). The soft drink market is a relatively mature market with annual growth of 4-5% causing intense rivalry among brands for market share and growth (Crouch, Steve). This paper will explore Porter's Five Forces to determine whether or not this is an attractive industry and what barriers to entry (if any) exist. In addition, we will discuss several critical success factors and the future of the industry. Segments The soft drink industry has two major segments, the flavor segment and the distribution segment. The flavor segment is divided into 6 categories and is listed in table 1 by market share. The distribution segment is divided in to 7 segments: Supermarkets 31.9%, fountain operators 26.8%, vending machines 11.5%, convenience stores 11.4%, delis and drug stores 7.9%, club stores 7.3%, and restaurants 3.2%. Table 1: Market Share 1990 1991 1992 1993 1994 Cola 69.9 69.7 68.3 67 65.9 Lemon-Lime 11.7 11.8 12 12.1 12.3 Pepper 5.6 6.2 6.9 7.3 7.6 Root 2.7 2.8 2.3 2.7 2.7 Orange 2.3 2.3 2.6 2.3 2.3 Other 7.8 7.2 7.9 8.6 9.2 Source: Industry Surveys, 1995 Caveats The only limitations on access to information were: 1. Financial information has not yet been made available for 1996. 2. The majority of the information targets the end consumer and not the sales volume from the major soft drink producers to local distributors. 3. There was no data available to determine over capacity. Socio-Economic Relevant Governmental or Environmental Factors, etc. The Federal Government regulates the soft drink industry, like any industry where the public ingests the products. The regulations vary from ensuring clean, safe products to regulating what those products can contain. For example, the government has only approved four sweeteners that can be used in the making of a soft drink (Crouch, Steve). The soft drink industry currently has had very little impact on the environment. One environmental issue of concern is that the use of plastics adversely affects the environment due to the unusually long time it takes for it to degrade. To combat this, the major competitors have lead in the recycling effort which starting with aluminum and now plastics. The only other adverse environmental impact is the plastic straps that hold the cans together in 6-packs. These straps have been blamed for the deaths of fish and mammals in both fresh and salt water. Economic Indicators Relevant for this Industry The general growth of the economy has had a slight positive influence on the growth of the industry. The general growth in volume for the industry, 4-5 percent, has been barely keeping up with inflation and growths on margins have been even less, only 2-3 percent (Crouch, Steve). Threat of New Entrants Economies of Scale Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per case cost of production. In addition, larger corporate coffers allow for capital investment in automated high speed bottling lines that increase efficiency (Industry Surveys, 1995). This trend is supported by the decline in the number of production workers employed by the industry at higher wages and fewer hours. This in conjunction with the increased value of shipments over the period shows the increase in efficiency and the economies gained by consolidation (See table 2). Table 2 General Statistics: Year Companies Workers Hours Wages Value of Shipments 1982 1626 42.4 85.2 7.84 16807.5 1983 41.5 85.1 8.24 17320.8 1984 39.8 81.7 8.51 18052 1985 1414 37.2 77.8 9.1 19358.2 1986 1335 35.5 73.5 9.77 20686.8 1987 1190 35.4 71.5 10.45 22006 1988 1135 35.2 71.8 10.78 23310.3 1989 1027 33.4 67.7 10.98 23002.1 1990 941 32 65.7 11.48 23847.5 1991 31.9 66.8 11.85 25191.1 1992 29.8 61.6 12.46 26260.4 1993 28.6 59.3 12.93 27224.4 1994 27.4 56.9 13.39 28188.5 1995 26.2 54.5 13.86 29152.5 1996 25 52.1 14.32 30116.5 Source: Manufacturing USA, 4th Ed. Further evidence of economies is supported by the increased return on assets from 1992-1995, as shown in table 3. Coke and Pepsi clearly show increased return on assets as the asset base increases. However, Cadbury/Schweppes does not show conclusive evidence from 95 to 96. Table 3 CADBURY/SCHWEPPES 93 94 95 96 ASSETS 2963100 3266900 3501500 4595000 SALES 3372400 3724800 4029600 4776000 NET INCOME 195600 236800 261900 300000 Sales/Income 5.80% 6.36% 6.50% 6.28% Income/Assets 6.60% 7.25% 7.48% 6.53% COKE ASSETS 11051934 12021000 13873000 15041000 SALES 13073860 13963000 16181000 18018000 NET INCOME 1664382 2176000 2554000 2986000 Sales/Income 12.73% 15.58% 15.78% 16.57% Income/Assets 15.06% 18.10% 18.41% 19.85% PEPSI ASSETS 20951200 23705800 24792000 25432000 SALES 21970000 25021000 28472400 30421000 NET INCOME 374300 1588000 1752000 1606000 Sales/Income 1.70% 6.35% 6.15% 5.28% Income/Assets 1.79% 6.70% 7.07% 6.31% Source: Compact Disclosure Capital Requirements The requirements within this industry are very high. Production and distribution systems are extensive and necessary to compete with the industry leaders. Table 4 shows the average capital expenditures by the three industry leaders. Table 4 Dec-95 Dec-94 Jan-94 Jan-93 Receivables 1624333 1385767 1226633 1077912 Inventories 867666.7 803666.7 777366.7 716673.7 Plant & Equip 5986333 5795367 5246600 4642058 Total Assets 15022667 14055500 12997900 11655411 Source: Compact Disclosure The magnitude of these expenditures causes this to be a high barrier to entry. Proprietary Product Differences Each firm has brands that are unique in packaging and image, however any of the product differences that may develop are easily duplicated. However, secret formulas do create a difference or good will that cannot be duplicated. The best example of this is the "New Coke" fiasco of 1985. Coke reformulated its product due to test marketing results that showed New Coke beat Pepsi 47% to 43% and New Coke was preferred over old Coke by a 10% margin. However, Coke executives did not take into account the good will created by the old Coke name and formula. The introduction of New Coke as a replacement of Coke was met by outrage and unrelenting protest by the public. Three months from the initial launch of New Coke, management apologized to the public and reissued the old Coke formula. Test marking shows that there is only a small difference in actual product taste (52% Pepsi, 48% Coke), but the good will created by a brand can have significant proprietary differences (Dess, 1993). This is a high barrier to entry. Absolute Cost Advantage Brands do have secret formulas, which makes them unique and new entry into the industry difficult. New products must remain outside of patented zones but these differences can be slight. This leads to the conclusion that the absolute cost advantage is a low barrier within this industry. Learning Curve The shift in the manufacturing of soft drinks is gravitating toward automation due to speed and cost. However, industry technology is low and the manufacturing process is not difficult, therefore the learning curve will be short and will have a low barrier to entry. Access to Inputs All the inputs within the soft drink industry are commodity items. These include cane, beet, corn syrup, honey, concentrated fruit juice, plastic, glass, and aluminum. Access to these inputs is not a barrier to enter the industry. Proprietary Low Cost Production The process of manufacturing soft drinks is not a proprietary process. The methods used in the process are relatively standard within the industry and the knowledge needed to begin production can easily be acquired. This is not a barrier to entry. Brand Identity This is a very strong force within the industry. It takes a long time to develop a brand that has recognition and customer loyalty. "Brand loyalty is indeed the HOLY GRAIL to American consumer product companies." (Industry Surveys, 1995) A well recognized brand will foster customer loyalty and creates the opportunity for real market share growth, price flexibility, and above average profitability (Industry Surveys, 1995). Therefore this is a high barrier to entry. Access to Distribution Distribution is a critical success factor within the industry. Without the network, the product cannot get to the final consumer. The most successful soft drink producers are aggressively expanding their distribution channels and consolidating the independent bottling and distribution centers. From 1978 to the present, the number of Coca-Cola bottlers decreased from 370 to 120 (Industry Surveys, 1995). In addition, 31.9% of the soft drink business is in supermarkets, where acquiring shelf space is very difficult (Santa, 1996). This is a high barrier to entry. Expected Retaliation Market share within the industry is critical; therefore any attempt to take market share from the leaders will result in significant retaliation. The soft drink industry is a moderately mature market with slow single digit growth (Industry Surveys, 1995). Projected growth rates are 4-5% in sales volume and 2- 3% in margin (Crouch, Steve). Therefore, growth in market share is obtained by stealing share from rivals causing retaliation to be high in defense of current market position. This is a high barrier to entry. Conclusion To be successful on a large scale, the high capital requirements for manufacturing, distribution, and marketing are high barriers to entry. Therefore the threat of new entrants is low making this an attractive industry. Suppliers Supplier concentration Supplier concentration is low due to the fact that the main ingredients are sugar (cane and beet), water, various chemicals, and aluminum cans, plastic and glass bottles. There are many places to get sugar and ingredients for soft drinks because they are commodity items. The containers (aluminum cans, bottles etc.) make up 36 percent of all the inputs that the industry uses. Other supplies like sugars, syrups and extracts account for 23 percent of the inputs (Manufacturing USA). There are five major suppliers of glass bottles. Altrista Corp., Anchor Glass Container, Glassware of Chile, Owens Illinois, and Vistro Sa are the major makers of glass bottles (Compact Disclosure). This is a fair amount of suppliers considering that only five percent of soft drink sales are in glass bottles. There are even more suppliers of plastic bottles. This is good because 43% of all sales are from plastic bottles (Prince, 1996). All this makes the concentration for glass and plastic suppliers moderate. The aluminum can industry is even older and more established than the plastic industry. Reynolds Metal Products, American National Can Company and Metal Container Corp. are the main suppliers of aluminum cans. 50.6% of total soft drink sales are packaged in aluminum cans (Prince, 1996). Since the aluminum industry is older and more established, these are likely to be the only manufacturers for a while. Even though the concentration of aluminum producers are low there are only three major players in the industry, Coke, Pepsi, and Cadbury. These three account for nearly 90% of domestic soft drink sales (Dawson, 1996). This makes the balance of power slightly favor the suppliers of aluminum cans, even though the number of producers and buyers are equal (3). Syrups and extracts account for 16.7% of input costs to the soft drink industry (Manufacturing USA, Fourth Ed.). Even though these are a small percentage of inputs, all the major soft drink companies own companies that produce flavoring extracts and syrups (Industry Surveys, 1995). This is probably due to the fact that they all have "secret formulas" and this is how they protect the secret. Coke, Pepsi, and Dr. Pepper all have "secret formulas". This makes the concentration of suppliers for extracts very low but they are owned by the soft drink industry. This backward integration by the major players makes the power question moot. Suppliers do have limited power over the soft drink industry. The concentration of suppliers remains relatively low, which would seem to give the supplier power. The shear mass and volume that the industry buys negates that effect and balances, if not tips it back toward the soft drink industry. Presence of Substitute Inputs There is not a lot of variety in inputs. The biggest substitute input was when the industry switched from aluminum cans to plastic bottles. This made the glass industry almost shake out completely. The next big substitute input was for sugar. Since people were demanding more and more ways to lose weight and consume fewer calories, the diet soft drink exploded in sales. This demand made the soft drink industry find an alternative to sugar to sweeten their product. This substitute turned out to be Nutrasweet non-sugar sweetener. This was found to reduce the calories and retain the taste of their respective products. Other sweeteners, like molasses, do not work because they change the flavor of the product. Most of these substitute inputs had already taken place so they become less relevant to the industry as time marched on. Substitute inputs usually do not become important until the customer or market changes dramatically. This happens when new studies come out from the government about how harmful something is. This was the case when scientists came out with the study that stated that saccharin was harmful to rats. The industry had to respond by reducing its use of saccharin and look for a substitute. At this time, the industry found Nutrasweet to be a reasonable substitute for saccharin, which was used more heavily in diet drinks. All in all, there are a lot of substitutes for packaging but not for sweeteners because these sweeteners must have government approval (Crouch, Steve). This makes suppliers have power over the industry as seen in the almost overnight empire of Nutrasweet. This will most likely change drastically when Aspirtain (Nutrasweet) loses its patent in a few years. Differentiation of Inputs Sugar is commonly available while Nutrasweet is patented. There is no differentiation for sugar and only one choice in Nutrasweet. As far as the other chemicals and inputs, they are commodity items, and it does not matter who supplies them. This makes suppliers have little power over the soft drink industry. Importance of Volume to Supplier The soft drink industry buys a large portion of the Nutrasweet market but their percentage of purchases are falling as other products begin to use it. Sugar is bought but not in the volume that the grocery store or other industries do. The aluminum can, plastic bottles and glass bottles (less now) are all pretty much dependent on the soft drink industry for their livelihood. This makes the supplier have pretty much no power over the industry. Impact of Input on Cost or Differentiation Since the inputs are basic elements there is no differentiation and therefore no impact on the final product for using different inputs. If the price of the input changed, it would dramatically change the price of the product as the aluminum cartel did in 1994. Since the major inputs are commodity items, the prices can change dramatically due to environmental forces. If the sugar industry suffers a loss due to weather or because of political unrest (like in Cuba), then the prices go up and the soft drink industry is usually left absorbing them. The soft drink industry can not, in all cases, simply pass along the price increase. Customers and distributors are more price sensitive than ever. This makes the supplier have a fair amount of bargaining power over the industry. Threat of Backward or Forward Integration With the current climate of "sticking to the core of the company," there is little threat of backward integration into the supplier's industry. This is after the fact that they already have integrated into the extracts to protect their secrets. The integration into the extract-producing segment of the suppliers will be the extent of the backward integration. The suppliers do not have the capital required to forward integrate into the soft drink industry. This makes the industry attractive for investment. Access to Capital The soft drink industry is very profitable and therefore looked upon favorably by financial institutions. This includes the stock market, direct investors (bondholders), and banks. Currently the operating margins for the industry have grown from 17.9% in 1992 to 19.5% in 1996. The projected operating margins are projected to grow to 20.5% from 1997 to 2001 (Value Line 1996). The profit margins and demand are increasing for the soft drink industry (Industry Surveys, 1995). What this means is that capital is available for expansion or upgrading, if additional capital is required. This is favorable to the industry. Access to Labor The industry is not highly technical except for chemical engineering. This means that the demands for skilled labor are not very high. Which means that the soft drink industry will not have trouble finding labor. There are no established labor unions. The average labor cost is no more than in any other industry. The average hourly wage is $11.85 per hour, which just about the same as all manufacturing firms of $11.49 (Manufacturing USA). Summary of Suppliers When you sum up the different aspects of the suppliers you come to the quick conclusion that the power is definitely in the hands of the soft drink industry. This makes the industry very attractive for investment and for the companies already in the industry from the supply aspect. This means that it is attractive to new entrants as well. Buyers Buyer Concentration versus Industry Concentration The buyers for the soft drink industry are members of a large network of bottlers and distributors that represent the major soft drink companies at the local level. Distributors purchase the finished, packaged product from the soft drink companies while bottlers purchase the major ingredients. With the consolidation that has occurred within the industry, there is little difference between the two. Distributors are assigned to represent a specific geographic area, for example a town or a county. In turn, these distributors are responsible for distributing the product to the retailers who sell the products to the end consumer. In recent years, the national companies have been purchasing independent bottlers in an effort to consolidate the business and gain some distribution economies of scale (Thompson and Strickland, 1993). Buyer Volume The contractual agreements, which are present in this industry, dictate that the major soft drink companies will sell their products to the distributors. Therefore, buyer volume is not a factor for this industry. Buyer Switching Cost Independent bottlers have contractual agreements to represent that company within a certain area. Switching costs would include establishing new relationships with other companies to represent and the legal costs associated with distributors being released from the contract. Buyer Information Distributors are very informed about the product that they are distributing. Information flows freely between the soft drink Companies and the local distributors and down to the retailers. There are many co-operative promotions where distributors and soft drink companies collaborate on price and advertising campaigns (Crouch, Steve). For example, major soft drink firms will send a regular report out to its distributors describing upcoming promotional events where the cost will be shared between the two companies. For promotions that fall outside of this report, the distributors will have to coordinate that sponsorship with the soft drink company. Threat of Backward Integration It is doubtful that local distributors will move into the actual production process of soft drinks. Distributors specialize in the transportation and promotion of the product that they rely on the carbonated beverage companies produce. However, major retailers; for example Wal-Mart and Harris Teeter have begun distributing their own private label brands of soft drinks. Wal-Mart now offers Sam's Choice and Harris Teeter offers President's Choice at a significantly lower price. These private label competitors will not provide the variety of packaging alternatives, which make the national leaders so successful (PepsiCo 1995 Annual Report). For example, Pepsi offers 12-ounce cans, 20 ounce bottles, 1 liter bottles, six packs, twelve packs, cases and "The Cube" 24 can boxes. Pull Through Pull through is not a factor from the independent bottler's perspective. These bottlers have a franchise agreement to represent a major carbonated beverage company on the local level. These distributors are legally bound to represent these companies and therefore cannot choose not to promote certain types of beverages. Brand Identity of Buyers Brand identity of buyers is not relevant to the distributors because of the contractual relationship that exists where distributors represent the soft drink companies. The distributors have an exclusive contractual agreement to represent that soft drink brand. Price Sensitivity Distributors are not highly price sensitive buyers. Independent bottlers are on a national contract so all distributors pay the same price for the same products. Price to Total Purchases Soft drinks are the single product that the distributors are concerned with so price is very important to them. Soft drink companies rely on these distributors to represent them on the local level, so it is important to maintain a healthy relationship. Impact on Quality and Performance All three of the leading carbonated beverage producers, Coca-Cola, PepsiCo, and Cadbury Schweppes believe that their buyers (distributors) are an important step in taking their products to the end consumer. The service, which their distributors provide to the retailers, makes a difference to the retailers who sell the product to the end consumer. The actions of that distributor reflect on the soft drink company so if the distributor does not provide the level of service that retailer or restaurant desires, it may harm the company's image. Substitute Products Relative price/performance relationship of Substitutes The carbonated beverage industry provides a non-alcoholic means of satisfying an individuals desire to quench their thirst. Traditionally, coffee and tea would be considered substitute products. In recent years, carbonated beverages have seen the emergence of many new substitute products that wish to reduce soft drink's market share. The soft drink market has been traditionally competitive, without the added friction from "ready to drink tea, shelf stable juice, sports drinks and still-water" competitors also. (Gleason, 1996) Leaders in these emerging segments include Quaker Oats, with their Snapple and Gatorade products, Perrier, and Arizona Iced Teas. "In other words, Pepsi isn't Coke's biggest competition, Tap water is." (Gleason, 1996). Generally speaking, soft drinks are less expensive to the consumer than these substitute products. Buyer Propensity to Substitute Buyer propensity to substitute is low due to the contractual relationships between the soft drink companies and the distributors. Rivalry Degree of Concentration and Balance among Competitors Three main competitors: Pepsico, Coca-Cola, and Dr. Pepper/Cadbury control the Soft Drink industry. Their combined total sales revenues account for 90 percent of the entire domestic market. This market dominance makes the industry a fiercely competitive and dynamic business environment to operate in. The single market leader is Coca-Cola with a 42 percent market share and over $18 billion in sales worldwide. PepsiCo maintains a 31 percent market share with $10.5 billion in sales worldwide. The smallest of the three leaders is Dr. Pepper/Cadbury, which holds roughly 16 percent of the market. Coke's consistent dominance of both Pepsi and Dr. Pepper/Cadbury has caused Coke to become a household name when referring to soft drinks. As far as balance among competitors is concerned, PepsiCo is a much larger company than Coke and Dr. Pepper/Cadbury combined. The reason being that PepsiCo also owns companies in the snack and food industries (Frito-Lay, Pizza Hut, Taco Bell, and KFC). With a work force of 480,000 people, PepsiCo is the world's third largest employer behind General Motors and Wal-Mart. This has not lead to a more profitable soft drink business, nor has it helped PepsiCo use its size to steal market share from Coke or Dr. Pepper/Cadbury. Diversity among Competitors Though Coca-Cola dominates the industry in sales volume and market share, it does not dominate when it comes to innovative marketing and business strategy efforts. For instance, PepsiCo generates 71 percent of its revenues from the U.S., while Coca-Cola derives 71 percent of its from international markets. Similarly, PepsiCo only gets 41 percent of its total revenues from soft drinks. The remaining 59 percent come from its snack and food business. Coke on the other hand gets all of its revenues from its soft drinks. Clearly both of the industry leaders have different strategies as far as revenue generation is concerned. However, as far as their product lines are concerned they are very similar and operate parallel to one another. Pepsi and Coca-Cola both have lemon-lime, citrus, root beer, and cola flavors. Dr. Pepper/Cadbury does not have as similar a product line to that of Pepsico and Coca-Cola. It manufactures Dr. Pepper (a unique spicy cola drink), ginger ale, tonic water, and carbonated water under its Schweppes and Canada Dry brands. Coke does have an answer to Dr. Pepper in its Mr. Pibb, but only holds a .4 percent market share compared to Dr. Peppers 6 percent market share. The relatively low level of diversity makes the soft drink industry unattractive for investment. Industry Growth Rate Although new product lines have come into the beverage industry over the past two to three years, the soft drink segment has held and grown its share steadily. The onslaught of the sport drink and bottled tea have proven to be a passing fad that has gained little if no long term market share from soft drinks. Growth figures for the soft drink industry have been very steady since 1993, and are projected to continue to be so into the last part of the twentieth century. As can be seen in Figure 1, volatility was somewhat prevalent in the 1980's but has since lessened and leveled off (Valueline, 1996). Figure 1 Year '87-'88 '88-'89 '89-'90 '90-'91 '91- '92 '92-'93 '93-'94 '94-'95 Growth 5.7% 5.2% 2% 3% 2.9% 4% 4.4% 4% Over the past ten years soft drinks have gained 5 percent of total beverage sales, putting them over the 25 percent share level for all beverage sales. As for new and emerging markets, both Coke and Pepsi are attacking the international environment. Coca-Cola generates 80 percent of its revenues abroad, and Pepsi is attempting but failing to put more emphasis there as well. "Pepsi is losing customers to Coke in every major foreign territory. The company has always struggled overseas, but in the past few months it has lost key strongholds in Russia and Venezuela to Coke" (Sellers, 1996). Because of the consistent growth of both the domestic and foreign markets, the soft drink industry is attractive for investment. Fixed Costs The S&P Industry Survey has shown the soft drink industry profit margin to be on a steady incline over the past fifteen years. Levels in 1980 were near 14%, while as of year-end 1995 were over 20% and expected to flatten a bit. This flattening effect may be an indication that fixed costs are on the rise due to expansion f:\12000 essays\business & economics (632)\Sony Corporation Executive Summary.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Sony Corporation Executive Summary Sony's current financial difficulties are tied into its corporate culture which were stated over 30 years ago. With such a large multinational corporation, greater planning and more use of strategies should be pursued. Sony could start with the implementation of a new mission statement, with profit and benefits of the company tied more closely to everyday operations. Internally, the four forces, the management, the designers, the production and the marketing should achieve better communication and cooperation. Alliance and cooperation between competitors should also be actively sort after in order to create standards in new fields. Sony should aim at being the leader instead of being the maverick. As for cost cutting, Sony should seriously consider setting up operations in other Asian countries in order to take advantage of the cheap labour and the budding markets. Finally, diversification, instead of pursuing the fast changing and easily imitated consumer goods market, Sony should use its technological know-how for high-end business and office equipment. With SWOT analysis and Porter's competitive forces model, we can view that the market is much more competitive with less profit margins and lead-time for product innovation. The conclusion is that change is needed in Sony. However,even with strategirial and structure change, the Sony spirit of innovation should remain intact because that is what made Sony grow and would make it stay strong. Introduction The first thing that comes to peoples minds of the company and products of Sony is its high-technology-filled-with-gadgets electronic goods and innovation. It was also this innovation that make Sony the greatest company that started in post-war Japan. Sony has used its innovation in building markets out of thin air, created a multibillion, multinational electronic empire with products such as the transistor radio, the Trinitron, the Walk-in and the VTR. that changed everyday household lives forever. However, this consumer targeted quest for excellence and constant innovation instead of targeting mainly at profit also has a lot to do with current crisis Sony is facing - sales and profits are down or are slowing down, capital investment cost and R&D are climbing, competitors are moving in with copycats, the battle between VHS and Beta and the search for a smash hit product such as the Trinitron or the Walk-in. This volatility and emphasis (or gambling) on new products instead of concentrating on profit and loss statements have always been a part of Sony since its beginning days. For each successful product (i.e. transistor radio and Trinitron), R&D cost often ran so high that the they pushed the firm to the verge of bankruptcy. This can also be seen through the eyes of the investor in which although sales have increased tremendously throughout the past twenty years, the stock price has remained relatively low. History and Culture The current Sony corporation has a unique culture which is firmly rooted in her history especially in relationship to her two founders, Masaru Ibuka and Akio Morita. Ibuka and Morita were both dedicated electrical engineers and geniuses above their business talents. Both gave insights and visions in what the company should make and how it should be made. Ibuka, especially, gave constant advice and suggestions to the engineers involved in projects from the earlier on transistor radios to Walkmans. This created the umbrella strategy in which Sony operates under where the top management, especially Ibuka, Morita and now Norio Ohga gave the general direction in which the lower engineers actively learned, developed and improved on the vision/idea. Therefore, although there is a planned direction, the actual product development through launching is emergent with great flexibility. Although the research and development section of Sony differs greatly from other companies with its great flexibility, Sony, in its essence is still a traditional Japanese company in many ways. There is life-time employment, with strong norms and values which in turn create strategies through their actions. Status is given (the crystal award) instead of bonuses (not significant amount) for superior achievement. There is also the strong seniority system such as the mentor and apprentice relationship that is typical of a Japanese firm. All this can be classified as the cultural school in which strategy formation is of collective behaviour. Collective vision and stress on human resource, which is typical of many Japanese, can be clearly seen in the mission statement "Management Policies". Weaknesses and Threats Referring to Exhibit 1, sales has slowed down considerably since the beginning of the 80s. In the domestic market, sales actually decreased by 7.22%. The overseas market expanded both in real terms and relative to total sales, but slowed down to around 10% a year. This can be seen as the vacuum period between one hit product, the Walkman, and its succession. As mentioned by Ibuka, business is conducted in a ten year cycle. However, in the eighties, the product might still take a few years to develop, but the time reaping the results and profits might be much less. As seen in the VTR example, both the VHS and Beta were developed by Sony. However, in a short time, Matsushita could come up with a competitive product based on Sony's technology. Therefore, it is fair to say that other electronic firms would be able to copy Sony's technology in a much shorter time while offering more competitive prices. The margin for technology advancement is therefore diminishing. Associated with innovation is the capital expenditure cost and return on investment ratio. As seen from Exhibit 1, capital expenditure has risen dramatically, especially in 1981, due to the automation of plants. However, the return on investment has decreased. Spending around 10% of sales on capital investment is by all company standards an extremely high figure. The question is that does this high rate of investment represent corresponding growth in profitability? As mentioned above, the diminishing returns from product innovation is apparent. However, the internal dimension also poses as much of a problem. With its great freedom, research and development are divided into small teams which are free to pursue their interest with little reference to "how it will fit into a market, what the product can do, how well it will function or how it could be used by customers." Secret projects without management knowing about them until "secret reports" are submitted are of common practice. With this kind of practice, there is lack of communication between management and R&D and threat of duplication of resources among the small groups. There is also a lack of general direction. This would be especially prominent when Ibuka and Morita, the symbolic leaders and founders retire. This is because the two in many ways act as the main guidance and bridge between management and the engineers. Therefore, there is also a succession problem. Sony has always been a leader in technology, creating markets by looking for new markets where bigger, well-established companies are not a threat. However, new products such as VTR, the Walk-in and the Mavica involve both hardware and software. Sony can no longer just produce superb quality machines and expect them to sell. The software would also have to be available. For the Walkman, cassette tapes were well established but for the Beta system and Mavica, a standard has yet to be set. For example, the images of Mavica would be held on a high density magnetic disk but Kodak, 3M and Sony all have different systems and are not compatible. The Mavica system also stands alone with little compatibility with conventional systems and little transitional interfaces. This leads to the problem of cooperation where Sony is often the maverick, alone creating markets. With Sony entering markets such as the VTR with no standards, it might be beneficial to both Sony and other vendors if they cooperated instead of competing on conflicting software that supports the systems. This could also be seen in Exhibit 2, the Porter competitive forces mode: new entrants from other Asian countries, other Japanese industry competitors, substitutes and buyers are all strong and much stronger than 20 years ago which reinforce the weakness of Sony acting alone. Last but not least, Sony lacks strategy. Product development, manufacturing and marketing are all well established but the firm lacks any formal long term direction. The original mission statement is also outdated with its references to W.W.II. Short term strategy is also lacking and there is little emphasis on profit and accountability of research and development of products. The result: a company with strong components but unable to coordinate in a coherent way in order to achieve maximum potential. Strengths and Opportunities The greatest asset of Sony is of its human capital, especially its engineers which make up the R&D department. Their constant innovation is crucial for a consumer electronic firm which specializes in audio-visual equipment and the higher profit margin, which comes from being the leader of the pact. Subsidiaries are also well established, such as in the United States and Europe which give Sony a distinct local hands-on knowledge of the local market. It also makes Sony an international corporation, bringing together the talents and best of strategies of both world to the organization. Besides the employees, the two founders, Ibuka and Morita also legends in their fields which they create vision and sense of direction for the organization. The also acts as bridges between the employees and the management. The self promoting system and job rotating systems creates satisfaction for employees and give them greater exposure to all aspects of the business. Ideally, this would produce better products as engineers gain knowledge on consumer needs while marketing people engaged in the production and can give their point of view. The innovative style also stems from the "never copy others" culture, the generous funding of the R&D and huge amounts in capital investments. As described by Ibuka,"It also stems from consumer driven in which technology is targeted at consumers or business while American electronic industry are spoiled be military and space applications." Sony has been ahead in the race of Video Tape Recorders and digital imaging techniques in Mavica which both offer tremendous potential of household penetration and sales. It also has the opportunity to set up standards and dominate the field. Sony has also acquired enough technology to increase width by going into the high technology business fields. With the rise of the Asian countries, Sony also has the opportunity to make use of them for markets and for cheap labour. Recommendations Building of Strategy With the succession of the two founders at hand, it would be very difficult for the company to find someone as visionary, as respected and with the same engineering background to lead the umbrella strategy company. With Sony as a much international company with major branches in Europe and the United States and stocks listed in 23 stock exchanges, the Japanese cultural school strategy is not sufficient. Becoming a mature company, the strategy should also change to more profit orientated. There should also be greater emphasis on market share, especially in Japan where Sony's market is shrinking. Strategy should be aimed at greater control and communication between manager and workers, especially the engineers in the R&D Department. A more planned strategy should be adopted, which should outline the general direction of the company. Diversification One direction which is possible is concentrating more on electronic know how in non-consumer business. Currently, the buyer has much more choosing power and competition is fierce (Exhibit 2). The competitors are also able to copy the product in a much shorter time. To create larger profit margins, Sony should concentrate on the business sector and industries, supplying high technology equipment and parts. This would make full use of the R&D Department, the strongest advantage of Sony without waiting for the price cutting and technology adaptation to fit the average consumers needs. This would also make Sony less dependent on coming up with a steady stream of relatively short-lived hit products, and able to use its unique talents in video and semiconductor technology to create its version of the office of the future. Although the Sony name is often related to expensive, high-profit end of the market, the organization should also expand its product range by offering lower priced, simpler featured products that would compete head on with other copycats. With the lower priced line, Sony can also increase its market shares in both overseas and Japanese markets. Alliance and Cooperation Sony should try to become a leader instead of a maverick. The difference is great, the leader, besides a great innovator, should also be a great coordinator. New products, which involve both hardware and software such as the Mavica, should try to achieve industry wide standards. The standard may not be the best or the one created by Sony, but Sony, by pioneering in the field first, would already have a significant head start and the standards is just a way to ensure stability to allow Sony to concentrate on product development and improvement. This is because Sony is not large and strong enough to acquire and provide both software and hardware for one product. They also lack the know-how to the creative software market. Consumers also prefer to have the ability to choose between competitive equipment. Internally, the different R&D groups should cooperate more. The product line should also be made more compatible with one another which is crucial through the communication between groups and managers, i.e. no more secret projects. Products should be made with higher added value and longer life rather than making frequent model changes. This is also a shift from a manufacturer-orientated mentality to a consumer-orientated mentality, which is a way to save natural resources. The brand-line compatibility also builds brand loyalty for consumers. In relationship with the other Japanese consumer electronic firms, a more cooperative attitude should also be taken. Just like when Japanese took over the US market through cheap yet quality consumer goods, other Asian countries such as Taiwan and South Korea, with their lower labour cost, pose as great competitors at the lower end of consumer goods. Therefore, the Japanese firms should cooperate in setting up standards in high technology areas in order to reap maximum profits and extend the technological lead-time over their fellow Asian countries. Cost Cutting Cost cutting is important because R&D plays an integral part in the success of Sony and cannot be cut drastically although it gobbles up 10% of sales. Therefore, the only way to improve profit margins is to cut cost. Sony currently has factories in the United States and Japan. Although this is good for relationship of the firm in a foreign firm and offers a chance to pay suppliers with local currencies, Sony is not fully making use of other lower cost areas in the world, especially Asian countries such as Malaysia, Thailand and the Philippines etc. By setting up factories in these countries, Sony can take advantage of their cheap labour and also get a head start in their budding consumer markets. As mentioned above, products should be refined instead of reinvented so that there would be less set up cost and greater automation could be achieved. Integration of production, design and marketing In many ways, designing and developing of a product is separate from the production and marketing. Although there is job rotation, the design stage is backed by intuition and experience rather than market research and analysis. Often, the rational is that it is the marketing personnel's job to find a market for a product after it has been developed instead of the other way round. To cure this phenomenon, R&D should listen more to what the consumer needs and then innovate instead of always creating new markets. With great freedom, the designing team should also take on greater responsibility in making the product fit to the current production pattern and marketing aims. They should also be made more responsible to the profit and lost of the particular product. Empowering these three separate groups create conflict, but it also brings these separate efficient groups together achieving synergy. Implementation Internally, strategy should be reviewed beginning with renewing the corporate goals. It should integrate together both the Japanese work ethic and its western counterparts. This is possible, because Sony is a multinational corporation with employees and customers in many different countries. This involves writing the importance of profits and its responsibility to shareholders in the statement. Integration of the company, the designing, production and marketing should be encouraged, with increased communication between each groupand the management acting as liaison and guidance. The management should be providing the organization with specific goals and strategies for the short and long term. These changes are intended to balance business Vs engineering. Setting up alliances with fellow electronic manufacturers / competitor is crucial to mutual benefit so should be pursued as soon as possible. In areas such as the VTR, Sony has to decide what standard the world is adapting and make decisions to cut off setbacks. For new products such as the Mavica, new standards for the industry should be actively sort after with commitment from other competitors and conventional producers. This is also a change in culture for Sony so top management has to actively push and pursue for this direction. Cost cutting, with emphasis in making use of lower cost of labour in the Asian developing countries should then be implemented. This could also be seen as a long term strategy. The work force could also be made more flexible. Finally, diversification, with emphasis on making business supplies a major part of Sony's business. This is one of the long term goals in which Sony should thrive to achieve. However, the end product ratio between consumer and business products should be constantly reviewed throughout the process to achieve the optimum mix. Conclusion Although other electronic firms are taking market share and profits from Sony by being copycats, the heart of Sony's success, the innovative spirit and quest of excellence and perfection cannot be copied. Sony's main task is to integrate its talent by placing common goals and priority for this increasing competitive market. Sony also has the potential to innovate into a company with international operations as well as culture since it was one of the first Japanese companies to set up a main branch in the United States. With strategy and luck, Sony could become a great firm as it was and will be. f:\12000 essays\business & economics (632)\Spending more of the budget on Education rather than Welfare .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Welfare In the recent February article of the Los Angeles Times, Clinton has announced to go on with a plan to help people of welfare. Clinton challenged corporate bosses five months ago to take people in from welfare and trained them. One of the main contributors of the project is a chief executive officer of the Monsanto Ca., the nation's fourth largest chemical maker. Clinton singled out the Monsanto company and other companies for helping out welfare workers. Monsanto has hired five recipient and found almost twenty more jobs for others. Under the new laws of the welfare reforms, the able body workers should work within the two years of recieving benefits. Some of the good things out of this plan is that by the year 2005, only 14% of jobs will be done by more of the dependent poor people. This is bad because 46% of aid recipients had not completed high school or earned a General Equivalency Diploma. The ability to absorb more welfare recipients is limited by the high- technology chemical, agricultural, fiber and pharmaceutical development and manufacturing. These workers would have limited skills. Monsanto is highly protecteive of the privacy of its special new hires. The new employees are hired to fill a variety of clerical and light general- labor positions. They will not be identified as the company's welfare-to-work initiative. The possible short-term effect this would have on society is that people, on welfare, would be able to work and get paid for it. This will allow them to be able to build finance of their own that they will be able to help them with their lives. The long-term effect, though it seemed good for the people, would be bad for everyone else who weren't on welfare. This would be because the people working off welfare would really be working off the tax payers money. So, the people who aren't living off welfare would be paying higher taxes and the people who are living on welfare would be paying less taxes. Education Education is an important factor in society today. Without education, we wouldn't be able to boost our technology. Boosting the technology would then help us in the medical field, help us build better houses that are more durable to earthquakes, etc. I think that we should spend more of the budget on education. If we spended more on education, we would be able to get more, better teacher to teach our children. With more teachers on the field, we would be able to teach more students than normal. To help the teachers out in there teaching, money would be put in to buy new, improved, and revised version of books. Thought this seems good and all, the short- term effect would be that this would only be able to happen for a certain amount of time. This is because the people would be spending a lot of money on education, so the taxes would rise which is bad. In the long run, though, with the increase in money for education, we would be able to learn a lot more. In time, we would be able to find the cures for the deadly diseases that is in society today. I believe that all parts of society would benefit from this because of the possible cause that will happen when we are able to treat AIDS the same way we treat the common cold. The only disadvantage is that of the money. I don't really think people would agree with the budget becuase they would want to keep the money for themselves. In general, if we spent more on education than on welfare, we would be able to think of better ways to improve the way we live and build a better place where people can work and live peacefully. f:\12000 essays\business & economics (632)\Starting A Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 2182 Introduction More and more people are beginning to open their minds to new business ventures. It seems like it is becoming the popular move. By opening a business there could be huge profit to be made, depending on the market. On the other hand, there are risks and losses that may occur as well. It is said that there are two reasons why people start a business. The first reason is because they have inspiration for what they believe would be a great idea and the second is from desperation. People have a need to make money and there are no jobs out there, which they found, that suites them or their needs. There are various different ways to start a business. Not all entrepreneurs begin their business by the thought of an idea. There are many other ways to go about starting a business. Buying a franchise, buying an existing company, the inventions of a product are all other ways to begin a business. People often start a business in a field that they know well. Although this is true, it is essential not to limit the perspectives of the kind of business to open. The areas outside of your interests may just be the right opportunity for you, which is why it is important to explore other areas. This paper will talk about the general ways in which to start a new business and how to go about doing it. Included will be how to get ideas to open a business, planning out the business structure, ways to get money to start the business, getting prepared, hiring the staff, and getting the word out to the public. Getting Ideas to Open a Business The business idea plays a critical role in the overall success of the business venture chosen. "It is part of the early pre-venture stage of business development that often goes unnoticed by those who are interested in getting into a business and by those involved in business development counselling/training"(Canada 1). "There are many considerations that must be thought of before determine the success of an enterprise, including the entrepreneur, financing and other external forces". "In order to have a good business idea it should: * satisfy personal goals and interests, * find a success place in the market, * making sure it is possible to produce the necessary quality and quantity of the product or service, and * Meet or exceed your financial goals" In order to meet all of these criteria, it is essential to complete research on the business idea that has been chosen. Research information can be gathered from various different sources. Some of these sources being the library, looking at existing businesses, word of mouth, reading books, watching television, going to government departments, talking to university professors etc. If the research has not been completed then it more likely that the business will become a failure. Planning Out the Business Structure The one basic question facing all new business owners is "what business structure is the best for me?" (Canada 6). There are three main types of business structures: sole proprietorship, partnership, corporation. All of these different structures are different and require different things to make them work. The sole proprietorship is a business that has only one owner and for the purpose of his/her own profit, the partnership is a business which has two or more people and all of the workers work as co-owners, and the corporation is an artificial entry with obligations, rights and privileges that are distinct. By having a structure it can cut down costs and maximize the profits, it will be easier to get money lent with certain structures and the tax is different depending on the type of structure. Once the name of the business has been chosen it is important to register this name unless the company is just your first and last names. The name registration must go through the Registry of Joint Stock Companies. By doing this it ensures that no one else will take the name from you and that no one else that already has a business has the same name. This process will cost money but in the long run it is worth it. The most important step in starting a business is the business plan. If the business plan is not completed then the business is more likely to fail, lenders are less likely to lend money to the business, there could be a loss of investment or other bad things could happen. Most of all the preparation for the business is not there and the owner(s) may not be prepared for most of the situations they will face. In order to find out a way in which to figure out the needs and the wants of potential clients, a good idea would be to do a survey. This will allow the business owner(s) a chance to get a reflection or thought of the people that will be using the services of the company. This may increase the sales or services of the business as well. Another survey that could be completed is to find out with other companies in the same market are heading toward. Also by doing this it can enable the business to redesign the business before it is too late, to adapt to the needs of the consumers. Keeping in touch with the public needs will help the business in the short and long term periods. This step should be done before the business plan to capitalize on the survey done. To be able to get this done correctly, there are people who work for the Governments that are trained for this kind of thing. The places known off hand is the Business Service Center, and ACOA (Atlantic Canada Opportunities Agencies). These are Federal Government employees who are there for all types of services to do with any type of business venture. A business plan has to have the following: "* an Executive summary which summarises key points of the business plan in one or two pages; * an overview which introduces the reader to the business; * a description of the products and services; * an overview of the industry in which the business will compete; * a marketing strategy which summarises the product, promotion, pricing and distribution strategies of the business; * a description of the management and the staff; * an implementation plan; and * a financial plan which includes pro-forma balance sheets, income statements and cash flow statements. A balance sheet compares what your business owns to what it owes. A cash flow statement compares how much money will be coming in, to how much you will be spending. An income statement compares your revenues to your expenses to see if you are going to make any money" (CBSC 1). To ensure that a business plan is complete makes sure that there is a summary of all these things. The length of the business plan should be approximately between ten pages and twenty-five pages in length. This business plan will acquire lots of time and effort and for that reason a lot of people do not get one done. Ways to Get Money to Start the Business There are various different funds available for new business ventures to try and create more jobs in Canada. Entrepreneurs are more then welcome and advised to come into the Canadian economy. To get these funds the business plan has to be completed. The funds available are for many different types of people. There are special ones for immigrant entrepreneurs, women's entrepreneurs, and young entrepreneurs. Loans from the government are available in several different places. Some of these include: "ACOA - located on Brunswick Street in Halifax, C/NSBSC - located on Hollis Street in Downtown Halifax, Business Development bank of Canada, Economic Development and Tourism, Business Development Corporation, St. Marys Business Development Center, Black Business Initiatives and Calmeadow". The loans from the Government are mostly interest free and unsecured loans. This, in comparison to a bank loan, is much better for the fact that there is no interest. If the only resource left is the bank then it is necessary to get a low interest loan. Start-Up Check List One of the most common questions in starting a business is: "where do I start?". The questioner below will help answer that question for new business people. This checklist will be the road map for starting a business. Most business owners should use this to make sure that everything is done before the opening of the store. Conduct a self assessment of your entrepreneurial suitability. Prepare a business plan. Prepare a marketing plan. Speak to business information officers and business development officers at any of the business resources in the area. Ask for advice from processionals such as your banker, accountant, or lawyer. Contact your municipal or regional government concerning zoning requirements or special licences or permits. Register the business name with the Nova Scotia Registry of Joint Stock Companies. Check with the C/NSBSC, Access Nova Scotia, The department of Business and Consumer Services, or Trade and Professional agencies to find if there are any special licences, permits, or environmental concerns for your type of business. Set up a bookkeeping system. If you are occupying commercial premises, notify in writing within one week of opening your business your Regional Director of Assessment, Nova Scotia Department of Municipal Affairs in order to be assessed for Municipal Occupancy Tax. Open a Business account wit the bank under the company's name Contact Revenue Canada's Business Window in order to register for collecting HST, remitting EI, making CPP payments, corporate income tax, and import/export taxes. Arrange for insurance coverage for your business. If you need to register a trade-mark, Copyright, Industrial Design or apply for a patient, contacts the Canadian Intellectual Property Office. If you will be invoicing customers and charging them interest on overdue account contact the Nova Scotia Department of Business and Consumer Affairs. If you are hiring employees, contact the Labour Standards Office, The Nova Scotia Human Rights Commission, The Occupational Health and Safety Division of the Department of Labour, The Workers Compensation Board and Revenue Canada. (Canada 2) Hiring the Staff If the company is going to have staff hired, the first thing to do is decide on the number Staff that is going to be hired. This can be determined by the size of the store but mostly what type of business the company is involved. This should be one of the easiest things to do when opening a business. The next thing to do is to create a questionnaire to ask people when doing the interviews. This should be the same for everybody interviewed. If the questionnaire is changed from person to person then the end result will be different for everyone. When doing the actual hiring there are some pros and some cons to hiring friends for the job. Pros Cons - have someone that you can trust - a friend may think that they are able to do anything - someone to tell if anything goes wrong - Harder to get rid of them if they are not suited for the job - Could end a friendship? In the end I do not believe that people should hire their friends into their work place if they are the owner or the manager. This could make things even more difficult when you are starting out then it already is. In the work place it is important to vary the types of people working for the business. For example: if he new business is a sporting goods store, it would not be a great idea to hire someone who has no interests in the area at all. On the other hand it may be a good idea if the people were of various different genders and cultures with other things permitting. Conclusion There are various different ways to go about starting your own business. In this era of time it is important to understand that it is easy to fail but there are lots of people to help you succeed. In my own personal opinion I feel that, depending on the business, new business ventures are the way of today. If all of the proper steps are followed, the business should do well and there could be a lot of money to be made from it. In the long run, people who succeed at their own business are far more proud of their accomplishments in the end. Of course there is a lot of extra work t be put into the business but the outcome could be rewarding. Table of Contents 1. Introduction...........................................................................................................Page 1 2. Getting Ideas to Open A Business...........................................................................Page 2 3. Planning Out the Business Structure........................................................................Page 3 4. Ways to get money to Start the Business.................................................................Page 6 5. Start-Up Check List................................................................................................Page 7 6. Hiring the Staff.......................................................................................................Page 9 7. Conclusion.............................................................................................................Page 10 8. Word Count...........................................................................................................Page 11 9. Bibliography...........................................................................................................Page 12 f:\12000 essays\business & economics (632)\State of the Union Address Essay.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ State of the Union Address Essay President Clinton has declared that "the enemy of our time is inaction," pledging to forge bipartisan agreements on a balanced budget and campaign finance reform within months, and to lead a "national crusade" to improve education by the turn of the century. Education, Clinton vowed, would be his "number-one priority for the next four years," and he devoted the longest portion of his address to this. He appealed for "national standards" to improve student performance and pledged to promote such standards with voluntary tests prepared by the federal government. Most of the ideas Clinton presented last night first appeared as poll- tested proposals in his reelection campaign last fall: expanding the 1993 "Family and Medical Leave Act" to include time off from work for parent-teacher conferences; school curfews; and tax credits and deductions to subsidize college education. But he presented these ideas using more encompassing and urgent language than before. "We face no imminent threat, but we do have an enemy: The enemy of our time is inaction," Clinton declared at the start of his speech. He finished, as he did in last month's address, by invoking the symbolism that the nation is about to pass into a new millennium. "We don't have a moment to waste," he said. "Tomorrow, there will be just over 1,000 days until the year 2000. . . . One thousand days to work together." The speech proved shorter than predicted and far more organized and disciplined than some of his previous appearances before Congress. The annual speeches to Congress have served as markers of Clinton's ideological migration. In 1993, he announced that government must do more and unveiled a raft of big- government proposals, including a $30 billion "stimulus package" that was vastly more expensive than any single proposal he offered last night. Also as part of his pitch for more low-tax empowerment zones in urban areas, Clinton made reference to his newfound commitment to rescue the troubled District of Columbia. He said, "Together, we must pledge tonight that we will use this empowerment approach, including private-sector tax incentives to renew our capital city, so that Washington is a great place to work and live, and is once again the proud face America shows to the world" f:\12000 essays\business & economics (632)\State of the Union Essay.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics 201 State of the Union Address Essay President Clinton has declared that "the enemy of our time is inaction," pledging to forge bipartisan agreements on a balanced budget and campaign finance reform within months, and to lead a "national crusade" to improve education by the turn of the century. Education, Clinton vowed, would be his "number-one priority for the next four years," and he devoted the longest portion of his address to this. He appealed for "national standards" to improve student performance and pledged to promote such standards with voluntary tests prepared by the federal government. Most of the ideas Clinton presented last night first appeared as poll-tested proposals in his reelection campaign last fall: expanding the 1993 "Family and Medical Leave Act" to include time off from work for parent-teacher conferences; school curfews; and tax credits and deductions to subsidize college education. But he presented these ideas using more encompassing and urgent language than before. "We face no imminent threat, but we do have an enemy: The enemy of our time is inaction," Clinton declared at the start of his speech. He finished, as he did in last month's address, by invoking the symbolism that the nation is about to pass into a new millennium. "We don't have a moment to waste," he said. "Tomorrow, there will be just over 1,000 days until the year 2000. . . . One thousand days to work together." The speech proved shorter than predicted and far more organized and disciplined than some of his previous appearances before Congress. The annual speeches to Congress have served as markers of Clinton's ideological migration. In 1993, he announced that government must do more and unveiled a raft of big-government proposals, including a $30 billion "stimulus package" that was vastly more expensive than any single proposal he offered last night. Also as part of his pitch for more low-tax empowerment zones in urban areas, Clinton made reference to his newfound commitment to rescue the troubled District of Columbia. He said, "Together, we must pledge tonight that we will use this empowerment approach, including private-sector tax incentives to renew our capital city, so that Washington is a great place to work and live, and is once again the proud face America shows to the world" f:\12000 essays\business & economics (632)\Statlites.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Satellites orbit the earth doing our bidding in ways that enrich the lives of almost all of us. Through electronic eyes from hundreds of miles overhead, they lead prospectors to mineral deposits invisble on earth's surface. Relaying communications at the speed of light, they shrink the planet until its most distant people are only a split second apart. They beam world weather to our living room TV and guide ships through storms. Swooping low over areas of possible hostility, spies in the sky maintain a surveillance that helps keep peace in a volatile world. How many objects, exaclty, are orbiting out there? Today's count is 4,914. The satellites begin with a launch, which in the U.S. takes place at Cape Canaveral in Florida, NASA's Wallops Flight Center in Virginia, or, for polar orbiters, Vandenberg Air Force Base in California. One satellite in 20 is crippled by the jolt of lift-off, or dies in the inferno of a defective rocket blast, or is thrust into improper orbit. A few simply vanish into the immensity of space. When a satellite emerges from the rocket's protective shroud, radiotelemety regularly reports on its health to round-the-clock crews of ground controllers. They watch over the temperatures and voltages of the craft's electronic nervous system and other vital "organs", always critical with machines whose sunward side may be 300 degress hotter than the shaded part. Once a satellite achieves orbit--that delicate condition in which the pull of earth's gravity is matched by the outward fling of the crafts speed--subtle pressures make it go astray. Solar flares make the satellite go out of orbit. Wisps of outer atmosphere drag its speed. Like strands of spiderweb, gravity feilds of the earth, moon, and sun tug at the orbiting spacefarer. Even the sunshine's soft caress exerts a gentle nudge. Should a satellite begin to wander, ground crews fire small fuel jets that steer it back on course. This is done sparingly, for exhaustion of these gases ends a craft's useful career. Under such stresses, many satellites last 2 years. When death is only a second away, controllers may command the craft to jump into a high orbit, so it will move up away from earth, keeping orbital paths from becoming too cluttered. Others become ensnarled in the gravity web; slowly they are drawn into gravitational that serve as space graveyards. A satellite for communications would really be a great antenna tower, hundreds or even thousands of miles above the earth, capable of transmitting messages almost instantaneously across the oceans and continents. Soon after the launch of ATWS-6, "the Teacher in the sky", (a satellite designed to aid people) NASA ground controllers trained its antenna on Appalachia. There is brought evening college classes to schoolteachers whose isolation denied opportunity for advancement. The use of Satellites is growing rapidly and so is the different jobs for them. f:\12000 essays\business & economics (632)\STATUS OF THE AUTOMOBILE MARKET IN LEBANON.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ STATUS OF THE AUTOMOBILE MARKET IN LEBANON INTRODUCTION TO MARKETING (MKT 201) The automobile market in Lebanon is actually divided into two types of markets. The first is that of brand new cars, and the second is that of the second hand cars. In principle, both markets target different types of market segments. The brand new market usually targets the middle and upper class income level groups. However, the market in Lebanon today for the automobile business is actually different than this theoretical description. The reason behind this is that today cars can be purchased on installments for periods that extend to more than two years and not more than five years. Accordingly, Lebanese no longer prefer second hand cars even if they belong to lower level income groups and are directed towards brand new cars. This has been also realizable due to the car loans guaranteed by various retail banks in Lebanon. This increase in demand on brand new cars has lead to increasing competition between car dealers in Lebanon. The heavy competition has led car dealers to differentiate themselves against each other based on various services such as extended credits, trade in facilities, car insurance, long term guarantees, after sales service. Nevertheless, there are various threats in the market. These have been centered on the ability of the Lebanese to pay off their installments. In many instances, it has been suggested that the Lebanese do not make efficient purchase decisions and this in turn is resulting in either returning cars when individuals are not able to pay back the installments, or in most of the cases, the company would either take the car back and resell it or ignore the fact that payments are not being done on time. In all cases, the operations are not going smoothly, partially due to wrong purchase decisions from the side of the customer, and partly due to the selling decisions from the dealers side. Sales of the Lebanese automobile market in the year 1999 had 20% decrease compared to the sales of the year 1998, this is due to the economical recession Lebanon is going through. Therefore to refresh the automobile market in Lebanon, Beirut Motor Show 2000 was held in Forum De Beyrouth where participation reached more than 98%. And this motor show is considered an internationally recognized event and an added attraction for Lebanon. FACTORS AFFECTING THE PURCHASE DECISION OF CARS. The more the product is expensive the more the buying decision will be complicated. So when we talk about the car market we have to analyze it very carefully for many reasons. First of all, it is an expensive product that has to last for a long period with good performance. Second, there are many big brand names in the market which also make the decision more difficult... However, the car marketer must know the whys of the consumer's buying behavior. For example, why does the consumer prefer this car over another, what makes the consumer switch to another brand or stay loyal to the brand. This is very important in this field because marketers are trying their best to create brand loyalty...and many other questions, so we have to study the factors that may affect the purchase decision of cars. Consumer's buying behavior is influenced by the buyer's factors that include four major factors: cultural, social, personal, and physiological. As for the cultural factor, it is a significant factor because it determines the consumer's wants and behavior. According to this, it is very essential to understand the cultural background of the Lebanese children. This is reflected by the fact that most of the cars in Lebanon are not family cars, every family member has his own car. This can be proved by the statistics that has been done three years ago which shows that every three to five people in Lebanon have one car which is considered a huge number per capita. Also the culture permits the girl to own a car, specially that women now are working and are getting high salaries. These constitute a considerable segment. In addition, the automakers must be aware of the cultural shifts in order to cover more and more segments and to discover new types of products that might be wanted. For example, the cultural shift toward greater concern for friendly environmental products. Accordingly, most of the automakers have increased the safety equipment in cars like the air bag and the ABS. As for the social factor, the groups, family, roles, and status influence the consumer's decision about purchasing cars. In the Lebanese society, people have a great influence on each other and they can affect the whole decision either positively or negatively. For example, no one will buy a car that not accepted by his friends, co-workers, girlfriend, and neighbors. We can notice that from the failure of some cars like Tico. Although it has many advantages ( small, economical, cheep...), no one likes its shape and consequently very few people buy it. In the case of expensive products, husbands and wives more often make joint decisions, so the wife's opinion will affect the decision of buying the car or choosing between the brands. Age and life-cycle stage play a role in affecting the purchase decision. For example, teenagers prefer sport and small sized cars. Middle ages people like classical and elegant cars. Singles don't care if the two seats car doesn't fit for more than two persons. Married people with kids prefer big cars that fit for the whole family. We notice that the station cars are not doing very well in Lebanon due to both cultural and social factors. Occupation also has a great effect on the consumer's decision specially in Lebanon since one can hardly see a well-known person with an important position driving a small or even medium sized car, it has to be something like Mercedes, BMW, or Range Rover. In addition to all this, the economical situation is a very important factor. Some people are taking loans from Banks in order to pay for expensive cars in addition to the payment facilities. Other people prefer to buy somewhat cheep and economical cars like Daewoo and Hyundai. These cars are cheep with very good performance compared to their price, so they are doing very well in business here. Also marketers must take into consideration the lifestyle factor because one's car reflects his personality. This is because when one chooses a car he chooses it according to his own interests, opinion, and hobbies. Therefore, automakers should know exactly how to position their cars and create a brand image in the consumer's mind and to reassure it by promotions and advertising. For example, Mercedes stands for luxury, BMW for elegance and power, Hyundai for low price and practicality. So everyone chooses according to his personality. As for the psychological factor affecting the car purchase decision, most people when deciding upon the brand of car to purchase, their self-esteem plays a major role in this decision. People with high self-esteem, specially those belonging to the high income level group, will choose important brand names that reflect the desired impression they want people to perceive about them. MARKETING STRATEGIES USED BY CAR DEALERS IN LEBANON. For dealers to meet the needs of target market, they use different marketing strategies. In order to facilitate the formulation of these strategies and marketing objectives in my opinion, dealers must adopt the marketing research since a lot of information can be derived from it that the company might not be aware of. Unfortunately, not all dealers in Lebanon do that. Related to promotional and advertising activities, television, newspapers, and magazines advertising are the backbone of the advertising strategy used by car dealers in Lebanon. This is in addition to direct mail, web sites on the Internet, billboards, and in store advertising. Some dealers also sponsor significant events, and they develop a motto forexample, Nissan's motto is " Life is a journey. Enjoy the ride." But adopting these strategies require the dealer to allocate high budgets. Most dealers care about providing aftersale service, having work done on time, making spare parts available, and caring about the way they must treat customers, after realizing how important these strategies are in keeping their old customers satisfied and attracting new ones. And as I said in the introduction, most dealers are deviating towards providing insurance plans, and credit facilities which are a pressing need in the current economical recession. For example, FIAT offered free fuel for two years after purchasing the FIAT car, and KIA's offer was not to pay downpayments for the first three months after the car purchase in addition KIA offered to pay all fees of the car license registration. Dealers also participate in motor shows, like the Beirut Motor Show 2000. ELMENTS OF THE MARKETING MIX USED FOR CAR SELLING IN LEBANON. In this section, I am going to discuss the elements of the marketing mix used by RYMCO, Rasamny Younes Motor Company, the dealer of Nissan Cars in Lebanon. As for the first P. the product, the company deals with car distribution and it has been in business for 43 years that is from year 1957. It is one of the first retail vehicle dealership in Lebanon. It controls approximately 17% of the new vehicle retailing market in Lebanon, and commands a considerable size of the used vehicle retailing market. Through the brand names and diversified product lines like that of Nissan, RYMCO covers a wide segment of the vehicle retailing market in Lebanon for both passenger and commercial vehicles including Sunny, Almera, AD Wagon, Primera, 200SX, Maxima, Pathfinder, Gloria, Miara, Nissan Pickup, Vanette Cargo, Civilian, Nissan Forlift, and Nissan Diessel. In marketing theories, and in defining the first P, the product, it is not only the actual hard product that is only purchased, rather, the product includes features and benefits that are indirectly related to the product itself. These in the case of RYMCO, include after sale service, payment facilities, and additional options. The company trained and certified technicians who are capable of rendering sophisticated, professional, and highly demanding repair and maintenance services using state-of the art computer diagnostic equipment. The service center is open to the public six days a week. RYMCO professional technicians offer a comprehensive range of maintenance and repair services to its customers. To support the company's warranty program, a rigorous technical training program is applied to supplement employees' education and to help them attain proficiency and career advancement. The company's senior engineers and technicians attend service seminars and training sessions that are offered and sponsored by vehicle manufacturers on an annual basis. Related to the second P, promotions, RYMCO participated in the Beirut Motor Show 2000, and now it is sponsoring Engelbert's concert which will take place on the 14th of February 2000. TV, newspaper, magazines, direct mail, website (www.rymco.com.lb) and billboards, all are used by RYMCO as advertising activities. As for the third P, place, currently RYMCO operates through a network of four large showrooms located in the Greater Beirut Area, which open six days a week. In addition RYMCO supplies several distributors through out the country . The following table lists RYMCO's showrooms and distributors. SHOWROOMS Chiah Boulvard Jal El Dib Boulvard Manara Boulvard Mathaf LOCATION Beirut Beirut Beirut Beirut DISTRIBUTORS Super Car Koueik Motor Company Golden Motors Excel Center Jamal Wazzan Slaiby Motor Company Jassem Noaimi LOCATION Tripoli Byblos Sidon, Nabatieh, and Tyre Zahle Ras Beirut Ghazir Akkar Finally, the last part of this section deals with the P of pricing. Rasamny always follows a fixed pricing strategy and sometimes, cash discounts and quantity discounts are taken into consideration. However, when doing that, in most of the times, if not always, pricing is market based and accordingly, it takes into consideration the competition, the demand, and the economic environment of the country.Prices of the Nissan cars vary with the series forexample, Sunny which was ranked the first in Lebanese automobile sales for the year 1998 costs $13,000, Maxima $29,000, Infinity $33,000, and Pathfinder $40,000. The company's sales have witnessed an upward trend. The surge in sales between 1995 and 1998 resulted mainly from the recovering local economy and was largely fueled by the availability of financing programs to customers. Currently for the past two years , the company has been able to maintain position as the top leading Automotive. The chart illustrates RYMCO's steadily growing market share of the new vehicles from year 1995 to 1998. Term Project The objectives of this project are: 1. 2. To review the status of the automobile market in Lebanon. 3. 4. To identify the factors that affect purchase decisions of cars. 5. 6. To describe the segmentation variables used for car in Lebanon. 7. 8. To describe how dealers adjust their marketing strategies to meet the needs of target market. 9. 10. Discuss the elements of the marketing mix used for car selling in Lebanon .( RYMCO- Nissan cars) f:\12000 essays\business & economics (632)\Steve Jobs 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Born 1955 Los Altos CA; Evangelic bad boy who, with Steve Wozniak, co-founded Apple Computer Corporation and became a multimillionaire before the age of 30. Subsequently started the NeXT Corporation to provide an educational system at a reasonable price, but found that software was a better seller than hardware. Steven Paul, was an orphan adopted by Paul and Clara Jobs of Mountain View, California in February 1955. Jobs was not happy at school in Mountain View so the family moved to Los Altos, California, where Steven attended Homestead High School. His electronics teacher at Homestead High, Hohn McCollum, recalled he was "something of a loner" and "always had a different way of looking at things." Going to work for Atari after leaving Reed College, Jobs renewed his friendship with Steve Wozniak. The two designed computer games for Atari and a telephone "blue box", getting much of their impetus from the Homebrew Computer Club. Beginning work in the Job's family garage they managed to make their first "killing" when the Byte Shop in Mountain View bought their first fifty fully assembled computers. On this basis the Apple Corporation was founded, the name based on Job's favorite fruit and the logo. Steve Jobs innovative idea of a personel computer led him into revolutionizing the computer hardware and software industry. When Jobs was twenty one, he and a friend, Wozniak, built a personel computer called the Apple. The Apple changed people's idea of a computer from a gigantic and inscrutable mass of vacuum tubes only used by big business and the government to a small box used by ordinary people. No company has done more to democratize the computer and make it user-friendly than Apple Computer Inc. Jobs software development for the Macintosh re-introduced windows interface and mouse technology which set a standard for all applications interface in software. Two years after building the Apple I, Jobs introduced the Apple II. The Apple II was the best buy in personal computers for home and small business throughout the following five years. When the Macintosh was introduced in 1984, it was marketed towards medium and large businesses. The Macintosh took the first major step in adapting the personal computer to the needs of the corporate work force. Steve Jobs was considered a brilliant young man in Silicon Valley, because he saw the future demands of the computer industry. He was able to build a personal computer and market the product. His innovative ideas of user-friendly software for the Macintosh changed the design and functionality of software interfaces created for computers. The Macintosh's interface allowed people to interact easier with computers, because they used a mouse to click on objects displayed on the screen to perform some function. The Macintosh got ride of the computer command lines that intemidated people from using computers. After resigning from Apple Inc., Jobs would continue challenging himself to develop computers and software for education and research by starting a new company that would eventually develop the NextStep computer. After school, Jobs attended lectures at the Hewlett-Packard electronics firm in Palo Alto, California. There he was hired as a summer employee. Another employee at Hewlett-Packard was Stephen Wozniak a recent dropout from the University of California at Berkeley. An engineering whiz with a passion for inventing electronic gadgets, Wozniak at that time was perfecting his "blue box," an illegal pocket-size telephone attachment that would allow the user to make free long-distance calls. Jobs helped Wozniak sell a number of the devices to customers. After school, Jobs attended lectures at the Hewlett-Packard electronics firm in Palo Alto, California. There he was hired as a summer employee. Another employee at Hewlett-Packard was Stephen Wozniak a recent dropout from the University of California at Berkeley. An engineering whiz with a passion for inventing electronic gadgets. Wozniak and Jobs designed the Apple I computer in Jobs's bedroom and they built the prototype in the Jobs' garage. Jobs showed the machine to a local electronics equipment retailer, who ordered twenty-five. Jobs received marketing advice from a friend, who was a retired CEO from Intel, and he helped them with marketing strategies for selling their new product. Jobs and Wozniak had great inspiration in starting a computer company that would produce and sell computers. To start this company they sold their most valuable possessions. Jobs sold his Volkswagen micro-bus and Wozniak sold his Hewlett-Packard scientific calculator, which raised $1,300 to start their new company. With that capital base and credit begged from local electronics suppliers, they set up their first production line. Jobs came up with the name of their new company Apple in memory of a happy summer he had spent as an orchard worker in Oregon. Jobs and Wozniak put together their first computer, called the Apple I. They marketed it in 1976 at a price of $666. The Apple I was the first single-board computer with built-in video interface, and on-board ROM, which told the machine how to load other programs from an external source. Jobs was marketing the Apple I at hobbyists like members of the Homebrew Computer Club who could now perform their own operations on their personal computers. Jobs and Wozniak managed to earn $774,000 from the sales of the Apple I. The following year, Jobs and Wozniak developed the general purpose Apple II. The design of the Apple II did not depart from Apple I's simplistic and compactness design. The Apple II was the Volkswagon of computers. The Apple II had built-in circuitry allowing it to interface directly to a color video monitor. Jobs encouraged independent programmers to invent applications for Apple II. The result was a library of some 16,000 software programs. Quickly setting the standard in personal computers, the Apple II had earnings of $139,000,000 within three years, a growth of 700 percent. Impressed with that growth, and a trend indicating an additional worth of 35 to 40 percent, the cautious underwriting firm of Hambrecht & Quist in cooperation with Wall Street's prestigious Morgan Stanley, Inc., took Apple public in 1980. The underwriters price of $22 per share went up to $29 the first day of trading, bringing the market value of Apple to $1.2 billion. In 1982 Apple had sales of $583,000,000 up 74 percent from 1981. Its net earnings were $1.06 a share, up 55 percent, and as of December 1982, the company's stock was selling for approximately $30 a share. Over the past seven years of Apple's creation, Jobs had created a strong productive company with a growth curve like a straight line North with no serious competitors. From 1978 to 1983, its compound growth rate was over 150% a year. Then IBM muscled into the personal computer business. Two years after introducing its PC, IBM passed Apple in dollar sales of the machines. IBM's dominance had made its operating system an industry standard which was not compatible with Apple's products. Jobs knew in order to compete with IBM, he would have to make the Apple compatible with IBM computers and needed to introduce new computers that could be marketed in the business world which IBM controlled. To help him market these new computers Jobs recruited John Sculley from Pesi Cola for a position as president at Apple. Jobs designed the Macintosh to compete with the PC and, in turn, make Apple's new products a success. In an effort to revitalize the company and prevent it from falling victim to corporate bureaucracy, Jobs launched a campaign to bring back the values and entrepreneurial spirit that characterized Apple in its garage shop days. In developing the Macintosh, he tried to re-create an atmosphere in which the computer industry's highly individualistic, talented, and often eccentric software and hardware designers could flourish. The Macintosh had 128K of memory, twice that of the PC, and the memory could be expandable up to192K. The Mac's 32-bit microprocessor did more things and out performed the PC's 16-bit microprocessor. The larger concern of management concerning the Macintosh was not IBM compatible. This caused an uphill fight for Apple in trying to sell Macintosh to big corporations that where IBM territory. "We have thought about this very hard and it old be easy for us to come out with an IBM look-alike product, and put the Apple logo on it, and sell a lot of Apples. Our earning per share would go up and our stock holders would be happy, but we think that would be the wrong thing to do," says Jobs. The Macintosh held the moments possibility that computer technology would evolve beyond the mindless crunching of numbers for legions of corporate bean-counters. As the print campaign claimed, the Macintosh was the computer "for the rest of us." The strategy Jobs used to introduce the Macintosh in 1984 was radical. The Macintosh, with all its apparent vulnerability, was a revolutionary act infused with altruism, a technological bomb-throwing. When the machine was introduced to the public on Super Bowl Sunday it was, as Apple Chairman Steve Jobs described it, "kind of like watching the gladiator going into the arena and saying, 'Here it is." [Scott, 1991, p.71] The commercial had a young woman athlete being chased by faceless storm-troopers who raced past hundreds of vacant eyed workers and hurled a sledgehammer into the image of a menacing voice. A transcendent blast. Then a calm, cultivated speaker assured the astonished multitudes that 1984 would not be like 1984. Macintosh had entered the arena. That week, countless newspapers and magazines ran stories with titles like "What were you doing when the '1984' commercial ran?" Jobs' invocation of the gladiator image is not incidental here. Throughout the development of the Macintosh, he had fanned the fervor of the design team by characterizing them as brilliant, committed marhinals. He repeatedly clothed both public and private statements about the machine in revolutionary, sometimes violent imagery, first encouraging his compatriots to see themselves as outlaws, and then target the audience to imagine themselves as revolutionaries. Jobs, like all those who worked on the project, saw the Macintosh as something that would change the world. Jobs described his Macintosh developing team as souls who were "well grounded in the philosophical traditions of the last 100 years and the sociological traditions of the 60's. The Macintosh team pursued their project through grueling hours and against formidable odds. A reporter who interviewed the team wrote: "The machine's development was, in turn, traumatic, joyful, grueling, lunatic, rewarding and ultimately the major event in the lives of almost everyone involved". f:\12000 essays\business & economics (632)\Steve Jobs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Steve Jobs Born 1955 Los Altos CA; Evangelic bad boy who, with Steve Wozniak, co-founded Apple Computer Corporation and became a multimillionaire before the age of 30. Subsequently started the NeXT Corporation to provide an educational system at a reasonable price, but found that software was a better seller than hardware. Steven Paul, was an orphan adopted by Paul and Clara Jobs of Mountain View, California in February 1955. Jobs was not happy at school in Mountain View so the family moved to Los Altos, California, where Steven attended Homestead High School. His electronics teacher at Homestead High, Hohn McCollum, recalled he was "something of a loner" and "always had a different way of looking at things." Going to work for Atari after leaving Reed College, Jobs renewed his friendship with Steve Wozniak. The two designed computer games for Atari and a telephone "blue box", getting much of their impetus from the Homebrew Computer Club. Beginning work in the Job's family garage they managed to make their first "killing" when the Byte Shop in Mountain View bought their first fifty fully assembled computers. On this basis the Apple Corporation was founded, the name based on Job's favorite fruit and the logo. Steve Jobs innovative idea of a personel computer led him into revolutionizing the computer hardware and software industry. When Jobs was twenty one, he and a friend, Wozniak, built a personel computer called the Apple. The Apple changed people's idea of a computer from a gigantic and inscrutable mass of vacuum tubes only used by big business and the government to a small box used by ordinary people. No company has done more to democratize the computer and make it user- friendly than Apple Computer Inc. Jobs software development for the Macintosh re-introduced windows interface and mouse technology which set a standard for all applications interface in software. Two years after building the Apple I, Jobs introduced the Apple II. The Apple II was the best buy in personal computers for home and small business throughout the following five years. When the Macintosh was introduced in 1984, it was marketed towards medium and large businesses. The Macintosh took the first major step in adapting the personal computer to the needs of the corporate work force. Steve Jobs was considered a brilliant young man in Silicon Valley, because he saw the future demands of the computer industry. He was able to build a personal computer and market the product. His innovative ideas of user-friendly software for the Macintosh changed the design and functionality of software interfaces created for computers. The Macintosh's interface allowed people to interact easier with computers, because they used a mouse to click on objects displayed on the screen to perform some function. The Macintosh got ride of the computer command lines that intemidated people from using computers. After resigning from Apple Inc., Jobs would continue challenging himself to develop computers and software for education and research by starting a new company that would eventually develop the NextStep computer. After school, Jobs attended lectures at the Hewlett-Packard electronics firm in Palo Alto, California. There he was hired as a summer employee. Another employee at Hewlett-Packard was Stephen Wozniak a recent dropout from the University of California at Berkeley. An engineering whiz with a passion for inventing electronic gadgets, Wozniak at that time was perfecting his "blue box," an illegal pocket-size telephone attachment that would allow the user to make free long-distance calls. Jobs helped Wozniak sell a number of the devices to customers. After school, Jobs attended lectures at the Hewlett-Packard electronics firm in Palo Alto, California. There he was hired as a summer employee. Another employee at Hewlett-Packard was Stephen Wozniak a recent dropout from the University of California at Berkeley. An engineering whiz with a passion for inventing electronic gadgets. Wozniak and Jobs designed the Apple I computer in Jobs's bedroom and they built the prototype in the Jobs' garage. Jobs showed the machine to a local electronics equipment retailer, who ordered twenty-five. Jobs received marketing advice from a friend, who was a retired CEO from Intel, and he helped them with marketing strategies for selling their new product. Jobs and Wozniak had great inspiration in starting a computer company that would produce and sell computers. To start this company they sold their most valuable possessions. Jobs sold his Volkswagen micro-bus and Wozniak sold his Hewlett-Packard scientific calculator, which raised $1,300 to start their new company. With that capital base and credit begged from local electronics suppliers, they set up their first production line. Jobs came up with the name of their new company Apple in memory of a happy summer he had spent as an orchard worker in Oregon. Jobs and Wozniak put together their first computer, called the Apple I. They marketed it in 1976 at a price of $666. The Apple I was the first single-board computer with built-in video interface, and on-board ROM, which told the machine how to load other programs from an external source. Jobs was marketing the Apple I at hobbyists like members of the Homebrew Computer Club who could now perform their own operations on their personal computers. Jobs and Wozniak managed to earn $774,000 from the sales of the Apple I. The following year, Jobs and Wozniak developed the general purpose Apple II. The design of the Apple II did not depart from Apple I's simplistic and compactness design. The Apple II was the Volkswagon of computers. The Apple II had built-in circuitry allowing it to interface directly to a color video monitor. Jobs encouraged independent programmers to invent applications for Apple II. The result was a library of some 16,000 software programs. Quickly setting the standard in personal computers, the Apple II had earnings of $139,000,000 within three years, a growth of 700 percent. Impressed with that growth, and a trend indicating an additional worth of 35 to 40 percent, the cautious underwriting firm of Hambrecht & Quist in cooperation with Wall Street's prestigious Morgan Stanley, Inc., took Apple public in 1980. The underwriters price of $22 per share went up to $29 the first day of trading, bringing the market value of Apple to $1.2 billion. In 1982 Apple had sales of $583,000,000 up 74 percent from 1981. Its net earnings were $1.06 a share, up 55 percent, and as of December 1982, the company's stock was selling for approximately $30 a share. Over the past seven years of Apple's creation, Jobs had created a strong productive company with a growth curve like a straight line North with no serious competitors. From 1978 to 1983, its compound growth rate was over 150% a year. Then IBM muscled into the personal computer business. Two years after introducing its PC, IBM passed Apple in dollar sales of the machines. IBM's dominance had made its operating system an industry standard which was not compatible with Apple's products. Jobs knew in order to compete with IBM, he would have to make the Apple compatible with IBM computers and needed to introduce new computers that could be marketed in the business world which IBM controlled. To help him market these new computers Jobs recruited John Sculley from Pesi Cola for a position as president at Apple. Jobs designed the Macintosh to compete with the PC and, in turn, make Apple's new products a success. In an effort to revitalize the company and prevent it from falling victim to corporate bureaucracy, Jobs launched a campaign to bring back the values and entrepreneurial spirit that characterized Apple in its garage shop days. In developing the Macintosh, he tried to re-create an atmosphere in which the computer industry's highly individualistic, talented, and often eccentric software and hardware designers could flourish. The Macintosh had 128K of memory, twice that of the PC, and the memory could be expandable up to192K. The Mac's 32-bit microprocessor did more things and out performed the PC's 16-bit microprocessor. The larger concern of management concerning the Macintosh was not IBM compatible. This caused an uphill fight for Apple in trying to sell Macintosh to big corporations that where IBM territory. "We have thought about this very hard and it old be easy for us to come out with an IBM look-alike product, and put the Apple logo on it, and sell a lot of Apples. Our earning per share would go up and our stock holders would be happy, but we think that would be the wrong thing to do," says Jobs. The Macintosh held the moments possibility that computer technology would evolve beyond the mindless crunching of numbers for legions of corporate bean-counters. As the print campaign claimed, the Macintosh was the computer "for the rest of us." The strategy Jobs used to introduce the Macintosh in 1984 was radical. The Macintosh, with all its apparent vulnerability, was a revolutionary act infused with altruism, a technological bomb-throwing. When the machine was introduced to the public on Super Bowl Sunday it was, as Apple Chairman Steve Jobs described it, "kind of like watching the gladiator going into the arena and saying, 'Here it is." [Scott, 1991, p.71] The commercial had a young woman athlete being chased by faceless storm-troopers who raced past hundreds of vacant eyed workers and hurled a sledgehammer into the image of a menacing voice. A transcendent blast. Then a calm, cultivated speaker assured the astonished multitudes that 1984 would not be like 1984. Macintosh had entered the arena. That week, countless newspapers and magazines ran stories with titles like "What were you doing when the '1984' commercial ran?" Jobs' invocation of the gladiator image is not incidental here. Throughout the development of the Macintosh, he had fanned the fervor of the design team by characterizing them as brilliant, committed marhinals. He repeatedly clothed both public and private statements about the machine in revolutionary, sometimes violent imagery, first encouraging his compatriots to see themselves as outlaws, and then target the audience to imagine themselves as revolutionaries. Jobs, like all those who worked on the project, saw the Macintosh as something that would change the world. Jobs described his Macintosh developing team as souls who were "well grounded in the philosophical traditions of the last 100 years and the sociological traditions of the 60's. The Macintosh team pursued their project through grueling hours and against formidable odds. A reporter who interviewed the team wrote: "The machine's development was, in turn, traumatic, joyful, grueling, lunatic, rewarding and ultimately the major event in the lives of almost everyone involved". f:\12000 essays\business & economics (632)\Supply and Demand in the Gasoline Market.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Supply and Demand in the Gasoline Market The substance known, as gasoline is a mixture of lighter liquid hydrocarbons used chiefly as a fuel for internal-combustion engines. It is produced by the fractional distillation of petroleum; by condensation or adsorption from natural gas; by thermal or catalytic decomposition of petroleum or its fractions; by the hydrogenation of producer gas or coal; or by the polymerization of hydrocarbons of lower molecular weight. Gasoline produced by the direct distillation of crude petroleum is known as straight-run gasoline. This is the type of gasoline, which we use in our automobiles. It is this which makes gasoline a product that is indispensable and also makes it highly demandable from the driving public. Thus the price of gasoline can also have a direct affect on what types of cars people will buy. One of the problems with gasoline is that it is, for now, the main fuel for automobiles and because of that it has become a necessity for most of the many Americans who own cars and have no choice but to drive to get to work, as well as in many other parts of the world. It is this constant need for gasoline to get us around which makes the demand part of it very high. On the supply side is where OPEC comes in, because they are the main suppliers for the gasoline for the world at large. The Organization of Petroleum Producing Countries (OPEC) is a permanent, intergovernmental organization, created at the Baghdad Conference of September 10-14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later joined by eight other Members: Qatar (1961); Indonesia (1962); Socialist Peoples Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973-1992) and Gabon (1975-1994). OPEC's objective is to co-ordinate and unify petroleum policies among it's Member Countries, in order to secure fair and stable prices for the petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry (OPEC Web site). OPEC's decisions have a direct effect on the price we pay for gas, both here in America and around the world. If they decide that they want to raise the price of petroleum to $30 per barrel, then the price per gallon at the gas station will go up accordingly. Likewise, if OPEC decides to lower the price per barrel of gasoline, then OPEC's decision would have a direct effect on the market price of the gas at the gas station. The supply-demand issues in the domestic gasoline market affect all different parts of the economy. For example, when the price for gas was extremely low about a year or so ago, people started to purchase more cars and many of the vehicles purchased were Sport Utility Vehicles (SUV's). These vehicles have larger engines and tend to consume much more gasoline than the smaller, more fuel-efficient cars. (I know this to be true, because during that time I purchased a Jeep Wrangler, which holds and uses more gas than the smaller car that I used to own.) Now the price per gallon is at least 60 cents higher then it was a year ago, which, if you do the numbers as to how much gas people use, makes it an incredible increase. Since the use of gasoline is an absolute necessity if you own a car, then you have no choice but to pay the higher price, since at this point in time alternative fueled vehicles aren't that cost efficient. In this paper I have tried to explain how the supply and demand of gasoline and its use in automobiles can affect the economy. In conclusion, until such time that gasoline is no longer needed to run automobiles there will be a constant demand for the product, and there will always be organizations such as OPEC around to supply it. Works Cited Brue, Stanley L. and McConnell, Campbell R. . Economics: Principles, Problems, and Policies. Fourteenth Edition. McGraw-Hill Irwin Gasoline," Microsoft(r) Encarta(r) Online Encyclopedia 2000 http://encarta.msn.com/ (c) 1997-2000 Microsoft Corporation. All rights reserved. The Organization of Petroleum Producing Countries Web Site. http://www.opec.org/193.81.181.14/xxx1/welcome.htm. 2000 OPEC. All rights reserved. f:\12000 essays\business & economics (632)\Survival Tips For Small Businesses.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Survival Tips For Small Businesses You may be in Mail Order, Direct Mail, or you may be a local merchant with 150 employees; whichever, however or whatever... you've got to know how to keep your business alive during economic recessions. Anytime the cash flow in a business, large or small, starts to tighten up, the money management of that business has to be run as a "tight ship." Some of the things you can and should do include protecting yourself from expenditures made on sudden impulse. We've all bought merchandise or services we really didn't need simply because we were in the mood, or perhaps in response to the flamboyancy of the advertising or the persuasiveness of the salesperson. Then we sort of "wake up" a couple of days later and find that we've committed hundreds of dollars of business funds for an item or service that's not essential to the success of our own business, when really pressing items had been waiting for those dollars. If you are incorporated, you can eliminate these "impulse purchases" by including in your by-laws a clause that states: "All purchasing decisions over (a certain amount) are contingent upon approval by the board of directors." This will force you to consider any "impulse purchases" of considerable cost, and may even be a reminder in the case of smaller purchases. If your business is a partnership, you can state, when faced with a buying decision, that all purchases are contingent upon the approval of a third party. In reality, the third party can be your partner, one of your department heads, or even one of your suppliers. If your business is a sole proprietorship, you don't have much to worry about really, because as an individual you have three days to think about your purchase, and then to nullify that purchase if you think you don't really need it or can't afford it. While you may think you cannot afford it, be sure that you don't "short-change" yourself on professional services. This would apply especially during a time of emergency. Anytime you commit yourself and move ahead without completely investigating all the angles, and preparing yourself for all the contingencies that may arise, you're skating on thin ice. Regardless of the costs involved, it always pays off in the long run to seek out the advice of experienced professionals before embarking on a plan that could ruin you. As an example, an experienced business consultant can fill you in on the 1244 stock advantages. Getting eligibility for the 1244 stock category is a very simple process, but one with tremendous benefits to your business. The 1244 status encourages investors to put equity capital into your business because in the event of a loss, amounts up to the entire sum of the investment can be written off in the current year. Without the "1244" classification, any losses would have to be spread over several years, and this, of course, would greatly lessen the attractiveness of your company's stock. Any business owner who has not filed the 1244 corporation has in effect cut himself off from 90 percent of his prospective investors. Particularly when sales are down, you must be "hard-nosed" with people trying to sell you luxuries for your business. When business is booming, you undoubtedly will allow sales people to show you new models of equipment or a new line of supplies; but when your business is down, skip the entertaining frills and concentrate on the basics. Great care must be taken however, to maintain courtesy and allow these sellers to consider you a friend and call back at another time. Your company's books should reflect your way of thinking, and whoever maintains them should generate information according to your policies. Thus, you should hire an outside accountant or accounting firm to figure your return on your investment, as well as the turnover on your accounts receivable and inventory. Such an audit or survey should focus in depth on any or every item within your financial statement that merits special attention. In this way, you'll probably uncover any potential financial problems before they become readily apparent, and certainly before they could get out of hand. Many small companies set up advisory boards of outside professional people. These are sometimes known as Power Circles and once in place, the business always benefits, especially in times of short operating capital. Such an advisory board or power circle should include an attorney, a certified public accountant, civic club leaders, owners or managers of businesses similar to yours, and retired executives. Setting up such an advisory board of directors is really quite easy, because most people you ask will be honored to serve. Once your board is set up, you should meet about once a month and present material for review. Each meeting should be a discussion of your business problems and an input from your advisors relative to possible solutions. These members of your board of advisors should offer you advice as well as alternatives, and provide you with objectivity. No formal decisions need to be made either at your board meeting, or as a result of them, but you should be able to gain a great deal from the suggestions you hear. You will find that most of your customers have the money to pay at least some of what they owe you immediately. To keep them current, and the number of accounts receivable in your files to a minimum, you should call them on the phone and ask for some kind of explanation why they're falling behind. If you develop such a habit as part of your operating procedure, you'll find your invoices will magically be drawn to the front of their piles of bills to pay. While maintaining a courteous attitude, don't be hesitant, or too much of a "nice guy" when it comes to collecting money. Something else that's a very good business practice, but which few business owners do is to methodically build a credit rating with their local banks. Particularly when you have a good cash flow, you should borrow $100 to $1,000 from your banks every 90 days or so. Simply borrow the money, and place it in an interest bearing account, and then pay it all back at least a month or so before it's due. By doing this, you will increase the borrowing power of your signature, and strengthen your ability to obtain needed financing on short notice. This is a kind of business leverage that will be of great value to you if or whenever your cash position becomes less favorable. By all means, join your industry's local and national trade associations. Most of these organizations have a wealth of information available on everything from details on your competitors to average industry sales figures, new products, services, and trends. If you are given a membership certificate or wall plaque, you should display these conspicuously on you office wall. Customers like to see such "seals of approval" and feel additional confidence in your business when they see them. Still another thing often overlooked: If at all possible, you should have your spouse work in the business with you for at least three or four weeks per year. The important thing is that if for any reason you are not available to run the business, your spouse will be familiar with certain people and situations about your business. These people should include your attorney, accountant, any consultants or advisors, creditors and your major suppliers. The long-term advantages of having your spouse work four weeks per year in your business with you will greatly outweigh the short- term inconvenience. Many couples share responsibility and time entirely, which is in most cases even more desirable. Whenever you can, and as often as you need it, take advantage of whatever free business counseling is available. The Small Business Administration published many excellent booklets, checklists and brochures on quite a large variety of businesses. These publications are available through the U.S. Government Printing Office. Most local universities, and many private organizations hold seminars at minimal cost, and often without charge. You should also take advantage of the services offered by your bank and local library. The important thing about running a small business is to know the direction in which you're heading; to know on a day-to-day basis your progress in that very direction; to be aware of what your competitors are doing and to practice good money management at all times. All this will prepare you to recognize potential problems before they arise. In order to survive with a small business, regardless of the economic climate, it is essential to surround yourself with smart people, and practice sound business management at all times. f:\12000 essays\business & economics (632)\Symbolic Analysts.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Symbolic Analysts Reich uses the term of "symbolic analysts" to describe what he feels one of the three main job classifications of the future will be. The symbolic analysts will be someone who is a problem identifier, a problem solver, or an innovator who can visualize new uses of existing technologies. This class of workers includes scientists, engineers, and other scientific or technical specialties as well as marketers, investors, some types of lawyers, developers and a wide variety of consultants. The symbolic analysts will have a high level of education, both in the classroom and on the job experience. Reich believes that this new, actually redefined, class of workers will be the best bet for job growth and success into the next century. Opportunities for job growth will remain rather high. This is a result of two factors, a slowing growth in population and the future retirement of the baby boomer generation (Reich, 203). It is not the number of jobs in the future that is the problem, its the quality of those jobs. On the whole, Reich identifies two trends in job quality. The number of mundane, manufacturing jobs will decrease as well as the number of in-person service jobs e.g. bank tellers, but growth in the number of symbolic analytical positions. The loss of repetitive manufacturing is primarily a cost saving plan of American corporations. Corporations seeking to lower their costs of labor move their large, low-skilled manufacturing to points all over the globe in attempt to find the lowest wages. Replacement of some in-person services is attributed to technological change. Examples of this cutting of numbers can be seen in the blossoming of automated teller machines, unmanned self service gas stations, and home shopping capabilities. The symbolic analyst, however, contains a commodity that is both valuable and irreplaceable. This is the human thinking and problem solving abilities that is becoming ever more important in international business. Specialized groups of problem identifiers and solvers will sprout all over the globe, selling their services to a wide variety of customers. This growth might not seem beneficial for America in the traditional sense, as analysts will work for foreign companies just as easily as American ones, but the intangible gains of knowledge and experience stay within our country. People cannot be shipped and marketed as easily as a new VCR. The interesting point of Reichs theory for the future is that it offers no easily visible solutions of raising the standard of living for those who reside in the United States. In fact, I believe his symbolic analyst will only enlarge the growing income inequality between the rich and poor. Unless you are benefited by a high education and superior thinking abilities, your potential to earn good money in the future is dark indeed. With fewer low skill jobs around, those who are not prepared will be scrapping to find enough work to get by. Meanwhile, the symbolic analyst, with respect to their abilities, could be raking in the dough. Reich suggests that the United States is in the best position to capture the growth of the symbolic analyst, allowing for the coming boom. The U.S. has the best university system on the globe. While most elementary education is still backward, there are also some schools which prepare young minds for their futures as analysts. The U.S. also has an advantage over developing countries in that the analyst has been here already for some time. There are specific zones of learning and innovation already present in our country that will take years to develop elsewhere. This gives the United States a jump-start heading into the next century. f:\12000 essays\business & economics (632)\Target Audiences.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Target Audiences Targeting is directing promotions of a product towards a group of individuals who are likely to buy it. Different products are targeted at different audiences. After a company determines their target audience that audience is researched in order to learn about lifestyle, attitudes, values, etc. Then companies can more effectively reach their audiences by knowing what t.v. shows they watch and what magazines they read. It is through the media that companies make impressions and influence consumers to buy their products. Two main products that depend on their advertising would be tobacco and alcohol products. Advertising from that of brewers, who frequently reach, target, and entertain youthful audiences on radio and television are a main support to the structure of these companies. As of now beer commercials on t.v. are much more popular than liquor commercials, but the liquor companies are making efforts to gain commercial time. Seagram's commercials have appeared during weekend college and professional football telecasts, Monday Night Football, and during a 7:00 P.M. showing of the Cosby Show. The company's radio ads also ran on youth-oriented, rock-and-roll format radio stations. But it is felt that the media influence is so strong, allowing liquor ads on the air can only lead to greater alcohol consumption and higher levels of alcohol problems. Tobacco companies also claim they don't target young people, but that is hard to believe. Tobacco promotion in the movies can be the most subtle and insidious form of tobacco promotion because there is no warning about tobacco use. Nothing on the screen says when tobacco companies have paid to have their product portrayed favorably. The camera moves in to focus on a bright sign where a neon cigarette arches up to meet neon red lips. It slowly pans downward to feature an attractive young woman smoking. The message: life is beautiful; life is exciting; life is smoking. Unfortunately it's not all that glamorous. Movies provide a medium not only to portray tobacco use as popular, independent, and social, but to show how movie stars are involved with these kinds of products as well. In some cases, an entire movie theme can be based on perceived merits of tobacco. A single movie can reach millions of young people in theaters across North America and around the world. With videos and reruns, the message can be repeated over and over and over. It doesn't even matter whether it's paid or not, the point is that every time an actor lights up, millions of young people receive the message that tobacco use is both OK and desirable. Amazingly enough The tobacco industry loses close to 5,000 customers every day in the US alone, including 3,500 who manage to quit and about1,200 who die. The most promising replacement smokers are young people: 90% of smokers begin before they are 21, and 60% before they are 14. To find their new customers, US tobacco companies spend $11 million to advertise and promote cigarettes. Looking at these percentages seems to reveal the targeting of young generations. Unfortunately this battle seems hopeless considering the US Federal Office on Smoking Health spends less than tobacco companies do on advertising in an entire year. This brings the public awareness to it's peak. Where are these businesses ethics. Philip Morris, which makes Marlboro, the world's best selling cigarette spends billions of dollars to advertise and promote their products to teenagers every year. Teenagers who are impacted by their advertising and promotion begin to smoke at early age. Teenager's reaction to tobacco advertising and promotion may accelerate their lives and affect their health. Philip Morris spends the huge amount of money with advertising to catch teenager's mind and make profits; however, teens are losing their lives with smoking advertised by Philip Morris, and nothing is beneficial to them. This interrelation could be ethical between Philip Morris and teenagers. From these few examples alone I believe it can be safely said that the media influence is at a never descending peak. Consumers want to use products that are going to make them feel and look like the models and actors they see. Therefore these effective advertising take advantage of the public's weakness; wanting to be perfect. f:\12000 essays\business & economics (632)\Taxes.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 486 Economics 004 April 10,2000 "The rush is on for last-minute filers" April showers bring may flowers, but on April 15th not one American is thinking of spring. Tax day, one of the only two events in life that will not excuse anyone, is right around the corner. If you have procrastinated in your efforts to give the government even more of your money, don't worry your not alone. A good percentage of persons haven't filed yet. Although the tax deadline of filing your 1040 is April 15th, this year the government is forced to give everyone two extra days till April 17th before you have to fork over any money you owe. That amount can be calculated by filling out Form 4868. Check, cash, money order or major credit card can pay your amount of money to the International Revenue Service. Extensions can be filed for, which will give you an extra two months although you still need to pay any money owed by April 17th. With only slight differences in tax forms from 1998 to 1999, the challenge might not be as hard as expected. Some changes in standard deductions that will need some extra attention. "For example, single filers will get a $4,300 deduction and married-filing-jointly filers will get a $7,200 deduction. The child tax credit is rising from $400 to $500". Even though filing your own taxes can be the maximum stress one can have in life, now there are some easy to use programs available and phone lines to serve you. Some inexpensive programs for your computer or laptop are Turbo Tax by Intuit and TaxCut by H&R Block. Costs for such hardware are between $14.95 and $29.95. Some more inexpensive tools are tax preparation web sites. During 1999 almost a quarter of a million tax returns were completed on the web. This year that number is expected to grow between one million and one and a half million. If your computer skills have not been perfected or you don't have to accessibility to one, personal touch is always available. The price is slightly more expensive then you would be paying on your computer, but are completely stress free. An average client, of accountants and tax preparers, will end up paying around sixty five to ninety five dollars. Even with new advancements the good old fashion pencil, paper, and calculator are still plenty sufficient for some. The tax-form package you received through the mail is the information you will need. There is plenty of completely free help out there such as live telephone assistance, where you can also be directed to the nearest free in person assistance. So whether you are willing to take on Uncle Sam yourself or get some backup, time is running out so be prepared for the battle. f:\12000 essays\business & economics (632)\Technology Made Strategy Obsolete.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1511 Has Technology Made Strategy Obsolete? It has been said that, "improvements in technology for waging war have made strategy increasingly irrelevant." This is not the case; strategy is actually becoming more important with the development of more sophisticated military technology. Firstly it must be clearly defined how strategy and technology relate to each other. There have been many different views on what, in effect, constitutes strategy. If one were to compare Sun Tzu's concepts of strategy and compare them to that of Clausewitz, it would be clear that the two defined strategy much differently. Sun Tzu viewed strategy as a much larger issue than did the Clausewitz. He believed that an overall strategy that utilized political alliances, misinformation, intelligence and strategic planning was the key to what he believed the pinnacle of military victory was; to win the war without ever having to fight. Clausewitz had a much narrower view of strategy, one that would more correctly be determined as tactics. Clausewitz believed in the supremacy of direct military conflict as the sole arena for states to resolve their differences and satisfy their ambitions. He focused then, on the best way to win the war, believing that war was inevitable. It is clear then, that wile both men wrote on the subject of war, their focus was on different levels of warfare, Sun Tzu's focus was on strategy, or grand strategy, while Clausewitz's focus was on the tactical level, or operational strategy. Technology is of a different ilk altogether than the closely related topics of tactics and strategy. Technology is the tools with which the war is waged. It can consist of not only mechanical instruments, but of nuclear, chemical and biological tools as well. Technology is an ever changing, constantly improving, element of warfare that has throughout history continually improved the efficiency with which mankind can kill one and other. Technology Strategy Tactics The key to understanding the issue is to understand how the three elements, technology, tactics and strategy are connected to each other and more specifically, how changes in one area of will drive changes in the other. Technology is the core to the whole process. A requirement is identified and a weapon, or weapons system is created in order to fill that requirement. Once this has been done, the military leadership must then study the characteristics of the new weapon and determine the optimum way in which to use it. In short, they must adapt or develop a set of tactics within which to employ this new weapons system. This process of developing tactics to most efficiently utilize a weapons system is not restricted to new weapons. Napoleons identification and development of light mobile cannon is a case in point. He determined a need, the technology was created and then Napoleon devised a new set of tactics, massed canon fire, with which to best exploit the characteristics of the new weapon. Once a new weapon is introduced and effective tactics are designed for its operational employment, there is an understandably urgent requirement for the opposing force to develop some form of defence against it. This is generally done in two ways. Firstly the opposing Army must adapt its tactics in order to minimize its vulnerability and secondly they must develop a countering technology that will neutralize the new threat. A case in point here is the First World War. As an example, the impact of the wide spread introduction of the machine gun on maneuver style warfare of the late 19th century cannot be overstated. Very simply put, the volume of fire that could be generated by several well placed machine guns along an army's front guaranteed that any attacking force would loose and loose badly. Any soldier in open ground was a target for the machine gunners and so the solution was to adapt the tactics of the day from maneuver warfare into trench warfare. These changes in tactics provided the Army with the ability to hold the ground already taken and yet remain out of danger of the withering direct fire generated by the opposing forces machine guns. Improvements in the technology of trench and bunker construction also, to some extent, countered the threat posed by the indirect fire of mortars and artillery to static targets on the battlefield. Thus the stalemate of the western front was achieved. It was an adaptation to the technology of the day, which was not to be broken until the introduction of superior artillery tactics, in the form of the creeping artillery barrage, and a new technology, the tank. The Predominant strategy in WW1 Europe was the pursuit of national goals through open warfare between states or groups of states in alliances. The terrible carnage of WW1 did little to change that, the fact that second World War was fought between the same nations some 20 years later was over the same ground is stark proof that the strategy of nations had not changed. This is because the game of balancing tactics and technology had been successfully played out at the operational level during the WW1, and as a result, the strategic thought of the day remained unchanged. Resolution of intrastate disagreements and ambitions would be achieved through the successful conduct of military campaigns. Technology during the inter war years had been improved upon as well as tactical doctrine that allowed the Hitler's armies to roll unchecked in the initial years of the war. The tank, the very technology that had contributed to the breaking of the stalemate on the Western Front in 1917 had been improved upon and the tactic of the blitzkrieg had been devised to employ this technology to its best possible advantage in 1939. Throughout the Second World War both sides plunged into a race to develop newer and better technology and tactics to counter the others sides. But the overall master plan remained the same; victory through the military destruction of the opponents ability to make war. With the development of the Nuclear Bomb and its subsequent use by the United States on Japan in 1945, we see a technology that effectively reached past the tactical barrier, directly into the strategic arena with regard to its impact on the conduct of war. Tactics were developed throughout the cold war to most effectively employ this new weapon in line with the old strategy. But it became increasingly clear that the old strategy was simply untenable, war had been rendered technologically un-winnable and so with the development the new strategy of Mutually Assured Destruction (MAD) signaled a shift from a strategy of war fighting to a one of war avoidance. The pursuit of national interests had to find a different strategy or medium. It could be argued that this new strategy has taken on a far more economic nature as could be evidenced by the rise multinational trading blocks and the globalization of the planets national economies. While there were many small proxy wars fought between the super powers and many technical advances in the areas of aircraft design, armored vehicle development, surveillance and intelligence technology, but again the overall impact of these was primarily limited to the technical/tactical sphere. The switch to the new economic strategy ended even the cold war, which had begun under the old strategy of military conflict. The Western powers led by the United States unquestionably one the cold war. The defeat of the Soviet Block was not a military one, technologically the USSR had been able to match anything the west could build and in fact often surpassed the US. The ongoing Soviet Space Program and the demonstration of the MIG 27 fighter at the Paris Air Show just prior to the collapse of the USSR showed that right up until the end the Soviet Union was the equal of the west militarily. It was the effect of Reagan's rearmament program and his desire to reinvigorate the arms race by pushing forward with his Strategic Defence Initiative (SDI) or "Star Wars" plan that finally broke the economically weaker USSR. Currently, the US Army's is driving toward the development of a Strategic Anti-missile System; resent successful tests of this new technology raise the specter of a return to the winnable war scenario. These new technologies has, as all technology is, been developed to finally and directly eliminate the threat generated by initial development of the nuclear strike capability. The question that now begs to be asked is weather this technology will once again change the strategic focus away from the economic arena and back to the military one? Technology has not rendered strategy obsolete. Certain military technological advances, which are continually reshaping the tactical realm, have managed, by the shear magnitude of their impact, reached beyond that area to change the Grande Strategy by which nations plan their success. As we see, strategy changed in order to counter the threat posed until a counter technology was developed. The interplay of tactics, technology and strategy is cyclical and symbiotic in nature with each element being driven by changes in the other. f:\12000 essays\business & economics (632)\Tecnology.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The microeconomic picture of the U.S. has changed immensely since 1973, and the trends are proving to be consistently downward for the nation's high school graduates and high school drop-outs. "Of all the reasons given for the wage squeeze - international competition, technology, deregulation, the decline of unions and defense cuts - technology is probably the most critical. It has favored the educated and the skilled," says M. B. Zuckerman, editor-in-chief of U.S. News & World Report (7/31/95). Since 1973, wages adjusted for inflation have declined by about a quarter for high school dropouts, by a sixth for high school graduates, and by about 7% for those with some college education. Only the wages of college graduates are up. Of the fastest growing technical jobs, software engineering tops the list. Carnegie Mellon University reports, "recruitment of it's software engineering students is up this year by over 20%." All engineering jobs are paying well, proving that highly skilled labor is what employers want! "There is clear evidence that the supply of workers in the [unskilled labor] categories already exceeds the demand for their services," says L. Mishel, Research Director of Welfare Reform Network. In view of these facts, I wonder if these trends are good or bad for society. "The danger of the information age is that while in the short run it may be cheaper to replace workers with technology, in the long run it is potentially self-destructive because there will not be enough purchasing power to grow the economy," M. B. Zuckerman. My feeling is that the trend from unskilled labor to highly technical, skilled labor is a good one! But, political action must be taken to ensure that this societal evolution is beneficial to all of us. "Back in 1970, a high school diploma could still be a ticket to the middle income bracket, a nice car in the driveway and a house in the suburbs. Today all it gets is a clunker parked on the street, and a dingy apartment in a low rent building," says Time Magazine (Jan 30, 1995 issue). However, in 1970, our government provided our children with a free education, allowing the vast majority of our population to earn a high school diploma. This means that anyone, regardless of family income, could be educated to a level that would allow them a comfortable place in the middle class. Even restrictions upon child labor hours kept children in school, since they are not allowed to work full time while under the age of 18. This government policy was conducive to our economic markets, and allowed our country to prosper from 1950 through 1970. Now, our own prosperity has moved us into a highly technical world, that requires highly skilled labor. The natural answer to this problem, is that the U.S. Government's education policy must keep pace with the demands of the highly technical job market. If a middle class income of 1970 required a high school diploma, and the middle class income of 1990 requires a college diploma, then it should be as easy for the children of the 90's to get a college diploma, as it was for the children of the 70's to get a high school diploma. This brings me to the issue of our country's political process, in a technologically advanced world. Voting & Poisoned Political Process in The U.S. The advance of mass communication is natural in a technologically advanced society. In our country's short history, we have seen the development of the printing press, the radio, the television, and now the Internet; all of these, able to reach millions of people. Equally natural, is the poisoning and corruption of these medias, to benefit a few. From the 1950's until today, television has been the preferred media. Because it captures the minds of most Americans, it is the preferred method of persuasion by political figures, multinational corporate advertising, and the upper 2% of the elite, who have an interest in controlling public opinion. Newspapers and radio experienced this same history, but are now somewhat obsolete in the science of changing public opinion. Though I do not suspect television to become completely obsolete within the next 20 years, I do see the Internet being used by the same political figures, multinational corporations, and upper 2% elite, for the same purposes. At this time, in the Internet's young history, it is largely unregulated, and can be accessed and changed by any person with a computer and a modem; no license required, and no need for millions of dollars of equipment. But, in reviewing our history, we find that newspaper, radio and television were once unregulated too. It is easy to see why government has such an interest in regulating the Internet these days. Though public opinion supports regulating sexual material on the Internet, it is just the first step in total regulation, as experienced by every other popular mass media in our history. This is why it is imperative to educate people about the Internet, and make it be known that any regulation of it is destructive to us, not constructive! I have been a daily user of the Internet for 5 years (and a daily user of BBS communications for 9 years), which makes me a senior among us. I have seen the moves to regulate this type of communication, and have always openly opposed it. My feelings about technology, the Internet, and political process are simple. In light of the history of mass communication, there is nothing we can do to protect any media from the "sound byte" or any other form of commercial poisoning. But, our country's public opinion doesn't have to fall into a nose-dive of lies and corruption, because of it! The first experience I had in a course on Critical Thinking came when I entered college. As many good things as I have learned in college, I found this course to be most valuable to my basic education. I was angry that I hadn't had access to the power of critical thought over my twelve years of basic education. Simple forms of critical thinking can be taught as early as kindergarten. It isn't hard to teach a young person to understand the patterns of persuasion, and be able to defend themselves against them. Television doesn't have to be a weapon against us, used to sway our opinions to conform to people who care about their own prosperity, not ours. With the power of a critical thinking education, we can stop being motivated by the sound byte and, instead we can laugh at it as a cheap attempt to persuade us. In conclusion, I feel that the advance of technology is a good trend for our society; however, it must be in conjunction with advance in education so that society is able to master and understand technology. We can be the masters of technology, and not let it be the masters of us. Bibliography Where have the good jobs gone?, By: Mortimer B. Zuckerman U.S. News & World Report, volume 119, pg 68 (July 31, 1995) Wealth: Static Wages, Except for the Rich, By: John Rothchild Time Magazine, volume 145, pg 60 (January 30, 1995) Welfare Reform, By: Lawrence Mishel http://epn.org/epi/epwelf.html (Feb 22, 1994) 20 Hot Job Tracks, By: K.T. Beddingfield, R. M. Bennefield, J. Chetwynd, T. M. Ito, K. Pollack & A. R. Wright U.S. News & World Report, volume 119, pg 98 (Oct 30, 1995) f:\12000 essays\business & economics (632)\Teen Employment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Teen Employment To Work or Not To Work According to juniorjobs.com more teens are working today then ever. In 1980 one out of every ten teens was working part time, and 1 out 20 teens was working full-time. Today those numbers have went down more than half. One out of every four teens work part time, and one out of every ten teens work full-time. In a recent survey of 100 working teens 60 % started working on their own and 40% were forced to work by their parents.(juniorjobs.com) "Since I was in 8th grade my father always said to get a job," said Freshmen Jon Butler, "Then he stopped giving me spending money." Butler works in landscaping in the summer months, and snow removal in the winter months. Butler has been working for 2 1/2 years and he likes his job. "In this day and age, having money helps a lot, especially for teens," said Butler. His father forced him to work by not giving him any money, "For about 2 weeks I was flat broke until I got my job," said Butler. Jon Werse, a manager at Wendy's in Middletown, found that the teens that state their parents made them get a job in the interview, quit with-in two weeks. "I don't like hiring teenagers. They're unreliable and many are rebellious," said Werse. Some teens choose to work for themselves. " The luxuries in life aren't free," said Matt Christiani, "That's why I started working." Christiani works in the Hazlet Multi-Plex, he rips tickets and cleans the theaters floors after a showing. Matt Christiani has been working for six months at his new job. "Working not only gets money, I meet great girls while working too," said Christiani. His friends were at the movies, but Christiani was at the movies too, just busy at work, Ripping tickets and cleaning up the theatre. "It was a job," Christiani said, "that my friends would not be caught dead doing." "It gets me money, but it's better then a fast-food place," said Christiani, in his blue multi-plex jacket. With so many jobs going begging, young people are turning up their noses at jobs at fast-food restaurants. In the teen-age work world, holding a job deemed uncool can risk a social barrier. In a recent survey the top jobs for a teen were clear, with places like Starbucks or Gap at the top, and places like McDonald's and Burger King at the bottom. Jay Grey, 18, a senior., summed up the recent attitude among suburban teen-agers: "You don't want to work with food," he said. "Everybody knows that, I would never work at a McDonald's." Michael Wood, a vice president of Teen-age Research Unlimited, said the idea that all work was respectable, even decent, had taken a beating. "The term `flipping burgers' has entered the popular culture to mean the lowest kind of unskilled work," Wood said. "And teen- agers are aware of all the negative connotations that go with it." About 28 percent of all teen-agers in the United States said they earn money from part-time jobs, according to Wood. Today it is obvious that young people have become much more selective in the kinds of jobs they're willing to take. f:\12000 essays\business & economics (632)\Terrorism.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Problem: Terrorism in the world Terrorism, which has been around for as long as people can remember, has been on the rise for the past ten years. Terrorists use murder, kidnapping, hijacking, and bombings to almost always achieve a political purpose. These radicals are not just subject to the United States, terrorism is all over the world, in every way, shape and form. There are many different types of terrorism, for many different purposes. The primary reason for terrorist acts are to force a change in their nation's government. If terrorists are not satisfied with there government's political positions, they may end up taking the matters into there own hands. Another reason for terrorist acts are because of hate towards a race, nationality, or religion. For example, in 1972 the Palestine Liberation Organization invaded Israeli dorms in the Munich Olympics, and held the Israeli athletes hostage until Israel would agree to release Palestinian terrorists that were captured in Israel. When Israel refused to comply with the terrorists demands, they blew up two helicopters which held the Israeli athletes, killing the whole team. This was one of the many cruel types of terrorism. In recent years, terrorism seems to be at a new high and attacks are more violent than in the past. With terrorism being so secretive and having no forewarning, it has been a real problem to deal with. The governments of many countries have tried to stop these cowardly acts, but they just seem to be on the rise. I have a few ideas that might work Solution: Since there are no fool-proof ways to predict when a terrorist will strike next, there can really be no complete answer to this problem. Even though there is no way to totally eliminate terrorism, my solutions may still prove valid. With the bombing of the World Trade Center, and the federal building in Oklahoma, rental moving trucks have been used to hold the bomb. An idea I have for this type of attack, would be to take a still photograph or a video tape of the people who rent the trucks, along with there Social Security numbers. I Would have installed in every rental truck an electronic fume detector that could be tied into a national satellite network, to let investigators know what kind of materials the truck is carrying. For example, if the truck was carrying dynamite, the sensor would relay the message to the satellite that this truck is carrying hazardous material. In turn, the dispatchers could send the message to the Federal Bureau of Investigations who then would send the bomb squad to the location of the truck, and arrest the individuals driving and defuse the bomb. It seems as though terrorists choose to place the bombs in parking garages below or inside buildings. Another idea I have for this is to screen all vehicles entering government buildings that may be a target for an attack. This in itself might make terrorists more leery about entering a building carrying any type of explosive device. The use of metal detectors on people entering government buildings along with dogs that can sniff out bombs in vehicles can also help the situation. One of the most lethal types of terrorist attack are hijackings on planes. There have been a number of hijackings, which then lead to a bombing of the plane in midair. In 1986, a Pan-American Boeing 747 airplane blew up in midair killing all passengers aboard. One of the leading terrorist groups took responsibility for this action. Again in the late 1980's a Transworld airline flight was hijacked and made several stops before commandos rushed the plane and killed some of the terrorists. Unfortunately, the terrorists had taken several lives on the plane and even dumped one of the passengers that they had killed, out of the plane onto the tarmac. One of the problems with these type of terrorists is that, it is too easy to get a bomb into the baggage section, under the plane. This is easy for them, because unlike carry-on luggage, the actual luggage is not X-rayed for contraband. Some of these bombs work off of a timer and ignite the bomb to blow up at a pre-determined time. Another type of bomb works off of the altitude of the plane. Once the plane reaches the set altitude, the bomb will explode. I suggest that the actual luggage should be scanned for explosives that would be dangerous to the passengers. Since the only luggage that is scanned at this time is the carry-on luggage, and individuals that go through the metal detectors. I recommend that all luggage being loaded in the belly of the aircraft, also go through a metal detector being scanned by trained eyes. This would prevent any bombs from being loaded onto the plane. Another type of plane bombing is called the "Suicide Bomber", this is a terrorist who straps the bomb to his body, making it harder to stop them from boarding the plane, because you cant see it by the human eye. Unfortunately, metal detectors don't pick up plastic explosives that a terrorist could carry on board. Another idea for this would be to have a bomb sniffing dogs at every metal detector, which could work in terms of stopping the bombs before they reach the plane. Of course, there will always be terrorists who would like to make a change in the policy of the government. And you will always have radicals who will want to take out their anger towards a particular race, religion, or nationality. One of the best ways to stop terrorism is, of course, by monitoring these groups closely for signs of illegal activity. First of all, the United States of America should form coalition groups with all of the other nations to monitor terrorist organizations of other nations. The FBI can be the main organization to receive and filter out all potential terrorist groups. Once the United States is aware of all the terrorist groups throughout the world and knows the groups here in the United States, the government will be able to get a tighter handle on the terrorist group's activities. Now that we can identify all of these groups, we have to be able to take out the bullets and bomb making equipment from there hands. To start with, anyone who would like to buy a gun will have to prove there intent on using it. They would have to supply social security numbers, drivers license, fingerprints, ballistics of the gun, and, of course, a picture of themselves taken by the sellers of the gun. This would help ownership of the gun in case it is used it an attack. Ammunition would have to be kept under the same kind of scrutiny as a gun, and all the same information would have to be taken down, as if they were selling a gun. Factories that produce chemicals, fertilizer, and anything else that could be used in the manufacturing of a bomb, would have to have a license to make these items. When any of these items are sold, all of the same precautions must be taken as if they were selling guns, or ammunition. In the case of someone buying mass quantities of any of these items, it must be reported and approved for sale by the FBI. As in the case of the Oklahoma bombing, the ammonia nitrate fertilizer, which was the main component in the bomb, that large quantity which would have first cleared with the FBI, before being sold. The FBI could have questioned the need for such a large quantity and made a final decision for the sale. If the buyers would have lied about the need of the fertilizer at least there would have been a picture tying the ammonia nitrate fertilizer to its buyer. We might not have been able to stop this bombing but all suspects would now be under arrest, preventing them from future bombings. Since terrorist acts are so cowardly, and the loss of life is so great, stiff penalties should apply. If the person is convicted of the crime, and the crime is murder in any degree, of any amount. That person should be locked up for life. I don't believe in the death penalty in this case, because it would just be putting them out of their misery. When they are sentenced, it will be in a four foot by four foot solitary confinement cell, with no visitors, and no exercise, ever. In conclusion, this report has tried to explain a couple ideas that may prove valid, when put to the test. The only test being real life. If these ideas can make a difference, and keep one more person safe from a terrorist attack, or deters one more terrorist from blowing up a building, than this report has been worth the effort. Bibliography: Adams, James, The Financing of Terror: The PLO, IRA, Red Brigades, M-19 and Their Money Supply (1986); Alexander, Yonah, International Terrorism, rev. ed. (1981); Alexander, Yonah, and Myers, Kenneth, eds., Terrorism in Europe (1982); Crenshaw, Martha, ed., Terrorism, Legitimacy, and Power (1982); Dobson, Christopher, and Payne, Ronald, The Terrorists, rev. ed. (1982); f:\12000 essays\business & economics (632)\The Advantages and Disadvantages Of A Market Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Advantages and Disadvantages Of A Market Economy. 27/9/96 Command and Market economies Neil Samtani When considering the advantages and disadvantages of command and market economies, you may notice that they are usually straight forward, yet, both advantages and disadvantages may merge at times, resulting in an unclear issue, that could be debatable whether it is for the good of the society, or for the government. Therefore, what I am trying to say, is that no matter how hard you try, it is always impossible to debate on which economic system is better. Both have their good points and their bad, but, each is aimed towards a community that will make use of it. This community has usually got a majority of people either rich or poor, and, social class usually effects the way people may choose their government. In a market economy, the advantages are normally aimed towards the middle/upper class in a community. This is why we normally find them in richer communities (i.e. England, USA). The concept of a market economy is to allow people to get through life by themselves. Government usually does little to change the economy, and, the control is given to the people with the money, or, rather, the people with the businesses. The main people in such an economy are usually the consumers, the producers, the owners of private property, and, the government. These are the people with the power. The whole system revolves around private gain rather than the interests of everyone in a community. Since the rich are in control of the economy, their decisions result in the rich getting richer and the poor getting poorer. This is a perfect example of what I mentioned before, which is the way that you can not categorise all statements. This would be an advantage for the rich, but, a disadvantage for the poor. However, governments may also affect the situation, resulting in the rich getting richer, and, the poor managing to stay alive. The entire idea of the market economy is freedom. The freedom for people to do what they want, make what they want, and, sell what they want (to a certain extent). This can also be described as being able to decide WHAT is going to be produced (what products), HOW it is going to be produced (organisation, etc.) and FOR WHOM it is going to be produced. This is definitely an advantage, as freedom and rights are allowed. Besides this, the norm is that you're wage is affected by the amount you work. The harder a person works, the more you would expect to get paid. This is another advantage, since people are paid by the amount they work : a lot of work results in a high outcome, and a high income for the person. This is an incentive to work too, since, the point stated previously can affect a person negatively, since, not enough work can result in pay cuts or, even job losses. Since the economy is controlled by the rich, a problem that is bound to occur is the economic growth rates increasing and decreasing. This can result in people either spending a lot of money (ending up with more people being employed) , and, people not spending a lot of money (ending up with people being fired, to save money). This means that there is little job security, which is one of the disadvantages we are facing today. This means that not working hard can result in no source of income. However, since the economic growth changes so much, nothing can be certain. You can be rich one moment, and bankrupt the next. This also means that a man willing to work can not have a job, and below the poverty line, which is another disadvantage. There are not always enough jobs to accommodate the people with the ability to work. Advantages Disadvantages Everyone has rights and freedom to build what they wwant, sell what they want, and buy what they canafford. Poor people can not necessarily afford much. Since there is little government interaction with the community, the people have to manage to live without their help. It is usually possible to increase living standards by increasing your level of work, or your quality of it. The economy is controlled by the rich, and, therefore the richhave the power. Their decisions would always be to get themselves richer, and, that makes the poor poorer. There are strong incentives built into the system to innovate and produce high quality goods (high quality goods = higher income, low quality goods = lower income / unemployment) Since the economy is controlled by the people, stable growth is is very difficult. This can result in job losses, due to a the economic cycle.(boom followed by bust) This result in low job security. Free markets provide choice for the incentives to innovate, and the economy to grow. There are bound to be losses. Since job security is low, and the economy can not always be predicted, bankruptcy is and poverty can creep up on anyone. f:\12000 essays\business & economics (632)\The Advantages and Disadvantages of Incorporating a Business.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Advantages and Disadvantages of Incorporating a Business In order to mention all the advantages and disadvantages of incorporating a business, first I should try to explain what a corporation is. In 1819, Chief Justice Marshall of the United States Supreme court said: " A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law." In the Webster's College Dictionary corporation is defined as "an association of individuals, created by law and having an existence apart from that of its members as well as distinct and inherent powers and liabilities." A corporation is divided into many units called shares of stock. The owners of the stock are called stockholders or shareholders. One of the advantages of incorporating a business is that because a corporation has a legal existence, shares can be sold at any time without affecting the operations of the corporation. Also, shares can be bought at any time. Another big advantage of incorporating a business is that corporation have limited liabilities. This means that the corporation is responsible for its own acts and obligations under the law. This characteristic protects the stockholders of the corporation because the only financial loss that they may suffer is limited to the amount invested. Also, the creditors of the corporation can not go beyond the assets of the corporation to satisfy their claims. The stockholders or the shareholders are the ones who have control over the management of a corporation's operation and activities. They are the ones who elect the board of directors, and the board of directors are responsible to the stockholders. Also, the board of directors are responsible for the management of the day-to-day operation of the corporation. They also decide when and how much of their income to give to the stockholders or shareholders. Another characteristic that can be an advantage of incorporating a business is that corporations may be organized for nonprofit organizations such as colleges, hospitals, and others humanitarian purposes. However, most of the corporations are organized to earn a profit for stockholders. The biggest disadvantage of a corporation is that corporations are subject to taxes. Corporations are not like proprietorship and partnership forms of organization, they must pay federal income taxes. Also, stockholders must pay income taxes on any dividends distributed to them. So, all the corporations are being tax twice and it is what is call double taxation. There are many advantages of incorporating a business. Before any body decide to do that, they should study every case in a particular way and decide if it is worth it to incorporate a business. Most of the biggest business in the world have become corporations because it is easy to control and better way to get new capital. f:\12000 essays\business & economics (632)\The Big Five.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Prologue of History Until statehood, Hawaii was ruled economically by a consortium of corporations known as the "Big Five": C. Brewer and Co., sugar, ranching, and chemicals, founded in 1826; Theo. H. Davies & Co., sugar, investments, insurance, and transportation, founded in 1845; Amfac Inc. (originally H. Hackfield Inc.-a German firm that changed its name and ownership during the anti-German sentiment of WW I to American Factors), sugar, insurance, and land development, founded in 1849; Castle and Cooke Inc., (Dole) pineapple, food packing, and land development, founded 1851; and Alexander and Baldwin Inc., shipping, sugar, and pineapple, founded in 1895. This economic oligarchy ruled Hawaii with a velvet glove and a steel grip. With members on all important corporate boards, they controlled all major commerce, including banking, shipping, insurance, hotel development, agriculture, utilities, and wholesale and retail merchandising. Anyone trying to buck the system was ground to dust, finding it suddenly impossible to do business in the islands. The Big Five were made up of the islands' oldest and most well-established haole families; all included bloodlines from Hawaii's own nobility and ali'i. They looked among themselves for suitable husbands and wives, so breaking in from the outside even through marriage was hardly possible. The only time they were successfully challenged prior to statehood was when Sears, Roebuck and Co. opened a store on Oahu. Closing ranks, the Big Five decreed that their steamships would not carry Sears's freight. When Sears threatened to buy its own steamship line, the Big Five relented. In the end, statehood, and more to the point, tourism, broke their oligarchy. After 1960 too much money was at stake for Mainland-based corporations to ignore. Eventually the grip of the Big Five was loosened, but they are still enormously powerful and richer than ever, though these days they don't control everything. Now their power is land. With only five other major landholders, the Big Five control 65 percent of all the privately held land in Hawaii. Why was the 1946 Strike so important? Before 1946, Hawaii's economy, politics and social structures were completely dominated by a corporate elite known as the Big Five (Alexander & Baldwin, American Factors, Castle & Cooke, C. Brewer, & Theo. Davies). The leaders of these factor companies exercised absolute control over Hawaii's plantation workers and the majority of the islands multi-ethnic workforce. The 1946 strike forever changed the balance of power between workers and the plantations. No longer would living and working conditions be set unilaterally by the plantation owners or their parent corporations. Nor was the lesson lost on the workers outside the plantation either. As sugar workers were now successful in challenging the plantations, so too would all the other employers often subsidiaries of one of the Big Five now be brought to the bargaining table to improve their wages and working conditions. The 1946 sugar strike was monumental both in terms of the numbers of people involved and the issues at stake. Never before had all the sugar workers of every ethnic group joined together in the same labor organization. Previous efforts of the workers to organize had been easily smashed because of a lack of worker solidarity across ethnic lines. Japanese workers belonged to their own higher wage association just as the Filipino sugar workers had their own union. Bitter lessons were learned from the unsuccessful 1909 and 1920 Japanese strikes and the 1920, 1924 and 1937 Filipino labor movements which failed because of ethnic unionism. The great strike of 1946 started with a new premise of organizing workers of all races into a single labor union. Never again would workers be divided and conquered because of ethnic antagonism. This strategy of ethnic solidarity was successful but it was not easy. A concerted effort to include the concerns and issues of all Hawai'i's workers, to communicate in every language was necessary for the multi-ethnic union to succeed. The legacy of the great Hawaiian sugar strike of 1946 is the success we can see today of Hawai'i's multi-ethnic workforce to bridge ethnic differences and build trust based on worker solidarity. Hawai'i's diverse workforce united in 1946 and began for the first time to form a single working class culture, unique to Hawai'i. Like today, the issues of housing, medical care, pensions and wages were key issues for the 1946 sugar workers. Previously the quality of housing, medical care and old-age pensions depended upon the whim of individual plantations. The 1946 sugar strike negotiated new labor relations establishing these important issues as contractual rights of workers, rather than as favors the plantations could wield to force worker compliance. Thus, the 1946 sugar strike is an event whose impact reaches beyond the sugar fields, into the lives of every worker in Hawai'i. Importantly, the role of the neighbor islands in the 1946 sugar strike was tremendous. Concentrated, community-based organizing made these communities a special place in the history of Hawai'is working people. The 1946 strike was the first island-wide sugar strike, the first industry-wide shut-down in Hawai'i's history. The strength of the 1946 sugar strike and the community organizing it built upon was so solid on the neighbor islands, especially Kaua'i and Hawai'i, that it soon became the bedrock of a new political order. The active support and involvement of family and workers throughout Hawai'i, made this strike a success. Appropriately, the history of the 1946 sugar strike is the history of community organizing all members of the community including wives and children. The success of the strike built upon the support of not just workers, but workers families both relatives who had left the plantations and children themselves only a few years from working for the plantations. The story of the 1946 sugar strike includes soup kitchens, morale committees with talent nights and dances, community garden, hunting and fishing parties, bumming committees to solicit from stores and other supporters, baseball teams through which organizers like Major Okada met and solicited new members. The 1946 strike is recent enough that many adults have a recollection of the events. But our young people and even many adults in their 20s and 30s have neither memories, nor access to their history in regards to this important event that changed the way workers and employers in Hawai'i interact not only sugar workers, but all workers. The legacy of the 1946 sugar strike is larger than sugar. Its legacy is the formation of a multiethnic community force working together to address social and political problems. Community organizing not only won the 1946 sugar strike, it also laid the foundation for political change including the Democratic Revolution of 1954. Alexander and Baldwin History of (A&B) Alexander & Baldwin, Inc. ("A&B") is a diversified corporation with most of its operations centered in Hawaii. It was founded in 1870 and incorporated in 1900. Ocean transportation operations and related shoreside operations of A&B are conducted by a wholly-owned subsidiary, Matson Navigation Company, Inc. ("Matson"), and several Matson subsidiaries, all of which are headquartered in San Francisco. Container leasing operations are conducted by a wholly-owned subsidiary of Matson, Matson Leasing Company, Inc. ("Matson Leasing"), which is headquartered in San Francisco. Real property and food products operations are conducted by a wholly-owned subsidiary of A&B, A&B-Hawaii, Inc. ("ABHI"), and several ABHI subsidiaries, including California and Hawaiian Sugar Company, Inc. ("C&H"), all of which are headquartered in Hawaii or California. The industry segments of A&B are as follows: A. Ocean Transportation - carrying freight primarily between various United States Pacific Coast and Hawaii ports; providing terminal, stevedoring, tugboat and container equipment maintenance services in certain of those ports; and arranging United States Mainland intermodal transportation. B. Container Leasing - leasing marine cargo containers in standard 20-foot and 40-foot lengths to transportation companies, primarily ocean carriers in the liner trades. C. Property Development and Management - developing real property in Hawaii and on the U.S. Mainland; selling residential properties; and managing, leasing, selling and purchasing commercial and industrial properties. D. Food Products - growing sugarcane and coffee in Hawaii; producing raw sugar, molasses and green coffee; refining raw sugar, and marketing and distributing refined sugar products in the western United States; marketing and distributing roasted coffee and green coffee; providing sugar and molasses hauling and storage, general freight and petroleum hauling and self-storage services in Hawaii; and generating and selling electricity. C. Brewer and Company C brewer is the parent company of Mauna Loa Chocolates. And is also the parent company of Hawaiian Isles Kona Coffee Co. The oldest of the former Big Five companies, C. Brewer and Co., plans to relocate its corporate headquarters from downtown Honolulu to Hilo. C. Brewer, one of the state's largest agricultural companies, today said it plans to move its offices and 30 employees to a former sugar mill on a 10.34-acre site at Wainaku Point, overlooking Hilo Bay. C. Brewer Chairman J.W.A. "Doc" Buyers said the relocation will probably take place in the first quarter of 1998. "This is a move for the 21st Century," Buyers said. "The move is more than just a visionary business strategy - it signifies what we've been saying for some time - the Big Island's vast potential is beginning to surface and we want to help accelerate the process." C. Brewer, founded in 1826, said it wanted to be closer to its main assets on the Big Island, which Buyers described as "the bread basket of Hawaii." The Big Island subsidiaries include Mauna Loa Macadamia Nut Corp., Hilo Coast Power Co. and Brewer Environmental Industries. The move also was prompted by the fact that the company's lease for its historic downtown headquarters expires in December 1997. The company had been paying about $1.5 million a year in rent, Buyers said. C. Brewer had leased the 65-year-old building at Fort Street Mall since 1986 after selling it to All Hawaii Holding Inc. for $8.3 million. Buyers noted that the move will mark the first time that a former Big Five company is based on a neighbor island. Other former Big Five companies, such as Dole Food Co. and the former Amfac Inc., have relocated to the mainland, he said. The Big Five companies, which also included Alexander & Baldwin Inc. and Theo Davis & Co., were agricultural concerns that dominated Hawaii industry into the 1950s. News of the relocation comes about six months after C. Brewer Homes Inc. relocated its headquarters from Honolulu to Wailuku. The company, a former unit of C. Brewer before the parent firm spun it off in late 1993, develops housing projects on Maui. Big Island Mayor Steven Yamashiro said the addition of C. Brewer will have a major impact on the county's economy. Yamashiro said that county officials had been negotiating with the company for six to eight months as part of a big push by Hawaii County to attract new business. The new headquarters will be renovated at a cost of up to $3 million. Another article states that C. Brewer Homes is Loseing money: C. Brewer Homes Inc. became the third major Hawaii home builder to report disappointing earnings for the latest quarter. C. Brewer yesterday said it had a loss of $82,000, equal to 1 cent a share, in its second quarter, compared with a profit of $327,000, or 4 cents a share, in its second quarter of last year. Revenues in the latest quarter, ending Sept. 30, were up 29.3 percent from a year earlier at $5.3 million compared with $4.1 million. But the company also said it had significant increases in costs during the quarter. C. Brewer, which is active in housing development on the neighbor islands, also said sales have been adversely affected by uncertainty among prospective buyers because of the poor condition of Hawaii's economy. C. Brewer Homes President Pete Moynahan said the company's profitability is being hurt by incentives it offers to get people to buy in a tough market. Costs soared as options such as design enhancements, air conditioners and other improvements that would usually be bought as extras were given away to encourage sales, the company said. At Kehalani, Brewer's 2,400-home project at Wailuku, Maui, the company closed sales of 24 single-family homes in the second quarter at an average price of $219,000. Sales there in the year-earlier quarter totaled 13 homes at an average of $266,000. At Iao Parkside, a Maui project in which Brewer is a 50-50 partner, 10 condominium units were sold in the latest quarter at an averageil,9p6,7p price of $129,000. In the 1995 quarter, Brewer sold 17 units at an average price of $127,000. As of Sept. 30, Brewer had a backlog of 25 homes on order but not completed at Kehalani, with a total sales value of $5.4 million, and six units at Iao Parkside, its partnership with Schuler Homes Inc., with a total value of $900,000. Brewer is the last of the three publicly held builders of Hawaii homes to report disappointing results for the latest quarter. Schuler saw its profit drop to $485,000 from $2.9 million a year earlier. Castle & Cooke Inc. had a profit of $2.1 million, but said that without the sale of some mainland commercial properties it would have reported a loss of $500,000. The previous articles show that Hawaii's Economy is declining very rapidly, unlike when they first started their company, where the economy was great. Castle and Cooke Castle & Cooke Homes Hawaii is one of several successor companies to the company founded by Amos Starr Cooke and Samuel Northrup Castle in 1851, began residential development of the company's lands in the early 1960's with the Mililani Master Plan. Castle And Cooke now owns about 99 percent of the land on the island of Lanai, and they own about 29.75 percent of the other islands. American Factors "What Amfac has to do with delicious Kona Coffee" Coffee first came to KealakeKua-Kona in 1828 by way of Reverend Samuel Ruggles, but it was actually an arabica strain of coffee from the Hamakua region of the Big Island that was actually brought to Kona in the mid 1800's and seriously propagated by a few upstart farmers Much of the coffee production in the latter half of the nineteenth century was controlled by large land owning companies such as American Factors, and worked by migrant laborers mostly from Japan. When the world coffee market collapsed at the end of this century much of the land was leased to these Japanese farmers who began operating under a barter system with many local area stores. When the coffee was harvested and sold in the fall, these farmers would then pay off their debts to these stores. Despite the maneuvering that took place between the stores and the larger mills, the coffee was still the property of those responsible for processing and selling the coffee in the mainland United States. Throughout those difficult years of barter and land leases, the Japanese farmer slowly gained control of an industry originally established by the larger corporations. Many farms around Kona began small milling operations on their property which added value to their product. The industry ran itself like this for over a half a century, but always at the mercy of what the international coffee market was doing to the price of coffee. Having no control over these prices or market value of their coffee a series of booms and busts occurred over the years making coffee farming a risky business. Coffee production was as high as 7,000 acres in 1958, but the pound price for cherry was only 12! (You will better understand this relationship between price per pound and cherry later in this article.) It wasn't until the influx of haoles (Hawaiian slang word for Caucasian main landers) in the early 1970's that the local Kona coffee industry began to monitor and administer its own market. Today's push for purity, up scaled means of production, direct marketing by the farmer and the gourmet reputation of the product has proven to be a lucrative means to achieving a stable marketplace. f:\12000 essays\business & economics (632)\The Bubble Economy of Japan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Bubble Economy of Japan The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve "zero defect program". But after the first and second oil crisis that occur from 1973 onward. The economy move downwards partially due to the poor management of economic policy. Although the government had attempt to adjust the economic policy but the recovery was slow. As the soaring of yen continues the demand for export has increase tremendously. With the concern of the United State of this problem, president Reagan and the G5 have signed an agreement with Japan called "Plaza Agreement" , the agreement stated that the exchange rate of Japan and Deutschmark can appreciate against the U.S. . Since then the yen value began to appreciate, Japan was going through a period of trade balance adjustment. While Japan is prepare to go through a period of trade balance adjustment, it will also suffer a period of recession, so the government strongly encourage business activities to strengthen the economy in order to prevent backwash effect. It was this event which boost up the GNP and raise the exchange rate. With this exchange rate advantage it stimulate business activity on housing and stock investment which created a bubble economy. During this period almost the entire country was involve in land speculation or other speculate activities. In this essay it will prove that land speculative activities had create many negative impacts to the Japanese society and economy. Firstly, it will describe the cause of land speculation. Secondly it will discuss on the society and political effects in Japan and lastly it will focus on the economy effects, more over it will include the aftermath when the bubble collapse. The root of this bubble economy is due the wave of land speculation. The wide spread of land speculation activities were mainly because it is profitable. The speculative transactions in assets grew and grew and many believe that this will last for very long period of time. One of the reason that leads to massive investment in the risky activities is because of the success of the Japanese in the international market during 70*s - 80*s. Many Japanese enterprises and business man had become very wealthy. These people have a large sum of equity to invest. Some of these people have focus on risky asset such as stocks and land, therefore many of the regular ventures were left behind. One of the major cause of the massive transaction in the land market was due the incremental of loans by banks. Financial institution was very positive in lending money to the enterprise. This enhance the accessibility to the land speculate market. Each size of this loan is very large. This is because the size of mortgage in Japan financial institutions are based on the collateral, (house) while in North America the size of the mortgage is based on the borrower*s income stream. Therefore the size of loan can be obtain by borrower is larger in Japan than North America. Also 62% of Japanese households own the home that they live and in average the value is near 4 million yen. Therefore there are lots of potential investors. And during the period of speculative activities, borrowers increase the value of their loans as the value of their collateral increases. Since asset is highly liquidate, the number of potential speculators are high and borrowers in Japan were able to get a larger size loan on real estate therefore speculative activities sink into the level of common home owner and large enterprise. Beside the method of calculating mortgage size, another reason why the size of loan was so large is probably that both the bank and the investor were behind the land speculation activity (banking scandal). Investors were paying some key money (sort of a bribe) to financial institution in order to obtain a larger size loan. Therefore many financial institutions were over loan during this period. Another form of raising cash flow for the speculate market was by braking down a loan that obtain from a large financial institution to a specific enterprise, then lend a small piece of this loan to those who was not eligible to obtain a loan from the bank. These companies that act as the funnel will earn a certain amount of interest from these smaller companies (branch effect). Therefore all classes of companies and society can easily access in the speculate market. Other large corporate, construction company, organize crime group and even temple (religious) were also involve in land speculation. Another encouragement to the speculative market was because the government (liberal democratic party) had originally lower the capital gain tax in the early 80*s. Therefore the profit for owner to resale their land was large. Flaws in government policy also indirectly allow investor to get away of property tax expense. For example some land owner could just plant little crops over a large piece of expensive vacant land in urban city and declare them as agriculture land. As a result they will be tax very little. Therefore the incremental of land speculative activities were due to over size loan, high accessibility to the land speculative market and indirectly by the government flaws. During the peak of the land speculation there is a quite interesting study of land price in Japan. (1) "If you sell the entire property of Tokyo you can actually buy the entire United state and by just selling the surrounding land of the Imperial palace you can buy Canada." Although it might of been a little over exaggerate, but the point is that the land value in Japan compare to North America is much higher. Since there is no one side of a coin, Land speculation had create many social problems in Japan. Firstly, land speculation had rise the rent and housing cost tremendously. As a result many young couples and low income families were unable to form their own house hold. In average the cost of a house in Tokyo had raise to about 500 million yen. The younger group with low income cannot afford it and the mid age workers may also not able to afford it. Primary is because they would have to give up at least three- fifth of their income in loan repayment. Also if they have a relatively low amount of down payment, there working age may not be long to repay a mortgage. The longer the amortization period, the larger the amount of interest they bare. The white collar had become the slavery or sacrifice of the never ending mortgage payment and high cost of housing. In 1990 the births live in Japan was 1.2 million, in fact the number is the lowest since 1893. Many analysts believe that one of the reason that lead to this slow growth of population could be create by high house prices. So Japanese people have stopped having children and large family is rare. Therefore this is one of the causes of Japan is running our of Japanese. This is also a very big social issue of the modern Japanese society but the precedent of the slow growth of population has now move from high housing cost to other social problems. During this period, there were lots of cases regarding on the robbery and suicidal in the police force. This was mainly because of the heavily debts that these police bare and they have no other choice than to attempt to go above the law. Due to the financing problems in the real estate market, it leads to the founding of what is program call "2 generations mortgage plan". The founding of this plan was propose to suit the majority of the white collar in the Japanese society. This plan was develop since 1983 but it became more useful from 1985 onwards and the qualification of this program must be father-son that plan or already living together. (son must be older than 20 and must repay the loan by the age at 70) The size of the mortgage is determined by the borrower, interest is flexible and the applicants must purchase an life insurance in order to protect the risk of un collectible due to death. (Pay by the bank) Husband and wife can also join this program . Banker said that the applicant may able to repay this loan in 40 yr. and this type of program also encourage a bonding relationship between father and son. On one side this program may allow a regular income worker to be a home owner but on the other side this person will bare a debt for the entire life and passes on to the next generation. Moreover it may limit on the consumption of the borrower on other composite good. The booms in land prices also discourage people's incentive to work. (2) "Because if any lucky individuals inherited or own a piece of land in metro Tokyo, they will suddenly gain a net worth of 250 to 300 million yen." This amount of money is equivalent to honest man*s life time income plus retire pension. Since may people get rich during this period, the number of middle class income in Japan had tremendously increase. Under these circumstances, many believe they have already achieved the good life therefore people lose the incentive to work hard and get ahead. Therefore it will distort the social structure in Japan and create many problems to the government (taxations). Since the sacrifice and cost of home ownership is so high therefore many Japanese had prefer to rent. Since the demand of rental market increase, it also attracted many investor and speculator. Therefore tenants also suffer from the incremental raise of land price. In Japan, young couples, low income group and the elderly participated as the major group of tenant in Japan. During this period, owners were looking to sell their property for high return and in order to force the tenant to move (after tenant moves landlord can chose higher quality tenant or resale the property for a larger profit) rent rises extremely high. Many elderly were unable to afford such high rent so many were force to move. As a result many had become homeless. In some cases tenant refuses to move so some owner will hire organize gang group to force them out. Some of these unfortunate tenants will give up the hope in home ownership in the core and move further and further away from the center. Therefore many of them will spend over 2 to 3 hours to commute from their place to work. So either way, home owner ship and tenants suffer from the raise of housing price. The natural populations are not the only civilian of this incident. Many foreign students also suffer from the housing problem. (3) "In 1986, there was a statistic taken over a total number of 8116 foreign students. Apparently only 17% lives in an adequate resident facility." The primary reason was due to the cost of rent, high exchange rate and lastly it was because the local people do not wish to rent their property to foreign student. Student associate had propose to built new resident housing but due to the heat of land speculation (create an increase in the demand of land) and high construction cost, the new residential housing will be very costly. Therefore this new construction will probably raise the rent 2 to 3 times. While the housing problem continues for foreign students from 80 onward the Japanese government had still declare that they (4) "expect a total of 100,000 new foreign student will be coming in during the 21st century." This reflects that the government has pay very little awareness not only on the natural population but also foreign student. Beside foreign students and the natural population, another group that affects by the high land prices was foreign ambassador. As the price continued to rise (specially in Tokyo), the ambassadors of the lower wealth countries (such as Africa or Uganda ) were force to move their location away from Tokyo due to high rent. Although this problem was reflect to the Japanese government but it was remain un solve. Other side effects of the land speculation was the new residential construction during that era. In (thousand leaf city) many of the new construction area no longer have a large plain or play ground that similar to a traditional residential area. In one of the Japanese newspaper there is an advertise article that describes their forecast on the living condition of the Japanese in the 21st century. (5) "The husband should not return home until weekend, during weekdays just live in worker*s resident near their workplace. This resident housing should be similar to hotel where it has an into desk that can wash your cloths, postal service and take your message. Their home should be in some rural or less urban area that 100 km away from work." This reflected that the rise of land value did not just only effect the affordability of the housing but also distort the lifestyle of the Japan workers as it had reflect in the earlier incident of the 2 generations mortgage. (6) "During the bubble economy period the zoning regulation in Tokyo has revise to allow builder to built more capital on the piece of land. So this indirectly rises the potential of building space in Tokyo. It will again raised the real estate value, property taxes and traffic congestion level of the area." According to the (7) "National Land Agency statistic, about half of firms surveyed in the mid to late 1980s responded that they had no development plans for the land that they acquired." They rarely built homes or apartments, but instead constructed office buildings that would bring in steady revenues. From the developer*s point of view, houses and apartment are the least profitable projects. So land would almost never allotted for housing". With land speculation and the shortage supply of new construction on housing the Japanese residents are very difficult to find an affordable place to live beside the houses that are very far from work place. In the current Japan election the percentage of participant voters in Japan has drop below 60% of the total population and the liberal democractic did not receive 50 % of the seat through election. This percentage was the lowest since WWII and mainly was because the populations in Japan no longer believe the liberal democratic party can bring them back from recession. Also they did not have a good control system during the bubble economy, failure of the recovery program after the bubble splash.(program such as expansion in public investment, lowering the interest rate and series of economic counter measure but the yen is still pretty high which discourage export) In more specific, during the bubble economy the government did not really propose an effective tax law until 1990. (National Land Value Tax- prohibitive tax on profits from the sale or transfer of land national land law 1974) This revitalizes the local property tax and assessment ratio for the fixed asset tax. Another official policy was issue during 1990 was through the financial market in which the government regulates on the loan activity. This eventually slow down the loan activities largely in 1991. But still the government really lagged their response for those who already suffer for 5 years of high housing cost. More over during the period of bubble economy, many politics were either involve in land speculation or was bribe by organize gang group and large enterprise in order for these people to be more conveniently to have more benefits in the land market. One incident is involve by a business man Kyowa and a cabinet minister Fumio Abe, where Abe sold the details of where a new road construction in Hokkaido in return for 480 million yen. Political scandal was expose to the public not long after the bubble economy was splash. Lastly, most of the asset of the politicians are in the real estate market therefore neither the bank or the officials admit the fall in land prices. So when this incident was expose to the public, the prices of land fall sharply around 50 %. And mainly because of the period of cover up. So many big and small investors suddenly woke up from their happy dreams and face the horrible reality. With the above reasons the government has lost the trust of many Japanese. Therefore the land speculate activities had also effect the image of the strong liberal democratic. During the bubble splash period, many pre- graduates and graduated university students were unable to find jobs in the labor market due to the diet all companies therefore many students were frustrate about their future. Therefore the supply of the labor market is distorted by the bubble burst. Therefore you can see that the land speculation activities had create many social problems to the Japan society during the bubble period and after the bubble burst. During the bubble period the economy was strongly boost by the sudden rise of land value and stock market. On the other hand the after math of the bubble splash was a pain for the economy. In general we will look at the effects on the rise and fall of the Japan*s economy. In 1985 the trade balance in Japan need to have adjustment therefore the government declare that it needs some force to grow in order to prevent recession during this adjustment period. (8) "In 1989 the GNP has increased by 481,000,000,000,000 yen and this was mainly due to the speculate market." (People put their profit from land to stock market or vice versa) Many companies were mainly focus on the speculate market. (9) "The Tokyo Stock exchange soared to almost 40,000 points, the value of stock and land was far above the real value and value of property was not rise due to its demand but was due to speculation. Eventually when the bubble splash, the vacancy rate went rocket high due to lack of demand. Many companies had to go on a strict diet to survive, and they made deep cuts in expenditures for entertainment, advertising, communications and much else." And the above statement is the general picture of what happen during the bubble economy. During the golden period of land speculation, many investors know that the land market in Japan was limited (due to the potential and limited geographic area) so they began to purchase land over sea in Hawaii. (10) "The Non water front housing price in Hawaii during 1987 went up by 51 % and the water front housing price went up more than 100%." This resale land market in Hawaii was primarily between the Japanese; in 1987 the land prices was estimate has rise over 60.2% and many tenants have suddenly realize that the rent has tremendously increase and cannot afford it, so many people have no place to stay (especially the elder). There are several reasons that Japanese wants to invest in Hawaii such as; the waterfront view is similar to Japan so it will be a good place for vacation and retirement, the distance between Japan is relatively close ( 3 hours trip by plane) and massive left over of equity and advantages in the exchange rate that has tremendously increase the nominal value of their equity so it is an encouragement for investment. Therefore the wave of land speculation did not only distort the land market in Japan but also affected foreign country. Looking back at the Japanese economy (11) "in 1987, 77 out of the top 100 most heavily taxed people were involve in land speculation (either have resale their lands or have large land properties). This created a very unhealthy economy because most of the economy is depend on the land market and if any thing happen to the land market, it will distort the economy greatly. (12) "In 1989 the top 100 most heavily tax people 95 of them were involve in land speculation." Therefore the situation was worst in the later period this is mainly because of the profitability in the land market. Since many enterprises only focus on speculate market therefore the real growth of GNP of the country was only 4 to 6 %. The growth of the economy was mainly on the nominal sector. The increase in nominal GNP has created massive appreciate of yen, which had tremendously affect the export businesses and the manufacture industries. (the nominal price of the good has increase therefore foreigner has less interest on Japan goods but this mainly effect small and medium enterprise) While some export business was not doing too well, consequently the workers are not getting an appropriate rise in income. (13) "In 1986 (Nissan) several of the high executive had experience an income cut by 5 to 10% and many of them are very frustrated because most of these people were in their 40*s and have to pay for mortgages and children*s tuition. In later years Nissan had announced to cut 500 in order to balance out their lost." Therefore large manufacture as Nissan was not doing so well during this period. This was worst in the case of the small and medium enterprise. Many small and medium size export companies had contract or even close down during the mid 80*s and as the wave of income cuts continued, every level and class of the employees were involve. On the other hand the high exchange rate was really an advantage for importer (same value buy more) such as energy, petroleum and primary material. These companies were suddenly becoming so wealthy and the income of their employees were much higher compare to those working in the export enterprise. Therefore there was a large gap on the profit and income between the two distinct groups of company and it was very unhealthy for the white collar. This period of high exchange rate continues until the bubble burst. The decline of the bubble economy occurs during the Gulf war period, the economy in Japan was very quite and at the same time the government had tighten their policy. (Both tax policy and restriction in loans) As a result, the land speculation market and land prices fall continuously. The real estate market is totally frozen. The National Land Agency measures that land price of Tokyo and Osaka has dropped 30 to 50 percent. (Total land wealth is near 2000 trillion yen which is really a lot) Many real estate properties were unable to be resale and at the time many companies were unable to pay such high interest payment therefore many of them went bankrupt. While the banks rarely make any loan, many companies cut back in their capital spending. In fact this had dampen the recovery of economy. Most of these companies that went bankrupt were either small or medium size enterprise which lack of its separate bank center. Large enterprises with separate bank center also suffer from non performing loans by the borrowers (small and medium size enterprise). Others large lending institution also suffer largely, since the major economic powers at the bubble period was on the land market therefore any decline in land values would strongly influence the balance sheets of Japan*s lending institution. As reported in June 18 1996 The News Times International News that the (14) "parliament approves a $ 6. 3 billion bailout for bankrupt housing lenders. The vote clears the way for the establishment of an institution to liquidate the assets of the housing lender which collapsed under bad loans made to real estate speculators before Japanese land prices plummeted in the early 1990s. The seven companies are believed to have more than $65 billion in bad debts." This $.6.3 billion is only a piece of the big picture because (15) "the Finance Ministry said that Japan*s financial institutions held about $324 billion in bad loans as of March 31 1996. Analysts believe the total could be considerable higher. The government in recent days has been working to persuade banks and farm cooperative to agree to take on a bigger share of the bailout burden to reduce the cost to taxpayer". According to a current financial post in Tokyo: (16) "Most of the financial banks declare yesterday that with the experience of deficit in last year, this year (ended till September) they had turn deficit into net profit. Banks had systematically write off many of the un collectible accounts. But their revenue is still not very high because of low interest rate and the incremental of bad debts. Therefore financial institution will still probably experience quite a long period of recession." Therefore residue effects of the land speculation spill over still continues. Land developers also suffer largely. Before the land market crash was expose to the public, there were nearly 1,200 golf course was either approve or under construction. Many pre- member ships were sold but unfortunately many of the construction are never finish because of banks were pulling back the loan. At peak, the total value of golf member ships market in Japan was near 200 billion for 1,700 golf courses. Therefore closing down 1,200 golf course construction was quite a lost for the economy. Another aftermath of the bubble burst is the high vacancy rate in the office buildings in Tokyo. During the late 1980*s, the new constructing rate (for the office buildings) was double compare with the tradition. After the bubble burst, the value of asset decreases and demand for space also decreases. Therefore many office buildings are unoccupied. As you can see, the after math of the bubble burst did not only affect the business enterprise, government but also the grass root people. (17) "In last year the economic growth rate was only around 1% or less and the government had introduce economic revitalization policies such as lowest ever interest rates and increased public investment but judging by the fact that consumer demand has cooled off and capital investment by the corporate sector is not making headway as expected therefore the outlook for economic recovery in Japan remain hazy". The bubble bursting has affected everyone in Japan. (18) "The country has clearly become a victim of the same wrenching process of debt deflation that had already been visible for several years in so many other economies. Japan faces the reality of outright deflation in terms of falling prices. With all that implies for companies inability to maintain their profit margins. Japan was facing by the autumn of 1993 an unpleasant combination of excess production capacity, falling demand and a rampantly high yen. By August 1993 wholesale prices were declining at an annualized rate of 4.2 percent." Once again you can see that many Japanese are not very optimistic about the future economy. Therefore you can see that the land speculation had create many negative impacts to the Japan economy not only during the bubble period but also after the bubble burst. Bibliography (1) - Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 50 (2) - Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 61 (3) - Cao Man Kit, "The Life of Foreign Student in Japan", Ming Chang, H.K. 1991, pg.160 (4) - Cao Man Kit, "The Life of Foreign Student in Japan", Ming Chang, H.K. 1991, pg. 167 (5) Cao Man Kit, "The Strategic of Japan Enterprise", Ming Chang, H.K. 1992, pg. 68 (6) Mc Millian Charles, "The Japan Industrial System", Berlin, New York, 1996 , pg. 56 (7) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 89 (8) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 135 (9) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 135 (10) Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com (11) - Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 178 (12) Iwami Toru, "Japan in International Financial System", MacMillian Press, New York 1995, pg. 178 (13) Cao Man Kit, "The Strategic of Japan Enterprise", Ming Chang, H.K. 1992, pg. 135 (14) - Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com (15) - Kenneth V. Smith, "Inman News", June 1996 Version, Section B4 email address: InmanNews@aol.com (16) - Herman Li, "Sing Tao News", November 23 1996, Toronto, Section B 12 (17) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 205 (18) Wood, "The Bubble Economy", Sidgwick & Jackson, London 1992 pg. 206 f:\12000 essays\business & economics (632)\The Combines Act.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Combines Act J.C.H. Jones's article "The Economics of the National Hockey League" (1969) purpose is to explain through simple micro economics that the prime motive of professional hockey team owners is profit maximization. The owners argue that their main interest is "for the love of the game," not the financial benefits of owning a professional sports franchise and to avoid government regulations such as the Combines Act (note 1). An article written in 1982 by J.A. Schofield entitled "The Development of First Class Cricket in England," states the behavior of sport cartels. Three hypothesises are used to explain the behavior described by Schofield, number two being developed by J.C.H. Jones (1969). (1) The profit maximization hypothesis. (2)The joint profit maximization hypothesis that the entire cartel (league) strives for. This hypothesis does not incorporate non profit objectives that influence group behavior. (3) The utility maximization model that allow for many possibilities usually compromising arguments such as the success of the team at a given year and paid attendance for the team's venue. By explaining the frame work of a professional sports league Jones introduces us to factors that make an organized league function, which seems quite familiar to any other monopolistic markets. Since no team can create any revenue by themselves they must form a coalition with another club to produce a profit generating output, namely a hockey game. Other clubs enter this coalition thus creating a formal league which we call the National Hockey League. Jones then states how revenue is generated in the N.H.L and how it is affected by certain factors. A theoretical model of the N.H.L is created by Jones with all things being equal, creating an equilibrium amongst all clubs. The model is then adjusted to real life variables that turns his theoretical model into what we know as the N.H.L. Jone's variables includes the incentive for teams to win (this being the Stanely Cup), different quality of players, the amateur draft (a draft at the end of the season which amateur players a selected, last place team gets first pick and so forth), and player redistribution(trades). By applying microtheory Jones clearly presents his argument which I was able to understand with my current knowledge of microeconomics. Jones examines the revenue side of an individual team using the usual variables tastes, prices, incomes, quality and substitutes. On the supply side Jones stresses that the major element is the human inputs namely the hockey players. The data that Jones used was team statistics such as their final rank at the end of the season and the paid attendance as a percentage of maximum seating capacity. By using this data Jones is able to establish trends that arise from season to season, thus helping him establish his argument on profit maximization. Jones article is meaningful at the moment because of the current labor disputes amongst the players and the owners. "The Economics of the National Hockey League" states what the N.H.L. should be and also indicates what is wrong with its current status. The current issues pressing the N.H.L. such as a salary cap, revenue distribution, and league expansion are all measures that the team owners are striving for. By installing these measures into the N.H.L. the equilibrium achieved in Jones's theoretical model would be easier to achieve thus maximizing the owner's profits. One variable that Jones could not foresee in 1969 is the outrageous salaries being paid to the players and the proposed salary cap from the owners. I believe that Jones's argument that owners motives are purely geared towards profit maximizing would be stronger if the idea of a salary cap was present then. Jones concludes that the National Hockey League is profit driven and clearly posses monopolistic qualities. Upon proving this through simple micro economics the N.H.L. can fall under certain government regulations such as The Combines Act. Since this article was written in 1969 many changes have been made to the governing bodies that control the National Hockey League however its functions can still be explained through micro economics. REFERENCES 1.The Combines Act. R.S., C314 s.1, 1966 2. J.C.H. Jones, "The Economics of the National Hockey League", Canadian Journal of Economics, vol 2 (February 1969), pp. 1-20 3. J.A. Schofield, "The Development of First-Class Cricket in England: An Economic Analysis", The Journal of Industrial Economics, vol. 30, no.4 (June 1982), pp.337-360 f:\12000 essays\business & economics (632)\The Computer Market and Retailers.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Computer Market and Retailers: A Saturated Market Computer dealers are crowding shopping districts, and some analysts think the market is becoming saturated. In Connecticut alone, the two major shopping districts, Buckland and the Berlin Turnpike, for instance, shoppers can compare equipment and costs at Nobody Beats the Wiz, Lechmere, Circut City, Staples, and Office Max - all within minutes in one another. Yet, computer retailers insist that there has been a need for more stores - specifically their own - citing a nearly constant updating of equipment and a growing emphasis on service. They also believe revenue potential remains because computers are constanly changing and more people are becoming curious about the Internet. Still, many worry the market potential might be waning. Analysts believe the market is very close to being saturated, if not already there. there are only so many computers a person will buy, and only so many stores will a customer visit. f:\12000 essays\business & economics (632)\The Consumer Price Index.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Sept. 28, 199 Inaccuracies of the Consumer Price Index(CPI) The Consumer Price Index is a measure of the prices of a fixed market basket of some 300 consumer goods and services purchased by a "typical" urban consumer. The 1982-1984 period serves as the base period so analysts can compare other year's changes with this base period. The composition of the market basket is fixed in the base period and is assumed not to change from one period to another. The reason for the assumption is because the CPI measures the costliness of a constant standard of living. Critics claim that the CPI is inaccurate because it overstates the increases in the cost of living. For this reason, the CPI has been said to be inaccurate. First, consumers do change their spending patterns. Even though the composition off the market basket is assumed not to change, it does because consumers change their spending patterns. Because consumers substitute lower priced products in lieu of higher priced ones, the weight has shifted. The CPI assumes that this does not occur and therefore it overcompensates the standard of living. Secondly, because the base period was over a decade ago, the quality of the products has increased significantly, and therefore the prices should be higher. The CPI, however, assumes that the increases in prices is a result of inflation rather than quality improvements which is false. Here also, the CPI overstates the rate of inflation. Many consumers do not mind the overcompensation of the CPI because in most cases it means more money in their pockets, but there are some consequences. This may cause an ongoing inflation trend. The reason why the government does not restrict it is because they are worried about getting re-elected. Even if the President does call for a revision of the CPI, Congress would defeat it to keep their positions. Another consequence of the overstated CPI involves the adjustment of tax brackets. Their intent of indexing is to prevent inflation to cause people to be placed into a higher tax bracket. For example, if your income increases by 10%, that may put you in a higher level tax bracket, but if product prices have also increased by 10%, your real income has remained constant. This would transfer money from taxpayers hands to the Federal Government. However, indexing will tend to reduce the Federal Government's share by raising the levels of the tax brackets. Therefore, more money will stay in the people's hands due to indexing. The only party that seems to be hurting as a result of the overcompensation of the CPI is the Federal Government. Because consumers are the ones that are being affected, they control the CPI as opposed to the Federal Government. f:\12000 essays\business & economics (632)\The Cost Of Buying A Used Car 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Cost Of Buying A Used Car This project has been put together to show the cost of buying and using a used car for one year. To show the different costs for cars I have made a chart on a later page. First, though, It probably would be good to tell a little about used cars. Used cars are, for some, a good investment. The used car is good for cheap transportation, and fun. Used cars also have many different uses besides just driving around. Some people buy used cars so they can restore them, while other people buy used cars for their children to drive. While still others get used cars for spare parts. The point is that used cars are good for many different people, for many different reasons. Some people like to own new cars and so they get rid of their old cars to make room for the new car. This proves very useful for the person that cannot afford a new car. Unfortunately, the used car is rarely in perfect condition, and can sometimes require some minor repair. Of course, one can't expect to find a great used car that does not cost more then a car in worse condition, but this is to be expected. When one goes to buy a used car they should look for some key things, before buying the car: 1. Check the car's interior thoroughly. Was the car kept clean all this time or was it neglected? Is it up to what would be par? 2. Get an unbiased mechanic to look at the engine and look over the entire car. Do they think that it is in good driving condition? Do you think it is in good driving condition? 3. Look at the car's paint job. Is it what you would want? are there any rust spots, dings, or scratches? 4. Finally one must ask themself if the total car is what they wanted. If there is any doubt then they might want to rethink whether they really want this car. The chart below is a comparison of five cars each with a different set of options, price, and look. Make Price Options 1986 Ford Taurus Wagon $ 3,500 AC, AM/FM Cassette, PS 1969 VW Bug $ 2,000 Convertible, AM/FM Stereo, Dual Exhaust 1965 Pontiac GTO $ 8,500 Convertible, 4speed, PB,PS,New Top 1979 Mercedes-benz450slc $11,000 Garaged, 51,000 mi. sunroof, AC, V8 1975 Ford Maverick $ 700 New Valve job, 3-speed Manual, Steel WheelsAm-Fm Cassette As one can see from the chart above you cannot always judge a car from it's price. Now it is time to calculate the price of using the car for one year using set values for gas and insurance. The average gas consumption for these cars should be about three tanks of gas every two weeks. At 52 weeks a year we get 78 tanks of gas a year. Then we need to multiply by the amount it costs for a tank of gas. In our case that gas is about $13.00 a tank. That comes to about $1014 dollars a year on gas. Then we add about thirty dollars more for oil changes. Our total comes to about $ 1044 dollars. Now that the gas has been figured we add that to the price of the five cars. + $1044 Ford Wagon: $ 4544 VW Bug: $ 3044 Pontiac GTO: $ 9544 Mercedes-Benz: $12,044 Ford Maverick: $ 1744 Next we add our average teenage driving insurance to the cost. + $1600 Ford Wagon: $ 6144 VW Bug: $ 4644 Pontiac GTO: $11,144 Mercedes-Benz: $13,644 Ford Maverick: $ 3344 One can see the price of buying and using any car for one year is fairly expensive, although these figures would vary from person to person. the purchase of a good used car would greatly benefit someone that needs a car. The used car is inexpensive and is a good deal for the buyer and seller of the car. if a person wants a used car, and looks for the best deal, then they can certainly find one. f:\12000 essays\business & economics (632)\The Cost Of Buying A Used Car.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Cost Of Buying A Used Car This project has been put together to show the cost of buying and using a used car for one year. To show the different costs for cars I have made a chart on a later page. First, though, It probably would be good to tell a little about used cars. Used cars are, for some, a good investment. The used car is good for cheap transportation, and fun. Used cars also have many different uses besides just driving around. Some people buy used cars so they can restore them, while other people buy used cars for their children to drive. While still others get used cars for spare parts. The point is that used cars are good for many different people, for many different reasons. Some people like to own new cars and so they get rid of their old cars to make room for the new car. This proves very useful for the person that cannot afford a new car. Unfortunately, the used car is rarely in perfect condition, and can sometimes require some minor repair. Of course, one can't expect to find a great used car that does not cost more then a car in worse condition, but this is to be expected. When one goes to buy a used car they should look for some key things, before buying the car: 1. Check the car's interior thoroughly. Was the car kept clean all this time or was it neglected? Is it up to what would be par? 2. Get an unbiased mechanic to look at the engine and look over the entire car. Do they think that it is in good driving condition? Do you think it is in good driving condition? 3. Look at the car's paint job. Is it what you would want? are there any rust spots, dings, or scratches? 4. Finally one must ask themself if the total car is what they wanted. If there is any doubt then they might want to rethink whether they really want this car. The chart below is a comparison of five cars each with a different set of options, price, and look. Make Price Options 1986 Ford Taurus Wagon $ 3,500 AC, AM/FM Cassette, PS 1969 VW Bug $ 2,000 Convertible, AM/FM Stereo, Dual Exhaust 1965 Pontiac GTO $ 8,500 Convertible, 4speed, PB,PS,New Top 1979 Mercedes-benz450slc $11,000 Garaged, 51,000 mi. sunroof, AC, V8 1975 Ford Maverick $700 New Valve job, 3-speed Manual, Steel Wheels Am-Fm Cassette As one can see from the chart above you cannot always judge a car from it's price. Now it is time to calculate the price of using the car for one year using set values for gas and insurance. The average gas consumption for these cars should be about three tanks of gas every two weeks. At 52 weeks a year we get 78 tanks of gas a year. Then we need to multiply by the amount it costs for a tank of gas. In our case that gas is about $13.00 a tank. That comes to about $1014 dollars a year on gas. Then we add about thirty dollars more for oil changes. Our total comes to about $ 1044 dollars. Now that the gas has been figured we add that to the price of the five cars. + $1044 Ford Wagon: $ 4544 VW Bug: $ 3044 Pontiac GTO: $ 9544 Mercedes-Benz: $12,044 Ford Maverick: $ 1744 Next we add our average teenage driving insurance to the cost. + $1600 Ford Wagon: $ 6144 VW Bug: $ 4644 Pontiac GTO: $11,144 Mercedes-Benz: $13,644 Ford Maverick: $ 3344 One can see the price of buying and using any car for one year is fairly expensive, although these figures would vary from person to person. The purchase of a good used car would greatly benefit someone that needs a car. The used car is inexpensive and is a good deal for the buyer and seller of the car. if a person wants a used car, and looks for the best deal, then they can certainly find one. f:\12000 essays\business & economics (632)\THE CPA Of The 21st CENTURY.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 921 Business practices have changed during the past millenium. Businesses have evolved over time from bartering goods and riverside trading, to small local stores, mega malls, and business over the Internet. Through all these changes, companies needed to keep records of their equity, assets, liabilities, and cash flows in order to remain competitive in their field. Accounting standards have also changed over the years, through FASB, CAP, and APB, issuing updated efficient standards called GAAP. Due to the drastic changes in the business world, CPA requirements for the twenty-first century are being updated to reflect current business demands; these changes will affect undergraduates, graduate students, and professionals in the accounting field. Requirements for sitting for the CPA exam are changing in Ohio as well as in other states. William Bentz, OSU Professor and Legislative Task Force Member says, "A total of 41 states, including New York, Florida, Ohio, Illinois, and Texas have passed similar legislation.1" The change requires candidates to have 150 semester hours or 225 quarter hours, a college degree, and the equivalent number of credit hours needed for an accounting major to sit for the CPA exam. This requirement will begin in Ohio with the May, 2000 examination. Any candidate who began the CPA exam process on or before November 1999 will be covered under the old exam requirements. However, in order for candidates to be successful in the accounting field, further education will be needed to adapt to changing business standards and to compete with accountants who passed the exam under the new requirements. There are many reasons for the implementation of the 225-hour requirement. Donald Tidrick, Senior Lecturer University of Texas says, "In 1989 a publication was issued from the Big Eight Accounting Firms to Higher Education. The point of the publication was to inform higher education personnel that students were not learning the right methods and skills needed in the accounting field.2" Since then changes have been made in the business track curriculum. Team projects and presentations in class develop written, verbal, problem solving and interpersonal skills. There is a need for accountants to relate to more broadly educated executives and operate in a more complex environment. Accounting firms have a desire to sell more value-added services to their clients in order to remain competitive. The AICPA web page states, "With increased demands on CPAs to offer diversity in the business world for clients, the 225-Hour Requirement is necessary to be a broadly prepared Certified Public Accountant.3" CPAs of the twenty-first century must be well educated, possess superior accounting skills, and strive for excellent quality work in order to remain competitive in the accounting field. The requirement increase of 225-quarter hours can be acquired in three different processes: The hours can be accumulated by obtaining a master's degree, pursuing a second undergraduate major or minor in any field relevant to the student's career goals, or taking extra courses in areas of interest to the student. The method in which the candidate earns the extra hours to sit for the CPA exam is up to his or her discretion; however, the hours must be earned in order to qualify. Undergraduate students have multiple pathways to choose from in order to fulfill the 225-quarter hour requirement. Students may decide on a five-year accounting program that is offered at many universities in the United States. William Bentz said, "Ohio State should have their five year accounting program activated by September 2000.4" Students may also pursue an undergraduate accounting degree, and then proceed to a masters program. A final option for the undergraduate student is to achieve the accounting degree, and then decide on another major, minor, or elective courses to fulfill the requirement. Finance and Management Information Systems are two majors that compliment an accounting degree. Which pathways the undergraduate student chooses is not of great importance; the key point is that the student must be well-educated and well-diversified in order to succeed in the accounting profession. Graduate students enrolled in a masters program have many options and may gain valuable benefits. A masters degree in accounting will develop enhanced technical expertise. A masters degree in business administration will provide a tremendous amount of business knowledge useful in all areas of accounting. Other masters degrees will provide the student with a well-diversified education. Many benefits may result from the completion of a masters degree. The AICPA web page states, "A graduate education provides higher rates of success on the CPA exam, starting salaries normally ten to twenty percent higher, and promotions are increasingly being awarded.5" Although graduate education requires time and money, the benefits that follow far outweigh the costs. Professionals in the accounting field who have not taken the CPA exam but have the desire to, will need to take the exam by November, 1999, or take classes to fulfill the requirement. Robert Goldie, Tax Partner Pricewaterhouse Coopers said, "Many firms like Pricewaterhouse Coopers have programs that fund further education for employees and potential employees.6" Higher education is needed throughout ones career in order to stay current with changing educational curriculums, skills, and standards. With the business environment becoming increasingly complicated, certified public accountants must meet new challenges when making critical business decisions. Prospective CPAs need to have a broad educational base that includes accounting and business knowledge and develops the skills needed for the continued growth in a fast and changing global economy. f:\12000 essays\business & economics (632)\The Current State Of Russia and Its Neighbouring Republics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In August of 1991, the collapse of the communist system in the USSR and it's neighboring republics occurred. Out of the smoke emerged fifteen new republics and a union known as the Commonwealth of Independent States. These new regimes faced formidable obstacles. The collapse brought massive inflation which in turn forced the economy into a spiraling decline and a state of almost worthless value. Many people were quick to point the finger at their communist past, and even more eager to lay blame. Traditional communist ideology was to "provide for every individual an equal amount of goods and services, thus creating a state of equality amongst the populous" (Leveler, 16). Many people felt as if their current hardships could be blamed on the communists and their economic policies, specifically their "Core-Periphery" plan. The communist sponsored "Core-Periphery" economic policy that was evident in Russia was quite simplistic in nature. The theory, traditionally used to describe inter-continental trading and production, was adapted for use in the Russian economic zones. The theory was as follows; Areas which surround the capital (core region), usually rich in one material or another, would be used for the extraction of raw materials. These materials would then be shipped back to the capital in order to be manufactured into goods. From there, the manufactured products would be shipped back to the surrounding regions (periphery region) for resale. The citizens of Russia were surviving on this system, but barely. The Core-Periphery policy was not efficient, nor effective, for usually a product needed on one side of the federation, was produced at the other end. Factors such as transportation costs and adequate use of human resources was very inefficient and cost-consuming. Strong influences from the world urged Russia to make the transition into the market-oriented economy. This seemed tempting, for the market-oriented economy preached individual wealth and prosperity. Seeing no better solution to their current economic woes, Russian policy-makers took the plunge. By 1995, 4 years since the beginning of the transition into a market-oriented economy, no satisfactory economic improvment had taken form. Productivity in many states such as Turkmenistan and Belarus continued to fall (Table 2), and inflation was still at high levels. Many new Russian capitalists in the regions chose to exploit what had already been exploited in the past; raw materials. Looking to make a fast income, these new Russian capitalists sold whatever they could get their hands on, for practically no cost at all (Co-Existence, 146). Expropriation of state property, shady deals, and corruption were rampant. Productivity in industries such as agriculture declined as farmers did not want to take care of their land (Co-Existence, 146). Nobody had money to buy their goods, so they questioned as to whether or not they should take the time to produce them. The economy was contracting and in turn, people were actually getting poorer. The newly separated states were yearning for economic growth and prosperity. This would hopefully bring stability and a much needed improvement in the standard of living as well as individual wealth. This however, has not been the case. Many of the breakaway republics have actually experienced considerable negative growth. Many of the republics made the transition to the market economy hoping to make the individual citizen wealthier. In many of the republics this did not actually take place. In 1995, all but 2 of the 15 countries saw their net exports per capita fall drastically. Lithuania, once with a net export per capita rating of 49.2, was experiencing one of -54.1 in 1995 (Table 1). On average the citizens now had less than before. Many countries began to realize that they were in many ways still dependent on so-called "mother Russia". The past Core-Periphery policy had made them heavily rely on internal domestic trade. Being nothing more than satellite states in the centrally planned economy, these countries were traditionally used for the extraction of materials or the production of a singular industry. Their economies were not diversified. Traditionally supplies had to be brought in, and this was still the case. Import statistics in the newly independent republics have seen a drastic rise in totals. In 1992, the Ukraine with a population of approximately 51 million people imported a total of 2.2 billion million dollars worth of goods (Table 1). In 1995 however, the Ukraine with a population less than what it had been in 1992, actually imported more; 5.6 billion dollars worth of goods (Table 1). This rise in imports was also evident in Georgia, Lithuania, and Uzbekistan (Table 1). For these countries, importing more than they are actually exporting is proving to be a tough economic obstacle to overcome. In order to import, they have had to borrow heavily from international sources. Without exports, they have been lacking sufficient funds to make these re-payments. Diversification was not happening rapidly enough to help them cope. Many feared that their debts will become so large, that no matter what diversification occurred, it will be too late, thus making is almost impossible to repay what they have borrowed. The economic transition occurring in Russia has also led to political strife. Diplomatic relations between many of the republics and the Russian nation have been drastically reduced, if not completely severed. Ukraine, and Georgia have officially laid out in their constitution that they will have no formal ties with their Soviet past (McLelland 108). The Ukraine was fortunate to border one of the only Soviet access points to a large body of water; the Black Sea. It was from this port that the former Soviet Union established one of it's larger naval divisions, known as the Black Sea Fleet. Consisting of over 1700 warships of various sizes (McLelland 63), this fleet was one of the most dreaded in the world. Aboard those ships, there were approximately 430 thousand employed operational personnel (McLelland 66). Indirectly, in areas such as food production, and maintenance staff at the shipyards, there were approximately 15 thousand people employed (McLelland 66). When the dissolution occurred, the Russian government declared that the Black Sea would fall under its permanent control. To the newly formed Republic of Ukraine, this was very alarming. To lose the Black Sea would mean to lose all the jobs that were directly or indirectly associated with it. Knowing that the upcoming years may be harsh in terms of economics, the Ukraine was not readily willing to accept a sharp blow to it's employed work force. The Ukraine already had an unemployment rate of 7% (McLelland 24), and this was straining the limited social safety nets. The last thing the Ukraine was prepared to do was pay out more to it's people without getting anything in return. The Ukrainians were yearning for a future free of any Russian grip. The Russians, on the other hand, were still deeply in favour of upholding their Tsarist ancestors conquestial territorial gains. Ultimatums were sent back and forth between Moscow and the Ukraine. Neither side was willing to budge. Finally Russia backed down, and control was left to the Ukraine. Nevertheless, during that period of stalemate, Russo-Ukrainian relations, diplomatic and more importantly economic, suffered a great lose. Slander and many outcries of corruption had been directed at many of the policy makers in both countries. Trade between the two nations has also dropped to an all time low. Out of Russia's total exports, only a meager 1.7% gets shipped to the Ukraine (Dart, 117). In these harsh times of economic transition in the region, one would expect that the two countries would be more willing to co-operate for the goal of greater good. The Russian republic has also seen it's fair share of strife; internally. Harsh economic times, and less than admirable results from the transition to the market oriented economy have paved the way for much political opposition. Communists, the former leaders of the Soviet Union, were one of the first political movements to wage war against the newly formed liberal government. Traditionally, communist ideology preached that "no citizen will be in any greater position of status or economic wealth that that of another citizen" (Perdues, 66), and that "all citizens shall live with ample food on the plate, and little worries as to life" (Perdues, 93). For the communists the time of economic hardship was heaven sent. Capitalizing on the citizens disgust in the shape of the country would be no challenge. This has led to the communists waging wars inside of the Russian parliamentary house. The Duma as it is known, is where most legislation and debate over domestic and foreign policy goes on. It is in this institution that the Communists have on numerous occasions attempted to gather support to impeach the liberal government. The Communists' goal: dissolution of the current government, and establishment of the old. Instead of attempting to reform and fine tune the new economic policies, they wished to return to policies more consistant with the Communist ideology. The Communists are not alone. In Russia itself, there has been a spawning of over 12 new political parties (Co-Existence, 147) that pose threats to the current government's stability. Amongst those parties, over 86% of the individuals do not approve of the market-place economy (Co-Existence, 149). Though Russia is constantly hindered by economic downfall in many aspects, that is not to say that all is bad . Some of the new countries who have embarked on the long road to growth, have in fact showed signs of improvement. Many of them have realized that diversification is needed desperately. Both Uzbekistan and Georgia were traditionally used as resource extraction states in the Core-Periphery economic plan of the centrally planned economy. Since the establishment of independence, Uzebekistan now promotes a large degree of exploration, and thus has a large oil and gas industry (Blij, 321) they have also experienced growth in their new found service sector. Georgia is also experiencing diversification. With its fertile lands, Georgia has harnessed it's agricultural sector into producing tabacco, various fruits, and even timber (Blij, 150). It also has a booming tourist industry because of it's warm climate and scenic beauty (Blij, 150). Recent statistics show that in the year 1995, because of this diversification, countries such as Uzbekistan and Georgia have drastically improved their overall Gross Domestic Product when compared to statistics recorded in 1992. Uzbekistan had a rating in 1992 of -11.1% and Georgia had a whopping -45.6%. In 1995, the totals showed signs of great improvement; both at -5.0% (Table 2). Contraction was still occuring, but at a slower rate. This in turn provided some hope. There was even a larger increase in the country of Armenia where the 1992 statistic for GDP was -52.4%, and in 1995, it had improved to a +5.0% (Table 2). The question of economic coexistance between Russia and its former republics still remains a mystery. There are many stronger, much more controversial issues in Russia's republics, when it comes to the issue of economics, independance, and growth. Many of the citiznes in the breakaway republics are not eager to have peace and open relations with their russian counterparts. The republics have yearned for independance for sometime now. Russian Census data showed the majority (60 to 80 percent) of the ethnic populations in Russia itself have supported movements for more autonomy. The root of the turnaround in opinion from supporting the federation to wanting soverign nation states, has been caused by one simple reason; nationalism. Oppressed for many years, culturally speaking, the republics wanted to bring rise to their ethnic beliefs and values. The intelligentsia, long considered instigators threatening the Russian Federation, have been primarily concerned with cultural objectives, such as defending the use of national languages or controlling the local educational system, to ensure that history is taught from the perspective of indigenous peoples (Drobizheva, 2). There is a direct relationship between identity and peace. In an oppressed society, ethnicity assumes a stronger role, however, when democracy and ethnicity are balanced, political stability is possible. As a result of a lack of democratic institutions and means for dialogue, the former Union's inhabitants were increasingly identifying themselves as members of ethnic groups rather than as citizens of the Russian Federation. Many of the breakway republics are filled with ethnic russians; Kazakhstan 41%, Lithuania 8%, and the Ukraine 21% (Wells, 31). Hatred and distrust of these Russians is infact growing. This is especially true when Russians are in the minority, as in the republic of, for example, where Russians comprise 30 percent of the population (Drobizheva, 2). In such circumstances, many perceieve the Russians as developing a "hyperidentity," characterized by a low degree of tolerance for others and a feeling of being threatened (Drobizheva, 3). Many of these Russians tend to consider themselves members of a higher ethnic group whose rights are above others (Drobizheva, 3). This has fueled mch anger towards the Russians, and in many regions the Russians are now being alienated. Due to past abuse of rnatural and human resources, opression of fundamental rights such thought, voice, and opinion, has led to a severe feeling of disgust towards the Russians, and more importantly distrust. In Short, the market economy did not bring any good to Russia immediately following its implementation. That is not to say however, that growth and prosperity will not occur in Russia and it's former states. Statistics as recent as 1995 have shown that since 1992, on average, there has been an upward trend. Overcoming the obstacle of the core-periphery based economy that was imbedded in the Russian culture, and the ideology aswell, has proven to be no easy task. Relying on imports has taken its toll on many of the nations. To combat this, the republics must build their own production base, and produce goods domestically. Diversification will mean continued growth, and who is to say that the newly sperated republics and Russia itself can not join forces in an effort to produce one large core zone, with the world as it's periphery. As the nations utilizing the market driven economy continue to increase and reap it's benefits, it was only a matter of time before the inefficeint bankrupt communist system would have to topple. The key to success in the region is not to expect too much too soon. Ultimately everything must start somewhere, and in today's fast paced, market oriented global economy, so too must the newborn Russian capitalist baby. WORKS CITED Drobizheva, Leokadia. Democratization and Nationalism in the Russian Federation. Moscow:Russian Academy of Sciences, 1995 Mclelland, Kelter. Russia At It's Peak. New York:Puffin, 1995 Russia And The Republics. Co-Existence. 1994-1995 Edition. Leveler, Eisen. Crash and Burn. London:Earl Of Johnstonson, 1995 Wells, Michael. Harsh Economic Transition. New York:The Regency, 1995 Blij, Muller. Geography; Realms Regions and Concepts. New York:Wiley And Sons. Eighth Edition Perdues, Gregory. The Red Menace?. Chicago:Bantam, 1995 Dart, Simon. A Seat At The Global Table. London:Willamson, 1996 Geography 1000 Assignment #2- Economic Change In The Former U.S.S.R. Robert Linden 202013647 f:\12000 essays\business & economics (632)\The Death Penalty Should Continue to be Used in the U.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Death Penalty Should Continue to be Used in the U.S. Ever since the death penalty has been declared constitutional in 1976, thousands of people have been placed on death row and 314 of them have been executed.( Yaffe,1) Thirty-eight states now allow the death penalty, with New York being the last to adapt this legislation last March. Massachusetts and Iowa have been trying to pass a law that would to allow the death penalty to be used in their states. Capital punishment is most often saved for murder and sometimes arson, treason, burglary, and forcible rape of a 14 year old or under from a 18 year old or older, but it varies within each state. There are many politicians who are trying to pass laws banning the death penalty. There are around 3000 people on death row across the country right now and if these politicians get their way, then 3000 lives will be spared.(Matthews,1) The rage of this issue continues to persist with many people questioning if capital punishment is really the answer to solving the problem of crime. The death penalty sh ould beallowed because it is not inhumane but rather fair and it's continued use will end up helping out society in many ways. Many people who oppose the death penalty say it is inhumane and unfair. These people who oppose it say that all human life has the right to be respected. All human life does have the right to be respected but there is a point when that right can be lost, if someone takes the life of another human being then they have given up that right. Another claim the opposers to the death penalty make is that the death penalty encourages more murders because if people see the authority taking someone's life, then they will think they can do it too. This is not true, if criminals see that more and more people are getting the death penalty, this will cause them to think their actions over. The United Kingdom abolished the death penalty in 1965 and since then, violent crime has more than doubled.(Matthews,2) The death penalty is not inhumane because it can be done painlessly and quickly. In most cases when the execution was performed the process that was most often used was lethal injection. Out of the 314 executions that have taken place since 1976 the majority of them, 179 have been done by means of lethal injection. The electric chair has been used 123 times, the gas chamber: 9 times, a firing squad: twice, and hanging: once.(Rodriquez, 4) Lethal injection is a quick, non-suffering way to execute the death row prisoners. Opposers to the death penalty don't even realize that these inmates are being done a favor. By being executed, they are being put out of their misery. There are not that many people who want to be stuck in a small cell for the rest of their life where prison rape has become more common. By executing these prisoners, they won't have to suffer. Another reason the people who oppose the death penalty feel that it is unfair is that it denies the person the privilege to be retried if any new evidence comes up. On the average, an inmate in kept in prison 8 years before their death sentence is carried out.(Yaffe,2) If no evidence is found by then to prove their true innocence, chances are no evidence will ever be found. Besides anyone who is on death row has already gone through a trial so they had their chance to prove their innocence. The jury obviously found them guilty beyond a reasonable doubt and decided they should get the death penalty. Justice has already prevailed. Even though the Old Testament book of Exodus commands "Thou shall not kill," just three chapters later in the same book it is advocating "life for life," "eye for eye," and "tooth for tooth". The death penalty can be justified because it can be done painlessly, it is actually putting the prisoners out of their misery, and the prisoner has to deal with the consequences from what they did. The death penalty also keeps dangerous criminals from ever returning to the streets again where they can recommit they same crimes. There are criminals who have been sentenced for 50 years to life in prison but end up getting out years earlier for good behavior because the prisons are getting so crowded. When the U.S. Department of Justice studied all the available criminal records of those that were on death row they found out some pretty interesting facts. Sixty-seven percent of the people on death row were convicted of a previous felony. Every two out of five of them committed their capital offense while they were on parole or on probation. Forty- two percent of them had active criminal justice records.(Matthews, 3) Some criminals are too dangerous too even be put in prison because of the risk of them escaping. Terrorists threaten and endanger the lives of many people so if they are caught, they should immediately be put to death. This doesn't seem to be a problem because most terrorists have no fear of dying. Many take huge risks with dangerous explosives or carry out attacks that could kill themselves as well as the others. If the inmates are eventually let out, most have nowhere to go and it is hard for them to find a job so they will return to their old ways. Only 37.4% have finished high school, 15.3% have never even finished eighth grade and only 10.2% have attended college.(Matthews, 4) Not only do the prisons get crowded but it gets to be too expensive to keep all these criminals in prison until they die. More and more people are put in prison each year and the inmates from all the previous years still remain there and few are released so it is an unequal balance. Eventually, more prisons are going to have to be built which means more money being spent or dangerous criminals are going to be put back onto the streets. It is cheaper to execute the ones who have life sentences. Many who oppose the death penalty say that the execution would cost more, but that is not true. It only costs more when the trial that decides if the defendant should get the death penalty goes on for a long time and when the jury can't decide a verdict. The death penalty will allow more room in prison so less dangerous criminals will be forced to return back to the streets of society and it will lessen costs as opposed to keeping an inmate in prison for the rest of their life. This will help the country out a lot. The death penalty should be allowed because it is not inhumane but rather fair and it's continued use will end up helping out society in many ways. The thousands of criminals who take a person's life should be punished. If a jury decides what they did was severe enough to earn the death penalty, then their judgement should be approved. This way society is showing it is not going to go soft on criminals who victimize and frighten the country. This way the tables are turned and the criminals are the ones who are frightened for their lives, it may sound cruel to some people but at least there is one less person who is out there to victimize them and that person will never be able to hurt anyone else again. Works Cited Matthews, Robert. "The Final Judgement." Focus, 18 November 1995: CD Newsbank. Rodriquez, Era M. "Court Ponders Limits of Its Own Power." The Recorder, 19 March 1996: Internet. Yaffe, Deborah. "Federal Court Weighs in on California Rule for Death Row Cases." New York Times, 4 June 1996: CD Newsbank. f:\12000 essays\business & economics (632)\The Debt An Economic Catastrophe.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Debt: An Economic Catastrophe Few national economic issues have generated the same kind of concern as has the federal debt problem of Canada. There is a pressing need for long-term policies to lift Canada out of the national debt hole it is in. Eliminating the debt will not only free up money being spent on interest and reduce taxes, but make Canada a more feasible place for future generations to live and work. Interest on the debt has eroded the government's ability to fund its own operations and essential social services. Presently, thirty-five cents of every tax dollar the federal government raises is used for interest payments alone on the debt. Though there have been operating surpluses within the federal government, they have been eaten up by the debt interest payments. Few people understand the devastating effects of compound interest. The debt, at a compound rate of 10%, doubles in seven years, quadruples in fourteen years, and is eight times as much in twenty-one years. This creates great difficulty for governments to slow the debt, much less eliminate it. Our federal debt grows all by itself to the tune of approximately ninety million dollars every day. This may seem hard to digest, but it is reality. The need for debt elimination is vital if Canada wants to free up billions of dollars being spend on interest payments. Two approaches may be taken to this. First, an increase in government revenues through higher taxation may be considered. However, taxes are already at a point where some people feel they are working merely to pay the government, rather than support themselves. Second, a restraint on government spending by means of cutbacks may be a path, possibly a difficult one, to the road of eliminating our federal debt. Either way, it will be the young citizens of Canada that will have to pay for previous government overspending. "Our national debt, after all, is an internal debt, owed not only by the nation but to the nation. If our children have to pay the interest, they will pay that interest to themselves." (Franklin Delano Roosevelt) As our debt continues to increase, so do the taxes that Canadians are paying. Thirty-five percent of our taxes are being paid to reduce the debt, leaving the rest to fund government programs such as health care, education, and job creation. "For every benefit you receive a tax is levied." (Ralph Waldo Emerson) However, a long look must be taken at how the tax dollar is distributed to various programs to determine which ones need more funding, and which should be receiving less. There is, by no means, excess money to spend foolishly; that is what got Canada into the financial crisis it remains in today. But by restricting the growth of program payments, eliminating some programs and cutting back on others, and by having higher income individuals pay back a greater share, dollars are now being reassigned to the most essential programs and to needy Canadians. The battle to reduce tax waste and increase efficiency continues across all government departments. Nevertheless, Canadians now claim they are being taxed to death. And the only way to stop this excessive taxation is for the government and citizens to work together to fight the debt, and subsequently, less tax dollars will be needed to pull Canada out of the financial crisis it is in. There is no doubt that a debt-free country would be the greatest place in the world to live and work. There would be adequate funding for job creation by means of public and private investment, tax dollars would be spent responsibly and wisely, resulting in tax relief but still receiving essential services, and social spending would be prioritized to ensure the long-term survival of social programs that Canadians value and need. However, the position Canada is in now greatly differs from this. Canadians are out of work. Our government spends too much, owes too much, and taxes too much. This vicious cycle drains the lifeblood out of the economy, scares away private investors who create jobs, and makes Canadian products less competitive. Taxes are too high. Government over-spending has led to enormous interest payments on the debt, driving up the tax burden on individual Canadians. And finally, our health care system is in critical condition. Out-of-control government spending is the greatest single threat to health care and other social programs in Canada. As one can see, the debt-free scenario is much more attractive. This would unquestionably draw more people to Canada to live, raise families, and work, consequently stimulating the federal economy. The journey to a debt-free Canada will not be a short one. Nonetheless, measures must be taken to eliminate this economic catastrophe before it gets more out of hand than it already is. We must learn to live within our means, and understand that we can no longer spend money we do not have. "Some debts are fun when you are acquiring them, but none are fun when you set about retiring them." (Ogden Nash) Bibliography Emerson, Ralph Waldo. Quotation Homepage: http:\\www.lexmark.com/data/quote-21.html. Nash, Ogden. Quotation Homepage: http:\\www.lexmark.com/data/quote-21.html. Roosevelt, Franklin Delano. Quotation Homepage: http:\\www.lexmark.com/data/quote-21.html. f:\12000 essays\business & economics (632)\The Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Debt: An Economic Catastrophe Few national economic issues have generated the same kind of concern as has the federal debt problem of Canada. There is a pressing need for long-term policies to lift Canada out of the national debt hole it is in. Eliminating the debt will not only free up money being spent on interest and reduce taxes, but make Canada a more feasible place for future generations to live and work. Interest on the debt has eroded the government's ability to fund its own operations and essential social services. Presently, thirty-five cents of every tax dollar the federal government raises is used for interest payments alone on the debt. Though there have been operating surpluses within the federal government, they have been eaten up by the debt interest payments. Few people understand the devastating effects of compound interest. The debt, at a compound rate of 10%, doubles in seven years, quadruples in fourteen years, and is eight times as much in twenty-one years. This creates great difficulty for governments to slow the debt, much less eliminate it. Our federal debt grows all by itself to the tune of approximately ninety million dollars every day. This may seem hard to digest, but it is reality. The need for debt elimination is vital if Canada wants to free up billions of dollars being spend on interest payments. Two approaches may be taken to this. First, an increase in government revenues through higher taxation may be considered. However, taxes are already at a point where some people feel they are working merely to pay the government, rather than support themselves. Second, a restraint on government spending by means of cutbacks may be a path, possibly a difficult one, to the road of eliminating our federal debt. Either way, it will be the young citizens of Canada that will have to pay for previous government overspending. "Our national debt, after all, is an internal debt, owed not only by the nation but to the nation. If our children have to pay the interest, they will pay that interest to themselves." (Franklin Delano Roosevelt) As our debt continues to increase, so do the taxes that Canadians are paying. Thirty-five percent of our taxes are being paid to reduce the debt, leaving the rest to fund government programs such as health care, education, and job creation. "For every benefit you receive a tax is levied." (Ralph Waldo Emerson) However, a long look must be taken at how the tax dollar is distributed to various programs to determine which ones need more funding, and which should be receiving less. There is, by no means, excess money to spend foolishly; that is what got Canada into the financial crisis it remains in today. But by restricting the growth of program payments, eliminating some programs and cutting back on others, and by having higher income individuals pay back a greater share, dollars are now being reassigned to the most essential programs and to needy Canadians. The battle to reduce tax waste and increase efficiency continues across all government departments. Nevertheless, Canadians now claim they are being taxed to death. And the only way to stop this excessive taxation is for the government and citizens to work together to fight the debt, and subsequently, less tax dollars will be needed to pull Canada out of the financial crisis it is in. There is no doubt that a debt-free country would be the greatest place in the world to live and work. There would be adequate funding for job creation by means of public and private investment, tax dollars would be spent responsibly and wisely, resulting in tax relief but still receiving essential services, and social spending would be prioritized to ensure the long-term survival of social programs that Canadians value and need. However, the position Canada is in now greatly differs from this. Canadians are out of work. Our government spends too much, owes too much, and taxes too much. This vicious cycle drains the lifeblood out of the economy, scares away private investors who create jobs, and makes Canadian products less competitive. Taxes are too high. Government over- spending has led to enormous interest payments on the debt, driving up the tax burden on individual Canadians. And finally, our health care system is in critical condition. Out-of-control government spending is the greatest single threat to health care and other social programs in Canada. As one can see, the debt-free scenario is much more attractive. This would unquestionably draw more people to Canada to live, raise families, and work, consequently stimulating the federal economy. The journey to a debt-free Canada will not be a short one. Nonetheless, measures must be taken to eliminate this economic catastrophe before it gets more out of hand than it already is. We must learn to live within our means, and understand that we can no longer spend money we do not have. "Some debts are fun when you are acquiring them, but none are fun when you set about retiring them." (Ogden Nash) Bibliography Emerson, Ralph Waldo. Quotation Homepage: http:\\www.lexmark.com/data/quote- 21.html. Nash, Ogden. Quotation Homepage: http:\\www.lexmark.com/data/quote- 21.html. Roosevelt, Franklin Delano. Quotation Homepage: http:\\www.lexmark.com/data/quote-21.html. f:\12000 essays\business & economics (632)\The Economic Impact of Telecomunications Deregulation in Cana.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Economic Impact of The New Telecommunications Legislation By: David Lister Canada has been transformed in recent years into an information based society. Nearly half of the labour force in Canada works in occupations involving the collection and processing of information. In a society in which information has become a commodity, communications provide a vital link that can mean the difference between success or failure. Telecommunications is a fundamental infrastructure of the Canadian economy and society. For these reasons, an efficient and dynamic telecommunications industry is necessary to ensure economic prosperity. Deregulating the Long Distance Industry is the only sure way to ensure that prosperity. Telecommunications in Canada, which include services and manufacturing, employ more than 125,000 people and generate over $21 billion in revenues (Dept. of Communications, 1992, p7). Telecommunications helps to overcome the obstacles of distance in a vast country such as Canada, permitting remote communities to benefit from services taken for granted in large urban centres. More than 98 percent of Canadian households have a telephone, and there are more than 15 million telephone lines for a population of nearly 27 million(Dept. of Communications, 1992, p7). It is therefore not surprising that Canadians are among the biggest users of telecommunications in the world. For example, in 1990, Canadians made more than three billion long-distance calls (Dept. of Communications, 1992, p8). Innovations made possible through telecommunications have also contributed significantly to the phenomenal growth of the Canadian telecommunications industry. For example, the total value of the major telephone companies' investment in their facilities rose from $17.8 billion in 1979 to $40.3 billion in 1990. In the same year, Canadian telecommunications companies reported more than $15 billion in revenues, accounting for an estimated 2.7 percent of the Gross Domestic Product (GDP). In addition, in 1990 the telecom industry achieved a real growth rate (after inflation) of 8.6 percent compared to 0.3 percent for the Canadian economy as a whole. Telecommunications is also Canada's leading high-technology industry; its Research and Development costs of $1.4 billion in 1990 represent about 24 percent of total expenditures in this area. This shows how telecommunications has come to play such a vital role in our society, in addition to being our most important high technology industry (Dept. of Communications, 1992, p9-12). Changes are constantly taking place in the telecom industry. These changes are caused by rapid progress in telecommunications technology, growing demand for new services, the globalization of trade and manufacturing operations, and increasing competition worldwide. It is also important to note that the Canadian telecommunications market of $15 billion is small compared to those of our major trading partners, the United States ($185 billion), the European Community ($125 billion) and Japan ($65 billion) (Blackwell, 1993, p26). These factors were a mounting source of pressure on the previous regulatory structure of the Canadian telecom system. As regulation was eased in other countries around the world, Canada was beginning to lose its competitiveness. The USA and Britain have made strategic decisions to increase competition in telecommunications services and to modernize their "information infrastructures". Other countries such as Japan, Australia, and New Zealand are following their lead. The European Community is considering legislation to unify the European telecommunications market next year (Blackwell, 1993, p22). In order to not be left behind, Canada updated its telecommunications legislation to bring it in line with world developments. For example, a key piece of legislation that regulated telecommunications, the Railway Act, dated back to 1908 (Beatty, 1990, p135). Clearly, with such "ancient" legislation, new policy was required that would allow a more flexible regulatory system, and not hamper the development of our telecommunications industry (as the Railway Act did). The first steps toward such a policy were taken in 1987 by the Minister of Communications, who outlined three basic principles to guide telecommunications policy making: Maintaining a basic telephone service which is affordable and universally accessible; Encouraging development of an effective and efficient telecommunications infrastructure; and Permitting Canadians in all regions to have access to the same levels of competitive services (Beatty, 1990, p42). Bill C-62 - the Telecom Act, passed in June of 1993, brought these principals to reality. In addition, the legislation gave Canadian Parliament legislative authority over the principal telecommunications "common carriers" (i.e. Bell Canada, Alberta Gov't Telephone, BC-Tel) in Canada. The new legislation defines the powers of the federal government and the regulation that is required to bring Canada's telecommunications policy into the twenty-first century. It ensures the efficient operation of our telecommunications system, maintains and promotes and internationally competitive telecommunications industry, and guarantees all Canadians access to reliable, affordable, and high-quality services. In order to achieve this, the new law centres on two major principals: the first is to open the telecommunications market by having a workable policy for the whole country under the guidance of a single regulatory agency (i.e. the CRTC); the second is to establish a more flexible regulatory framework. The new legislation modernizes and improves the existing system in three ways: 1. By updating and modernizing existing legislation that governs telecommunications. Namely, the Railway Act, the National Telecommunications Powers and Procedures Act, and the Telegraphs Act. 2. By making a single agency responsible for regulating telecommunications, and 3. By ensuring consistent conditions in regards to access to facilities, local and long-distance rates, and introduction of competition for providing telecommunications services across the country (Beatty, 1990, p42). In addition, the legislation resulted in the creation of a more open domestic market so that all Canadians will have access to relatively high-quality services, regardless of where they live. Advances in telecommunications technology enable companies to offer a wide variety of new services to satisfy the needs and interests of consumers. One of the goals on the legislation is to ensure that all Canadians benefit from innovations in communications. In addition to promoting the economic benefits of telecommunications technology, the legislation also tackles the social needs and interests of users. The legislation also contains measures to protect consumers against possible abuse, including the sending of unsolicited information by telephone or fax machine (Beatty, 1990, p66). The Telecom Act gives the government the power to issue licenses to Canadian telecommunications companies and to set standards for equipment and facilities. In order to be eligible to hold a telecommunications license, the company ,must meet specific requirements respecting Canadian ownership and control. A main requirement is that 80 percent of the companies shares must be owned and controlled by Canadians (Angus, 1993, p17). The legislation, and related regulations, therefore promote Canadian control over the country's information infrastructure. As well as this, the new legislation ensures that telecommunications policy takes into account the interests of the regions and provinces. Given the fundamental role of communications in Canadian society, and the vital importance of this sector in the Canadian economy, deregulation (or more accurately, easier regulation) of the telecom market will ensure that the Canadian telecommunications industry can successfully meet the challenges of the coming decades. By promoting the establishment of a more open telecommunications market, deregulation will contribute to improving Canada's competitiveness, which is essential to the country's prosperity and well-being. Telecommunications is the country's leading high-technology industry (Dept. of Communications, 1992, p1). It is one of the few industries in which Canada is a world leader, and it provides an essential infrastructure for Canadian businesses. The economic importance of this sector has been proved, and the deregulation of telecommunications recognizes the urgent need to give Canada the ability to maintain and promote competitiveness in telecommunications, both nationally and internationally. Deregulation thereby ensures that the telecommunications industry, which is vital for the country's economy and for all Canadians, can successfully meet the challenges of the next century. Works Cited Angus, Lis. "Telecom Act Close to Approval" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p17, June-July 1993. Angus, Ian "More Discount Options in Unitel's Portfolio" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p15, May 1993. Blackwell, Gerry "The Canadian Telecom Market in Perspective" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p20-32, September 1993. Bill C62 - An Act Respecting Telecommunications (The Telecom Act) Ottawa: Canadian Federal Government, 1990. Beatty, Perrin Summary of the Bill Respecting Telecommunications Ottawa: Canadian Federal Government, 1990. Telecommunications: New Legislation for Canada Ottawa: Department of Communications, 1992. Untitled and Anonymous postings from the Internet, including messages from rec.canada and the CRTC's WWW (World Wide Web) site. f:\12000 essays\business & economics (632)\The Economic Impact of The New Telecommunications Legislation.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Economic Impact of The New Telecommunications Legislation By: David Lister Canada has been transformed in recent years into an information based society. Nearly half of the labour force in Canada works in occupations involving the collection and processing of information. In a society in which information has become a commodity, communications provide a vital link that can mean the difference between success or failure. Telecommunications is a fundamental infrastructure of the Canadian economy and society. For these reasons, an efficient and dynamic telecommunications industry is necessary to ensure economic prosperity. Deregulating the Long Distance Industry is the only sure way to ensure that prosperity. Telecommunications in Canada, which include services and manufacturing, employ more than 125,000 people and generate over $21 billion in revenues (Dept. of Communications, 1992, p7). Telecommunications helps to overcome the obstacles of distance in a vast country such as Canada, permitting remote communities to benefit from services taken for granted in large urban centres. More than 98 percent of Canadian households have a telephone, and there are more than 15 million telephone lines for a population of nearly 27 million(Dept. of Communications, 1992, p7). It is therefore not surprising that Canadians are among the biggest users of telecommunications in the world. For example, in 1990, Canadians made more than three billion long-distance calls (Dept. of Communications, 1992, p8). Innovations made possible through telecommunications have also contributed significantly to the phenomenal growth of the Canadian telecommunications industry. For example, the total value of the major telephone companies' investment in their facilities rose from $17.8 billion in 1979 to $40.3 billion in 1990. In the same year, Canadian telecommunications companies reported more than $15 billion in revenues, accounting for an estimated 2.7 percent of the Gross Domestic Product (GDP). In addition, in 1990 the telecom industry achieved a real growth rate (after inflation) of 8.6 percent compared to 0.3 percent for the Canadian economy as a whole. Telecommunications is also Canada's leading high-technology industry; its Research and Development costs of $1.4 billion in 1990 represent about 24 percent of total expenditures in this area. This shows how telecommunications has come to play such a vital role in our society, in addition to being our most important high technology industry (Dept. of Communications, 1992, p9-12). Changes are constantly taking place in the telecom industry. These changes are caused by rapid progress in telecommunications technology, growing demand for new services, the globalization of trade and manufacturing operations, and increasing competition worldwide. It is also important to note that the Canadian telecommunications market of $15 billion is small compared to those of our major trading partners, the United States ($185 billion), the European Community ($125 billion) and Japan ($65 billion) (Blackwell, 1993, p26). These factors were a mounting source of pressure on the previous regulatory structure of the Canadian telecom system. As regulation was eased in other countries around the world, Canada was beginning to lose its competitiveness. The USA and Britain have made strategic decisions to increase competition in telecommunications services and to modernize their "information infrastructures". Other countries such as Japan, Australia, and New Zealand are following their lead. The European Community is considering legislation to unify the European telecommunications market next year (Blackwell, 1993, p22). In order to not be left behind, Canada updated its telecommunications legislation to bring it in line with world developments. For example, a key piece of legislation that regulated telecommunications, the Railway Act, dated back to 1908 (Beatty, 1990, p135). Clearly, with such "ancient" legislation, new policy was required that would allow a more flexible regulatory system, and not hamper the development of our telecommunications industry (as the Railway Act did). The first steps toward such a policy were taken in 1987 by the Minister of Communications, who outlined three basic principles to guide telecommunications policy making: Maintaining a basic telephone service which is affordable and universally accessible; Encouraging development of an effective and efficient telecommunications infrastructure; and Permitting Canadians in all regions to have access to the same levels of competitive services (Beatty, 1990, p42). Bill C-62 - the Telecom Act, passed in June of 1993, brought these principals to reality. In addition, the legislation gave Canadian Parliament legislative authority over the principal telecommunications "common carriers" (i.e. Bell Canada, Alberta Gov't Telephone, BC-Tel) in Canada. The new legislation defines the powers of the federal government and the regulation that is required to bring Canada's telecommunications policy into the twenty-first century. It ensures the efficient operation of our telecommunications system, maintains and promotes and internationally competitive telecommunications industry, and guarantees all Canadians access to reliable, affordable, and high-quality services. In order to achieve this, the new law centres on two major principals: the first is to open the telecommunications market by having a workable policy for the whole country under the guidance of a single regulatory agency (i.e. the CRTC); the second is to establish a more flexible regulatory framework. The new legislation modernizes and improves the existing system in three ways: 1. By updating and modernizing existing legislation that governs telecommunications. Namely, the Railway Act, the National Telecommunications Powers and Procedures Act, and the Telegraphs Act. 2. By making a single agency responsible for regulating telecommunications, and 3. By ensuring consistent conditions in regards to access to facilities, local and long-distance rates, and introduction of competition for providing telecommunications services across the country (Beatty, 1990, p42). In addition, the legislation resulted in the creation of a more open domestic market so that all Canadians will have access to relatively high- quality services, regardless of where they live. Advances in telecommunications technology enable companies to offer a wide variety of new services to satisfy the needs and interests of consumers. One of the goals on the legislation is to ensure that all Canadians benefit from innovations in communications. In addition to promoting the economic benefits of telecommunications technology, the legislation also tackles the social needs and interests of users. The legislation also contains measures to protect consumers against possible abuse, including the sending of unsolicited information by telephone or fax machine (Beatty, 1990, p66). The Telecom Act gives the government the power to issue licenses to Canadian telecommunications companies and to set standards for equipment and facilities. In order to be eligible to hold a telecommunications license, the company ,must meet specific requirements respecting Canadian ownership and control. A main requirement is that 80 percent of the companies shares must be owned and controlled by Canadians (Angus, 1993, p17). The legislation, and related regulations, therefore promote Canadian control over the country's information infrastructure. As well as this, the new legislation ensures that telecommunications policy takes into account the interests of the regions and provinces. Given the fundamental role of communications in Canadian society, and the vital importance of this sector in the Canadian economy, deregulation (or more accurately, easier regulation) of the telecom market will ensure that the Canadian telecommunications industry can successfully meet the challenges of the coming decades. By promoting the establishment of a more open telecommunications market, deregulation will contribute to improving Canada's competitiveness, which is essential to the country's prosperity and well-being. Telecommunications is the country's leading high-technology industry (Dept. of Communications, 1992, p1). It is one of the few industries in which Canada is a world leader, and it provides an essential infrastructure for Canadian businesses. The economic importance of this sector has been proved, and the deregulation of telecommunications recognizes the urgent need to give Canada the ability to maintain and promote competitiveness in telecommunications, both nationally and internationally. Deregulation thereby ensures that the telecommunications industry, which is vital for the country's economy and for all Canadians, can successfully meet the challenges of the next century. Works Cited Angus, Lis. "Telecom Act Close to Approval" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p17, June-July 1993. Angus, Ian "More Discount Options in Unitel's Portfolio" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p15, May 1993. Blackwell, Gerry "The Canadian Telecom Market in Perspective" Telemanagement: The Angus Report on Communications Systems, Services, and Strategies. p20-32, September 1993. Bill C62 - An Act Respecting Telecommunications (The Telecom Act) Ottawa: Canadian Federal Government, 1990. Beatty, Perrin Summary of the Bill Respecting Telecommunications Ottawa: Canadian Federal Government, 1990. Telecommunications: New Legislation for Canada Ottawa: Department of Communications, 1992. Untitled and Anonymous postings from the Internet, including messages from rec.canada and the CRTC's WWW (World Wide Web) site. f:\12000 essays\business & economics (632)\The Economics of Clean Air.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Air is a part of all of our lives. Without clean air, nothing we know of can exist. The debate over clean air, it's regulations, their teammates and opposition, and the economic factors coming into play into this ever-more recognizable problem is a widespread and ever more controversial one. Like a long countdown to eventual disaster, the pollution effecting our world has no doubt made increasingly more impact on our daily lives, and has increased the intensity on Washington and other countries to solve the problem. The Clean Air act is a step in the right direction, but with every answer their comes two questions and likewise more and more people taking sides. There have been long debates not over the effectiveness of such regulations, but the lack of opportunity such regulations and deregulations provide for other companies. Global warming has increased the tension over the economics of cleaner air, but with little the government can do to limit the use of cars, the production of necessary coal-fired power plants and other such human resources, the topic just turns into another fog for debate and argument over stricter regulations and the impeached right these sources have to operate. The continual power struggle of such economic and social issues and the debate over the effectiveness of stricter, present or more lenient regulations has turned into a smorgasboard of prectical solutions, with opponents quickly changing minds and becoming supporters and vice-versa. The expenditure of about 20 billion on the part of companies since 1990 to clean up such hazardous pollutants as cars, factories, and thousands of other measures have reaped about 400 billion in saved hospital costs, lost workdays, reduced productivity, and other conditions while at the same time theoretically helping to reduce smog and pollution. The findings of a report on experiments done for the Clean Air act was passed into law in 1970. The Enviornmental Protection Agency has recently come under attack by critics however, and Washington has threatened to cut the agencies' budget citing high costs of enviornmental legislation, even while their is solid proof that the agencies' measures are paying off. Congress is skeptical of reports that the whole system is reaping more benefits on the enviorment than the whole operation actually costs. Economically, the Clean Air Act is definitly sound and good for the economy. For example, American fishermen average $24 billion a year in expenditures and ultimately generate $69 billion yearly for the economy. Moreover, the average American worker recieves $20 in value in reduced risks of death, illness, and other adverse effects for every dollar spent to control air pollution. All in all, the country spent roughly $436 billion enforcing clean air regulations, and gained about $6.8 trillion in benefits in 1990. The amounts of harmful chemicals and pollutants in the air has also found to be dramatically reduced since 1970. 40 percent of sulfer dioxide in the air has been reduced, as well as 30 percent of nitrous oxide, and 50 percent of carbon monoxide. As well as air, the EPA has produced results in protecting our nation's waterways. For example, the Clean Water Act, which passed in 1972, has since given states grants of $66 million to help install water sewage treatment plants. They also found that the act has required the industry to install tens of billions of dollars of anti-polltion technology. The effect on the liquid industry has been enormous. Boating sales generate $14 billion alone while fishermen produce $3 million, and the nation spends an estimated $35 million anually for fish. The economics of the Clean Air Act and the regulations pioneered by the EPA have set new standards for the production of companies. Under the current regulations, there is a set amount of pollution that can be produced in the U.S. each year. The units of pollution, or credits, are distributed evenly among production companies, mining factories, and other producers of such externalities based on size, output and strength in the industry. Companies are allowed to sell their credits if they want, which enables companies whose pollution rates exceeds their limit in a particular area to still operate in a particular area to still operate efficiently while not exceeding their maximum level of pollution output. There are many arguments for and against this method of regulation. The bigger and richer companies get to produce the most pollution in the end while the current system alienates newer, more finantially strapped firms. What makes the current system more unfair is that the emission allotments of certain states are more lenient than others. For example, in Western Pennsylvania, there are strict regulations on emission output levels, while 35 miles west in Ohio, there are more lenient levels of precautions. The results of this is that many companies don't look to move or produce in PA and would rather just do so in Ohio. The results have been disastrous for the Western Penn. economy. This system with seemingly limitless updates and new precautions are cutting back on jobs and increasing overall unemployment. Theorists contend that in a market driven economy, competition alone serves as an adequate regulatory device. Make a poor product or price it too high and your competitors will make more money. Better yet, with less regulations, businesses have more money to grow faster, hire more employees and offer greater returns to shareholders. Money that can be spent on cleaning pollution up is often just spend on litigation. The lawyers get paid protecting the precautions, while the dump just stays put. That money in turn would have been channeled more effectively if there were less precautions. Many people contend however, that precautions are supposed to be a burden and that keeps businesses from doing what they want to do, which is the primary nature of any law. As with any environmental protection regulation nowadays, the regulations imposed on cars, coal-fired power plants and other human resources in an attempt to thwart or at least slow down the effects of global warming, has met with angry responses from the domestic oil, coal, and utilities industry. The United Mine Workers, a key member of the labor coalition that supported President Clinton's reelection has also registered it's concerns. The supporters of these measures have valid arguments for the precautions they expect to be signed into law sometime this year. The burning of fossil fuels such as coal, oil, and their products such as gasoline, produces carbon monoxide, a greenhouse gas which can build up in the atmosphere. Scientists believe that the continual buildup of these compounds could lead to devastating climate changes in the next century unless their buildup is slowed. Opponents of the new precautions believe that the new precautions could lead to the deindustrialization of the U.S. and unless stopped, the entire world. Shifting the world away from fossil fuels also provides enormous economic, political, and diplomatic challenges. Many developing nations such as China are dependent on coal-generated power to drive their economic growth over the next several decades. U.S. utilities uses coal to produce more than half of the nation's electricity. Plentiful U.S. coal supplies have also meant power for many U.S. companies where coal is plentiful. Air and water are concrete parts of all of our lives. With the destruction and continual pollution being pumped into our ecosystem, who knows how long it will be before the whole world is contaminated to the point where we can no longer live in it. The beuracrats in Washington don't have all the answers, neither do the unions, or the big corporations. The idea and impact of pollution is like a time-bomb waiting to explode, and the end draws nearer and nearer. We cannot look back on our world after we have destroyed it and comment on things we should have done differently. f:\12000 essays\business & economics (632)\The Economics of Federal Defense Policy 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ (turn on wordwrap) The Economics of Federal Defense Policy - Political Science ----------------------------------------------------------- Three out of four Americans polled in the 1992 election year believed that the United States was heading in the wrong direction. With such an overwhelming consensus, the country hired a new president to attempt to fix the vital issues at hand. Although both Republicans and Democrats believed that the United States was still the "sole superpower", the people of the United States saw that their quality of life was deteriorating. In fact, the signs of economic, social, and political decay were undeniable. For example, the wages of production workers in America have declined twenty percent in the last twenty years due to large corporations shifting their operations overseas. Over thirty-seven million Americans are without health insurance due to its exploding costs. There are about sixty million people below the poverty line; fourteen million of which are children. Our crime rate is at an all-time high as well as the population in our prison system. The United States has nineteen preceding nations that have lower infant mortality rates. Among the twenty most developed countries in the world, the United States has the highest divorce rate and the highest teen pregnancy rate. The most incredulous fact of all is that the Pentagon continues to absorb twenty percent of the federal budget-over a third of which is spent protecting Europe against an enemy that no longer exists. In fact, that is the most probable source of America's problems: the budget. Forty-seven percent of the national federal budget is spent for a military expense. The National Defense, the topic of this paper, is what is stealing money from the poor in our own country and lessening our status as the "sole superpower" of the world. The National Defense was a program initiated from day one of the United States' existence. It was a program designed to protect the people of the world, but primarily the people of this nation. It was designed to protect human rights and the ideals of democracy and capitalism. However, in lieu of recent events, the use for such a program is now debatable. The world has changed significantly and dramatically within the last five years. The threat of an evil empire such as the Soviet Union is no longer; the Cold War is over. Ultimately, demilitarization is needed for many reasons. Both Democrats and Republicans alike supported the development of a gigantic-industrial complex. Both are content with only minor budget reductions. However, more drastic measures should be taken in order to move this country into the twenty-first century successfully. Military spending should be slashed, the Central Intelligence Agency (CIA) should be dismantled, and the other vestiges of the Cold War should be removed. (A) This graph displays the United States' military spending compared to that of its Top Ten contenders. It shows how overwhelming and exacerbated the United States' spending really is. Russia and the United Kingdom spend about two hundred fifty billion dollars less than the United States. In fact, there is a twenty-five billion dollar difference between the United States and all the other nations combined. This next graph again shows the outrageous spending habits of the United States and its Department of Defense. This graph displays the United States compared to its potential enemies or adversaries. The differences are astronomical. Russia, the only country that comes close to comparison, is still a mere two hundred billion dollars behind. (B) The threat of the Cold War is extinct. For over forty years, the military budget has been driven by the Soviet threat. Over half the budget was devoted to defeating a sudden attack by the Warsaw Pact nations on Germany. Now, the ex-Soviets want to join the North Atlantic Treaty Organization (NATO). In the words of General Colin Powell," The Red Army is no more." (1) In fact, the economy in the post-Soviet nations is so terrible that the soldiers are selling their weapons for food. Malnutrition is incredibly prevalent. According to the CIA and the Defense Intelligence Agency (DIA), if Russia was to be taken over by a dictator, it would take ten years for them to reconstitute a military threat to the west. The facts are clear. The United States is surrounded by friendly nations on either side as well as two gigantic oceans. Most of the nations that are strong enough to be considered a threat are now considered friendly nations. The possibility of any potential enemies coming close to competing with the defense tactics and forces of the United States is virtually impossible. These statistics are also evident to the politicians in Washington. The Bush Administration and the Joint Chiefs of Staff in 1992 invented the new term for the enemy in order to avoid a dramatic change to the country's economics. They created the "threat of the unknown." (2). The military changed its focus to that of maintaining peace and harmony abroad. Sending troops to Bosnia and Somalia are two prime examples of the military's effort to provide humanitarian relief. In a meeting with the House Armed Services Committee, General Colin Powell brought forth a list of the military events that had occurred over the past five years. Events included items such as "Just Cause," the capture of Manuel Noriega in Panama; Desert Storm in the Persian Gulf; "Operation GTMO," which sent seventeen hundred troops to Cuba in order to care for Haitian refugees; drug operations in Latin America; "Provide Hope," which delivered supplies to the former Soviet Union; rescue and relief missions in Somalia and Zaire; and "Firey Vigil," which intimidated coup plotters in the Philippines. It is obvious to see to even the average human being that the two hundred fifty billion dollars that the United States spends on military defense could be spent better and more efficiently at home. (C) This graph demonstrates how exactly the government spends our money. A staggering forty-seven percent of the budget is allocated for military expenses with fifty-four percent spent on defense alone. As shown, only six percent of the military budget is spent providing and caring for the men and women who fought for our country in the Vietnam, Korean, and Gulf wars. In fact, Les Aspin, the Defense Secretary under Clinton, believes that people like Saddam Hussein of Iraq and Kim II Sung of North Korea are fueling the defense budget. The remarkable fact is that their militaries couldn't withstand an attack from the United States ever. The reason why they pose such a threat is because of the potential nuclear warfare. The only nuclear bomb ever dropped was in August of 1945. The United States sees these men as mad-men with the nuclear power to destroy the world. However, I wonder what good will come of the United States' two hundred fifty billion dollar army when the entire world has been destroyed by the push of a button. Aspin also realized that it was entirely possible for the United States to fight two regional wars simultaneously against Iraq and North Korea, while sustaining the capacity for a Panama-like intervention in this hemisphere, a Kurdish-level relief operation, reserve forces for the possibility of an extension on one of the regional wars, and a foundation of strategic nuclear forces, continental forces, new weapons research and development, base troops in Europe, and top-level operations and training. This seems excessive and unrealistic due to the lack of this scenario actually taking place. It seems that it would be far more beneficial to utilize this extra money in other areas of need: reducing the deficit, caring for the elderly, etc. The ultimate goal for any progressive politician would be to convert the economy from a war-time economy to a civilian-based economy. It is very important for our future presidents to figure how to reallocate the defense funds to something productive for the twenty-first century. Although, politicians who might strive to do so may have problems being reelected. In the process of slashing the defense budget, many jobs will be destroyed. The people of this country would have to patient with a politician who attempted to change the status quo. Often, people expect immediate change. This kind of change cannot be accomplished within the four year presidential term. It would take cooperation from the House, the Senate, and the President for a longer period of time than four years. It would be a long and potentially painful process that would hopefully accomplish many achievements. It is time for the country to realize that the Cold War is over and that it is time for a new way of life. President Clinton has attempted to reallocate some of the defense budget funds to programs like the Women, Infants, and Children nutrition program. However, such a task is only the proverbial drop in the bucket. Funds for education, the environment , and housing are expected to decline over the next five years. There have been no commitments to research on electric cars and telecommunications. There has not been any solid plans concerning the implementation of mass transit. Undoubtedly, these programs are vital to a new and powerful technological future. Essentially, military research continues to dominate the bulk of the federal budget. This leaves only limited resources for discovering alternative energy sources, efficient manufacture, and "green" technologies which are surely to dominate the markets of the future. (D) This graph adequately shows how little the government is doing to help the people of this country. While the United States ranks at the top of teen pregnancies and divorce, only a tiny portion of the government spending is dedicated towards family support. Again, the defense budget's staggering statistics demonstrate its absurdity. Employment training, housing needs, and nutrition assistance are much more mandatory than fighting the nonexistent Cold War enemy. The United States must confront several issues in order to convert to a civilian-based economy. First, painless ways to move to a civilian-based economy must be identified. Second, the ethos of the "intelligence community" need to be changed by disbanding parts of it and opening its research to international usage. Third, a comprehensive nuclear and conventional weapons disarmament should be implemented where all nations take part. Fourth, formulate policies that take account of the United Nations to ensure that groups and individuals can be represented on issues of trade, the environment, transnational peacemaking, international citizenship for the stateless, and human rights. However, it is rather unlikely that a post-war social reconstruction would generate the enthusiasm and national purpose that the Cold War did. It is easy to see that the patriotic way a country comes together to fight an enemy is far easier than finding a way to agree on issues such as peace and human rights. As it is shown in the following graph, twenty percent of the federal budget is spent on military expenses while thirty percent is allocated to social expenses such as education, housing, social security, and welfare. In other comparable countries such as the United Kingdom, Germany, France, and Sweden, the ratios show a dramatic difference in priorities. Sweden could prove to be an example in the way we should restructure our country. Less than ten percent of their federal budget is spent on defense, while an overwhelming 65 percent is spent on various social concerns. (E) Fortunately, President Clinton is finally moving in the right direction. He is attempting to cut back on defense as well as seeking economic activities to replace the military-industrial complex. He plans to reduce military spending by one hundred eighteen million dollars. Over 460,000 jobs have disappeared since 1990 in the military arena. Military bases have been closed and sometimes sold to the private sector. $3.9 billion dollars have been spent on dual-use programs, or programs that incorporate military technology and equipment for non-military uses. However, for every step forward there seems to be more than a few steps backward. 24,000 contaminated facilities are needing to be cleaned at the cost of $100 to $400 billion due to toxic spills and nuclear clean-up. Clinton promised "dollar for dollar" reinvestment for conversion opportunities which was never implemented. This would be a fantastic reward for those interested in future technologies. It is definitely not an easy task that any president has. He is faced with the dilemma of reelection possibilities. If they attempt to change the country for the better, they face the problem of being despised for their ambitions. Even if they do not do anything and just maintain the status quo they probably will not be reelected either. At this point, President Clinton should try to do several constructive things in attempt to convert the economy. He should determine the spending priorities of the people of this nation and figure which of those are indicative and vital to a decent society. Education and training are two great causes. Literacy rates are on the decline and truancy and drop-outs are on the rise. Creating infrastructure and communications for the twenty-first century is also important. The United States is the only first world country without an advanced form of rapid mass transit. Alternative resources and energies need to be discovered in order to prevent people like Saddam Hussein from controlling the current resources. Our oil suppliers in the Middle East are deteriorating at a rapid rate - it would be wise to start seeking a fuel alternative. The president would need to express that it will be a wrenching process and encourage public investment. Whatever the cost, sweeping changes need to occur in order for the United States to be a continuing world leader. There is no easy solution to the problems that lie ahead. It is a rapidly changing world with swift and stern economic competition. It requires risk and change on our part. The answer that lies to the path of success is the reduction of military spending and the reallocation of that money into technology and basic internal improvement. It is as if the United States needs to issue a temporary isolationist policy, a "closed for remodeling" sign if you will. So many things could be done to make this country such a better place. So many lives could be saved from poverty, illiteracy, addictions, and violence if only the military budget could be spent on education. In order to be a successful nation, we are going to have to trust a politician to lead us there. It would have to a person that is dedicated to creating the best possible nation ever; strong at home and fierce in the international markets. It would be the ultimate reconstruction period with a complete revamping of our budget and goal as a country. I just don't know if its possible. It seems so idealistic. But, it is an exciting prospect none the less. Bibliography ------------ 1. Divided We Fall: Gambling with History in the 90's. By Haynes Johnson. W.W. Norton & Co., NY, London, 1994. 2. Highwire: From the Backroads to the Beltway. By John Brummett. Hyperion, NY, 1994. 3. State of the Union 1994: The Clinton Administration and the Nation in Profile. By Richard Caplan and John Feffer. Westview Press, Boulder, 1994. 4. The Agenda: Inside the Clinton White House. By Bob Woodward. Simon & Schuster, NY, 1994. Footnotes --------- Quotations 1 State of the Union 1994, Page 67. 2 State of the Union 1994, Page 68. Graphs ------ A State of the Union 1994, Page 63. B State of the Union 1994, Page 69. C State of the Union 1994, Page 83. D State of the Union 1994, Page 73. E State of the Union 1994, Page 91. f:\12000 essays\business & economics (632)\The Economics of Federal Defense Policy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Economics of Federal Defense Policy Three out of four Americans polled in the 1992 election year believed that the United States was heading in the wrong direction. With such an overwhelming consensus, the country hired a new president to attempt to fix the vital issues at hand. Although both Republicans and Democrats believed that the United States was still the "sole superpower", the people of the United States saw that their quality of life was deteriorating. In fact, the signs of economic, social, and political decay were undeniable. For example, the wages of production workers in America have declined twenty percent in the last twenty years due to large corporations shifting their operations overseas. Over thirty-seven million Americans are without health insurance due to its exploding costs. There are about sixty million people below the poverty line; fourteen million of which are children. Our crime rate is at an all-time high as well as the population in our prison system. The United States has nineteen preceding nations that have lower infant mortality rates. Among the twenty most developed countries in the world, the United States has the highest divorce rate and the highest teen pregnancy rate. The most incredulous fact of all is that the Pentagon continues to absorb twenty percent of the federal budget-over a third of which is spent protecting Europe against an enemy that no longer exists. In fact, that is the most probable source of America's problems: the budget. Forty-seven percent of the national federal budget is spent for a military expense. The National Defense, the topic of this paper, is what is stealing money from the poor in our own country and lessening our status as the "sole superpower" of the world. The National Defense was a program initiated from day one of the United States' existence. It was a program designed to protect the people of the world, but primarily the people of this nation. It was designed to protect human rights and the ideals of democracy and capitalism. However, in lieu of recent events, the use for such a program is now debatable. The world has changed significantly and dramatically within the last five years. The threat of an evil empire such as the Soviet Union is no longer; the Cold War is over. Ultimately, demilitarization is needed for many reasons. Both Democrats and Republicans alike supported the development of a gigantic-industrial complex. Both are content with only minor budget reductions. However, more drastic measures should be taken in order to move this country into the twenty-first century successfully. Military spending should be slashed, the Central Intelligence Agency (CIA) should be dismantled, and the other vestiges of the Cold War should be removed. (A) This graph displays the United States' military spending compared to that of its Top Ten contenders. It shows how overwhelming and exacerbated the United States' spending really is. Russia and the United Kingdom spend about two hundred fifty billion dollars less than the United States. In fact, there is a twenty-five billion dollar difference between the United States and all the other nations combined. This next graph again shows the outrageous spending habits of the United States and its Department of Defense. This graph displays the United States compared to its potential enemies or adversaries. The differences are astronomical. Russia, the only country that comes close to comparison, is still a mere two hundred billion dollars behind. (B) The threat of the Cold War is extinct. For over forty years, the military budget has been driven by the Soviet threat. Over half the budget was devoted to defeating a sudden attack by the Warsaw Pact nations on Germany. Now, the ex- Soviets want to join the North Atlantic Treaty Organization (NATO). In the words of General Colin Powell," The Red Army is no more." (1) In fact, the economy in the post-Soviet nations is so terrible that the soldiers are selling their weapons for food. Malnutrition is incredibly prevalent. According to the CIA and the Defense Intelligence Agency (DIA), if Russia was to be taken over by a dictator, it would take ten years for them to reconstitute a military threat to the west. The facts are clear. The United States is surrounded by friendly nations on either side as well as two gigantic oceans. Most of the nations that are strong enough to be considered a threat are now considered friendly nations. The possibility of any potential enemies coming close to competing with the defense tactics and forces of the United States is virtually impossible. These statistics are also evident to the politicians in Washington. The Bush Administration and the Joint Chiefs of Staff in 1992 invented the new term for the enemy in order to avoid a dramatic change to the country's economics. They created the "threat of the unknown." (2). The military changed its focus to that of maintaining peace and harmony abroad. Sending troops to Bosnia and Somalia are two prime examples of the military's effort to provide humanitarian relief. In a meeting with the House Armed Services Committee, General Colin Powell brought forth a list of the military events that had occurred over the past five years. Events included items such as "Just Cause," the capture of Manuel Noriega in Panama; Desert Storm in the Persian Gulf; "Operation GTMO," which sent seventeen hundred troops to Cuba in order to care for Haitian refugees; drug operations in Latin America; "Provide Hope," which delivered supplies to the former Soviet Union; rescue and relief missions in Somalia and Zaire; and "Firey Vigil," which intimidated coup plotters in the Philippines. It is obvious to see to even the average human being that the two hundred fifty billion dollars that the United States spends on military defense could be spent better and more efficiently at home. (C) This graph demonstrates how exactly the government spends our money. A staggering forty-seven percent of the budget is allocated for military expenses with fifty-four percent spent on defense alone. As shown, only six percent of the military budget is spent providing and caring for the men and women who fought for our country in the Vietnam, Korean, and Gulf wars. In fact, Les Aspin, the Defense Secretary under Clinton, believes that people like Saddam Hussein of Iraq and Kim II Sung of North Korea are fueling the defense budget. The remarkable fact is that their militaries couldn't withstand an attack from the United States ever. The reason why they pose such a threat is because of the potential nuclear warfare. The only nuclear bomb ever dropped was in August of 1945. The United States sees these men as mad-men with the nuclear power to destroy the world. However, I wonder what good will come of the United States' two hundred fifty billion dollar army when the entire world has been destroyed by the push of a button. Aspin also realized that it was entirely possible for the United States to fight two regional wars simultaneously against Iraq and North Korea, while sustaining the capacity for a Panama-like intervention in this hemisphere, a Kurdish-level relief operation, reserve forces for the possibility of an extension on one of the regional wars, and a foundation of strategic nuclear forces, continental forces, new weapons research and development, base troops in Europe, and top- level operations and training. This seems excessive and unrealistic due to the lack of this scenario actually taking place. It seems that it would be far more beneficial to utilize this extra money in other areas of need: reducing the deficit, caring for the elderly, etc. The ultimate goal for any progressive politician would be to convert the economy from a war-time economy to a civilian-based economy. It is very important for our future presidents to figure how to reallocate the defense funds to something productive for the twenty-first century. Although, politicians who might strive to do so may have problems being reelected. In the process of slashing the defense budget, many jobs will be destroyed. The people of this country would have to patient with a politician who attempted to change the status quo. Often, people expect immediate change. This kind of change cannot be accomplished within the four year presidential term. It would take cooperation from the House, the Senate, and the President for a longer period of time than four years. It would be a long and potentially painful process that would hopefully accomplish many achievements. It is time for the country to realize that the Cold War is over and that it is time for a new way of life. President Clinton has attempted to reallocate some of the defense budget funds to programs like the Women, Infants, and Children nutrition program. However, such a task is only the proverbial drop in the bucket. Funds for education, the environment , and housing are expected to decline over the next five years. There have been no commitments to research on electric cars and telecommunications. There has not been any solid plans concerning the implementation of mass transit. Undoubtedly, these programs are vital to a new and powerful technological future. Essentially, military research continues to dominate the bulk of the federal budget. This leaves only limited resources for discovering alternative energy sources, efficient manufacture, and "green" technologies which are surely to dominate the markets of the future. (D) This graph adequately shows how little the government is doing to help the people of this country. While the United States ranks at the top of teen pregnancies and divorce, only a tiny portion of the government spending is dedicated towards family support. Again, the defense budget's staggering statistics demonstrate its absurdity. Employment training, housing needs, and nutrition assistance are much more mandatory than fighting the nonexistent Cold War enemy. The United States must confront several issues in order to convert to a civilian-based economy. First, painless ways to move to a civilian-based economy must be identified. Second, the ethos of the "intelligence community" need to be changed by disbanding parts of it and opening its research to international usage. Third, a comprehensive nuclear and conventional weapons disarmament should be implemented where all nations take part. Fourth, formulate policies that take account of the United Nations to ensure that groups and individuals can be represented on issues of trade, the environment, transnational peacemaking, international citizenship for the stateless, and human rights. However, it is rather unlikely that a post-war social reconstruction would generate the enthusiasm and national purpose that the Cold War did. It is easy to see that the patriotic way a country comes together to fight an enemy is far easier than finding a way to agree on issues such as peace and human rights. As it is shown in the following graph, twenty percent of the federal budget is spent on military expenses while thirty percent is allocated to social expenses such as education, housing, social security, and welfare. In other comparable countries such as the United Kingdom, Germany, France, and Sweden, the ratios show a dramatic difference in priorities. Sweden could prove to be an example in the way we should restructure our country. Less than ten percent of their federal budget is spent on defense, while an overwhelming 65 percent is spent on various social concerns. (E) Fortunately, President Clinton is finally moving in the right direction. He is attempting to cut back on defense as well as seeking economic activities to replace the military-industrial complex. He plans to reduce military spending by one hundred eighteen million dollars. Over 460,000 jobs have disappeared since 1990 in the military arena. Military bases have been closed and sometimes sold to the private sector. $3.9 billion dollars have been spent on dual-use programs, or programs that incorporate military technology and equipment for non-military uses. However, for every step forward there seems to be more than a few steps backward. 24,000 contaminated facilities are needing to be cleaned at the cost of $100 to $400 billion due to toxic spills and nuclear clean-up. Clinton promised "dollar for dollar" reinvestment for conversion opportunities which was never implemented. This would be a fantastic reward for those interested in future technologies. It is definitely not an easy task that any president has. He is faced with the dilemma of reelection possibilities. If they attempt to change the country for the better, they face the problem of being despised for their ambitions. Even if they do not do anything and just maintain the status quo they probably will not be reelected either. At this point, President Clinton should try to do several constructive things in attempt to convert the economy. He should determine the spending priorities of the people of this nation and figure which of those are indicative and vital to a decent society. Education and training are two great causes. Literacy rates are on the decline and truancy and drop-outs are on the rise. Creating infrastructure and communications for the twenty-first century is also important. The United States is the only first world country without an advanced form of rapid mass transit. Alternative resources and energies need to be discovered in order to prevent people like Saddam Hussein from controlling the current resources. Our oil suppliers in the Middle East are deteriorating at a rapid rate - it would be wise to start seeking a fuel alternative. The president would need to express that it will be a wrenching process and encourage public investment. Whatever the cost, sweeping changes need to occur in order for the United States to be a continuing world leader. There is no easy solution to the problems that lie ahead. It is a rapidly changing world with swift and stern economic competition. It requires risk and change on our part. The answer that lies to the path of success is the reduction of military spending and the reallocation of that money into technology and basic internal improvement. It is as if the United States needs to issue a temporary isolationist policy, a "closed for remodeling" sign if you will. So many things could be done to make this country such a better place. So many lives could be saved from poverty, illiteracy, addictions, and violence if only the military budget could be spent on education. In order to be a successful nation, we are going to have to trust a politician to lead us there. It would have to a person that is dedicated to creating the best possible nation ever; strong at home and fierce in the international markets. It would be the ultimate reconstruction period with a complete revamping of our budget and goal as a country. I just don't know if its possible. It seems so idealistic. But, it is an exciting prospect none the less. Bibliography 1. Divided We Fall: Gambling with History in the 90's. By Haynes Johnson. W.W. Norton & Co., NY, London, 1994. 2. Highwire: From the Backroads to the Beltway. By John Brummett. Hyperion, NY, 1994. 3. State of the Union 1994: The Clinton Administration and the Nation in Profile. By Richard Caplan and John Feffer. Westview Press, Boulder, 1994. 4. The Agenda: Inside the Clinton White House. By Bob Woodward. Simon & Schuster, NY, 1994. Footnotes Quotations 1 State of the Union 1994, Page 67. 2 State of the Union 1994, Page 68. Graphs A State of the Union 1994, Page 63. B State of the Union 1994, Page 69. C State of the Union 1994, Page 83. D State of the Union 1994, Page 73. E State of the Union 1994, Page 91. f:\12000 essays\business & economics (632)\The Economics of The Clean Air Act.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Economics of The Clean Air Act Air is a part of all of our lives. Without clean air, nothing we know of can exist. The debate over clean air, it's regulations, their teammates and opposition, and the economic factors coming into play into this ever-more recognizable problem is a widespread and ever more controversial one. Like a long countdown to eventual disaster, the pollution effecting our world has no doubt made increasingly more impact on our daily lives, and has increased the intensity on Washington and other countries to solve the problem. The Clean Air act is a step in the right direction, but with every answer their comes two questions and likewise more and more people taking sides. There have been long debates not over the effectiveness of such regulations, but the lack of opportunity such regulations and deregulations provide for other companies. Global warming has increased the tension over the economics of cleaner air, but with little the government can do to limit the use of cars, the production of necessary coal-fired power plants and other such human resources, the topic just turns into another fog for debate and argument over stricter regulations and the impeached right these sources have to operate. The continual power struggle of such economic and social issues and the debate over the effectiveness of stricter, present or more lenient regulations has turned into a smorgasboard of prectical solutions, with opponents quickly changing minds and becoming supporters and vice-versa. The expenditure of about 20 billion on the part of companies since 1990 to clean up such hazardous pollutants as cars, factories, and thousands of other measures have reaped about 400 billion in saved hospital costs, lost workdays, reduced productivity, and other conditions while at the same time theoretically helping to reduce smog and pollution. The findings of a report on experiments done for the Clean Air act was passed into law in 1970. The Enviornmental Protection Agency has recently come under attack by critics however, and Washington has threatened to cut the agencies' budget citing high costs of enviornmental legislation, even while their is solid proof that the agencies' measures are paying off. Congress is skeptical of reports that the whole system is reaping more benefits on the enviorment than the whole operation actually costs. Economically, the Clean Air Act is definitly sound and good for the economy. For example, American fishermen average $24 billion a year in expenditures and ultimately generate $69 billion yearly for the economy. Moreover, the average American worker recieves $20 in value in reduced risks of death, illness, and other adverse effects for every dollar spent to control air pollution. All in all, the country spent roughly $436 billion enforcing clean air regulations, and gained about $6.8 trillion in benefits in 1990. The amounts of harmful chemicals and pollutants in the air has also found to be dramatically reduced since 1970. 40 percent of sulfer dioxide in the air has been reduced, as well as 30 percent of nitrous oxide, and 50 percent of carbon monoxide. As well as air, the EPA has produced results in protecting our nation's waterways. For example, the Clean Water Act, which passed in 1972, has since given states grants of $66 million to help install water sewage treatment plants. They also found that the act has required the industry to install tens of billions of dollars of anti-polltion technology. The effect on the liquid industry has been enormous. Boating sales generate $14 billion alone while fishermen produce $3 million, and the nation spends an estimated $35 million anually for fish. The economics of the Clean Air Act and the regulations pioneered by the EPA have set new standards for the production of companies. Under the current regulations, there is a set amount of pollution that can be produced in the U.S. each year. The units of pollution, or credits, are distributed evenly among production companies, mining factories, and other producers of such externalities based on size, output and strength in the industry. Companies are allowed to sell their credits if they want, which enables companies whose pollution rates exceeds their limit in a particular area to still operate in a particular area to still operate efficiently while not exceeding their maximum level of pollution output. There are many arguments for and against this method of regulation. The bigger and richer companies get to produce the most pollution in the end while the current system alienates newer, more finantially strapped firms. What makes the current system more unfair is that the emission allotments of certain states are more lenient than others. For example, in Western Pennsylvania, there are strict regulations on emission output levels, while 35 miles west in Ohio, there are more lenient levels of precautions. The results of this is that many companies don't look to move or produce in PA and would rather just do so in Ohio. The results have been disastrous for the Western Penn. economy. This system with seemingly limitless updates and new precautions are cutting back on jobs and increasing overall unemployment. Theorists contend that in a market driven economy, competition alone serves as an adequate regulatory device. Make a poor product or price it too high and your competitors will make more money. Better yet, with less regulations, businesses have more money to grow faster, hire more employees and offer greater returns to shareholders. Money that can be spent on cleaning pollution up is often just spend on litigation. The lawyers get paid protecting the precautions, while the dump just stays put. That money in turn would have been channeled more effectively if there were less precautions. Many people contend however, that precautions are supposed to be a burden and that keeps businesses from doing what they want to do, which is the primary nature of any law. As with any environmental protection regulation nowadays, the regulations imposed on cars, coal-fired power plants and other human resources in an attempt to thwart or at least slow down the effects of global warming, has met with angry responses from the domestic oil, coal, and utilities industry. The United Mine Workers, a key member of the labor coalition that supported President Clinton's reelection has also registered it's concerns. The supporters of these measures have valid arguments for the precautions they expect to be signed into law sometime this year. The burning of fossil fuels such as coal, oil, and their products such as gasoline, produces carbon monoxide, a greenhouse gas which can build up in the atmosphere. Scientists believe that the continual buildup of these compounds could lead to devastating climate changes in the next century unless their buildup is slowed. Opponents of the new precautions believe that the new precautions could lead to the deindustrialization of the U.S. and unless stopped, the entire world. Shifting the world away from fossil fuels also provides enormous economic, political, and diplomatic challenges. Many developing nations such as China are dependent on coal-generated power to drive their economic growth over the next several decades. U.S. utilities uses coal to produce more than half of the nation's electricity. Plentiful U.S. coal supplies have also meant power for many U.S. companies where coal is plentiful. Air and water are concrete parts of all of our lives. With the destruction and continual pollution being pumped into our ecosystem, who knows how long it will be before the whole world is contaminated to the point where we can no longer live in it. The beuracrats in Washington don't have all the answers, neither do the unions, or the big corporations. The idea and impact of pollution is like a time-bomb waiting to explode, and the end draws nearer and nearer. We cannot look back on our world after we have destroyed it and comment on things we should have done differently. f:\12000 essays\business & economics (632)\The Economics of the N H L .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ J.C.H. Jones's article "The Economics of the National Hockey League" (1969) purpose is to explain through simple micro economics that the prime motive of professional hockey team owners is profit maximization. The owners argue that their main interest is "for the love of the game," not the financial benefits of owning a professional sports franchise and to avoid government regulations such as the Combines Act (note 1). An article written in 1982 by J.A. Schofield entitled "The Development of First Class Cricket in England," states the behavior of sport cartels. Three hypothesises are used to explain the behavior described by Schofield, number two being developed by J.C.H. Jones (1969). (1) The profit maximization hypothesis. (2)The joint profit maximization hypothesis that the entire cartel (league) strives for. This hypothesis does not incorporate non profit objectives that influence group behavior. (3) The utility maximization model that allow for many possibilities usually compromising arguments such as the success of the team at a given year and paid attendance for the team's venue. By explaining the frame work of a professional sports league Jones introduces us to factors that make an organized league function, which seems quite familiar to any other monopolistic markets. Since no team can create any revenue by themselves they must form a coalition with another club to produce a profit generating output, namely a hockey game. Other clubs enter this coalition thus creating a formal league which we call the National Hockey League. Jones then states how revenue is generated in the N.H.L and how it is affected by certain factors. A theoretical model of the N.H.L is created by Jones with all things being equal, creating an equilibrium amongst all clubs. The model is then adjusted to real life variables that turns his theoretical model into what we know as the N.H.L. Jone's variables includes the incentive for teams to win (this being the Stanely Cup), different quality of players, the amateur draft (a draft at the end of the season which amateur players a selected, last place team gets first pick and so forth), and player redistribution(trades). By applying microtheory Jones clearly presents his argument which I was able to understand with my current knowledge of microeconomics. Jones examines the revenue side of an individual team using the usual variables tastes, prices, incomes, quality and substitutes. On the supply side Jones stresses that the major element is the human inputs namely the hockey players. The data that Jones used was team statistics such as their final rank at the end of the season and the paid attendance as a percentage of maximum seating capacity. By using this data Jones is able to establish trends that arise from season to season, thus helping him establish his argument on profit maximization. Jones article is meaningful at the moment because of the current labor disputes amongst the players and the owners. "The Economics of the National Hockey League" states what the N.H.L. should be and also indicates what is wrong with its current status. The current issues pressing the N.H.L. such as a salary cap, revenue distribution, and league expansion are all measures that the team owners are striving for. By installing these measures into the N.H.L. the equilibrium achieved in Jones's theoretical model would be easier to achieve thus maximizing the owner's profits. One variable that Jones could not foresee in 1969 is the outrageous salaries being paid to the players and the proposed salary cap from the owners. I believe that Jones's argument that owners motives are purely geared towards profit maximizing would be stronger if the idea of a salary cap was present then. Jones concludes that the National Hockey League is profit driven and clearly posses monopolistic qualities. Upon proving this through simple micro economics the N.H.L. can fall under certain government regulations such as The Combines Act. Since this article was written in 1969 many changes have been made to the governing bodies that control the National Hockey League however its functions can still be explained through micro economics. REFERENCES 1.The Combines Act. R.S., C314 s.1, 1966 2. J.C.H. Jones, "The Economics of the National Hockey League", Canadian Journal of Economics, vol 2 (February 1969), pp. 1-20 3. J.A. Schofield, "The Development of First-Class Cricket in England: An Economic Analysis", The Journal of Industrial Economics, vol. 30, no.4 (June 1982), pp.337-360 f:\12000 essays\business & economics (632)\The effect of technology on modern America .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S. Wage Trends The microeconomic picture of the U.S. has changed immensely since 1973, and the trends are proving to be consistently downward for the nation's high school graduates and high school drop-outs. "Of all the reasons given for the wage squeeze - international competition, technology, deregulation, the decline of unions and defense cuts - technology is probably the most critical. It has favored the educated and the skilled," says M. B. Zuckerman, editor-in-chief of U.S. News & World Report (7/31/95). Since 1973, wages adjusted for inflation have declined by about a quarter for high school dropouts, by a sixth for high school graduates, and by about 7% for those with some college education. Only the wages of college graduates are up. Of the fastest growing technical jobs, software engineering tops the list. Carnegie Mellon University reports, "recruitment of it's software engineering students is up this year by over 20%." All engineering jobs are paying well, proving that highly skilled labor is what employers want! "There is clear evidence that the supply of workers in the [unskilled labor] categories already exceeds the demand for their services," says L. Mishel, Research Director of Welfare Reform Network. In view of these facts, I wonder if these trends are good or bad for society. "The danger of the information age is that while in the short run it may be cheaper to replace workers with technology, in the long run it is potentially self-destructive because there will not be enough purchasing power to grow the economy," M. B. Zuckerman. My feeling is that the trend from unskilled labor to highly technical, skilled labor is a good one! But, political action must be taken to ensure that this societal evolution is beneficial to all of us. "Back in 1970, a high school diploma could still be a ticket to the middle income bracket, a nice car in the driveway and a house in the suburbs. Today all it gets is a clunker parked on the street, and a dingy apartment in a low rent building," says Time Magazine (Jan 30, 1995 issue). However, in 1970, our government provided our children with a free education, allowing the vast majority of our population to earn a high school diploma. This means that anyone, regardless of family income, could be educated to a level that would allow them a comfortable place in the middle class. Even restrictions upon child labor hours kept children in school, since they are not allowed to work full time while under the age of 18. This government policy was conducive to our economic markets, and allowed our country to prosper from 1950 through 1970. Now, our own prosperity has moved us into a highly technical world, that requires highly skilled labor. The natural answer to this problem, is that the U.S. Government's education policy must keep pace with the demands of the highly technical job market. If a middle class income of 1970 required a high school diploma, and the middle class income of 1990 requires a college diploma, then it should be as easy for the children of the 90's to get a college diploma, as it was for the children of the 70's to get a high school diploma. This brings me to the issue of our country's political process, in a technologically advanced world. Voting & Poisoned Political Process in The U.S. The advance of mass communication is natural in a technologically advanced society. In our country's short history, we have seen the development of the printing press, the radio, the television, and now the Internet; all of these, able to reach millions of people. Equally natural, is the poisoning and corruption of these medias, to benefit a few. From the 1950's until today, television has been the preferred media. Because it captures the minds of most Americans, it is the preferred method of persuasion by political figures, multinational corporate advertising, and the upper 2% of the elite, who have an interest in controlling public opinion. Newspapers and radio experienced this same history, but are now somewhat obsolete in the science of changing public opinion. Though I do not suspect television to become completely obsolete within the next 20 years, I do see the Internet being used by the same political figures, multinational corporations, and upper 2% elite, for the same purposes. At this time, in the Internet's young history, it is largely unregulated, and can be accessed and changed by any person with a computer and a modem; no license required, and no need for millions of dollars of equipment. But, in reviewing our history, we find that newspaper, radio and television were once unregulated too. It is easy to see why government has such an interest in regulating the Internet these days. Though public opinion supports regulating sexual material on the Internet, it is just the first step in total regulation, as experienced by every other popular mass media in our history. This is why it is imperative to educate people about the Internet, and make it be known that any regulation of it is destructive to us, not constructive! I have been a daily user of the Internet for 5 years (and a daily user of BBS communications for 9 years), which makes me a senior among us. I have seen the moves to regulate this type of communication, and have always openly opposed it. My feelings about technology, the Internet, and political process are simple. In light of the history of mass communication, there is nothing we can do to protect any media from the "sound byte" or any other form of commercial poisoning. But, our country's public opinion doesn't have to fall into a nose-dive of lies and corruption, because of it! The first experience I had in a course on Critical Thinking came when I entered college. As many good things as I have learned in college, I found this course to be most valuable to my basic education. I was angry that I hadn't had access to the power of critical thought over my twelve years of basic education. Simple forms of critical thinking can be taught as early as kindergarten. It isn't hard to teach a young person to understand the patterns of persuasion, and be able to defend themselves against them. Television doesn't have to be a weapon against us, used to sway our opinions to conform to people who care about their own prosperity, not ours. With the power of a critical thinking education, we can stop being motivated by the sound byte and, instead we can laugh at it as a cheap attempt to persuade us. In conclusion, I feel that the advance of technology is a good trend for our society; however, it must be in conjunction with advance in education so that society is able to master and understand technology. We can be the masters of technology, and not let it be the masters of us. Bibliography Where have the good jobs gone?, By: Mortimer B. Zuckerman U.S. News & World Report, volume 119, pg 68 (July 31, 1995) Wealth: Static Wages, Except for the Rich, By: John Rothchild Time Magazine, volume 145, pg 60 (January 30, 1995) Welfare Reform, By: Lawrence Mishel http://epn.org/epi/epwelf.html (Feb 22, 1994) 20 Hot Job Tracks, By: K.T. Beddingfield, R. M. Bennefield, J. Chetwynd, T. M. Ito, K. Pollack & A. R. Wright U.S. News & World Report, volume 119, pg 98 (Oct 30, 1995) f:\12000 essays\business & economics (632)\The Effects of Stress Alcohol Outcome Expectancies Gender .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Effects of Stress, Alcohol Outcome Expectancies, Gender, Coping Styles, and Family Alcoholism on Alcohol Consumption Research Proposal by Josh Robbins 100-928-594 November 26, 1996 Economics 143 Abstract One large component of American popular culture today is alcohol. A common stereotype for the effects of alcohol is that as a drug it acts as a stress antagonist. This theory was introduced by Conger (1956) as the Tension Reduction Hypothesis (TRW). It states that alcohol's sedative action on the central nervous system serves to reduce tension, and because tension reduction is reinforcing, people drink to escape it (Marlatt & Rehsenow, 1980). Why do we drink, when do we drink, and how much do we drink? This research will determine the correlation between total weekly consumption of alcohol and perceived stress, alcohol outcome expectancies, gender, coping styles, and family history of alcoholism among undergraduate students. Do people drink more or less when stressed? Do alcohol outcome expectancies lead to higher or lower consumption? Is a history of family alcoholism positively or negatively correlated to personal consumption? Do the tested variables play mediating or moderating roles in stress-related drinking? This research will determine the answers to these questions, and determine the strength of the correlations, if any. Introduction The main question that this statistical model will answer is as follows: Is there any correlation between drinking and gender, alcohol expectancies, family alcoholism, stress, and coping styles? Gender It has been demonstrated that significant differences exist between the drinking patterns of men and women (Hilton, 1988). In a survey of US drinking habits conducted in 1988 by the US National Center for Health Statistics, Dawson and Archer (1992) showed that there are three areas illustrating gender differences. The first is the actual number of male and female drinkers. The study showed that 64% of men versus 41% of women were current drinkers. Second, men were more likely to consume alcohol on a daily basis (17.5 grams of ethanol per day versus 8.9 grams for women). Third, men were more likely to be classified as heavy drinkers. In fact, when the classification measure of a "heavy drinker" was changed from five drinks or more per day to nine drinks or more per day the ration of male to female heavy drinkers increased by a factor of 3. Stress Are the theories mentioned above about stress-induced drinking accurate? There have been studies which disprove the Tension Reduction Hypothesis. For instance, in a study by Conway, Vickers, Ward, and Rahe in 1981 it was found that "the consumption of alcohol among Navy officers during periods of high job demands was actually lower than the consumption during low-demand periods." Additionally, some drinkers have been known to consider alcohol as a tension generator rather than a tension reducer. Alcohol Expectancies The expectations of what effects alcohol consumption may have play an important role in drinking habits. These expectancies first develop in childhood as indirect learning experiences (media, family modeling, peer influence) and, as a result of increased direct experiences with the pharmacological effects of alcohol, become more refined (Christiansen, Goldman, & Inn, 1982). Do the expectancies that people hold about alcohol decently predict consumption? Some people believe that alcohol consumption will increase sexual and aggressive behavior, or otherwise enhance social experiences. Many people subscribe to the view that alcohol acts as "liquid courage". Data The dependent variable for this research will be Weekly Alcohol Consumption (WEEK), measured by the total number of drinks consumed in 1 week. A standard drink is defined as a 12-ounce bottle/can of beer, 1.5 ounce shot of liquor, or a 5 ounce glass of wine. The predictor variables would include the dummy variable GENDER, where D1=1 for a male, STRESS, alcoholic expectancies (EXPECT), family alcoholism (FAMILY), and difference coping styles (COPE). The complete list of possible measurable variables are: Perceived Stress, Family History of Alcoholism, Problem-Focused Coping, Emotion-Focused Coping, Less Useful Coping, and Drinking to Cope. For alcohol expectancy outcomes, the following variables would be useful: Sociability, Tension Reduction, Liquid Courage, Sexuality, Cognitive & Behavioral Impairment, Risk & Aggression, and Self Perception. The data for this research project will be collected through surveys and questionnaires given to undergraduate students at one university, but not limited to one department. An attempt should be made to split the test group approximately equal in terms of sex. Since race/ethnicity and age are not being tested, they are irrelevant for this study. Compensation may be necessary (possibly a beer), as college students' time is quite valuable, and the questionnaire may take approximately 30 minutes. There are a number of tests which currently exist which may be used to evaluate the subjects. 1. Adapted Short Michigan Alcoholism Screening Test (Adapted SMAST) This is a 13 item self-report questionnaire developed by Sher and Descutner in 1986 which is designed to measure family history of alcoholism. This is a yes/no type of test, and is specifically determines the extent of an individual's parents' alcohol abuse. 2. Comprehensive Effects of Alcohol (CEOA) The CEOA (Fromme, Stroot & Kaplan, 1993) has 38 questions, and is designed to measure alcohol outcome expectancies. There are seven expectancy scales, four positive (sociability, tension-reduction, liquid-courage, and sexuality) and three negative (cognitive-behavioral impairment, risk and aggression, and self perception). The answers are based on a five point scale with 1 = disagree and 5 = agree. 3. Perceived Stress Scale (PSS) The PSS (Cohen, Kamarck, & Mermelstein, 1983) is a 14 item self-report designed to assess the degress to which situations in one's life are appraised as stressful. There are 7 positive and 7 negative questions. 4. COPE The COPE (Carver et al., 1989) has 53 questions and is designed to assess individual coping dispositions. This test is quite complicated, as it is made up of 14 scales which are categorized into 3 coping styles: Problem-Focused Coping, Emotion-Focused Coping, and Less than Useful Coping (Denial, Behavioral Disengagement, and Mental Disengagement). The main result we will be looking at is a section called "Drinking to Cope". This will help us find out whether people drink to cope and if so, in what situations. Specification The regression equation for this research will be as follows: WEEKi = b0 + b1(GENDER)i + b2(STRESS)i + b3(EXPECT)i + b4(FAMILY)i + b5(COPE)i The expected signs of the coefficients are as follows: b1: This is a dummy variable, with only 2 possible values, 0=female and 1=male; b2: Positive. Increased stress leads to increased drinking; b3: Both. It will probably be positive with expectancy variables like Tension Reduction, liquid-Courage and Sexuality, while negative with Behavioral Impairment, Risk & Aggression, and Self Perception; b4: Positive. One would expect an alcoholic family would increase the likelihood of an alcoholic child; b5: Positive. If we restrict this variable to Drinking To Cope, it should be positive. I would plan to run a regression using one predictor variable at a time, and then adding an additional variable until many possibilities have been regressed, determining the correlation between the different predictors. This will determine as well which predictors account for what percentage of the variability. Anticipated Benefits After determination of the correlation between weekly drinking and the 5 predictor variable discussed herein, we will be able to focus on which variables have more effect, or higher correlation. If the highest correlation is found in the FAMILY variable, we will know to spend more time and money on programs which promote "Family Values". If high correlation is found with the STRESS variable, we can direct our energies to making college less stressful. This research should be used as a signal for what needs to be done in the future. References Carver, C. S., Scheier, M. F., & Weintraub, J. K. (1989). Assessing coping strategies: A theoretically based approach. Journal of Personality and Social Psychology, 56, 267-283. Christiansen, B. A., Goldman, M. S., & Inn, A. (1982). Development of alcohol-related expectancies in adolescents: Separating pharmacological from social-learning influences. Journal of Consulting and Clinical Psychology, 50, 336-344. Cohen, S., Kamarck, T., & Mermelstein, R. (1983). A global measure of perceived stress. Journal of Health and Social Behavior, 24, 385-396. Conger, J. J. (1956). Alcoholism: Theory, problem and challenge. II. Reinforcement theory and the dynamics of alcoholism. Quarterly Journal of Studies on Alcohol, 13, 296-305. Conway, T. L., Vickers, R. R., Ward, H. W., & Rahe, R. H. (1981). Occupational stress and variation in cigarette, coffee, and alcohol consumption. Journal of Health and Social Behavior, 22, 155-165. Dawson, D. A., & Archer, L. (1992). Gender differences in alcohol consumption: Effects of measurement. British Journal of Addiction, 87, 119-123. Hilton, M. E. (1988). Trends in US drinking patterns: Further evidence from the past 20 years. British Journal of Addiction, 83, 269-278. Marlatt, G. A, & Rohsenow, D. J. (1980). Cognitive processes in alcohol use: Expectancy and the balanced placebo design. In N. K. Mello (Ed.). Advances in Substance Abuse: Behavioral and biological research, Vol. 1. Greenwich: JAI Press. Sher, K. J., & Descutner, C. (1986). Reports of paternal alcoholism: Reliability across siblings. Journal of Addictive Behaviors, 11, 25-30. f:\12000 essays\business & economics (632)\The Effects of Stress.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Effects of Stress, Alcohol Outcome Expectancies, Gender, Coping Styles, and Family Alcoholism on Alcohol Consumption Research Proposal by Josh Robbins 100-928-594 November 26, 1996 Economics 143 Abstract One large component of American popular culture today is alcohol. A common stereotype for the effects of alcohol is that as a drug it acts as a stress antagonist. This theory was introduced by Conger (1956) as the Tension Reduction Hypothesis (TRW). It states that alcohol's sedative action on the central nervous system serves to reduce tension, and because tension reduction is reinforcing, people drink to escape it (Marlatt & Rehsenow, 1980). Why do we drink, when do we drink, and how much do we drink? This research will determine the correlation between total weekly consumption of alcohol and perceived stress, alcohol outcome expectancies, gender, coping styles, and family history of alcoholism among undergraduate students. Do people drink more or less when stressed? Do alcohol outcome expectancies lead to higher or lower consumption? Is a history of family alcoholism positively or negatively correlated to personal consumption? Do the tested variables play mediating or moderating roles in stress-related drinking? This research will determine the answers to these questions, and determine the strength of the correlations, if any. Introduction The main question that this statistical model will answer is as follows: Is there any correlation between drinking and gender, alcohol expectancies, family alcoholism, stress, and coping styles? Gender It has been demonstrated that significant differences exist between the drinking patterns of men and women (Hilton, 1988). In a survey of US drinking habits conducted in 1988 by the US National Center for Health Statistics, Dawson and Archer (1992) showed that there are three areas illustrating gender differences. The first is the actual number of male and female drinkers. The study showed that 64% of men versus 41% of women were current drinkers. Second, men were more likely to consume alcohol on a daily basis (17.5 grams of ethanol per day versus 8.9 grams for women). Third, men were more likely to be classified as heavy drinkers. In fact, when the classification measure of a "heavy drinker" was changed from five drinks or more per day to nine drinks or more per day the ration of male to female heavy drinkers increased by a factor of 3. Stress Are the theories mentioned above about stress-induced drinking accurate? There have been studies which disprove the Tension Reduction Hypothesis. For instance, in a study by Conway, Vickers, Ward, and Rahe in 1981 it was found that "the consumption of alcohol among Navy officers during periods of high job demands was actually lower than the consumption during low-demand periods." Additionally, some drinkers have been known to consider alcohol as a tension generator rather than a tension reducer. Alcohol Expectancies The expectations of what effects alcohol consumption may have play an important role in drinking habits. These expectancies first develop in childhood as indirect learning experiences (media, family modeling, peer influence) and, as a result of increased direct experiences with the pharmacological effects of alcohol, become more refined (Christiansen, Goldman, & Inn, 1982). Do the expectancies that people hold about alcohol decently predict consumption? Some people believe that alcohol consumption will increase sexual and aggressive behavior, or otherwise enhance social experiences. Many people subscribe to the view that alcohol acts as "liquid courage". Data The dependent variable for this research will be Weekly Alcohol Consumption (WEEK), measured by the total number of drinks consumed in 1 week. A standard drink is defined as a 12-ounce bottle/can of beer, 1.5 ounce shot of liquor, or a 5 ounce glass of wine. The predictor variables would include the dummy variable GENDER, where D1=1 for a male, STRESS, alcoholic expectancies (EXPECT), family alcoholism (FAMILY), and difference coping styles (COPE). The complete list of possible measurable variables are: Perceived Stress, Family History of Alcoholism, Problem-Focused Coping, Emotion-Focused Coping, Less Useful Coping, and Drinking to Cope. For alcohol expectancy outcomes, the following variables would be useful: Sociability, Tension Reduction, Liquid Courage, Sexuality, Cognitive & Behavioral Impairment, Risk & Aggression, and Self Perception. The data for this research project will be collected through surveys and questionnaires given to undergraduate students at one university, but not limited to one department. An attempt should be made to split the test group approximately equal in terms of sex. Since race/ethnicity and age are not being tested, they are irrelevant for this study. Compensation may be necessary (possibly a beer), as college students' time is quite valuable, and the questionnaire may take approximately 30 minutes. There are a number of tests which currently exist which may be used to evaluate the subjects. 1. Adapted Short Michigan Alcoholism Screening Test (Adapted SMAST) This is a 13 item self-report questionnaire developed by Sher and Descutner in 1986 which is designed to measure family history of alcoholism. This is a yes/no type of test, and is specifically determines the extent of an individual's parents' alcohol abuse. 2. Comprehensive Effects of Alcohol (CEOA) The CEOA (Fromme, Stroot & Kaplan, 1993) has 38 questions, and is designed to measure alcohol outcome expectancies. There are seven expectancy scales, four positive (sociability, tension-reduction, liquid-courage, and sexuality) and three negative (cognitive-behavioral impairment, risk and aggression, and self perception). The answers are based on a five point scale with 1 = disagree and 5 = agree. 3. Perceived Stress Scale (PSS) The PSS (Cohen, Kamarck, & Mermelstein, 1983) is a 14 item self-report designed to assess the degress to which situations in one's life are appraised as stressful. There are 7 positive and 7 negative questions. 4. COPE The COPE (Carver et al., 1989) has 53 questions and is designed to assess individual coping dispositions. This test is quite complicated, as it is made up of 14 scales which are categorized into 3 coping styles: Problem-Focused Coping, Emotion-Focused Coping, and Less than Useful Coping (Denial, Behavioral Disengagement, and Mental Disengagement). The main result we will be looking at is a section called "Drinking to Cope". This will help us find out whether people drink to cope and if so, in what situations. Specification The regression equation for this research will be as follows: WEEKi = b0 + b1(GENDER)i + b2(STRESS)i + b3(EXPECT)i + b4(FAMILY)i + b5(COPE)i The expected signs of the coefficients are as follows: b1: This is a dummy variable, with only 2 possible values, 0=female and 1=male; b2: Positive. Increased stress leads to increased drinking; b3: Both. It will probably be positive with expectancy variables like Tension Reduction, liquid-Courage and Sexuality, while negative with Behavioral Impairment, Risk & Aggression, and Self Perception; b4: Positive. One would expect an alcoholic family would increase the likelihood of an alcoholic child; b5: Positive. If we restrict this variable to Drinking To Cope, it should be positive. I would plan to run a regression using one predictor variable at a time, and then adding an additional variable until many possibilities have been regressed, determining the correlation between the different predictors. This will determine as well which predictors account for what percentage of the variability. Anticipated Benefits After determination of the correlation between weekly drinking and the 5 predictor variable discussed herein, we will be able to focus on which variables have more effect, or higher correlation. If the highest correlation is found in the FAMILY variable, we will know to spend more time and money on programs which promote "Family Values". If high correlation is found with the STRESS variable, we can direct our energies to making college less stressful. This research should be used as a signal for what needs to be done in the future. References Carver, C. S., Scheier, M. F., & Weintraub, J. K. (1989). Assessing coping strategies: A theoretically based approach. Journal of Personality and Social Psychology, 56, 267-283. Christiansen, B. A., Goldman, M. S., & Inn, A. (1982). Development of alcohol-related expectancies in adolescents: Separating pharmacological from social-learning influences. Journal of Consulting and Clinical Psychology, 50, 336-344. Cohen, S., Kamarck, T., & Mermelstein, R. (1983). A global measure of perceived stress. Journal of Health and Social Behavior, 24, 385-396. Conger, J. J. (1956). Alcoholism: Theory, problem and challenge. II. Reinforcement theory and the dynamics of alcoholism. Quarterly Journal of Studies on Alcohol, 13, 296-305. Conway, T. L., Vickers, R. R., Ward, H. W., & Rahe, R. H. (1981). Occupational stress and variation in cigarette, coffee, and alcohol consumption. Journal of Health and Social Behavior, 22, 155-165. Dawson, D. A., & Archer, L. (1992). Gender differences in alcohol consumption: Effects of measurement. British Journal of Addiction, 87, 119-123. Hilton, M. E. (1988). Trends in US drinking patterns: Further evidence from the past 20 years. British Journal of Addiction, 83, 269-278. Marlatt, G. A, & Rohsenow, D. J. (1980). Cognitive processes in alcohol use: Expectancy and the balanced placebo design. In N. K. Mello (Ed.). Advances in Substance Abuse: Behavioral and biological research, Vol. 1. Greenwich: JAI Press. Sher, K. J., & Descutner, C. (1986). Reports of paternal alcoholism: Reliability across siblings. Journal of Addictive Behaviors, 11, 25-30. f:\12000 essays\business & economics (632)\The Essence of Empowerment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Essence of Empowerment Empowerment is certainly not a new idea within the business arena. In fact, its concept has been around since the 1960's when American car manufactures suddenly realized that they were losing their butts to the Japanese producers. An extensive and extremely well-funded investigation for answers to the recurrent question, how do I get more out of my employees while simultaneously lowering my costs, did produce some implementable and constructive results. The topic I have chosen to investigate is the application of employee empowerment and how to get the most out of this HR "buzzword." Within my scope of discussions are topics which include effective implementation, the role of the organization, and incentives to achieve and sustain actuation. Employee empowerment, in its most basic definition, is effective delegation. The new twist that upper management has been trying desperately to achieve, is to involve the lowest level of employees in the decision-making process while making them responsible for the results of their decisions. There have been many documented examples of anxiety, mistrust and complacency in employees when this wave of "new-and-improved, successful management strategies" have been suddenly thrown upon them. Change of any kind will usually inspire resistance, especially when you are talking about extracting power from management to place in the hands of "subordinates." There are obvious methods to achieving the results that the stakeholders of an organization demand through empowerment. Increases in profitability, productivity, creativity, and a shorter time-to-market are all feasible results of empowerment. In fact, "empowerment is an extremely cost-effective means of bringing about desired changes in performance and operational effectiveness." It takes only a stout devotion of the entire organization, from the top levels downward. That's all. There are, however, key factors to its success. One of the most important key elements to take into account is the need for extensive organizational preparation to achieve effective implementation. By preparation, I mean an organizational-wide commitment to preparing both management and its staff for the changes that are about to take place. Education is one of the most effective tools in preparing for change. Remember that psychological studies determined that individuals are inherently resistant to change when they don't know the results and consequences of that change. Education of all levels within an organization will help eradicate some of the fear that's associated with change. It will also help define everyone's role after the changes are established. Additionally, this becomes an opportunity for upper management to align employees with corporate direction by disseminating vital information. One such change that must occur is the flattening of the organizational chart, whether that entails the redefining or elimination of jobs. Flattening the levels of bureaucracy eliminates the hierarchical chain of command and brings all individuals closer to the actual end product. This has its advantages since all members of the organization, then, have a feel for what it is they are actually doing. Since the utopian result of empowerment is the transference "of decision making and ownership to those individuals [at the lowest possible levels] who have the knowledge and ability to make the most appropriate decision, " these individuals are, therefore, most familiar with their end of the value chain. They theoretically can recognize what it is, exactly, that can be done more efficiently and productively to bring this product to market at lower costs. They are also able to "refine" the product since they have hands-on experience. This transference of responsibility to the employee inherently leaves more time for creative brainstorming by management to search for more proficient processes and products. Open, multilateral communication between management and staff is another vital requirement for effective implementation. Expectations must be communicated from top levels of management and vice versa for empowerment to work. These channels are one of the ways for management to offer support and direction. It is imperative for them to remain open and available to all employees. One of the largest impediments to empowerment that must be addressed in the preparation phase of implementation is corporate culture. As competition is changing rapidly to a global market economy, organizations need to realize that they too, must change to remain competitive. While culture remains one of the strongest influences on individual and organizational behavior, it also becomes one of the hardest aspects to change. Reward systems must adapt from its previous structure to one that fosters the desire to accept this necessary shift. Yet another impediment to gaining the appropriate culture within an organization is the issue of trust. In researching whether empowerment was right for Viking Glass, they discovered that many attempts at its institution had failed. The instances in which it did succeed, they noted, " . . . a distinctive atmosphere of mutual trust between employees and management . . . in the instances of less than satisfactory results, the atmosphere was noticeably less trusting." Since mistrust, at all levels, between employee and supervisor is commonplace, this must be eliminated from the culture before continuing to implement. Empowerment is potentially a very rewarding concept to business, but it requires unanimous "buy-in." To attain organizational buy-in, there must be proper motivational forces and incentives to move people in that desired direction. In addition, the reward structure must be set so that you're are compensating the appropriate actions. Incentive systems are difficult enough to design without having to worry about these additional pressures. Monetary and financial compensations are not necessarily the most important form of incentive to all people. There is abundant evidence which suggests that the most motivating of rewards tend to be nonfinancial. Studies conducted by Lawrence Lindahl in the 1940's identified the primary reasons why employees worked, "[were] 'good wages,' 'job security', and 'promotional/growth opportunities.'" Of those studied, they also reported such intangibles as "full appreciation for work done," and "feeling 'in' on things" to be what they most wanted from their jobs. Frederick Herzberg, from his research, identified money as a "maintenance" factor, or a necessity to one's job. He did conclude, however, that having it did not motivate people to do a better job. What then, does it take to get employees motivated to take responsibility and react like the owner of the company? Stock-based forms of compensation have been implemented, but to little avail. To understand how to convert the workforce into responsible "owners," one must realize that several factors do work against us. First is the issue that: "Economic research indicates that individuals are risk averse, loss averse, and tend to 'satisfice' rather than maximize- and taking cash now is safer than long-term stock ownership. Research also suggests that the value of a possession is perceived as greater than what is not possessed." Secondly, research indicates that: "...employees must see a clear link between effort and performance, performance and reward, and between the form of the reward and what they value. These links are very difficult to achieve with equity- based plans, leading to further avoidance of ownership." It's because of this research that we understand that the organization faces difficult restructuring dilemmas. They are caught in a Catch 22. They have to link rewards to achieve desired behavior, but the behavior that they desire is not identified with that reward. So, in designing effective compensation systems, one must congruently remove old incentives while adding behavior-guiding now ones. Suggested, are several strategies to accomplish an ownership perspective by rewarding with equity-based compensation. First, all activities such as goal-setting, coaching, performance evaluations, and all form of reinforcement must center on ownership. By tying an employee's understanding of how individual actions affect the whole organization through rewards, one can develop an environment which fosters empowered thinking. Second, make it a requirement of employment that all individuals take a stake in the company. Introduce the investment as part of retirement plans and pre-retirement financial planning. Lastly, thoroughly educate the employee how his or her individual actions can provide a lucrative return by explaining the swings of the market in relation to the company. While global change is driving companies to empowerment, and similar philosophies like self- managed team-based arrangements, total quality management, it is important to note that no one philosophy is entirely correct, or incorrect. By combining the best of what these philosophies have to offer and adjusting, to the best of your ability, you corporate culture to facilitate them, you are able to reap the rewards of currently suggested management ideologies. To expect them to work over night is ludicrous, however. These things do take time, because remember, you dealing with human beings here who don't like change. Be patient, persevere; it will be worth the effort. In sum, through cooperation, perseverance, and much patience, you might be able to develop an empowered atmosphere at your company. Change dictates that old philosophies are no longer valid. Through thorough preparation, education, communication, and absolute commitment you might be able to develop empowerment techniques, but to truly reap empowerment's rewards, you must remember that employee motivation is the product of your reward system. f:\12000 essays\business & economics (632)\The Fed and Interest Rate1.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Fed and Interest Rates Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This being the first increase in almost five years, it caused quite a stir. When the Fed decides the economy is growing at too quick a pace, or inflation is getting out of hand, it can take actions to slow spending and decrease the money supply. This corresponding with the money equation MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces bank's reserves and forces the interest rate to rise so the banks can afford to make loans. People seeing these rises in rates will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the Fed affects all aspects of business, from the price level to interest rates on credit cards. Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nation's economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in hard times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March. This can be considered a sign that we are pulling out of the recession, or atleast it seems the Fed feels the recession of the early nineties is ending. Directly after the Fed's actions, the stock market was a mess. The Dow took huge dips, falling as much as 50 points a day. Although no one knows exactly what influences the market, the increase in interest rates played a major role in this craziness. Mr. Pettit's column on March 25th highlights, "Industrials Slide 48.37," Mr. Pettit attributes a large portion of the market's "tailspin" at this time to, "Rising interest rates at home." It is certainly no coincidence that these two events happened at the same time. Alan Greenspan, the current chairman of the Fed comes under great attack and praise with every move the Fed makes. He is, in a sense, the embodiment of the Fed. He has been in charge of the Fed since 1987. Some economists blame him for the recession of the early nineties. His influence on the interest rates as chairman of the Fed is monumental. It is his combined job as the Fed to steer the economy in a balanced manner that does not yield too much to inflation and to keep growth steady. Predictably, most economists are back seat drivers when it comes to watching the actions of Allen Greenspan, and they tend to feel they could much more successfully manage the economy than he. Many also agree with his tactics, so it is a two way street on which the chairman is forced to drive. It seems that not only the analysts are in disagreement of how the fed should operate, but interestingly enough, the internal policy makers seem to also disagree on what stance the Fed should take. Some of the internal policy makers are interested in making a more substantial increase now, while others opt for a more conservative approach, where the market can be tested for both good and bad influences from the rate increases. Allen Greenspan is one of this more conservative group, and it is he is critisized by some for the irradic behavior in the stock market as of late. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of real money available be willingly held. Because this is such a delicate system this "equilibrium" is never exactly met, and the Fed's job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. Summary of Articles: US News (Late March 1994) - "Interest Rates: The Fed Strikes Again" This article covers a brief explanation of exactly what the Fed did, covering the major factors and influences of the Fed's actions. It pays special attention on the issue of inflation, and how different forecasters will interpret the Fed's actions. Overall, this article gives the reader a good understanding of what took place, and what repercussions are likely to come about because of it. The Wall Street Journal (Mon. March 28, 1994) - "Fed Was Divided on Rate-Rise Size Voted in February" This article shows an interesting perspective of the Fed. It discusses the fact that the Fed's policy makers were somewhat split between those who were looking for a "slight" increase as opposed to one of "somewhat greater" magnitude. This article is interesting because it shows that even the Fed can be uncertain about what is best for the economy, but it still focuses on the power of Allen Greenspan, as well as the committee as a whole. It compares the two arguments of each method, and shows a weakness in the Fed that may have been unknown to the reader before. The Wall Street Journal (Mon. April 11, 1994) - "Fed Moved Too Slow On Increasing Rates" This recent article criticizes the Fed's actions in raising the interest rate, and complains that the Fed has fallen behind in it's job. It discusses the plan for a "Neutral" policy and what the Fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates. f:\12000 essays\business & economics (632)\The Fed And Interest Rates 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1203 Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This being the first increase in almost five years, it caused quite a stir. When the Fed decides the economy is growing at too quick a pace, or inflation is getting out of hand, it can take actions to slow spending and decrease the money supply. This corresponding with the money equation MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces bank's reserves and forces the interest rate to rise so the banks can afford to make loans. People seeing these rises in rates will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the Fed affects all aspects of business, from the price level to interest rates on credit cards. Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nation's economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in hard times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March. This can be considered a sign that we are pulling out of the recession, or atleast it seems the Fed feels the recession of the early nineties is ending. Directly after the Fed's actions, the stock market was a mess. The Dow took huge dips, falling as much as 50 points a day. Although no one knows exactly what influences the market, the increase in interest rates played a major role in this craziness. Mr. Pettit's column on March 25th highlights, "Industrials Slide 48.37," Mr. Pettit attributes a large portion of the market's "tailspin" at this time to, "Rising interest rates at home." It is certainly no coincidence that these two events happened at the same time. Alan Greenspan, the current chairman of the Fed comes under great attack and praise with every move the Fed makes. He is, in a sense, the embodiment of the Fed. He has been in charge of the Fed since 1987. Some economists blame him for the recession of the early nineties. His influence on the interest rates as chairman of the Fed is monumental. It is his combined job as the Fed to steer the economy in a balanced manner that does not yield too much to inflation and to keep growth steady. Predictably, most economists are back seat drivers when it comes to watching the actions of Allen Greenspan, and they tend to feel they could much more successfully manage the economy than he. Many also agree with his tactics, so it is a two way street on which the chairman is forced to drive. It seems that not only the analysts are in disagreement of how the fed should operate, but interestingly enough, the internal policy makers seem to also disagree on what stance the Fed should take. Some of the internal policy makers are interested in making a more substantial increase now, while others opt for a more conservative approach, where the market can be tested for both good and bad influences from the rate increases. Allen Greenspan is one of this more conservative group, and it is he is critisized by some for the irradic behavior in the stock market as of late. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of real money available be willingly held. Because this is such a delicate system this "equilibrium" is never exactly met, and the Fed's job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. Summary of Articles: US News (Late March 1994) - "Interest Rates: The Fed Strikes Again" This article covers a brief explanation of exactly what the Fed did, covering the major factors and influences of the Fed's actions. It pays special attention on the issue of inflation, and how different forecasters will interpret the Fed's actions. Overall, this article gives the reader a good understanding of what took place, and what repercussions are likely to come about because of it. The Wall Street Journal (Mon. March 28, 1994) - "Fed Was Divided on Rate-Rise Size Voted in February" This article shows an interesting perspective of the Fed. It discusses the fact that the Fed's policy makers were somewhat split between those who were looking for a "slight" increase as opposed to one of "somewhat greater" magnitude. This article is interesting because it shows that even the Fed can be uncertain about what is best for the economy, but it still focuses on the power of Allen Greenspan, as well as the committee as a whole. It compares the two arguments of each method, and shows a weakness in the Fed that may have been unknown to the reader before. The Wall Street Journal (Mon. April 11, 1994) - "Fed Moved Too Slow On Increasing Rates" This recent article criticizes the Fed's actions in raising the interest rate, and complains that the Fed has fallen behind in it's job. It discusses the plan for a "Neutral" policy and what the Fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates. f:\12000 essays\business & economics (632)\The Fed and interest rates 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Fed and Interest Rates Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This being the first increase in almost five years, it caused quite a stir. When the Fed decides the economy is growing at too quick a pace, or inflation is getting out of hand, it can take actions to slow spending and decrease the money supply. This corresponding with the money equation MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces bank's reserves and forces the interest rate to rise so the banks can afford to make loans. People seeing these rises in rates will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the Fed affects all aspects of business, from the price level to interest rates on credit cards. Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nation's economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in hard times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March. This can be considered a sign that we are pulling out of the recession, or atleast it seems the Fed feels the recession of the early nineties is ending. Directly after the Fed's actions, the stock market was a mess. The Dow took huge dips, falling as much as 50 points a day. Although no one knows exactly what influences the market, the increase in interest rates played a major role in this craziness. Mr. Pettit's column on March 25th highlights, "Industrials Slide 48.37," Mr. Pettit attributes a large portion of the market's "tailspin" at this time to, "Rising interest rates at home." It is certainly no coincidence that these two events happened at the same time. Alan Greenspan, the current chairman of the Fed comes under great attack and praise with every move the Fed makes. He is, in a sense, the embodiment of the Fed. He has been in charge of the Fed since 1987. Some economists blame him for the recession of the early nineties. His influence on the interest rates as chairman of the Fed is monumental. It is his combined job as the Fed to steer the economy in a balanced manner that does not yield too much to inflation and to keep growth steady. Predictably, most economists are back seat drivers when it comes to watching the actions of Allen Greenspan, and they tend to feel they could much more successfully manage the economy than he. Many also agree with his tactics, so it is a two way street on which the chairman is forced to drive. It seems that not only the analysts are in disagreement of how the fed should operate, but interestingly enough, the internal policy makers seem to also disagree on what stance the Fed should take. Some of the internal policy makers are interested in making a more substantial increase now, while others opt for a more conservative approach, where the market can be tested for both good and bad influences from the rate increases. Allen Greenspan is one of this more conservative group, and it is he is critisized by some for the irradic behavior in the stock market as of late. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of real money available be willingly held. Because this is such a delicate system this "equilibrium" is never exactly met, and the Fed's job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. Summary of Articles: US News (Late March 1994) - "Interest Rates: The Fed Strikes Again" This article covers a brief explanation of exactly what the Fed did, covering the major factors and influences of the Fed's actions. It pays special attention on the issue of inflation, and how different forecasters will interpret the Fed's actions. Overall, this article gives the reader a good understanding of what took place, and what repercussions are likely to come about because of it. The Wall Street Journal (Mon. March 28, 1994) - "Fed Was Divided on Rate-Rise Size Voted in February" This article shows an interesting perspective of the Fed. It discusses the fact that the Fed's policy makers were somewhat split between those who were looking for a "slight" increase as opposed to one of "somewhat greater" magnitude. This article is interesting because it shows that even the Fed can be uncertain about what is best for the economy, but it still focuses on the power of Allen Greenspan, as well as the committee as a whole. It compares the two arguments of each method, and shows a weakness in the Fed that may have been unknown to the reader before. The Wall Street Journal (Mon. April 11, 1994) - "Fed Moved Too Slow On Increasing Rates" This recent article criticizes the Fed's actions in raising the interest rate, and complains that the Fed has fallen behind in it's job. It discusses the plan for a "Neutral" policy and what the Fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates. f:\12000 essays\business & economics (632)\The Fed and Interest Rates.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Fed and Interest Rates Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This being the first increase in almost five years, it caused quite a stir. When the Fed decides the economy is growing at too quick a pace, or inflation is getting out of hand, it can take actions to slow spending and decrease the money supply. This corresponding with the money equation MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces bank's reserves and forces the interest rate to rise so the banks can afford to make loans. People seeing these rises in rates will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the Fed affects all aspects of business, from the price level to interest rates on credit cards. Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nation's economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in hard times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March. This can be considered a sign that we are pulling out of the recession, or atleast it seems the Fed feels the recession of the early nineties is ending. Directly after the Fed's actions, the stock market was a mess. The Dow took huge dips, falling as much as 50 points a day. Although no one knows exactly what influences the market, the increase in interest rates played a major role in this craziness. Mr. Pettit's column on March 25th highlights, "Industrials Slide 48.37," Mr. Pettit attributes a large portion of the market's "tailspin" at this time to, "Rising interest rates at home." It is certainly no coincidence that these two events happened at the same time. Alan Greenspan, the current chairman of the Fed comes under great attack and praise with every move the Fed makes. He is, in a sense, the embodiment of the Fed. He has been in charge of the Fed since 1987. Some economists blame him for the recession of the early nineties. His influence on the interest rates as chairman of the Fed is monumental. It is his combined job as the Fed to steer the economy in a balanced manner that does not yield too much to inflation and to keep growth steady. Predictably, most economists are back seat drivers when it comes to watching the actions of Allen Greenspan, and they tend to feel they could much more successfully manage the economy than he. Many also agree with his tactics, so it is a two way street on which the chairman is forced to drive. It seems that not only the analysts are in disagreement of how the fed should operate, but interestingly enough, the internal policy makers seem to also disagree on what stance the Fed should take. Some of the internal policy makers are interested in making a more substantial increase now, while others opt for a more conservative approach, where the market can be tested for both good and bad influences from the rate increases. Allen Greenspan is one of this more conservative group, and it is he is critisized by some for the irradic behavior in the stock market as of late. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of real money available be willingly held. Because this is such a delicate system this "equilibrium" is never exactly met, and the Fed's job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. Summary of Articles: US News (Late March 1994) - "Interest Rates: The Fed Strikes Again" This article covers a brief explanation of exactly what the Fed did, covering the major factors and influences of the Fed's actions. It pays special attention on the issue of inflation, and how different forecasters will interpret the Fed's actions. Overall, this article gives the reader a good understanding of what took place, and what repercussions are likely to come about because of it. The Wall Street Journal (Mon. March 28, 1994) - "Fed Was Divided on Rate-Rise Size Voted in February" This article shows an interesting perspective of the Fed. It discusses the fact that the Fed's policy makers were somewhat split between those who were looking for a "slight" increase as opposed to one of "somewhat greater" magnitude. This article is interesting because it shows that even the Fed can be uncertain about what is best for the economy, but it still focuses on the power of Allen Greenspan, as well as the committee as a whole. It compares the two arguments of each method, and shows a weakness in the Fed that may have been unknown to the reader before. The Wall Street Journal (Mon. April 11, 1994) - "Fed Moved Too Slow On Increasing Rates" This recent article criticizes the Fed's actions in raising the interest rate, and complains that the Fed has fallen behind in it's job. It discusses the plan for a "Neutral" policy and what the Fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates. f:\12000 essays\business & economics (632)\The Forever Changing Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Forever Changing Economy How easy is it for smaller business men to achieve the Aamerican dream. How to stop corporate domination. The question I pose to you is " Is the American Dream still achievable?" The opportunity is there but for what select few is the opportunity available to. If the resources are out there but I can't tap into the resources they rae of no use to me. (Make note of the fact that we live in a market economy. Just about every definition of the "market" in the dictionary connotes an oppurtunity as a place where goods are bought and sold.(cite dict.) As an abstraction, a market is the possibility of sale. Goods "find a market", and we say there is is a market for a service or commodity when there is a demand for it, which means it can and will be sold. Markets are opened to those who want to sell and a convenience for those looking to purchase.(cite 2) The market represents "conditions as regards, opportunity for, buying and selling".(cite 2) The market implies offering and choice. The way a market economy works is that there are market pressures that develop for different commodities. The pressures work in one direction for a while, but at the same time pressures are budding that work in the opposite direction. As people look forward and see there's going to be some profit made from their production, they'll make decisions to increase volume, usually hiring more people, buying more materials, often bidding up their prices. When people are competing in the same market, that tends to generate more and more pressure in the direction of expansion. But at the same time, as costs and possibly interest rates rise, pressures begin to operate in the other direction, against profits.(cite 1) The public as a whole must get their fair share of the benefits. Macroeconomic reforms should translate into a more efficient delivery of public services, equity, social welfare and social security.(cite 3) The Economic Policy Institute (EPI) has released its findings on American living standards. The report, issued every other year on a decline that begsn in the late-1970's. The EPI's report also contends that the Americans are working more for less money because of slow growth in wages since 1989. According to the report, wages in the bottom 80% of men have declined since 1989. The report also contends that 20% of women have experienced a decline in trsl esgrd dincr the 1980's, a period in which wages fell but family income increased because of longer hours at work and increased participation of women in the workforce. Critics assert that the report wrongly focuses on declining wages as a gauge to the income of the American family. Such critics find spending a more appropriate means by which to measure income.(cite 4) One proposal would birng back the 10% income deduction for second earners that was eliminated in the Tax Reform Act of 1986.(cite 5) Under that rule, a couple with two earners can deduct from taxable income 10 percent of the earnings of the spouse with the lower earnings(generally, the wife) up to 30,000 of earnings.(cite 5) Since almost all married working women earn less than 30,000, this is equivalent to a 10 percent reduction in the wife's marginal tax rate.(cite 5) To get a sense of how substansial this offset would be, consider a typical middle-class two earner couple. The husband earns 45,000 per year, and the wife earns $15,000 per year by working 1,000 hours at $15 per hour. They pay tax at a marginal income tax rate of 28 percent plus a payroll tax of 7.65 percent.(cite 5) They also pay at a typical state income tax rate of 5 percent.(cite 5) As a result, the wife's $15 per hour wage produces only a net of $8.90 per hour.(cite 5) If she didn't change her work, the deduction would reduce her taxable earnings from $15,000 to $13,500.(cite 5) With a marginal income tac rate of 28 percent, that would cut her tax payments by 420 per year.(cite 5) That's how the current method of revenue estimation would evaluate the revenue effect of the deduction, a $420 revenue loss. But the 10 percent cut in her effective marginal income tax rate (which would result from deducting 10 percent of her earnings from taxable income) would raise her net hourly take-home by a little less than 5 percent, from $8.90 per hour to $9.32 per hour.(cite 5) Statistical studies of the labor supply of married women imply that a 5 percent increse in their net wages would increase the average hours worked by about 2 percent. In the current example, the wife would increase her work from 1,000 hours per year to 1,020 hours. The extra hours would raise her pretax earnings by $300. She would pay an additional $46 in Social Security payroll taxes.(cite 5) The tax payments reduce the revenue cost from the "static" $420 to $298.(cite 5) In addition to increasing the average number of hours worked by married working women, the lower marginal tax rate for married women would also encourage more married women to work. That increase in their labor force participation rate would mean more revenue to the Treasury.(cite 5) More has to be done in our economy to ensure that all business owners have an equal opportunity to be chosen for gavernment contracts. Investigators have suggested that government contracts are awarded to insider's companies instead of other, better qualified applicants. Therefore calling for a review of the application procedure due to the favortism shown to those with inside contacts and extensive legal support.(cite 6) The United States Treasury announced its plan to issue a new kind of Government bond that would protect the average investors from inflation while helpng the Government finance the national debt. The new bonds will offer returns that fluxuate in relation to inflation. They will be backed by the Government and priced so unexpected inflation will not erode their value. The new bonds are a way for the Government to tap into the $675 billion 401(k) market.(cite 7) The Congressional Budget Office says Clinton's 5-year budget package cuts any addition to the federal debt by $433 billion by 1998.(cite 9) The deficit reduction estimates for fiscal 1994 vary from $102 billion from the Whitehouse to the Congressional Budget Office figure of $83 billion provided in deficit reduction in the Fiscal year 1994.(cite 9) A number of factors have helped including the growing economy with low interest rates and inflation which has reduced the annual deficit by cutting interest cost on the ferderal debt. The econommy has also helped by reducing the boosts to indexed Social Security, boosting revenues, and by cutting the costs projected for the savings and loan bailout.(cite 9) This report is backed up by more recent findings by the Treasury department that the Federal budget deficit fell in the fiscal year ending in Sept. 1995, due to the fact that revenue rose more than spending.(cite 8) The deficit was $163.81 billion. This is down from $203.1 billion in Fiscal 1994. The deficit is the smallest it has been since 1989. Revenues for Fiscal 1995 rose to $1.351 trillion, up from $1.257 trillion in Fiscal 1994, while outlays rose to $1.514 trillion, up from $1.461 trillion in Fiscal 1994.(cite 8) Another sign of economic progress is the more recent rise of the Dow Jones. The New York based company began in 1881 as Charles Henry Dow and his partner Edward Jones invented a way of measuring the industrial average by which investors could make their money. The first index was created on May 26,1896, based on 12 smokestack firms, with the indicator closing at 40.94. After the crash of 1929, the World War II pushed the index up to 192.91 in 1945, with the index reaching the 5,000 mark on November 21, 1995. A record high of 5,778 was recorded on May 22. 1996, rising 13% in the first half on 1996.(cite 10). Macroeconomists between the early 1980's and early 1990's have tried to develop a new kind of model that can be applied to policymaking. This type of model could help determine policies related to deficit reduction. This rational expectation approach offers an alternative to the Keynesian approach, but more research in areas such as forecasting and credibilty is needed. New Keynesian models and real business cycle models have evolved from the rational expectaions model.(cite 13) The lack of representation of macroeconomists among Nobel Prize winners since 1987 reflects the disorganized state of macroeconomics. Macroeconomists have focused more on mathematical theories than real world applications, and they have been unable to explain fluctuations in the business cycle.(cite 12)The most popular theory for economic growth seems to be a change in the approach and interpretation of our economy. Th reason for this seems to be the fact that the problem with today's economy stems from the economist.(cite) A common thread unites the research on the politics of macroeconomic policy, policy substitutability, the use of different policy instruments to affect the same goal is implicitly denied. Yet, economic theory indicates that policymakers have multiple policy instruments at their disposal that can be used alternately or in some combination to manipulate their economies.(cite 11) Another problem is that elite economists, including Nobel Prize and John Bates Clark medal winners, have had their papers rejected by journals for reasons ranging from excessive mathematical analysis to using sexist language.(cite 13) Some of the rejected papers have later been hailed as classics and accepted by other journals. We as a society need to give these theories a better look in hopes of finding a better path to economic growth. What is possible today may not be possible tommorrow in our economy because it is forever changing and with that change comes comes unexpected profit and loss that can't be predicted. The fate of the American economy is virtually impossible to predict but by using past examples we can attempt to find ways to stir up economic growth and find a path to economic stability. (The truth is that in our society we can never really say that you can no longer achieve the American Dream because our economy is forever changing and as long as that holds true their is hope) f:\12000 essays\business & economics (632)\The Future Of Currency.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Future Of Currency The Future of Currency In the present day, the world's economy is ever-changing and adjusting. Many different reasons control the reasons for this. The future of currency is something that can only be predicted and is not guaranteed. However, there are many determing factors behind the changes that can take place. Asia and North America are two continents that have economies that have recently changed or are in the midst of change. World War 2 drew a hard blow and left a serious and lasting effect to many Asian countries. This however, did not hamper the growth of countries such as China, Japan and Vietnam as their governments were taking serious steps to recover economically. Thus, the global market cannot deny a place for these 'Asian Dragons', because these countries are growing at a tremendous pace to the extent of being capable in emerging as global market leaders. China's capitalism and boom was born when their president, Deng Xiaoping permitted the provinces to dismantle their communes and collective farms. This led China to venture into free-market economics, although they were still under the communist political system. When President Deng announced that they needed Western money and expertise, China flung their trade doors wide open and China went on a capitalist drive without ever looking back. By mid 1960's, the Chinese Revolution settled down to the job of ruling China. Its main goal was essentially nationalist: a prosperous modern economy. While there continued to exist substantially economic inequalities, distribution of wealth was probably a bit more equal than in most Western countries. (Moise 171) While there were great variations in income between different villages, and between different jobs in the urban sector, the overall averages showed a clear pattern: the cities were much richer than the countryside. Most capital investments were going into urban industries. The urban workers, using considerable amount of heavy machinery, had a much higher average level of productivity compared to the rural workers. The natural consequence was, for the city people, an average income level twice as high as that of the people in the countryside. The most obvious way to attack this poverty problem was to increase production, in all sectors of the economy. Though the easiest way to increase production was to increase capital inputs, China could only afford a limited amount of capital construction. In accordance to this, China went on a construction binge. Whole factories were purchased from abroad while others were built with local resources. By 1978, the frenzy for new projects reached a level that reminded some people of the Great Leap Forward. In an effort to promote agricultural production, the government released many of the restrictions on the 'spontaneous capitalist tendencies' of the peasantry. (173) In the late 1980's, the government decided to expand the scope of private marketing. The next step was to increase the amount land assigned to the peasants. The peasants were now not responsible to the government for the use they made to the private plots. They simply could grow what they wished, for the sale to the government or to private markets. This led to furious rebuilding and inflow of foreign investments. All this enabled China to remake itself into Asian's hub of finance, trade and culture. By 1984, they were producing more than $1 million worth of rice and a range of side products, including rice wine. Their residential earning was up to about $200 a year. (Prager 52 ) This meant that they could begin replacing their mud-and-straw hats with solid brick houses. Shanghai today is a vast construction site with more than 20,000 projects, with 27,000 companies building bridges, tunnels, flyovers, ring roads, hotels, villas, golf courses and also public housing. This sparked national growth of about 10% a year.( 53 ) The Chinese now are going home with fat wallets, stocks, bonds and large bank accounts. Banks are reporting that savings have increased sixty-fold and is still growing. This has led China to join the world economic community and has become the globe's third largest economy. China is now ranked 11th in the world in exports of trade goods. (54) Off the coast of China, there was another growing country. Japan recovered tremendously well after the bombing of Hiroshima in World War 2. Under post war conservative governments, Japan made a remarkable economic recovery. American aid of $2 billion gave an initial boost and then the Korean War acted as a further stimulant by creating a demand for military hardware. (Rich 191) By the early 1970's, Japan was the world's third biggest steel producer, one of the biggest ship builders, and ranked very high as a manufacturer of general engineering and chemical goods. Japan's motorcycles were winning import races in Europe, and Japanese cameras, transistor radios, cars, sewing machines, TV sets and optical goods competed successfully in the global market. Japan's economy is second only to the U.S in absolute terms with a G.D.P of $3,385 billion dollars. By 1987, the Japanese were richer than the Americans with per capita income of almost $20,000. ( World 247 )This was because the Japanese saved five times as much from their paychecks as did the Americans. Lower military spending, a consequence of the Yoshida doctrine, was an essential contributor to Japan's economic advancement. Japan net assets rose to about $1 trillion and thus making Japan effectively the world's banker. In the 50's through to the 70's, the Japanese economy was averaging 11% of growth. (250) The Bank of Japan backed commercial banks in providing capital for investments. Economic growth rates were the highest in the world based on high levels of savings and investments, rapid productivity growth and remarkable social consensus. Japan was willing to forego immediate reward for long term benefits. Therefore, in large sections of world manufacturing, notably electronics, Japanese producers had no rivals. Manufacturing was the mainstay of the economy, improving quality and price. Japan has continually upgraded its economy and shifted from heavy industry with high-energy requirements to high technology, high value added industries such as semi-conductors, industrial robots and computers. Japanese manufactures than began investing heavily in foreign countries because of it's own rising yen. This massive outflow of money pushed many Japanese financial institutions to the top of the global financial markets. Japan was also the world largest importer of agricultural products where 60% of its food is imported. (Rich 192). If counted based on efficiency however, per unit of land, Japan is the most efficient in the world. Greater prosperity lead to a big demand for consumer goods. Western style clothing became very common and wheat products, meat and vegetables took the place of rice in many Japanese dishes. Scotch whiskey was now drunk in place of the traditional sake. The Japanese people now wanted to acquire more twentieth century gadgets - color televisions, electric sewing machine, washing machines, motor cars and so on. Western sports became very popular - in the 70's, there were already about 7,000 golf courses. By September 1986, the Japanese had a massive current account surplus of $10 billion U.S dollars. ( World 251). All this was a result of deep government planning, growth with high depreciation allowance, cheap loans, subsidies and light taxes. The Japanese recovery from its defeat in the Second War presents a truly remarkable story of persistence, determination and hard work by an entire population, and considerable financial and diplomatic skill. Vietnam was the latest among these countries to emerge as a 'gold mine'. This was set back by the Vietnam War in the 60's and the 70's. The war practically crippled the country's economy. Vietnam's economy grew based on a five-year plan system. This has brought moderate success in repairing of three decades of war on infrastructure, forest and farmland. By the mid-1980's, the government began to liberalize in an attempt to encourage new resources. In 1987, businesses were given tax breaks in their first year, some companies were allowed to obtain bank loan and set their own prices while exporters were authorized to borrow foreign currency to import raw materials. There were higher cash incentives for peasants and workers. This lead farmers to earn almost 40% profits. ( Gibney 47). The government too began awarding bonuses and piece-rate wages to reward hard workers. In 1988, there were new investment laws that attracted overseas capital. The main investors were Taiwan, Australia, France, Hong Kong, the United States and also, Malaysia. In 1989, as communism seemed to be collapsing elsewhere in the world, Vietnam flung open its doors to foreign investment. The economy has been growing at an annual rate of 7% to 8% over the past three years. In February 1994, when the U.S. dropped its 19-year trade embargo, aid and investment began to flood in. (49). This led jetstreams of investors into Vietnam. Western companies such as Coca-Cola, AT&T, and Motorola all invested heavily in the country. This lead Vietnam to grow very fast. Population continued to grow by about 1 million a year. By the 1990, the country's exports were up to about $800 million U.S dollars while imports totaled nearly $1 billion.( World 157). Vietnam's most lucrative business were oil and gas. In addition, it is in this sector of the industry that attracted the most attention of foreign investors. British Petroleum was the first western firm to make a significant contribution to Vietnam's growing economy. Tourism has helped Vietnam grow too. The Vietnamese government were promoting tourism in an effort to earn more hard currency. In addition, Vietnam succeeded in exporting 1.69 million tons of rice making it the third largest exporters of rice in the world. (Moise 49). From the border with China in the north to the rice mills of the Mekong Delta in the south, Vietnam is humming with activity. Hong Kong investors have been allowed to open a casino near Haiphong, and Westerners are bidding to develop tourist sites along the scenic coast of Vietnam. Hanoi, long a city of bicycles and moldy old colonial edifices, is now rich in motorcycles and office buildings. In Ho Chi Minh City, as Saigon is now called, the April 30 parade marking the end of the war will be set against a landscape bristling with billboards and construction cranes. ( World 159). All this has brought Vietnam to grow at a tremendous rate and there is no denying that soon Vietnam will become a distinctive force in Asia. The country's recovery after the Vietnam War shows a truly dedicated nation determined to wealth, success and most all, a better life for all the Vietnamese. This research has shown that these 'Growing Asian Dragons' are a force to be reckoned with in the near future as these countries are developing at breakneck speed. China, even before the merging with Hong Kong, is currently the center of attraction in the business world. Japan has already established itself and become the most influential partner in the business world. The 'youngest' of them all, Vietnam, is already beginning to stamp its mark in South East Asia and soon, without doubt, throughout the world. The free trade argument states that, if each nation produces what it does best and permits trade, over the long run all will enjoy lower prices and higher levels of output, income, and consumption that could be achieved in isolation. On the Western Continent of North America, money has begun to drastically change as well. The North American Free Trade Agreement (NAFTA), implemented in January of 1994, created a situation in North America in which there are no taxes on most products imported and exported between the three countries. Ideally, the governments of Canada, the U.S. and Mexico believed that breaking the trading barriers would increase jobs and other things as it bettered each of their economies. NAFTA, however, has not necessarily helped the economies in the way in which the governments had projected. There was much speculation before the signing of the treaty that NAFTA would not work out the way it was projected to. Some economists believed that one major problem which NAFTA would create, as opposed to what the governments thought, is loss of jobs. "In Canada and the United States, much of the political opinions against NAFTA has centered around the low wage rates in Mexico and the possibility of jobs being moved south of the Rio Grande River." It had seemed obvious for some that many wealthy factory owners would move to or expand in Mexico, resulting in thousands of lost jobs. As well, this would clearly create more exports for Mexico, and less exports for Canada and the United States. However, in the eight months after the implementation of the agreement, Canada had exported 33.2% more to Mexico and imported 31% more from Mexico than usual. This may show that Canada still exported more to Mexico then it imported from them, but, one must think that when the agreement! was first implemented, exports to Mexico may have included factors of production, businesses, etc. If so, these exports will have soon leveled off and jobs would be lost in Canada as businesses moved to Mexico. This has been seen to be case with the United States. "Although U.S. exports to Mexico have grown since NAFTA went into effect, the Administration's [Clinton's] own numbers show that imports from Mexico have gone through the roof; a U.S. trade surplus of $1.7 billion in 1993 spiraled downward into a deficit of $15.4 billion by 1995." Not only has NAFTA caused a loss in jobs in all three countries, but it has also caused a decrease in job benefits for workers in Canada and the United States. Before NAFTA went into effect, the corporate group USA*NAFTA claimed that "NAFTA itself will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment." However, this proved not to be the case. In actuality, NAFTA has given corporations more power to lower wages and decrease working conditions. "The most direct method is through 'whipsaw bargaining,' or threatening to shift production to Mexico unless workers agreed to concessions." In a situation where one's job is at risk, one must accept wage and benefit cuts. It seems as though since the implementation of NAFTA, workers rights have diminished. Even though productivity growth has occurred in many corporations, "In Canada, as well as in the U.S., real wages are stagnating and the proportion of full-time workers living in poverty continues to grow." There should never be any workers, let alone full-time workers, living in poverty. In Canada as in any country, poverty should not exist among the working class. This is definitely not the case in Mexico where NAFTA has slammed the middle class back into poverty. Another thing which NAFTA affects is the environment. NAFTA supporters promised that the agreement would lead to increased investment in environmental cleanup and less maquiladoras along the U.S.-Mexico border. However, many communities still lack access to both water and sewage systems. "Today, only 10 percent of Mexico's yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers." Maquiladoras are plants owned by foreign companies which send raw materials to Mexico for assembly. NAFTA has eliminated the duty on the importation of those goods back to Canada and the United States. NAFTA has caused an increase in the amount of maquiladoras. This has caused an increase in the amount of pollution in Mexico. NAFTA has taken emphasis away from the global environment as it puts the production of goods and exportation first. If workers aren't healthy, are we not headed for lower levels of production? This is without even mentioning the possibilities of a continent-wide epidemic. How can our economy be healthy if our people aren't even healthy? Now, we shall look at the benefits of the North American Free Trade Agreement to the Canadian economy, as well as those of the other two countries. First of all, NAFTA has eased the creation of new coalitions which cross borders and political party lines, "...and embrace constituencies as diverse as workers, farmers, environmentalists, consumers and religious groups." "Canada's Bank of Montreal has launched the first mutual fund, to be marketed in all three countries, targeting companies poised to cash in on the North American Free Trade Agreement." Companies such as Bombardier who have constructed plants in Mexico are prime candidates of this mutual fund. Mexico's economy has gotten a little better. Canadian and U.S. companies invested $2.4 billion in Mexico in the first eight months of 1994, accounting for 55% of Mexico's total foreign direct investment. This is good for the Mexican economy in the long-term as well as in the short-term. In the long-term, these investments will lead to more exports. Corporations from Canada and the U.S. build plants in Mexico, and export those goods from Mexico back into the Canadian and United States economy. Another thing NAFTA does is as it creates a "trinational superpower;" it becomes appealing to foreign investors. For example, Toyota Motor Co. built a $450 million expansion in Ontario to make Corollas for the North American market. Foreign countries want to invest and build plants in North America to get in on the North American market with less angst. It not only costs less for Canada, the U.S. and Mexico to trade, but it costs less for any foreign corporation with a factory in North America. As well, these new plants in Canada mean more jobs available for Canadian citizens. Another advantage NAFTA gives to the Canadian economy is higher productivity levels. Canadian corporations with plants in Mexico produce goods at lower costs. Canadian corporations benefit with these low production costs, due to low hourly work wages in Mexico. Canadian corporations had not been so eager to build factories in Mexico prior to the implementation of the agreement due to the tariffs which must be paid when the goods crossed the border. In the future, NAFTA will continue to hurt the North American continent while the countries China, Japan, and Vietnam will continue to flourish economically and socially. The advent of NAFTA not only proved to be ineffective, but also detrimental to the three North American countries. The money that the Untied States spent on the economies of the Asian continent has helped them thrive and exist as a global economic power. The future of the economies of all the countries rests on the ability to make the changes necessary to promote self gratification. Works Cited Anderson, Sarah. et al. "NAFTA: Trinational Fiasco." The Nation July 15, 1996: 26-29 Carbaugh, Richard G. International Economics. U.S.A.: Wadsworth Publishing Company, 1989. Dentzer, Susan. "The Pain and Gain of Trade." U.S. News Sept. 1992: 62+. Harbrecht, Douglas. et al. "What Has NAFTA Wrought? Plenty Of Trade." Business Week Nov. 21, 1994: 48-49 Lewis, Charles, and Margaret Ebrahim. "Can Mexico and Big Business USA Buy NAFTA?" The Nation June 14, 1993.hout the world. Gibney, Frank. "Vietnam: Back In Business." Time. April 24, 1995 Volume 145. No 17: 47-49 Mcgeary, Johanna. "The Next China." Time. March 3,1997. Vol. 149. No. 9. Moise, Edwin E. Moise "Modern China, A History." The Economic Growth. New York: Longman, Inc., 1986: 165-181. Prager, Karsten. "China: Waking Up To The Next Superpower." Time. March 25, 1996. Volume 147. No 13: 51-54. Rich, Joe. "Japan Since The Occupation." Asia's Modern Culture. 2nd Ed. Sydney: Longman Inc., 1980: 190-193 "The World of Information.Asia & Pacific Review,1995." 14th Ed. London: Kogan Page Publishing: 153-256 f:\12000 essays\business & economics (632)\The Glass Cileing.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Glass Cileing "You've Come a Short Way, Baby!" Professor Diana Bilimoria hit it on the nail when she proclaimed, "Even when women do all the right things, and have all the right stuff, they continue to be blocked from the innermost circles of power" (Daily). The increasing number of working women with an education and experience in the business world continue to encounter this blockade mentioned by Professor Bilimoria. Suzanne M. Crampton and Jitendra M. Mishra find that the promotions to managerial positions achieved by women have, unfortunately, not kept up with the increase of women in the work force. This barrier that keeps women from promotions is called the glass ceiling. "Glass ceiling is a term coined in the 1970's to describe the invisible artificial barriers, created by attitudinal and organizational prejudices, which bar women from top executive jobs" ("Glass Ceiling Separates Women for Top"). Robert B. Reich, Secretary of Labor, informs his readers that the expression "glass ceiling" first appeared about ten years ago in a column entitled "Corporate Women" in the Wall Street Journal" (iii). Since the mid to late eighties, the term has been applied to identify situations where women have bumped their heads in efforts to reach high-level positions. One source reports that the results of a Labor Department study prove that the "glass ceiling" prevents women from achieving promotions in management and leadership positions (Crampton). Women's "highest levels tend to be in staff positions, such as human resources, or research or administration, rather than line positions, such as marketing, or sales, or production" (Reich iii). Crampton finds that out of all management positions of modern organizations women hold only sixteen percent of them. Even worse, women reside in 4 percent of the highest-level positions in management and administration (Crampton). Even with the help of affirmative action, the glass ceiling still does not shatter. Affirmative action was developed in reaction to the Civil Rights Act of 1964. The Civil Rights Act declared that discrimination on the basis of race, religion, or sex was illegal. The President's call for affirmative action acted as a catalyst for the Civil Rights Act. The Random House Dictionary defines affirmative action as "the encouragement of increased representation of women and minority members, especially in employment." With the establishment of affirmative action women have gained advancements and prestige in the business world; however, the phenomenon known as the glass ceiling hinders women from achieving promotions to high-level positions in corporate America. Similar to how the government recognized affirmative action as a solution to enforcing the Civil Rights Act, it recognized the need for a solution to the glass ceiling situation. Reich believes that due to the efforts of Secretary Elizabeth Dole and Secretary Lynn Martin "the Department of Labor became closely involved in identifying and publicizing the glass ceiling problem" (iii). Senator Bob Dole proposed the Glass Ceiling Act in order to address the situation. The Glass Ceiling Act designed a commission, known as the Federal Glass Ceiling Commission, to study and propose means for eliminating the glass ceiling (iii). Fortune magazine periodically ranks and publishes a list of America's largest companies. Many women advocates use these reports as tests to see where women stand in the selected companies. Crampton reports "of the Fortune 50 companies, only 1.3 percent of corporate officers are women, while 1.7 percent are women within the Fortune 500 companies. Among two-hundred of America's largest companies, women hold less than a quarter of executive jobs and less than five percent of the vice-presidents are women." One may think well at least women have broken through the glass ceiling and that advancements have been made. However, in the past ten years no more than two women have served as CEO's for a Fortune 500 company (Daily). The number of women who serve on the boards for these major corporations "comprise a relatively modest percentage of all board members" (Daily). A catch-22 is established because most male board members once served as CEO's, and that experience is sometimes an unestablished rule to becoming a board member. If few women can make it to the top, how will women ever make it on the boards? The women that are board members usually serve on more than one, or two boards; the statistics are unable to convey that the same few women make up that "modest percentage" (Daily). Kaufman relays that the Bureau of Labor estimates that in five years women will make up forty-eight percent of the American work force. Advocates for women's progression in business occupations would hope that with the increase in working women, the number of women in CEO positions would also increase. Unfortunately, this view does not seem too promising. In Fortune magazine's survey of America's largest companies "only sixteen indicated that they thought it very likely or somewhat likely that their company would have a female CEO within the next ten years, while eighteen percent believed it was very likely within the next twenty years" (Crampton). Several key factors hold fast the glass ceiling and prevent women from progression. Discrimination against women still plays a large part in enforcing the artificial barrier. Crampton reported that a recent study found that 79 percent of the CEO's believed that "prejudice and stereotypes are among the most identifiable barriers to women's advancements." "Discrimination can occur in the form of organizational structure policies, informal networks, and cultures that are so male-dominated that they become barriers for women to rise in the organization" (Crampton). Women can hope that over the next couple of years discrimination will begin to disintegrate, which will allow for more penetration through the glass ceiling. Even though women cannot control the prejudices held by men, women can try to break and rid of the gender stereotypes. By disproving that not all women fit the stereotypes, career women may be able to aid their advancement to higher positions. "Females are often thought of as being dependent, passive, fragile, non aggressive, non competitive...women lack career commitment, ate not tough enough, don't want to work long and unusual hours, are too emotional, won't relocate, lack quantitive and analytical skills and have trouble making decisions" (Crampton). Since men and women's characteristics differ in certain aspects, the male-dominate business world believes that woman lack the "qualities that are considered beneficial to be effective managers, and traditionally masculine traits have a higher perceived value" (Crampton). Women are not even given chances because of pre-established beliefs even when they may be more qualified and better educated than their male counterparts. This situation occurs more often than not, and companies create excuses that will appear legitimate. Catherine M. Daily informs that when Mr. Preston, the CEO of Avon, resigned, numerous top female executives within the company possessed the qualities and experiences to fill the vacancy. However, the board elected an outside director, Charles R. Perrin, to replace Preston (Daily). Even though discrimination and stereotypes essentially preserve the barriers, other factors contribute to their upholding. Another controlling factor that reinforces the glass ceiling is the lack of mentors. Women's biological features, which men do not possess also hinders women from reaching high-level positions. "Women have to deal with the complexities of the dual role as working woman and mother" (Crampton). Even though women almost make up half of the work force, they alone are still expected to carry out all of the household chores and duties. Most women leave work only to go home and run around, clean and cook. "Combining of a family and a career and the behavioral expectation placed on woman" at times seems impossible (Crampton). Sources Cited Crampton, Suzanne M and Jitendra M. Misha. "Women in Management." Public Personnel Management 28.1 (Spring 1999): 87-107. (Epscohost) Daily, Catherine M., and Dan R. Dalton. "Cracks in the Glass Ceiling?" Directorship 25.3 (March 1999): 4-7. (Epscohost) "Glass Ceiling Separates Women from Top." Worklife Report 11.1 (1997): 15. Kaufman, Laura. "Women CEO's See the Sky through Glass Ceiling." Westchester County Business Journal. 38.20 (17 May 1999): 15-17. (Epscohost) Reich, Robert B. "The Glass Ceiling Fact-Finding." Message from the Chairman. Cornell U. 5 Feb. 2000. áhttp://www.irl.cornell.edu/library/e_archive/Glass Ceiling/ñ. f:\12000 essays\business & economics (632)\The Global Economy .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Advanced Composition Term Paper: Will the Global Economy help or hurt the next generation of Americans? Will the global economy help or hurt the next generation of Americans? This is the question I am going to investigate in this paper. The global economy is the system pertaining to the production, distribution and consumption of goods and services around the globe. It is important that we understand the global economy because it is and will be affecting the way we learn, work and live. How all of these factors are affected will be discussed in the following paper. I take the position that the global economy will hurt the next generation of Americans. One argument for this position is that our schools are not adequately preparing out students for the types of new work that will be required in the next generation. American schools are using teaching techniques that taught existed in the 1950's. Textbooks date back to the early 1970's. Requirements may have changed but our reaching techniques have not. Every year, students take the same courses with the same prerequisite: A good memory. True, they are teaching classes that are essential to get into a good college but are they teaching the skills that our future generation will need? Are students going to be able to problem solve? Are today's students going to be able to access tomorrow's information? Our schools teach American students to be good at memorization. To be able to spit out recorded information. "You do have the knowledge but you are basically robots with skin; machines, tape recorders that teachers use to record their information. At the end of a chapter, they rewind you and press the 'play' button to see if you can repeat everything they said."1 Also, our schools are not stressing the importance of math and science. Because of this fact, foreign born workers such as engineers are taking over the jobs American workers could have. Our students need to be truly smart because memorized skills can only go so far. Grades cannot always determine the real skills of the students. Anybody can receive a diploma but what do these grades really mean? Not much unless a student can apply their memorized skills for the new way of work. "Just possibly we have a surplus of graduates and a scarcity of real skills."2 The improvement of our educational system, not the number of degrees we hand out, is the only way the next generation can thrive in the global economy. An objection to this position is that our school system is preparing our students in the best way possible. First, we really can't blame the schools for lack of supplies or updated technology. Quite possibly our teachers are the ones who are not prepared and we certainly can't expect schools to do everything. School is simply a basis for learning. "The true inputs to education are students, hard work, quality teaching and rigorous standards and parental engagement. When these are missing money and reorganization can't compensate."3 Also grades in some ways do represent how ambitious a student is about school and whether they get work done on time both of which are qualities of a good worker. High schools in the United States are better than you think. " In the most recent international comparison of reading, which was done in 31 nations, American kids finished second to Finland."4 "We have an evolutionary process where we are getting better and better..."5 Yet the following argument can reply to the latter objection. Our schools may be better than we think but are they good enough to prepare our students for the new way of work? What I mean by this is being able to use technology, apply real life skills and think on their own. Reading and math skills may be second out of 31 nations but what you may not know is "23% of Americans don't finish high school compared to Japans 2%"6 Also, "American students attend school the least amount of days (180 in fact) compared to other economically strong countries such as Britain's 192 days, Japan's 243 and Germany's 290 days."7 So, we have the highest drop out rate and we spend the least amount of time in school. These numbers could explain why our students are behind intellectually with other countries. This could mean our economy may suffer as well. What can we do to improve this though? Already, more colleges are "lowering admission standards so more kids will attend"8. This means our students can pick their schools and school will compete for good students. If we use more technology this will enable students to access information that was not currently available. Businesses should also be involved in helping our schools because today's students are tomorrow's workers. They are the future doctors, lawyers and engineers. "Schools aren't day care centers or churches or scout troops. Their primary mission isn't to teach our children how to drive a car, play football, cook meals, avoid pregnancy or prepare them for marriage, their main job is to teach them academic skills that will enable our kids to earn a living and contribute to a vital nation."9 A longer school year with more emphasis put on math and science and an "increase in the intellectual challenge of courses"10 is the only way America's students will be able to compete and succeed in the global economy. A second position as to why the global economy will hurt the next generation of Americans is due to the arising and already prospering information revolution. due to the changes in technology, the next generation of Americans, "the people presently in their teens and 20's, will be the first generation in America to have a lower standard of living than their parents."11 The facts are all over, either we keep up with the changing world or get out of the way. Technology will pass them by. "New technology replaces workers or companies turn to corporate downsizing to save money"12 "American companies are moving production overseas using new technology to replace workers"13 The evidence is all there, every year more than a half a million good jobs are eliminated by the nation's most prestigious companies. "Workers are going to have to improve their skills or get new ones altogether so they can stay ahead of the game"14 The gap between man and machine needs to decrease. "By the year 2010 or 2015, computer literacy will be no more remarkable than telephone literacy today. Nearly every skilled job will require it."15 Because so many companies are downsizing and merging, this will result in a decrease of jobs and an increase in employment. "The price of beating overseas competition has been bitterly high; wave after wave of corporate downsizing layoffs, wage increases limited or foregone and the replacement of full time workers for part time or temporary hired hands."16 Due top the fact that many people will be out of full time jobs this means more people will be working two part time or temporary jobs." People holding two or more jobs constitute 6.1% of the labor force; more than the unemployment rate."17 Many workers complain this is exhausting. An auto plant worker in Michigan is being asked to do the work of two people, he says, "If somebody retires, all they do is take the work and give it to somebody else."18 This is a similar situation for a worker at a nearby telephone company who says, "I'm doing the work of three people, by the time I get home all I have time for is a shower, dinner and a little sleep and then it's time to do it all over again."19 Another change that the information revolution has caused is the growing number of people working at home. "Home based businesses employ roughly 14 million people nationwide. Nearly 2/3 of these businesses employed, 5.6 million were full time and 8.4 million part time."20 But whether you work for a company or are self employed, part time and temporary workers only draw wages not benefits. So this in the end, a loss of benefits and overworking will result in a lower standard of living for Americans which in turn can only hurt the next generation and the global economy. Yet an objection to this argument would be that the information revolution does not play a major role in our global economy. The unemployment rate is the lowest its been in five years and downsizing "increases productivity or output per worker hour that has helped make the US number one."21 The new work changes are creating jobs, not destroying them. "Despite the persistence of unemployment, the US is still creating about two million jobs per year net and that puts it well ahead of some of the competitors"22 "President Clinton likes to note that 2/3 of the nearly forty million Americans with no health care live in families with full time workers"23 So really full time workers might not be better off after all. Jobs are growing and this is especially noticeable in Oakland county in Southeast Michigan. "Last year in 1994, 9,000 jobs were added and a U-M study predicts 47,000 more jobs will be created next year."24 With all these new job creations our economy will only grow and succeed into the future. A reply to this objection though would be that despite all the job creations, people are still going to be working two or more jobs that have no benefits. The job creations may sound positive but it won't change the standard of living that "generation X" is going to face. "Falling wages have put he traditional American family into play as the one earner middle class family becomes extinct. With children needing ever more costly education's for ever longer periods of time, the cost of supporting a family is rising sharply just as earnings plunge. Mothers are going to have to work longer hours if the family is going to have it's old standard of living."25 This means that people are going to have to work twice as hard for the same quality of living. This also means a constant upgrading of skills necessary for peak job performance. "Important efforts should be better education and a committed and constant upgrading of skills. Our future is a more educated one rather than a cheaper one. Technological revolutions in the past have consistently led to gains in production, commerce, employment and living standards."26 Yet if workers don't improve their skills and constantly upgrade them, shrinking the gap between man and machine, this revolution will be detrimental to the welfare of our workers, their families and most importantly the global economy. Despite all the information on how the global economy will hurt the next generation of Americans, there are also ways in which it will help the next generation. My objection to my original position; that is the global economy will hurt the next generation of Americans is that it will instead help them due to the new ag f:\12000 essays\business & economics (632)\The Great Atlantic and Pacific Company of Canada.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1559 "The Great Atlantic and Pacific Company of Canada is committed to providing both employees and customers with a safe and healthy working and shopping environment. All reasonable efforts will be made to eliminate hazardous conditions and unsafe practices from the workplace". We will be examining how Dominion takes precaution to protect workers, provides information, instruction and supervision to workers to protect their health and safety, and how they advise workers of potential or actual hazards in the workplace and how to deal with them. We will also look at the actions taken when there is an accident, and audits and inspections that are involved to protect and correct areas in the company. Taking precaution in circumstances for the protection of a worker is accomplished through many different ways. For example, Dominion provides the butchers with metal gloves and aprons to protect them from a knife slipping and cutting them. The also provide the Photo lab with protective goggles, a splatter apron and plastic gloves to protect them from having hazardous chemicals spilling on them that may cause serious damage to their skin or eyes. To protect their workers and customers we wet floor signs are provided to warn people to walk with caution. The employees are provided with clip-on ties, which is a cautionary measure that is taken so that we are not strangled if our ties get caught. Every department has an eye wash station and a first aid kit that are provided so that an injury may be given attention to right a way to prevent any further damage. Taking precaution helps to minimize accidents and protects the employer because the equipment is provided and therefore should be use, and if the equipment is not used and training was provided then that employee is at fault. The employees are provided with information, instruction and supervision to protect their health and safety. Some examples are the signs that are posted up in our lunch room and in our departments to keep us informed and reminded about the proper ways of lifting heavy items, proper standing posture, and exercises that can be done to reduce injury. We are also provided with WHIMS, food handling and cooking training to protect our employees and customers. WHIMS' training is for our photo lab employees that are dealing with the chemicals from the machine. The fool handling and cooking training is provided to all the employees that work with foods. Managers are also there to protect and correct our actions that we may be taking that could harm us in some way. We also have a health and safety committee that meets once a month to go over the accidents that occurred and how they could have been prevented. They are also there to remind employees of unsafe actions that they may be taking during their work. For example, if someone from the health and safety committee sees that you are using a milk crate instead of a step stool they will remind you of the purpose of using a step stool and why the milk crate is so unsafe to use. Supplying employees with information, supervision and instructions on health and safety helps to minimise accidents and protect the workers from serious dangers that may occur just from handing a situation in the wrong way. Advising workers of any potential or actual hazards in the workplace and how to deal with them is done in many different areas. First, our photo lab is enforced to label all chemicals and keep them in a locked chest so that we can identify them in a case of a spill. Second, warning signs are place on bailers and compactors to instruct workers on how to operate the equipment properly and of any potential hazards that may be involved. We are also not allowed to use any cleaning supplies other than the ones that are supplies to us from head office. The reason is so that we know what is in these products and in case of contact with our eyes, we know what is in the product and how to treat the injury. Advising workers on what is in the store and how to deal with a problem is very important in reducing injury and helping us to deal with problems if they were to occur. Informing workers of what chemicals and dangers that are around the work place helps to reduce the number of accidents and miss use of items. The actions taken when a customer or worker is injured is very important and must be complete immediately. Dominion has 3 types of incidents and accidents form. The first type is the customer incidents and accidents form. This form is completed when there is a personal injury, a product damage, bleach or property damage. A personal injury is when the customer is injured within our store. A product damage is when a product purchased from our store and caused damage such as an illness. A bleach damage is when bleach is involved in the incident, for example when bleach leeks in a car we are responsible for the damages. A property damage is when damage occurs to a vehicle due to a shopping cart for instance. There are two other forms that are completed when there is an employee accident. The first form was just introduce this year which is an incident details for first aid only. This form is only a one-page form, which is filled out if the worker does not go to the Doctor. This form allows us to report first aid incident in a more convenient and faster way. The second form is completed when the worker must seek medical attention. The employee, any witnesses, and the doctor must fill out this form. Our duty managers are informed and responsible of making sure that all accidents are reported and filled to our head office. The store manager is then to follow up within 24 hours of the accident. These procedures help to protect Dominion from claims that may be made following any accident. Our accidents for this year is very bad, we have approximately 2 employees accidents every month. Our head office audits Dominion every year and it may also have an inspection by the Ministry of Health at any time. The head office audit is very extensive and important to the company. The audit is done on every department and every area of that department. For example, the bakery department is audited on the cooler cleanliness and temperature, the prep area cleanliness and use of gloves in preparing foods, the cleanliness of the mixers and authorised chemicals for cleaning. The report is then given to the store manager and it is then his responsibility to have the areas cleaned up that may need the attention. Our last audit was done February 3, 1999 and our store rating was a pass, which is 94-85%. The number one concern was the use of J cloths for cleaning, and deep cleaning was required in our bakery and meat department. Once our manger received this audit we had to complete the corrective action and keep up with this action. The Ministry of Health also inspects us; our last inspection was on May 3, 1999. There were 5 items that were not in compliance, and were corrected immediately. These audits and inspections are reassuring to the worker to know that we are working in a healthy environment and they also remind us of the correct ways of cleaning and handling foods. Overall Dominion complies with the occupational health and safety act. However there are a few issues. First our health and safety committee does not recognise some of the actions that are taken by employees that may be dangerous. For instance, our grocery department will stand on our product trucks so that they can reach the top shelf. They will also wheel themselves down the isle so that they do not have to get up and down from a stool. This I find is very unsafe and our store manger does not say anything to these employees nor does our health and safety committee. This sort of action should not be allowed and there should be consequences if you are caught using the trucks in that matter. The manger does not take health and safety seriously until head office comes into the store and this really effects how others look at the matter. If the manger will not participate in making sure that the employees are following correct procedure then how is the health and safety committee suppose to enforce things. We are a very clean store and this is due to the audit and inspections. If it were not for these audits I could see our store falling into a bad situation. It is reassuring that there is a responsibility put on the manger to comply with regulation and procedures so that we do work in a safe and healthy environment. f:\12000 essays\business & economics (632)\The Great Depression 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Great Depression All these changes affects the society in different ways .The Great Depression caused many people to destruct businesses and led the government to regulate the businesses and economic affairs. All this increased regulation led to the widespread belief that the government should promise or guarantee citizens a good life, and high employment. After the depression, many people no longer trusted employers to protect workers. As a result labor unions gained more members and grater public acceptance then ever before. Depression makes some people lose there faith in government which then brings them to not believe anybody who promises a change. Can anyone tell me who you think was the two leaders that actually took part during the depression was? (show overhead of the fifth paragraph) Leaders who actually took power during the depression were Adolph Hitler and Benito Mussolini who of which was the dictator of Italy from 1922 to 1943 just like Hitler was dictator of Germany from 1933 to 1945. Relation between the nations suffer during a depression. Basically each country tries to protect its own interests without concerns of other nations. Depression hurt a lot of people, especially working people who lose there jobs. Bank failures clean out some depositors savings if funds are not ensured. When there was the depression, most people can not meet the house or apartment payments so they lose there homes and become homeless. During a depression some people must live on charity just to support themselves and there families. Sometimes the people who get the charity money, clothes, and food get kind of embarrassed that they need the money and they feel ashamed that they can't afford to support themselves which is basically not their fault. The Great Depression caused lots of marriages and birth rates to decline. If you were a younger person and you didn't have a job you would delay your wedding until you have enough money to pay for it just because of the depression. Most of the time when your unemployed for a long time you lose faith in yourself and in the future. After a depression many people value security more than anything else. Some people profit from the depression, like people with enough money can buy businesses, stocks, or other property for a very low price. From what I hear economists disagree on what causes depressions and how they are or can be prevented .Some economists believe that psychological factors such as peoples optimism or pessimism, determine decisions to save or spend. Several theories maintain that population changes or inventions cause periods of expansion and contractions-(depression or recession). When immigration or higher birth rates cause a population to grow, demands tends to increase. When population growth slows down, demands drop by huge amounts. Such inventions as the automobile and color television spur business investments and consumer spending, causes expansion. After demand for these products has been satisfied, spending drop offs resulting in contraction. Still other theories suggest that during expansion, business invest too heavily in buying. The expanded role of the federal government came to be accepted by most all Americans by the end of the 1930's. Even republicans who had bitterly opposed the new deal shifted there stance. Wendle Wilkie the republican president nominee in 1940 declared that he couldn't oppose reform such as regulation of the security markets and the utility holding companies, the legal recognition of unions, or social security and unemployment allowances. What bothered him so much and not just him but other critics was extensions of the federal bureaucy. In March of 1933 president Roosevelt declared "There is nothing to fear but fear itself." The great depression was the worst economic slump ever in the U.S History, and one which spread to virtually all of the industrialized world. ( show second paragraph of overhead) However, the main causes for the depression was the combination of the greatly unequal distributions of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle - class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize. Another main cause of the great depression happened during the roaring twenties. The "roaring twenties" was an era when our country prospered tremendously. The nation's total realized that the income had rose from 74.3 billion dollars in 1923 to 89 billion dollars in 1929. However, the rewards of the "coolidge prosperity" of the 1920's were not shared evenly among all Americans. According to a study done by the Brooking Institute, in 1929 the top .1 percent of Americans had a combined income equal to the bottom 42 percent. That same top .1 percent of Americans in 1929 controlled 34 percent of all savings, while 80 percent of Americans had no savings at all. ( show third paragraph of overhead) This might have sounded very confusing so I made an overhead showing what I explained. A major reason for this large and growing gap between the rich and the working - class people was that the increased manufacturing output throughout this period. From 1923 - 1929 the average output per worker increased 32 percent in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8 percent. Thus, wages increase at a rate as fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923 - 1929 corporate profits rose 62 percent and dividends rose 65 percents. The large and growing disparity of wealth between the well - to - do and the middle - income citizens made the U.S. economy unstable. This made the economy function poorly which also lead to the great depression. For an economy to function properly, total demand must equal total supply. In an economy with such disparate of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satisfied could not afford more, whereas the wealthy were satisfied by spending only a small portion of their income. ( show overhead of fourth paragraph) Through such a period of imbalance, the U.S. came to rely upon two things in order for the economy to remain on an even keel which helped to decrease the chances of going through the depression: credit sales, and luxury spending and investment from the rich. One obvious solution which might have stopped the depression was to let those who wanted goods to buy the products on credit. The concept of buying now and paying later caught on quickly. By the end of the 1920's, 60 percent of cars and 80 percent of radios were bought on installments credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from 1.38 billion dollars to around 3 billion dollars. Installment credit allowed on to "telescope the future into the present", as the president's committee on Social Trends noted. This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when the "future" arrived, there was little to buy that hadn't already been bought. In addition, people could no longer use their regular wages to purchase whatever items they didn't have yet, because so much of the wages went to paying back past purchases. The U.S. economy was also reliant upon luxury spending and investment from the rich to stay afloat during the 1920's. The significant problem with this reliance was that luxury spending and investment were based on the wealth's confidence in the U.S. economy. If conditions were to take a downturn ( as they did with the market in fall and winter 1929) , this pending and investment would slow to halt. While savings and investment are important for an economy to stay balanced, at excessive levels that are not good. Greater investment usually means greater productivity which were not being distributed equally, the problems of income distribution were only made worse. Lastly, the search for ever greater returns on investments lead to wide - spread market speculations. So far, all these causes of depression might not be familiar with you but, they could affect the economy in great ways and that is why the Us. Economy has studied these causes so that they are prepared for the future. All of the causes that I have listed above are just the few causes to the Great depression. In fact, there are lots of other minor or major causes. Can anyone at least name one cause. (show overhead of main causes). To understand the Great Depression, it is important to know the theories of John Maynard Keynes. (show overhead of sixth paragraph) Keynes is known as the "Father of modern Economics" because he was the first to accurately describe some of the causes and cures for recessions and depressions. In a normal economy, Keynes said, there is a circular low of money. MY spending becomes part of your earnings, and your spending becomes a part of my earnings. For various reasons. However, this circular flow can falter. People start hoarding money when times become tough; but times become tougher when everyone starts hoarding money. This breakdown results in recession. To get the circular flow of money started again, Keynes suggested that the central bank-in the U.S., the Federal Reserve System - should expand the money supply. This would put more money in people's hands, inspire consumer confidence, and compel them to start spending again. A depression, Keynes believed, is an especially severe recession in which people hoard money no matter how much the central bank tries to expand the money supply.(show overhead of seventh paragraph) In that case, he suggested that government should do what the people were not: start spending. He called this "priming the pump" of the economy. Indeed, most economists believe that only massive U.S. defense spending in preparation for World War II cured the Great Depression. (Show overhead of Chart) 3.20 % Hoover era, Great Depression begins 24.9 FDR, New Deal begins; contraction ends, March 19. Recession begins, May As you can see, Roosevelt began relatively modest deficit spending that arrested the slide of the economy and resulted in some astonishing growth numbers. When 1936 saw a phenomenal record of 14 percent growth. Roosevelt eased back on the deficit spending, overly worried about balancing the budget. But this only caused the economy to slip back into a recession, as the above chart shows. I have been unable to find reliable economic growth figures from World War II, but as a generalization it is safe to say the economy exploded, experiencing it's greatest growth in the U.S history. Between 1940 and 1945, the GDP nearly doubled in size, form 832 billion dollars to 1559 billion dollars in constant 87 dollars. And this occurred as deficit spending soared, to levels Keynes had earlier and unsuccessfully recommended to Roosevelt. f:\12000 essays\business & economics (632)\The Great Depression.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Great Depression All these changes affects the society in different ways .The Great Depression caused many people to destruct businesses and led the government to regulate the businesses and economic affairs. All this increased regulation led to the widespread belief that the government should promise or guarantee citizens a good life, and high employment. After the depression, many people no longer trusted employers to protect workers. As a result labor unions gained more members and grater public acceptance then ever before. Depression makes some people lose there faith in government which then brings them to not believe anybody who promises a change. Can anyone tell me who you think was the two leaders that actually took part during the depression was? (show overhead of the fifth paragraph) Leaders who actually took power during the depression were Adolph Hitler and Benito Mussolini who of which was the dictator of Italy from 1922 to 1943 just like Hitler was dictator of Germany from 1933 to 1945. Relation between the nations suffer during a depression. Basically each country tries to protect its own interests without concerns of other nations. Depression hurt a lot of people, especially working people who lose there jobs. Bank failures clean out some depositors savings if funds are not ensured. When there was the depression, most people can not meet the house or apartment payments so they lose there homes and become homeless. During a depression some people must live on charity just to support themselves and there families. Sometimes the people who get the charity money, clothes, and food get kind of embarrassed that they need the money and they feel ashamed that they can't afford to support themselves which is basically not their fault. The Great Depression caused lots of marriages and birth rates to decline. If you were a younger person and you didn't have a job you would delay your wedding until you have enough money to pay for it just because of the depression. Most of the time when your unemployed for a long time you lose faith in yourself and in the future. After a depression many people value security more than anything else. Some people profit from the depression, like people with enough money can buy businesses, stocks, or other property for a very low price. From what I hear economists disagree on what causes depressions and how they are or can be prevented .Some economists believe that psychological factors such as peoples optimism or pessimism, determine decisions to save or spend. Several theories maintain that population changes or inventions cause periods of expansion and contractions-(depression or recession). When immigration or higher birth rates cause a population to grow, demands tends to increase. When population growth slows down, demands drop by huge amounts. Such inventions as the automobile and color television spur business investments and consumer spending, causes expansion. After demand for these products has been satisfied, spending drop offs resulting in contraction. Still other theories suggest that during expansion, business invest too heavily in buying. The expanded role of the federal government came to be accepted by most all Americans by the end of the 1930's. Even republicans who had bitterly opposed the new deal shifted there stance. Wendle Wilkie the republican president nominee in 1940 declared that he couldn't oppose reform such as regulation of the security markets and the utility holding companies, the legal recognition of unions, or social security and unemployment allowances. What bothered him so much and not just him but other critics was extensions of the federal bureaucy. In March of 1933 president Roosevelt declared "There is nothing to fear but fear itself." The great depression was the worst economic slump ever in the U.S History, and one which spread to virtually all of the industrialized world. ( show second paragraph of overhead) However, the main causes for the depression was the combination of the greatly unequal distributions of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle - class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize. Another main cause of the great depression happened during the roaring twenties. The "roaring twenties" was an era when our country prospered tremendously. The nation's total realized that the income had rose from 74.3 billion dollars in 1923 to 89 billion dollars in 1929. However, the rewards of the "coolidge prosperity" of the 1920's were not shared evenly among all Americans. According to a study done by the Brooking Institute, in 1929 the top .1 percent of Americans had a combined income equal to the bottom 42 percent. That same top . 1 percent of Americans in 1929 controlled 34 percent of all savings, while 80 percent of Americans had no savings at all. ( show third paragraph of overhead) This might have sounded very confusing so I made an overhead showing what I explained. A major reason for this large and growing gap between the rich and the working - class people was that the increased manufacturing output throughout this period. From 1923 - 1929 the average output per worker increased 32 percent in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8 percent. Thus, wages increase at a rate as fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923 - 1929 corporate profits rose 62 percent and dividends rose 65 percents. The large and growing disparity of wealth between the well - to - do and the middle - income citizens made the U.S. economy unstable. This made the economy function poorly which also lead to the great depression. For an economy to function properly, total demand must equal total supply. In an economy with such disparate of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satisfied could not afford more, whereas the wealthy were satisfied by spending only a small portion of their income. ( show overhead of fourth paragraph) Through such a period of imbalance, the U.S. came to rely upon two things in order for the economy to remain on an even keel which helped to decrease the chances of going through the depression: credit sales, and luxury spending and investment from the rich. One obvious solution which might have stopped the depression was to let those who wanted goods to buy the products on credit. The concept of buying now and paying later caught on quickly. By the end of the 1920's, 60 percent of cars and 80 percent of radios were bought on installments credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from 1.38 billion dollars to around 3 billion dollars. Installment credit allowed on to "telescope the future into the present", as the president's committee on Social Trends noted. This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when the "future" arrived, there was little to buy that hadn't already been bought. In addition, people could no longer use their regular wages to purchase whatever items they didn't have yet, because so much of the wages went to paying back past purchases. The U.S. economy was also reliant upon luxury spending and investment from the rich to stay afloat during the 1920's. The significant problem with this reliance was that luxury spending and investment were based on the wealth's confidence in the U.S. economy. If conditions were to take a downturn ( as they did with the market in fall and winter 1929) , this pending and investment would slow to halt. While savings and investment are important for an economy to stay balanced, at excessive levels that are not good. Greater investment usually means greater productivity which were not being distributed equally, the problems of income distribution were only made worse. Lastly, the search for ever greater returns on investments lead to wide - spread market speculations. So far, all these causes of depression might not be familiar with you but, they could affect the economy in great ways and that is why the Us. Economy has studied these causes so that they are prepared for the future. All of the causes that I have listed above are just the few causes to the Great depression. In fact, there are lots of other minor or major causes. Can anyone at least name one cause. (show overhead of main causes). To understand the Great Depression, it is important to know the theories of John Maynard Keynes. (show overhead of sixth paragraph) Keynes is known as the "Father of modern Economics" because he was the first to accurately describe some of the causes and cures for recessions and depressions. In a normal economy, Keynes said, there is a circular low of money. MY spending becomes part of your earnings, and your spending becomes a part of my earnings. For various reasons. However, this circular flow can falter. People start hoarding money when times become tough; but times become tougher when everyone starts hoarding money. This breakdown results in recession. To get the circular flow of money started again, Keynes suggested that the central bank-in the U.S., the Federal Reserve System - should expand the money supply. This would put more money in people's hands, inspire consumer confidence, and compel them to start spending again. A depression, Keynes believed, is an especially severe recession in which people hoard money no matter how much the central bank tries to expand the money supply.(show overhead of seventh paragraph) In that case, he suggested that government should do what the people were not: start spending. He called this "priming the pump" of the economy. Indeed, most economists believe that only massive U.S. defense spending in preparation for World War II cured the Great Depression. (Show overhead of Chart) 3.20 % Hoover era, Great Depression begins 24.9 FDR, New Deal begins; contraction ends, March 19. Recession begins, May As you can see, Roosevelt began relatively modest deficit spending that arrested the slide of the economy and resulted in some astonishing growth numbers. When 1936 saw a phenomenal record of 14 percent growth. Roosevelt eased back on the deficit spending, overly worried about balancing the budget. But this only caused the economy to slip back into a recession, as the above chart shows. I have been unable to find reliable economic growth figures from World War II, but as a generalization it is safe to say the economy exploded, experiencing it's greatest growth in the U.S history. Between 1940 and 1945, the GDP nearly doubled in size, form 832 billion dollars to 1559 billion dollars in constant 87 dollars. And this occurred as deficit spending soared, to levels Keynes had earlier and unsuccessfully recommended to Roosevelt. f:\12000 essays\business & economics (632)\The Greek Economy 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Greek Economy Agriculture The Greek economy depends a lot on agriculture. One quarter of the Greek workforce is engaged in farming, and agriculture constitutes about 15% of the domestic production. Not much attention has been drawn on the agricultural sector of the economy. The farms are pretty small, the division of inheriting land has reduced the average size to 3,4 hectares (8 acres) and it is really difficult to use mechanised equipment efficiently. Yields are also low due to the dryness and erosion of the soil. Let's take a look at the yearly output of some major crops: tobacco 142000, wheat 2.6 million, tomatoes 1.9 million, oranges 780000, corn 2.1 million, sugar beet 1.9 million, grapes 1.6 million, olives 1.5 million, potatoes 850000 and cotton 222000. Livestock included some 10.8 million sheep, 3.5 million goats, 800000 head of cattle, 31 million poultry and 1.2 million pigs. Forestry and Fishing The Greek government owns the two-thirds of the forestland and has materialised her plans i.e. to replace the trees that were destroyed during World War II. About 2.9 million cu m of timber were annually cut in the late 80's and approximately the 75% of the harvest was hardwood. Fish exports are limited because of the widespread consumption of fish products within Greece. However in recent years thousands of tons of fish are exported each year, due to the ever increasing development of fish farms in the country. In the late 80's the annual catch totalled 135000 tons, from which 80% was consumed within Greece. Sponges are the main marine product exported. Mining Mining is of little importance to the Greek economy. We should mention though the annual output of minerals in tons: bauxite 2.3 million, iron ore 1.3 million and magnesite 884400. Also, about 279200 cu m of marble were quarried. Petroleum, salt, chromium, silver, zinc were also produced. Manufacturing Approximately one fifth of the Greek workforce is engaged in manufacturing, which contributes 18% of the annual gross production. The manufactured products include: food, beverages, tobacco, textiles, clothing, chemicals, cement and wine. Athens is the manufacturing center of Greece. Currency and Banking The national currency of Greece is drachma. The central banking institution is the Bank of Greece. The biggest banks of Greece are the National Bank of Greece, with 470 domestic branches and the Agricultural Bank of Greece with 420 branches. Foreign Trade Generally Greece spends each year much more on imports than it receives from exports. This "imbalance" is offset to a certain extent by tourist revenues and by remittances from Greeks living abroad. In the 80's the imports totalled 3 trillion drachmas and exports earned 1.5 trillion drachmas. The imports were mostly machinery, petroleum and chemicals. The main exports were fruits and vegetables, clothing, textiles and furs, beverages and tobacco, petroleum products, non-ferrous metal, iron and steel. The principal trade patterns were: Germany, Italy, Great Britain, France, the Netherlands, the United States and Japan. The countries of the European Union account for more that 60% of Greece's yearly total trade. Tourism Greek economy depends a lot on tourism. Due to the many archaeological places and buildings, the sun, the blue sky, the sea and the Mediterranean climate, many people visit each year Greece. In the late 80's 8.1 million tourists visited Greece. The receipts from tourism were totalled 300 billion drachmas. Bibliography: "Encarta" Encyclopaedia, 'Greece', Microsoft, 1996 f:\12000 essays\business & economics (632)\The Greek Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Greek Economy Agriculture The Greek economy depends a lot on agriculture. One quarter of the Greek workforce is engaged in farming, and agriculture constitutes about 15% of the domestic production. Not much attention has been drawn on the agricultural sector of the economy. The farms are pretty small, the division of inheriting land has reduced the average size to 3,4 hectares (8 acres) and it is really difficult to use mechanised equipment efficiently. Yields are also low due to the dryness and erosion of the soil. Let's take a look at the yearly output of some major crops: tobacco 142000, wheat 2.6 million, tomatoes 1.9 million, oranges 780000, corn 2.1 million, sugar beet 1.9 million, grapes 1.6 million, olives 1.5 million, potatoes 850000 and cotton 222000. Livestock included some 10.8 million sheep, 3.5 million goats, 800000 head of cattle, 31 million poultry and 1.2 million pigs. Forestry and Fishing The Greek government owns the two-thirds of the forestland and has materialised her plans i.e. to replace the trees that were destroyed during World War II. About 2.9 million cu m of timber were annually cut in the late 80's and approximately the 75% of the harvest was hardwood. Fish exports are limited because of the widespread consumption of fish products within Greece. However in recent years thousands of tons of fish are exported each year, due to the ever increasing development of fish farms in the country. In the late 80's the annual catch totalled 135000 tons, from which 80% was consumed within Greece. Sponges are the main marine product exported. Mining Mining is of little importance to the Greek economy. We should mention though the annual output of minerals in tons: bauxite 2.3 million, iron ore 1.3 million and magnesite 884400. Also, about 279200 cu m of marble were quarried. Petroleum, salt, chromium, silver, zinc were also produced. Manufacturing Approximately one fifth of the Greek workforce is engaged in manufacturing, which contributes 18% of the annual gross production. The manufactured products include: food, beverages, tobacco, textiles, clothing, chemicals, cement and wine. Athens is the manufacturing center of Greece. Currency and Banking The national currency of Greece is drachma. The central banking institution is the Bank of Greece. The biggest banks of Greece are the National Bank of Greece, with 470 domestic branches and the Agricultural Bank of Greece with 420 branches. Foreign Trade Generally Greece spends each year much more on imports than it receives from exports. This "imbalance" is offset to a certain extent by tourist revenues and by remittances from Greeks living abroad. In the 80's the imports totalled 3 trillion drachmas and exports earned 1.5 trillion drachmas. The imports were mostly machinery, petroleum and chemicals. The main exports were fruits and vegetables, clothing, textiles and furs, beverages and tobacco, petroleum products, non-ferrous metal, iron and steel. The principal trade patterns were: Germany, Italy, Great Britain, France, the Netherlands, the United States and Japan. The countries of the European Union account for more that 60% of Greece's yearly total trade. Tourism Greek economy depends a lot on tourism. Due to the many archaeological places and buildings, the sun, the blue sky, the sea and the Mediterranean climate, many people visit each year Greece. In the late 80's 8.1 million tourists visited Greece. The receipts from tourism were totalled 300 billion drachmas. Bibliography: "Encarta" Encyclopaedia, 'Greece', Microsoft, 1996 f:\12000 essays\business & economics (632)\The History and Taxonomy of Game Theory.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The History and Taxonomy of Game Theory The History and Taxonomy of Game Theory Contents Introduction and Brief History I - Static Non-Cooperative Games 1. Strategic Normal Games 2. Bayesian (Incomplete Information) Games II - Dynamic Non-Cooperative Games 1. Strategic Extensive Games 2. Imperfect Information Games 3. Finite Repeated Games 4. Infinitely Repeated Games 5. Dynamic Bayesian Games III - Coalitional Games 1. Simple Objection (TU, NTU, Core) 2. Stable Objection (Stable Sets) 3. Balanced Objection (Bargaining Set, Kernel, Nucleolus, Shapley Value) 4. Bargaining (NBS, Rubinstein) IV - Summary/Glossary of Important Terms and Concepts V - Some Useful Game Theory Books Introduction and Brief History Game Theory has emerged recently as a powerful challenger to the conventional method of examining economics. Although many illustrious predecessors worked on problems in what can be called "game theory", the fundamental, formal conception of game theory as part and parcel of economic theory were first organized in John von Neumann and Oskar Morgenstern's 1944 classic, Theory of Games and Economic Behavior (1944) which used the "maximin" solution concept derived earlier by John von Neumann (1928) to solve simple strategic normal games. Game Theory can be roughly divided into two broad areas: non- cooperative (or strategic) games and cooperative (or coalitional) games. The meaning of these terms are self evident, although John Nash claimed that one should be able to reduce all co-operative games into some non-cooperative form - a position that became known as the "Nash Program". Within the literature, a distinction can also be made between "normal" form games (static), and "extensive" form games (dynamic) as well as by the type of informational structure assumed. John von Neumann and Oskar Morgenstern originally visualized game theory as a more "General Theory of Rational Behavior" (the original working title of their 1944 book). The main issue about game theory is that instead of agents making decisions as reactions to exogenous "prices" or some other "dead variable", their decisions are strategic reactions to other agents' actions ("live variables"). An agent is faced with a set of moves he can play and will form a strategy, a best response to his environment, which he will play by. Strategies can be either "pure" (play a particular move) or "mixed" (random play). A "Nash Equilibrium" will be reached when each agent's actions begets a reaction by all the other agents which, in turn, begets the same initial action. In other words, all best responses of all players are in accordance with each other. They then went on to introduce the strategic normal game, strategic extensive game, and the concept of pure/mixed strategies and coalitional games. The axiomatization of expected utility theory that they provide in their initial chapter was to be an extraordinary impetus for the later axiomatization of Neo-Walrasian theory. In 1950, John F.Nash introduced the concept of a "Nash Equilibrium" (NE), which became the organizing concept underlying most of Game Theory - even though the concept was actually known from as far back as Cournot (1838). Nash followed this up in 1951 with the concept of a "Nash Bargaining Solution" (NBS) for coalitional games. Then the floodgates opened around Nash Equilibrium. In the field of non-cooperative games, R. Duncan Luce and Howard Raiffa (1957) provided the first popular textbook on Game Theory and, in it, they formalized the idea of the Iterated Elimination of Dominated Strategies (IEDS) method for Strategic Normal Games. i.e. the method of finding Nash equilibria by ruling out strategies which are obviously "worse" in a precise sense. They also introduced the concept of "Repeated Game" (static games which are played several times over by the same people). H.W. Kuhn (1953) introduced extensive games with "imperfect information" (i.e. where one does not know what moves have already been played by other players). William Vickrey (1961) provided the first formalization of "auctions". Reinhard Selten (1965) developed the concept of a "Sub-game Perfect Equilibrium" (SPE) (i.e. elimination by backward induction) as a refined solution for extensive form games. John C. Harsanyi (1967-8) developed the concept of a "Bayesian Nash Equilibrium" (BNE) for Bayesian games (i.e. games with incomplete information - where there is some uncertainty surrounds the moves, or "nature plays"). In coalitional (co-operative) games further refinements also occurred. Lloyd Shapley (1953) introduced the concept of the "Shapley Value" and the "Core" (which had been originally conceived by Edgeworth (1881)) as solutions to Coalitional Games. Throughout the early 1960s, Robert J. Aumann and Martin Shubik began to apply Game Theory extensively throughout economics (e.g. industrial organization, general equilibrium, monetary theory, etc.) as well as invent several solution concepts for Coalitional Games (e.g. Bargaining Set, Strong Equilibrium), develop theorems for "large games" with infinite players, as well as provide some early statements of the "Folk Theorems" (solution concepts for Repeated Games). David Schmeidler (1969) developed the "Nucleolus" solution to Coalitional Games. Further developments emerged in the 1970s. John C. Harsanyi (1973) provided a remarkably insightful new interpretation of the concept of a "mixed strategy". Robert J. Aumann (1974) defined "Correlated Equilibrium" for Bayesian Games while Reinhard Selten (1975) introduced "Trembling Hand Equilibrium" for Bayesian Games. Further definitions came: Robert J. Aumann (1976) formally defined the concept of "Common Knowledge", opening a floodgate of literature on the concept of "knowledge" whereas B.D. Bernheim (1984) and D.G. Pearce (1984) formalized the concept of "rationalizability". Advancements continued apace: David M. Kreps and Brian Wilson (1982) introduced the concept of "Sequential Equilibrium" (SEQE) for extensive games with imperfect information while Ariel Rubinstein (1982), following the "Nash Program", transformed the co-operative Nash Bargaining Solution (NBS) into a non-cooperative Strategic Extensive Game. Elon Kohlberg and Jean-Francois Mertens (1986) developed the concept of "Forward Induction" for extensive games. Drew Fudenberg and E.S. Maskin (1986) developed one of the more complicated "Perfect Folk Theorems" for infinitely repeated games. Finally, J.C. Harsanyi and R.Selten (1988) developed the idea of "equilibrium selection" for any type of game while Drew Fudenberg and Jean Tirole (1991) developed the "Bayesian Perfect Equilibrium" (BPE) for Extensive Bayesian Games. Evolutionary Game Theory started its development slightly later - although it can be thought of as part of the Nash Program. Its objective is to apply the concepts of non-cooperative game theory to explain such phenomena which are often thought to be the result of cooperation or human design - i.e. "institutions" and "conventions" such as market formation, price mechanisms, social rules of conduct, money and credit, etc. One of the earliest exponents of the theory of evolutionary games was Thomas C. Schelling (1960, 1981) who argued that apparently "cooperative" social institutions (in this case, settlements to conflicts) are maintained by essentially by "threats" of punishment and retaliation. Several Nobel Prizes have been awarded to some of major figures of Game Theory: the Nobel was shared by John Nash, J.C. Harsanyi and R. Selten in 1994 and William Vickrey in 1996. Herbert Simon won the Nobel in 1979 for concepts (e.g. bounded rationality) which have since been incorporated into the corpus of (Evolutionary) Game Theory. Type I - Static Non-Cooperative Games Also called "normal-form" games or games where everyone plays "at once". (1) Strategic Normal Games Is the most familiar game. The basic structure of which is as follows: · N agents · Each agent has a set of actions, Ai. · Each agent forms preferences over the set of "joint actions" A (= product of Ai) an "outcome" of a game depends on what everybody plays. Thus, a payoff to a player i depends on all N players' actions. Strategy: A strategy is a choice of action by the individual; each agent then constructs a best response function to all other possible configurations of actions of his opponents. We have two types: (1) Pure Strategy = deterministic play e.g. "I play left always". (2) Mixed Strategy = Randomized play, e.g. "I play left half the time and right the other half depending on a flip of a coin in my head." Equilibrium: Nash Equilibrium (NE) - which means no one has incentive to change strategy - whether mixed or pure. Examples: Prisoner's Dilemma, Cournot Duopoly. Notes: In the old (and sometimes new) days, solutions to problems were solved not by "Nash Equilibrium" but by "Iterated Elimination of Dominated Strategies" (IEDS) (i.e. ruling out choices that are simply unreasonable until we reach some solution). To do this effectively, it often requires "assuming" the other person is rational too. Thus, from this literature, we have the concept of a "Rationalizable" Strategy (one that makes "sense" given our beliefs about our opponents' knowledge and rationality) as well as formal definitions of "Mutual Knowledge" and "Common Knowledge". The issue of "stability" of the Nash equilibrium becomes more important in this context. (2) Bayesian (Incomplete Information) Games Also called Bayesian normal games or "incomplete information" games. The structure of this game is the same as the static strategic normal game presented before, except now there is external randomness, i.e. "nature" plays too ("chooses" a state of nature randomly) and that affects the outcome and thus payoffs. So, preferences are defined not on the set of "joint actions" but rather on "joint actions" combined with "state space" (space of possible states of the world, e.g. [rain, shine]). Thus the essential components are: · Preferences are formed over "lotteries" (probability distributions over set of joint actions) as opposed to sure outcomes. Strategy: For the individual, a strategy is now a function from the state space to the action space. So, a pure strategy in this context is not simply "do left" but rather, "If it rains, play left; if it shines, play right." Similarly, a mixed strategy is: "If it rains, play left half the time and right half the time; if it shines, play left one-third of the time and right two- thirds of the time". Equilibrium: "Bayesian Nash Equilibrium" (BNE) which means nobody changes their strategies (but, recall, strategies are now "functions" from a state space). Examples: Auctions, double auctions (i.e. simultaneous bargaining), and other situations of asymmetric information - notably "principal-agent" models. Notes: It's called "incomplete information" because the state of nature that will be realized is unknown. Sometimes "states of nature" are substituted for "types of players". So, you may be a good type or a bad type, but you don't know. At the beginning of the game, nature plays and determines the type of person you are (and the type everybody else is). Then you play your action. But as this is a "static" game, you and nature play at the same time. So what you play is really something like: "If nature tells me I'm a good type, I'll play right; but if nature tells me I'm a bad type, I'll play left." So, "hidden types" are a way of thinking about this. Also: it is assumed that your "type" is uncorrelated with the "types" that nature ascribes to others. If this is not true, then we have a "Correlated Equilibrium" which must be dealt with differently. There is one more note: sometimes we make mistakes in our choices. If there are mistakes, then we have "Trembling Hand Equilibrium" as one which tends to survive such errors. Issues of "mechanism design" (i.e. "principal-agent") which overlaps with much of older economics can also be subsumed under this topic. Type II - Dynamic Non-Cooperative Games Also called "extensive form" games or games where plays are made in succession over time. Thus, it is normally drawn as a "decision tree" where people have their turn to make decisions at different "node". (1) Strategic Extensive Games These are the dynamic equivalent of strategic normal games. In the "decision tree", at every node, someone plays. Thus, an "action" by agent is the action he takes at a particular node (i.e. the "edge" he chooses to move along in the tree). Thus, the components are as follows: · N agents · Each agent has set of "actions" Ai (= actions taken at particular nodes where it is the turn of player i). · Each agent has preferences over the "final payoff" in the final period (where the tree ends up). Strategy: a strategy for a player is a function from every node where he has a move to the actions he can take at that node. Now, we have three types of Strategy: (1) Pure Strategy: e.g. at node 1, play Right; at node 3, play left; at node 5, play Right, etc. A single pure strategy must account for all nodes when that player has a move. (2) Behavioral Strategy: at a particular node, play Right with 50% probability, play left with 50% probability. So a "behavioral strategy" means random behavior at a SINGLE node. It does not need to account for all nodes. (3) Mixed Strategy: A probability distribution over pure strategies (i.e. strategies which account for all nodes). [thus note the important difference between Behavioral Strategy (random at one node) and a Mixed Strategy (at all nodes, or, rather, randomizes over the pure strategies)] Equilibrium: Two types of equilibrium: (1) Nash Equilibrium (NE): nobody deviates from strategy. (2) Sub-game Perfect Equilibrium (SPE): equilibrium by backwards induction (start from the end of the tree and work your way back up and rule out moves that are not credible). Note that an SPE is an NE, but not every NE is a SPE. Note also that the SPE is unique. Also: SPE is always in Pure Strategies and not in Mixed Strategies. Examples: Stackelberg Duopoly, Sequential Bargaining (i.e. Bargaining Game with Alternating Offer). Note: Using IEDS in an extensive form game introduces the concept of "Forward Induction", which is also related to SPE. (2) Imperfect Information Games Note that this is not "incomplete" information, but "imperfect" information. Incomplete information means "nature" plays. Imperfect information means essentially that an agent is at a node, but she doesn't know how she got there. So, she's not really sure what's been played already. Thus "imperfect information" means there are nodes which are "equivalent" to the agent who's turn to play it is (she doesn't know how she got there). A set of "equivalent" nodes is called an "information set". Set up as before in our extensive game (N agents, each play at particular nodes, preferences formed over payoffs at the ends of the tree, etc.) The new components are: Strategy: Strategy is a function from every node (or a class of nodes, i.e. information set - if there are indeed some which are "equivalent") to a set of actions. Equilibrium: NE and SPE both exist, but now it is no longer certain that SPE is in Pure Strategies, i.e. SPE can be in mixed strategies. A new concept of equilibrium exists here too: Sequential Equilibrium (SEQE): This is equilibrium where an agent at an information set forms "beliefs" about the exact node he is in and acts accordingly. So plays Behavioral Strategy at the class of nodes, which are "equivalent", which are consistent with beliefs. ("Beliefs" are Bayesian updated and are "sequentially rational" i.e. logically consistent with past possible actions). This helps eliminate cases where we got several sub-game perfect equilibrium (SPE) but we suspect one makes more sense than the others. (3) Finite Repeated Games Essentially an extensive form game with "simultaneous" moves - i.e. several people play at the same time at a particular node. Thus, it can be viewed a static strategic normal game (e.g. Prisoner's Dilemma), that is now played twice (or more times) instead of once. The number of times played is finite, however. A "payoff" to an agent is the "stream" of earnings a player receives from every time played. · Set up game like a strategic normal game. But then convert to extensive game where players play simultaneously at a node. Strategy: A strategy is a function from nodes to actions - but recall that each "node" is a strategic normal game. A particular strategy can thus be like follows: "at time 1 (i.e. node 1) play Cooperate; at time 2 (node 2), play Defect if my opponent Defected in the previous time but play Cooperate if my opponent played Cooperate in the previous time." Equilibrium: There is a NE and also a SPE. But there might not be a "unique" SPE anymore. Examples: Repeated Prisoner's Dilemma, Bank Run Models. (4) Infinitely Repeated Games Like Finite Repeated Games, except that now we repeat the static normal form game over and over again an infinite number of times. Thus payoffs are an infinite stream of earnings which we form preferences over. Of course, as we play an infinite number of times, then the total stream of payoffs can easily be infinite - thus we need some way of comparing them. There are many ways of "discounting" them into a specific number to compare them: e.g. Limit-Of-Means, Conventional delta-discounting, strict dominance, overtaking criteria. As there is no "end", we can't do "backward induction" and obtain an SPE. Thus, we must resort to so-called "folk theorems". · Nash Folk Theorem: essentially: all agents agree to play a certain sequence of actions. If anyone deviates, then all the other people stop what they are doing and concentrate on punishing the deviant. Then this set of actions is a "Nash Equilibrium" if no one has an incentive to deviate. · Perfect Folk Theorem: here, the threats of punishment must be credible, i.e. deviant must believe others are willing to stop what they're doing and punish him (so no deviation from punishment either). If a punisher doesn't punish, he is punished. So a set of actions which is enforced by this (i.e. no one deviates) and is credible like this, is similar to a Sub-game Perfect Equilibrium. Examples: As Infinitely Repeated Games involved "Cooperation", then we may think of Collusion Models of Industry as example. Other examples include Efficiency Wages, Dynamic Consistency of Monetary Policy, etc. (5) Dynamic Bayesian Games These are extensive form games with incomplete information. Thus, we return to the case of "nature" playing, but in a dynamic context. Like a strategic extensive- form game only that now "nature" plays at certain nodes. A particular realized "state of nature" is an edge that takes us to a new node. Strategy: A player's strategy is a function from nodes to actions (each node associated with an action) as before. Equilibrium: NE and SPE (but now called "Bayesian Nash Equilibrium" (BNE) and "Bayesian Perfect Equilibrium" (BPE)) Examples: Any variety of signaling games (e.g. job market signaling, bank borrower signaling, insurance signaling, central bank "reputation" signaling); cheap-talk games. Type III - Coalitional Games Cooperative or "Coalitional" games are essentially games where "Actions Sets" are available to coalitions of players. The "Nash Program" sets forth the claim that all coalitional games can be reduced to a non-cooperative formulation. Contrary to this notion is what may be termed the "Aumann Program" which argues that non-cooperative games essentially claim that agents' interests are opposed, yet one cannot really say that when there are more than two people, that the interests of all agents are completely opposed to one another: two agents may have a common interest in ganging up on the third. The formal structure of a coalitional game is as follows: · N agents which can be arranged into 2N coalitions. · A coalition S has a set of actions, As, available to that coalition. · Each agent forms preferences over the set of "outcomes" An "outcome" of a coalitional game is two things: the coalitions that form among players and the actions that each coalition will take (the point in the set A = product of As). Thus, a payoff to a player i depends on which coalition (if any) he belongs to, which coalitions have been formed and the joint action of all the coalitions. Strategy: A strategy is a choice of action by the coalition (and not the individual - although the internal stability of a coalition is an issue); each coalition constructs a best response function to all other possible configurations of actions by other coalitions or agents. There are many equilibrium concepts in coalitional games depending on the structure of the game. We divide them into four general types: Simple Objection, Stable Objection, Balanced Objection and Bargaining. The differentiation will become clearer as we move on. I - Simple Objection Coalitional Games In a simple objection game, an equilibrium is broken if any one person deviates ("objects") to the resulting allocation. This is divided into two types: games with Transferable Utility (TU) and games with Non-Transferable Utility (NTU) (1) Coalition Games with Transferable Utility (TU) · Set of agents (N) and possible coalitions (2N) · Value function v(S) which gives total payoff to coalition S which is to be divided within the coalition in a pre-defined way. · A "cohesive" coalition ensures that the value of the payoff to any player in the coalition is greater than the value of the payoff that player would get under any other coalition (including sub-coalitions) or by herself. Equilibrium: The equilibrium concept here is the famous "core". The core is a set of payoffs to each individual which cannot be "blocked", i.e. there is not other coalition S and another allocation feasible to that coalition such that each member of that coalition gets a better payoff than what he would get from the core allocation. (2) Coalitional Games with Non-Transferable Utility (NTU) · Same as before, except that the value function v(S) just gives a total payoff and says nothing about how it is to be divided within the coalition. As a result, when joining a coalition, one is not sure of what exactly one will be getting. The value of a coalition v(S) is thus some set of possible configurations. A game with NTU is thus more general than a game with TU. · There is a set of economy-wide "consequences" (call it X) which an agent can face and thus forms preferences over. v(S) is thus some subset of X. Equilibrium: A Core can still be defined as before. II - Stable Objection Games In our previous game, a deviation by an agent or another coalition would be enough to eliminate an allocation from the Core. However, we did not consider whether that deviation was "stable" in the sense that the allocation they deviate to will itself be deviated from by another renegade coalition which may make the members of the original breakaway coalition worse off. Thus, one may argue that a deviation is not "credible" if it is not ultimately stable. · Structure is the same as in the Transferable Utility (TU) case: a set of agents N and possible coalitions 2N. Payoffs to coalitions are v(S) and they are divided within a coalition in some pre-defined way. · Imputations: a set I is the set of "imputations" of the game. An "imputation" is a feasible allocation where the payoff to each agent in the game is greater than the payoff he obtained when alone in the original game. Thus, we shall refer to allocations as "imputations". · An "objection" by a coalition S is an imputation (i.e. an allocation) such that the value of the original imputation for this coalition is less than the value of the new imputation. v(S) under new imputation v(S) under old imputation. Naturally, a new imputation proposed by S must be feasible for S. Equilibrium: We have two equilibria now: (1) Core: as before - the set of all imputations that are not "objected" to. (2) Stable Set: a stable set Y is a set of imputations such that (i) there is no coalition which objects by moving to an imputation within the set Y (internal stability) and (ii) any imputation outside Y will be objected to by some coalition S with an imputation in Y (external stability). Notes: Essentially, the stable set says that all other allocations outside Y will be objected to by some coalition and no coalition objects to a point in Y. This is like in the core. The major difference is that a stable set is also, like its name indicates, "stable", i.e. effectively all the objections to points outside Y are for points inside Y. Thus, while a point is omitted from the core if a deviation occurs to another point, it can be allowed in the stable set if that second allocation is itself deviated from. Thus, the core is a subset of the stable set. There can also be multiple stable sets in any coalitional game - but they must proper subsets of each other. However, if the core itself is a stable set, then there is only one stable set (i.e. the core itself). Finally, extensions to NTU games are straightforward. III - Balanced Objection Games In our previous cases, a deviation occurs by a single coalition's objection. That is enough to exclude points from the core. The stable set further requires that the point this coalition deviates to will itself not be deviated from. But we have still not considered the possibility that an objection may have a counter-objection. A "counter-objection" is not like that of the stable set - it is not an objection to the point where you deviate to. Rather, it is the suggestion of a different point which is better than the point you deviate to. There are three types of equilibria in such cases: Bargaining Sets, Kernels, Nucleoli and Shapley Values. We are borrowing the objection/counter objection characterization of the concepts by Osborne & Rubinstein (1994). All games are thus TU (although transfers to NTU have been done). (1) The Bargaining Set: · The game is structured as before (TU). · An objection to a point is defined as a pair (x, S) which objects to another allocation y where each member of S is better off in the new allocation. · A Counter-Objection is a pair (z, T) which objects to the proposed objection (x, S) where every member of T is better off under z than x. Note that some members of T could have been in S. · Both an objection and counter-objection in this case is player-to-player. Thus, we should really have said that an objection by player 1 to player 2 is the proposition of a coalition S in which 1 is a member and 2 is not. Similarly, the counter-objection of player 2 to player 1 is a coalition T in which 2 is a member but 1 is not. (Think of it as as bratty brawl: Objection of 1 to 2 "I don't like allocation y, thus I am going to make a coalition S that excludes you where we go to point x"; Counter-objection of 2 to 1: "Well, I don't like that plan. In fact, I am going to make my own coalition T which excludes you and even has some of your friends and go to another point z). Equilibrium: The set B is a "bargaining set" is such that every objection (x, S) to a point in that set has a counter-objection (z, T). Notes: Since each objection and counter-objection must exclude the person you are objecting to, then a "core" is just the set of allocations where no one objects or counter-objects to anybody else. Thus, the core is a subset of the bargaining set. (2) The Kernel: · The game is structured as before (TU). · An objection (x, S) is defined as before (person-to- person), only now we claim that the objection of player 1 against 2 is the formation of a coalition which excludes 2 (who preferred the original point). A counter objection (y, T) by player 2 against player 1 notes that by forming of his own coalition (which excludes 1), the gain of moving from the original point to player 1's proposed x is less than the gain of moving from the original point to player 2's proposed y. By "gain" and "loss" we mean gains and losses of all members of the respective coalition (i.e. gain of coalition/loss of coalition). Equilibrium: "Kernel" which is defined as the set of all allocations such that for any objection by any player against another, there is a counter objection. Notes: The difference between the kernel and the bargaining set is that the objections and counter-objections in the kernel case require us to consider the payoffs of all the members of the coalition and "measure" the total gain/total loss of a coalition's move. Thus, there is a required element of cardinality and cross-person comparisons of utility in kernels. Note that as a result, the kernel is a subset of the bargaining set. (3) The Nucleolus: · The game is structured as before (TU). · An objection (x, S) is now defined as a coalition-to- coalition objection - i.e. an objection by coalition S to a point is the formation of coalition S and a move to point x which which yields higher payoffs to the coalition. A counter objection (y, T) by coalition T against coalition S is the formation of coalition T such that by moving from the original point to S's proposed x, the coalition T suffers a loss and the gain that T would get by staying at the original point and not going to x is greater than the gain S would get by moving to the new point x. Equilibrium: " Word Count: 4877 f:\12000 essays\business & economics (632)\The Hungarian Edition of Cosmopolitan.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Hungarian Edition of Cosmopolitan TABLE OF CONTENTS ABSTRACT 3 OVERVIEW OF THE HUNGARIAN MARKET 3 BACKGROUND 4 DESCRIPTION OF THE PRODUCT 4 THE CONCEPT OF THE PRODUCT 4 PROFILE OF THE TARGET CONSUMERS 5 CURRENT MARKET SITUATION 5 SWOT ANALYSIS 5 PEST ANALYSIS 6 STRUCTURE OF THE MAGAZINE 6 PRICING STRATEGY 7 PROMOTION MIX 7 ADVERTISING 7 SALES PROMOTION 8 PUBLIC RELATIONS 9 CONCLUSIONS 9 APPENDIX 10 LIST OF SOURCES 17 ABSTRACT Primarily based on an interview with Ms. Eniko Horvath, marketing manager of Cosmopolitan Hungary, this case study outlines the historical background of Cosmopolitan international editions and the peculiarities of the Hungarian version. The first issue brought about a revolution in the general approach of women's magazines in Hungary; Cosmopolitan immediately reached a leading market position that it still holds today. The paper discusses the layout and content of the magazine in an attempt to thoroughly describe this product. It illustrates some patterns of the magazine in terms of sales, number of subscribers and number of copies given out freely for promotional purposes. The pricing policy and the promotion mix adopted by Cosmopolitan as parts of its overall marketing strategy, are presented as well. We conclude that Cosmopolitan is a successful business in today's glossy magazines market in Hungary, since each upcoming issue is impatiently awaited by thousands of readers each month. OVERVIEW OF THE HUNGARIAN MARKET In Hungary the first magazines for women were published in the middle of the 19th Century. In the name of emancipation, Hungarian women demanded more women's magazines, fashion and beauty-care products. At that moment there were around 1,500 magazines on the market and their advertisements were mainly done through first-class fashion salons. After World War I, the so-called "feminine" press started to fade away and cultural magazines slowly took over. During the socialist era, a new type of magazines appeared on the Hungarian market and remained dominant for 40 years. One of them is still among the leading Hungarian magazines for women and is called "Nok Lapja". After it's very first issue in 1949, it was declared to be "a good, useful and essential magazine for honest, hard-working Hungarian women" and remained so until the 1960's, when it also incorporated some elements of the Western culture. The economical and political changes which occurred in the past 10 years deeply affected the magazines market. The feminine press made a tremendous comeback, giving birth to newcomers and forcing old magazines to change. At present one can find more than 50 magazines dedicated to women readers. Some of them deal with so-called women issues in general, whereas some specialize in fashion, cooking, needlework and home decorating. "In a market economy, magazines are like any other product", says Andrea Eszes, editor of Cosmopolitan. And products targeting women can make big profits in Hungary. If we just compare how much is spent on advertising each year in Hungary with the budget of the Ministry of Culture or that of the Ministry of National Defense, there is no wonder that this market is a primary business target for investors. The future holds fine prospects to these international glossy magazines that are published all over the world and combine some common characteristics with specific cultural elements of the host countries. But as they emerge and leave cultural magazines behind, they will bear the increasing responsibility of correcting the language usage and promoting visual culture to the public. BACKGROUND Cosmopolitan was founded in 1886 as a magazine for first-class families in the U.S. William Randolph Hearst acquired the magazine in 1905. In the middle of the century sales dropped and the management decided to change the concept of the magazine. Ever since, the Cosmopolitan concept - "the magazine is for young women interested in fashion, beauty, career and sex " has been alive. Helen Gurley Brown, who was appointed Editor in Chief in 1965, approached the idea of Cosmopolitan as a magazine for ambitious, career-conscious young women and even wrote a feminist best-seller. Today there are 37 international editions, making Cosmopolitan the largest selling young women's magazine in the whole world. It has an average of nearly 7 million buyers universally and more than 33 million readers per month. This gives Cosmopolitan the status of the first international first-class magazine. The Hungarian edition of Cosmopolitan was launched in November 1997, in accordance with the agreement between Hearst Corporation/VNU and Erasmus Press Publishing House. DESCRIPTION OF THE PRODUCT CONCEPT OF THE PRODUCT Cosmopolitan is a glossy monthly magazine for women. It has a strong and internationally approved concept, which is tailored for each edition based on specific national characteristics. A visually stimulating magazine, Cosmopolitan speaks the universal language of women everywhere. Cosmopolitan envisions itself as a friend, thus informing, giving advice and offering support to young women in a friendly and personal manner. Its "impossible dream" is to become a lifestyle, to inspire readers to enhance their living patterns and the relationships they enjoy. Cosmopolitan adopts a positive attitude; it is supportive, trendy and imaginative. The Hungarian edition is based on the original U.S. concept bearing in mind the special interests of Hungarian readers. PROFILE OF THE TARGET CONSUMERS The target group of Cosmopolitan comprises young women between 18 and 35 years old, from the A and B social classes, with middle and high income and living in big cities. They are independent-minded, interested in career and quite sociable. Their interests include beauty, fashion, relationships, love and sex. The Cosmo-woman is self-conscious, is striving to achieve more and wants support and encouragement on how to solve her problems. There are around 389,000 women in this demographic category in Hungary. CURRENT MARKET SITUATION SWOT ANALYSIS At present, Cosmopolitan enjoys a monopoly position on the glossy magazines market in Hungary; since November last year, when it was launched here, the only potential competitor has been the German-based magazine "Joy"; however, "Joy" is a conceptually different product that addresses dissimilar issues and thus does not constitute direct competition for Cosmopolitan. This favorable position is translated in an opportunity for Cosmopolitan to turn its readers into faithful consumers in the future. Actually, the premier goal of the Cosmopolitan staff at the moment is to increase of the current average sales volume from around 60,000 to 63,000 units per issue in an attempt to increase the market share. In addition, Cosmopolitan in sold in the whole country, which enables a very good identification and accessing of its target group. Market researches have revealed that more than 60% of its readers are between 18 and 24 years old, whereas 30% of them are males. A potential threat for the magazine will be the increasing competition from other publications to be launched in the near future in Hungary. However, the editorial staff of Cosmopolitan believe other magazines will create a healthy competitive environment, which will ultimately result in better product quality and communication, thus increasing consumer satisfaction. An essential strength lies in the brand image of Cosmopolitan. The targeted readers regard it as a very high-quality product which totally differs from other magazines. It has far more pages, excellent pictures featuring international top-models, and entertaining articles. However, the main weakness of this product is its cost structure; production costs are too high in relation to the viable level of a magazine's price on the Hungarian market and Cosmopolitan could not even afford a cost-based pricing strategy if it wanted to stay competitive in terms of price. At present, Cosmopolitan does not have an Internet web-site for the Hungarian edition. PEST ANALYSIS The launch of international glossy magazines in Hungary was not possible before 1989, therefore the political changes played a significant role in allowing the opening of the newspaper and magazine markets. Due to economic growth, the increasing purchasing power of the population made the Hungarian market an attractive outlet in terms of potential demand for such products. Changes at social level with regard to open-mindedness, career-orientation and eagerness to be trendy and fashionable, constituted additional benefits of this market. Finally, technological advances have allowed publishing houses to execute high-quality printing and produce aesthetically - accomplished products. STRUCTURE OF THE MAGAZINE Each issue consistently includes four equally-sized editorial pillars: beauty, fashion, career and sex. In addition, the magazine includes articles of various lengths, which address issues of special interest to Hungarian readers. Short articles on celebrities, traveling, cooking, health & fitness and decoration are mainly to be found in the first and last few pages. Long articles (sometimes translated and adjusted to the Hungarian environment) build up the body of the magazine. The ratio of Hungarian to international articles is 50-50%. The fashion pillar features 2 fashion stories on 8 pages each. Both Hungarian and international models are used for the shootings: in the first year, 2 covers featured Hungarian models, whereas all the other covers were directly taken from the U.S. editions. Since it was lunched, the structure of the magazine was not significantly altered due to its international status. Some minor changes have occurred in terms of layout and were determined by the ever-changing fashion and beauty trends. Occasionally, Hungarian-customized articles about celebrities, beauty products and fitness tips, are included. The Hungarian culture is not dominant in the magazine due to the fact that Cosmopolitan's intention is to present international trends to Hungarian women. PRICING STRATEGY The price of HUF 395 only covers production and distribution costs. Editorial and miscellaneous costs are supported by means of advertising in the pages of the magazine. Cosmopolitan is highly successful in offering advertising services due to its huge sales volume . In order to keep and even surpass the current market performance, the magazine must stay competitive in terms of price as well; thus, it cannot afford setting a much higher price and losing market share, because important advertisers require a minimum sales volume of 50,000 units per issue so that their ads have a good impact. Moreover, Cosmopolitan offers its advertisers the possibility to promote their products through samples attached to the pages of the magazine (e.g., fragrances, creams, skin foundations, small catalogues etc.). This enables advertisers to reach their target consumers even more effectively. PROMOTION MIX ADVERTISING Cosmopolitan heavily relies on advertising: 60% of all promotional activities are above-the-line activities, whereas 40% take the form of sales promotion and public relations. Due to special characteristics of the target group, it is necessary that in addition to traditional communication channels (TV, radio, billboards), the product is promoted in cinema multiplexes, fitness clubs, beauty salons, hairdressers and restaurants. During an advertising campaign, the feedback from the target audience is evaluated in terms of increases in sales volume, above-the-line GRP's and through panel research. A successful advertising campaign is one that boosts demand and, in turn, sales. Difficulties were encountered in the launch advertising campaign. The Consumers' Protection Office sued Cosmopolitan for the outrageousness of its launch advertising posters; however, the magazine was exempted from paying a penalty fee in the end. This conflict came to the advantage of Cosmopolitan - which demonstrates the validity of the old saying "negative publicity is good publicity". Business-to-business marketing is an area of main concern for Cosmopolitan, which is also challenged with creating a favorable image to its business customers. The advantages offered by Cosmopolitan as an advertising medium itself are as follows: · it fills the existing gap of the glossy magazines in the advertising market; · its quality is guaranteed by the international background; · it has a well-defined target audience who tend to spend a lot of money and can afford the magazine; · its readers believe in Cosmopolitan; · it fits to premium quality products; · it has quality content, layout, paper and printing; · it offers the possibility for various creative units. Cosmopolitan offers discounts on its advertising rates to important business customers, as well as creative possibilities for them to realize their advertisements, such as binding, sticking on a page, inserting, foiling and double covers (for more technical details about business-to-business marketing, see appendix). SALES PROMOTION Cosmopolitan organized a host promotion after its launch, whereby young men offered leaflets and brochures about Cosmopolitan to young women, with the purpose of convincing them to buy the magazine. Additionally, a certain numbers of issues is given out for free to readers on a monthly bases. This also aims at increasing demand. The chart below reveals the patterns of free issues offered to potential readers as a promotional activity: Persuading readers to subscribe and keeping current subscribers are also areas of major concern for Cosmopolitan. At this moment, the magazine has some 1,200 subscribers. Cosmopolitan always has special offers for potential subscribers (they are either able to order a product through the magazine or buy it cheaper from the stores, they are offered extra gifts etc.). Readers do not seem to be very responsive to these initiatives, though . Yet, products advertised in Cosmopolitan are highly successful because of the powerfulness and persuasiveness the magazine emanates to its target consumers. PUBLIC RELATIONS In accordance with other international glossy magazines, Cosmopolitan has organized a fashion show; on that occasion, it invited the TV stations, newspapers and numerous magazines in an attempt to get exposure in these specific channels. However, it is rather difficult for Cosmopolitan to get favorable reviews in other communication media, since all publications and audio-visual instruments are actually competing with each other for an ever-increasing number of consumers. Cosmopolitan is considering sponsoring some beauty and modeling contests next year; it has not done it so far because of the negative image attached to this type of events in Hungary. Unlike other companies such as Coca~Cola and Procter&Gamble, Cosmopolitan has decided not to associate its name with these events yet. CONCLUSIONS An internationally famous glossy magazine, Cosmopolitan is a high-quality product with a clearly-defined brand image and a competitive pricing strategy. Its promotion mix is adequately tailored to persuade and maintain the loyalty of its customers. Our findings once again demonstrate that Cosmopolitan is a highly successful product with a well-defined target group and an increasing market share in Hungary as elsewhere in the world. APPENDIX: BUSINESS-TO-BUSINESS MARKETING Technical details of the magazine: · FREQUENCY: monthly · FORMAT: 205 * 276 mm · PRINT TECHNIQUE: 4 color offset · PAPER QUALITY: 70 gr WC and 170 gr ART · TOTAL NUMBER OF PAGES: between 132 and 164 pages · COVER PRICE: 395 HUF · INTRODUCTION COVER PRICE (1st and 2nd issue): 350 HUF · ESTIMATE SOLD COPIES/ISSUE: 60,000 · ESTIMATED PRINTRUN/ISSUE: 75,000 Advertising rates: SIZE FULL COLOR Cover IV HUF 800,000 Cover II HUF 770,000 Cover III HUF 715,000 1/1 page HUF 550,000 1/2 page HUF 350,000 Discounts: 2-3 pages 2% 4-5 pages 4% 6-8 pages 6% 9-11 pages 8% 12-17 pages 10% The above prices do not include 25%VAT. Information: Erasmus Press Kiadoi Kft. Advertising department Address: 1134 Dosza Gyorgy ut 150 Phone: 361 2703457 Fax: 361 1403709 LIST OF SOURCES 1) INTERVIEW WITH MS. ENIKO HORVATH, MARKETING MANAGER OF COSMOPOLITAN HUNGARY 2) COSMOPOLITAN ISSUES: NOV. 1997 - NOV. 1998 3) SANDOR ZSUZSANNA - HOLGYVALASZ IN: 168 ORA 1998/9 4) MATESZ SUCCINCT PRESENTATION - 1998 5) INTERNET Word Count: 2515 f:\12000 essays\business & economics (632)\The Importance of Planning For A Stereo Manufacturer.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Importance of Planning For A Stereo Manufacturer There have been a continuously developing process of recording, prepare & process, and playback equipment during the last century. This has placed the music in a totally new position in our society. Prior to the 20'th century music was only related to special occasions like concerts and the high festivals. This has changed. Nowadays we listen to music wherever we are, in supermarkets, cinemas, radios, official places and even from small pocketsized players. Earlier all music was live, today almost all music we listen to are recordings. This also states that, the trends in the music industry is ever changing. The development of sound-recording technique has matured a serious audio industry. It contains of a wide spectre of different manufacturers, which often link to each other and to other participants in the music/audio industry. Sale of records became the modern audio industry's launch. Because all record players around the world were standardised, the sale of records had an enormous take off. This made it possibilities to earn a good profit in the music/audio industry, and many different equipment manufacturers arised. The market was, and still is, alive because of the continuing audio developments. Radios, cassette players, CD players, DAT players, minidisk players, etc. give rise to even more sales. In the 1960's the firs stereo recordings were made. Soon afterwards, the industry introduced the notion Hi-Fi (high fidelity) just to make clear how far the development had come. When the cassette tape was introduced in the 1960's, many problems were solved. Now it was possible to produce a recorder which could be used when the surroundings were in motion (i.e. in a car) . Now it was workable to bring the source of music were ever people wanted. The cassette could also record, and was extremely easy to use compered to the LP. Also the cassette became standardised. Later we got DAT, CD, minidisks, etc. which all have brought the audio market a step further. The stereo industry of today is noticed by several manufactures that compete in the same market. Hence that competition is severe and the importance of being in front with design innovation, product consistency, value for money, sound quality and the firm's goodwill, is of greatest importance. This also means that planning is crucial. Planning is something that is arranged beforehand. Worked out in advance to reach a goal. "The ability to determine appropriate objectives:'doing the right thing '. The stereo industry consists of two main segments, the home stereo market and the professional market. Even though many manufacturers operate in both these markets, I will assume that Sonic Wave Ltd. only operate in the home stereo segment. Sonic Wave Ltd. has over the last years achieved a sustained period of dramatic growth and prosperity without use of any strategic plan. However, over the last six months it has seen a decline in sales because of a launch of an innovative range of stereo equipment from an Asian producer. Their main problem is that they do not have a quick response to counter this challenge from Asia. This is because of their lack of planning. As with all industries a mission statement makes the main framework of a firm. In the stereo industry the mission statement is to produce equipment to pass on music to its listeners. Furthermore each firm must decide whom they want to target, and with what sort of equipment they want to target the group. With this as a basis we are able to set a strategic goal. This goal should include our business philosophy; I.e. sound quality, price level, etc. as well as an explanation for the chosen philosophy. It should also include what product range to develop and produce. A clear aim is set. This provides a sense of direction. By setting a goal, one opens the possibility to diversify the resources availible. Both machinery and people have limited resources, which should be used in the most effective way. This also means that controlling becomes more important, but also easier because each employer and employee have clear tasks to perform. If we are about to reach the goals we have set within the deadline, we must know our progression. This information is obtained through control. In order to guide our plans and decisions it is crucial to have a clear goal. To obtain this strategic goal we need a strategic plan (plan designed to meet an organisation's broad goal ). Without a strategic plan it is hardly possible to have a view of the situation. People must know what to be aiming at, whom they shall cooperate with and when a task must be finished. This is quite obvious, but it requires a plan to obtain. A strategic plan is long term. Therefore we must be cautious when developing such a plan. Often it requires a great deal of changes, both financial and personal, to be able to follow this plan. If the organisation must change its strategic goals, which they often have to, their plans also must change. So, this must also be taken into consideration when making a strategic plan. To be successful, we must always be prepared to make changes at all stages in the organisation. Clearly the consequences can be fatal for a firm's existence, if not the development of a strategic plan is done properly. Strategic planning does not involve the actions taken in an organisation from day to day. It is more a scope, or a direction for which the organisation is heading. That is, the top managers in an audio manufactory might say that the firm shall be market leaders in design innovation and sound quality. How to obtain this is set in the operational plan. Operational plans are a short term plans, 'showing how strategic plans will be implemented in day-to-day activities. These plans form a hierarchy of plans that are linked by interrelated goals' . 'Operational plans fall into two general classes, Single-use plans and Standing plans. Single-use plans are designed to be dissolved once they have achieved specific, nonrecurring goals. Standing plans, in contrast, are standardised approaches to handling recurrent and predictable situations' . As mentioned earlier, an organisation must be able to change its plans and it is (normally) this plans that must be changed. In Sonics case there are no plans to be changed, thereby no chance to respond fast to the new range of audio equipment from the Asian producer. Much of the components an audio manufacturer use in their production are imported. That the engineering change and updates are meticulously defined is then important. This requires a 'material requirement planning system', which is another short term plan. The MRP provides easy access to, and visibility of information on the stocks and flows of material within the supply chain and the physical capacities of selected operations. The MRP also includes a short term review of materials required in each operations, and a survey of materials availible. Without the MRP (or a similar system) it is hard to obtain the production control, and to keep on track with the operational and strategic plan. In the electronic manufacturing also the application of just in time manufacturing has resulted in significant benefits. This mainly because these companies used to operate with high work-in-process inventory levels and long lead times. There are also several other important features which is essential to ensue a strategic plan. Achieve greater responsiveness from suppliers on price, frequency of delivery and so on, set-up-time reduction, right firs time production, a streamlined organisation, etc. are such features. It is the combination of all this short term activities that makes up the strategic plan. In the audio manufacturing industry new products are launched quite rapidly. It is not necessarily innovative products, but even product improvements from other manufactures must be considered as a treat. Asian producers have the last 10-15 years been leaders in the home stereo market , both in product innovation and in design. Hence they have obtained quite a goodwill in the market, get higher returns, and thereby they can afford improvements and new product developments. It is of severe importance to keep up with the Asian audio technology. Quick response to changes, and preferably new technology development must thereby be considered as the main goal in the European audio manufacturing industry. This can only be obtained by strategic planning. f:\12000 essays\business & economics (632)\The importance of planning.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ GENERAL PRINCIPLES OF MANAGEMENT - 31.2GM1 THE IMPORTANCE OF PLANNING FOR A STEREO MANUFACTURER BY: ØYSTEIN AULIN Reg,nr. 943778923 HERIOTT-WATT 30/12 1995 THE IMPORTANCE OF PLANNING FOR A STEREO MANUFACTURER There have been a continuously developing process of recording, prepare & process, and playback equipment during the last century. This has placed the music in a totally new position in our society. Prior to the 20'th century music was only related to special occasions like concerts and the high festivals. This has changed. Nowadays we listen to music wherever we are, in supermarkets, cinemas, radios, official places and even from small pocketsized players. Earlier all music was live, today almost all music we listen to are recordings. This also states that, the trends in the music industry is ever changing. The development of sound-recording technique has matured a serious audio industry. It contains of a wide spectre of different manufacturers, which often link to each other and to other participants in the music/audio industry. Sale of records became the modern audio industry's launch. Because all record players around the world were standardised, the sale of records had an enormous take off. This made it possibilities to earn a good profit in the music/audio industry, and many different equipment manufacturers arised. The market was, and still is, alive because of the continuing audio developments. Radios, cassette players, CD players, DAT players, minidisk players, etc. give rise to even more sales. In the 1960's the firs stereo recordings were made. Soon afterwards, the industry introduced the notion Hi-Fi (high fidelity) just to make clear how far the development had come. When the cassette tape was introduced in the 1960's, many problems were solved. Now it was possible to produce a recorder which could be used when the surroundings were in motion (i.e. in a car) . Now it was workable to bring the source of music were ever people wanted. The cassette could also record, and was extremely easy to use compered to the LP. Also the cassette became standardised. Later we got DAT, CD, minidisks, etc. which all have brought the audio market a step further. The stereo industry of today is noticed by several manufactures that compete in the same market. Hence that competition is severe and the importance of being in front with design innovation, product consistency, value for money, sound quality and the firm's goodwill, is of greatest importance. This also means that planning is crucial. Planning is something that is arranged beforehand. Worked out in advance to reach a goal. "The ability to determine appropriate objectives:'doing the right thing '. The stereo industry consists of two main segments, the home stereo market and the professional market. Even though many manufacturers operate in both these markets, I will assume that Sonic Wave Ltd. only operate in the home stereo segment. Sonic Wave Ltd. has over the last years achieved a sustained period of dramatic growth and prosperity without use of any strategic plan. However, over the last six months it has seen a decline in sales because of a launch of an innovative range of stereo equipment from an Asian producer. Their main problem is that they do not have a quick response to counter this challenge from Asia. This is because of their lack of planning. As with all industries a mission statement makes the main framework of a firm. In the stereo industry the mission statement is to produce equipment to pass on music to its listeners. Furthermore each firm must decide whom they want to target, and with what sort of equipment they want to target the group. With this as a basis we are able to set a strategic goal. This goal should include our business philosophy; I.e. sound quality, price level, etc. as well as an explanation for the chosen philosophy. It should also include what product range to develop and produce. A clear aim is set. This provides a sense of direction. By setting a goal, one opens the possibility to diversify the resources availible. Both machinery and people have limited resources, which should be used in the most effective way. This also means that controlling becomes more important, but also easier because each employer and employee have clear tasks to perform. If we are about to reach the goals we have set within the deadline, we must know our progression. This information is obtained through control. In order to guide our plans and decisions it is crucial to have a clear goal. To obtain this strategic goal we need a strategic plan (plan designed to meet an organisation's broad goal ). Without a strategic plan it is hardly possible to have a view of the situation. People must know what to be aiming at, whom they shall cooperate with and when a task must be finished. This is quite obvious, but it requires a plan to obtain. A strategic plan is long term. Therefore we must be cautious when developing such a plan. Often it requires a great deal of changes, both financial and personal, to be able to follow this plan. If the organisation must change its strategic goals, which they often have to, their plans also must change. So, this must also be taken into consideration when making a strategic plan. To be successful, we must always be prepared to make changes at all stages in the organisation. Clearly the consequences can be fatal for a firm's existence, if not the development of a strategic plan is done properly. Strategic planning does not involve the actions taken in an organisation from day to day. It is more a scope, or a direction for which the organisation is heading. That is, the top managers in an audio manufactory might say that the firm shall be market leaders in design innovation and sound quality. How to obtain this is set in the operational plan. Operational plans are a short term plans, 'showing how strategic plans will be implemented in day-to-day activities. These plans form a hierarchy of plans that are linked by interrelated goals' . 'Operational plans fall into two general classes, Single-use plans and Standing plans. Single-use plans are designed to be dissolved once they have achieved specific, nonrecurring goals. Standing plans, in contrast, are standardised approaches to handling recurrent and predictable situations' . As mentioned earlier, an organisation must be able to change its plans and it is (normally) this plans that must be changed. In Sonics case there are no plans to be changed, thereby no chance to respond fast to the new range of audio equipment from the Asian producer. Much of the components an audio manufacturer use in their production are imported. That the engineering change and updates are meticulously defined is then important. This requires a 'material requirement planning system', which is another short term plan. The MRP provides easy access to, and visibility of information on the stocks and flows of material within the supply chain and the physical capacities of selected operations. The MRP also includes a short term review of materials required in each operations, and a survey of materials availible. Without the MRP (or a similar system) it is hard to obtain the production control, and to keep on track with the operational and strategic plan. In the electronic manufacturing also the application of just in time manufacturing has resulted in significant benefits. This mainly because these companies used to operate with high work-in-process inventory levels and long lead times. There are also several other important features which is essential to ensue a strategic plan. Achieve greater responsiveness from suppliers on price, frequency of delivery and so on, set-up-time reduction, right firs time production, a streamlined organisation, etc. are such features. It is the combination of all this short term activities that makes up the strategic plan. In the audio manufacturing industry new products are launched quite rapidly. It is not necessarily innovative products, but even product improvements from other manufactures must be considered as a treat. Asian producers have the last 10-15 years been leaders in the home stereo market , both in product innovation and in design. Hence they have obtained quite a goodwill in the market, get higher returns, and thereby they can afford improvements and new product developments. It is of severe importance to keep up with the Asian audio technology. Quick response to changes, and preferably new technology development must thereby be considered as the main goal in the European audio manufacturing industry. This can only be obtained by strategic planning. f:\12000 essays\business & economics (632)\The increasing application of Scientific Management principl.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 'The increasing application of Scientific Management principles of work organisations to services is, despite its limitations, inevitable and irreversible'. Discuss. ___________ MSc Adam Cossey(c) 'The increasing application of Scientific Management principles of work organisations to services is, despite its limitations, inevitable and irreversible'. Discuss. I Introduction From the outset of this essay it is necessary to define the basic principles of Scientific Management in order for the statement to be fully understood and why if at all such a practice is 'inevitable' and indeed 'irreversible' within a service industry context. The underlying belief that scientific management, or rationalisation= , is able to provide the basis for separating management from the execution of work. 'The rationalisation of work has the effect of transferring functions of planning, allocation and co-ordination to managers, whilst reinforcing the managerial monopoly of decision-making, motivation and control'. Hales (1994). Taylor (1856-1915) has been referred to as the father of Scientific Management. He believed that management, not labour, was the cause of and potential solution to problems in the industry. Taylor concluded that workers systematically 'soldiered' because they believed that faster work would put them out of a job and because hourly or daily wages destroyed individual incentive. Taylor believed that in order to discourage, and indeed halt, this 'soldiering' a 'mental revolution' was required. He believed this could be achieved via four vital principles: (1) the development of the best work method, via systematic observation, measurement and analysis; (2) the scientific selection and development of workers; (3) the relating and bringing together of the best work method and the developed and trained worker; (4) the co-operation of managers and non-managers which includes the division of work and the managers responsibility of work. From this five key facets have evolved that lie at the foundation of scientific management. Hales (1994) has summarised these as follows: - systematic standardised work methods via mechanisation and standard times. - a clean functional division between managers and non-mangers. Braverman (1974) described this as the 'separation of conception from execution'. - centralised planning and control. - an instrumental, low-involvement employment relationship due to the requirement of the individual employee being that of just carrying out their specified low-skilled task. - an ideology of neutral technical efficiency. Industries that have embraced such scientific management methods have essentially deskilled the workforce, often by menial, repetitive tasks, and have attempted to replace workers with machines wherever technically feasible and economic. A classic example of such an application is the Fordist principle of the production line. The remainder of the essay concentrates on the two key aspects of the statement, i.e. that of inevitability and irreversibility. II Are Scientific Management principles inevitable and irreversible within the service industry ? It has been suggested that the principles of scientific management have been widely adopted throughout industry. "The orientation of larger firms towards professional managers, engineers and consultants additionally provided a supportive framework for the rise of Taylorism". Thompson and Hugh (1990) Although this rise has certainly been evident within manufacturing industries the service industry has been slower to utilise the principles of rationalisation. The question must therefore be asked why has the sector been slow on the uptake of these beliefs and could the reason for this provide an argument against the suggestion of the 'inevitability' of the principles within the service industries. For rationalisation to be applied three prerequisite conditions are required: clear and single objective (for example maximising profit); hard data ( for example accounting information); and no more than limited and measurable uncertainties (for example normally distributed machine parts). In general these three conditions do not hold in the service sector. Furthermore the quantities and the types of resources differ greatly from manufacturing industries. Within the service sector there is often more labour and less capital. This 'human emphasis' greatly limits the application of scientific management principles. Targett (1995) has identified seven distinctive characteristics that highlight the limitations of applying scientific management principles and therefore raising doubts over the 'inevitability' of such management practices being used in the service sector. - Measurement of output and performance is difficult. Quality of service cannot be measured solely by easily quantifiable data, such as revenue and sales volume alone. For example, the performance of a health care organisation is a combination not only of financial results and patient throughput but also of quality of care, the effectiveness of preventative measures and many other factors - The 'product' is not tangible. Amongst the many effects of this are that quality control is not straight forward. For example checking the quality of car manufacture is a lot clearer task than checking the quality of service given at a hotels reception desk. - Production and consumption are usually simultaneous. A particular implication of this is that there can be no inventory of the service itself, therefore not allowing 'systematic observation' nor measurement. For example, a shop assistant's advice to a customer cannot be stored. Hales (1994) has suggested that where the end-product is tailored to specific customer wants, the option of 'one best way' is even more difficult to sustain. - The 'product' is time perishable. If a service is not used it is likely to be wasted, again making 'systematic observation' very difficult. - Site selection is governed by customers demand. This means that operations tend to be decentralised therefore preventing the scientific management belief that planning and control should be centralised. -The industry is labour-intensive. This is a key characteristic and especially important due to consumer/ employee contact in the delivery of a service. Consequently this makes if very difficult to replace people with machines. In addition people tend to be more unpredictable than machines and are therefore harder to encapsulate in a rationalisation model. These distinctive features somewhat limit the usefulness and effectiveness of scientific management in the service sector as opposed to other sectors. This therefore questions the assumption of the 'inevitability' of the management practices being applied in the sector. In contrast it can be argued that the service sector can embrace scientific management successfully and indeed may well be unavoidable. Two central elements to this ideology is the 'MacDonaldisation' of society and the trend of franchising within the sector. Furthermore Targett (1995) has identified techniques now being employed to help apply rationalisation within service industries, such as Data Envelope Analysis (DEA), enabling efficiency of staff to be measured. MacDonalds has successfully taken the rationalisation concept, down to a 'production line' of burgers level, and successfully applied these within a service industry context. MacDonalds scientific management style is apparent in that it offers: - efficiency. - food and service that can be easily quantified and calculated. Ritzer (1993) suggests that some MacDonaldised institutes have come to combine the emphases on time and money. For example Pizza Hut will serve a personal pan pizza within five minutes or the pizza is free. Taylor would have surely eaten in a such a restaurant. - predictability of the food and service due to standardisation - control through the substitution of non-human for human technology. The humans who work in fast-food restaurants are trained to do a limited number of tasks in precisely the way they are told to do them. Managers impose their control by ensuring these tasks are carried out correctly. MacDonalds has successfully introduced mechanisation so as to reduce the unpredictability of the human element. Ritzer (1993) has argued that the success of MacDonalds "...has influenced a wide range of undertakings, indeed the way of life, of a significant portion of the world. And that influence is destined to continue to expand in the foreseeable future". Such a statement therefore appears to add weight to the argument of 'inevitability'. MacDonaldisation can now be seen in many service industries including retailing, for example Toys R Us, or budget hotels, for example Motel 6. Additionally scientific management is being applied by the franchiser sector within the hospitality industry. Franchisers stress the importance in standardised work methods, via centralised control, so as to ensure that each franchisee provides the same product and service. Some hotels, such as Choice Hotels, have installed front desk computers that provides the receptionist with information that can be supplied to the guest, thereby standardising the service offered and reducing staff training, thereby reducing costs. This is especially useful in hotels whereby high turnover of labour often results in high staff training costs. From such an example it can be seen that the 'technological revolution' has greatly aided, and indeed encourages, the application of scientific management in the service sector implying that such management is inevitable. Turning to the 'irreversibility' aspect of the statement the motives of wanting to reverse rationalisation must be questioned. Ritzer (1993) has argued that the critics of rationalisation within the service sector view the past with rose tinted spectacles with an impossible desire to return to world that no longer exists. Such critics conveniently forget the liabilities associated with a pre-MacDonalds world. Furthermore Ritzer (1993) states "The increase in the number of people, the acceleration in technological change, the increasing pace of life - all this and more make it impossible to go back to a non-rationalised world, if it ever existed". p.13 MacDonaldisation has become so entrenched in society that customers expectations have risen to such a high level that certain sectors of the service industry, such as fast food outlets, could not be decentralised. Other factors that could prevent companies reversing rationalisation include the enormous costs involved in 'demechanising' the company. For example an increasing amount of budget hotels are introducing costly automated self check-in consoles. Additionally decentralising companies would also involve massive management engineering. Therefore, in light of such factors, the statement can be partially supported in that it would be unlikely that rationalisation could be reversed. On the other hand some industries have reversed scientific management principles to relieve monotony, improve morale, job satisfaction and ultimately increase efficiency. Hales (1994) has noted that there has been a growing trend in decentralisation via job rotation, enlargement and enrichment as well as 'task forces' and project teams being more widely established. There has also been increasing emphasis on increased employee participation in companies. Such a notion has been further developed and supported by the ideology behind Blair's Stakeholder Society. Therefore such change suggests that it is possible to reverse the application of scientific management principles. III Conclusion To conclude it can be suggested that scientific management, in its extreme form, applied in a hospitality context would result in something of a 'MacDonalds' experience. For example receptionists dealing with guests' enquiries would be unable to treat them on a personal level as they would almost be reading some script pre-written by central office. My own belief is that this could not be applied in the luxury end of the market as this undermines the actual product that is expected. This therefore opposes the ideology that scientific management is inevitable to the whole service industry. There is also a growing awareness of the dehumanising experience of a fast-food restaurant or budget hotel. This has resulted in an increased desire for a more personalised service and therefore an indication that some industries could decentralise. Furthermore the service sector, most notably hospitality, thrives on the multi-faceted individuals that are attracted to the industry. But the deskilling due to rationalisation means that such people are 'strait-jacketed into one dimensional jobs' (Hales 1994) stifling variety and creativity. Therefore such a sentiment tends to argue against the notion that scientific management principles are inevitable. In summary to return to the original statement it can be argued against the belief that scientific management is inevitable and irreversible throughout the entire service industry, although certainly some areas of the industry could benefit from utilising such a management strategy - notably in the budget sector. Word count: 1,578 Bibliography Hales, C. (1994) Managing Through Organisation, Routledge, London. Peters, T. & Waterman, R., In Search of excellence, Harper & Row, New York. Ritzer, G. (1993) The MacDonaldization of Society. Targett, D. (1995) 'Management Science in service industries', in Schmenner, R.W. (ed.) Service Operations Management, Prentice Hall, New Jersey. Taylor, F.W. (1984) 'Scientific Management', in Pugh, D. Organisation Theory, Penguin, Harmondsworth. Thompson, P. & McHugh, D. (1990) Work Organisations: A critical introduction, Manmillan, London. f:\12000 essays\business & economics (632)\The Increasing Application of Scientific Management Principles Of Work.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Increasing Application of Scientific Management Principles Of Work Organisations To Services Is, Despite Its Limitations, Inevitable and Irreversible. I Introduction From the outset of this essay it is necessary to define the basic principles of Scientific Management in order for the statement to be fully understood and why if at all such a practice is 'inevitable' and indeed 'irreversible' within a service industry context. The underlying belief that scientific management, or rationalisation= , is able to provide the basis for separating management from the execution of work. 'The rationalisation of work has the effect of transferring functions of planning, allocation and co-ordination to managers, whilst reinforcing the managerial monopoly of decision-making, motivation and control'. Hales (1994). Taylor (1856-1915) has been referred to as the father of Scientific Management. He believed that management, not labour, was the cause of and potential solution to problems in the industry. Taylor concluded that workers systematically ' soldiered' because they believed that faster work would put them out of a job and because hourly or daily wages destroyed individual incentive. Taylor believed that in order to discourage, and indeed halt, this 'soldiering' a ' mental revolution' was required. He believed this could be achieved via four vital principles: (1) the development of the best work method, via systematic observation, measurement and analysis; (2) the scientific selection and development of workers; (3) the relating and bringing together of the best work method and the developed and trained worker; (4) the co-operation of managers and non-managers which includes the division of work and the managers responsibility of work. From this five key facets have evolved that lie at the foundation of scientific management. Hales (1994) has summarised these as follows: - systematic standardised work methods via mechanisation and standard times. - a clean functional division between managers and non-mangers. Braverman (1974) described this as the 'separation of conception from execution'. - centralised planning and control. - an instrumental, low-involvement employment relationship due to the requirement of the individual employee being that of just carrying out their specified low-skilled task. - an ideology of neutral technical efficiency. Industries that have embraced such scientific management methods have essentially deskilled the workforce, often by menial, repetitive tasks, and have attempted to replace workers with machines wherever technically feasible and economic. A classic example of such an application is the Fordist principle of the production line. The remainder of the essay concentrates on the two key aspects of the statement, i.e. that of inevitability and irreversibility. II Are Scientific Management principles inevitable and irreversible within the service industry ? It has been suggested that the principles of scientific management have been widely adopted throughout industry. "The orientation of larger firms towards professional managers, engineers and consultants additionally provided a supportive framework for the rise of Taylorism". Thompson and Hugh (1990) Although this rise has certainly been evident within manufacturing industries the service industry has been slower to utilise the principles of rationalisation. The question must therefore be asked why has the sector been slow on the uptake of these beliefs and could the reason for this provide an argument against the suggestion of the 'inevitability' of the principles within the service industries. For rationalisation to be applied three prerequisite conditions are required: clear and single objective (for example maximising profit); hard data ( for example accounting information); and no more than limited and measurable uncertainties (for example normally distributed machine parts). In general these three conditions do not hold in the service sector. Furthermore the quantities and the types of resources differ greatly from manufacturing industries. Within the service sector there is often more labour and less capital. This 'human emphasis' greatly limits the application of scientific management principles. Targett (1995) has identified seven distinctive characteristics that highlight the limitations of applying scientific management principles and therefore raising doubts over the 'inevitability' of such management practices being used in the service sector. - Measurement of output and performance is difficult. Quality of service cannot be measured solely by easily quantifiable data, such as revenue and sales volume alone. For example, the performance of a health care organisation is a combination not only of financial results and patient throughput but also of quality of care, the effectiveness of preventative measures and many other factors - The "product" is not tangible. Amongst the many effects of this are that quality control is not straight forward. For example checking the quality of car manufacture is a lot clearer task than checking the quality of service given at a hotels reception desk. - Production and consumption are usually simultaneous. A particular implication of this is that there can be no inventory of the service itself, therefore not allowing 'systematic observation' nor measurement. For example, a shop assistant's advice to a customer cannot be stored. Hales (1994) has suggested that where the end-product is tailored to specific customer wants, the option of 'one best way' is even more difficult to sustain. - The "product"is time perishable. If a service is not used it is likely to be wasted, again making 'systematic observation' very difficult. - Site selection is governed by customers demand. This means that operations tend to be decentralised therefore preventing the scientific management belief that planning and control should be centralised. - The industry is labour-intensive. This is a key characteristic and especially important due to consumer/ employee contact in the delivery of a service. Consequently this makes if very difficult to replace people with machines. In addition people tend to be more unpredictable than machines and are therefore harder to encapsulate in a rationalisation model. These distinctive features somewhat limit the usefulness and effectiveness of scientific management in the service sector as opposed to other sectors. This therefore questions the assumption of the 'inevitability' of the management practices being applied in the sector. In contrast it can be argued that the service sector can embrace scientific management successfully and indeed may well be unavoidable. Two central elements to this ideology is the 'MacDonaldisation' of society and the trend of franchising within the sector. Furthermore Targett (1995) has identified techniques now being employed to help apply rationalisation within service industries, such as Data Envelope Analysis (DEA), enabling efficiency of staff to be measured. MacDonalds has successfully taken the rationalisation concept, down to a ' production line' of burgers level, and successfully applied these within a service industry context. MacDonalds scientific management style is apparent in that it offers: - efficiency. - food and service that can be easily quantified and calculated. Ritzer (1993) suggests that some MacDonaldised institutes have come to combine the emphases on time and money. For example Pizza Hut will serve a personal pan pizza within five minutes or the pizza is free. Taylor would have surely eaten in a such a restaurant. - predictability of the food and service due to standardisation - control through the substitution of non-human for human technology. The humans who work in fast-food restaurants are trained to do a limited number of tasks in precisely the way they are told to do them. Managers impose their control by ensuring these tasks are carried out correctly. MacDonalds has successfully introduced mechanisation so as to reduce the unpredictability of the human element. Ritzer (1993) has argued that the success of MacDonalds "...has influenced a wide range of undertakings, indeed the way of life, of a significant portion of the world. And that influence is destined to continue to expand in the foreseeable future". Such a statement therefore appears to add weight to the argument of ' inevitability'. MacDonaldisation can now be seen in many service industries including retailing, for example Toys R Us, or budget hotels, for example Motel 6. Additionally scientific management is being applied by the franchiser sector within the hospitality industry. Franchisers stress the importance in standardised work methods, via centralised control, so as to ensure that each franchisee provides the same product and service. Some hotels, such as Choice Hotels, have installed front desk computers that provides the receptionist with information that can be supplied to the guest, thereby standardising the service offered and reducing staff training, thereby reducing costs. This is especially useful in hotels whereby high turnover of labour often results in high staff training costs. From such an example it can be seen that the 'technological revolution' has greatly aided, and indeed encourages, the application of scientific management in the service sector implying that such management is inevitable. Turning to the 'irreversibility' aspect of the statement the motives of wanting to reverse rationalisation must be questioned. Ritzer (1993) has argued that the critics of rationalisation within the service sector view the past with rose tinted spectacles with an impossible desire to return to world that no longer exists. Such critics conveniently forget the liabilities associated with a pre- MacDonalds world. Furthermore Ritzer (1993) states "The increase in the number of people, the acceleration in technological change, the increasing pace of life - all this and more make it impossible to go back to a non-rationalised world, if it ever existed". p.13 MacDonaldisation has become so entrenched in society that customers expectations have risen to such a high level that certain sectors of the service industry, such as fast food outlets, could not be decentralised. Other factors that could prevent companies reversing rationalisation include the enormous costs involved in 'demechanising' the company. For example an increasing amount of budget hotels are introducing costly automated self check- in consoles. Additionally decentralising companies would also involve massive management engineering. Therefore, in light of such factors, the statement can be partially supported in that it would be unlikely that rationalisation could be reversed. On the other hand some industries have reversed scientific management principles to relieve monotony, improve morale, job satisfaction and ultimately increase efficiency. Hales (1994) has noted that there has been a growing trend in decentralisation via job rotation, enlargement and enrichment as well as 'task forces' and project teams being more widely established. There has also been increasing emphasis on increased employee participation in companies. Such a notion has been further developed and supported by the ideology behind Blair's Stakeholder Society. Therefore such change suggests that it is possible to reverse the application of scientific management principles. III Conclusion To conclude it can be suggested that scientific management, in its extreme form, applied in a hospitality context would result in something of a 'MacDonalds' experience. For example receptionists dealing with guests' enquiries would be unable to treat them on a personal level as they would almost be reading some script pre-written by central office. My own belief is that this could not be applied in the luxury end of the market as this undermines the actual product that is expected. This therefore opposes the ideology that scientific management is inevitable to the whole service industry. There is also a growing awareness of the dehumanising experience of a fast-food restaurant or budget hotel. This has resulted in an increased desire for a more personalised service and therefore an indication that some industries could decentralise. Furthermore the service sector, most notably hospitality, thrives on the multi- faceted individuals that are attracted to the industry. But the deskilling due to rationalisation means that such people are 'strait-jacketed into one dimensional jobs' (Hales 1994) stifling variety and creativity. Therefore such a sentiment tends to argue against the notion that scientific management principles are inevitable. In summary to return to the original statement it can be argued against the belief that scientific management is inevitable and irreversible throughout the entire service industry, although certainly some areas of the industry could benefit from utilising such a management strategy - notably in the budget sector. Bibliography Hales, C. (1994) Managing Through Organisation, Routledge, London. Peters, T. & Waterman, R., In Search of excellence, Harper & Row, New York. Ritzer, G. (1993) The MacDonaldization of Society. Targett, D. (1995) 'Management Science in service industries', in Schmenner, R.W. (ed.) Service Operations Management, Prentice Hall, New Jersey. Taylor, F.W. (1984) 'Scientific Management', in Pugh, D. Organisation Theory, Penguin, Harmondsworth. Thompson, P. & McHugh, D. (1990) Work Organisations: A critical introduction, Manmillan, London. f:\12000 essays\business & economics (632)\The Investment Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Investment Industry The investment industry is composed of a wide variety of firms. The main players include independent full line brokerage firms, investment bank subsidiaries of chartered banks, and discount brokers. Independent full line brokerage firms offer a wide range of services, including underwriting, trading of stocks, advice and research. In essence, the full service brokerage subsidiaries of chartered banks offer the same services, however, banks' brokerage firms may have a larger pre-established clientele. Finally, the discount brokers are basic stock brokers that perform trades for clients who do not want investment advice. Usually, this service is targeted toward the sophisticated investor who does his/her own research to incur minimal commission fees. Banks entered the investment industry in 1987, whereby they took over full-service brokerages, introduced mutual funds to the banking industry and became part of discount brokering. From this time on, chartered banks have expanded their dominance in the industry by acquiring key players in the industry or branching off into full brokerage services. For example, the brokerage firms for CIBC, Royal Bank, Toronto Dominion Bank, Bank of Nova Scotia and Bank of Montreal are Wood Gundy, RBC Dominion, Evergreen, Scotia McLeod and Nesbitt Burns respectively. In addition, the aforementioned chartered banks have also branched into the discount brokerage sector. As of December 1994, the Securities Industry as a whole included 158 firms, directly employs over 24,000 people, has operating revenue of $5.1 Billion and operating profit of $1.2 Billion (Appendix A). Within this industry the largest firms ranked by revenue are: RBC Dominion Securities ($1 Billion), Midland Walwyn ($480 million), Burns Fry ($416 million) and Nesbitt Thomson ($335 million) (Appendix B). It is evident that the industry is highly concentrated in a small number of companies. The top 4 leaders in the industry accounted for 44% of revenue, while the top 8 was 51%. Industry information from 1993 displays further segregation, between retail, institutional and integrated firms. Integrated retail-institutionalized firms (RBC Dominion Securities, Scotia McLeod, Nesbitt Thomson, Wood Gundy) made up 66% of the industry's revenue, while strictly institutional firms (First Marathon Securities, Gordon Capital Corp. and Loewer Ondaatje McCutcheon Ltd.) made up 21% and Retail firms (Green Line Investor Services Inc.), 15% (Appendix C). The following analysis will outline the investment dealer's industry, specifically the life cycle, critical success factor, strengths, weaknesses, target markets and profitability. Life Cycle The demand for investment financial services is expanding. This becomes evident by examining the average increase in revenue which has occurred over the 1990-1994, 5 year span. This amounts to a 114% increase in revenue, ($2.4 Billion and $5.13 Billion), (Appendix A). An additional indication of growth in the investment industry is the fact that the number of firms in the industry has increased from 119 in 1990 to 158 in 1995, and 163 by the second quarter of 1995 (Appendix A). Furthermore, firms are entering the market because they realize the increasing need for investment services as well as the potential for profits. It is obvious that the industry is growing, however the cause for this growth must also be addressed. Firstly, demographics of the Canadian society point towards an aging population. This aging society is comprised of active retired and semi-retired individuals who have knowledge, time and disposable income for investing purposes. Moreover, younger generations who fear the elimination of the existing CPP because of the aging population, are interested in "building a retirement nest egg." (Fine, p. B21) Secondly, the fact that people want to be more educated about the investments industry, ties into an additional cause for growth in the industry. The market is offering more information to those who want to be part of it. This additional information reduces investors' fear of not knowing enough, and if they choose to take advantage of the available information they can capitalize on it. Also, more information gives people the perception that they are able to make an increased number of higher quality investment decisions. Finally, the entrance of banks into the industry has increased public interest. First of all, banks carry a great deal of trust which is extremely important to the average investor. Second, banks are higher profile marketers so they reach a larger number of people. In addition, the large number of branches makes the product readily available and easily accessible. Banks also have a large existing customer base to which they can market products, and influence investing. Overall, banks have increased the demand for investment services by creating interest and awareness to people who would otherwise not give extensive consideration to investments. Critical Success Factors The investment industry is very volatile in that the upward trend in today's market does not guarantee the same trend tomorrow. Investment dealers cannot fully command the direction of their profits. The market they work with, i.e. capital markets, is greatly affected by external factors. Falling stock and bond prices can negatively affect industry profits, because they reduce capital market activity. In addition, volatility is affected by consumer confidence. If unsophisticated investors believe the market is unstable and fail to realize the problem may only be a rumor, then they may all pull out at the same time causing upheaval and drastic downturns in profit. In such a situation, investment dealers have no control over the situation or their profits. Every investor suffers the consequences of volatility. However, even though this volatility exists there are means to attract investors to the capital market, thereby outperforming competitors and increasing revenue derived from service fees. First, the investment dealer must build trust with the investor. This is of extreme importance to the potential client because of the amount and importance of the funds that they are investing. More importantly, trust is needed in order to attract new clients, through word of mouth, and maintain existing ones. Second, the client is greatly concerned with the performance or returns of their portfolio. Even though the market is volatile, the investment dealer is trusted to properly assess their clients' financial situation, level of risk aversion and investment decisions in order to establish the best portfolio. Their ability to carry out these functions will influence, to a certain degree, the performance of the investment dealer, i.e. through returns. Third, customers want continuous high quality service. This means that in addition to the service provided at the time of the portfolio selection, they also want a relationship with the dealer. Specifically, the customer may want to be kept informed on their portfolio as well as changes which may be occurring in the market. Being able to continue this high quality service will prove to attract many unsophisticated investors and establish a long-term clientele. At this point, it is important to know that the investment dealers must have the expertise to identify which investors want this service and which don't. Their failure to do this may actually cause the loss of sophisticated investors who do not want to be bothered. In short, "clients said the most important factor in choosing an investment firm was trustworthiness, followed by performance and service" (Roseman, p.B18). Aside from these three factors, the speed of processing transactions has equal importance to a customer. Since prices change very rapidly in this volatile industry, timing is everything,. For this reason, customers would prefer to have immediate accessibility to the trading floor without going through the middleman. Present changes indicate that the industry is headed in this direction. Presently, Instinet Corp. has introduced a new technology, Instinet, which allows foreign securities to be traded through electronic trading terminals thereby bypassing the broker's responsibility to contact a trader on the costly exchange floor (TSE). The trade would no longer require attendance to the exchange floor, since the transaction could be done electronically at designated institutions. Eventually, investment brokers will have to excel in areas which cannot be replaced by electronic technology, i.e. research, knowledge about the industry and building a trusting rapport with customers. Strengths and Weaknesses The securities industry (and the financial services industry in general) is highly automated and technically advanced. This allows the industry to operate efficiently and cost effectively. The marginal costs of processing a $10 transaction and a $10-billion one are negligible (Campbell, in Dermer: p. 237). Technology gives investors (the clientele) the ability to make transactions easily and quickly. Therefore, investing becomes more attractive because of the relative ease and convenience of trade execution. The cost effectiveness of the industry also allows it to compete abroad with larger brokers thus increasing its customer base. The entrance of banks also boosted competition and led to further reductions in costs. Chartered banks have also given the industry a boost because of their large client base, credibility, high-degree of technology, marketing expertise, and "retail store" environment. Banks can offer an entire array of financial services and instruments which provides a great deal of convenience. Customers can easily open direct trading accounts with their branch and make transfers to and from their savings accounts. This "one-stop shopping" approach has made the securities industry more attractive and strengthened it. Although law prohibits the transfer of financial information about bank clients between banks and their investment dealing subsidiaries (to maintain confidentiality and credibility), the banks can still act as channels of information to potential customers. Toronto Dominion Bank, for instance, offers S.S.Q. points (Sales, Service, and Quality) to their customer service representatives whenever referrals are given for a TD-Green Line (discount broker) or TD-Evergreen (full service) account. In essence, the industry has a large number of indirect employees acting as agents for their services. This creates awareness, and helps boost demand. A growing interest in the industry in terms of education can only help strengthen the industry. In the past year, 21500 students took Canadian Securities Institute programs, this number being 53% higher than the previous year (Fine: p. B21). This translates to a high number of knowledgeable people being employed within the industry. This helps the industry in that customers are better served, and thus they are inclined to invest more due to the fact that they trust the investment dealer. As such, more cash flow into the market means more profits for the investment dealers due to increased commissions. The industry's dependence on the performance of the securities markets can be considered a weakness. This is because the industry's main purpose revolves around the stock market itself. Thus if the stock market is lagging, profits will fall due to a lower number and value of transactions. In addition, firms are much less willing to enter a bearish market for new financing. This is also the case when firms are doing well since they may not require increased financing and may not need the services of an investment dealer (for underwriting) (IDA bulletin p2). Unlike banks who have CDIC protecting the accounts of their customers, investors portfolios are in no way secured in terms of value. This creates a negative sentiment towards investing because highly risk averse individuals would rather lock up their money in the bank. Profitability The Brokerage Industry derives the majority of its income from commissions (43% of 1994 revenues), underwriting (21%) and fixed income trading (16%) (Appendices A & D). Since most of the revenue comes from commissions, it is apparent that revenue is largely dependent on volume and value of transactions. Transactions volume and values are dependent on the performance of the stock market. For example between 1992 and 1993, the TSE 300 gained approximately 29% in value. Reported operating profits for 1993 were $1.7 billion ($726 million net), which was up from 1992's operating profit of $676 million ($253 million) (Appendix A). Between 1993 and 1994 the TSE 300 lost 3% of value and this resulted in a decline in profits during the same period of $500 million ($300 million net). Thus, shifts in the stock market affect the stability of the industry's profits. Financial Ratios Analysis of important financial ratios can help provide a better picture of the industry as a whole. Examining the quick and current ratios for some of the larger firms in the industry shows that investment dealers have an equal proportion of highly liquid assets to short term liabilities (approx. 1.0). This shows that the firms have little in terms of a maturity mismatch. In addition, accounts receivable as a percent of total assets is quite large (approx. 91% for Fahnestock Viner, and 65% for Midland Walwyn). This shows that the industry relies on its ability to give its clients lines of credit and the ability to finance them. In addition, the high level receivables increases the level of default risk for the industry. Thus, one must look at the quality of these receivables (that is who are these debtors) to evaluate the level of risk to the industry. Furthermore, these receivables can be a source of revenue for the dealers, for example, interest received from margin accounts. Conclusions Based on the above discussion, it is fair to say that the industry has a positive outlook for the future. This can be said despite the industry's dependence on stock market activity. A growing interest in the industry is proof of this, as the number of firms involved is increasing as well as the number of professionals entering the fields within the investment industry. An additional indication of the industry's growth is the increased participation of Canadian Banks, combining one of Canada's most vital industries with the investment industry. As the public becomes more aware of the potential gains from investing, the future of the industry will be reinforced. Long gone are the days when people held large sums of money in static bank accounts. Rather, a changed population (in terms of education, demographics etc.) is seeking a dynamic investment which can earn greater returns than a bank account. Considering this new demand for securities, investment dealers have a greater incentive to devise additional attractive financial instruments in order to attract the undecided. In short, a need for greater returns leads to increased asset demand thereby increasing market activity which in turn will strengthen the investment dealer industry as a whole. f:\12000 essays\business & economics (632)\The Japanese Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Japanese Economy Jonathan Allen The prewar economy of Japan was a Socialist economy and the country was ruled by an emperor up to WW2 and after WW2 it started to lean towards a mixed market economy until what it is today although its government is Socialist it is leaning towards a mixed market economy. The Japanese economy is a mixed economy that leans towards market, it is like this because almost all business are run by private corporations or people and that is the market in the economy. And the reason that they are thriving and are so competitive is because of the trade tariffs and quotas that the government has in place. These regulations include heavy taxes on some products and denial on some others for example: the way Japan will only let certain foreign cars in to Japan and even then they are so heavily taxed that the average Japanese person can¹t pay that much and will have to buy a Japanese made car and at the same time in other countries they are selling their cars for less than anyone else in that country and that is what they do with most of their products and is how they get a trade surplus year after year. Manufacturing is the most important economic activity in Japan it accounts for about 28% of it¹s GDP. The Japanese people import more than half of the products that they manufacture from other countries in their crudest form and manufacture them into transportation equipment, iron, steel, chemicals, petroleum and coal products and textiles. Most of these products are produced by large corporations with many employees and the happier the employees are the more it will be done. An aspect of a market economy that Japan has is the way the companies treat their workers. The way the Japanese treat their workers is so different form the way we treat our workers here. The Japanese are so much more respectful towards their employer( the exact opposite from other countries especially those with a centralised economy) and often work for one employer until retirement. Some of the special treatment that the workers receive is housing; some of the companies namely Honda have a special housing unite for their workers and their families and a company cemetery for all the workers and their families. Because of this the employees work habits are much more productive and a larger profit can be turned and they can get a jump on the competition. In centralised economies very few lucturies are returned to the people and in market economies most of them are, in Japan there are to kinds of people farmers and city dwellers, the farmers get no lucturies and live in poor conditions while the city dwellers on the other hand get just about all the lucturies like mass transit, hospitals and if you have a job financial security. The government keeps whatever is necessary and whatever the people will buy and will export the rest. In the farmlands there is a strong sense of a command system and in the city there is capitalistic economy. Farming is one of the larger employers in Japan it employs 9% of the work force but it only accounts for 3% of the GDP.There are few government owned companies the only ones they own are some power plants, railways and some airlines as well as the commuting services and civil services. The government employs about 1 in 10 people in Japan mostly civil services. There are some strict regulations set forth by the government to insure that the countries stores are filled with Japanese goods rather than forgien goods and they include trade restrictions such as tariffs, bands and quotas. After reviewing all this evidence the Japanese economy is leaning heavily towards a market economy but does have some socialist government views and laws but the market out weighs the command. BIBLIOGRAPHY Comptons learning company 1988. InComptons encyclopedia (vol. 12 pp. 34-39.). Chicago: devision of encyclopedia Britannica, inc. John J. Curran(May 18, 1992). Why Japan will emerge stronger. Fortune, pp.46-60. Ross Laver( nov. 1991). The company man. Maclean¹s. pp. 55-57. Richard Swift(May 1992). Prisoners of prosparity. New Internationalist. pp. 4-8. f:\12000 essays\business & economics (632)\The location of agriculture.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1056 The location of agriculture at all scales is the result of the interaction between physical, cultural and economic and behavioural factors. Farming in Great Britain has been characterized by technological changes in recent decades which has led to massive increases in yields and improved stock rearing. Much of this change is due to the application of scientific research in plant and stock breeding and improved mechanization. But even today agriculture relies heavily on the physical environment. All crops require a specific range of temperature, moisture, soil ands drainage conditions and these factors can be modified by the farmer but only to a limited degree. If we accept that a farmers choice of land usage is controlled by the physical environment, we must identify the optimum conditions and limits to production of any one crop . This will help to identify the spatial pattern of environmental controls. This was central to the ideas explored by McCarty and Lindberg in the Mid West of the USA and gave rise to the Optima Limits Model in 1966. Away from the optimum physical conditions become hostile and production/ yields decline. The optimum is the area where yields are highest and variability best, where soils are fertile, temperature and rainfall ideal and ground surface level for cultivation. Farmers will take account of physical conditions at a local scale when considering which crops to grow. For example, the Moray coast in NE Scotland between Elgin and Lossiemouth is a rich agricultural area where winters are relatively mild and summers averaging 17oC, rainfall occurs throughout the year and is typically 600mm. There are a variety of soils but mainly glacial sandy loams on the higher ground and alluvial soils where there were once areas of open marshy conditions. A variety of crops are grown, both cereal and root crops. However, there are limitations to agriculture in this area. The main problem is that of wind erosion, the sandy loams are light soils which dry out quickly with high infiltration rates. During early spring or late autumn strong winds can pick up the soil and cause localized wind erosion. Despite this being a well-known problem there are few conservation measures; the only evidence being improving the structure of the soil using manure. There have been no attempts to re-establish hedgerows. Wetness limitations occur such as at Plewlands Farm to the north of Gordonstoun and at Begrow Farm to the west towards Hopeman. At Plewlands, the wetness means that either rough grazing or root crops occur and cereal growing is avoided in the wetter parts. At Begrow Farm the wet areas are given over to horse paddocks. From this it is clear that farmers should pay special attention to physical limitations before making decisions about landuse. The sketch map below illustrates further some controlling physical factors: The next scale at which physical factors impact on farming can be termed the 'meso scale'. Within the context of the UK this would focus on regional differences, for example, between East Anglia and the West Country. Physical factors for consideration at this scale might include rainfall variations,length of daylight, temperature and relief. If a line is taken north through the Isle of Wight, to the west at least half of the cultivated area is given over to permanent grass, the further west one goes the greater the proportion of grass. Whilst to the east of this line, cereals are far more important. The predominance of grass in the west and cereals in the east are related to physical differences. Grass provides the cheapest fodder crop for cattle and provides grazing in the summer and hay or silage in the winter. Rainfall is heavier in the west [west Wales 1100mm/year] and gives rise to good grass growth hence prevalence of dairying in places like Devon and west Wales. In eastern England, the sowing of cereal crops is much easier than in the west as the date of return to field moisture capacity is much later in the drier east. Excessive moisture content of soils is less, this helps to make cultivation easier. Modern grain production requires the use of machinery e.g. combines, which cannot be economically employed on the smaller farms in areas of steep slopes such as can be found in south Devon. In contrast, eastern England has more extensive areas of level relief ( e.g. Fenland- Cambridge and Lincolnshire) where farms are larger and where fields have been amalgamated and hedgerows rooted out. Temperatures are generally a few degrees higher in the east than the west during the growing seasons, again, this tends to favour cereals in the east whilst the cooler, moister west is better for livestock and pasture. The largest 'macro' scale is that which occurs on a global scale. The physical factors of most importance in explaining influences on agriculture are temperature differences. These temperature differences are due to variations in incoming solar energy. The global changes from too cold to too hot, too wet to too dry give rise to general large scale changes in agriculture. So that monsoon tropics in Asia where average annual temp. is 25 C, are typically wet rice cultivation areas, dry arid sub- tropical interiors are desert and typically give rise to nomadism. Hot wet equatorial areas with extensive rain forest have in the past supported shifting cultivation. Temperate maritime regions give rise to seasonal climates allowing a variety of crops and livestock rearing and commercial farming to flourish. At different scales is possible to see the importance of physical factors. At a local scale, variations in soil quality, moisture content and gradient are significant. As the regional scale, rainfall and large scale relief can give rise to sharp differences. At the global scale, temperature appears to be the major controlling factor. In conclusion, today new technology across the globe is decreasing the influence of physical factors as they can be overcome by irrigation, fertilizers, temperature modification and increasingly biotechnology and genetical engineering. However, drought can and does persist flooding continues and where it does so, we still seem to be under the influence of the physical environment. f:\12000 essays\business & economics (632)\The Mexican Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Mexican Economy I. Historical, Population, Culture, Political, and Economic Information History Mexico was the site of some of the earliest and most advanced civilizations in the western hemisphere. The Mayan culture, according to archaeological research, attained its greatest development about the 6th century AD. Another group, the Toltec, established an empire in the Valley of Mexico and developed a great civilization still evidenced by the ruins of magnificent buildings and monuments. The leading tribe, the Aztec, built great cities and developed an intricate social, political, and religious organization. Their civilization was highly developed, both intellectually and artistically. The first European explorer to visit Mexican territory was Francisco Fernández de Córdoba, who in 1517 discovered traces of the Maya in Yucatán. In 1535, some years after the fall of the Aztec capital, the basic form of colonial government in Mexico was instituted with the appointment of the first Spanish viceroy, Antonio de Mendoza. A distinguishing characteristic of colonial Mexico was the exploitation of the Native Americans. Although thousands of them were killed during the Spanish conquest, they continued to be the great majority of inhabitants of what was referred to as New Spain, speaking their own languages and retaining much of their native culture. Inevitably they became the laboring class. Their plight was the result of the 'encomienda' system, by which Spanish nobles, priests, and soldiers were granted not only large tracts of land but also jurisdiction over all Native American residents. A second characteristic of colonial Mexico was the position and power of the Roman Catholic church. Franciscan, Augustinian, Dominican, and Jesuit missionaries entered the country with the conquistadores. The Mexican church became enormously wealthy through gifts and bequests that could be held in perpetuity. Before 1859, when church holdings were nationalized, the church owned one-third of all property and land. A third characteristic was the existence of rigid social classes: the Native Americans, the mestizos, mixed Spanish and Native American (an increasingly large group during the colonial era), black slaves which were brought from Africa and the Caribbean, freed blacks and white Mexicans. The white Mexicans were themselves divided. Highest of all classes was that of the peninsulares, those born in Spain, as opposed to the criollos, or Creoles-people of pure European descent who had been born and raised in New Spain. The peninsulares were sent from Spain to hold the highest colonial offices in both the civil and church administrations. The peninsulars held themselves higher than the criollos, who were almost never given high office. The resentment of the criollos became an influential force in the later movement for independence. In 1808 the viceroy, under pressure from influential criollos, permitted them to participate in the administration. Other peninsular officials objected and expelled the viceroy. In the midst of these factional struggles a political rebellion was begun by the Mexican people. Mexico has been rocked by political rebellion during most of its entire history in one way or another. Under the various dictatorships that Mexico found itself under at times in history, it made tremendous advances in economic and commercial development. Many of the new undertakings were financed and managed by foreigners (mostly American and European). This was and continues to be a major factor in the discontent of most Mexicans. Moreover, the government favored the rich owners of large estates, increasing their properties by assigning them communal lands that belonged to the Native Americans. When the Native Americans revolted, they were sold into peonage. Discontent, anger and a spirit of revolt continued to grow throughout Mexico. Madero was elected president in 1911, but was not forceful enough to end the political strife. Other rebel leaders, particularly Emiliano Zapata and Francisco (Pancho) Villa, completely refused to submit to presidential authority. Victoriano Huerta, head of the Madero army, conspired with the rebel leaders and in 1913 seized control of Mexico City. New armed revolts under Zapata, Villa, and Venustiano Carranza began, and Huerta resigned in 1914. Carranza took power in the same year, and Villa at once declared war on him. In addition to the ambitions of rival military leaders, intervention by foreign governments seeking to protect the interests of their nationals added to the confusion. In August 1915, a commission representing eight Latin American countries and the United States recognized Carranza as the lawful authority in Mexico. The rebel leaders, except for Villa, laid down their arms. The bandit leader incited his forces to commit crimes against Americans to show his resentment against the United States and in 1916 led a raid on Columbus, New Mexico. As a result, an American force under General John J. Pershing was sent to Mexico. A new constitution, enacted in 1917, provided for a labor code, prohibited a president from serving consecutive terms, expropriated all property of religious orders, and restored communal lands to the Native Americans. Many provisions dealing with labor and social welfare were advanced. Some of the most drastic were intended to curb foreign ownership of mineral properties and land. In 1936 an expropriation law was passed enabling the government to seize private property whenever necessary for public or social welfare. The national railways of Mexico were nationalized in 1937, as were the soil rights of the oil companies. A government agency called Petróleos Mexicanos, or Pemex, was created to administer the nationalized industry. The expropriations seriously affected the Mexican oil industry, for it became difficult for Mexico to sell oil in U.S., Dutch, and British territories. Mexico was forced to arrange barter deals with Italy, Germany, and Japan. The oil trade with these nations was interrupted by World War II. In 1940, the so-called Good Neighbor Policy of the United States became dominant in Mexican politics. This policy involved close cooperation with the United States in commercial and military matters. Mexico agreed to allow the United States Air Force to use Mexican airfields and also agreed to export critical and strategic materials (mostly minerals) only to countries in the western hemisphere. Consistent with its policy of cooperation with the United States, Mexico severed diplomatic relations with Japan, Italy and Germany in December 1941. In May 1942, after the sinking of two Mexican ships by submarines, the Mexican Congress declared war on Germany, Italy, and Japan. Later that same year a trade agreement, establishing mutual tariff concessions, was negotiated by Mexico and the United States. In 1944, Mexico agreed to pay U.S. oil companies $24 million plus interest, for oil properties expropriated in 1938. In June 1945, Mexico became an original member of the United Nations. The government stabilized the peso in with the aid of loans from the Treasury of the United States and the International Monetary Fund. In 1950, the problem of Mexican laborers who entered the United States to seek seasonal farm employment became a matter of grave concern to the two governments. Official agreements between Mexico and the United States provided for the legal entry of a specified number of such workers annually. Approximately 1 million, however, crossed the border illegally every year. The problem was further complicated by the demand of the Mexican government for guarantees against the exploitation of its citizens by U.S. employers and by the hostility of U.S. farm labor organizations toward the competition of Mexican migratory laborers willing to work for substandard wages. In March 1952, the Congress of the United States passed a bill providing for the punishment by fines and imprisonment of those recruiting and employing aliens who entered the country illegally. The Mexican economy grew at a healthy annual pace during the period from 1970 to 1974, but beginning in 1975 growth decreased markedly and inflation rose substantially. In an attempt to reduce the nation's foreign-trade deficit, the government in 1976 devalued the peso by more than 50 percent by changing from a fixed to a freely floating exchange rate. A potentially beneficial economic development was the discovery in 1974 and 1975 of huge crude-petroleum deposits in Campeche, Chiapas, Tabasco, and Veracruz states. Oil production more than doubled during the latter half of the 1970s. By the mid-1980s a rapid increase in foreign debt, coupled with falling oil prices, had plunged the country into severe financial straits. In 1989, the Salinas government sped up the privatization of state-controlled corporations and modified restrictive trade and investment regulations to encourage foreign investment by permitting full control of corporations by foreign investors. The current president, Ernesto Zedillo, is a strong advocate of reform. He has taken the lead in performing budget cuts, price and tax adjustments, tight monetary policy and further deregulation and privatization. Population The Mexican population is composed of three main groups: the people of Spanish descent, the Native Americans, and the people of mixed Spanish and Native American ancestry, or mestizos. Of these groups, the mestizos are by far the largest, constituting about 55 percent of the population. The Native Americans total about 30 percent. The population of Mexico is 90,419,606. The population density in 1990 was 119 people per square mile with about 73 percent of Mexicans living in urban areas. (Encarta, "Mexico") Political Divisions Mexico consists of 32 administrative divisions-31 states and the Distrito Federal (federal district), which is the seat of the federal administration. The national executive power is vested in a president, who must be Mexican-born and the child of a native Mexican. The president is popularly elected for a six-year term and may never be reelected. The president appoints the cabinet, which is confirmed by the congress. The legislative power in Mexico consists of the senate and the chamber of deputies. The upper house is a senate, with 64 members popularly elected for six years. Two senators are elected from each state and from the federal district. The lower house is a chamber of deputies, made up of 500 members elected to 3-year terms. Three hundred are elected from single-member districts based on population, and the remainder are elected according to a system of proportional representation. Senators and deputies may not serve two consecutive terms. The highest tribunal in Mexico is the supreme court of justice, made up of 21 full-time members appointed by the country's president with the consent of the senate. Other important judicial bodies in Mexico include circuit courts and district courts. The chief executive of each state is a governor, popularly elected to a six-year term. The governor of the federal district is appointed by the president of Mexico. Legislative power in the states is vested in chambers of deputies, whose members are elected to three-year terms. The Partido Revolucionario Institucional (Institutional Revolutionary Party; PRI) is the largest and most important political party in Mexico. It was formed in 1928 as the Partido Nacional Revolucionario (National Revolutionary Party) and has been continuously in power since that time, although under several different names. Opposition parties exist, but not until the 1980's did they represent a serious challenge to the PRI. Chief among them is the Partido de Acción Nacional (National Action Party; PAN), a conservative, pro-Catholic group drawn primarily from the middle class and the Frente Democrático Nacional (National Democratic Front, FDN), a coalition of leftist opposition groups. (Encarta, "Mexico") Culture Mexican culture is a rich, complex blend of Native American, Spanish, and American traditions. Rural areas are populated by Native Americans, descendants of the highly developed societies of the Maya, Aztec, and Toltecs, and by Spanish and mestizo farmers and laborers. Each of these heritages has enriched the regional culture. In the cities, both European and North American influences are evident. Most contemporary Mexican artists are striving to produce identifiably Mexican work that blends Spanish, Native American, and modern European styles. (Encarta, "Mexico") Economy Mexico reflects a shift from a primary-production economy, based on mining and agriculture, to a semi-industrialized nation. Economic achievements are the result of a vigorous private enterprise sector and government policies that have made economic growth a predominant objective. Traditionally, the government also emphasized Mexicanization of industry, and local control of companies engaged in mining, fishing, transportation, and exploitation of forests was required by law. More recently, however, foreign investment in new enterprises has been actively encouraged, and government controls on some sectors of the economy have been loosened. Mexico's gross domestic product (GDP) increased by 6.5 percent annually during the period from 1965 to 1980 but only 0.5 percent yearly during 1980 to 1988. Weak oil prices, rising inflation, a foreign debt of more than $100 billion, and worsening budget deficits exacerbated the nation's economic problems in the mid-1980s, although the economic picture brightened toward the end of the decade. In 1992 the GDP was $324.29 billion. The annual budget included $107 billion in revenue and $122 billion in expenditure. (Encarta, "Mexico") II. NAFTA In December of 1992, Presidents Salinas and Bush and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement (NAFTA). The Mexican legislature ratified NAFTA in 1993 and the treaty went into effect on January 1, 1994, creating the largest free-trade zone in the world. Creating a North American free-trade zone and privatizing state-owned industry was part of a plan by the Salinas government to revive the Mexican economy. By 1993, the Mexican government had sold 80 percent of its industries to private investors for about $21 billion and had reduced inflation from 150 percent to 10 percent. In November 1993, President Clinton predicted that if the trade agreement passes, American companies will add another 200,000 jobs by 1995. NAFTA's promoters predicted that by the end of 1995 the U.S. would enjoy a $9 billion trade surplus with Mexico. The reality is that the post-NAFTA surge in imports from Mexico has resulted in an $8.6 billion trade deficit with Mexico for just the first six months of 1995. By adding the Mexican trade deficit numbers to the current deficit with Canada, the overall U.S. NAFTA trade deficit for the first six months of 1995 alone is $16.7 billion. Using the Department of Commerce trade data in the formula used by NAFTA proponents used to predict job gains, the real accumulated NAFTA trade deficit would translate into over three hundred thousand U.S. jobs lost. A number of companies that specifically promised to create new jobs actually laid workers off because of the agreement. Allied Signal, General Electric, Mattel, Proctor and Gamble, Scott Paper and Zenith all made specific promises to create jobs, and all have laid off workers because of NAFTA as certified by the U.S. Department of Labor's special NAFTA unemployment assistance program (NAFTA TAA). As of mid-August 1995, the U.S. Department of Labor has certified 38,148 workers as having lost their jobs to NAFTA. A total of 68,482 U.S. workers have filed to receive NAFTA-related unemployment assistance through the NAFTA-TAA program. Despite the job losses, trade officials said NAFTA remains a net gainer for U.S. workers. Increased exports to Mexico and Canada will support some 3 million U.S. jobs this year, up some 500,000 from two years ago, according to the U.S. Trade Representative's office. (Briones) III. Recent Events A. The Chiapas Uprising and the Zapatistas On January 1, 1994, a group of Native Americans called the Zapatista National Liberation Army (EZLN) captured four towns in the southern Mexican state of Chiapas and demanded reforms from the Salinas government for better treatment for poor Indians there. They chose to begin their rebellion to coincide with the implementation of NAFTA because they consider it a "death sentence." They demand bilingual and intercultural education in their indigenous language as well as in Spanish. They want titles and protection of the lands where they live. Finally, they say that the governments should ratify the International Labor Office's (ILO) resolution 169 on the promotion and protection of the rights of indigenous people. The group is named for Emiliano Zapata, a 19th-century Mexican revolutionary leader and agrarian reformer. The EZLN has organized itself among some of the most dispossessed people of the world. Its' soldiers are drawn from the forests, mountains and small towns of the region, both from the indigenous Mayan population, and from immigrants from Central and Northern Mexico. The EZLN soldiers have been subsistence cultivators and landless wage-laborers. They have grown and marketed their own export crops and have worked on the plantations and ranches of others. A very few are intellectuals drawn to the area over a decade ago by their ideals and hopes. The EZLN understands how NAFTA opens Mexico to U.S. exports and imports, and how the most threatening of these is corn, the basic food crop of the indigenous population and an important source of cash income. Already they are suffering from low prices for coffee, another cash crop, due to government's elimination of financial support for that production. They also know that export development means ecological destruction, especially deforestation. (Marcos) Although Mexican troops quickly retook most of the territory held by the rebels and a cease-fire was called soon afterward, the rebel group generated momentum for political reform in Mexico. A government negotiating team, headed by former Mexico City mayor Manuel Camacho Solis, met with rebel leaders and offered them a 34-point proposed agreement that included promises of political changes, new social programs, land reform, and better standards of living. However, the group rejected the plan in June. Subcommandante Marcos is the enigmatic spokesperson and highest army commander of the Zapatista National Liberation Army. He is known for his well-written press releases filled with wit and sarcasm. He is always masked in public, and often smokes a pipe. The government claims to have "identified" Marcos as Rafael Sebastian Guillen Vicente, but Marcos and the EZLN have denied this. Major Ana Mari'a was the commander of the operation for taking the municipal palace of San Cristo'bal for the Zapatista National Liberation Army (EZLN). She was 25 years old when she joined the Zapatista Army and saw almost the whole process of how it moved forward. She was one of the first women who was part of the ranks of the Army and has risen to hold the highest rank of any woman in the EZLN. (Gabriel) This revolt affects the current exchange rate due to the uncertainty surrounding this uprising. Many valuable resources can be found in the Chiapas region, such as timber, coffee and oil. Many foreign industries have reduced or canceled work in the region for fear of being caught between the EZLN and government troops. There is much more fighting taking place than most American newspapers report. With businesses reducing their spending in Mexico, the inflow of U.S. dollars is reduced which increases the demand for the dollar in Mexico. This causes the dollar to strengthen against the peso. B. The Colosio Assassination On March 23, 1994, during the Mexican presidential campaign, the PRI's candidate Donaldo Luis Colosio Murrieta, was assassinated while campaigning in Tijuana, Baja California. Unnamed U.S. intelligence officials have stated that former Mexican police commander Fernando de la Sota Rodalleguez, charged in connection with the assassination, was a paid informant for the U.S. Central Intelligence Agency in Mexico City from 1990 to 1992. De la Sota began his police career in 1973 working for Mexico's Federal Security Directorate, and by 1992 he had become investigations department commander for the federal attorney general's office. He was fired that year on suspicion of taking bribes from alleged drug lord Rafael Aguilar Guajardo and the CIA dropped him soon after. De la Sota was working as the head of the private security team for Colosio on the day of the assassination. Federal investigators arrested De la Sota in February of this year on charges of giving false and conflicting testimony about the assassination. Despite his 20 years' experience in police work, De la Sota claimed that the gunshots set off a diabetic attack which kept him from seeing what was happening. He was released on Feb. 28 on a $7,000 bond. At the time of his arrest, Mexican officials indicated off the record that De la Sota was closely connected to the assassination. Currently two men are under arrest for the murder: Mario Aburto Martinez, a factory worker who allegedly shot Colosio in the head from the right side, and Othon Cortes Vazquez, who is charged with shooting the candidate in the abdomen from the left side. Cortes Vazquez and De la Sota knew each other. Cortes Vazquez worked for various PRI officials as a driver and messenger, and on the day of the murder he was driving for Gen. Domiro Roberto Garcia Reyes, who was in charge of the official security for Colosio. One of the videotapes held by the attorney general's office reportedly shows De la Sota and another member of the private security team, Hector Javier Hernandez Thomassiny, guarding Colosio's left side. Cortes Vazquez suddenly "replaced" the two experienced bodyguards just before he and Aburto shot the candidate, according to people who saw the tape. As soon as Colosio fell, De la Sota and Hernandez Thomassiny allegedly seized Aburto and let Cortes Vazquez escape. The uprising in Chiapas and the murder of presidential candidate Luis Donaldo Colosio are two examples of how Mexico's social and civic institutions are crumbling under the pressure of drug-related lawlessness and corruption, factors that are making Mexico a very dangerous place even for members of the ruling elite. Indeed, the same environment of lawlessness and impunity that has allowed Mexico's ruling party, known as the PRI, to govern for over 65 years is now aiding the expansion of the influence of the narcotics trade. Federico Reyes Heroles, editor of the monthly magazine Este Pais, says bluntly that the killing was a deliberate hit by Mexico's powerful drug lords. News reports in the days following the killing included numerous off-the-record comments by government officials confirming the suspicion that the killing was a hit organized and paid for by drug traffickers. Another prominent Mexico City editor, speaking off-the record, says that the Mexican politicians are being killed off because of a power struggle related to money and drugs, not over questions such as democracy and human rights. Beyond the death of Colosio, however, another explanation exists: the need to maintain the appearance of "fighting drugs" to satisfy Washington. Eduardo Valle, former aide to Interior Minister Jorge Carpizo, has given the Mexican government documents and testimony allegedly linking government officials and drug traffickers to the assassination of presidential candidate Colosio. The former official, who is known as "the owl", worked as a senior official directing Mexico's anti-drug efforts. He says that Colosio was murdered by members of the Grupo del Gulfo cocaine cartel, with the involvement of Colosio campaign officials close to Communications and Transportation Minister Emilio Gamboa. Included with the documents provided by Valle during testimony given at the Mexican consulate in Washington was a DEA report about telephone calls last December by cartel members to the offices of the presidency. (Whalen, p.2-4) Assassinations affect exchange rates due to the uncertainty that is caused. Many investors flee from the market if there is a risk of losing their investments. Without these investments, the economy begins to tumble downward due to increased unemployment and a lower demand for goods. This may cause the dollar to strengthen as the people move away from the uncertain peso. IV. Exchange rate See graph attachment. V. Devaluation of the Peso Due to the weaken peso, caused by constant printing of money and high inflation, Mexican investors took close to $11 billion dollars out of Mexico in a few days in December 1994. The political turmoil from regional insurrection to a string of assassinations and disrupted elections help cause the collapse of the peso, requiring a $20 billion bailout from the U.S. Treasury. The International Monetary Fund has pledged another $17.8 billion, while the central banks of other industrialized nations, acting through the Bank of International Settlements, are obligated for an additional $10 billion. (Banda) VI. Advantages/Disadvantages of Importing/Exporting Goods A Houston company exporting to Mexico will find some difficulty selling its goods in a country were the peso is weak against the U.S. dollar. The Mexican businesses will be forced to buy only the necessities due to the unfavorable exchange rate. However, on the positive side, if the Mexican businesses expect that the peso will devalue further, it may decide to purchase big ticket items now in hopes of beating any further devaluation. A Mexican company whose primary business is exporting Mexican made products to the U.S. will enjoy the weak peso, strong dollar economy. Imports from Mexico into the U.S. has resulted in an $8.6 billion trade deficit with Mexico for the first six months of 1995. While the Mexican company is paying for its labor and overhead with weakened pesos, it is receiving a stronger U.S. dollar for its goods. The company can request payment in the stronger U.S. dollar and invest them into various financial instruments until the peso can rebound or is needed to continue operations. VII. Opinion The signs are growing ever stronger that Mexico's determined adherence to its economic austerity program is setting the stage for a remarkably solid and sustainable recovery from the recent financial crisis. The country's Bolsa stock index has rebounded more than 60 percent from its February low, the peso has stabilized, compared to what it has done in the past, and Mexico's recent $500 million bond offering was oversubscribed by $1.3 billion. Mexico is making clear progress in improving its debt structure, and strong export growth is producing a dramatic correction in Mexico's current account imbalance. Mexico has a balanced federal budget and a largely privatized economy. The North American Free Trade Agreement and Mexico's other trade pacts are continuing to play a significant role in creating new opportunities for Mexican businesses. A number of U.S. companies have chosen to create co-production partnerships with Mexican firms over geographically more remote partners in Asia because of Mexico's proximity, modern infrastructure and industrious workforce. NAFTA is playing a key role in encouraging such partnerships. By reducing North American trade barriers, NAFTA is enabling firms which might otherwise manufacture in Asia to work with Mexican partners instead. The growth of business partnerships, along with Mexico's ongoing economic, legal, judicial and political reforms helps to explain Mexico's ability to attract long-term investment. However, the peso is currently in a tailspin against the dollar due mostly to currency speculators. If the Mexican government can stay with its current plans and programs with minor adjustment, the peso should rebound. The bottom line from Mexico is that its continued commitment to open markets and economic integration is paying off and will be reflected in the overall strengthening of the Mexican peso against the U.S. dollar in the long run. REFERENCES Banda, M., (1995, September 5). Economic, Political Crisis Shadows Zedillo's First National Address. Associated Press, Internet (WWW), http://www1.trib.com/NEWS/APwire.html. Briones, J., (1995, September 4). NAFTA's Broken Promises. Public Citizen Publication, p.10. Dean, D., (1995, September 20). Mexico Doing Right Things to Turn Itself Around. Houston Chronicle, Sec. A, p.29. Gabriel, S., Mount Holyoke College. Internet (WWW), Newsgroup: soc.culture.mexican. Marcos, Subcomandante Insurgente, (1995, August 30). Sub. Marcos Communique to the National Conference for Peace. La Jornada, Internet (WWW), Newsgroup: soc.culture.mexican. Word Count: 4510 f:\12000 essays\business & economics (632)\The Modified Market Economy 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ What is a modified market economy? What factors have been responsible for the emergence of this kind of economic system? How do governments influence economic decision making in such systems? Use Australian examples to illustrate your answer. A modified market economy is a market economy in which there are varying amounts of intervention and property ownership by the government. The Australian economy would be classed as a modified market, as we have a certain degree of government intervention, and this is something we should feel lucky for in our country, because due to this we are able to experience the free, fair lifestyle which we enjoy. The emergence of this kind of economy is mainly due to weaknesses in the market economy which, with out regulation, becomes an economy mainly concentrated on the wealthy people. The basic reason for the modified market economy is that the free market does not produce an efficient allocation of resources, and that the free market does not distribute output in a socially desirable way. For example in a modified market, the government regulate the flow a income a bit so that not only the rich make money. In a market economy the rich get richer and the poor get poorer as there is no regulation in terms of income distribution. The intervention by the government, in forms such as social security nets, which is present in a modified market, makes society more evenly spread rather than everyone being one of two things, that is, very rich, or very poor. In such economies as these, the government influence economic decision making much to our advantage in terms of them providing many of the resources needed to satisfy collective wants, making restrictions upon what can and can not be done, in the interests of our health, the environment, impacts upon society etc. Through this they regulate much of the possible 'bad' economic decisions that could be made. The Australian government does place some limitations on freedom of enterprise, but generally encourages private business activity as it is an advantage to our whole economic growth in terms of employment etc. The Australian government also encourages the idea of fair competition. To keep the consumer choice less restrictive the government might not allow certain take overs that may limit the number of choices available to the consumer. Competitive prices that come from businesses are also good for the economy in general, for example if an Australian owned company, such as Uncle Toby's, can provide the same food as an American owned company at a competitive price, then consumers will tend to buy from the Australian company which keeps more our money in our country. Basically, the government intervention in economies such as ours, is all done to benefit our economy as a whole, to help even the distribution of income, to provide resource to help satisfy our unending collective wants. It is all done in an effort to make our country's economy as efficient and all round satisfying, as possible. To make our country a prosperous and enjoyable place to live. f:\12000 essays\business & economics (632)\The Modified Market Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Modified Market Economy What is a modified market economy? What factors have been responsible for the emergence of this kind of economic system? How do governments influence economic decision making in such systems? Use Australian examples to illustrate your answer. A modified market economy is a market economy in which there are varying amounts of intervention and property ownership by the government. The Australian economy would be classed as a modified market, as we have a certain degree of government intervention, and this is something we should feel lucky for in our country, because due to this we are able to experience the free, fair lifestyle which we enjoy. The emergence of this kind of economy is mainly due to weaknesses in the market economy which, with out regulation, becomes an economy mainly concentrated on the wealthy people. The basic reason for the modified market economy is that the free market does not produce an efficient allocation of resources, and that the free market does not distribute output in a socially desirable way. For example in a modified market, the government regulate the flow a income a bit so that not only the rich make money. In a market economy the rich get richer and the poor get poorer as there is no regulation in terms of income distribution. The intervention by the government, in forms such as social security nets, which is present in a modified market, makes society more evenly spread rather than everyone being one of two things, that is, very rich, or very poor. In such economies as these, the government influence economic decision making much to our advantage in terms of them providing many of the resources needed to satisfy collective wants, making restrictions upon what can and can not be done, in the interests of our health, the environment, impacts upon society etc. Through this they regulate much of the possible 'bad' economic decisions that could be made. The Australian government does place some limitations on freedom of enterprise, but generally encourages private business activity as it is an advantage to our whole economic growth in terms of employment etc. The Australian government also encourages the idea of fair competition. To keep the consumer choice less restrictive the government might not allow certain take overs that may limit the number of choices available to the consumer. Competitive prices that come from businesses are also good for the economy in general, for example if an Australian owned company, such as Uncle Toby's, can provide the same food as an American owned company at a competitive price, then consumers will tend to buy from the Australian company which keeps more our money in our country. Basically, the government intervention in economies such as ours, is all done to benefit our economy as a whole, to help even the distribution of income, to provide resource to help satisfy our unending collective wants. It is all done in an effort to make our country's economy as efficient and all round satisfying, as possible. To make our country a prosperous and enjoyable place to live. f:\12000 essays\business & economics (632)\The National Debt 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The National Debt For the past centuries, the american people dug themselves into a big hole which is the National Debt. In this paper I will discuss the history of the national debt, effects on the debt/deficit, wais to reduce it and control the deficit. the national debt has increased every year from 1945 to 1995. The biggest increase of the debt was from the years 1985 to 1995 whwn it went up about three trillion dollars. Right after the Civil War the debt held at three billion dollars. In 1900, this debt of three million dollars had decreased to one million dollars. In 1919, at the end of the World War 1, the debt skyrocketed to 25.5 billion. When the Wall Street fell apart in 1929, the United States fell into something that was called the Great Depression. It started in 1930 and lasted until 1940. During this depression, President Franklin Roosevelt came in. He brought in projects known as Entitlements. Some of them were known as; WPA. TVA. and CCC. Then social welfare was born and social security began. This is what put our country into debt. Then came war, the end of the depression, and the Eisenhower times. The debt kept on growing so new president Lyndon Johnson developed new social welfare programs- Medicare, and Medicaid. The U.S. Government came up with the gold standard and stopped minting silver coins. The coins were then made from scrap pieces of metal and the cash became paper. Richard Nixon and Gerald Ford passed the debt and added to it. The first sign of bankruptcy occured during the Jimmy Carter Presidency. Inflation skyrocketed and interest rates fluttered near 20%. President Ronald Reagan made the economy act better, temporarily. To make the economy better, Reagan invented something called a credit spree. A credit spree in my opinion is when we go out and buy everything, but we put in on a charge (spending money we dont have.) The government cut taxes and increased spending. The deficit exploded, but the american people were happy using a credit card and charging everything. Republicans began using accounts about "supply side" and "trickle down" economics. "Corporate welfare prospered again, financed by more debt. "Between the years 1980 and 1990, the national debt quadrupled. In 1980, it was at approximately eight hundred billion dollars. Now it's five trillion dollars and increasing rapidly." To worsen matters republican presidential nominee, Bob Dole says that he wants to finish what Reagan began. Entitlemens and Handouts: Before 1930, all government spending in america totalled at about 11% of all spending. Now in 1996 it's 44% and still growing. Most of the money the federal government spends goes to entitlements. Entitlements are directed government checks to individuals. Social security is the biggest entitlement and the biggest item in our national budget. Politicians say that social security is where the money is at. The national government predicts that by the year 2002 the national debt will be at 6.507 trillion dollars. I think that the national debt will be a continuing battle throughout our lives. f:\12000 essays\business & economics (632)\The National Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The National Debt For the past centuries, the american people dug themselves into a big hole which is the National Debt. In this paper I will discuss the history of the national debt, effects on the debt/deficit, wais to reduce it and control the deficit. the national debt has increased every year from 1945 to 1995. The biggest increase of the debt was from the years 1985 to 1995 whwn it went up about three trillion dollars. Right after the Civil War the debt held at three billion dollars. In 1900, this debt of three million dollars had decreased to one million dollars. In 1919, at the end of the World War 1, the debt skyrocketed to 25.5 billion. When the Wall Street fell apart in 1929, the United States fell into something that was called the Great Depression. It started in 1930 and lasted until 1940. During this depression, President Franklin Roosevelt came in. He brought in projects known as Entitlements. Some of them were known as; WPA. TVA. and CCC. Then social welfare was born and social security began. This is what put our country into debt. Then came war, the end of the depression, and the Eisenhower times. The debt kept on growing so new president Lyndon Johnson developed new social welfare programs- Medicare, and Medicaid. The U.S. Government came up with the gold standard and stopped minting silver coins. The coins were then made from scrap pieces of metal and the cash became paper. Richard Nixon and Gerald Ford passed the debt and added to it. The first sign of bankruptcy occured during the Jimmy Carter Presidency. Inflation skyrocketed and interest rates fluttered near 20%. President Ronald Reagan made the economy act better, temporarily. To make the economy better, Reagan invented something called a credit spree. A credit spree in my opinion is when we go out and buy everything, but we put in on a charge (spending money we dont have.) The government cut taxes and increased spending. The deficit exploded, but the american people were happy using a credit card and charging everything. Republicans began using accounts about "supply side" and "trickle down" economics. "Corporate welfare prospered again, financed by more debt. "Between the years 1980 and 1990, the national debt quadrupled. In 1980, it was at approximately eight hundred billion dollars. Now it's five trillion dollars and increasing rapidly." To worsen matters republican presidential nominee, Bob Dole says that he wants to finish what Reagan began. Entitlemens and Handouts: Before 1930, all government spending in america totalled at about 11% of all spending. Now in 1996 it's 44% and still growing. Most of the money the federal government spends goes to entitlements. Entitlements are directed government checks to individuals. Social security is the biggest entitlement and the biggest item in our national budget. Politicians say that social security is where the money is at. The national government predicts that by the year 2002 the national debt will be at 6.507 trillion dollars. I think that the national debt will be a continuing battle throughout our lives. f:\12000 essays\business & economics (632)\The Necklace.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Necklace: A Closer Look at Character English 102 P Buss Essay 1 In any literay work, it is absolutely essential to have characters, whether major or minor. It is also necessary to develop these characters through out the story. Character development gives the reader insight to the more important meanings or lessons of the story. These lessons are usually brought out by the events that take place within the story. Looking at Guy De Maupassant's piece "The Necklace", we see a very clear development of the main character Mathidle. In the story, we see a change in her attitude about life. This change come about when she has to learn one of life's little lessons the hard way. She and her husband are forced to live a life of hard work and struggle because of her own selfish desires. Mathilde changes from a woman who spends her time dreaming of all the riches and glory she doesn't have, to realizing that she over looked all the riches she did have. The story opens with the description of how miserable Mathilde is. Maupassant describes her as "suffering constantly, feeling herself destined for all delicacies and luxeries." (Pg 4) She sits dreaming of silent rooms nicely decorated and her own private room, scented with perfume to have intimate "tete- a-tetes" with her closest friends. Then she is awakened, only to realize that she is in her own grim apartment. In her eyes, she lives a tortured and unfair life. Mathidle has a husband named Losiel. He is much the opposite of his wife. He is completely content with his lifestyle. He seems to be a very passive person, who doesn't let status or riches effect him. Of course, if he had the chance to be rich he would, but he doesn't dwell on the fact that he is part of the middle class. He seems ot be a hard worker and does his best to provide for his wife. He demonstrates is simplicity the one night at dinner Losiel and Mathilde sit down to eat. Mathidle is dreaming of fancy four course meals, while he is ecstatic because they are eating boiled beef. Losiel is aware that his wife has not yet adjusted to her status. One night, he had come home from work very excited. He had worked extra hard to get he and his wife invited to one of the biggest parties ever. Losiel thought this would be please his wife, when in fact it only made her upset. Here was Losiel trying to please his wife and she just started to cry. This just goes to show how ungreatful she really is. When Losiel had inquired about why she was upset, she had said it was because she had nothing to wear. She was hinting to her husband that she needed a dress. Then Losiel, because he wanted his wife to be happy had willingly given up his vacation money so his wife could have a dress to wear. Still, that wasn't good enough for her. Mathilde wanted more. Luckily, Mathilde had a friend in the upper class. She had gone to her friend and had asked to borrow jewlery for the occasion. This just helped to prove her need to have more. When she arrived at her friends house she had many things to choose from. Mathilde had seen all kinds of things that delighted her but one thing imparticular had caught her eye. "In a black satin box, a superb diamond necklace, and her heart throbbed with desire for it. Her hands shook as she picked it up. She fastened it around her neck, watched it gleam at her throat and looked at herself ecstatically." (Pg 6) She had gotten all she wanted. Once again, Mathilde's selfish desires had been fulfilled. After going to the ball and basically being the "life of the party", she returned home to her drab apartment, only to remember the events of the evening where she was in the sporlight and people looked at her. It was at that moment that she had noticed that the necklace was missing. She and her husband had searched everywhere for it yet, the necklace was no where to be found. For the next ten years Loisel and Mathilde worked their fingers to the bone to repay Mathilde's friend for the necklace that Mathilde had carelessly lost. They had to move to a different apartment, this worse than the last. They also had to borrow money from the various people to pay some of the finance charges they had aquired from owing loan sharks. It was in this time, that Mathilde had began to change. Psysically, " she had become the strong, hard , rude, woman of poor households. " (pg 9) But also there was a change on the inside , too . Sometimes she still sat and thought about her moment of glory and then thought about what her life would have been like if she would have never lost the necklace. She realized that her selfishness and desire to be "on top" had caused her to expierence the major down fall that she did. She also realized that she was at rock bottom now, her and her husband both, and she had put them there. Losiel in this time really didn't change. He just did what had to be done in order to pay for his wife's mistake. I don't think he complained about it either. He saw that she was working hard to correct her mistake and indeed was learning from it. Once again, Losiel was demonstrating his passiveness. Maupassant uses Mathilde as a round chacter. She is the one who changes or evolves with the events of the story. She learns that "one should be content with what one has" and " it's ok to dream, but not to let your dreams keep you from seeing reality. " Losiel then, is a flat character. He remains the same or is constant. With all the comotion in the story, Losiel manages to keep the same character traits. His life is effected yet, he's still the same person. Another example of a flat character is Mrs. Forriester. Even though her necklace is lost, it really doesn't have an impact on her character. She too, remains constant. Mathilde dreams of unattainable wealth and comfort yet, fails to see that her dream life ends up harming her real life. Maupassant does and exellent job of showing the transformation of Mathilde's character from a person who is selfish and ungreatful to a person who realizes that her mistakes and pays for it the rest of her life. Even though the story is fiction, Maupassant has made it believeable and lifelike. Someone reading this story could benefit greatly from it. We all must deal with selfishness at some point in our lives. Why not learn from other peoples mistakes , fiction or not. Bibliography De Maupassant, Guy. "The Necklace." Literature : An Introduciton to Reading and Writing , Edgar V. Roberts and Henry E. Jacobs. Upper Saddle River, NJ. Prentice Hall, 1995. 3-10. f:\12000 essays\business & economics (632)\The New Deal 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ "How well did the New Deal combat the Depression?" I think that the answer to this question is that it did very well and I would give it a grade of an A. When Roosevelt took office, in 1933, he had three goals in mind, to save the banks, save the people, and to rebuild the economy. He set his sights on returning the banks to their prosperous days of the pre-depression age. Since the beginning of the Depression, banks were closing faster than the people could withdraw all of their money. He countered this by closing all the banks and had Congress pass an Emergency Banking Act that made federal loans available to private bankers. At the same time he passed an Economy Act that required the government to balance the budget. These helped ease the financial problems throughout the nation and then he began to restructure the banking system with such acts as The Glass-Stegall Act and the creation of the Federal Deposit Insurance Corporation. He also set up the Securities Act and the securities Exchange Act that were overdue regulations for the Stock Market. In order to enforce all these new acts, he started the Securities and Exchange Commission. These actions got the banks and the financial system started in the right direction of what would be a slow recovery process. Roosevelt's next objective was to take care of the people. Though Roosevelt was a conservative, he realized the extreme need to help the poor. He had Congress respond promptly, and established the Federal Emergency Relief Administration that gave $500 million in relief to the poor people of the country. Roosevelt then went on to create organizations that would offer jobs and a sense of self-esteem to the unemployed of the country. One of these organizations was the Civilian Conservation Corps that provided young men with jobs to improved the environment. They had such jobs as planting trees and helping to stop erosion. Another government activity was the Civil Works Administration that paid unemployed people $15 a week to perform government projects. Many people during this time were also in jeopardy of losing their homes. To this, Roosevelt established the Homeowners' loan Corporation that allowed people to restructure or take out another mortgages on their homes. His ensuing step was to rebuild the economy. Roosevelt felt that recovery would not only come from relief efforts, but also with the cooperation from agriculture and industrial groups. Probably the most significant acts by him and Congress were the Agricultural Adjustment act and the national Industrial Recovery Act. These were fixed on the idea that by controlling production it would start economic recovery. In other words, if the made products become sparse the price for those products would rise and consequently sales would climb. This would then restore the balance of the normal market. They hoped that through all their efforts the final result would be prosperity. Roosevelt's actions at a time where leadership was needed immensely helped this country to return to its once prosperous hay days. His actions turned this country around for the better and brought our great country out of a very severe depression. f:\12000 essays\business & economics (632)\The New Deal.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The New Deal "How well did the New Deal combat the Depression?" I think that the answer to this question is that it did very well and I would give it a grade of an A. When Roosevelt took office, in 1933, he had three goals in mind, to save the banks, save the people, and to rebuild the economy. He set his sights on returning the banks to their prosperous days of the pre-depression age. Since the beginning of the Depression, banks were closing faster than the people could withdraw all of their money. He countered this by closing all the banks and had Congress pass an Emergency Banking Act that made federal loans available to private bankers. At the same time he passed an Economy Act that required the government to balance the budget. These helped ease the financial problems throughout the nation and then he began to restructure the banking system with such acts as The Glass-Stegall Act and the creation of the Federal Deposit Insurance Corporation. He also set up the Securities Act and the securities Exchange Act that were overdue regulations for the Stock Market. In order to enforce all these new acts, he started the Securities and Exchange Commission. These actions got the banks and the financial system started in the right direction of what would be a slow recovery process. Roosevelt's next objective was to take care of the people. Though Roosevelt was a conservative, he realized the extreme need to help the poor. He had Congress respond promptly, and established the Federal Emergency Relief Administration that gave $500 million in relief to the poor people of the country. Roosevelt then went on to create organizations that would offer jobs and a sense of self-esteem to the unemployed of the country. One of these organizations was the Civilian Conservation Corps that provided young men with jobs to improved the environment. They had such jobs as planting trees and helping to stop erosion. Another government activity was the Civil Works Administration that paid unemployed people $15 a week to perform government projects. Many people during this time were also in jeopardy of losing their homes. To this, Roosevelt established the Homeowners' loan Corporation that allowed people to restructure or take out another mortgages on their homes. His ensuing step was to rebuild the economy. Roosevelt felt that recovery would not only come from relief efforts, but also with the cooperation from agriculture and industrial groups. Probably the most significant acts by him and Congress were the Agricultural Adjustment act and the national Industrial Recovery Act. These were fixed on the idea that by controlling production it would start economic recovery. In other words, if the made products become sparse the price for those products would rise and consequently sales would climb. This would then restore the balance of the normal market. They hoped that through all their efforts the final result would be prosperity. Roosevelt's actions at a time where leadership was needed immensely helped this country to return to its once prosperous hay days. His actions turned this country around for the better and brought our great country out of a very severe depression. f:\12000 essays\business & economics (632)\The NewYork History.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Growth of NYS Business April 17, 1996 For a number of reasons, business enterprise in New York grew by leaps and bounds between 1825 and 1860. New York's growth between the years 1825 and 1860 can be attributed to a number of factors. These include but cannot be limited to the construction of the Erie Canal, the invention of the telegraph, the developed of the railroads, the establishment of Wall Street and banking, the textile, shipping, agriculture and newpaper industries, the development of steam power and the use of iron products. On October 26, 1825 the Erie Canal was opened. The canal immediately became an important commercial route connecting the East with the Ohio and Mississippi Valleys. With tht time of travel cut to one-third and the cost of shipping freight cut to one-tenthof the previous figures, commerce via the canal soon made New York City the chief port of the Atlantic. The growing urban population and the contruction of canals, railroads and factories stimulated the demand for raw materials and food stuffs. In 1836 four-fifths of the tonnage over the Erie Canal came from western New York (North, 105). Much of this cargo was in the form of agriculture goods. The farmer become a shrewed businessaman of sorts as he tended to produce whatever products would leave him the greatest profit margin. The rise of the dairy industry was by far the most significant development in the agricultural history of the state between 1825 and 1860. Farmers discovered that cows were their most relliable money-makers, since both the domestic and foreign market kept demanding more dairy products (Ellis, 273). Price flucuations became increasingly important for the farming population between 1825 and 1860. Prices rose from the low level of the early 1820's until the middle 1830's and the farmer's shared in the general prosperity (271). Although the rapid industrialization and urbanization of New York had a great deal to do with the success of agricultural markets sporadic demand from aboard as a result of the Irish famine, the Crimean War and the repeal of the Corn Laws in England also contributed(North, 141). During this period Ohio, Pennsylvania, New York and Virginia, in that order were the leading wheat growing states. Between the years 1840 and 1850 New York ranked first in the production of beef. The absence of politic party differences on issues related to the the growth of democracy existed in regard to the foremost economic questions, there was absolutely no partisan division evident in the movement to incorporate new financial institutions; rather , the primary factors , which the legislators examined, concerned value, feasibility, profit and the location within the state. Dozens of turnpike proposals, most of which werebacked by the Republicans, passed the legislature; but the Federalists cooperated, seeing the chance for profits. Prominent Federalists like John Rutherfurd, John Neilson, William Paterson, John Bayard, and James Parker invested susstanial sums in the turnpike business. There were numerous Republicans who were also vitally interested in the turnpike business (Kass, 150). Bipartisan support also accompanied plans for the construction of bridges and canals. All of the parties contained a large number of adherents from from every level of economic well-being in society. This helps to expain the absence of any clear-cut party differences on the major economic issues of the such as the chartering of banks, the protestive tariff, internal improvements, the development of manufacturing, and the promotion of superior agricultural techniques. Each politcal faction had segments both pro and con on most of these questions, and, inall cases it was opprtunism, the desire for profits, which was decisive in determining one's political position on these economic issues(175). New York's economic growth can also be attributed to the invention of the cotton gin. Cotton had become a boom crop in the south, however, plantation owners were either too engrossed in the production of their crops or too unschooled in business techiniques to handle its distribution. Some just did not want to be bothered. This opened thee door for agents representing New York shipping firms who were only too happy to help them out - for a fee. This scheme not only earned the New York merchants a handsome profit but also solved the problem that without cotton the ship owner would be hards preesed to find adequate cargoes for their return voyages. And so it came about that New York in the nineteeth century became the nation's foremost shipper of cotton(Allen, 108-109). The cotton shipments entering New York harbor were brought to textile mills for processing. A group of New york capitalist estashlished the Harmony Cotton Manufacturing Company in Cohoes. A heavy investment of capital caused the rapid growth of the factory system, which was mass production with integration of processes and produced a high quality cotton cloth as well as other textiles(Ellis, 266). This set the scene for an industrial society by widening the market, manufacturing increased rapidly throughout this period, although development varied enormously from industry to industry. Often developments were due to improvements in technical processes such as the adoption of steam power and the use of anthracite coal instead of charcoal by the iron industry. The metallurgical industries emplyed thousands for skillful workers who produced a variety of iron and steel products, such as farm machinery, pistols, sewing machines, clocks and stoves. These products were being produced using standard parts and multiple quantities(267). The iron industry made rapid progress as a result of this processas well as the expansion of the railroad industry which created increased demand for iron products. It can therefore be surmized that often growth in a one industry would cause increased demand for another industry's product, hence the boom of both industries. The growth of manufacturing was the main impetus to expansion , the industrial base broadened during this period, reflecting the overall improvement in factor endowments for manufacturing. Equally important was the cost decline in transportation, which opened up new sites for manufacturing development and reduced transport costs for existing firms (North, 208). Production increases required a retail market. In November of 1858, R.H. Macy established a department store in New York City successfully implementing a fixed price policy on a large scale developed by small New York stores since 1840 establishing a n American retail sales custom (Spann, 125). Some additional elements that should mentioned include the founding of the New York Tribune by Horace Greely, the development of the telegraph by Samuel Morse, the colaboration of six New York newspapers who joined to pay telegragh costs of foreign news relayed from Boston, and the establishment of a New York clearinghouse to facilitate banking operations. Research reveals that the reasons for the success of New York's business enterprise between 1825 and 1860 were enumerous with no reason weighting more heavily than another with the exception of as Ellis states that, "Plank roads, railroads, canals, steamships-all had revolutionary effects on the economy of New York. The predominately self-sufficent farmer of pioneer days was gradually tramnsformed into a specialized commercial farmer sensitive to every shift in the markets. The isolation of many rural communities was breaking down as citzensand goods flowed freely in and out. Merchants in both the upstae and metropolitan region, recognizing the crucial role of canals and railroads, looked with satisfaction upon the finest and most actively expanding transportation network in the country. New York grew steadily in population, wealth, and trade largely to the splendid system of water and rail transportation promoted by its citizens in this period.", but all entwinding to create a boom of business expansion during this period. It appeared as if we were developing not only as a state but as a civilized nation whenever this development would be curtailed by the onsloat of a civil war. Works Cited Allen, Oliver E. New York, New York: A History of the World's Most Exhilarating and Challenging City. New York: Macmillan, 1990. Ellis, David M., et al. A History of New York State. Ithaca: Cornell UP, 1967. Kass, Alvin. Politics in New York State, 1800 -1830. Syracuse: Syracuse UP, 1965. North, Douglas C. The Economic Growth of the United States, 1790-1860. New York: Norton, 1966. Spann, Edward K. The New Metropolis: New York City, 1840-1857. New York: Columbia UP, 1981. f:\12000 essays\business & economics (632)\The North Americam Free Trade Agreement.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Since the birth of this great nation in 1776, the United States has remained a dominant world power in many aspects. The American standard of living has been the envy of the world, powered by an economy rivaled by nearly no one. Our economy continues to be the rock with which the global economy can lean on, as evidenced by nations that rely on huge reserves of the dollar because of its stability as a means of settling international debts. Unfortuneatly, despite the solidity that our economy is so often associated with, we have accumulated a 5 trillion dollar (that's 9 zeros) national debt. Something has to be done about this colossal problem to ensure that the United States retains its status as a world power in the global economy. One vital catalyst to help promote growth and neutralize the massive account deficit and foreign debts is the North American Free Trade Agreement. NAFTA, for short, is one positive effort that not surprisingly, has met with the opposition of many. In light of this opposition, it is evident that NAFTA is accomplishing its primary goals and encouraging the growth of the American economy. NAFTA negotiations began on June 11, 1990 when former President George Bush and Mexican President Carlos Salinas de Gurtari met to discuss the possibility of revising current trade policies. The thing that set the NAFTA apart from other trade agreements historically was that it was to be the first trade agreement entered into between two industrial countries and a developing country. By much of the world the NAFTA is often viewed upon as North America's answer to the European trading bloc. Many provisions of the NAFTA take their roots in the Canada-U.S. Free Trade Agreement which became operational January 1, 1989. A target objective was to create free trade between the United States, Mexico, and Canada rather than a comprehensive economic union such as that of the European Community. Whereas the EC dealt with monetary exchange rate issues by implementing a standard in currency called the "Euro-Currency", the NAFTA would be off limits to such control. Like many issues today, this topic was hotly debated. Many people vehemently argued that job loss and low wages would plague the United States and Canada inflicting more damage on these two already struggling economies. The pro-NAFTA big business sector reportedly coughed up between 20 and 30 million dollars for lobbying. This seems to make sense considering that 86% of the companies listed on Fortune magazine's top 500 list has operations in Mexico. With the support of current president, Bill Clinton, the NAFTA passed through Congress late in 1993. The 2,000 page NAFTA plan details many things, one of the most important clauses being the reduction of tariffs. Over the next 15 years all internal tariffs will be reduced to zero for trade amongst the United States, Canada, and Mexico. Tariffs on "sensitive" goods such as agricultural products that require a longer adjustment period will remain in place for the full 15 years, while being subjected to incremental decreases each year. All in all there are 4 tariff classes, quite cleverly lettered A, B, C, and C+, to be reduced to zero eventually. Tariffs for the "A" class were void as of January 1, 1994. The "B" category will diminish at a rate of 20% for five years, the "C" class at a rate of 10% a year for 10 years, and finally the "C+" category which will stretch tariff reductions out over the full 15 years. Other than tariffs, NAFTA also eliminates things such as the costly need to convert drivers as merchandise rolls over the borders of a neighboring country. What all of this could do for the United States is quite clear. The most important objective is to improve the efficiency and productivity of the member countries to more effectively compete against foreign suppliers at home and abroad. The NAFTA imparts an export-led growth strategy to help solve the United States' account deficits. The premise behind the whole thing is quite simple. Once our nation experiences the expected increase in productivity, which in turn forces prices down, exports would ultimately increase. NAFTA will undoubtedly contribute to economic growth in Mexico, which will also increase the demand for U.S. goods and services in our neighbor to the South. A prosperous Mexico, which is already this country's third largest trading partner, would become a thriving market for U.S. exports. Another promising goal of the NAFTA is the amount of jobs it will create, not lose, in the American workforce. According to the book North American Free Trade, U.S. jobs are assumed to be created at the rate of 14.5 thousand new jobs per billion dollars of net improvement in the U.S. trade balance. The employment impact of the NAFTA will vary across the country but never be too significant in one area. It seems that the rationale of the typical NAFTA critic is that a wave of American jobs will be lost as companies make a run for the border or imports flood our market. This is not the case. It is estimated that perhaps 100,000 American jobs will be lost over the next 10 years due to NAFTA. Naturally, workers will be needed to fill all the jobs in our booming export sectors and the government is prepared to retrain these individuals to succeed in areas of the workforce such as this. If anything, the burden will fall primarily on the low-wage workers rather than the skilled, higher-wage workers. Evidence of this burden has yet to surface, this supported by a statement in the economic magazine appropriately titled The Economist proclaiming that some 3.5 million more American jobs have been created than lost since the NAFTA was put into operation. One more important effect that the NAFTA could encourage is a slowing of the flood of illegal immigrants that enter our country, with Mexico understandably being the largest contributor. At present this is a formidable problem in our country. The extreme number of immigrants surfacing in our country, approximately 1.8 to 3 million from Mexico alone put a huge strain on our economy. The main cause of this problem is the relentless search for higher paying jobs which leads Mexicans to stray across the border into this country, that or the new value menu at Taco Bell. By encouraging the Mexican economy to grow, the United States can focus less on harsh immigration policies such as California's Proposition 187 and more on correcting the problem currently at hand. Once this economy in Mexico begins to establish itself and experience any growth, labor laws and regulations will become increasingly more enforceable. Despite what may be thought by many Americans, The labor laws of Mexico nearly parallel those of the U.S. and in some instances exceed them, but without the funds or manpower to back them up, they are as worthless as the paper that they are written on. Keep in mind though, that sharp decreases in illegal immigration are not expected immediately, rather within the next two decades will the influx of these people be reduced significantly. Since NAFTA passed in late 1993 and took effect, it has lived up to it's promises. Ross Perot and his cohorts can gloat about the fact that U.S. imports from Mexico increased by about $6 billion dollars, but conversely U.S. exports to Mexico increased by $8 billion. If you get out your calculator and do the math, you can see that the U.S. is left with a $2 billion dollar net improvement in their trade balance with Mexico. North to Canada, our exports increased by 12.7% in the first 10 months that NAFTA has been functioning. If the Big Three automakers are any barometer of what is to come from NAFTA, this has been one of the wisest economic trade alliances this country could have entered into. According to the Commerce Department, Big Three automobile exports from the U.S. and Canada to Mexico for the first quarter of 1994 reached 9,925 units, compared with 9,479 during all of 1993. In addition, Chrysler, Ford, and GM are expecting a combined 55,000 cars and trucks to be delivered to Mexico in '94. As for the warning that auto industry jobs would be lost to the Mexican market, it is not foreseen anytime in the near future as a car manufactured in Detroit is now $600 dollars than it's equivalent counterpart manufactured south of the border due to the reduction in tariffs. The Commerce Department also backs this up by proclaiming that 130,000 American jobs have been secured. What needs to be understood is that there will always be two sides to this issue. Each faction will take and exploit a given statistic any way that they can to try and fortify their position. When separating the carefully gathered facts from the fiction, it is hard to see how the NAFTA has had any seriously detrimental effects has on the U.S. This trade agreement is certainly still very young, but apparently is reaching higher and higher levels as it boosts the economies of the member nations. As aforementioned, NAFTA was the focal point of heated debates for nearly 14 months, and during that period, the plights of many people began to surface, environmentalists included. Once again, the target for enraged environmentalists was the less developed Mexico. At present their ecological system is in shambles when compared to that of the other countries participating in NAFTA. When you look at it from the perspective of the nature buffs, you end up with a worst case scenario of sorts. They feel, if NAFTA remains intact, that a reduction in trade restrictions and the newfound competition will destroy the already damaged environment. Forced to be efficient and throw the occasional barrel of toxic waste into the groundwater supply or face bankruptcy, companies may resort to "environmentally unfriendly" means of dumping wastes. While stingy environmental standards remain in the U.S. and Canada, Mexico, which can escape such restrictions due simply to a lack of enforcement, will push itself up in the market costing American jobs. On the homefront, this also means that vegetables from Mexico may have a tendency to end up on our tables pesticide ridden as long as the trade laws permit them to be. In response to the pleas from groups such as the Audubon Society and Friends of the Earth, George Bush put environmental concerns front and center. He implemented the "Gephardt-Rostenkowski Resolution" which keyed on the environment and forces the president to report to Congress on progress toward meeting the objectives of an action plan. In essence, there is only so much that the U.S. can do to persuade Mexico to clean up it's act because provisions in NAFTA pertaining to environmental standards are not feasible at this point. Of late, Mexico has put forth an honest effort, as they enter the third year of a plan utilizing nearly $800 million dollars for projects such as nature preserves, solid waste disposal, and the cleaning up of the Mexico-U.S. border. Another government agency that has been receiving a significant increase in funds is the Mexican equivalent of the United States' EPA. Provisions concerning the environment and industry standards may escape NAFTA, but due to mounting pressure, they will not escape serious revamping at the national level. In conclusion, NAFTA, the brainchild of George Bush and Salinas de Gurtari, has many positive aspects that with a little ironing out could prove to be a dynamic economic catalyst for this country. By using this export-led growth strategy centered around a reduction in tariffs over a 15 year period, the member nations can achieve all that they hoped to. After about 2 years of NAFTA, the U.S. has shown formidable gains in it's economy. To avoid problems that critics argue such as job loss and depletion of the environment, the U.S., Canada, and Mexico can create policies on the national level to curb such things as these from happening. All in all, granted support from the constituencies of the member nations, NAFTA should be around for a while. The North American Free Trade Agreement Dave Brian Professor Brady 27 Nov. 1995 f:\12000 essays\business & economics (632)\The North American Free Trade Agreement.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The North American Free Trade Agreement Since the birth of this great nation in 1776, the United States has remained a dominant world power in many aspects. The American standard of living has been the envy of the world, powered by an economy rivaled by nearly no one. Our economy continues to be the rock with which the global economy can lean on, as evidenced by nations that rely on huge reserves of the dollar because of its stability as a means of settling international debts. Unfortuneatly, despite the solidity that our economy is so often associated with, we have accumulated a 5 trillion dollar (that's 9 zeros) national debt. Something has to be done about this colossal problem to ensure that the United States retains its status as a world power in the global economy. One vital catalyst to help promote growth and neutralize the massive account deficit and foreign debts is the North American Free Trade Agreement. NAFTA, for short, is one positive effort that not surprisingly, has met with the opposition of many. In light of this opposition, it is evident that NAFTA is accomplishing its primary goals and encouraging the growth of the American economy. NAFTA negotiations began on June 11, 1990 when former President George Bush and Mexican President Carlos Salinas de Gurtari met to discuss the possibility of revising current trade policies. The thing that set the NAFTA apart from other trade agreements historically was that it was to be the first trade agreement entered into between two industrial countries and a developing country. By much of the world the NAFTA is often viewed upon as North America's answer to the European trading bloc. Many provisions of the NAFTA take their roots in the Canada-U.S. Free Trade Agreement which became operational January 1, 1989. A target objective was to create free trade between the United States, Mexico, and Canada rather than a comprehensive economic union such as that of the European Community. Whereas the EC dealt with monetary exchange rate issues by implementing a standard in currency called the "Euro-Currency", the NAFTA would be off limits to such control. Like many issues today, this topic was hotly debated. Many people vehemently argued that job loss and low wages would plague the United States and Canada inflicting more damage on these two already struggling economies. The pro-NAFTA big business sector reportedly coughed up between 20 and 30 million dollars for lobbying. This seems to make sense considering that 86% of the companies listed on Fortune magazine's top 500 list has operations in Mexico. With the support of current president, Bill Clinton, the NAFTA passed through Congress late in 1993. The 2,000 page NAFTA plan details many things, one of the most important clauses being the reduction of tariffs. Over the next 15 years all internal tariffs will be reduced to zero for trade amongst the United States, Canada, and Mexico. Tariffs on "sensitive" goods such as agricultural products that require a longer adjustment period will remain in place for the full 15 years, while being subjected to incremental decreases each year. All in all there are 4 tariff classes, quite cleverly lettered A, B, C, and C+, to be reduced to zero eventually. Tariffs for the "A" class were void as of January 1, 1994. The "B" category will diminish at a rate of 20% for five years, the "C" class at a rate of 10% a year for 10 years, and finally the "C+" category which will stretch tariff reductions out over the full 15 years. Other than tariffs, NAFTA also eliminates things such as the costly need to convert drivers as merchandise rolls over the borders of a neighboring country. What all of this could do for the United States is quite clear. The most important objective is to improve the efficiency and productivity of the member countries to more effectively compete against foreign suppliers at home and abroad. The NAFTA imparts an export-led growth strategy to help solve the United States' account deficits. The premise behind the whole thing is quite simple. Once our nation experiences the expected increase in productivity, which in turn forces prices down, exports would ultimately increase. NAFTA will undoubtedly contribute to economic growth in Mexico, which will also increase the demand for U.S. goods and services in our neighbor to the South. A prosperous Mexico, which is already this country's third largest trading partner, would become a thriving market for U.S. exports. Another promising goal of the NAFTA is the amount of jobs it will create, not lose, in the American workforce. According to the book North American Free Trade, U.S. jobs are assumed to be created at the rate of 14.5 thousand new jobs per billion dollars of net improvement in the U.S. trade balance. The employment impact of the NAFTA will vary across the country but never be too significant in one area. It seems that the rationale of the typical NAFTA critic is that a wave of American jobs will be lost as companies make a run for the border or imports flood our market. This is not the case. It is estimated that perhaps 100,000 American jobs will be lost over the next 10 years due to NAFTA. Naturally, workers will be needed to fill all the jobs in our booming export sectors and the government is prepared to retrain these individuals to succeed in areas of the workforce such as this. If anything, the burden will fall primarily on the low-wage workers rather than the skilled, higher-wage workers. Evidence of this burden has yet to surface, this supported by a statement in the economic magazine appropriately titled The Economist proclaiming that some 3.5 million more American jobs have been created than lost since the NAFTA was put into operation. One more important effect that the NAFTA could encourage is a slowing of the flood of illegal immigrants that enter our country, with Mexico understandably being the largest contributor. At present this is a formidable problem in our country. The extreme number of immigrants surfacing in our country, approximately 1.8 to 3 million from Mexico alone put a huge strain on our economy. The main cause of this problem is the relentless search for higher paying jobs which leads Mexicans to stray across the border into this country, that or the new value menu at Taco Bell. By encouraging the Mexican economy to grow, the United States can focus less on harsh immigration policies such as California's Proposition 187 and more on correcting the problem currently at hand. Once this economy in Mexico begins to establish itself and experience any growth, labor laws and regulations will become increasingly more enforceable. Despite what may be thought by many Americans, The labor laws of Mexico nearly parallel those of the U.S. and in some instances exceed them, but without the funds or manpower to back them up, they are as worthless as the paper that they are written on. Keep in mind though, that sharp decreases in illegal immigration are not expected immediately, rather within the next two decades will the influx of these people be reduced significantly. Since NAFTA passed in late 1993 and took effect, it has lived up to it's promises. Ross Perot and his cohorts can gloat about the fact that U.S. imports from Mexico increased by about $6 billion dollars, but conversely U.S. exports to Mexico increased by $8 billion. If you get out your calculator and do the math, you can see that the U.S. is left with a $2 billion dollar net improvement in their trade balance with Mexico. North to Canada, our exports increased by 12.7% in the first 10 months that NAFTA has been functioning. If the Big Three automakers are any barometer of what is to come from NAFTA, this has been one of the wisest economic trade alliances this country could have entered into. According to the Commerce Department, Big Three automobile exports from the U.S. and Canada to Mexico for the first quarter of 1994 reached 9,925 units, compared with 9,479 during all of 1993. In addition, Chrysler, Ford, and GM are expecting a combined 55,000 cars and trucks to be delivered to Mexico in '94. As for the warning that auto industry jobs would be lost to the Mexican market, it is not foreseen anytime in the near future as a car manufactured in Detroit is now $600 dollars than it's equivalent counterpart manufactured south of the border due to the reduction in tariffs. The Commerce Department also backs this up by proclaiming that 130,000 American jobs have been secured. What needs to be understood is that there will always be two sides to this issue. Each faction will take and exploit a given statistic any way that they can to try and fortify their position. When separating the carefully gathered facts from the fiction, it is hard to see how the NAFTA has had any seriously detrimental effects has on the U.S. This trade agreement is certainly still very young, but apparently is reaching higher and higher levels as it boosts the economies of the member nations. As aforementioned, NAFTA was the focal point of heated debates for nearly 14 months, and during that period, the plights of many people began to surface, environmentalists included. Once again, the target for enraged environmentalists was the less developed Mexico. At present their ecological system is in shambles when compared to that of the other countries participating in NAFTA. When you look at it from the perspective of the nature buffs, you end up with a worst case scenario of sorts. They feel, if NAFTA remains intact, that a reduction in trade restrictions and the newfound competition will destroy the already damaged environment. Forced to be efficient and throw the occasional barrel of toxic waste into the groundwater supply or face bankruptcy, companies may resort to "environmentally unfriendly" means of dumping wastes. While stingy environmental standards remain in the U.S. and Canada, Mexico, which can escape such restrictions due simply to a lack of enforcement, will push itself up in the market costing American jobs. On the homefront, this also means that vegetables from Mexico may have a tendency to end up on our tables pesticide ridden as long as the trade laws permit them to be. In response to the pleas from groups such as the Audubon Society and Friends of the Earth, George Bush put environmental concerns front and center. He implemented the "Gephardt-Rostenkowski Resolution" which keyed on the environment and forces the president to report to Congress on progress toward meeting the objectives of an action plan. In essence, there is only so much that the U.S. can do to persuade Mexico to clean up it's act because provisions in NAFTA pertaining to environmental standards are not feasible at this point. Of late, Mexico has put forth an honest effort, as they enter the third year of a plan utilizing nearly $800 million dollars for projects such as nature preserves, solid waste disposal, and the cleaning up of the Mexico-U.S. border. Another government agency that has been receiving a significant increase in funds is the Mexican equivalent of the United States' EPA. Provisions concerning the environment and industry standards may escape NAFTA, but due to mounting pressure, they will not escape serious revamping at the national level. In conclusion, NAFTA, the brainchild of George Bush and Salinas de Gurtari, has many positive aspects that with a little ironing out could prove to be a dynamic economic catalyst for this country. By using this export-led growth strategy centered around a reduction in tariffs over a 15 year period, the member nations can achieve all that they hoped to. After about 2 years of NAFTA, the U.S. has shown formidable gains in it's economy. To avoid problems that critics argue such as job loss and depletion of the environment, the U.S., Canada, and Mexico can create policies on the national level to curb such things as these from happening. All in all, granted support from the constituencies of the member nations, NAFTA should be around for a while. f:\12000 essays\business & economics (632)\The Prinicple Of Utility.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Prinicple Of Utility The Principle of Utility A. Jeremy Bentham (1748 - 1832) There are two main people that talked about the principles of utility and they were Jeremy Bentham and John Stuart Mill. First off I'll talk to you about Mr. Bentham. It is helpful to see Bentham's moral philosophy in the context of his political philosophy, his attempt to find a rational approach to law and legislative action. He argued against "natural law" theory and thought that the classical theories of Plato and Aristotle as well as notions such as Kant's Categorical Imperative were too outdated, confusing and/or controversial to be of much help with society's ills and a program of social reform. He adopted what he took to be a simple and 'scientific' approach to the problems of law and morality and grounded his approach in the "Principle of Utility." The Principle of Utility 1. Recognizes the fundamental role of Pain and Pleasure in human life. 2. Approves or disapproves of an action on the basis of the amount of pain or pleasure brought about ("consequences"). 3.Equates the good with the pleasurable and evil with pain. 4.Asserts that pleasure and pain are capable of "quantification"-and hence of measure. As with the emerging theory of capitalism in the 18th and 19th Century England, we could speak of "pleasure" as "pluses" and "pains" as "minuses." Thus the utilitarian would calculate which actions bring about more pluses over minuses. In measuring pleasure and pain, Bentham introduces the following criteria: It's intensity, duration, certainty (or uncertainty), and its nearness (or fairness). He also includes its "fecundity" (more or less of the same will follow) and its "purity" (its pleasure won't be followed by pain & vice versa). In considering actions that affect numbers of people, we must also account for their extent. As a social reformer, Bentham applied this principle to the laws of England-- for example, those areas of the law concerning crime and punishment. An analysis of theft reveals that it not only causes harm to the victim, but also, if left unpunished, it endangers the very status of private property and the stability of society. In seeing this, the legislator should devise a punishment that is useful in deterring theft. But in matters of "private morality" such as sexual preference and private behavior, Bentham felt that it was not at all useful to involve the legislature. Bentham also thought that the principle of utility could apply to our treatment of animals. The question is not whether they can talk or reason, but whether they can suffer. As such, that suffering should be taken into account in our treatment of them. Here we can see a moral ground for laws that aim at the "prevention of cruelty to animals" (and such cruelty was often witnessed in Bentham's day.) (Cavalier) John Stuart Mill (1806 - 1873) "It is better to be a human being dissatisfied that a pig satisfied; better Socrates dissatisfied than a fool satisfied." For Mill, it is not the quantity of pleasure, but the quality of happiness. Bentham's calculus is unreasonable - qualities cannot be quantified (there is a distinction between 'higher' and 'lower' pleasures). Mill's utilitarianism culminates in "The Greatest Happiness Principle."(Cavalier) If I am asked what I mean by difference of quality in pleasures, or what one pleasure more valuable than another, merely as a pleasure, except its being greater in amount, there is but one possible answer. Of two pleasures, if there be one to which all or almost all who have experience of both give a decided preference, irrespective of any feeling of moral obligation to prefer it, that is the more desirable pleasure. If one of the two is, by those who are competently acquainted with both, placed so far above the other that they prefer it, even though knowing it to be attended with a greater amount of discontent, and would not resign it for any quantity of the other pleasure which their nature is capable of, we are justified in ascribing to the preferred enjoyment a superiority in quality so far outweighing quantity as to render it, in comparison, of small account. (Cavalier) The principle of utility tells us to produce the greatest balance of happiness over unhappiness, making sure that we give equal consideration to the happiness and unhappiness of everyone who stands to be affected by our actions. The principle of utility can be applied in two different ways. The first is to apply it to individual acts. How are we to do that? Well, we might ask ourselves every time we act which of the options open to us will maximize happiness, but Mill did not recommend that procedure because it would be much too time consuming. Since we know that lying and staling and cheating will rarely maximize happiness when everyone is taken equally into account, the sensible thing to do is avoid such behavior without worrying about the principle of utility. (Barry pg.8) The learning process of Bentham and Mill was very strange and different. They expressed things in there own words that were different from the rest of us, and the way we might think about pleasure and happiness. Trying to understand where they were coming from was hard to follow and to understand. To understand the meanings of happiness and pleasure are difficult and will very from person to person. So when you think about it you try to see it from there point of view, but you can only see it from your view. You may understand there what there expressing, but your though is what counts. B. Essays Essay one is about Welfare and Social Justice. To be more specific, is the argument that a person in need has no legitimate moral claim on those around him and that hypothetical inattentive society which left its blind citizens to beg or starve cannot rightly be censured for doing so. As seen from the individualist view. An individualist sets a high value on uncoerced personal choice. A person has every right, for example, to spend ten years of his life studying Sanskrit - but if as a result of this choice, he is unemployable, he ought not to expect others to labour on his behalf. No one has a proper claim on the labour, unless he can repay the labourer in a way acceptable to that labourer himself. He may also believe that, as a matter of empirical fact, existing government programmers do not actually help the poor. They support a cumbersome bureaucracy and they use financial resources which, if untaxed, might be used those with initiative to pursue job-creating endeavors. The thrust of the Individualist's position is that each person owns his own body and his own labour; thus each person is taken to have a virtually unconditional right to the income which that labour can earn him in a free market place. On the Individualist's view, those in need should be cared for by charities or through other schemes to which contributions are voluntary. (Barry pg. 333-34) Anyone that works for a living works for money and maybe because he likes it. Our society is made up many people that work and those that don't work and live off us. There is an individualist inside of everyone and with good reasoning that person will make the right decisions to set forth in his future. Arguments are what make up people and how we function in everyday life. Reasoning is part of your opinion and everyone else. The second essay directly contrary to the individualist view of welfare is what I have termed the permissive view. According to this view, in a society which has sufficient resources so that everyone could be supplied with the necessities of life, every individual ought to be given the legal right to social security, and this right ought not to be conditional in any way upon an individual's behavior. A person who cannot or does not find his own means of social security does not thereby forfeit his status as a human being. If other human beings, with physical, mental and moral qualities different from his, are regarded as having the right to life and to the means of life, then so too should he be regarded. A society which does not accept the responsibility for supplying such a person with the basic necessities of life is, in effect, endorsing a difference between its members which is without moral justice...(Barry pg. 334) If the Permissive view of welfare were widely believed, then there would be no social stigma attached to being on welfare. There is such stigma, and many long-term welfare recipients are considerably demoralized by their dependent status. These facts suggest that the permissive view of welfare be not widely held in our society. (Barry pg. 334) C. Outside Research Throughout this discussion of the individualist view, there has been an assumption made by all those who believe in the system. This is the idea that the rights of the individual must be respected, and that our system must serve to protect these rights. They are never exactly spelled out, but one assumes that they include the right to live freely without interference from the law unless one has committed a grievous crime against society. This leads us to a further question-and one that must illuminate our entire concept of the place of law in our society. The question is: Where do the rights of an individual end and those of society begin? (Cohen pg. 25) The system must perform a balancing act between protecting the individual and serving the needs of society. We have a system that claims to protect the individual from unfair treatment by laws or by society, and we have laws to protect society. And yet the question remains: at what point does an individual's actions become society's concern? (Cohen pg. 25) The ideas permissive view, regarding the individual liberty and the ideas embodied in the system, have a great deal in common. Both stem from a deep regard for the rights of the individual, and from a distrust of the power of the state. The long history of abuse of power carried out in the name of the state shows the ease with which states that have the legal means to impose their will on people do so. Moreover, the horrible tortures that have been perpetuated in the name of the public morality give one a healthy respect for the skepticism about the "benevolence" of the system. (Cohen pg. 42) Nevertheless, it is clear that this concern for individual freedom has its down side. It requires one to tolerate a certain lack to efficiency in the conduct of life and business. (Cohen pg. 42) Of social morality, of duty to others, the opinion of the public, that is, of an overruling majority, though often wrong, is likely to be still oftener right, because on such questions they are only required to judge of their own interests, of the manner in which some mode of conduct, if allowed to be practiced, would affect themselves. (Cohen pg.39) D. My view point Seeing things from my point of view, I'd have to agree with the argument of the Individualist view. Where each person is responsible for there own actions. They make there own decisions in life and should be responsible for them too. But in making those decisions there are consequences that you may pay for them. In our society there comes a time where we are working half the time for other people. And we have to accept that role in life. When we make money we can only spend about two0thirds of that because the rest of it is taken away for other peoples needs. That can be both good and bad, but I like to think that the money that I never see is going somewhere or to someone for a good reason. We all need help at some point in time, and I hope that after we get that help we can see that we've been helped and maybe now is a good time for me to help out someone else. Another means of money giving is to charity. Just like welfare, charity is another good reason for our society to help people or even groups that are in need for help or research. In our society there are many people that count on others for help. The people that need help for medical reasons or what have you deserve the right to benefit from charities or other outside donations. The one thing that our society can not do is take advantage of these actions and right them off on our taxes. We can not take advantage of the taxpayers money. We need to use our society in the best way we can ethically. Cavalier, Robert http://caae.phil.cmu.edu/CAAE/80130/part1/sect4/BenardandMill.html, 2/9/00. Barry, Vincent, Applying Ethics: A Text With Readings, Wadsworth Publishing, Belmount, 1983. Cohen, Warren, Ethics in Thought and Action, Ardsley House Publisher, New York, 1995. f:\12000 essays\business & economics (632)\The Problem Terrorism In The World.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Problem: Terrorism In The World Terrorism, which has been around for as long as people can remember, has been on the rise for the past ten years. Terrorists use murder, kidnapping, hijacking, and bombings to almost always achieve a political purpose. These radicals are not just subject to the United States, terrorism is all over the world, in every way, shape and form. There are many different types of terrorism, for many different purposes. The primary reason for terrorist acts are to force a change in their nation's government. If terrorists are not satisfied with there government's political positions, they may end up taking the matters into there own hands. Another reason for terrorist acts are because of hate towards a race, nationality, or religion. For example, in 1972 the Palestine Liberation Organization invaded Israeli dorms in the Munich Olympics, and held the Israeli athletes hostage until Israel would agree to release Palestinian terrorists that were captured in Israel. When Israel refused to comply with the terrorists demands, they blew up two helicopters which held the Israeli athletes, killing the whole team. This was one of the many cruel types of terrorism. In recent years, terrorism seems to be at a new high and attacks are more violent than in the past. With terrorism being so secretive and having no forewarning, it has been a real problem to deal with. The governments of many countries have tried to stop these cowardly acts, but they just seem to be on the rise. I have a few ideas that might work Solution: Since there are no fool-proof ways to predict when a terrorist will strike next, there can really be no complete answer to this problem. Even though there is no way to totally eliminate terrorism, my solutions may still prove valid. With the bombing of the World Trade Center, and the federal building in Oklahoma, rental moving trucks have been used to hold the bomb. An idea I have for this type of attack, would be to take a still photograph or a video tape of the people who rent the trucks, along with there Social Security numbers. I Would have installed in every rental truck an electronic fume detector that could be tied into a national satellite network, to let investigators know what kind of materials the truck is carrying. For example, if the truck was carrying dynamite, the sensor would relay the message to the satellite that this truck is carrying hazardous material. In turn, the dispatchers could send the message to the Federal Bureau of Investigations who then would send the bomb squad to the location of the truck, and arrest the individuals driving and defuse the bomb. It seems as though terrorists choose to place the bombs in parking garages below or inside buildings. Another idea I have for this is to screen all vehicles entering government buildings that may be a target for an attack. This in itself might make terrorists more leery about entering a building carrying any type of explosive device. The use of metal detectors on people entering government buildings along with dogs that can sniff out bombs in vehicles can also help the situation. One of the most lethal types of terrorist attack are hijackings on planes. There have been a number of hijackings, which then lead to a bombing of the plane in midair. In 1986, a Pan-American Boeing 747 airplane blew up in midair killing all passengers aboard. One of the leading terrorist groups took responsibility for this action. Again in the late 1980's a Transworld airline flight was hijacked and made several stops before commandos rushed the plane and killed some of the terrorists. Unfortunately, the terrorists had taken several lives on the plane and even dumped one of the passengers that they had killed, out of the plane onto the tarmac. One of the problems with these type of terrorists is that, it is too easy to get a bomb into the baggage section, under the plane. This is easy for them, because unlike carry-on luggage, the actual luggage is not X-rayed for contraband. Some of these bombs work off of a timer and ignite the bomb to blow up at a pre-determined time. Another type of bomb works off of the altitude of the plane. Once the plane reaches the set altitude, the bomb will explode. I suggest that the actual luggage should be scanned for explosives that would be dangerous to the passengers. Since the only luggage that is scanned at this time is the carry-on luggage, and individuals that go through the metal detectors. I recommend that all luggage being loaded in the belly of the aircraft, also go through a metal detector being scanned by trained eyes. This would prevent any bombs from being loaded onto the plane. Another type of plane bombing is called the "Suicide Bomber", this is a terrorist who straps the bomb to his body, making it harder to stop them from boarding the plane, because you cant see it by the human eye. Unfortunately, metal detectors don't pick up plastic explosives that a terrorist could carry on board. Another idea for this would be to have a bomb sniffing dogs at every metal detector, which could work in terms of stopping the bombs before they reach the plane. Of course, there will always be terrorists who would like to make a change in the policy of the government. And you will always have radicals who will want to take out their anger towards a particular race, religion, or nationality. One of the best ways to stop terrorism is, of course, by monitoring these groups closely for signs of illegal activity. First of all, the United States of America should form coalition groups with all of the other nations to monitor terrorist organizations of other nations. The FBI can be the main organization to receive and filter out all potential terrorist groups. Once the United States is aware of all the terrorist groups throughout the world and knows the groups here in the United States, the government will be able to get a tighter handle on the terrorist group's activities. Now that we can identify all of these groups, we have to be able to take out the bullets and bomb making equipment from there hands. To start with, anyone who would like to buy a gun will have to prove there intent on using it. They would have to supply social security numbers, drivers license, fingerprints, ballistics of the gun, and, of course, a picture of themselves taken by the sellers of the gun. This would help ownership of the gun in case it is used it an attack. Ammunition would have to be kept under the same kind of scrutiny as a gun, and all the same information would have to be taken down, as if they were selling a gun. Factories that produce chemicals, fertilizer, and anything else that could be used in the manufacturing of a bomb, would have to have a license to make these items. When any of these items are sold, all of the same precautions must be taken as if they were selling guns, or ammunition. In the case of someone buying mass quantities of any of these items, it must be reported and approved for sale by the FBI. As in the case of the Oklahoma bombing, the ammonia nitrate fertilizer, which was the main component in the bomb, that large quantity which would have first cleared with the FBI, before being sold. The FBI could have questioned the need for such a large quantity and made a final decision for the sale. If the buyers would have lied about the need of the fertilizer at least there would have been a picture tying the ammonia nitrate fertilizer to its buyer. We might not have been able to stop this bombing but all suspects would now be under arrest, preventing them from future bombings. Since terrorist acts are so cowardly, and the loss of life is so great, stiff penalties should apply. If the person is convicted of the crime, and the crime is murder in any degree, of any amount. That person should be locked up for life. I don't believe in the death penalty in this case, because it would just be putting them out of their misery. When they are sentenced, it will be in a four foot by four foot solitary confinement cell, with no visitors, and no exercise, ever. In conclusion, this report has tried to explain a couple ideas that may prove valid, when put to the test. The only test being real life. If these ideas can make a difference, and keep one more person safe from a terrorist attack, or deters one more terrorist from blowing up a building, than this report has been worth the effort. Bibliography: Adams, James, The Financing of Terror: The PLO, IRA, Red Brigades, M-19 and Their Money Supply (1986); Alexander, Yonah, International Terrorism, rev. ed. (1981); Alexander, Yonah, and Myers, Kenneth, eds., Terrorism in Europe (1982); Crenshaw, Martha, ed., Terrorism, Legitimacy, and Power (1982); Dobson, Christopher, and Payne, Ronald, The Terrorists, rev. ed. (1982); f:\12000 essays\business & economics (632)\The Qeustion of Equality.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Question of Equality Equality is the fundamental demand of the rebellion of the poor: it should be the ideological force behind the new society. How this egalitarian demand is understood is crucial to the distinction between the Democratic Revolution and the Marxist-Jacobin Revolution. The Marxist answer to the egalitarian demand is the dictatorship of the proletariat, which Maurice Duverger shrewdly describes as an accurate continuation of the Jacobin theory of terror: ". . .Man is born but capitalism corrupts him: In order to destroy the system of oppression, exploitation and alienation development by capitalism, violence must be used. Violence against the state, in the first palace, so long as it is in the hands of the exploiting classes: This means revolution. Next, when the working class has taken power, the force of the state is directed against the exploiters and used to destroy every trace of exploitation: this stage is the dictatorship of the proletariat." In a society such as ours, in which the rich are too few and the poor too many, the Marxist-Jacobinist approach has a ringing appeal. With the term proletariat, one simply substitutes the poor. By "expropriating the expropriators," or eradicating the rich, equality is achieved with one bold stroke. The trouble with this formulation, however, is that the dictator-proletariat is itself dictated upon by an all-powerful Party, while even among the poor there is a hierarchy of classes, beginning with the "advanced" proletariat, followed by the peasantry, the intellectuals and the petite bourgeoise. Moreover, there is a contemptible class, the lumpenproletariat, a term reserved for "the scum of the earth." Stated, therefore, in Marxist-Jacobinist terms, the rebellion of the poor is self-contradictory: it is unable to approximate the egalitarian idea. The reason for this lies in the heart of Marxism itself equality is exclusively regarded as a relation between social classes, hence, the solution to bourgeoise domination is proletarian dictatorship. In sum, while the domination is proletarian dictatorship. In sum, while the domination of one class is oppressive, the domination of another is not. But the egalitarian principle states that all men are equal, however their class, color, or creed; it is thus a condition of each and every individual in society. A man is not just a worker, a farmer, a teacher, or a capitalist: he deserves to be treated justly and equally as the rest not because of these social functions but because and simply because he is an individual human being. But the Marxist-Jacobinist equality depends on class, on status, which is contrary to the human concept of equality. It is for the reason that man in a totalitarian state is defined arbitrarily and persecuted arbitrarily by assigning him to a social class. How could this logical practical contradiction gain so much power and appeal? Partly because of coercion and pertly because of the fascistic tendencies of capitalism in underdeveloped societies. Communism was the only honest alternative in Tsarist Russia and feudal-warlord-colonial China. The democratic revolutionaries in these countries were neither sufficient nor strong enough; there was no sense of democratic revolution. Democratic institutions, no matter how weak or corrupted by the social system, are a pre-condition for a democratic revolution, or what is called, "revolution from the center." Its central problem, like that of the rebellion of the poor, is equality. Equality, moreover, that is necessary initiated in the political realm. Obviously, then, the fundamental task of drastic political reform it to democratize the entire political system. The high cost of election, for example, works against the egalitarian principle, for the rich man or the instrument of the oligarchic rich, have an edge against the poor. The literacy test discriminates against the illiterate, who, in the present-day state of mass communications, need not necessarily be less qualified than the literate. The minimum voting age is 21 discriminates against the 18-years olds, who are considered old enough to fight and die for their country. The oligarchic clutch on the political authority makes democratic rights the exclusive benefits of a controlling class. The Marxist-Jacobinist claims that political reconstruction is impossible without social revolution. On the contrary, political reconstruction can change society, as we are now changing society through a reorientation of our political authority. Political structure forms is by no means minor: it is, in the context of our experience, quite revolutionary. The gap between the humble citizen and the center of national power is considerably narrowed down. But what is of paramount importance is the advent of participatory democracy. The masses will no longer wait until controversies and issues of the day are crystallized for them by the debates of vested groups in the media; they crystallized the issues themselves, their opinions and sentiments are directly felt by the political authority. The old political system divided our people between the influential, principally on the basis of social and economic status. The new political system unites them into a citizenry with equal individual rights. Politics in the old society were essential a politics of conflict, the composition among individuals and groups for social domination. It was not a surprise therefore that the poor, the wretched, and the frustrated, got what they could out of the politics of conflict, since they never looked upon them as a force for authentic integration. If behaved indifferently towards government, only "coming alive" during elections, or whenever they sought favors rather than their due from it, it was because they believed that for the most part government was entirely at the service of the oligarchic and influential few. Their feeder roads, their schools, their bridges, were to remain unbuilt for one reason or another, while the private roads, schools, and mansions of the rich were easily constructed. There was no controversy about responding to the needs of the influential, there was always controversy about satisfying the needs of the many. All these came to be simple because the influential could disguise private greed with public concern. This state affair prevailed principally because of the dishonesty, intellectual and otherwise, in the public forums. The national interest, the common good, were daily betrayed in the same of "principles." But for the masses, the test of principles was the condition of their lives; all the rhetoric did not give them the sense of equality that they have now. This is something that cannot be taken away from them in the name of the civil liberties of the old establishment. Having known political equality, all the freedoms, let alone the freedom of expression, which were distorted in the old society, our people henceforth demand that all freedoms be considered under one supreme criterion: how will they serve the cause of the rebellion of the poor. Evidently, the egalitarian principle requires a reconstruction of our political values. f:\12000 essays\business & economics (632)\The Question of Equality.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Question of Equality Equality is the fundamental demand of the rebellion of the poor: it should be the ideological force behind the new society. How this egalitarian demand is understood is crucial to the distinction between the Democratic Revolution and the Marxist-Jacobin Revolution. The Marxist answer to the egalitarian demand is the dictatorship of the proletariat, which Maurice Duverger shrewdly describes as an accurate continuation of the Jacobin theory of terror: ". . .Man is born but capitalism corrupts him: In order to destroy the system of oppression, exploitation and alienation development by capitalism, violence must be used. Violence against the state, in the first palace, so long as it is in the hands of the exploiting classes: This means revolution. Next, when the working class has taken power, the force of the state is directed against the exploiters and used to destroy every trace of exploitation: this stage is the dictatorship of the proletariat." In a society such as ours, in which the rich are too few and the poor too many, the Marxist-Jacobinist approach has a ringing appeal. With the term proletariat, one simply substitutes the poor. By "expropriating the expropriators," or eradicating the rich, equality is achieved with one bold stroke. The trouble with this formulation, however, is that the dictator- proletariat is itself dictated upon by an all-powerful Party, while even among the poor there is a hierarchy of classes, beginning with the "advanced" proletariat, followed by the peasantry, the intellectuals and the petite bourgeoise. Moreover, there is a contemptible class, the lumpenproletariat, a term reserved for "the scum of the earth." Stated, therefore, in Marxist-Jacobinist terms, the rebellion of the poor is self-contradictory: it is unable to approximate the egalitarian idea. The reason for this lies in the heart of Marxism itself equality is exclusively regarded as a relation between social classes, hence, the solution to bourgeoise domination is proletarian dictatorship. In sum, while the domination is proletarian dictatorship. In sum, while the domination of one class is oppressive, the domination of another is not. But the egalitarian principle states that all men are equal, however their class, color, or creed; it is thus a condition of each and every individual in society. A man is not just a worker, a farmer, a teacher, or a capitalist: he deserves to be treated justly and equally as the rest not because of these social functions but because and simply because he is an individual human being. But the Marxist-Jacobinist equality depends on class, on status, which is contrary to the human concept of equality. It is for the reason that man in a totalitarian state is defined arbitrarily and persecuted arbitrarily by assigning him to a social class. How could this logical practical contradiction gain so much power and appeal? Partly because of coercion and pertly because of the fascistic tendencies of capitalism in underdeveloped societies. Communism was the only honest alternative in Tsarist Russia and feudal-warlord-colonial China. The democratic revolutionaries in these countries were neither sufficient nor strong enough; there was no sense of democratic revolution. Democratic institutions, no matter how weak or corrupted by the social system, are a pre-condition for a democratic revolution, or what is called, "revolution from the center." Its central problem, like that of the rebellion of the poor, is equality. Equality, moreover, that is necessary initiated in the political realm. Obviously, then, the fundamental task of drastic political reform it to democratize the entire political system. The high cost of election, for example, works against the egalitarian principle, for the rich man or the instrument of the oligarchic rich, have an edge against the poor. The literacy test discriminates against the illiterate, who, in the present-day state of mass communications, need not necessarily be less qualified than the literate. The minimum voting age is 21 discriminates against the 18-years olds, who are considered old enough to fight and die for their country. The oligarchic clutch on the political authority makes democratic rights the exclusive benefits of a controlling class. The Marxist-Jacobinist claims that political reconstruction is impossible without social revolution. On the contrary, political reconstruction can change society, as we are now changing society through a reorientation of our political authority. Political structure forms is by no means minor: it is, in the context of our experience, quite revolutionary. The gap between the humble citizen and the center of national power is considerably narrowed down. But what is of paramount importance is the advent of participatory democracy. The masses will no longer wait until controversies and issues of the day are crystallized for them by the debates of vested groups in the media; they crystallized the issues themselves, their opinions and sentiments are directly felt by the political authority. The old political system divided our people between the influential, principally on the basis of social and economic status. The new political system unites them into a citizenry with equal individual rights. Politics in the old society were essential a politics of conflict, the composition among individuals and groups for social domination. It was not a surprise therefore that the poor, the wretched, and the frustrated, got what they could out of the politics of conflict, since they never looked upon them as a force for authentic integration. If behaved indifferently towards government, only "coming alive" during elections, or whenever they sought favors rather than their due from it, it was because they believed that for the most part government was entirely at the service of the oligarchic and influential few. Their feeder roads, their schools, their bridges, were to remain unbuilt for one reason or another, while the private roads, schools, and mansions of the rich were easily constructed. There was no controversy about responding to the needs of the influential, there was always controversy about satisfying the needs of the many. All these came to be simple because the influential could disguise private greed with public concern. This state affair prevailed principally because of the dishonesty, intellectual and otherwise, in the public forums. The national interest, the common good, were daily betrayed in the same of "principles." But for the masses, the test of principles was the condition of their lives; all the rhetoric did not give them the sense of equality that they have now. This is something that cannot be taken away from them in the name of the civil liberties of the old establishment. Having known political equality, all the freedoms, let alone the freedom of expression, which were distorted in the old society, our people henceforth demand that all freedoms be considered under one supreme criterion: how will they serve the cause of the rebellion of the poor. Evidently, the egalitarian principle requires a reconstruction of our political values. f:\12000 essays\business & economics (632)\The Question Of Whether Or Not Marketing Is Completely Unethical.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Question Of Whether Or Not Marketing Is Completely Unethical The question of whether or not marketing is completely unethical is the question most critics of marketing seem to be focusing their attention on. Ethics provide the basis for deciding whether a particular action is morally good or morally bad (Britt 553). But, each individual develops different opinions, moral standards, and values. So, marketers will deal with similar issues differently because there is no "correct" way to handle any given issue. Marketers face various types of ethical issues in their everyday marketing activities. Such marketing activities that require marketing managers to utilize their moral values ethically are advertising, packaging and labeling, and global marketing. "Advertising is the most criticized of all micro-marketing activities (McCarthy 643)." What is considered as unfair or deceptive advertising is very difficult to pinpoint, because times have changed and continue to change on a day to day basis. What one person may consider unfair or deceptive may not be unfair or deceptive to another person. There are no clear cut guidelines for marketing manager's to go by, so they must utilize their own judgement based on their own moral standards. But, in the United States their is an administrative agency that has the power to control unfair or deceptive business practices. The Federal Trade Commission (FTC) was created in 1914 to prevent "unfair methods of competition in commerce (commercial trade) and unfair or deceptive acts or practices in commerce (Miller 590)". The FTC issues guidelines that define unfair practices and in some instances the FTC will investigate widespread complaints to seek settlement of the complaint. The FTC has also set forth specific rules to govern certain advertising practices such as bait-and- switch advertising. Bait-and-switch advertising occurs when a seller advertises a product at a very low price to lure in consumers, but when customers come in to purchase the product; the seller either doesn't have the product available or the product is of very low quality and the seller then encourages the customer to purchase a more expensive substitute. The Federal Trade Commission also enforces laws that govern packaging and labeling. In the past, there had been much criticism concerning packaging and labeling, so much that in 1966 the Federal Fair Packaging and Labeling Act was passed. The Act requires that labels must be accurate and easily understood by consumers. The Act also governs packaging descriptions and savings information that is disclosed on labels (Miller 529). Marketers face some morally difficult situation in which they must make ethical decisions. Such a situation could be: The marketer's Research and Development department has modernized one of the companies products. The product isn't really "new and improved", but the marketer knows that putting that slogan on the package and advertising it would increase sale. What should the marketer do? This is one type of situation that many marketers may face in their careers. If the marketer should decide in favor of such a decision his or her behavior would be considered immoral. But, if he or she doesn't decide in favor of the act then he she may be considered an inefficient manager. Marketing managers also face ethical dilemmas about whether their products help or hurt consumers in less developed nations. The marketer must evaluate the benefit and the risks of serving such nations, then he or she must weigh those benefits against the risks by using his or her on judgement based on what they feel is morally right or wrong. The marketer must also take in consideration the literacy level in such less-developed nations. Marketing ethics are moral standards that guide marketing decisions and actions (McCarthy, 26). Today's companies must form clear policies to guide marketers in their marketing decisions so they can be socially responsible individuals. The decisions that the marketer makes has a big influence on how others see the company. The employees must choose between what is in the best interest of themselves, the company, or that of society as a whole. f:\12000 essays\business & economics (632)\The Road To The Future.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Road To The Future... Is Here! At HAVOC Software we are looking out for your needs and your company's future! HAVOC Software is a software company that let's you design the program. HAVOC Software takes care of all the code! We are your personal application masters. The outcome of the program that we will write for you will be actually thought up by you, to make it 100% "you friendly". Simply, mail or E-mail exactly what you want your application to do. Tell us the purpose, how you want it to be used, and what data we will need to create your company a working, "you friendly" application. There is NO COST up front; after we read your visual description of the program you want, we will contact you and make sure what you want is what YOU want! It's simple....We write you a personal "you friendly" program and just GIVE it to you! You use it and pay us if you think it will help you and your company! How can you lose? No matter what kind of application you want developed by HAVOC Software, we can assure you it will fit your needs as well as be a easy way to use a graphical interface application. We will personally make sure our application will make you, your employees, and your company a more productive, futuristic, faster, and most of all, a smarter company. We are asking you, the person in charge, to consider our offer which will save your company time and money. Just give us a chance to make a working personal application for your company. "How is the Technical support?" Just imagine a genie living inside of a bottle who lives by your computer. And every time you need something, you just rub the bottle and bam! A genie Magically appears to help you with anything you want! HAVOC Software is that genie and has 100% technical support to help you through anything regarding the application we have designed for you! The program we created for you will also have 100% documented instructions on how to use and put your application to work. "Is there any boundary to what kind of program I want?" Is there a boundary to the knowledge that one can know?! Certainly not! The only boundary is your boundary. HAVOC Software's employees will be honored to work for you. And we will come together to make you a application so powerful and so "you friendly" that it will actually assist in jumping your company to the top of the competition. Copyright (c) HAVOC Software "How much is this going to cost my company?" The product we design for you will actually be FREE! But if you like the application we design for you and it actually makes a difference to your company's production and brings your company out of the dark ages and into the technical computer light, then we would accept payment of what you think it was worth to you. "Is the application going to work on my computer?" HAVOC Software is a IBM compatible company. The developing software we use is for Windows 95, Windows 3.X, and DOS 6+. Please make sure you state what kind of system you're using. At this time we do not support Macintosh , Windows NT and Unix, so make sure neither of these systems are resident on your computer. "Why are we doing this?" We are a group of high school students with a accumulative total of 15 years of computer knowledge. We all are pursuing careers in the computer world and feel this service will increase our knowledge as well as assist you in areas you may not have the time or expertise to explore. "OK, I want HAVOC Software to write me a friendly powerful application! So what do I do?" First write a letter explaining what you want your application to do. Explain your reason for the application. Tell us what kind of application you want (Windows 95, Windows 3.X, DOS). Tell us the best time to contact you. Forward the letter by US or E-Mail. A representative from HAVOC Software will contact you. IT's that simple!!! Copyright (c) HAVOC Software Other services HAVOC Software offers Data Entry On site $6.00 a hour Off site ((Call)specialized rates) WEB Page Design (Call) -US MAIL- HAVOC Software 10617 Viani Way Rancho Cordova, CA 95670 -E-MAIL- Kingfam@mail2.quiknet.com Copyright (c) HAVOC Software f:\12000 essays\business & economics (632)\The Shoe Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Shoe Industry The shoe industry is one of the biggest moneymakers in the market, but it's facing many changes, rushes, and difficulties. The big power in the industry is Nike inc. which all the other companies are trying to be like. Some changes are the industry as a whole is moving there factories to the far east such as China. The reason for this is they are trying to save costs for producing there shoes by paying there workers less because they are in the far east. Nike and Reebok have already been in the east. The shoe industry not including Nike inc. is trying to make rushes to be number one, two, and three. Another rush the industry is making, is the rush for the deadline of sports shoes. In other words coming up with shoes for the sports that are in season. The difficulties the shoe industry has are making shoes that all people wear such as setting a style for both inner city people and suburb people. Another difficulty the shoe industry has is getting its stock value to rise again because all but Nike and Fila's stock has dropped. This is what the shoe industry is all about and the difficulties, problems, and advances it has. There are four major companies in the shoe industry. The dominant industry is Nike inc.. Then going down the line is Reebok, Fila, and Adidas. Nike being the superpower has been in front of all the other industries for many years. Right now Reebok is the closest company to Nike and is $2,459 behind in value in MIL. Nike's earnings in the last quarter leaped 24% which has pleased Wall Street investors. With such earnings Nike announced a 2-to-1 stock split, its second in many years. Nike and Reebok are far ahead than the other companies because there factories are already in the far east, and other companies are just starting to build them. With Nike's earnings so high it'll be very hard for any of the companies to take over the number one spot. Also, it'll be hard to get the people's support in there products because most people have faith in Nike. Reebok number two in the industry is facing many problems. First, there is friction between the management spots for Reebok. Second, Reebok is having difficulty finding sports stars to endorse there products. Finally, Reebok's stock has dropped and is still dropping. The reason for this is the people do not prefer the shoes in how they look and how comfortable they are. If Reebok's stock continues to drop don't be surprised if Fila takes the number two spot. Fila has been spectacular in the market in the last four years Fila has increased its profits and taken the number three spot from Adidas. There are a few causes for this smart management, popular endorsers, and shoes. The shoes I am talking about are the Grant Hill's. These shoes made everything happen for Fila including getting the support of people behind there product. Fila plans to launch another offensive so it can surpass Reebok in the market, this offensive will include new Grant Hill shoes and many others. Finally, there is Adidas who is in the hunt for its number three spot back. After losing its three spot Adidas launched there own offensive rising there stock from 2% to 5%. In there offensive Adidas signed such stars as John Starks and Jalen Rose to endorse there products. Even with this offensive Adidas will not be able to compete with Nike and Fila. There are two things that will have an effect on these companies in the future, changing tastes and new competitors. I feel if you are going to buy stock in any of these companies you should buy stock in Nike and Fila. My reasons for you to buy in Nike are many. First, its stock keeps on rising suffering very small losses at few times a year. Second, Nike has always done well in meeting the consumers wants and needs. Finally, Nike has the number one endorsers who bring in profits. Such endorsers are Michael Jordan, Deion Sanders, and Penny Hardaway. The reasons for you to buy stock in Fila are very persuading. First, Fila has jumped up in the market passing such big names as Adidas, and Converse not hesitating to look back. Second, Fila has rising stars to endorse there products such as Allen Iverson, Jamal Mashburn, Mike Powell, and Grant Hill. Finally, Fila's next offensive sounds to be successful and could raise Fila to number two in the market. My reasons for you not to buy stock in Reebok are very strong. First, Reebok has kept on falling in the market not being able to stop itself. Second, Reebok has not been able to meet its consumers needs and wants. Finally, Reebok's management has a conflict which is not very pleasing to investors. At last Adidas would not be wise to invest in for two reasons. First, Adidas is just starting to move there factories to the far east putting them behind the top two. Finally, Adidas has not produced a shoe that has broke through and given themselves a boost in profits and in the market. f:\12000 essays\business & economics (632)\The St Catharines Standard.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The St. Catharines Standard I choose to do my essay on the St. Catharines Standard. The Standard is the St.Catharines and Thorold area newspaper. It provides us with the local news, advertising and it keeps us in touch with what is happening all over the world. It was first owned and runned by the Burgoyne family and was printed in St. Catharines but, was sold last year to Southam Inc. and has started to be printed in Hamilton. Southam Inc. also owns other papers such as The Hamilton Spectator,The Ottawa Citizen and The Kingston Wig. Here are some questions that I have made up about The Standard and I have found the answers for them. 1. How important is The Standard to our economy? The Standard is pretty important to our economy. It provides the peoples of St.Catharines and Hamillton with jobs. It also let's the local businesses advertise their business to the people and attracts businesses to St. Catharines. Which brings money to the city. And finally, I provides St. Catharines with the daily news about the city and all over the world. 2. What is the source and type of the paper and why is it used? The Standard gets their paper from wherever they can get it the cheapest. It is Recycled Newsprint. Recycled newsprint is paper that has been previously used paper that has been shredded, de-inked and then turned into pulp so it can make paper again. This type of paper is used because its economical, lightweight, recyclable and is available world wide. 3. What is the process of making the St. Catharines Standard? The First step in making the newspaper is in the advertising department. The workers in the advertising dept. sell space in the paper to local businesses for ads. This pays for the paper to be made. Then the ads are produced and are redied for the paper a day before it has to be made. After the ad space is sold the paper is sent up to the editorial room so they can look at the space not occupied by ads and decide what stories the need to fill up the paper. Now to make the paper! The pages are assembled and the ads and stories are cut and pasted on to boards. After that a negative is shot of the board. Then they take the negative and make a copy of it on a metal plate. They take the plate and mount it on the press. The pressman begin to roll the press, adjust the inks, check the colour and registration prints. The paper is then sent to the mail room and counted & labeled for its destination. They add the flyer and bundle them up. Then the finished paper is sent to St. Cathaines. The Circulation Department then sells the paper through stores, newspaper boxes and carriers. And that is how the paper is made! f:\12000 essays\business & economics (632)\The Standard.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ THE STANDARD I choose to do my essay on the St. Catharines Standard. The Standard is the St.Catharines and Thorold area newspaper. It provides us with the local news, advertising and it keeps us in touch with what is happening all over the world. It was first owned and runned by the Burgoyne family and was printed in St. Catharines but, was sold last year to Southam Inc. and has started to be printed in Hamilton. Southam Inc. also owns other papers such as The Hamilton Spectator,The Ottawa Citizen and The Kingston Wig. Here are some questions that I have made up about The Standard and I have found the answers for them. 1. How important is The Standard to our economy? The Standard is pretty important to our economy. It provides the peoples of St.Catharines and Hamillton with jobs. It also let's the local businesses advertise their business to the people and attracts businesses to St. Catharines. Which brings money to the city. And finally, I provides St. Catharines with the daily news about the city and all over the world. 2. What is the source and type of the paper and why is it used? The Standard gets their paper from wherever they can get it the cheapest. It is Recycled Newsprint. Recycled newsprint is paper that has been previously used paper that has been shredded, de-inked and then turned into pulp so it can make paper again. This type of paper is used because its economical, lightweight, recyclable and is available world wide. 3. What is the process of making the St. Catharines Standard? The First step in making the newspaper is in the advertising department. The workers in the advertising dept. sell space in the paper to local businesses for ads. This pays for the paper to be made. Then the ads are produced and are redied for the paper a day before it has to be made. After the ad space is sold the paper is sent up to the editorial room so they can look at the space not occupied by ads and decide what stories the need to fill up the paper. Now to make the paper! The pages are assembled and the ads and stories are cut and pasted on to boards. After that a negative is shot of the board. Then they take the negative and make a copy of it on a metal plate. They take the plate and mount it on the press. The pressman begin to roll the press, adjust the inks, check the colour and registration prints. The paper is then sent to the mail room and counted & labeled for its destination. They add the flyer and bundle them up. Then the finished paper is sent to St. Cathaines. The Circulation Department then sells the paper through stores, newspaper boxes and carriers. And that is how the paper is made! f:\12000 essays\business & economics (632)\The Theory of Storage.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Theory of Storage THE THEORY OF STORAGE. "THE SUPPLY OF STORAGE REFERS NOT TO THE SUPPLY Of STORAGE SPACE BUT TO THE SUPPLY OF COMMODITIES AS INVENTORIES. IN GENERAL A SUPPLIER OF STORAGE IS ANYONE WHO HOLDS TITLE TO STOCKS WITH A VIEW TO THEIR FUTURE SALE, EITHER IN THEIR PRESENT OR IN A MODIFIED FORM. SINCE PRODUCTION IS NOT STABLE FOR ALL COMMODITIES ESPECIALLY ARGICULTURAL CONSUMERS DEMAND THAT THE STORAGE FUNCTION BE SO PERFORMED THAT THE FLOW OF COMMODITIES FOR SALE WILL BE MADE RELATIVELY STABLE." (BRENNAN P. 51) "the theory purports to provide an explanation of the holding of all stocks, including those for which there is not an active future market. it will be shown that, on the supply side, in addition to the marginal expenditure on physical storage and the marginal convenience yield another variable, a risk premium, is required to explain the holding of stocks as functions of price spreads. in the empirical part of the study the theory will be applied to stocks of several agricultural commodities. the risk premium for each commodity will be measured residually under specified conditions by deducting form the price spread between two periods the other two components of the marginal cost of storage." (brennan p.50) IN GENERAL WE CAN OBTAIN A MEASURE OF THE RELATIVE RISK PREMIUMS INVOLVED IN THE STORAGE OF DIFFERENT COMMODITITES. "allen Paul, in a 1970 American journal of agricultural economics article, studied the pricing of grain storage space in the u.s. during the surplus period of the 1950s and 1960s. Paul's work differs from other works in that he investigates the pricing of all grain storage not just that available to a particular commodity. While brennan's marginal storage cost is from the point of view of the owner of the grain, Paul is looking at the first component only. he is only looking at the charge to owners of grain for binspace by elevator operators... while paul's estimated equations may suggest a traditional positively sloped supply function, he was forced to concede that, despite his assumptions of 'no convenience yield,' his estimated equation appeared to reflect this phenomenon. the study suggests that commodity contracts are an indirect means of pricing services." (book article p. 215-220) f:\12000 essays\business & economics (632)\the transferability of business methods.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 1818 The question states the transferability of business methods from one country to another, via Japanese techniques. However, in order to answer, we must define the term culture, as the term culture encompasses business methods, i.e. in order to adopt foreign business methods we must adopt its culture. In Needle's (1994) definition of culture he states, "A particular interest in business is the extent to which we can learn from the business experiences of other cultures and transplant ideas d eveloped by businesses in one culture and use then in a totally different setting." A major implication of the work of Hofstede (1980) and Trompenaars (1994) and other contributors to the knowledge about international culture and management is that "cultural interpretation and adaptation" are a necessary prerequisite to the comparative understanding of national and international management practice. Hofstede suggests that while 'hard - nosed' (short termist, task/result orientated) American or Anglo-Saxon approachs to business management may work well in Chicago, they may be counterproductive in Japan. More specifically, the procedure of international cultural adaptation may be applied to the three following areas: 1. Motivation theories, 2. Leadership concepts, 3. Management by Objectives (MBO) The three areas are described by Hofstede as symptomatic of the issue at hand. Hofstede states that "not only organisations are culture bound; theories about organisations are equally culture bound." Morden (1993) comments "There is no guarantee, therefore, that theories and concepts developed within the cultural context of one country can with good effect be applied in another. This implies that it is not possible for such theories to be 'universally valid'." In the UK, interest has been awakened by the considerable investment in the economy by major Japanese firms, who have entered certain key industries, such as motor manufacturing and electronics. Whilst taking advantage of investment incentives offered by the British Government, and the range of skills offered by British workers, these Japanese companies (e.g. Toyota, Honda, Panasonic, etc.) have also introduced several of their own personnel and production practices. These have been adapted to achieve the acceptance of the managers and workers concerned, especially in relation to production methods, quality control and management worker attitudes. A comparison between east and west industrial environments can simply illustrate culture differences., In particular, Britain versus Japan. Nevertheless, a number of Japanese management practices have been adopted very successfully in a British context (e.g. Nissan). One of the important general difference between Japanese and British companies lies in the way they are funded. For example, in Japan, there is much reliance on shareholders for the funding of business. Instead the major banks play the greater role in providing funds. One result of this is that the Board of Directors is more powerful than the shareholders' meeting. The Board determines the long term strategy of the company, appointing an Executive Board made up of senior direcors, which concentrates on short-term, operational issues. Most Japanaes directors have line responsibilities, and this gives the Executive Board a strong production emphais. A second difference is that the trade unions in Japan are company based rather than occupationally based, as in Britain. The company based approach to trade union organisation is a reflection of a unitary attitude towards employee relations. Thus, employees are only able to join their company union, whose primary aim will be to achieve lifetime job security for its members, and ensure, in collaboration with the management, the success and efficiency of the company, upon which everyone depends. This contrasts strongly with British trade unions, for example, where the emphasis is clearly on protecting and promoting the members interests, although naturally this in practice implies support for the employment opportunities offered by the business concerned. A third difference is that personnel policies in Japanese firms are based on a number of specific assumptions, which have to be seen against a background of loyalty to the company, and identification with its products and ultimate success. Cole (1996) describes it as, "a strong adherence to company culture." He exerts the key assumptions that lie at the root of Japanese employee relations are as follows: - the workforce will be composed of a core labour force supported by casual or part-time employees. - lifetime employment will be offered to core workers only - retirement of core workers at age 55 is insisted on - career paths for core workers are non-specialised, and job flexibility is a key feature of all work - pay is based on seniority - considerable attention is paid to employee selection and training - collaboration and team-working are seen as essential - the culture is egalitarian in which single status predominates - promotion is invariable from within the workforce. Fourthly, the organisation structure of Japanese companies, whilst still hiercachiacal, is much less dependant on formal, burecractic authority than on group consensus and individual expertise. Decision making processes in Japanese firms are focused on defining questions rather than on finding solutions. Thus, as all levels of the organisation are involved in this process, so an overall consensus on problems and priorties emerges. This consensus approach tends to reinforce feelings of loyalty and commitment from all concerned. Finally, particular attention is paid to production planning and quality issues. Points of interest here include:quality control is seen as the responsibility of every employee not just supervisors and an overall sense of teamwork and commitment to company business goals is encouraged. To see Japanese management practices have been adapted in the context of employee relations in the UK, Cole states the typical features of employment conditions in Japanese owned companies in Britain as: - Terms and conditions of collective agreements are held to be binding on both sides - There is a 'no strike' clause in procedure agreements - Single status applies, i.e. all employees are staff, receive annual salaries and the share the same facilities. - Selection if rigorous and training is thorough. - Great attention is paid to the quality of work and the efficiency of systems. Japanese firms investing in Britain have undoubtedly been able to take advantage of a situation which was favourable to them, i.e. unemployment in the areas selected for investment has been high, enterprise zones have been made available from government and trade union power has been diminishing. However, it is clear that such firms have won the support of their workers, who have demonstrated their ability to collaborate positively with the Japanese styles of management to produce quality products. What is interesting to note is that many of the practices mentioned are by no means new to British management. The pay off for the Japanese companies who have invested in Britain is that they have been able to provide themselves with regional manufacturing bases from which to launch their products into Europe at a time when that continent is steadily becoming one vast market. Now to consider an actual example of transferability. Harrision (1991) describes the UK industrial environment through British peoples attitude in the early 1980's. That is, that the main incentive is money, the enforcement of company rules is not strict and the improvement in working practices and productivity is purely managerial. Whilst Japanese attitudes towards work vary significantly. He states "the majority of Japanese workers committed themselves to a full days work, adhered strictly to company rules and procedures and strived to improve". Harrison obtained his comparative view after the decision to establish a Japanese company in the UK. Harrison set out to create an ideal management approach which would be strong enough to compete with Japanese companies in Japan. It comprised ways of life, the nature of people and customs for conducting business. In the different Western environment, he could not introduce the Japanese way directly. The route that he chose was to set out to transform the essence of the successful Japanese way into a new way which would be successful in the Western environment. Firstly, he listed the good aspects of the Japanese way. Then he developed the essential points of the Japanese way by discarding Japanese specialities such as tradition and habit. Finally, he added back Western specialities to the essential points to develop a 'successful Western way'. For example: Japan has a long history of rice farming in small fields, where people who formed small communities could not survive unless as a team. Flexibility and small group activity was maintained because the need to start from scratch due to the second world war. Teamwork benefits the industrial envirobnment. However, he could not use the team spirrit tradition as in Japan, and instead replaced with with the western sport and games. His other aspects included, loyalty to work, and flexibility of work. Here the speciality is interest in challenge of hobbies. If companies can provide individual memebers with opportunities to develop their own interest, such people become flexible in work. Dunning (1986) asked affiliates themselves what working practices did they think difficult to transfer from Japan. He states: "There was a strong feeling among both Japaneses and UK managing directors and personnel managers that while most Japanaese style personnel practices could be satisfactorily introduced into the UK environment ('after all,' quipped one UK personnel director, 'they are common sense') there remained a fundamental difference between the attitudes to work by Japanese and UK workers." How far will these differences in anglo-japanese culture and work ethic, which is believed as the most signigicant non-tranferable reasons for differences in the performance of the Japanese worforce, will last as they beome multinational, remains to be seen. Neither should it be assumed that one culture or ethic is preferable to the other. Hence, it may well be that as Japanese particiapation grows in the UK industry, Japanese personnel polices will need to be more carefully and selectively approached to take account of the idiosynchrasiess of the individuial UK worker and the labour environment than has been necessary up to now. Countries should recognise the strengths within individual cultures and use those strengths to make the essential points work for them in creating their own management style as clearly seen by Harrison and work effectively. The objective is to make each country and its people wealthy and prosperous. To achieve this, all people must strive to work creatively and with good application. BIBLIOGRAPHY 1. How to make Japanese managament methods work in the west. Kazuo Murata and Alan Harrison, Gower Publishing (1991) 2. Japanese Participation in British industry. John H. Dunning, Routledge (1986) 3. Management theory and practice. G A Cole, DP Publications (1979) 4. Riding the waves of culture. Fons Trompenaars, The Economist Books (1993) 5. Business in Context. David Needle, Chapman & Hall (1994) 6.Culture's consequences: International differences in work-related values G Hofstede, Sage Publications (1980) 7. Business Strategy & Planning Tony Morden, McGraw Hill (1993) f:\12000 essays\business & economics (632)\The Trend Towards Fewer and Larger Farms as Economic Growth Occurs.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Trend Towards Fewer and Larger Farms as Economic Growth Occurs The structure of US agriculture has been shaped towards less but the farms are larger. In the early times of this country, people could make a living on the 160 acres they had received from The Homestead Act of 1862. This act gave families clear titles to 160 acres if they had lived on it for five years. Though in today's changing world farmers have been forced to increase the sites of their operations or go out of the farming business. The farming business is a way of life to most of those who do it and do not want to quit doing it now but with the off of the farm incomes increasing all of the time it is making farmers change their way of life. The Agriculture Economics and Agribusiness textbook, sixth addition, says that there are three classifications of farms by economic size. The first classification is the expanding sector . This sector sales more than $100,000 per year of farm products, it is 16% of the farms in the US. It also produces 80% of all of the farm outputs or products in the US. The farms in this sector produce nearly all of the farm products produced the US but are only contribute to small parts of the farms in the US. The expanding sector of agriculture numbered 271,000 farms in the 1980's. This number increased to 326,000 farms by 1991. The off of the farm income of this sector is only $20,847 per farm. The total income per farm averaged $180,276 per year. This sectors main income comes from farming and very little of its income comes from off of the farm jobs. This sector is growing because there is becoming more big farms that produce most of our food. The second sector is called the declining sector. This sector includes the farms that sold products between $20,000 and $99,000 worth of products a year. Those farms decreased from 637,000 in 1980 to 549,000 in 1991. These farms produced only 16%of the total farming output. The income for those farms operators averaged $47,018 per farm in 1991. This used to be the most popular sector of farming people made there living off of small farms like this but within the last 20 years this sector has decreased growth and is decreasing more all the time. These small farms are either being bought out by the larger farms or the owners of these farms could not make a living at it. With the declining of this sector, it is leading more people to off of the farm jobs and is decreasing the agricultural world. The third sector of the three is the noncommercial farms, or the hobby farmers. These farms totaled 1,229,000 in the US in 1991. They produce a very small percentage of the products produced in the US. This sector total income equals $35,163 per year. Over 100% of this income comes from off of the farm jobs. This income equaled $35,206 a year on the average, this sector loses $43 a year in the farming business. These people do not mind taking the loss because they have other jobs and just farm as a hobby, part time or retirement operations. The farming world has changed a great deal in the past twenty years with new technology one person can do more so the size of the farms keeps growing. Although, with all of the cost of this technology, the small farms cannot compete with the big ones. Therefore, there are more and more of these farms going out of business. The three sectors of farming I talked about earlier covers all farms in the US. The first sector is growing because it takes more land and capitol to make a living from this day in time than it did in years past. The second one is getting smaller all the time because the small farmers like this cannot make a living still and are selling out to the large farms and moving to town. This group hurts the second sector because they do not mind taking losses by selling their products for less, they just farm for fun . The farms in the US are getting fewer but the size of these farms are growing. I think in the next twenty years we will see fewer farms but the sizes will be comparatively larger than they are today. f:\12000 essays\business & economics (632)\The unemployment problem in Hong Kong.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Introduction The unemployment rate became a hot topic in the past few months when it rose to 3.5 per cent, a recent high for almost 10 years. The jobless rate was higher than the 3.2 per cent unemployment rate recorded in the May to July period. The underemployment rate in the June to August period rose to 2.5 per cent from 2.3 per cent in the May to July period. Until recently, most workers who lost their jobs were from the manufacturing sector. They were middle-aged factory workers with few skills and little education. But in recent months a large number of employees have been laid off in the retail and restaurant businesses. Unemployment has spilled over to the service sector from manufacturing sector. Hong Kong is facing a prolonged economic downturn. The high unemployment rate has raised many social and economic problems. For example, the number of people who commit suicide is increased. It is because more people had lost their jobs for a long time. It is a serious threat to the lives of the poor. The unemployed people may also feel that it is unmeaningful to live. As a result, they will commit suicide to solve the problem. Moreover, the high unemployment rate results in the increase of the rate of crime. There was an unemployed man who stole rice because he was too hungry and he did not have money to even buy food! We can know how serious the unemployment rate is. By the way, higher unemployment rate causes lower purchasing power of people. A lot of kinds of business are affected. Many people lose confidence in economics of Hong Kong. They do not believe unemployment will be improved. Some say that the Government should provide immediate assistance for the jobless. Some also say unemployment is due to the attraction of cheap labor across the border. The Government can no longer play the role of a bystander. All of these above show the influence of the unemployment. In spite of how many people who have talked about the topic of unemployment, everyone will be concerned about this topic. The following sections will analyze this hot topic. Reasons for unemployment in Hong Kong 1. Faster growth in total labor supply relative to that of total employment In 1993 and 1994, the increase in Hong Kong labor force is 2.9% and 3.5% respectively. At the end of 1993, the total labour supply is 2 970 000. Change in the total labour supply is determined by the population growth, total employment and the emigration condition. If the population growth and the total employment is stable, the extra labour supply will increase the total labour supply. This extra labour supply are mostly from the influx of illegal immigrants from China, imported labour ( 30,000 ), hiring of expatriates ( net increase is 40,000 from 1992 to 1994 ) and the returnees from overseas. Thus, the supply of labour is greater than the demand and gives pressure on employment. From March to May of 1995, the total labour supply had risen 4.4% but the total employment had just increased 3.6%, so this aggravated the unemployment rate. However, this is just a superficial reason. The following reasons can explain the reason of unemployment in a deeper way. 2. Change in the economic structure The economic structure in Hong Kong has changed from labour intensive to high technology and large capital intensive. Also, it changes from manufacturing oriented to service oriented industries. Therefore, the manufacturing factories move to China for cheap labour. From 1988 to 1994, there are 60,000 jobs lost each year. Of the total employment of different sectors, the portion of the manufacturing industries drops from 27.4% in 1990 to 17% in 1994. Many labour are released from the manufacturing industries. Though there are a great demand of labour in the service sector, many of the unemployed still cannot find their job because of job matching problem. They do not have the skills demanded in the job market, so there are both a lot of vacancies of jobs and a lot of unemployed labour. This kind of unemployment is called the structural unemployment which is a kind of involuntary unemployment. 3. China Policy Recently, the Chinese government tries to control the economy by macro policy such as implementing the contractionary monetary policy , inflation control policy. This leads to the slow down in the Chinese economy. The flow in of the Chinese capital to Hong Kong for speculation and investment reduce. This affects Hong Kong's economic growth simultaneously. In the past, the prosperous China-Hong Kong trade motivated the purchasing power in the service sector of Hong Kong. However, there are some changes in the investment environment in China recently. Firstly, it is the high inflation rate. For the past two years, the inflation rate was about 20%. Under the macro policy, the recent figure is 18.5% which is still quite high. Secondly, the government begins to raise the property tax. With these two factors, the profitability of investing in China decreases. Therefore, the purchasing power of Hong Kong's service sector is directly affected and so many labour are being dismissed. 4. High rent and high inflation rate 8 years continuous high rent and high inflation rate make the production cost of the Hong Kong enterprises, especially the labour cost , increase tremendously. On one hand, this encourages the enterprises move their labour-intensive industries to other place where the labour cost is cheaper. On the other hand, these enterprises try to dismiss labour or reduce the engagement of work force but change to more capital and technology dedication in order to reduce the production cost, increase standardization and productivity. Also, many enterprises could not stand the high rent and closed down, such as the Japanese department store, Mitsubishi. A lot of labour are then released out and become unemployed. 5. Non-intervention government policy The Hong Kong government lacks long term planning in the economy. They just try to adopt a non-intervention policy to the economic problems. In fact, in 1980s, the economic structure was changing. The manufacturing industries were declining. However, the government did nothing to help. Also, the government, for a long time, ignores the research and development of the high technology application. Thus Hong Kong's industrial technology cannot not catch up with the other three dragons. This explains why the productivity of the Hong Kong people is reducing recently. In 1990-1994, the productivity of Hong Kong labour is 3.8% but Taiwan and South Korea is 4.8% and Singapore is 4.5%. From this , we can see that the competitive power of the Hong Kong industries is weakening and high unemployment rate is inevitable. Government carries out high land policy which leads to a tremendous rise in the property price, so the rent of the shops and factories increases. The widespread implementation of the sewage treatment charges also increase the production cost. This is also a reason why the factories move to the north or close down. 6. Labour importation scheme Is it the main reason responsible for the rising unemployment rate in Hong Kong? a) The viewpoint of the government Government economist Tang Kwong-yiu said that the labour importation scheme is not the main responsible for the rising unemployment rate in Hong Kong. He attributed it to the faster growth in total labour supply relative to that of total employment. Students looking for summer jobs have aggravated the unemployment problem during the last three months. Also, the influx of illegal immigrants from China, the return of overseas Chinese and the hiring of expatriates also aggravated the job shortage. However, Mr. Patten proposed replacing the Labour Importation Scheme with a Supplementary Labour Scheme that would aim to cut the number of imported workers from 25,000 to 5,000 from January. b) The viewpoint of Democratic Party Though the labour importation scheme is not the main reason, it's implementation aggravates the unemployment problem. They believe that the change in the economic structure is the main reason. The problem became obvious in the mid 80s as many factories moved to the north. However, the government did not intervene. They still want a termination of the scheme so that the problem can at least be lessen at the mean time. c) The viewpoint of the labour union They believe that the this scheme should be stopped at once. They were disappointed by the Governor's failure to scrap the imported labour scheme for the new airport project. Construction workers would continue to see their jobs being taken by foreign laborers. Unionist Lee-Cheuk-yan said that in Hong Kong, we don't need any imported labour, not even 5,000. d) The viewpoint of the economists i) Mr. Lui from the Economic Development Research Center of HKUST A research has been done and the result is that the change in the economic structure contribute 60% for the rising unemployment rate. The labour importation scheme is just a minor factors and the influence to the labour market is not significant. The scheme is not just carried out in Hong Kong but also in USA and Germany. But we cannot see that imported labour has significant influence on the unemployment rate. This is because imported labour though take away the job of the local labour, at the same time they create job opportunities for them. If the company employees imported labour, the production cost can be reduced. This will keep the enterprises from moving to other places or even will attract more investors to Hong Kong. This will benefit the local labour. ii) Mr. Wong from the Management Department of Lingnam College He does not agree with the research of Mr. Lui. He believe that though the importation scheme is not the main reason , it is the root of the sin. The influence that bring to the economy is not insignificant. What's wrong with this scheme is that the government officials ignore the opinion of the public and make this scheme as a long term policy. Also, the imported labour are widely employed in all kinds of job, so the government has not considered the employment problem of the labour released out from the declining manufacturing industries. Despite the effect of the labour importation scheme, this economic argument has changed to a political issue for difficult political party to gain votes in the election and support. They all try to bargain with the government officials and propose bills to debate in the Legislative Council for a termination of the scheme. Donna In previous parts, we have explore the reasons of high unemployment rate recently, how we will begin the part that describe the situation of Hong Kong's unemployment. It includes description about the current unemployment situation and the changes on unemployment rate in the past 10 years, as well as the underemployment rate. Also, we will analyze the change in our labor force. In the second part, the unemployment rate in specific sectors will be analyzed so that it can help to study the structural change in the unemployment rate. Also, the reason of the structural change will be analyzed. A. Unemplopment, Underemployment and duration of unemployment 1. Unemployment in HK The recent unemployment figure in the 2nd quarter of 1995 is 3.2%. It is the highest figure in the past nine years. Many people as well as the government are announced of this significant increase in unemployment rate. It is concluded that unemployment in HK changed from short-term to long-term. The unemployment in 1989 is 1.2%, it gradually jumped to 3.2% in 1995, there is continuous increase year to year, but no decrease in this 7-year period. Before, problem of higher unemployment rate only extended from 2 to 3 years. This description of figures show how unemployment change from short to long term. Also, a graph is presented to show the changes of the unemployment rate in the past 10 years. 2. Underemployment in HK When a person who work for pay less than 35 hours in a month, he is said to be under-employed. In the 2nd quarter of 1995, the underemployment rate reached 2.1%. There are about 589,000 people who are under-employed. There, we will also present the figures in the past 10 years in a graphical form which can help to detect the degree of changes. 3. Duration of unemployment In 1994, there are 21,000 persons unemployed for more than 3 months , it contributed 26.2% of the total number of unemployed workers. The figure jumped to 31,000 in 1995, the contribution also increased to 31%. The data help to conclude that the duration of person who are unemployed extended very much. Before, they are temporarily unemployed, but they can soon find a new job within a short period. But now, they have to face a permanent problem of losing job. A set of data further illustrates the worse situation. The number of persons unemployed for more than 6 months in 5 recent quarter are presented in a table. B. Structural change in unemployment According to the statistical data, the nature of unemployment rate changed very much. Before, labour in manufacturing sector suffered most from economic slowdown and change in economic structure. However, the retail and service sector also face this problem. The unemployment problem extended from manufacturing sector to nearly all industry in HK. In this part, we are going to analyze the structural changes and explore the reasons leading to these changes, particularly in the manufacturing, retailing, service and construction industries. 1. Manufacturing sector In 1987, the manufacturing sector employed about 800,000 workers, but it gradually drop to 395,000. In the sector, there is an average decrease of 50,000 to 60,000 persons employed. The unemployment rate particular in the manufacturing industry from 43.9% in 1989 to 53.6% in 1994. There are several reasons explaining the increase. Firstly, owing to economic slowdown and structural change, the manufacturing industry is badly affected, many firms were closed. To save cost, the factories move their production line to mainland China to take advantage of cheap labour. It left many local workers unemployed. In addition, the workers in the manufacturing industry are of low skills, and they are incapable to find other job requiring special skills. Another reason is which is controversial is the importation of labour. Because their wages are lower, local workers are replaced by them because the manufacturers want to save cost. As a result, unemployment become more serious in this sector. 2. Retailing sector Before, local retailing industry prosper from 1980s due to economic growth and full confidence of investors to make investment in HK or in China. But in recent years, retail industry also suffer a slowdown. According to statistical data, in the past 3 years, the retail industry has an average 1.9% growth in sales volume. However, in April 1995, the figure decreased for 2% compared with the same period in last year. Also, unemployment rate in this sector increased. In first quarter in 1995, the total unemployment in retail industry contribute 30% of the economy's total, which it the second highest share, while the largest share is the manufacturing industry. 3. Service industry Service industry continuously grow in the 1980s and early 1990s. Many people are employed in this sector. However, it also suffered from the economic decline in recent years. Service sector includes the hotel service, transportation service, food and beverage, financial and asset management, etc. In the service sector, there are about 15,000 people unemployed in 1995, which represents an 21% increase compared with last year. It is higher then the total unemployment figure in the manufacturing industry. The reasons are basically the same in explaining high unemployment rate in both the retailing and service industry. Again, economic slowdown lead to reduced investment and consumption of goods and services. Also, economic decline in China also reduced investment projects in the Mainland, thus demanding less service. With high inflation rate, people are more sensitive on the way they spend money. Now, they spend less on buying goods and consuming service which are unnecessary. Therefore, large service corporation such as HK Telecom begin to cut the labour force to fit with the demand. More importantly, service industry also start to operate in Mainland China. The decline in the service industry cannot absorb the large labour force, especially workers who leave from the manufacturing industry. 4. Construction industry The unemployment rate in this sector is lower when compared with the manufacturing, service and the retailing industries. In 1995, the unemployment rate in construction decrease, but the underemployment rate increased. There are some large project that lead to greater labour supply in the construction sites. For example, the New Airport project demands many skilled construction labour. On the other hand, the demand of lower-skilled construction workers decreased because of the decline in the estate market. The large construction project are often technology oriented, and the machines and equipment is more difficult to manipulate. So, unemployed construction workers from the estate market cannot transfer to the large project because they are not qualified to operate the high-tech machines. Therefore, some vacancies are unfilled by the low-skill workers. Unemployment in this sector remains unsolved. C. Vacancies by different sectors in HK economy The following chart is given to illustrate the portion of vacancies by different sectors in 1995. It is arguable that the unemployment in HK is not so serious, because there are still many vacancies . However, the problem is that the unemployed workers cannot find the job that fit to them or they refuse to accept a lower wage. On the other hand, employers may not employ workers of lower skills. So, there is a situation that the demand and supply of labour skill is not matched. D. Relationship Between Unemployment Rate and Inflation Rate A general belief tells that there is a negative relationship between unemployment rate and inflation rate. Some economists claim that the contemporary economic situation in Hong Kong, high unemployment rate associated with a relatively low inflation rate, is a predictable result from periodical adjustment of built-in economic mechanism. Since 1987, the persisted high inflation rate had pushed the costs of production and operation up to a very high level. Therefore, people suffered from a reduction of purchasing power and negative wealth effect. Meanwhile, people tend to save more because of their fear on the instability arising from the transition of sovereignty in 1997. On the other hand, policy-makers tried to release the high inflation rate by means of imposing a higher interest rate. By the way, the general price level begins to fall after a continuous increase for eight years. Inflation rate & Unemployment rate in HK, 85-95 Year Unemployment rate Inflation rate 1985 3.20% 3.50% 1986 2.80% 3.00% 1987 1.70% 5.20% 1988 1.30% 7.50% 1989 1.20% 10.00% 1990 1.10% 9.80% 1991 1.70% 11.50% 1992 2.00% 9.20% 1993 2.00% 8.90% 1994 1.90% 8.20% 1995(qtr. 1) 2.80% 9.20% 1995(qtr. 4) (estimated) 3.20% 9.00% As explained in the previous sections, the high unemployment rate is caused by many factors, like change in economic structure, importation of foreign labor, which will eventually lead to a negative wealth effect and a reduction in general consumption level. The low inflation rate is traded off by a high unemployment rate. On the other hand, the serious unemployment rate demonstrates that our economy has moved from an economic boom period to a slump in which accompanied with a low inflation rate. 1. Empirical observation in Hong Kong & Phillips curve Just similar to what professor A.W. Phillips had practiced during 1950s, we have plotted empirical observed quarterly data on unemployment and the rate of change in (wages) inflation for the period between 1977 and 1995 in Hong Kong on a scattered diagram. In the meantime, we have tried to sketch a curve which seems to fit the data. By observation, the graph shows that the unemployment rate and inflation rate is negatively related as long as the curve is downward sloping. Unemployment rate & percentage change in CPI(A) in Hong Kong from 77-94 Year Month Unemployment rate Percentage change (monthly) in consumer price index(A) 1977 Sep 4.00% 0.35% 1978 Mar 3.00% 0.34% Sep 2.70% 0.41% 1979 Mar 2.30% 0.71% Sep 3.40% 1.20% 1980 Jan 3.20% 1.22% Sep 4.30% 0.61% 1981 Mar 4.10% 0.89% Oct 3.10% 2.48% 1982 Jan 3.30% 1.50% Apr 3.20% 1.20% Jul 4.00% 0.10% Oct 4.10% 1.20% 1983 Jan 5.10% -0.30% Apr 4.40% 1.70% Oct 4.10% 2.40% 1984 Jan 3.70% 0.80% Apr 4.10% 1.00% Jul 3.40% 0.10% Oct 3.80% -0.70% 1985 Jan 3.40% -0.30% Apr 3.30% 0.50% Jul 3.00% 0.10% Oct 3.30% -0.30% 1986 Jan 3.00% -0.10% Apr 3.20% 0.50% Jul 3.00% 0.70% Oct 2.60% 0.60% 1987 Jan 2.00% 0.70% Apr 2.00% 0.80% Jul 1.80% -0.10% Oct 1.90% 1.10% 1988 Jan 1.80% -0.20% Apr 1.70% 1.10% Jul 1.70% 1.10% Oct 1.50% 0.20% 1989 Jan 1.30% 1.30% Apr 1.50% 1.10% Jul 1.20% 1.10% Oct 1.40% 0.20% 1990 Jan 1.30% 1.30% Feb 1.50% 1.40% Mar 1.70% -0.10% Apr 1.80% 1.10% May 1.60% 1.30% Jun 1.60% 0.30% Jul 1.70% 0.70% Aug 1.80% 0.10% Sep 1.70% 1.30% Oct 1.50% 0.60% 1991 Jan 1.40% 1.30% Apr 2.10% 0.60% Jul 2.30% 1.00% Oct 2.00% 0.60% 1992 Jan 1.90% 1.20% Apr 2.50% 1.00% Jul 2.10% 0.50% Oct 2.00% 0.60% 1993 Jan 2.00% 1.50% Apr 2.40% 0.80% Jul 2.10% 0.00% Oct 2.00% 1.60% 1994 Jan 1.90% -0.60% Apr 2.20% 0.60% Jul 1.90% 1.10% 2. Validity We have found strong evidence showing that professor Phillips' findings on the relationship between unemployment rate and inflation rate is very much applicable to the real situation in Hong Kong. 3. Implication Spotting the optimal combination of unemployment and inflation level is a difficult task. Generally, the governmental policy, people's expectation, the stage of economic cycle and the built-in economic mechanism will all contribute effort in such determination. Cost of Unemployment Unemployment is costly to society. It affects Hong Kong's economy directly and indirectly. We may consider the costs of unemployment in different ways. Firstly, there is a loss of real output in our economy. When the economy does not generate enough jobs to employ all those who are willing to work, a valuable resource is lost. Protential goods and services that might have been enjoyed by consumers are lost forever. This is the real economic cost of high unemployment. Secondly, unemployment leads to the decline of purchasing power and negative wealth effect is resulted. According to the Keynesian Consumption Theory, current consumption depends on current income. The permanent income hypothesis also emphasizes how the future affects consumption today by pointing out that people save in good years to carry them through bad years. Changes in consumption will be affected by changes in wealth. As a whole, consumption decreases under the negative wealth effect. The level of consumption and investment gradually declines in sectors such as service industry, retailing industry, food industry and manufacturing industry. Some industries may even shut down. Employees lose their jobs as well. This becomes a spiral effect in our economy. The costs of unemployment should also include the searching costs for new jobs. In Hong Kong, there is a problem of frictional unemployment. People leave jobs for all sorts of reasons, and they take time to find new jobs. Inevitably we have a pool of people who are "f rictionally" unemployed while in the course of finding new jobs. But in attempting to find a job (in most favourable wage rate), the worker incurs search costs in terms of extra time,effort and wages forgone. The wise worker will weigh the gain from extra search against its costs. If some workers found that it is difficult to find a new job, they may accept lower wages offered by the employers in order to save the search cost. There may be a trend that the wage rate gradually decreases and the negative wealth effect still appears. Also, when there is unemployment, there is a loss of accumulated work experience, an invaluable asset to the economy. Depreciation of human capital results. This is the social cost of unemployment. Moreover, high unemployment leads to higher incidence of psychological disorders, divorces, suicides, mental anxiety and ill health. People's self-respect and also their health are harmed as a result of unemployment. Futhermore, the private cost of unemployment for an individual may be greatly reduced if we consider the value of leisure (or of not working), and if unemployment benefits are offered by the government. Finally, unemployment is not only an economic aspect, it also becomes a political conflict. As we know, conflicts are found between two sides. On the side of general public, labor union and democratic parties, the influx of foreign labor force is the main reason of unemployment. They urgently ask the government to restrict their entrance. On the side of Hong Kong government, the enterprises and the capitalist, it is not the main reason. Unemployment is mainly caused by the structural change of our economy. However, the request and discontent of the public forced the government to make a concession. That is to make regulations to restrict the influx of foreign workers. Solution Finding ways to solve the unemployment problem is of utmost importance now. Since the supply of labor is so much greater than the amount demanded, one way is to let market mechanism to determine the relationship between labor supply and labor demand. The Government can also implement some new plans to help lower the high unemployment rate. According to the reasons of unemployment that we have discussed, below are some suggested solutions: 1) Correct Hong Kong people's attitude on "full employment", to let them realize that Hong Kong's unemployment level will be at a rather stable rate of 3-4% these few years. So, by maintaining the unemployment rate at 2-3% can help to control the increase in labor cost as well as the stability of the Hong Kong economy. 2) The high unemployment rate of Hong Kong is partly attributed by the increase number of imported labor. Therefore, the simplest way is to reduce the number of imported labor. The Government should base on each year's economic growth rate to adjust the necessary number of imported labor so that it can match with that of the market labor demand. Actually, the increase in the number of imported labor is due to their willingness to accept lower wages than local workers. But does it mean that if the local workers are willing to lower their wages to a level that is too low and harsh treatment at the same time, like working for long hours and accepting a wage of only $4,000 a month. Their wage cannot support their basic living needs. So, workers are not always passive, they should voice their opinions and fight for their own rights like strengthening the power of the labor unions and not just relying on the Government for implementing new policies to combat unemployment. 3) The Government could lower the requirements for applying the unemployment allowance to help workers solve their problem. However, the workers should not just wait for the help from the Government. They should actively seek jobs and can show their discontent to the Government for unfair treatment. Some companies also employ illegal workers. The Government can also implement new laws such as that in the United Kingdom. It will be a criminal offense if the employers employ illegal workers. This can help to deter them from hiring those illegal workers. 4) Increasing investment and production capacity can also be a solution. The Government can do this by increasing its expense and decreasing the profit tax rate so as to raise investment interest in the local industry. If there is an increase in investment, there will be more employment opportunities, increasing both the supply and demand. Increasing government spending can stimulate aggregate demand and hence decrease the unemployment rate. By doing these can also strengthen Hong Kong's competitiveness with other Asian countries. 5) It is important for the Government to manage the increase in labor cost, increase employment as well as labor productivity. there should be strategies to maintain economic growth in a steady rate, to control labor and labor cost form growing too fast and to prevent the increase in inflation rate due to economic growth. The Government can set up a committee to look into the cause of some old industries since structural changes of the economy is the main reason for the high unemployment in Hong Kong. People do not possess the necessary skills needed to perform some specific task. That is why there are quite a large amount of f:\12000 essays\business & economics (632)\The Unemployment Rate.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Unemployment Rate Introduction The unemployment rate became a hot topic in the past few months when it rose to 3.5 per cent, a recent high for almost 10 years. The jobless rate was higher than the 3.2 per cent unemployment rate recorded in the May to July period. The underemployment rate in the June to August period rose to 2.5 per cent from 2.3 per cent in the May to July period. Until recently, most workers who lost their jobs were from the manufacturing sector. They were middle-aged factory workers with few skills and little education. But in recent months a large number of employees have been laid off in the retail and restaurant businesses. Unemployment has spilled over to the service sector from manufacturing sector. Hong Kong is facing a prolonged economic downturn. The high unemployment rate has raised many social and economic problems. For example, the number of people who commit suicide is increased. It is because more people had lost their jobs for a long time. It is a serious threat to the lives of the poor. The unemployed people may also feel that it is unmeaningful to live. As a result, they will commit suicide to solve the problem. Moreover, the high unemployment rate results in the increase of the rate of crime. There was an unemployed man who stole rice because he was too hungry and he did not have money to even buy food! We can know how serious the unemployment rate is. By the way, higher unemployment rate causes lower purchasing power of people. A lot of kinds of business are affected. Many people lose confidence in economics of Hong Kong. They do not believe unemployment will be improved. Some say that the Government should provide immediate assistance for the jobless. Some also say unemployment is due to the attraction of cheap labor across the border. The Government can no longer play the role of a bystander. All of these above show the influence of the unemployment. In spite of how many people who have talked about the topic of unemployment, everyone will be concerned about this topic. The following sections will analyze this hot topic. Reasons for unemployment in Hong Kong 1. Faster growth in total labor supply relative to that of total employment In 1993 and 1994, the increase in Hong Kong labor force is 2.9% and 3.5% respectively. At the end of 1993, the total labour supply is 2 970 000. Change in the total labour supply is determined by the population growth, total employment and the emigration condition. If the population growth and the total employment is stable, the extra labour supply will increase the total labour supply. This extra labour supply are mostly from the influx of illegal immigrants from China, imported labour ( 30,000 ), hiring of expatriates ( net increase is 40,000 from 1992 to 1994 ) and the returnees from overseas. Thus, the supply of labour is greater than the demand and gives pressure on employment. From March to May of 1995, the total labour supply had risen 4.4% but the total employment had just increased 3.6%, so this aggravated the unemployment rate. However, this is just a superficial reason. The following reasons can explain the reason of unemployment in a deeper way. 2. Change in the economic structure The economic structure in Hong Kong has changed from labour intensive to high technology and large capital intensive. Also, it changes from manufacturing oriented to service oriented industries. Therefore, the manufacturing factories move to China for cheap labour. From 1988 to 1994, there are 60,000 jobs lost each year. Of the total employment of different sectors, the portion of the manufacturing industries drops from 27.4% in 1990 to 17% in 1994. Many labour are released from the manufacturing industries. Though there are a great demand of labour in the service sector, many of the unemployed still cannot find their job because of job matching problem. They do not have the skills demanded in the job market, so there are both a lot of vacancies of jobs and a lot of unemployed labour. This kind of unemployment is called the structural unemployment which is a kind of involuntary unemployment. 3. China Policy Recently, the Chinese government tries to control the economy by macro policy such as implementing the contractionary monetary policy , inflation control policy. This leads to the slow down in the Chinese economy. The flow in of the Chinese capital to Hong Kong for speculation and investment reduce. This affects Hong Kong's economic growth simultaneously. In the past, the prosperous China-Hong Kong trade motivated the purchasing power in the service sector of Hong Kong. However, there are some changes in the investment environment in China recently. Firstly, it is the high inflation rate. For the past two years, the inflation rate was about 20%. Under the macro policy, the recent figure is 18.5% which is still quite high. Secondly, the government begins to raise the property tax. With these two factors, the profitability of investing in China decreases. Therefore, the purchasing power of Hong Kong's service sector is directly affected and so many labour are being dismissed. 4. High rent and high inflation rate 8 years continuous high rent and high inflation rate make the production cost of the Hong Kong enterprises, especially the labour cost , increase tremendously. On one hand, this encourages the enterprises move their labour-intensive industries to other place where the labour cost is cheaper. On the other hand, these enterprises try to dismiss labour or reduce the engagement of work force but change to more capital and technology dedication in order to reduce the production cost, increase standardization and productivity. Also, many enterprises could not stand the high rent and closed down, such as the Japanese department store, Mitsubishi. A lot of labour are then released out and become unemployed. 5. Non-intervention government policy The Hong Kong government lacks long term planning in the economy. They just try to adopt a non-intervention policy to the economic problems. In fact, in 1980s, the economic structure was changing. The manufacturing industries were declining. However, the government did nothing to help. Also, the government, for a long time, ignores the research and development of the high technology application. Thus Hong Kong's industrial technology cannot not catch up with the other three dragons. This explains why the productivity of the Hong Kong people is reducing recently. In 1990-1994, the productivity of Hong Kong labour is 3.8% but Taiwan and South Korea is 4.8% and Singapore is 4.5%. From this , we can see that the competitive power of the Hong Kong industries is weakening and high unemployment rate is inevitable. Government carries out high land policy which leads to a tremendous rise in the property price, so the rent of the shops and factories increases. The widespread implementation of the sewage treatment charges also increase the production cost. This is also a reason why the factories move to the north or close down. 6. Labour importation scheme Is it the main reason responsible for the rising unemployment rate in Hong Kong? a) The viewpoint of the government Government economist Tang Kwong-yiu said that the labour importation scheme is not the main responsible for the rising unemployment rate in Hong Kong. He attributed it to the faster growth in total labour supply relative to that of total employment. Students looking for summer jobs have aggravated the unemployment problem during the last three months. Also, the influx of illegal immigrants from China, the return of overseas Chinese and the hiring of expatriates also aggravated the job shortage. However, Mr. Patten proposed replacing the Labour Importation Scheme with a Supplementary Labour Scheme that would aim to cut the number of imported workers from 25,000 to 5,000 from January. b) The viewpoint of Democratic Party Though the labour importation scheme is not the main reason, it's implementation aggravates the unemployment problem. They believe that the change in the economic structure is the main reason. The problem became obvious in the mid 80s as many factories moved to the north. However, the government did not intervene. They still want a termination of the scheme so that the problem can at least be lessen at the mean time. c) The viewpoint of the labour union They believe that the this scheme should be stopped at once. They were disappointed by the Governor's failure to scrap the imported labour scheme for the new airport project. Construction workers would continue to see their jobs being taken by foreign laborers. Unionist Lee-Cheuk- yan said that in Hong Kong, we don't need any imported labour, not even 5,000. d) The viewpoint of the economists i) Mr. Lui from the Economic Development Research Center of HKUST A research has been done and the result is that the change in the economic structure contribute 60% for the rising unemployment rate. The labour importation scheme is just a minor factors and the influence to the labour market is not significant. The scheme is not just carried out in Hong Kong but also in USA and Germany. But we cannot see that imported labour has significant influence on the unemployment rate. This is because imported labour though take away the job of the local labour, at the same time they create job opportunities for them. If the company employees imported labour, the production cost can be reduced. This will keep the enterprises from moving to other places or even will attract more investors to Hong Kong. This will benefit the local labour. ii) Mr. Wong from the Management Department of Lingnam College He does not agree with the research of Mr. Lui. He believe that though the importation scheme is not the main reason , it is the root of the sin. The influence that bring to the economy is not insignificant. What's wrong with this scheme is that the government officials ignore the opinion of the public and make this scheme as a long term policy. Also, the imported labour are widely employed in all kinds of job, so the government has not considered the employment problem of the labour released out from the declining manufacturing industries. Despite the effect of the labour importation scheme, this economic argument has changed to a political issue for difficult political party to gain votes in the election and support. They all try to bargain with the government officials and propose bills to debate in the Legislative Council for a termination of the scheme. Donna In previous parts, we have explore the reasons of high unemployment rate recently, how we will begin the part that describe the situation of Hong Kong's unemployment. It includes description about the current unemployment situation and the changes on unemployment rate in the past 10 years, as well as the underemployment rate. Also, we will analyze the change in our labor force. In the second part, the unemployment rate in specific sectors will be analyzed so that it can help to study the structural change in the unemployment rate. Also, the reason of the structural change will be analyzed. A. Unemplopment, Underemployment and duration of unemployment 1. Unemployment in HK The recent unemployment figure in the 2nd quarter of 1995 is 3.2%. It is the highest figure in the past nine years. Many people as well as the government are announced of this significant increase in unemployment rate. It is concluded that unemployment in HK changed from short-term to long-term. The unemployment in 1989 is 1.2%, it gradually jumped to 3.2% in 1995, there is continuous increase year to year, but no decrease in this 7-year period. Before, problem of higher unemployment rate only extended from 2 to 3 years. This description of figures show how unemployment change from short to long term. Also, a graph is presented to show the changes of the unemployment rate in the past 10 years. 2. Underemployment in HK When a person who work for pay less than 35 hours in a month, he is said to be under-employed. In the 2nd quarter of 1995, the underemployment rate reached 2.1%. There are about 589,000 people who are under-employed. There, we will also present the figures in the past 10 years in a graphical form which can help to detect the degree of changes. 3. Duration of unemployment In 1994, there are 21,000 persons unemployed for more than 3 months , it contributed 26.2% of the total number of unemployed workers. The figure jumped to 31,000 in 1995, the contribution also increased to 31%. The data help to conclude that the duration of person who are unemployed extended very much. Before, they are temporarily unemployed, but they can soon find a new job within a short period. But now, they have to face a permanent problem of losing job. A set of data further illustrates the worse situation. The number of persons unemployed for more than 6 months in 5 recent quarter are presented in a table. B. Structural change in unemployment According to the statistical data, the nature of unemployment rate changed very much. Before, labour in manufacturing sector suffered most from economic slowdown and change in economic structure. However, the retail and service sector also face this problem. The unemployment problem extended from manufacturing sector to nearly all industry in HK. In this part, we are going to analyze the structural changes and explore the reasons leading to these changes, particularly in the manufacturing, retailing, service and construction industries. 1. Manufacturing sector In 1987, the manufacturing sector employed about 800,000 workers, but it gradually drop to 395,000. In the sector, there is an average decrease of 50,000 to 60,000 persons employed. The unemployment rate particular in the manufacturing industry from 43.9% in 1989 to 53.6% in 1994. There are several reasons explaining the increase. Firstly, owing to economic slowdown and structural change, the manufacturing industry is badly affected, many firms were closed. To save cost, the factories move their production line to mainland China to take advantage of cheap labour. It left many local workers unemployed. In addition, the workers in the manufacturing industry are of low skills, and they are incapable to find other job requiring special skills. Another reason is which is controversial is the importation of labour. Because their wages are lower, local workers are replaced by them because the manufacturers want to save cost. As a result, unemployment become more serious in this sector. 2. Retailing sector Before, local retailing industry prosper from 1980s due to economic growth and full confidence of investors to make investment in HK or in China. But in recent years, retail industry also suffer a slowdown. According to statistical data, in the past 3 years, the retail industry has an average 1.9% growth in sales volume. However, in April 1995, the figure decreased for 2% compared with the same period in last year. Also, unemployment rate in this sector increased. In first quarter in 1995, the total unemployment in retail industry contribute 30% of the economy's total, which it the second highest share, while the largest share is the manufacturing industry. 3. Service industry Service industry continuously grow in the 1980s and early 1990s. Many people are employed in this sector. However, it also suffered from the economic decline in recent years. Service sector includes the hotel service, transportation service, food and beverage, financial and asset management, etc. In the service sector, there are about 15,000 people unemployed in 1995, which represents an 21% increase compared with last year. It is higher then the total unemployment figure in the manufacturing industry. The reasons are basically the same in explaining high unemployment rate in both the retailing and service industry. Again, economic slowdown lead to reduced investment and consumption of goods and services. Also, economic decline in China also reduced investment projects in the Mainland, thus demanding less service. With high inflation rate, people are more sensitive on the way they spend money. Now, they spend less on buying goods and consuming service which are unnecessary. Therefore, large service corporation such as HK Telecom begin to cut the labour force to fit with the demand. More importantly, service industry also start to operate in Mainland China. The decline in the service industry cannot absorb the large labour force, especially workers who leave from the manufacturing industry. 4. Construction industry The unemployment rate in this sector is lower when compared with the manufacturing, service and the retailing industries. In 1995, the unemployment rate in construction decrease, but the underemployment rate increased. There are some large project that lead to greater labour supply in the construction sites. For example, the New Airport project demands many skilled construction labour. On the other hand, the demand of lower-skilled construction workers decreased because of the decline in the estate market. The large construction project are often technology oriented, and the machines and equipment is more difficult to manipulate. So, unemployed construction workers from the estate market cannot transfer to the large project because they are not qualified to operate the high-tech machines. Therefore, some vacancies are unfilled by the low-skill workers. Unemployment in this sector remains unsolved. C. Vacancies by different sectors in HK economy The following chart is given to illustrate the portion of vacancies by different sectors in 1995. It is arguable that the unemployment in HK is not so serious, because there are still many vacancies . However, the problem is that the unemployed workers cannot find the job that fit to them or they refuse to accept a lower wage. On the other hand, employers may not employ workers of lower skills. So, there is a situation that the demand and supply of labour skill is not matched. D. Relationship Between Unemployment Rate and Inflation Rate A general belief tells that there is a negative relationship between unemployment rate and inflation rate. Some economists claim that the contemporary economic situation in Hong Kong, high unemployment rate associated with a relatively low inflation rate, is a predictable result from periodical adjustment of built-in economic mechanism. Since 1987, the persisted high inflation rate had pushed the costs of production and operation up to a very high level. Therefore, people suffered from a reduction of purchasing power and negative wealth effect. Meanwhile, people tend to save more because of their fear on the instability arising from the transition of sovereignty in 1997. On the other hand, policy-makers tried to release the high inflation rate by means of imposing a higher interest rate. By the way, the general price level begins to fall after a continuous increase for eight years. Inflation rate & Unemployment rate in HK, 85-95 Year Unemployment rate Inflation rate 1985 3.20% 3.50% 1986 2.80% 3.00% 1987 1.70% 5.20% 1988 1.30% 7.50% 1989 1.20% 10.00% 1990 1.10% 9.80% 1991 1.70% 11.50% 1992 2.00% 9.20% 1993 2.00% 8.90% 1994 1.90% 8.20% 1995(qtr. 1) 2.80% 9.20% 1995(qtr. 4) (estimated) 3.20% 9.00% As explained in the previous sections, the high unemployment rate is caused by many factors, like change in economic structure, importation of foreign labor, which will eventually lead to a negative wealth effect and a reduction in general consumption level. The low inflation rate is traded off by a high unemployment rate. On the other hand, the serious unemployment rate demonstrates that our economy has moved from an economic boom period to a slump in which accompanied with a low inflation rate. 1. Empirical observation in Hong Kong & Phillips curve Just similar to what professor A.W. Phillips had practiced during 1950s, we have plotted empirical observed quarterly data on unemployment and the rate of change in (wages) inflation for the period between 1977 and 1995 in Hong Kong on a scattered diagram. In the meantime, we have tried to sketch a curve which seems to fit the data. By observation, the graph shows that the unemployment rate and inflation rate is negatively related as long as the curve is downward sloping. 2. Validity We have found strong evidence showing that professor Phillips' findings on the relationship between unemployment rate and inflation rate is very much applicable to the real situation in Hong Kong. 3. Implication Spotting the optimal combination of unemployment and inflation level is a difficult task. Generally, the governmental policy, people's expectation, the stage of economic cycle and the built-in economic mechanism will all contribute effort in such determination. Cost of Unemployment Unemployment is costly to society. It affects Hong Kong's economy directly and indirectly. We may consider the costs of unemployment in different ways. Firstly, there is a loss of real output in our economy. When the economy does not generate enough jobs to employ all those who are willing to work, a valuable resource is lost. Protential goods and services that might have been enjoyed by consumers are lost forever. This is the real economic cost of high unemployment. Secondly, unemployment leads to the decline of purchasing power and negative wealth effect is resulted. According to the Keynesian Consumption Theory, current consumption depends on current income. The permanent income hypothesis also emphasizes how the future affects consumption today by pointing out that people save in good years to carry them through bad years. Changes in consumption will be affected by changes in wealth. As a whole, consumption decreases under the negative wealth effect. The level of consumption and investment gradually declines in sectors such as service industry, retailing industry, food industry and manufacturing industry. Some industries may even shut down. Employees lose their jobs as well. This becomes a spiral effect in our economy. The costs of unemployment should also include the searching costs for new jobs. In Hong Kong, there is a problem of frictional unemployment. People leave jobs for all sorts of reasons, and they take time to find new jobs. Inevitably we have a pool of people who are "f rictionally" unemployed while in the course of finding new jobs. But in attempting to find a job (in most favourable wage rate), the worker incurs search costs in terms of extra time,effort and wages forgone. The wise worker will weigh the gain from extra search against its costs. If some workers found that it is difficult to find a new job, they may accept lower wages offered by the employers in order to save the search cost. There may be a trend that the wage rate gradually decreases and the negative wealth effect still appears. Also, when there is unemployment, there is a loss of accumulated work experience, an invaluable asset to the economy. Depreciation of human capital results. This is the social cost of unemployment. Moreover, high unemployment leads to higher incidence of psychological disorders, divorces, suicides, mental anxiety and ill health. People's self-respect and also their health are harmed as a result of unemployment. Futhermore, the private cost of unemployment for an individual may be greatly reduced if we consider the value of leisure (or of not working), and if unemployment benefits are offered by the government. Finally, unemployment is not only an economic aspect, it also becomes a political conflict. As we know, conflicts are found between two sides. On the side of general public, labor union and democratic parties, the influx of foreign labor force is the main reason of unemployment. They urgently ask the government to restrict their entrance. On the side of Hong Kong government, the enterprises and the capitalist, it is not the main reason. Unemployment is mainly caused by the structural change of our economy. However, the request and discontent of the public forced the government to make a concession. That is to make regulations to restrict the influx of foreign workers. Solution Finding ways to solve the unemployment problem is of utmost importance now. Since the supply of labor is so much greater than the amount demanded, one way is to let market mechanism to determine the relationship between labor supply and labor demand. The Government can also implement some new plans to help lower the high unemployment rate. According to the reasons of unemployment that we have discussed, below are some suggested solutions: 1) Correct Hong Kong people's attitude on "full employment", to let them realize that Hong Kong's unemployment level will be at a rather stable rate of 3-4% these few years. So, by maintaining the unemployment rate at 2-3% can help to control the increase in labor cost as well as the stability of the Hong Kong economy. 2) The high unemployment rate of Hong Kong is partly attributed by the increase number of imported labor. Therefore, the simplest way is to reduce the number of imported labor. The Government should base on each year's economic growth rate to adjust the necessary number of imported labor so that it can match with that of the market labor demand. Actually, the increase in the number of imported labor is due to their willingness to accept lower wages than local workers. But does it mean that if the local workers are willing to lower their wages to a level that is too low and harsh treatment at the same time, like working for long hours and accepting a wage of only $4,000 a month. Their wage cannot support their basic living needs. So, workers are not always passive, they should voice their opinions and fight for their own rights like strengthening the power of the labor unions and not just relying on the Government for implementing new policies to combat unemployment. 3) The Government could lower the requirements for applying the unemployment allowance to help workers solve their problem. However, the workers should not just wait for the help from the Government. They should actively seek jobs and can show their discontent to the Government for unfair treatment. Some companies also employ illegal workers. The Government can also implement new laws such as that in the United Kingdom. It will be a criminal offense if the employers employ illegal workers. This can help to deter them from hiring those illegal workers. 4) Increasing investment and production capacity can also be a solution. The Government can do this by increasing its expense and decreasing the profit tax rate so as to raise investment interest in the local industry. If there is an increase in investment, there will be more employment opportunities, increasing both the supply and demand. Increasing government spending can stimulate aggregate demand and hence decrease the unemployment rate. By doing these can also strengthen Hong Kong's competitiveness with other Asian countries. 5) It is important for the Government to manage the increase in labor cost, increase employment as well as labor productivity. there should be strategies to maintain economic growth in a steady rate, to control labor and labor cost form growing too fast and to prevent the increase in inflation rate due to economic growth. The Government can set up a committee to look into the cause of some old industries since structural changes of the economy is the main reason for the high unemployment in Hong Kong. People do not possess the necessary skills needed to perform some specific task. m f:\12000 essays\business & economics (632)\The Used Car Industry.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Used Car Industry In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. f:\12000 essays\business & economics (632)\the wave.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ISP'S Best ones so far are these next two 40 dollar setup fee and 5 dollars a month so 100 dollars by math but when totaled i think he said 112 dollars one time payment and i get email but no web space he has a T1 connection and a 10 to 1 ratio says it will probably be free next year because of companies putting commercials on there good location at wilcrest and I-10 unlimited access 713-932-1616 next is 1 year unlimited access for 120 dollars ratio is better at 8 to 1 and i get email and 5 megs of web space too one time payment but i can go monthly for 14.95 also they have a T1 connection 281-355-0172 Houston Internet Access 493-9785 14.95 unlimited no setup fees at all sprynet 19.95 unlimited no setup 1-800-sprynet Worldlink Unlimited 16.80 total unlimited 398-8000 Flashnet 25 setup then 15 a month or 134 prepaid one year unlimited f:\12000 essays\business & economics (632)\The Welfare System Must Remain 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Welfare System Must Remain Public Welfare is an important support system of the United States government. Welfare has its benefits, but the system has pitfalls. Instead of abolishing welfare as critics of the system suggest, reforms can be made to correct the problems while government, either on the state or federal level, can continue to assist the impoverished. The term welfare is used to describe a variety of programs that provide income support and create a safety net for poor individuals and families. Such benefits include Supplemental Security Income, Medicaid, food stamps, housing allowances, and Aid to Families with Dependent Children. Aid To Families With Dependent Children (AFDC) enables states to provide cash payments to children that are deprived of the care or support of a parent. In terms of welfare reform, this is the program most often discussed. The media has created many myths regarding welfare and the reasons the system should be done away with. Stating that the majority of new welfare recipients are poor, single mothers, claims have been made that poor women have more children because of the incentives of welfare benefits. It has been proven that is no correlation between women's choice to have children and welfare benefit levels. Furthermore, for each additional child, a mother can expect an additional $90 of AFDC benefits, far too low to serve as any type of incentive. In addition, those states that provide higher benefits do not necessarily show higher birth rates among their welfare recipients. Families receiving AFDC benefits have 1.9 children, just about the same as the national average. (ACLU 1) Another myth created by the media concerns the amount of money spent and the results. It has been said that after spending billions of dollars since the mid-1960's on anti-poverty programs, there have been little or no results. To begin with, spending on AFDC between 1964 and 1994 was only $500 billion, less than 1.5% of federal spending for that period. Further, there have been results. Between 1964 and 1973, the poverty rate fell from 19% to 11%. It is true that since 1973, poverty has increased. This is due to economic forces such as declining real wages, rather than a failure of the system itself. A third myth regarding welfare concerns employment. It is believed that anyone who wants to get off welfare just has to go out and get a job. However, workforce discrimination and lack of affordable child care make it difficult for single mothers to be employed outside of the home. In addition, the low-wage, no-benefit jobs available to welfare recipients do not pay nearly enough to lift a family above the poverty line. (Extra 1-3) Welfare recipients are very aware of the system that they are involved with. They know that without welfare, they would be much worse off. Recipients of welfare payments know that these payments are inadequate. They must deal with a daily strain of benefits that, in almost every state, do not even take them near the poverty line. People on welfare are also frustrated because the program actually penalizes employment and savings. Any money earned above what is minimally needed causes benefits to be lost. In addition, any savings that the family has causes the family to be ineligible to continue receiving welfare payments and benefits. It is obvious that welfare has its benefits. It is just as obvious, however, that the system has pitfalls. The welfare system must not be abolished, but simply reformed. Welfare must remain to help people get back on their feet, but it must be reformed so that dependence on government is avoided. Job training and education must be integrated into a new welfare system so that when welfare payments stop, recipients have the skills to gain full time employment to support their families. Any reforms that are made must be responsible reforms. It must include enhanced job training and job creation. Reforms must also assist low-income working parents find ways to combine work and public assistance in ways appropriate to their circumstances. (Hoehn 6) The welfare reform bills Congress has been considering have caused some fear, both in the eyes of welfare recipients and advocates of the system. However, the reforms being considered are beneficial. There really is no reason for concern. The welfare bills do not mean that the Federal Government is giving up the anti-poverty fight. Washington will still continue to spend over $20 billion per year on aid to the poor. The difference, however, will be that the money is going to be distributed to the states. The Federal Government is saying that the current system is not working, but they do not know how to fix it. By distributing the welfare money to the states, the Federal government is allowing each state to experiment with different welfare plans to see which one will work the best. In addition, almost $55 billion will be saved over six years. Cuts and reductions will be made mainly in food stamp reductions and aid to legal immigrants, not to welfare or child-care grants. These benefits will be given an additional $3 billion over the same six year period. According to Conservatives, once welfare becomes something other than handouts, many people will leave the welfare rolls for employment. The money being saved can be used to pay for these jobs. (Kaus A27) The specific reforms are numerous. Some of the more important reforms include child-support enforcement, higher benefits, time limits for welfare payments, and workfare. Child support enforcement is supported by both Liberals and Conservatives, as they both profess to have the child's well-being at heart. This enforcement would reduce the welfare payments made by the government because the parents would be responsible for supporting their children. Higher benefits refer to social-insurance programs such as Social Security and disability. Problems exist in reforming this part of the system, but changes are necessary to protect everyone's well-being. Workfare is the most popular reform option, as it is the most effective at the lowest cost. It would make employment mandatory, but would also allow for job training and education. Workfare would also allow families to feel some sort of self-sufficiency. (Schiller 2-4) The main point of the reform is for welfare recipients to take personal responsibility. This means that there should be a connection between reward and effort. People must be held responsible for their actions: economic and moral failures are not society's fault. As Speaker of the House Gingrich said, "We are re-establishing work as an American tradition." (US News & World Report 12) The welfare system is an important aspect of American society. It assists the impoverished individuals and families of our nation. It helps support the unemployed during their time of need. The welfare system must remain to help people get back on their feet, as it was designed. However, it must be reformed so that dependence on government aid is avoided. Works Cited American Civil Liberties Union: The Civil Liberties Issues of Welfare Reform. New York: The American Civil Liberties Union, 1995. "Five Media Myths About Welfare." Extra 1-3. Hoehn, Richard. Blueprint for Social Justice: Let's Get Real About Welfare. New Orleans: Twornery Center for Peace Through Justice, 1995. Kaus, Mickey. "The Revival of Liberalism." New York Times. 9 August 1996: A27 "Say You Want A Revolution." US News and World Report. 9 Oct 1995: 11-14 Schiller, Bradley, "Why Welfare is Still So Hard To Reform." Challenge November-December 1995: 16-19 f:\12000 essays\business & economics (632)\The Welfare System Must Remain.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Welfare System Must Remain Public Welfare is an important support system of the United States government. Welfare has its benefits, but the system has pitfalls. Instead of abolishing welfare as critics of the system suggest, reforms can be made to correct the problems while government, either on the state or federal level, can continue to assist the impoverished. The term welfare is used to describe a variety of programs that provide income support and create a safety net for poor individuals and families. Such benefits include Supplemental Security Income, Medicaid, food stamps, housing allowances, and Aid to Families with Dependent Children. Aid To Families With Dependent Children (AFDC) enables states to provide cash payments to children that are deprived of the care or support of a parent. In terms of welfare reform, this is the program most often discussed. The media has created many myths regarding welfare and the reasons the system should be done away with. Stating that the majority of new welfare recipients are poor, single mothers, claims have been made that poor women have more children because of the incentives of welfare benefits. It has been proven that is no correlation between women's choice to have children and welfare benefit levels. Furthermore, for each additional child, a mother can expect an additional $90 of AFDC benefits, far too low to serve as any type of incentive. In addition, those states that provide higher benefits do not necessarily show higher birth rates among their welfare recipients. Families receiving AFDC benefits have 1.9 children, just about the same as the national average. (ACLU 1) Another myth created by the media concerns the amount of money spent and the results. It has been said that after spending billions of dollars since the mid-1960's on anti-poverty programs, there have been little or no results. To begin with, spending on AFDC between 1964 and 1994 was only $500 billion, less than 1.5% of federal spending for that period. Further, there have been results. Between 1964 and 1973, the poverty rate fell from 19% to 11%. It is true that since 1973, poverty has increased. This is due to economic forces such as declining real wages, rather than a failure of the system itself. A third myth regarding welfare concerns employment. It is believed that anyone who wants to get off welfare just has to go out and get a job. However, workforce discrimination and lack of affordable child care make it difficult for single mothers to be employed outside of the home. In addition, the low-wage, no-benefit jobs available to welfare recipients do not pay nearly enough to lift a family above the poverty line. (Extra 1-3) Welfare recipients are very aware of the system that they are involved with. They know that without welfare, they would be much worse off. Recipients of welfare payments know that these payments are inadequate. They must deal with a daily strain of benefits that, in almost every state, do not even take them near the poverty line. People on welfare are also frustrated because the program actually penalizes employment and savings. Any money earned above what is minimally needed causes benefits to be lost. In addition, any savings that the family has causes the family to be ineligible to continue receiving welfare payments and benefits. It is obvious that welfare has its benefits. It is just as obvious, however, that the system has pitfalls. The welfare system must not be abolished, but simply reformed. Welfare must remain to help people get back on their feet, but it must be reformed so that dependence on government is avoided. Job training and education must be integrated into a new welfare system so that when welfare payments stop, recipients have the skills to gain full time employment to support their families. Any reforms that are made must be responsible reforms. It must include enhanced job training and job creation. Reforms must also assist low-income working parents find ways to combine work and public assistance in ways appropriate to their circumstances. (Hoehn 6) The welfare reform bills Congress has been considering have caused some fear, both in the eyes of welfare recipients and advocates of the system. However, the reforms being considered are beneficial. There really is no reason for concern. The welfare bills do not mean that the Federal Government is giving up the anti-poverty fight. Washington will still continue to spend over $20 billion per year on aid to the poor. The difference, however, will be that the money is going to be distributed to the states. The Federal Government is saying that the current system is not working, but they do not know how to fix it. By distributing the welfare money to the states, the Federal government is allowing each state to experiment with different welfare plans to see which one will work the best. In addition, almost $55 billion will be saved over six years. Cuts and reductions will be made mainly in food stamp reductions and aid to legal immigrants, not to welfare or child-care grants. These benefits will be given an additional $3 billion over the same six year period. According to Conservatives, once welfare becomes something other than handouts, many people will leave the welfare rolls for employment. The money being saved can be used to pay for these jobs. (Kaus A27) The specific reforms are numerous. Some of the more important reforms include child-support enforcement, higher benefits, time limits for welfare payments, and workfare. Child support enforcement is supported by both Liberals and Conservatives, as they both profess to have the child's well-being at heart. This enforcement would reduce the welfare payments made by the government because the parents would be responsible for supporting their children. Higher benefits refer to social-insurance programs such as Social Security and disability. Problems exist in reforming this part of the system, but changes are necessary to protect everyone's well-being. Workfare is the most popular reform option, as it is the most effective at the lowest cost. It would make employment mandatory, but would also allow for job training and education. Workfare would also allow families to feel some sort of self-sufficiency. (Schiller 2-4) The main point of the reform is for welfare recipients to take personal responsibility. This means that there should be a connection between reward and effort. People must be held responsible for their actions: economic and moral failures are not society's fault. As Speaker of the House Gingrich said, "We are re-establishing work as an American tradition." (US News & World Report 12) The welfare system is an important aspect of American society. It assists the impoverished individuals and families of our nation. It helps support the unemployed during their time of need. The welfare system must remain to help people get back on their feet, as it was designed. However, it must be reformed so that dependence on government aid is avoided. Works Cited American Civil Liberties Union: The Civil Liberties Issues of Welfare Reform. New York: The American Civil Liberties Union, 1995. "Five Media Myths About Welfare." Extra 1-3. Hoehn, Richard. Blueprint for Social Justice: Let's Get Real About Welfare. New Orleans: Twornery Center for Peace Through Justice, 1995. Kaus, Mickey. "The Revival of Liberalism." New York Times. 9 August 1996: A27 "Say You Want A Revolution." US News and World Report. 9 Oct 1995: 11-14 Schiller, Bradley, "Why Welfare is Still So Hard To Reform." Challenge November-December 1995: 16-19 f:\12000 essays\business & economics (632)\Theoretical Reflections.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Theoretical Reflections - Contingency Theory Research Notes (Considerations for Technology Driven Reform) Contingency theory suggests that appropriate behavior in a given situation depends on a wide variety of variables and that each situation is different. What might work in one organization, set of issues, or employee group might not work in a different organization with its own set of issues and employees. Effectiveness of schools, for example, is contingent upon the leadership style of the principal and the favorableness of the situation (Hendricks, 1997). This methodology acknowledges that no one best way exists to manage in a given situation and those situational variables, from both the internal and external environments impact on leadership practice. Leadership styles cannot be fully explained by behavioral models. The situation in which the group is operating also determines the style of leadership that is adopted. Several models exist which attempt to understand the relationship between style and situation; the four major theories comprising my contingency category are Fiedler's Contingency Model, Situational Theory, Path-Goal Theory, and the Vroom-Yetton Leadership Model. Fiedler's Contingency Model Fiedler's model assumes that group performance depends on: Leadership style, described in terms of task motivation and relationship motivation. Situational contingencies, determined by three factors: 1. Leader-member relations - Degree to which a leader is accepted and supported by the group members. 2. Task structure - Extent to which the task is structured and defined, with clear goals and procedures. 3. Position power - The ability of a leader to control subordinates through reward and punishment. High levels of these three factors give the most favorable situation, low levels, the least favorable. Relationship-motivated leaders are most effective in moderately favorable situations. Task-motivated leaders are most effective at either end of the scale. Fiedler suggests that it may be easier for leaders to change their situation to achieve effectiveness, rather than change their leadership style. Fielder, F. (1967). A theory of leadership effectiveness. New York: McGraw. This theory defines factors that determine how the leader's personality and styles of interacting with others affects the group performance and organization. The appropriateness of the leadership style for maximizing group performance is contingent upon the favorableness of the group-task situation. Group performance is related to both the leadership style and the degree to which the situation provides the leader with the opportunity to exert influence. Fiedler (1967) defines the group, leader, and leader effectiveness: The Group: A set of individuals who share a common fate and are interdependent in the sense that an event that affects one member will affect them all. Leader: The individual in the group given the task of directing and coordinating task-relevant group activities or who in the absence of a designated leader, carries the primary responsibility for performing these functions in the group. Leader Effectiveness: "...Defined in terms of the group's output, it's morale, and the satisfactions of its members. Feidler also classifies groups according to the work relations among the members: Interacting groups: Require close coordination of several team members on the performance of the primary task. Many tasks also require the close and simultaneous coordination of two of more people. Co-acting groups: Members work together on a common task, but each member does their job relatively independently of other team members. Counteracting groups: Individuals work together for the purpose of negotiating and reconciling conflicting opinions and purposes. Each member works toward achieving his or her own ends at the expense of the other, to an extent. Situational Theory (Paul Hersey & Kenneth Blanchard) This theory suggests that leadership style should be matched to the maturity of the subordinates. Maturity is assessed in relation to a specific task and has two parts: Psychological maturity - Their self-confidence and ability and readiness to accept responsibility. Job maturity - Their relevant skills and technical knowledge. As the subordinate maturity increases, leadership should be more relationship-motivated than task-motivated. For four degrees of subordinate maturity, from highly mature to highly immature, leadership can consist of: Delegating to subordinates. Participating with subordinates. Selling ideas to subordinates. Telling subordinates what to do Lord, Robert G. and Maher Karen J. (1991) Leadership and Information Processing: Linking Perceptions and Performance. Massachusetts: Unwin Hyman, Inc. Situational Model of Hersey and Blanchard. - emphasize the importance for the leader to consider the stage of organizational development of each of their followers and to adapt their type of leadership to the followers developmental level. Hersey and Blanchard talk about the leader and emphasize the influence of their actions on the organization, through their followers. The leader can compare to the influence of the executive in Lord and Maher's theories. Both of the theories emphasize the influence of style or actions of the leader on the outcome of the follower or organization. Lord and Maher in Leadership and Information Processing: Linking Perceptions and Performance (1991) emphasize that executive level actions can affect an organization's performance. Their methodology incorporates leadership and information processing, perceptual and social processes, leadership and organizational performance, and stability, change, and information processing. Their approach to understanding leadership is to develop a comprehensive theory addressing both leadership perceptions and organizational performance. They believe that "theory in any scientific area is an ongoing social process and emphasize the possibilities of change," "to understand leadership perceptions it is essential to understand how people process information." (p13). Lord and Maher discuss direct and indirect effects of leadership on performance, leadership succession, a model of organizational performance, and executive leadership and organizational performance. In discussing direct and indirect effects of leadership Lord and Maher explain the differences between these two means of leadership. Direct means refer to "those leadership activities which explicitly influence the behavior of subordinates or the strategies of organizations." (p169) This is the basis for most existing leadership and management theory. Indirect means involve "establishing certain conditions, such as socialization processes or culture, which then affect subordinate and organizational performance." (p. 171) Indirect means form a powerful mode of affecting subordinate and organizational performance. Lord and Maher then describe the effects of direct and indirect means of leadership in lower and executive levels of an organization. In short, their conclusion is that high-level executives may have difficulty being perceived as leaders. Oliver, D. L. (1955). A Solomon Island Society, Kinship and Leadership Among the Siuai of Bougainville. Cambridge: Harvard University Press. Douglas Oliver (1955) in his study of a Solomon Island society tells stories that the Siuai leader is comfortable dealing with all the aspects of Siuai life. This is an example of situational methodology, which is one that states that the situation is the main component of what determines what a leader will do. DePree, M. (1989) Leadership Is An Art. New York: Dell The Situational Model of Vroom and Yetton - centers on the interaction between situational variables and the characteristics of the leader and/or the follower. Max DePree (1989) identifies "roving leaders", who use their special talents and respond swiftly and effectively. The example that he uses is a doctor dealing with an emergency situation. He says, "Roving leaders are those indispensable people in our lives who are there when we need them" (DePree, 1989, p. 48). These people take charge in varying degrees when a situation needs immediate attention, structure and action. Hollander, E. P. (1964) Leaders, Groups, and Influence. New York: Oxford University Press. Another aspect of this approach found in this book is that persons function as leaders in a particular time and place, and both these can vary. A second approach found in this book regaring leadership is called the situational approach. The situational approach looks at the specific situations and the tasks associated with it to determine whether or not unique leadership characteristics could be seen as being essential. Hollander looks at this appproach as "It is in the nature of situational requirements that they call forth certain expectations for leadership, and these may be fulfilled by various individuals in the situation." (p. 5) This book also differenciates between the trait approach and the situational approach by stating, "...the situational approach conceives of leadership in terms of function performed, rather than in terms of persisting traits of the leader." (p. 5) Path-Goal Theory (Robert House) Robert House suggests that the leader in a number of ways can affect the performance, satisfaction, and motivation of a group: Offering rewards for the achievement of performance goals. Clarifying paths towards these goals. Removing performance obstacles. A person may do these by adopting a certain leadership style, according to the situation: Directive leadership - Specific advice is given to the group and ground rules are established. Supportive leadership - Good relations exist with the group and sensitivity to subordinates' needs is shown. Participative leadership - Decision making is based on group consultation and information is shared with the group. Achievement-oriented leadership - Challenging goals are set and high performance is encouraged while showing confidence in the groups' ability. Supportive behavior increases group satisfaction, particularly in stressful situations, while directive behavior is suited to ambiguous situations. It is also suggested that leaders who have influence upon their superiors can increase group satisfaction and performance. Vroom-Yetton Leadership Model This model suggests the selection a leadership style for making a decision. There are five decision-making styles: Autocratic 1 - Problem is solved using information already available. Autocratic 2 - Additional information is obtained from group before leader makes decision. Consultative 1 - Leader discusses problem with subordinates individually, before making a decision. Consultative 2 - Problem is discussed with the group before deciding. Group 2 - Group decides upon problem, with leader simply acting as chair. The style is chosen by the consideration of seven questions, which form a decision tree. This is described in Leadership and Decision Making, by V.H.Vroom and P.W.Yetton, pp.41-42, published by University of Pittsburgh Press, 1973. The Transactional Model Hollander, E. P. (1964) Leaders, Groups, and Influence. New York: Oxford University Press. The transactional approach by Edwin Hollander (1964) states that "the interaction between a particular leader and a particular follower will change over time based on such things as the changing confidence level of the leader and of the follower, and other environmental changes that may be subtle and are often difficult to document." A "behind the scenes" leader, whose behavior prevents a crisis from happening in the first place, might go unnoticed, unappreciated and unstudied. This kind of leader develops the strength of others and furthers the effectiveness of the organization. Hollander, Edwin P. (1978); Leadership Dynamics - a practical guide to effective relationships. New York: The Free Press (Macmillan Publishing Co.,Inc) Hollander uses this book to illustrate his points on leadership and to emphasize his views presented in as the Transactional Approach of leadership. His primary focus is to show leadership as being something which is dependent on many different forces, few of which any designated leader may have control over. Though he emphasizes characteristics which are useful to leaders, he also explores how the same characteristics can hinder the leaders effectiveness - which leadership is, for Hollander, measured by. Along with characteristics the leader may or may not hold, Hollander explores characteristics of the followers and the situation. To be credible as a leader is essential, as is the ability to balance the importance placed on task initiation and group relationships. Hollander gives examples through out the book sighting how essential a complete understanding of the situation, and oneUs co-workers/ subordinates, in order to accomplish a goal (another much needed element in effective leadership). Though he stresses the importance of the realization of all these aspects by the leader, Hollander also further develops the role the follower plays in affecting the leader and the situation. Not only does the leader need to be in touch with the followers, the followers need to be in touch with the leader and each group affects the other both in positive and negative ways. Some of the things on which the leaders success depends are the expectations, the personalities. the competence and the motivation of the followers as well as the structure, setting, and resources the situation provides. These things are beyond the leaders initial control yet are important considerations. Along with the interaction between those three properties (leader, follower, and situational characteristics), things to keep in mind is how the leader original obtained the position, how the position has been kept by the leader and what factors have had what effect on the situation. Hollander stress the importance of having legitimacy of position not through hierarchy but by competency. He also stress the importance of being able to recognize change happening within the situation. Whether planed or not, change will take place to some extent and a good leader should be able to recognize the change, how it will/ could effect the situation, and what therefore should be done. Hollanders theory comes under the heading of Interactional theories (those which recognize the importance of the situation and the follower), however he claims a large difference is in his realization of the effect the follower has on the leader and vice versa whereas most other Interactionl (or the RoriginalS theory) concentrates on the leaders role in working with the follower and how that work reflects on their leadership, though the follower does not take an RactiveS part in affecting the leader and situation - something Hollander does recognize. HollanderUs approach also reflects that of the Contingency model (that leaders and situations should be matched because certain situations call for certain leadership styles and leaders cannot change their style easily so they need to RfitU in correct positions based on assessment of the situation and the leader) though he differs from Fiedler and Chemers in that he suggests more ability of the leader to form or change the situation. He also defines and explains certain tactics of leadership which he finds to be important (such as being somewhat flexible in rules/ definitions in order to allow followers the chance to explore the situation and develop as people) which can be fulfilled to a greater or lesser degree by all people whereas Fiedler and Chemers expect a realization of ones personal strong points and the application of them. f:\12000 essays\business & economics (632)\theory of economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ theory THE THEORY OF STORAGE. "THE SUPPLY OF STORAGE REFERS NOT TO THE SUPPLY Of STORAGE SPACE BUT TO THE SUPPLY OF COMMODITIES AS INVENTORIES. IN GENERAL A SUPPLIER OF STORAGE IS ANYONE WHO HOLDS TITLE TO STOCKS WITH A VIEW TO THEIR FUTURE SALE, EITHER IN THEIR PRESENT OR IN A MODIFIED FORM. SINCE PRODUCTION IS NOT STABLE FOR ALL COMMODITIES ESPECIALLY ARGICULTURAL CONSUMERS DEMAND THAT THE STORAGE FUNCTION BE SO PERFORMED THAT THE FLOW OF COMMODITIES FOR SALE WILL BE MADE RELATIVELY STABLE." (BRENNAN P. 51) "the theory purports to provide an explanation of the holding of all stocks, including those for which there is not an active future market. it will be shown that, on the supply side, in addition to the marginal expenditure on physical storage and the marginal convenience yield another variable, a risk premium, is required to explain the holding of stocks as functions of price spreads. in the empirical part of the study the theory will be applied to stocks of several agricultural commodities. the risk premium for each commodity will be measured residually under specified conditions by deducting form the price spread between two periods the other two components of the marginal cost of storage." (brennan p.50) IN GENERAL WE CAN OBTAIN A MEASURE OF THE RELATIVE RISK PREMIUMS INVOLVED IN THE STORAGE OF DIFFERENT COMMODITITES. "allen Paul, in a 1970 American journal of agricultural economics article, studied the pricing of grain storage space in the u.s. during the surplus period of the 1950s and 1960s. Paul's work differs from other works in that he investigates the pricing of all grain storage not just that available to a particular commodity. While brennan's marginal storage cost is from the point of view of the owner of the grain, Paul is looking at the first component only. he is only looking at the charge to owners of grain for binspace by elevator operators... while paul's estimated equations may suggest a traditional positively sloped supply function, he was forced to concede that, despite his assumptions of 'no convenience yield,' his estimated equation appeared to reflect this phenomenon. the study suggests that commodity contracts are an indirect means of pricing services." (book article p. 215-220) f:\12000 essays\business & economics (632)\Theory of GrowthSamuelsons Model.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Few issues are as important to a country as the long-term growth and productivity trends facing their economy. The relative slow-down in the growth rates of the United States economy since 1973 has worried economists and politicians alike. Many possible causes have been put forth, though none is fully satisfactory. Before discussing the theoretical models of growth it would be useful to study the data on growth that is currently available. As Nicholas Kaldor, in his influential article on growth ("Capital Accumulation and Economic Growth"; 1961) stated , a theorist ought to start with the summary of the facts that are immediately available, concentrating primarily on broad tendencies or "stylized facts." Theories can then be constructed to explain the facts. Listed below are the stylized facts as mentioned by Kaldor: 1. Output per worker shows continuous growth. 2. Capital per worker shows continuous growth. 3. The rate of return on capital is steady. 4. The capital-output ratio is steady. 5. Labor and capital receive constant shares of total income. 6. There are wide differences in the rate of growth across countries. In addition to the above, other researchers have found additional features which are obscure for a wide array of data: 7. Average growth rates show no variations with the level of per-capita income. 8. Growth in trade is positively correlated with income levels. 9. Population growth rates are negatively correlated with income levels. 10. The rate of growth of factors inputs is never large enough to explain the rate of growth; that is, technical progress is essential to growth. Angus Maddison, in his book, Phases of Capitalistic Development 1982, lists in great detail the empirical aspects of growth during the past two hundred years. This study extends out on the whole Kaldor's main observations. Both output and capital per worker has shown tremendous growth over time. Even though growth rates have slowed down since 1973, they are at levels still high by historic standards. Similarly, the constancy of the capital-output ratio is borne out by the statistical data of developed countries. However, Kaldor's assertion about the constancy of labor and capital shares in total income has increasingly been disputed. As the figures below show: COUNTRY INTERVAL SHARE OF CAPITAL (%) REFERENCES Japan 1913-1938 40 Ohkawa and Rosovsky 1954-1964 31 United Kingdom 1856-1873 41 Matthews, Feinstein and 1873-1913 43 Odling-Smee 1913-1951 33 1951-1973 27 United States 1899-1919 35 Kendrick 1919-1953 25 1929-1953 29 The data suggests that the share of capital has declined from around 40% to 30% over the course of the century. Lastly, the great differences in growth rates between countries over time indicates that there has been no tendency for the convergence in rates of growth, something that the neo-classical theory would predict. Having discussed the empirical issues of economic growth, we now turn to the various theories that have been developed to explain the facts. Perhaps the three most important theories of growth are: 1. Harrod-Domar model 2. Neoclassical theory of growth 3. Endogenous growth models The Harrod-Domar model is an offshoot of Keynes' macroeconomic model as stated in the "General Theory." Indeed, it can be viewed as an attempt to put Keynes' macroeconomic model of an economy in a dynamic context. From the fundamental relation that investment must equal saving in a closed economy, leads to the result that the rate of growth of an economy equals the product of the savings rate and the incremental output-capital ratio. The equations are: I º S But, DK=I Also, S=sY (s: savings rate) Define n=DY/DK (incremental output-capital ratio) This implies, DK=sY But, DK=DY/n Therefore, gºDY/Y=s×n (gºDY/Y: rate of growth of output) Unfortunately, the Harrod-Domar model has a "knife-edge" property which made it somewhat unrealistic. This meant that if an economy strayed from its optimal growth path it either exploded or imploded. This lead to the search for alternative models, the most famous being the neo-classical growth model, usually associated with the infamous Robert Solow. The neo-classical growth model assumes that the economy converges towards a steady-state rate of growth. Given a neo-classical production function: Y=A×F(K, N) Assuming a constant rate of labor force growth (DN/N=n) and no technical progress (DA/A=0) then in a steady state rate of growth of output (DY/Y) equals rate of population growth which implies there is no growth in per capita income unless technical progress takes place. A critical difference between the Harrod-Domar model and the neoclassical growth model lies in the effect the savings rate has on growth rates. In the Harrod-Domar model an increase in the savings rate increases the growth rate. However, in the neo classical model, an increase in the savings rate increases the per capita income but it does not result in a permanent (as compared to a temporary) increase in the growth rate. To summarize, in the neo-classical model the rate of output growth equals the rate of growth of technical progress (DA/A) and the level per capita output is determined by the steady-state equation: sy=(d+n)k where s: savings rate y: per capita output d: depreciation rate of capital stock n: population growth rate k: per capita capital stock While Solow's neo-classical model explains the first five out of the six stylized facts quite well, it cannot explain the fact that growth rates differ between countries for long periods of time. This model would suggest convergence in growth rates, something that does not seem to take place (see table). To explain this problem, theorists have focused their attention on technical progress and have made attempts to make the growth rate endogenous (i.e. determined within the theory). Various endogenous growth theory models, proposed by economists like Robert Lucas and Paul Romer, have constructed a dynamic model where the rate of growth of output depends on aggregate stock of capital (both physical and human) and on the level of research and development in an economy. Many of the models are mathematically complex but do explain the persistent difference in growth rates between countries and the importance of research and human capital development in permanently increasing the growth rate of an economy. Works Cited Dornbusch, R. and Fischer, S. Macroeconomics. New York:McGraw Hill, 1994. Kaldor, N. "Capital Accumulation and Economic Growth" in F.A. Lutz and D.C. Hague (eds.), The Theory of Capital. New York: St. Martin's Press, 1961. Maddison, A. Phases of Capatalist Development. Oxford: Oxford University Press, 1982. Romer, P.M. "Capital Accumulation in the Theory of Long Run Growth." In R. Barro (ed.) Modern Business Cycle Theory. Cambridge: Harvard University Press, 1989. Testing Samuelson's Multiplier - Accelerator Interaction Model The Fundamental Equations Are: Yt = Ct + It + Go [Go is exogenous] --- Definitional Equation. Ct = gYt-1 [00] --- Behavioral Equations. ·The model helps to demonstrate how the multiplier and accelerator interact to generate cyclical fluctuations in the economy. ·g is the marginal propensity to consume (MPC) and a is the accelerator, the marginal propensity to save (MPS). ·To test the behavioral equations we apply basic econometrics; using the t- statistic to verify its significance. The first behavioral equation: Ct = -146.66 + 0.714Yt-1 (1.597) (38.57) The figures in the brackets are the t- statistics. The higher the value of the t- statistics the more significant is the value of the parameter. This would suggest that the marginal propensity to consume 'g' where lagged income is regressed on current consumption is 0.714. If we chose another behavioral assumption that current is lagged on current investment then we get the equation: Ct = -226.18 + 0.711Yt (6.75) (106.75) This would suggest that the marginal propensity to consume where current income is regressed on current consumption is 0.711 which is not very different from the value of 0.714 calculated earlier. So both behavioral assumptions lead to approximately the same value of 'g'. ·The second behavioral assumption: It = a(Ct - Ct-1) where a is the accelerator coefficient. The parameters for the above behavioral equation are: It = 623.3 + 0.823(Ct - Ct-1) (11.259) (1.638) This would suggest that the parameteric values of the accelerator coefficient is 0.823, although the relatively low t- statistic value of 1.638 suggests that we cannot place too much confidence on this parameter. ·Therefore we can state: g = 0.714 a = 0.823. We also know from Samuelson's model that if ag<1 then the model is stable. From the value above we see that ag = 0.587 < 1. Hence, the U.S. economy is a stable economy that experiences cyclical fluctuations. f:\12000 essays\business & economics (632)\Things as Related to Stuff.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ There is a highly distinguishable difference between things and stuff per se. In this essay I will help the reader become proficient in identifying what may fall under the classification of things and what is stuff. The thing is that things and stuff often appear the same on the surface, but they are in actuality very different. Things have more spirituality as opposed to stuff, which has a meaning that is more of the literal kind. It is kind of hard to understand at first, but hopefully I will be able to enlighten you. Things are like closer to God or something. On the seventh day, God said "I'm tired of this creations stuff. It's too specific. Let there be things." And so then there were things. It is in this way that we have God to thank for our fortunate inheritance of all the beautiful things on this earth. This is why things are cool. Stuff is more literal f:\12000 essays\business & economics (632)\Title Pay Equity vs Pay Equality.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Pay Equity vs. Pay Equality Abstract: Pay Equality means equal pay for equal work, but pay equity programs throughout the world attempt to legislate and regulate the elimination of systemic gender-based wage discrimination and to ensure ongoing systems that will maintain equitable wage relationships over time. Six Pages APA Citations, Seven Sources Pay Equity vs. Pay Equality In 1963, President Kennedy signed the Equal Pay Act into law, making it unlawful to discriminate against a worker on the basis of sex. Since that time, the wage gap between men and women in the United States has narrowed by just 15 cents, now being 74 cents, as reported by the U.S. Census Bureau. Pay equality is most prevalent for the 16 to 24 age group, in which women earn more than 90 percent of what men do; however, the gap becomes 75 percent in the 25 to 54 year old group - those at the height of their careers and life responsibilities. Brady 1998). A number of factors have contributed to the gap between men's and women's wages. These include: occupational segregation of women into low paying jobs; lower levels of unionization for women and attitudinal barriers that have kept women from achieving equality in the workplace and undervaluation for women's work. The Equal Pay Act (part of the Fair Labor Standards Act), forbids employers to compensate women differently for jobs that are "substantially equal", that is, almost identical. Traditionally, women have worked in different occupations than men; these occupations tend to be substantially different, pay less and confer less authority. (Ferber 1999). Equity means fairness and justice. Pay equity programs throughout the world attempt to legislate and regulate the elimination of systemic gender-based wage discrimination and to ensure ongoing systems that will maintain equitable wage relationships over time. Pay equity programs attempt to address the undervaluation for work traditionally or historically done by women. Pay equity (also referred to as "comparable worth") programs require a gender-neutral analysis of comparative work. A variety of very different jobs are compared based on a composite of the skill, effort and responsibility of a job and the conditions under which the job is generally done. The comparison determines the relative worth of those jobs to the achievement of a firm's objectives, under the proposition that equal contribution merits equal compensation. (Pincus and Shaw 1998) Where female-dominated jobs in the workplace are found to be of equal or comparable value to male-dominated jobs but paid below the level of the male jobs or payline, then all employees in those female-dominated jobs are entitled to receive pay equity adjustments. But how are these adjustments to be determined in a workplace that already subjectively undervalues the effort and contribution of women and minorities? Over the past decade, under-recognition of jobs and skills attributed to women, their lower human capital attributes and a historical concentration in a culturally-confined range of jobs combined with direct discrimination has produced continuing inequities in pay. It is doubted by those concerned with this issue throughout the world that anti-discrimination and equal opportunity laws relying on the successful legal action of individuals seeking redress cannot address systemic problems due to the undervaluation of feminized work. (Pocock 1999.) Equality means equivalent, or equal in value, measure force, significance, etc. The idea of "equal pay for equal work" refers to men and women in the same job, under the same circumstances, ability, seniority, performing equally well but being paid differently. Opponents of pay equity base their criticism on economic theory; stating that the labor market establishes an employee's worth. But Pincus and Shaw argue that this economic argument disregards the historical and cultural bases for the differential. Many studies show that predominately female jobs pay less, on average, than predominantly male jobs. Debates over "comparable worth" policies come from the findings that the sex composition of an occupation exerts a net effect on the wages earned, even after all other factors which may influence the outcome are withdrawn. Studies done in North Carolina showed that the higher percentage of female workers in an occupation had a negative impact on total pay. (England 1999). Thomas R. Tudor points out in "The Complex Issues of Pay Equity" (Journal of Compensation and Benefits, Jan-Feb 1997 v12 n4 p.34) that what employers perceive as fair pay or even what is legislated may not be perceived as such by current employees. Many employers attempt to achieve internal pay policies by standardizing pay ranges for a given position. Influencing factors may include firm size, profitability, growth and market share; however, most companies want to set compensation at whatever level they feel necessary to obtain the highest efforts and results from their employees. Some of these factors can be subjective and lead, not only to defacto discrimination, but employee dissatisfaction in general, as they compare job responsibilities and relative productivity between the people on site. Currently, in all methods of job evaluation, it is the requirements of the job itself that are evaluated, not individual performance, and equity is not the goal. Advocates of pay equity want to legislate that gender composition of jobs not affect the resultant pay. Systems could be set up to establish rating scales on the basis of job evaluations where it is the requirements of the job and not the performance of a given individual within the job that are determinant factors in compensation. This could include educational factors, how much time is spent on different tasks and the sphere of responsibility incumbent upon the employee. Current plans most commonly use skill, effort responsibility and working conditions as factors. Critics of pay equity argue it could never achieve its goal, and even if it did, it would have the undesirable side effects of the disemployment of women and hurt the economy of the enforcing government. The fact is that pay disparity for men and women has a serious effect on the economy, diminishing each woman's purchasing power in a society in which most marketing is done toward women, and also has adverse effects on families with single mothers or other female head of household situations. Critics also point out that women or minorities come to the market with productivity shortfalls. Conclusions of research done by Neumark in 1999 are that minority workers are paid lower starting wages which are thought to reflect discriminations based on taste and lower expectations. Will the wage gap ever be solved for good? It is expected that with all the momentum from legislative efforts, individual lawsuits, and well-intentioned proponents, hopes are high that the pay gap will be long gone by mid-century. Bibliography Krotz, Joanna L. "Getting Even" Working Woman Magazine Online. http://www.workingwomanmag.com/salary/getting.html Brady, Teresa. "How Equal is Equal Pay?" Management Review March 1998. V87 n3 p.59(3) England, Paula. "The Case for Comparable Worth". Quarterly Review of Economics and Finance, December 31, 1999 v39 special issue p.743 (13) Ferber, Marianne A. "Introduction (Women at the End of the Millenium: What We Know, What We Need to Know)". Quarterly Review of Economics and Finance December 31, 1999 v39 Special issue p. 579(17). Neumark, David "Wage Differentials by Race and Sex: The Roles of Taste Discrimination and Labor Market Information". Industrial Relations, July 1999 v38 i3 p414 Pincus, Laura and Bill Shaw "Comparable Worth: An Economic and Ethical Analysis". Journal of Business Ethics 17: 455-470, 1998 Pocock, Barbara. "Introduction: What Action Now for Pay Equity?" Labor & Industry, December 1999 v10 i2 p1 f:\12000 essays\business & economics (632)\To Cut or Not to Cut Dealing With the National Debt.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ "It's time to clean up this mess." Famous last words heard from the mouths of many different politicians when talking about the national debt and the budget deficit. Our debt is currently $4.41 trillion and we have a budget deficit of around $300 billion and growing. Our government now estimates that by the year 2002 the debt will be $6.507 Trillion. While our politicians talk of balancing the budget , not one of them has proposed a feasible plan to start paying down the debt. In the early days of our government debt was considered to be a last resort. In 1790, when Alexander Hamilton, as secretary of the Treasury, made his first report on the national debt of the United States, he estimated it at close to $70 million. After alternately rising and falling, the debt stood at only $4 million, or 21 cents per capita, in 1840. That was the lowest point ever reached by the public debt of the U.S. After 1840 it rose to a peak, in the last year of the Civil War, of almost $2.68 billion and a per capita figure of $75.01. The only justification for debt of any significant amount was a war. By 1900 this had been reduced to under $1 Billion. By 1919, the end of World War I, the debt had climbed to $25.5 Billion. In each of the following years the debt was reduced, and by 1930 stood at $18.1 Billion. With the collapse of Wall Street in 1929, the country (debt history: 1850 to 1950) fell into the Great Depression, which lasted until 1940. At that time the debt had climbed to $51 Billion. By the end of World War II the debt was $269 Billion. Again the government worked to reduce the debt, and by 1949 it was $252.7 Billion. At that point the Korean War started, sending the debt to $274 Billion by 1955. Since then, there has been no serious effort to pay down the debt. The main point to be made was that on three separate occasions a major debt reduction effort had been made, but in the past 55 years in spite of much arm-waving there have been no similar results. The U.S. debt is divided into two major kinds of loans, marketable and nonmarketable. The former provides about 52 percent of the total and is made up of bills, notes, and bonds that can be traded; the latter includes U.S. savings bonds, foreign-government-owned securities, and government account securities that are redeemable but not tradable. Maturity of this debt ranges from less than a year to over 20 years, with the average maturity about 3 years. More than half of the debt, however, is short term, maturing in less than a year. A ceiling is placed on U.S. federal debt, and Congress must enact new legislation to raise the ceiling. Between 1981 and 1990 the ceiling was raised from about $1.08 trillion to about $4.15 trillion. Unfortunately at the end of 1995 we reached the ceiling again, and Congress refused to raise it. They felt that it had become too much, and there was a government shutdown for a few days in November. Not only was this an inconvenience to many people, it also accounted for an estimated $63 million a day in lost productivity, and almost double that in lost tax revenue. Due to the threat of this, Clinton has a plan to balance the budget by 2005. This plan includes a projected $1.1 trillion spending cut over the next ten years, slow the growth of spending on Medicare and Medicaid, trim social and farm programs, close a number of corporate tax loopholes and retain the package of middle-class tax cuts he proposed earlier. He also specified that programs such as Social Security, education, and training would be immune from such cuts. He did warn though, "Make no mistake-- in other areas, there will be big cuts, and they will hurt. This was June of 1995, and at the end of Fiscal Year 1996, the national debt growth was $80 billion higher than previous projections, with a final debt increase of $331 billion. Where does this money go? This happens to be the most popular question asked, yet the one nobody has a definite answer to. Out of all of the places the government spends money, more than 50% goes to three main areas: defense, Social Security, and Medicare and Medicaid, all of which combined account for between $750 and $900 billion per year. In the case of national defense, there are a few different points to be made in justification of these outrageously high numbers. First, the costs in the 1940s and 50s due to both World War II and the Korean War. Next comes the costs of the War in Vietnam in the mid-1960s and 1970s along with LBJ's Great Society Programs. This trend of big spending continued on through the until the end of the 1980s under Reagan's Cold War programs. With the Cold War over, and the United States recognized as the world's only superpower, the defense budget is now being cut. But despite these cuts, experts estimate that up through the year 2005, we will spend at least $250 billion a year on national defense. Social Security is yet a different story. Social Security has become the linchpin of the Federal Government. Every politician in Washington knows that Social Security will eventually fall, but very few will actually propose a budget that cuts out Social Security completely. For those who do, any such plan is shot down immediately. Since its conception in the 1950s, Social Security has done nothing but grow, and this year will cost somewhere in the neighborhood of $330 to $350 billion. If that's not enough, it is projected that by 2005, the program will balloon to almost $450 billion. That's a 28% increase in less than 10 years. Medicare and Medicaid are also untouchables in the federal budget, although in Clinton's new plan, he plans to cut the growth of both equally. While exact numbers aren't available for Medicaid, Medicare is soaring at the same rate as Social Security. Right now, Medicare costs about $160 billion. In ten years, it will grow at an alarming rate up to over $270 billion. That is a 68% growth rate. If this trend continues, Medicare will reach $500 billion within 25 years. That's a lot of money for health care. As for the rest of the money, the bulk of it goes to programs such as income security, health, education, and transportation among other projects. About $220 billion goes towards interest we pay on the debt, and as our national debt keeps rising so will this number. If the debt grows to the amount predicted by Leon Panetta, Clinton's Chief of Staff, $6401 billion, or to the size that some economists believe, in the excess of $7000 billion, this number will soar higher and higher each year. As the earlier graph pointed out, our national debt is not going to decrease by itself. What this country needs is a compromise between Congress and the President, no matter which President. Some experts feel that it is necessary that we side with one party or the other (www.nationaldebt.com). Currently we have a Republican Congress and a Democratic President. This isn't going to help make the situation any easier. As a matter of fact, in recent years the measure of annual deficit is determined inversely by the amount of money that the government can loot from the Social Security Trust Fund and the Federal Employees' Trust Funds plus 148 other trust funds. It has little or no relationship to the fiscal management of the government's officials. The more trust fund money they can plunder, the less the deficit will be, but the more the debt will increase. The best comparison that can be made to the national debt is an enigma. If the government tries to decrease it, somebody is going to be mad over what program is being cut. The more the government spends, the more people complain that it is spending too much. There is no balance, and that is why it makes elected officials so indecisive about their views on the debt, they want to get re-elected. One final thought, balancing the budget will eliminate the deficit, but it will not stop the growth of the debt, and the debt is what we pay interest on, not the deficit. If there had been no deficit during the 1990's, the debt would still have increased by $1 Trillion. Seem scary? Obviously we need immediate action, with minimal bickering. Works Consulted Clinton Outlines Plan To Balance Budget By 2005; Melissa Healy; Los Angeles Times; June 14 1995 "National Debt"; Encarta On-Line Encyclopedia 1996 Http://www.cnn.com Http://www.nationaldebt.com f:\12000 essays\business & economics (632)\Tobacco Advertising And Its Dangerous Effects On Young People.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Tobacco Advertising And Its Dangerous Effects On Young People. Everyday 3,000 children start smoking, most them between the ages of 10 and 18. These kids account for 90 percent of all new smokers. In fact, 90 percent of all adult smokers said that they first lit up as teenagers (Roberts). These statistics clearly show that young people are the prime target in the tobacco wars. The cigarette manufacturers may deny it, but advertising and promotion play a vital part in making these facts a reality (Roberts). The kings of these media ploys are Marlboro and Camel. Marlboro uses a fictional western character called The Marlboro Man, while Camel uses Joe Camel, a high-rolling, swinging cartoon character. Joe Camel, the "smooth character" from R.J. Reynolds, who is shown as a dromedary with complete style has been attacked by many Tobacco-Free Kids organizations as a major influence on the children of America. Dr. Lonnie Bristow, AMA (American Medical Association) spokesman, remarks that "to kids, cute cartoon characters mean that the product is harmless, but cigarettes are not harmless. They have to know that their ads are influencing the youth under 18 to begin smoking"(Breo). Researchers at the Medical College of Georgia report that almost as many 6-year olds recognize Joe Camel as know Mickey Mouse (Breo). That is very shocking information for any parent to hear. The industry denies that these symbols target people under 21 and claim that their advertising goal is simply to promote brand switching and loyalty. Many people disagree with this statement such as Illinois Rep. Richard Durbin who states " If we can reduce the number of young smokers, the tobacco companies will be in trouble and they know it "(Roberts). So what do the tobacco companies do to keep their industry alive and well? Seemingly, they go toward a market that is not fully aware of the harm that cigarettes are capable of. U.S. News recently featured a discussion of the smoking issue with 20 teenagers from suburban Baltimore. The group consisted of ten boys and ten girls between the ages of 15 and 17. When asked why they started smoking, they gave two contradictory reasons: They wanted to be a part of a peer group. They also wanted to reach out and rebel at the same time. " When you party, 75 to 90 percent of the kids are smoking. It makes you feel like you belong," says Devon Harris, a senior at Woodlawn High. Teens also think of smoking as a sign of independence. The more authority figures tell them not to smoke, the more likely they are to pick up the habit (Roberts). The surprising thing is that these kids know that they are being influenced by cigarette advertising. If these kids know that this advertising is manipulating them, why do they still keep smoking? The ads are everywhere, especially in teen-oriented magazines, such as Rolling Stone and Spin. The ads also fuel some of the reasons the children gave for starting. They represent rebellion, independence, acceptance and happiness. These are all the things a young person, between childhood and adolescence, needs and desires. This type of advertising, on top of peer pressure, is the mystery behind the rise in adolescent smoking. How do we stop the future of America from smoking? Here are three things that the experts recommend. Try to convince your children that smoking is not cool. Talk to your kids at a young age about the dangers of smoking. Identify family members who smoke and ask them to stop (Thomas). Children are the most valuable commodity we are given in life. Let's try to educate them while they're young to be independent thinkers and to not be swayed by the tobacco companies who are trying to take advantage of their mind and body. Works Cited "Bill Clinton vs. Joe Camel." U.S. News & World Report. 2 Sep. 1996: 12. Infotrac. Online. 27 Oct. 1996. "Selling Tobacco to Kids." America. 17 Feb. 1996: 3. Infotrac. Online. 27 Oct. 1996. Roberts, Steven. " Teens on tobacco; kids smoke for reasons all their own." U.S. News & World Report. 18 Apr. 1996: 38. Infotrac. Online. 27 Oct. 1996. Thomas, Roger E. "10 steps to keep the children in your practice nonsmokers." American Family Physician. Aug. 1996: 450. Infotrac. Online. 27 Oct. 1996. Breo, Dennis L. "Kicking Butts-AMA, Joe Camel and the 'Black Flag' war on tobacco." JAMA, The Journal of the American Medical Association. 29 Oct. 1993: 1978. Infotrac. Online. 27 Oct. 1996. f:\12000 essays\business & economics (632)\Toil and Trouble.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Toil and Trouble Millions of Americans are signed up for welfare; the program designed to aid poor and needy families. Unfortunately, it has now become a way of life for many. Many argue that welfare is not destroying our culture and creating a dependent people who have learned to abuse certain privileges that come with living in America, but history has proven that this is not true. Last August, when President Clinton signed the welfare reform bill, he said "Today, we are taking a historic chance to make welfare what it was meant to be: a second chance, not a way of life." Welfare was designed to give a boost to the poor-to help struggling families make it through the year while they got back on their feet. What it has become is a target for gluttonous mothers and others who have no values. Many mothers who are on welfare have become used to it, and instead of using the money and aid to stay alive while they look for a job, they are sitting at home waiting by the mailbox for the next check to come in. In the meantime, many mothers are having more kids, because-more kids, more welfare money. These women relish the thought of getting free money in the mail-for doing absolutely nothing. Welfare is destroying out culture. Many argue that welfare is necessary for many families, and that it must not be cut. Some argue that it is giving starving families the boost they need to make it one more year. This is only partially true. Yes, we need welfare, but we also need to limit the amount of time a family can stay on it. By letting families stay on welfare for extended periods of time, we are only creating a lazy, dependent culture. Mothers figure that the welfare check will come in the mail, so where's the motivation for going out and getting a job? There isn't one. This is why President Clinton signed the welfare reform bill. He knows that the welfare laws need to be refined, and he has chosen himself as the apostle for this chore. Many people are abusing welfare in more ways than one. The most common form of welfare abuse is just staying on it too long, and using it as an income, instead of a boost. There are worse cases, though, which clearly show the need for reform. Many mothers are using welfare as an income, and using the money for purposes other than survival. Many are using the money to buy drugs. Inevitably, these drugs lead to an even more destructive way of life. Many of these moms become even more promiscuous, having babies for the money that will be added to her monthly check. Welfare is destroying our society. It is creating and encouraging a slothful and idle culture, and it needs to stop. In the past, honest, hardworking people who just needed a push used welfare. Quickly though, welfare has become something that too many depend on. Many of the families on welfare are poor and lazy. Satisfied with their monthly check, many of the recipients use it as their only form of income, and do nothing else. The government is only encouraging and enabling their idleness by paying these people to sit around doing nothing. These people, if not for the welfare reform bill, would have spent their lives avoiding work for as long as the government would allow, which is usually a lifetime. An example of this idleness is Eulalia Rodriquez. This Jezebel, who calls herself Rodriguez, has been on welfare for twenty-six years, has fourteen children on welfare, seventy-four grandchildren and fifteen great-grandchildren. Rodriguez is sick of people criticizing her for being on public assistance. "I'm sick of people acting like I'm some kind of crook. We've got a lot of kids to feed." She failed to mention the fact that she lives in a six-bedroom, three-story apartment nestled in a gated Boston community called Harbor Point. What's worse, these people even have the nerve to complain, whining about how the minimum wage is too low, and that the jobs offered have no dignity. The nerve. Then there are the immigrants. Not the immigrants who come to America looking for freedom and a new life-I'm talking of the ones who invade our beaches and our borders, and head straight for the welfare sign up desk. These people suck up tax dollars from the honest and hard working, and give the society nothing in return. No more. These people will all be cut off with the new bill. The greedy mothers, the lazy families, the leeching immigrants-they all signal that we need to change the system. So we begin anew. Starting over with a new plan, and a new attitude, destined to succeed, and not likely to fail. No, it is not harsh or discriminating, and yes, it is very necessary. f:\12000 essays\business & economics (632)\topic is business accounting Accounting Evaluation of Ford .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ FORD MOTOR COMPANY GROUP PROJEC ACC 505 - FINANCIAL ACCOUNTING 12/01/96 TABLE OF CONTENTS DESCRIPTION PAGE INTRODUCTION................................................................................. 1 LIQUIDITY........................................................................................ 1-3 Working Capital................................................................................... 1 Current Ratio & Quick Ratio.................................................................... 2 Receivable Turnover & Average Days' Sales Uncollected................................. 2-3 Inventory Turnover & Average Days' Inventory on Hand................................. 3 PROFITABILITY................................................................................. 3-7 Profit Margin................................................................................. ..... 3-4 Asset Turnover.................................................................................... 4-5 Return on Assets................................................................................... 5 Debt to Equity..................................................................................... 5-6 Return on Equity.................................................................................. 6-7 CONCLUSION................................................................................... 7-8 APPENDIX........................................................................................ 9 INTRODUCTION Ford Motor Company, a large United States automotive corporation, strives for success each and every year. The success of Ford Motor Company, as well as other corporations, can be measured by analyzing the two most important goals of management, maintaining adequate liquidity and achieving satisfactory profitability. Liquidity can be defined as having enough money on hand to pay bills when they are due and to take care of unexpected needs for cash, while profitability refers to the ability of business to earn a satisfactory income. To enable investors and creditors to analyze these goals, Ford Motor Company distributes annual financial statements. With these financial statements, liquidity of Ford Motor Company is measured by analyzing factors such as working capitol, current ratio, quick ratio, receivable turnover, average days' sales uncollected, inventory turnover and average days' inventory on hand; whereas profitability analyzes the profit margin, asset turnover, return on assets, debt to equity, and return on equity factors. LIQUIDITY Working Capital Ford Motor Company's working capital fluctuated significantly in the years 1991-1995. This phenomenon is directly attributable to the fact that Financial Services current assets and current liabilities are not included in the total company current asset and current liability accounts. For example, the fluctuation from 1994 ($1.4 billion) to 1995 (-$1.5 billion) of $2.5 billion would suggest that Ford would be unable to pay liabilities during the current period. However, examination of the Financial Services side of the business reveals that surpluses of $13.6 billion existed in both 1994 and 1995, convincingly mitigating the figures indicating negative working capital. Current Ratio & Quick Ratio The current ratio in the years 1991-1995 has remained stable, fluctuating between 0.9 and 1.1. The quick ratio has also remained stable, fluctuating between 0.5 and 0.6. The larger fluctuation in the current ratio versus the quick ratio is caused by inventories being included in the asset side of the equation. Although inventories were significantly higher in both 1994 and 1995, current liabilities were also higher. In addition, marketable securities decreased substantially in 1994 and 1995. These factors resulted in the stability of both the current ratio and quick ratio. Receivable Turnover & Average Days' Sales Uncollected An examination of trends in Ford Motor Company's receivable turnover and average days' sales uncollected ratios reveal positive indicators of Ford's liquidity position. The receivable turnover, a function of net sales and average accounts receivable, has nearly doubled in the years 1993-1995 versus 1991-1992. This trend indicates an extensive increase of net sales in relation to accounts receivable. Receivables were relatively higher in 1994 than in any other of the five years, affecting the ratio for both 1994 and 1995. However, net sales increased 30% in 1994 and 34% in 1995 over the average net sales of 1991-1993. The average days' sales uncollected ratio has decreased significantly over the same period, from 16.9 days in 1991 to 9.7 days in 1995. The substantial decrease in average days' sales uncollected ratio coupled with the near doubling of the receivable turnover ratio is a reflection of Ford's strong sales and effective credit policies in years 1993-1995. Inventory Turnover & Average Days' Inventory on Hand An examination of trends in the inventory turnover and average days' inventory on hand ratios also reveal positive indicators of Ford's liquidity position. Inventory turnover, a function of cost of goods sold and inventories, has remained stable between 14.0 and 16.0 times from 1992-1995. The average ratio over these four years (15.1 times) is 40% higher than that of 1991. The average days' inventory on hand, a derivative of the inventory turnover, has conversely decreased to stable level fluctuating between 23.5 and 26.0 days in the years 1992-1995. The operating cycle of Ford Motor Company has decreased significantly as the table below indicates. 1991 1992 1993 1994 1995 Days: 50.8 29.0 33.8 31.1 34.3 PROFITABILITY Profit Margin Profit margin, which is net income divided by net sales, is a measure of how many dollars of net income is produced by each dollar of sales. As you can see in Appendix 12, Ford Motor Company had a substantial 4 year rise in profit margin. Using horizontal analysis, the profit margin increased 98% from 1991 to 1992, 566% from 1992 to 1993 and then 79% from 1993 to 1994. Although the profit margin from 1994 to 1995 decreased 26%, that is more than acceptable when you look at the substantial increases in the past few years. In the first year, Ford had a profit margin of -3.1%. That means for every dollar of sales, Ford lost $3.10. This is obviously not a good position to be in. During 1991and then carried over into 1992, it cost Ford more money to make sales than it did when it recorded the income for those sales. They realized at this time it was important for them to keep things such as selling and administrative expenses lower, as well as the cost of sales, which included their production, manufacturing, and warehousing costs. By following a plan more complex than I can describe here, Ford steadily increased it's sales while it lowered it's expenses and it's cost of sales. This directly increased Ford's profit margin at a substantial rate within the next three years. Asset Turnover Asset turnover involves Ford's net sales divided by their average total assets. This ratio demonstrates the efficiency of assets used in producing sales. A company like Ford Motor Company has an enormous amount of assets. Computers to heavy equipment to buildings. All of those assets, plus many more, are all taken into consideration when figuring asset turnover. For example, Ford would like to know that if it decides to purchase 20 new computer-aided engineering stations for a cost of about $2,400,000, they would like to see a higher asset turnover to give them the proof that the investment is being used at maximum efficiency. Ford's asset turnover steadily increased in incremental amounts between the years of 1991-1995 (see appendix 12), but on average it was about .43 for the entire 5 year period. Using trend analysis to understand this ratio would give you a pretty good idea that the asset turnover of Ford Motor Company is stable. Trend analysis would give you an index number for 1992 of 100, while the index number for 1995 would be 112. These index numbers would result in a slightly positive but relatively straight line across the page. As a prospective investor this would probably cause you to investigate more deeply as to why Ford can't more efficiently use their assets to produce sales. As a current stockholder, this trend over the past five years may give you some comfort because of the incremental increases (at least it isn't going down). Return on Assets Return on assets is a very good profitability ratio. It is comprehensive when compared to profit margin and asset turnover. Return on assets overcomes the deficiency of profit margin by relating the assets necessary to produce income and it overcomes the deficiency of asset turnover by taking into account the amount of income produced. Mathematically, return on assets is equal to net income divided by average total assets, or more simply put, profit margin times asset turnover. Ford can improve it's overall profitability by increasing it's profit margin, the asset turnover, or both. Looking at the numbers, it was actually Ford's increase in profit margin that really gave it the boost it needed to raise the return on assets from the black to the red. A steady increase in return on assets from -1.3% in 1991 to an acceptable 2.2% in 1994 is a good sign to investors. This steady climb of 169% resulted in an overall increase in the earning power of Ford Motor Company. Ford's increase in profitability shows satisfactory earning power which results in investors continuing to provide capital to it. Debt to Equity The debt to equity ratio shows the portion of the company financed by creditors in comparison to that financed by the stockholders. It is total liabilities divided by stockholder's equity. Ford's debt to equity ratio is relatively high (see appendix 12). When measuring profitability, a high debt to equity ratio means the company has high debt and must earn more profit to protect the payment of interest to it's creditors. This high debt to equity ratio would also interest stockholders because it shows what part of the business is financed through borrowing or in other words, is debt financed. Of the five years we analyzed, the lowest debt to equity ratio was during 1991 (6.65) and the highest was in 1993 (11.71). In comparison to return on assets, a higher creditor financed year such as 1991 did not have an positive effect on profitability. It seemed that through increased borrowing in 1993, a higher debt to equity ratio was produced, but overall profitability also went up. Debt to equity is only one part in a full profitability analysis. The only real information that the debt to equity ratio can produce is it can show how much expansion is possible through the borrowing of long term funds; basically it show's a company's long-term solvency. A higher debt to equity ratio essentially means that the company will be able to borrow less money. The company must rely more on stockholder investment. Ford was able to lower it's borrowing of funds from 1993 through 1994 and into 1995, while still effectively increasing it's profit margin and return on assets. This means Ford was able to use stockholder's investments to increase it's profitability rather than borrow the funds to do it. Return on Equity Return on equity is the ratio of net income divided by the average stockholder's equity. This ratio is of great interest to stockholders because it shows how much they have earned on their investment in the business. In the years of 1991 and 1992, stockholders lost money on their investment in Ford Motor Company (see appendix 12). No one likes to lose money, even if it is a couple of cents on the dollar. A major stockholder could incur quite a loss because of this. In the next three years, return on equity was on the positive side, the peak being in 1994 when stockholders earned about 28% on every dollar invested. Quite a good return considering some investors are happy with a steady 8% return. Considering the previous years, the return on equity for Ford seems to be positive. Common knowledge dictates that most companies experience a downturn every now and then. Ford's investors are able to remain invested in the company because it's overall 5 year return on equity is high enough to give investors the high returns they seek. A return on equity consistently above 16% with a few negative years mixed in is certainly lucrative enough to maintain a strong profitability measurement and project a positive image to the investors of Ford Motor Company. CONCLUSION Although Ford Motor Company is one of the largest companies in the world, we can still attribute accounting trends to some of the key events in Ford's history. In 1990, Ford acquired Jaguar Cars, Ltd. Jaguar was a company suffering terrible loses due to poor quality, and lack of sales. Jaguar has been in the black since Ford purchased them until 1994. It is important to note that Ford's net income trend from 1991 to 1995 illustrates this. In 1992, the Ford Taurus became the number one selling car in the United States, which helped increase 1992 net earnings, and in 1994 the Ford Falcon was the top selling car in Australia, helping maintain the trend of increasing net income. It is important to note that Ford's net income has increased from 1991 to 1994, and then decreased in 1995. There are several possible causes for this change in the trend. In 1995, Ford acquired 20% equity in a major Chinese truck manufacturer, and launched several new vehicles; including the Ford Contour, Ford Mondeo, Mercury Mystique, Ford F-150, and Ford Taurus. These additional investments and expenses help explain the decrease in net income in 1995. Overall, the company has done well, and with reorganization in 1996 to decrease spending and increase efficiency, Ford is striving for future periods of growth. OTHER KEY EVENTS: 1992 - Ford Citi-bank Mastercard introduced, customer 5% discount on purchases 1994 - Ford acquires 100% of Hertz Corporation, the world's largest car rental company APPENDIX DESCRIPTION PAGE Consolidated Income Statements.................................... Appendix 1-2 Spreadsheets............................................................ Appendix 1 Graphical Representation............................................. Appendix 2 Consolidated Balance Sheets.......................................... Appendix 3-5 Spreadsheets............................................................ Appendix 3-4 Graphical Representation............................................. Appendix 5 Consolidated Retained Earnings Statement........................ Appendix 6-7 Spreadsheets............................................................ Appendix 6 Graphical Representation............................................. Appendix 7 Consolidated Statement of Cash Flows.............................. Appendix 8-9 Spreadsheets............................................................ Appendix 8 Graphical Representation............................................. Appendix 9 Evaluation of Liquidity................................................. Appendix 10-11 Evaluation of Profitability............................................. Appendix 12-13 Liquidity & Profitability Formulas.................................. Appendix 14 Page 11 Page 10 f:\12000 essays\business & economics (632)\Total Quality Management in Construction 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The major new element in world market competition is quality. During the 1970's and 1980's, the Japanese and their U.S. companies demonstrated that high quality is achievable at lower costs and greater customer satisfaction. It was the result of using the management principles of total quality management (TQM). More and more U.S. companies have demonstrated that such achievements are possible Using TQM as a new way to manage. Such companies also found that they were recognized with everyone pulling in the same direction. Improvement had become a way of live. Improving competitive position and profit has always been the responsibility of management. Before the 1980's, U.S. management was broadly successful. Until then the dominant management model was that of the autocrat. Management, primly senior management, decided how the business was to operate, including what the policies and objectives were; how it was organized; what jobs were established; and how should they be done. It was an unquestioned axiom that if everyone did what the upper management required, the business would be successful. Organizations are composed of the people in them and the managers who lead them. People respond strongly to leadership expectations and rewards. If they are given little power in their jobs, they have little interest in improving them. If leaders exhort the members for better output but reward (promotions, bonuses, recognition) for mostly higher output, they get the behavior they reward. Quantity over quality has been a common management philosophy in the United States. The first step in implementing TQM requires the an upper-management change in both philosophy and behavior. Managers must adopt the objectives of customer satisfaction and continuous improvement. They must implement the change to achieve these objectives through their personal and continuous involvement and in the reeducation of everyone in the organization in TQM principles and practices. The past philosophy of management can work reasonably well if a company dominates world markets. When markets become complex and worldwide with more and stronger competitors, a new model is needed. Asian companies and some in the United States have demonstrated that there is a more effective way to manage, quite different from the autocratic model: It is employee involvement in quality improvement. These companies also introduce high quality at lower cost as a competitive element, thereby changing the competitive equation for everyone. TQM is a way to continuously improve performance at every level of operation, in every functional area of an organization, using all available human and capital resources. Improvement is addressed toward satisfying board goals such as cost, quality, market share, schedule, and growth. It demands commitment and discipline, and an ongoing effort. The quality management process includes the integration of all employees, suppliers, and customers, within the corporate environment. It embraces two underlying tenets: Quality management is a capability which inherent in your employees. ·. Quality management is a controllable process, not an accidental one. The idea of an integrated, human-orientated systems approach to management was successfully used by W. Edwards Deming in the 1950's. Deming told the Japanese that they could become world-class leaders if they followed his advice and they did. He lectured top Japanese business leaders on statistical quality control. He proposed a system that would change the approach to management in many ways. Today, this system is the pillar of TQM philosophy. These components make up the strategic portion of the quality pyramid (figure. 1). There are mainly eight functional elements from which other concepts flow. These are: 1.Organizational vision Organizational vision provides the frame work that guides a firm's believes and values. The gist of the corporate vision should be a simple, one sentence guide or motto that every employee knows, and more important, believes. If well crafted, the vision statement can serve through a torrent of change in product and service technology. The strategic vision needs to consider both the external customer and the employees, but should lack a defining or differentiating phrase between them. For example, General Motors provides all employees a card with its strategic vision, including a cause-effect diagram that indicates the importance of team work (figure 2). Simply stating a vision is not enough. It needs to be demonstrated by the actions of the executives, managers , superiors, foremen, and individuals. It should be done continuously in all their actions and initiatives. Moreover, deliberation must be exercised in developing these goals and strategies. They must reflect the values and culture of the work force. While top-management commitment is essential, managers should realize when to lead and when to get out of the way. In a sense quality management is management from the bottom up. An atmosphere of responsibility must be created toward the customer for whatever product is produced or service is rendered (fig.3, below). Figure 3 Strategies in Successful Vision Implementation Demonstrate commitment. Inform suppliers. Maintain a constancy of purpose. Take a long-term view. Create more leaders. Establish meaningful goals. Examine your mission. Discuss TQM with peers. Behavior and action must be consistent with goal. Build awareness. 2. Barrier Removal It is inevitable that change will be resisted. In fact, a great deal of effort in quality management is expended in overcoming such resistance, usually by allowing change to come from individuals directly involved, rather from management. The whole idea of continuous improvement leads to continuous change. Some of these barriers are: ·. We know what they really want (without asking them). ·. Quality is not a major factor in decisions-low initial cost mentality prevails. ·. Creative accounting can increase corporate performance. ·. Can't manufacture competitively at the low end. ·. The job of senior management is strategy, not operations. ·. Success is good, failure is bad. ·. If it isn't broke, don't fix it. ·. The key disciplines from which to draw senior management are finance and marketing. ·. Increase in quality means increase in cost. ·. Thinking that time, quality, cost are the worst mutuality exclusive, at best we can only choose two out of three. The following are the steps to barrier removal: I. Identify barrier. As seen above some of these barriers may apply effecting progress. II. Place into categories. Related barriers and their systemic causes may now be analyzed. Categorization may be facilitated by using either cause-effect diagrams or quality function deployment. III. Establish priority. An objective process that is not influenced by management or hidden agenda must be developed. At this stage barriers are judged on their validity in accordance with the severity of the problem. IV. Problem solve. This means more than symptoms removal. Sick organizations do not recover for the long term if the symptoms are masked. It is vital to address the root of the problem. The elimination of one barrier may solve many problems for example poor communication between management and staff. Keep in mind that analyzing the problem should include estimates of resources required for it solution. V. Goals and strategies for resolution. Resolution of problems may entail goals over a period of months or years. Goals should be realistic and attainable with the given resources. Strategies ensure that goals can be accomplished. Bear in mind that numerical goals as such may not be what is required. Numerical goals may also limit the amount of growth, particularly in organizations used to working up to an average. 3.Communication Communication is the glue that binds all the techniques, practices, philosophies, and tools. Communication may be written, verbal, or nonverbal. Understanding and refining skills for each main type communication is an ongoing process for everyone. All forms of communication involve four elements: the sender, the receiver, the message, and the medium. The medium is the method of delivery, and can effect the message. It was said that "the medium is the message", referring in part to the filtering effects that can happen to the message and how personality factors may influence our understanding (figure. 4). VI. Written Communication. Office memos and reports are the result of hundreds of hours (studies indicate anywhere from 21% to 70% of office workers' time is spent in manipulating written information) of work, and their final form should be worthy of spending some time to get words right. The use of white space and graphical elements such as charts and figures enhances the readability of any written piece. Given the vast amount of time spent on reading and creating memos, letters, proposals, and the like, the byword on written communication should be more is better, and the less is permanent (memos sent electronically, faxes, hand notes on the bottom of the letters, rather than typed, recorded reply) the better. VII. Verbal. Verbal communication takes place in many different settings, and the form of the communication will vary. One sort of vocabulary may be used to address shareholders and a different idiom may be used altogether when chatting with construction workers. The skills principally lacking in verbal communication are public speaking and small group interactions. Public speaking scares people to death. This fear may be overcome by training(organizing and practice), videotaping the presentation (to review latter), and practice(on small group to build confidence). Small group interactions are essential to buildup comfort and ease among the group. It will provide a sense of team work and it is vital to have small talk among the team. VIII. Nonverbal. Humans infer a great deal of information from nonverbal clues. This non verbal clues includes body language as well as things as dress for success. Psychologists believe that nonverbal clues lead to "gut feels" about how to interact with another person. Despite the similarities of nonverbal communication, there are cultural differences, and is probably most important to understand these, rather than reading individuals body language. It is easy to fall into the trap of overanalyzing nonverbal clues and infusing them with meaning, when, for example, someone may be hard of hearing or near/far-sighted rather than being inattentive (or too attentive). 4.Continuous Evaluation Feedback is essential to continuous improvement. How else would we know if our goals are being reached?. These feedback mechanisms may be simple oral or written reports, information systems, or complex automated statistical analyses integrated with our expert systems. The key is to receive the information in time to allow initiating corrective action. For example, in construction feedback from engineers, subcontractors and so forth can help us as managers to find new ways to reduce cost and schedule. Feedback may also help architects to find the best way to construct a building and therefore effecting the design. We also should understand and separate assessable causes from chance causes. Assessable causes have distinct reasons for there existence, while chance causes are those causes that we have no control over. 5.Continuous Improvement Unlike innovation, which require great resources, and no small amount of serendipity, continuous improvement is easier to manage and utilize everyone's talent. Japanese companies have used this idea for some time, and call this approach kaizen. This idea fits hand in hand with team building approach. Kaizen and innovation are compared in figure 5 below. Figure 5. Improvement versus Innovation Continuous Improvement Innovation Effect long term and long lasting but undramatic. Shot term, but dramatic. PaceTime frame Small steps.Continuous and incremental. Big steps.Intermittent and nonincremental. Change InvolvementApproach Gradual and constant.Everybody.Collectivism, group efforts, systems approach. Abrupt and volatile.Select few "champions."Rugged individualism, individual ideas and efforts. Mode Maintenance and improvement. Scrap and rebuild. Spark Conventional know-how and state of the art. Technological breakthroughs, new inventions, new theories. Practical requirements. Requires little investment but great effort to maintain it. Requires large investment but little effort to maintain it. Effort orientationEvaluation criteria People.Process and efforts for better results. Technology.Result for profit. Advantage Works well in slow-growth economy. Better suited to fast-growth economy. To reduce cost and time and increase productivity, in any industry, the focus must be projected on the process that produces the product. Improving the process in construction, for example, reduced or may eliminate costly change orders and therefore reduced complexity and time. Through inspection and analysis of the process, everyone shares a common learning experience and the accumulated knowledge and understanding of the process become the basis for improving it. Precepts of Quality Improvement ·. Quality leadership must begin with top management. ·. The most important aspect of quality is identifying the activities within the organization that effect quality. ·. Written procedure are one of the necessary communication media by which the management functions of directing and controlling are exercised. ·. One of the most critical activities in quality improvement is preparing a clear, concise description of the services to be acquired. ·. The cost, time, and effort devoted to evaluating and selecting suppliers must be commensurate with the importance of the goods and services to be procured. ·. Quality audits must determine the adequacy of, and compliance with, established policies, procedures, instructions, specifications, codes, standard and contractual requirements. Quality audits must also assess the effectiveness of their implementation. ·. The simple objective of most quality audits is to gather enough reliable data through inspection, observation, and inquiry to make reasonable assessment of the quality of the activity being audited. ·. the foundation of quality control is having timely and accurate information so that systems that are not capable of producing consistent quality can be identified and improved. ·. An effective quality cost program can help the management team to allocate strategic resources for improving quality and reducing costs. ·. Productivity, profit, and quality are the ultimate measure of success of the production system. 6.Customer/Vendor Relationship The "hearing the voice of the customer" has become a key phrase in the past few years. This would seem to be a obvious point but it's not. After world war II, The United States was the only major country that did not have a devastated economic infrastructure. Therefore, it was able to produce items of any quality and sell them. Industries were internally driven and not customer driven. As the glob markets grow, new competitors with new technologies approached these markets providing better quality products and involving the customers. This approach worked miracles for these new industries and valuable lessons should be learned from this. Here are some strategies for improving customer and vendor relation: ·. Link organizational vision to customer satisfaction. ·. Reward suppliers. ·. Move to a single source. ·. Minimize the overall number of vendors. ·. Identify the internal and external customers. ·. Identify end users and distributors. ·. Establish routine dialogue with customers. ·. Involve the customer in planning and development. Keep in mind that vendors must be qualified and have policies that are compatible with yours. Viewing these vendors as partners, rather than adversaries leads to the ability to implement successfully such cost-saving measures as just-in-time, whereby materials arrive as needed to the construction site. 7.Empowering The Worker Empowering the worker means enabling the worker to achieve his or her highest potential. For most American companies, this is new, and may be the most powerful and useful concept in quality management. Allowing and facilitating workers to achieve their highest potential may seem obvious or impossible, but in fact it is neither. Empowering requires turning the organizations chart upside down, recognizing that management is in a place to aid the worker in overcoming problems they encounter, not to place new roadblocks on the way. Empowering strategies may include: I. Ownership. A key strategy in empowering employees is to allow them ownership of tasking, project, or division. Ownership implies trust and requires a delegation of authority commensurate with the responsibility of the task. Ownership can also be granted to a team. Ownership also demands that the final resolution of the tasking be in the hands of the owner. II. Value all contributions. Whether or not we appreciate them, it is important to enhance self-esteem of the contributor to accept their contribution and evaluate it. III. Every one has a value. If they didn't why would they be employed? Treat everyone with respect. All work has dignity to it. IV. Teams must own problem. Teams are a waste of time if management vetoes or substantially changes their recommendation. If management is unable to trust the recommendations that come from the team, then management fear rules, and will spiral to lower and lower productivity. V. Delegate authority to the lowest possible organizational level. Constantly ask: why should I do this? If you have hired competent people, let them do there job. No one knows about the job than the person directly involved with it. 8.Training The outcome of training is modified behavior. It may be enhanced interpersonal skills or specific manual skills, but there is a direct, identifiable modification. Training need not consist solely of traditional classroom instruction. Employees can train other employees very effectively. A company-wide curriculum should be developed that address the needs of each department. Courses should be just long enough to be effective. Anything over three or four days is unlikely to immediately be absorbed into daily work habits. Immediate reinforcement of the training is necessary to be effective. Bibliography 1. R. Stein, The Next Phase of Total Quality Management., Macel Dekker, Inc.,1994. 2. T. Cartin, Principles and Practices of TQM., ASQC Quality Press.,1993. 1. W. Schmidt and J. Finnigan, TQManager., Jossey-Bass Publishers., 1993. 1. B.Brocka and S. Brocka, Quality Management: Implementing The Best Ideas Of the Masters. Irwin, Inc.,1992. 2. H. Kerzner, Project Managment., Van Nostrand Reinhold.,1992. The Catholic University of America Total Quality Management In Construction f:\12000 essays\business & economics (632)\Total Quality Management In Construction.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Total Quality Management In Construction The major new element in world market competition is quality. During the 1970's and 1980's, the Japanese and their U.S. companies demonstrated that high quality is achievable at lower costs and greater customer satisfaction. It was the result of using the management principles of total quality management (TQM). More and more U.S. companies have demonstrated that such achievements are possible Using TQM as a new way to manage. Such companies also found that they were recognized with everyone pulling in the same direction. Improvement had become a way of live. Improving competitive position and profit has always been the responsibility of management. Before the 1980's, U.S. management was broadly successful. Until then the dominant management model was that of the autocrat. Management, primly senior management, decided how the business was to operate, including what the policies and objectives were; how it was organized; what jobs were established; and how should they be done. It was an unquestioned axiom that if everyone did what the upper management required, the business would be successful. Organizations are composed of the people in them and the managers who lead them. People respond strongly to leadership expectations and rewards. If they are given little power in their jobs, they have little interest in improving them. If leaders exhort the members for better output but reward (promotions, bonuses, recognition) for mostly higher output, they get the behavior they reward. Quantity over quality has been a common management philosophy in the United States. The first step in implementing TQM requires the an upper-management change in both philosophy and behavior. Managers must adopt the objectives of customer satisfaction and continuous improvement. They must implement the change to achieve these objectives through their personal and continuous involvement and in the reeducation of everyone in the organization in TQM principles and practices. The past philosophy of management can work reasonably well if a company dominates world markets. When markets become complex and worldwide with more and stronger competitors, a new model is needed. Asian companies and some in the United States have demonstrated that there is a more effective way to manage, quite different from the autocratic model: It is employee involvement in quality improvement. These companies also introduce high quality at lower cost as a competitive element, thereby changing the competitive equation for everyone. TQM is a way to continuously improve performance at every level of operation, in every functional area of an organization, using all available human and capital resources. Improvement is addressed toward satisfying board goals such as cost, quality, market share, schedule, and growth. It demands commitment and discipline, and an ongoing effort. The quality management process includes the integration of all employees, suppliers, and customers, within the corporate environment. It embraces two underlying tenets: Quality management is a capability which inherent in your employees. -Quality management is a controllable process, not an accidental one. The idea of an integrated, human-orientated systems approach to management was successfully used by W. Edwards Deming in the 1950's. Deming told the Japanese that they could become world-class leaders if they followed his advice and they did. He lectured top Japanese business leaders on statistical quality control. He proposed a system that would change the approach to management in many ways. Today, this system is the pillar of TQM philosophy. These components make up the strategic portion of the quality pyramid (figure. 1). There are mainly eight functional elements from which other concepts flow. These are: 1.Organizational vision Organizational vision provides the frame work that guides a firm's believes and values. The gist of the corporate vision should be a simple, one sentence guide or motto that every employee knows, and more important, believes. If well crafted, the vision statement can serve through a torrent of change in product and service technology. The strategic vision needs to consider both the external customer and the employees, but should lack a defining or differentiating phrase between them. For example, General Motors provides all employees a card with its strategic vision, including a cause-effect diagram that indicates the importance of team work (figure 2). Simply stating a vision is not enough. It needs to be demonstrated by the actions of the executives, managers , superiors, foremen, and individuals. It should be done continuously in all their actions and initiatives. Moreover, deliberation must be exercised in developing these goals and strategies. They must reflect the values and culture of the work force. While top-management commitment is essential, managers should realize when to lead and when to get out of the way. In a sense quality management is management from the bottom up. An atmosphere of responsibility must be created toward the customer for whatever product is produced or service is rendered (fig.3, below). 2. Barrier Removal It is inevitable that change will be resisted. In fact, a great deal of effort in quality management is expended in overcoming such resistance, usually by allowing change to come from individuals directly involved, rather from management. The whole idea of continuous improvement leads to continuous change. Some of these barriers are: - We know what they really want (without asking them). - Quality is not a major factor in decisions-low initial cost mentality prevails. - Creative accounting can increase corporate performance. - Can't manufacture competitively at the low end. - The job of senior management is strategy, not operations. - Success is good, failure is bad. - If it isn't broke, don't fix it. - The key disciplines from which to draw senior management are finance and marketing. - Increase in quality means increase in cost. - Thinking that time, quality, cost are the worst mutuality exclusive, at best we can only choose two out of three. The following are the steps to barrier removal: I. Identify barrier. As seen above some of these barriers may apply effecting progress. II. Place into categories. Related barriers and their systemic causes may now be analyzed. Categorization may be facilitated by using either cause-effect diagrams or quality function deployment. III. Establish priority. An objective process that is not influenced by management or hidden agenda must be developed. At this stage barriers are judged on their validity in accordance with the severity of the problem. IV. Problem solve. This means more than symptoms removal. Sick organizations do not recover for the long term if the symptoms are masked. It is vital to address the root of the problem. The elimination of one barrier may solve many problems for example poor communication between management and staff. Keep in mind that analyzing the problem should include estimates of resources required for it solution. V. Goals and strategies for resolution. Resolution of problems may entail goals over a period of months or years. Goals should be realistic and attainable with the given resources. Strategies ensure that goals can be accomplished. Bear in mind that numerical goals as such may not be what is required. Numerical goals may also limit the amount of growth, particularly in organizations used to working up to an average. 3.Communication Communication is the glue that binds all the techniques, practices, philosophies, and tools. Communication may be written, verbal, or nonverbal. Understanding and refining skills for each main type communication is an ongoing process for everyone. All forms of communication involve four elements: the sender, the receiver, the message, and the medium. The medium is the method of delivery, and can effect the message. It was said that "the medium is the message", referring in part to the filtering effects that can happen to the message and how personality factors may influence our understanding (figure. 4). VI. Written Communication. Office memos and reports are the result of hundreds of hours (studies indicate anywhere from 21% to 70% of office workers' time is spent in manipulating written information) of work, and their final form should be worthy of spending some time to get words right. The use of white space and graphical elements such as charts and figures enhances the readability of any written piece. Given the vast amount of time spent on reading and creating memos, letters, proposals, and the like, the byword on written communication should be more is better, and the less is permanent (memos sent electronically, faxes, hand notes on the bottom of the letters, rather than typed, recorded reply) the better. VII. Verbal. Verbal communication takes place in many different settings, and the form of the communication will vary. One sort of vocabulary may be used to address shareholders and a different idiom may be used altogether when chatting with construction workers. The skills principally lacking in verbal communication are public speaking and small group interactions. Public speaking scares people to death. This fear may be overcome by training(organizing and practice), videotaping the presentation (to review latter), and practice(on small group to build confidence). Small group interactions are essential to buildup comfort and ease among the group. It will provide a sense of team work and it is vital to have small talk among the team. VIII. Nonverbal. Humans infer a great deal of information from nonverbal clues. This non verbal clues includes body language as well as things as dress for success. Psychologists believe that nonverbal clues lead to "gut feels" about how to interact with another person. Despite the similarities of nonverbal communication, there are cultural differences, and is probably most important to understand these, rather than reading individuals body language. It is easy to fall into the trap of overanalyzing nonverbal clues and infusing them with meaning, when, for example, someone may be hard of hearing or near/far-sighted rather than being inattentive (or too attentive). 4.Continuous Evaluation Feedback is essential to continuous improvement. How else would we know if our goals are being reached?. These feedback mechanisms may be simple oral or written reports, information systems, or complex automated statistical analyses integrated with our expert systems. The key is to receive the information in time to allow initiating corrective action. For example, in construction feedback from engineers, subcontractors and so forth can help us as managers to find new ways to reduce cost and schedule. Feedback may also help architects to find the best way to construct a building and therefore effecting the design. We also should understand and separate assessable causes from chance causes. Assessable causes have distinct reasons for there existence, while chance causes are those causes that we have no control over. 5.Continuous Improvement Unlike innovation, which require great resources, and no small amount of serendipity, continuous improvement is easier to manage and utilize everyone's talent. Japanese companies have used this idea for some time, and call this approach kaizen. This idea fits hand in hand with team building approach. Kaizen and innovation are compared in figure 5 below. To reduce cost and time and increase productivity, in any industry, the focus must be projected on the process that produces the product. Improving the process in construction, for example, reduced or may eliminate costly change orders and therefore reduced complexity and time. Through inspection and analysis of the process, everyone shares a common learning experience and the accumulated knowledge and understanding of the process become the basis for improving it. Precepts of Quality Improvement - Quality leadership must begin with top management. - The most important aspect of quality is identifying the activities within the organization that effect quality. - Written procedure are one of the necessary communication media by which the management functions of directing and controlling are exercised. - One of the most critical activities in quality improvement is preparing a clear, concise description of the services to be acquired. - The cost, time, and effort devoted to evaluating and selecting suppliers must be commensurate with the importance of the goods and services to be procured. - Quality audits must determine the adequacy of, and compliance with, established policies, procedures, instructions, specifications, codes, standard and contractual requirements. Quality audits must also assess the effectiveness of their implementation. - The simple objective of most quality audits is to gather enough reliable data through inspection, observation, and inquiry to make reasonable assessment of the quality of the activity being audited. - the foundation of quality control is having timely and accurate information so that systems that are not capable of producing consistent quality can be identified and improved. - An effective quality cost program can help the management team to allocate strategic resources for improving quality and reducing costs. - Productivity, profit, and quality are the ultimate measure of success of the production system. 6.Customer/Vendor Relationship The "hearing the voice of the customer" has become a key phrase in the past few years. This would seem to be a obvious point but it's not. After world war II, The United States was the only major country that did not have a devastated economic infrastructure. Therefore, it was able to produce items of any quality and sell them. Industries were internally driven and not customer driven. As the glob markets grow, new competitors with new technologies approached these markets providing better quality products and involving the customers. This approach worked miracles for these new industries and valuable lessons should be learned from this. Here are some strategies for improving customer and vendor relation: - Link organizational vision to customer satisfaction. - Reward suppliers. - Move to a single source. - Minimize the overall number of vendors. - Identify the internal and external customers. - Identify end users and distributors. - Establish routine dialogue with customers. - Involve the customer in planning and development. Keep in mind that vendors must be qualified and have policies that are compatible with yours. Viewing these vendors as partners, rather than adversaries leads to the ability to implement successfully such cost-saving measures as just-in-time, whereby materials arrive as needed to the construction site. 7.Empowering The Worker Empowering the worker means enabling the worker to achieve his or her highest potential. For most American companies, this is new, and may be the most powerful and useful concept in quality management. Allowing and facilitating workers to achieve their highest potential may seem obvious or impossible, but in fact it is neither. Empowering requires turning the organizations chart upside down, recognizing that management is in a place to aid the worker in overcoming problems they encounter, not to place new roadblocks on the way. Empowering strategies may include: I. Ownership. A key strategy in empowering employees is to allow them ownership of tasking, project, or division. Ownership implies trust and requires a delegation of authority commensurate with the responsibility of the task. Ownership can also be granted to a team. Ownership also demands that the final resolution of the tasking be in the hands of the owner. II. Value all contributions. Whether or not we appreciate them, it is important to enhance self-esteem of the contributor to accept their contribution and evaluate it. III. Every one has a value. If they didn't why would they be employed? Treat everyone with respect. All work has dignity to it. IV. Teams must own problem. Teams are a waste of time if management vetoes or substantially changes their recommendation. If management is unable to trust the recommendations that come from the team, then management fear rules, and will spiral to lower and lower productivity. V. Delegate authority to the lowest possible organizational level. Constantly ask: why should I do this? If you have hired competent people, let them do there job. No one knows about the job than the person directly involved with it. 8.Training The outcome of training is modified behavior. It may be enhanced interpersonal skills or specific manual skills, but there is a direct, identifiable modification. Training need not consist solely of traditional classroom instruction. Employees can train other employees very effectively. A company-wide curriculum should be developed that address the needs of each department. Courses should be just long enough to be effective. Anything over three or four days is unlikely to immediately be absorbed into daily work habits. Immediate reinforcement of the training is necessary to be effective. Bibliography 1. R. Stein, The Next Phase of Total Quality Management., Macel Dekker, Inc.,1994. 2. T. Cartin, Principles and Practices of TQM., ASQC Quality Press.,1993. 1. W. Schmidt and J. Finnigan, TQManager., Jossey-Bass Publishers., 1993. 1. B.Brocka and S. Brocka, Quality Management: Implementing The Best Ideas Of the Masters. Irwin, Inc.,1992. 2. H. Kerzner, Project Managment., Van Nostrand Reinhold.,1992. f:\12000 essays\business & economics (632)\Total Quality Management.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Total Quality Management A new progression being used in many organizations is labeled Total Quality Management (TQM). This approach involves guaranteeing that an organization functions with a commitment to quality and continuous improvement in meeting its consumer's needs. With any type of change there will always be a number of bumps in the road which slow down the process that can help a company increase the workers morale, production, profits, and an over all positive environment to conduct business. The pressures of the cut-throat market place has push companies' backs against a wall and to compete on a global scale new ideas have to be explored. The purpose of a TQM program is to amplify the effectiveness of the organization. During an age of downsizing and restructuring, many American companies are determining that they must learn to manage more effectively. The management is running on an older system which add to workers that call out more sick days and abuse the companies production procedure. Organizational problems decoding means that all members of an organization participate in cultivating a vision and improving the corporate cultures. In any change program you must comprehend where you are before you can chart a course for where you want to be. Therefore, before executing TQM, or another program it is important to add the total value of the organization in terms of its current quality or performance class and too define the level of performance or quality you wish to achieve. One will never achieve total output for any given input, but with simple steps that can add dollars to the bottom line with an increase of production one can get close. Organization diagnosis contributes information which allows a faster reacting organization to emerge, one which can deal proactively with changing emphases. Organization examination is often mentioned as the most critical element in the TQM process. With this technique utilized a company can measure all aspects of its output in relation to the mass input. These all include all external and internal inputs from the accountant to the delivery truck driver. All members and service providers must be looked at so as to acquire a complete overall view of the performance of the given organization. The steps that a company takes towards Total Quality Management in the beginning only adds the real value of having such a new system in place. Organization's are transforming and will continue to do so in order to survive in this complex environment. Because change is occurring so rapidly, there is a necessity for new ways to manage focusing on product quality and individual involvement. TQM is a type of an approach to managing work focusing on the evaluation of industry processes. The development of a quality energized culture and the empowerment of employees, for the purpose of continuous improvement of products and philanthropies. Since TQM is a powerful new management technique requiring deepened employee participation, the first step is a climactic change in corporate culture. Any successful adjustment in corporate culture will depend upon the active consultation and involvement of the management team. An important component in developing a high performance organization is the identification of areas for improvement or concerns. Total quality management has been defined as the guidance of activities involving improving the quality of the organization's product or service. TQM involves moving toward collective excellence by integrating the desires of individuals for growth and development with organizational goals. TQM is a philosophy and a set of guiding standards for continuous improvement. TQM applies human resources and analytical tools to concentrate on meeting or exceeding customer's current and future needs. It integrates these resources and tools into management efforts, by providing planned, efficient approaches to improving the total organization, so that it is more customer oriented, quality conscious, adjustable and attentive. Total Quality Management has become a cardinal concern of management. Much of this attention was initially focused on the auto establishments which experienced declining sales and increasing product disappointments. Companies in numerous other industries also became concerned. Some of these ideas were original explored in this country in the '80s due to deficient sales and decrease in market share. Both of these can denote death for even considerably large companies like General Motors. It was GM that characterized a major role in introducing TQM here with the Saturn car. GM decided that since they might lose some valuable market share due to an expansion in Japanese car sale, that they should study the extraordinary way that this old world culture seemed to put quality autos on the market. GM found that the Japanese had less middle management and more teams of employees that were self governed. The teams were responsible for the perfection of the products that were made, instead of having quality control inspectors. The teams were given the authority to hire and fire its members. With this innovative knowledge, GM tried an experiment that became the Saturn car. To this day the Saturn car assembly is still seen as an experiment for GM to use and harvest some of the inspirations so as to enhance its other factories. Thus, the Total Quality Management system was subsequent made mainstream with the idea creeping into all types of organizations. There are several widely recognized key characteristics of TQM systems. First, for a system to be TQM it has to be organization wide. Which determines that the production line is a natural and obvious place to increase quality but it also takes place in all areas of the business. This includes the superior CEO to the mail room clerk. Second, the top managers must visibly adhere the new TQM control system. If any of the workers were to contemplate that the upper management was not taking the virgin guidelines seriously then you are more inclined to have chaos. To help arrest the bucking of the system to a slow trot, a simple type of reward system is put in place to reward team associates and for the insurance that there will be continue support. Third, everyone in the organization has a customer which could be the adjacent guy on the production line or remote to the organization. This is a crafty way to get the personnel enthusiastic about pleasing the guildlines of the company. Forth, doing the job expeditious and right the first time is important. Instead of relying on product inspection, the employee should be responsible for the quality of the product that is conceived. Finally, the most important aspect for an organization is to let the team members know that each one of them is respected and valued. This again goes for the entire chain, from the internal to the external vendors and suppliers. More and more organizations are concluding that employees are no longer satisfied with simply filling a slot in the organization chart. Everyone in the organization has a voice and is allowed to speak on all issues. Today's managers are being challenged to provide leadership in new and changing environments. Customers, competitors, employees, and stockholders are all placing anxieties on management for innovation and change at a rapid pace. Change is a scorning process. Every organization exists in a endless state of adapting to change. Downsizing changes are usually caused by external competitive forces, whereas other changes to work operations emerge as a result of shifting forces within the organization. Many management theorist feel that authoritarian or political forces, adapting to this increasing rate of change and therefore become reactive organizations reacting drastically after problems come to light. The GM company for example, continues to focus on quality, cycle time reduction, and teamwork in a change process that most companies can only try to emulate. Ten years after initiating a quality change program, TQM is still being used to invigorate the company. The Saturn car company is a continued success in the auto industry. It should be noted that Saturn has yet to pull in an over all profit, but the high sales has GM looking at the car company in hind sight. GM has taken what it has learned from Saturn and applied it to the other lines of cars. How can you measure the value of such information? So because of this new approach the TQM company lives on as a modern day experiment, which by today's terms is not so experimental. GM has emerged to meet these changing forces is termed Total Quality Management (TQM) Total Quality management may be defined as an organizational strategy of commitment to improving customer satisfaction by developing techniques to carefully administer output quality. TQM is not so much a special technique, as it is an aspect of a reinvented corporate culture with a healthy commitment to improving quality in all organizational approaches. Reference: f:\12000 essays\business & economics (632)\TQM Analysis of Lucent Technologies.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ TQM Analysis of Lucent Technologies Introduction The following is an attempt to analyze AT&T's use of Total Quality Management throughout its organization. Since AT&T is an elaborately enormous corporation I will focus my study to AT&T Power Systems/Lucent Technologies. This division of AT&T has been the industry standard for excellence since TQM was first introduced to the company. AT&T Power Systems has become one the world's most dynamic companies because of its use of TQM. I will provide a brief description of who AT&T Power Systems is, a description of the events that lead up to its use of TQM, AT&T's TQM philosophy, and how this philosophy was implemented. Finally I will discuss the benefits AT&T Power Systems realized through their use of Total Quality Management. Who is AT&T Power Systems? AT&T Power Systems provides a verity of power products for the data processing and telecommunications industries. Power System and its 4,200 employee's design, develop, manufacture, and market electronic power systems, components, and power supplies to an increasingly international marketplace. In the past ten years AT&T as a whole has gone through a dramatic metamorphous. It was forced to change from a large telecommunications monopoly providing universal telephone service, to a competitive global corporation providing a full range of communication services and technologies. The "new" AT&T is a potpourri of smaller, highly focussed entities. Each entity has its own customers, competitors, and operational functions. Power Systems is the pinnacle of the "new" AT&T. In less than five years Power Systems has become the prototype for successfully implementing the cultural and organizational revolution know as Total Quality Management. It has not only received internal recognition, but external achievement as well. In 1994 Power Systems was the first American company to win Japan's prestigious Deming Prize for Quality Management. In the same year AT&T's long distance division won America's Malcolm Baldrige National Quality Award. AT&T's TQM philosophy made it the first corporation to win these two awards. Why did Power Systems change to TQM? Prior to 1990 Power Systems provided equipment for only its parent company AT&T. Power Systems was a lackluster division of AT&T that reported losses in numerous quarters. As the scope AT&T and business as a whole changed Power Systems was forced to survive on its own. No longer would losses be tolerated, if the work couldn't be completed in a cost-effective manner the division would be sold and the work would be given to an outsourcer. A.M. (Andy) Guarriello, Vice President & COO of Power Systems, was given the job of implementing TQM. Guarriello along with Power Systems management team launched the "Dallas Vision" project, an initiative involving physical, organizational, and philosophical changes that soon led to the adoption of Total Quality Management as the management system for the future. Power Systems consolidated several of its locations into several small internal business units. These units would become to foundation that Power Systems operated on. Each units is given the resources to develop, engineer, manufacture, and its products. Functions such as human resources, finance, marketing, and sales are provided by smaller organizations developed to support the internal units. Power Systems Dallas unit was completely redesigned. This 900,000 square foot facility was rearranged into what AT&T calls "focused factories. Each "focused factory" has the capability to accept incoming material, manufacture, and ship finished products. This layout was designed much within the guidelines of the Japanese JIT system. Power Systems took the Japanese approach to TQM and modified to fit the AT&T culture. The TQM criteria developed within Power Systems were selected to ensure the company's ongoing focus on high standards for customer orientation, process excellence, employee involvement and continuous improvement. What is AT&T's TQM philosophy? AT&T's TQM philosophy has three main components Quality Policy Deployment, Daily Work Management, and Quality Improvement. These three components combine to ensure robust solutions and continuous improvements. Quality Policy Deployment is the process of aligning the company's attention and resources on a few high-priority, customer-focused issues. This is done to achieve to realize vast improvements in performance. Daily Work Management is a process of defining, measuring, and managing the day-to-day work of individuals and groups to obtain incremental improvements. This gives individual employees the opportunity to see improvements in measures they understand. Quality Improvement is a team-based problem-solving methodology that uses the seven-step process known as the "QI story process." The "QI story process" is designed to detect and eliminate errors that cause defects. Together these three concepts formed an effective solution to Power Systems earlier problems. Underlying these three concepts are four principles that are the foundation of AT&T's TQM philosophy. These four are customer satisfaction, management-by-fact, respect for people, and P-D-C-A. P-D-C-A is Plan-Do-Check-Act developed by Shewhart. These four principles helped Power Systems implement its cultural change. Without any one of these TQM will not work, so Power Systems' management instituted a training regiment that had every employee had at least two full days of training within the first year of implementation. Power Systems has instilled pride in each one of its employees, which perpetuates outside the business to their customers. Each manager, worker, team member, and internal group believe that they can make a difference in the operation of the company. Each also believes they have the responsibility to produce a quality product efficiently that not only meets their customer's needs, but also makes profit. This attitude as propelled Power Systems, or as it is now known Lucent Technologies, to the top of its industry. What Benefits did Power Systems see from TQM? Power Systems surpassed the expectations of management to realize colossal growth. Below is a list of improvements from a 1994 AT&T press release. These improvements pertain specifically to Power Systems. · Number of customers increased by six times. · Sales revenue grown by 20 percent. · Operating return on assets (ROA) comparable to top 50 U.S. corporations. · Customer satisfaction improved to industry-leading position. · Product shipped to customers' request date 95 percent of the time. · Outgoing quality (ppm) improved by a factor of twenty. · New product introduction interval reduced by one-half. · Inventory and investment cut in half. · Quality Improvement teams grown from zero to almost 300. · Employee suggestions increased from 50 to 7000 per year. · ISO 9000 certification for all locations. · All chlorofluorocarbon (CFC) usage and toxic air emissions eliminated. · More than 98 percent of all possible items recycled. · "Workplace of the Future" a model of union-management cooperation. Through the use of TQM Power Systems has thrust its way into the industry lead for quality management. All of the above benefits are directly related to the implementation of TQM and its philosophies. Power Systems took a stance against the traditional American way of doing business. In this increasing global marketplace businesses must change or they will become extinct. AT&T's Power Systems was one the first American companies to adapt Japanese quality management styles to one that works here. Further Findings AT&T's Power Systems is now Lucent Technologies, one of the fastest growing companies in the communication industry. AT&T is the leading American corporation in regards to quality management. When asked to comment on AT&T being awarded both the Deming and Baldrige Awards AT&T Chairman Robert E. Allen said, "Receiving these awards is like winning both the World Series and the World Cup on the same day." Allen went on to say, "I couldn't be more proud of the men and women of AT&T who earned this remarkable achievement; they know that the real winners are our customers." I think the reason that AT&T has been successful with its TQM is that this philosophy has become inbreed into the culture at AT&T. Allen comments are a testament to that. Andrew M. Guarriello's participation in AT&T's implementation has earned a spot in the Shingo Prize Academy. The Shingo Prize Academy consists of individuals who have distinguished themselves in the area of manufacturing excellence. Other members of the Academy include Dr. Eliyahu M. Goldratt and Jerry J. Jasinowski. Works Sited Shingo Prize for Excellence in Manufacturing. "Shingo Prize Manufacturing Academy". [http://www.usu.edu/~shingo/academy.html] AT&T. "Welcome to AT&T MICROELECTRONICS". [http://www.careermosaic.com/cm/att_micro/att_micro1.html] Byrnes, and Adele Ambrose. "AT&T wins Baldrige Award and Deming Prize in quality coup " [http://www.att.com/press/1094/941018.chb.html] Gualt, and Betsy Harrod. "Power Systems is first U.S. manufacturer to win Deming Prize". [http://www.att.com/press/1094/941018.meb.html] Dean, Edwin. "Total Quality Management". [http://akao.larc.nasa.gov/dfc/tqm.html] An Analysis of TQM at AT&T's Power Systems/Lucent Technologies Word Count: 1396 f:\12000 essays\business & economics (632)\TQM In Foodservice.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ TQM In Foodservice Introduction One of the most important industries overall is the food industry. The food industry consists of everything from food processing plants to fast food restaurants. The food industry affects nearly every living person. Most people don't realize how important this industry is and how it affects their everyday lives. That is why it is so critical that the products of this industry are at their highest quality, are free of bacteria and ensure that the consumer will not face any detrimental consequences. Total Quality Management (TQM) plays a big role in promising these results. Total Quality Management seems to be a confusing term for the layman. TQM is a philosophy advocated by Dr. Edward Deming, a world renowned quality guru. It was widely accepted by Japan from 1950 onward. They used this principle for continuous refinement of an organization-wide quality system. Since then many organizations around the world have adopted TQM or similar methodologies. There have been many successes and many reported failures. Success of the system depends on the total commitment of the people to quality from top to bottom within the organization. TQM implementation is based on team work and the philosophy of continuous improvement. Statistics need to be used extensively to analyze and reduce the variation in the process. In the food industry, continuous improvement is vital to the survival of a specific company or restaurant. The customer is constantly purchasing the products of competitors and any decline in quality will equal a decrease in gross profits. There are several areas that a restaurant may focus on for quality improvement such as menu offerings, hospitality, service, cleanliness, and over all food quality. All of these aspects will be covered in this paper concerning Total Quality Management. Summary Employee & Product Quality Various well known companies such as Ritz-Carlton Hotels and Taco Bell have implemented Total Quality Management programs in an effort to increase quality and market share. Ritz-Carlton of Kansas City, Missouri, recently revamped menu selections for its rooftop-level restaurant and bar operation. This came about through customer surveys, focus-group studies of local restaurant patrons, employee opinions, and market analysis. This began with the general manager, Norm Howard, as TQM must start at the top to be successful. He states that "It [TQM] is about listening to your customers and empowering your employees to participate in important business decisions" (Stephenson, 1993). Taco Bell, with the implementation of a Total Quality Management system, has improved its speed of service, friendliness of service, and value for money ratings. This company has done this by empowering employees and seeking customer input. By integrating their employees into the system, Taco Bell has also decreased employee turnover by 63% (Stephenson, 1993). According to the article "TQM: Making it Work for You," there are six areas that need to be focused on (Stephenson, 1993). The first area is measuring quantitative results of various surveys and studies and basing future decisions strictly on these outcomes. This information could come from something as simple as a comment card, but these cards must tell the business more than what was good and bad, but why. The second area to be focused on is empowering the employees. Allowing the employees to be involved in the team effort. Make the employees feel responsible for their actions and allow the employees to fix their problems. This is where many franchises lack, making it the manager's responsibility to fix the problems that the employees create. If management treats employees in a respectable manner, the employee will turn around and treat the customer with respect also. Avoiding errors is the third area that needs to be focused on. The main focus of a Total Quality Management program is to eliminate errors before they can occur. Systems cause about 80% of all errors, so if the system is error free, then the employee has a lesser chance of making mistakes. Next comes the integration of management into the process. Total Quality Management implies that management must be 100% in favor of the program, or else the employees will not respond properly. Employees will follow the lead of the management team. Last is to do what the customer want, as tells the aphorism "The customer is always right." This is the same principle. There is no sense in serving only fried chicken if the customers demand a more health conscious baked or grilled chicken. "Customers are not only the people who walk through the doors looking for a meal but also your suppliers and employees" (Stephenson, 1993). Health & Safety Quality Total Quality Management does not just deal with product quality, but all around, or total quality. Another area that quality needs to be continuously improved in is health and safety. Sky Chefs, an airline caterer recently came to the conclusion that their workers' comp. Costs were skyrocketing, so they incorporated their Total Quality Management program to help solve these health and safety problems (Kay, Murphy, Harris, 1994). The main reason for business is profit, and if workers' comp. Costs are at unacceptable levels, that cuts out profit. Initially, the program focused on injury prevention and set a goal of reducing workers' compensation costs by 50% in three years. Task teams were initiated to collect data on estimated future loss, loss sources and medical treatment patterns which would be evaluated and used to eliminate hazardous areas of operation. They also gathered qualitative data on employee and management attitudes and beliefs, current policies which focus on potential hazards, and the physical environment. With this data, changes were made and continuously updated with Sky Chef reaching their goal of a 50% decline in less than 18 months (Kay, Murphy, Harris, 1994). The teams developed several guidelines for improvements as follows: Incorporate safe work practices into standard work processes; Involve line workers in all aspects of process improvement, particularly safe work practices; Integrate and continuously improve post-injury management processes; Communicate concern for employees; Create a unified data base that could deliver timely, useful information to line managers; Review vendors objectively and thoroughly; Institute criteria and time-based medical care and disability management; Implement a comprehensive modified duty program; Create a single managerial focus for loss prevention and work-related injury management (Kay, Murphy, Harris, 1994). By following these directives, a company could efficiently reduce workers' compensation costs. They have earmarked this as the Concern, Awareness, Responsibility, and Excellence program (C.A.R.E) which is a safety communications program which involves and rewards the line employees for committing safe acts (Kay, Murphy, Harris, 1994). One aspect that these articles seem to have left out is the actual quality of the product, the food. In food service classes and in the real world, one form of Total Quality Management is known as the Hazard Analysis Critical Control Point, or the HACCP system. This system was developed to ensure zero defects during food handling by monitoring the whole preparation process. Its purpose is to identify and correct errors before they happen. The old method of quality assurance was to test the final product (TechniCAL 1996). If the product was not sufficient, it was either held, reprocessed, or ultimately destroyed (TechniCAL 1996). This method was costly, not only in an economic sense, but also timely. The HACCP system monitors the food from the delivery point through-out storage and preparation until consumption. It analyzes critical control points where extra precaution may be needed with potentially hazardous foods. A flow chart is established to determine which foods need to be analyzed at which times. Management and employees alike must take this system very seriously and follow all steps which includes assessing hazards, identifying critical control points, setting up procedures for critical control points, monitoring critical control points, taking corrective action, setting up a record-keeping system, and verifying that the system is working (Educational Foundation of the National Restaurant Foundation [EFNRA], 1992). This system is necessary to maintain a quality food product and I feel is a part of Total Quality Management. According to Russell Cross, industry guru on HACCP, the foundation between Total Quality Management and HACCP are the same: "do it right the first time and every time and you get a good final product" (1994). He also goes on to state that it is necessary to check each step "along the process to make sure the product is safe and the process is in control - instead of relying on the end product when it's too late to correct the problem" (1994). Conclusion The food industry is an industry where it is a necessity that health and safety are given a number one priority, and with a Total Quality Management system in place, it becomes much easier to facilitate these needs. If any food product becomes contaminated it could mean illness for any customer which consumes this product, which could bring about lawsuits and even an Occupational Safety and Health Administration (OSHA) investigation which could result in the closing of the business. I was part of a management team at a local fast food restaurant and I feel that our employee turnover rate was extremely high compared to other businesses in town. By implementing a Total Quality Management system such as the one used by Taco Bell, these turnover problems could subside to acceptable levels, along with increased customer satisfaction. The three most important factors in any food service business are cleanliness quality, and service. A Total Quality Management program, if implemented properly from the top down, with everyone involved in the program believing in it, would ensure the three factors are met and will constantly continue to improve. I feel that this is a very important factor in an industry that is so diverse and ever-changing. Works Cited _____Cross, Russell. (1994). What HACCP Really Means Available: http://ifse.tamu.edu/ifse/haccp.htm pp. 1-4. _____Educational Foundation of the National Restaurant Association, (1992). Applied Foodservice Sanitation, (4th ed.). Kendall/Hund Publishing Company. _____Kay, Michael Z., Murphy, J. William, and Harris, Jeffrey S. (1994 January/February). How to Zap Your Workers' Comp Costs Financial Executive, pp. 44-48. _____Stephenson, Susie. (1993, October 1). TQM: Making it Work for You Restaurants & Institutions, pp. 109-111. _____TechniCAL. HACCP: A Principle Whose Time has Come Available: http://www.tcal.com/haccp.htm p 1. f:\12000 essays\business & economics (632)\TQM.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ TQM Introduction The purpose of this report is to critically analyse, evaluate and discuss related management issues conducive to the development of a total quality management environment within an organisation. This shall be done by critically analysing the case study of Agrotran Ltd. This report will discuss the role and application of quality management systems in organisations, debate and recommend a suitable way forward for Agrotran Ltd. The issues concerning Agrotran Ltd Agrotran is a small engineering company specialising in the manufacture of farming equipment. The four owners have recently sold out to the Nat-truk Group a manufacturer of specialist trucks and transport's. The original owners set up Agrotran when they were made redundant from a large engineering company. They have a good working relationship, working well as a team and intimate knowledge of their business. They also have a laid back style of management. There are a number of issues that have arisen since the take-over. Nat-truk are seeking to be included on the Ministry of Defences approved supplier list. This means that they and Agrotran need to achieve ISO 9000 certification although this was argued against by one of the former owners during the take-over negotiations. This has been seen as an imposition of extra cost and bureaucracy on Agrotran by Nat-truk. Nat-truk has also introduced its own employees to Agrotran. This has resulted in fights breaking out between Agrotran and Nat-truk workers. The bases of these arguments are over communication problems involving processes, standards and specifications. This has resulted in some of Agrotran's best customers complaining about quality. One of the original owners Tom Smith has laid the blame on the extra procedures and paperwork choking up the system causing delays and loss of control. The role and purpose of quality management systems The role and purpose of quality management systems is to reduce the dependence on 3rd party audits and to provide a documented management system, which will provide clearer working procedures, improve quality control and efficiency. The Key features of a quality management system are the documented policy manuals and procedures on which the company could be audited. These policies and procedures should allow flexibility and adapt to change but always regain control. The objective of the quality management system ISO9000 "is to give purchasers an assurance that the quality of the products and/or services provided by a supplier meets their requirements" (Dale 1999). With this the company would seek to widen its customer base, as the customer is given an assurance of quality and the need for them to carry out their own audit is not required unless their own standards are higher than the requirements of ISO9000. "A number of major purchasers use this registration as the 'first-pass' over a supplier's quality system" (Dale 1999). ISO9000 can also be used as the foundation for the introduction of TQM. The application of quality management systems The application of the ISO9000 series of standards can be used in three ways (Dale 1999). 1. To provide guidance to organisations, to assist them in developing their quality systems 2. As a purchasing standard (when specified in contracts) 3. As an assessment standard to be used by both second party and third party organisations. The ISO9000 series consists of ISO9000, ISO9001, ISO9002, ISO9003, and ISO9004 ISO9000 - Guidelines for Selection and Use and ISO9004 Guidelines for Specific Applications are only used as guidelines and to explain the application of ISO9001, ISO9002 and ISO9003. ISO9001 Model for Quality Assurance in Design, Development, Production, Installation and Servicing Covers 20 principal clauses which are of a management or operational nature Management/macro requirements Operational requirements 1. Management responsibility 2. Quality system 3. Contract review 5. Document and data control 17. Internal quality audits 18. Training 4. Design control 6. Purchasing 7. Control of customer-supplied product 8. Product identification and traceability 9. Process control 10. Inspection and testing 11. Control of inspection, measuring and test equipment 12. Inspection and test status 13. Control of non-conforming product 14. Corrective and preventive action 15. Handling, storage, packaging, preservation and delivery 16. Control of quality records 19. Servicing 20. Statistical techniques The Institute of Management ISO9002 includes all of ISO9001 except design control ISO9003 includes all of ISO9001 except design control, purchasing, process control and servicing Development of a Total Quality Management within an organisation If an organisation is to develop Total Quality Management then it must first understand what it is and how it has been developed. Which is easier said than done, as there are many different definitions of quality and how to achieve it. The main approaches in quality originate from Crosby, Deming, Feigenbaum, and Juran. Crosby Crosby (1979) defines quality as 'conformance to requirements', and his approach consists of :  Quality means conformance, not elegance.  It is always cheaper to do the job right the first time.  The only performance indicator is the cost of quality  The only performance standard is zero defects  No such thing as a quality problem This achieved through Crosby's 14-step quality improvement programme. Responsibility is allocated as follows  The Quality professional - a moderate amount  The hourly workforce - a limited role, reporting problems to management  Top management - an important role Deming Deming defines quality in terms of quality of design, quality of conformance, and quality of the sales and service function. Deming's approach is base on PDCA (Plan, Do, Check, Action) and his philosophy for improving quality is summarised in his 14 points for management. He also points out the seven 'deadly diseases' of western management and organisational practice. Deming (Dale 1999) states that "quality and improvement is the responsibility of all the firm's employees: top management must adopt the 'new religion' of quality, lead the drive for improvement and be involved in all stages of the process". Feigenbaum Feigenbaum was the first to use the term 'total quality control'. Feigenbaum (1991) has defined it thus "Total Quality Control is an effective system for integrating the quality-development, quality maintenance, and quality-improvement efforts of the various groups in an organisation so as to enable marketing, engineering, production, and service at the most economical levels which allow for full customer satisfaction". Feigenbaum's approach is to help companies design their own system more than creating managerial awareness of quality. His contribution to the subject of the cost of quality is that "quality costs must be categorised if they are to be managed." The three major categories being, appraisal costs, prevention costs, and failure costs which make up the Total Quality Costs. Feigenbaum rests most responsibility with management saying that management must commit themselves:  To strengthen the quality improvement process itself  To making sure that quality improvement becomes a habit  To managing and cost as complementary objectives Instead of providing a step by step plan Feigenbaum provides ten benchmarks for total quality success. Juran Juran (1988) defines quality as 'fitness for use', which he breaks into quality of design, quality of conformance, availability, and field service. Juran's approach is to improve quality by increased conformance and decreased costs of quality by the setting of yearly goals. Juran has also developed a quality trilogy (quality planning, quality control and quality improvement) and a ten-point plan to summarise his approach. Juran gives the main responsibility to the quality professionals There are many others, who have added to the development of TQM such as Ishikawa, Taguchi, Shingo, Peters, Dale, and Oakland etc. Defining TQM Total Quality Management is defined in the American Society for Quality Control's Bibliography as "TQM is a Management approach to long-term success through customer satisfaction...based on the participation of all members of an organisation in improving processes, products, services and the culture they work in" (Bemowski 1992 Cited by Hiam 1994) "Actions taken throughout the organisation to increase the effectiveness and efficiency of activities and processes in order to provide added benefits to both the organisation and it's customers" (ISO8402) TQM is a style of managing which gives everyone in the organisation responsibility for delivering quality to the final customer, quality being described as 'fitness for purpose' or delighting the customer'. TQM views each task in the organisation as fundamentally a process which is in a customer supplier relationship with the next process. The aim at each stage is to define and meet the customer's requirements in order to maximise the satisfaction of the final consumer at the lowest possible cost. (The Institute of Management) Juran, in an interview (Gordon 1994), claims that TQM involves the use of any means to achieve World-Class Quality, and acknowledges that there is no clear definition of TQM. These are just a few definitions of TQM. Each guru, each consultant has their own depending on their particular bias. A company undertaking TQM will probably arrive at its own version, which is fine as not all the tools, techniques and philosophy will be relevant to them and they will have their own bias, but any outsider should recognise it as TQM. TQM adoption and development Although there are many differences in the philosophies of the experts there are basic key elements common to each that a company must address when embarking on the adoption of TQM Planning and Organisation  Development of a long term strategy  Development of polices  Building product and service quality into designs and processes  Development of procedures Using tools and Techniques The correct selection of tools and techniques to enable the process of continuous improvement. The company needs to identify the priority of each tool it is to introduce, explain why they are required. The use of these tools will not be successful until they are part of the every day behaviour of the company. Therefore an appropriate time should be given between introductions or people will be trying to learn a new tool before they have got to grips with the last one. Education and Training This has to be company wide with each person receiving a level of training and education that will enable them to carry out and understand the quality tools, techniques and philosophy. This should be done through a training programme that best suit the needs of the company and employee. Involvement In this, employees are involved in the decision making that effect them and their function. The desired effect is to improve commitment, enrich their job, and benefit from their hands-on experience. This is normally done through Q.C.'s. If employees are allowed to solve problems, they probably will, and engineers etc., can act more as consultants and spend less time fire fighting. Teamwork Teamwork requires effective communication and involvement. Teams can take many forms such as, Cross Functional Groups, Project Groups and Focus Groups. Roles, responsibilities and boundaries have to be clear with sufficient support from senior management. Measurement and Feedback Control Systems need to be set in place, to measure whatever you need to manage, whatever you need to improve. The control system must feed back the appropriate information to the relevant people in a timely fashion. The Measuring Systems need to be discussed with who is using them and who is being measured. If employees are taught SPC - and assess themselves, this should lead to greater commitment. Ensuring the culture is conducive to continuous improvement activity This is perhaps the most important element and needs to start at the top. If the senior management avoid getting involved and only pay lip service to TQM, or say one thing and act in a manner that is not conducive to TQM, then it is unlikely that the employees will commit themselves to TQM. Another element common to TQM is the use of Self-Assessment Models and Quality Awards. The most common used models are the Deming Application Prize, The European Business Excellence Model (Figure 1) and the Malcolm Baldrige National Quality Award. These are very useful tools in aiding TQM Development and Business Performance. The managers must have a firm grasp on what TQM is, as these models will not lead to it. Figure 1 The EFQM model for business excellence, Kaye, Anderson (1998) Once the company has an understanding of TQM. It should then carry out a health check to assess its situation. This review should be in the common understandable language of the participants, to avoid misunderstandings and so no one feels that they are being talked down, this should ensure greater participation. By asking questions such as:  How far along the company is to TQM  What does it still has to achieve  What it will have to change with respect to the key elements of TQM  What TQM evolutionary level best represents the company  What level of TQM adoption the company is at  What are the attitudes of the staff towards the company The objectives of a health check should be to  To give the company a starting point and subsequently measure change from that position.  To identify issues  To seek out hidden agendas and areas of resistance  To establish priorities Two guidelines that companies can use to assess their position in TQM terms are: Dales (1999) "Four Levels in the Evolution of TQM" and Lascelles & Dales (1993) Levels of TQM Adoption (Figures 2 and 3). These models could also help in creating achievable targets e.g. Today where we are classed as uncommitted company and cover all the inspection requirements. In one years time we will be classed as a drifter and incorporate all of the Quality Control Criteria. Figure 2 The four levels in the evolution of TQM (Dale 1999) Figure 3 Levels of TQM adoption, Lascelles and Dale (1993) Figure 4 The Quality Training Cycle Once it has assessed its situation it can then plan out the appropriate steps and timescale it needs to achieve them. Each step should be taken as an identifiable project using the quality training cycle (figure 4) The development of TQM in any company takes many years. It would be unwise for anyone to attempt the whole thing at once. The Argument for TQM There are many claims made for TQM by the myriad of consultants and gurus some of these claims can be quite wild, some consultants may try and sell TQM as a quick fix, this kind of claim does not help the serious teachers and users of TQM. The most recognisable advantages of TQM are:  It helps provide the customer with a improved product or service  The customer can be assured of a desirable quality standard  It requires critical analysis of what you do and how you do it  Standardises procedures that clarify employees tasks and roles  Creates ownership and motivation in the work force thus improving effectiveness and efficiency  Creates a corporate history that can be referred to through documents and records  Cuts and improves training time through training records and reference manuals  It requires improved standards, services and cost from suppliers  Adoption of ISO9000, success in quality awards etc. improves the company profile and market potential  Cuts the cost of wasted resources and materials Criticisms of TQM Those who argue against TQM such as Harari, Grossman, Grint from research carried out by Arthur D Little, Ernst & Young, Rath & Strong, McKinsey & Co & AT Kearney, point out that only 20-30% of TQM initiatives are successful. Therefore, it cannot justify itself as a success or worth the money. The defenders of TQM explain this low success rate, as due to poor implementation, and that the critics and failures do not fully understand TQM, but a theory is no good unless it works in practice. Therefore, any company undertaking TQM could learn a lot from the critics, and possibly avoid the pit falls. Harari (1992,1993) has pointed out his criticisms, which are common to most critics, in his "Ten Reasons TQM Doesn't Work", and later adding an 11th: 1. TQM focuses people's attention on Internal Processes rather than results - there is not enough focus on what the customer actually wants. 2. TQM focuses on minimum standards - products are being made with no defects, but they also have no "Wow" factor. I.e. Fords look like Nissans, Look like Toyotas etc. 3. TQM develops its own cumbersome bureaucracy - A Quality department that grows and grows in size producing paperwork that chokes the business. 4. TQM delegates Quality to Quality Czars and experts rather than to real people - responsibility is taken from those who should have it, i.e. everyone, quality can't be delegated. 5. TQM does not demand radical organisational reform - to often this is an excuse downsizing rather than freeing up people from fire fighting to becoming experts and acting across boundaries. 6. TQM does not demand changes in management compensation - payment of bonuses depending on short-term profit is still the main bonus measure (80% of organisations). 7. TQM does not demand entirely new relationship with outside partners - sole supplier status is often misused to hold that supplier to ransom, rather than using support, trust and caring about the well being of your partners to improve the whole supply chain. 8. TQM appeals to faddism, egotism and quick fixism - TQM is often sold as a quick fix. Many managers are not capable of staying the course in this never-ending process; many lose the plot and become obsessed with the Baldrige Award. 9. TQM drains entrepreneurship and innovation from corporate culture - Companies need to be more chaotic to make the big breakthroughs and this does not fit with "Do-it-right-first-time". People will accept the imperfect if there are other compensations. Ferrari makes impractical cars that leak oil and breakdown a lot but they sell. 10. TQM has no place for love - TQM is clinical, analytically detached, sterile and mechanical. There is no emotion or soul. "You have no right to manage unless you talk passionately about what you are doing. "Debbie Coleman Apple. 11. TQM is sold and implemented as a formula to solve all your problems - TQM should be kept in perspective, it is tqm not TQM! It won't, and can't, solve every problem Recommendation's Agrotran should adopt TQM as part of their business strategy. They should be clear on why they want to do this - long-term profitability, increase market share etc., and tailor their approach. There are a number of tasks Agrotran should under take in this process: 1. Establish a TQM team to oversee the projects and training. This should be made up of the senior management, it is important that management understand and is committed to TQM. It should include someone from Nat-truk who has experience in this area, and Tom Smith as the most vocal critic to act as "devils advocate" and to win his commitment back which seems to have taken a knock. 2. Establish the reasons for change and communicate this to all involved 3. Create a Vision statement that encapsulates what the company is trying to achieve and how it intends to achieve it. In all the different activities this will provide everyone with a common focus 4. Establish the standard they intend to supply with reference to customer requirements the capabilities of the company and its suppliers. 5. Carry out a health check to establish their current position, what areas are in most need of improvement, what situations are constant problems, e.g. The communication problems over process etc. 6. Set up a system that will collect data and establish the costs of failure and the reasons behind this. 7. It would probably be worthwhile reviewing their Quality System (ISO9000) as this seems to be Nat-Truk's imposed on Agrotran. This should be mainly under the control of Agrotran as it will be based on their knowledge of how Agrotran works best and their knowledge of their current customers requirements, Nat-truk would have more input, but not take over, when it comes to their areas of expertise. 8. Use the previous step to draw a quality strategy, to include; Goals, required systems and tools, behaviour changes to create a suitable culture in the company, resources required. Create a timetable and priorities for the definable projects. Some projects should be aimed to be completed soon, so that changes can be seen. 9. Establish the requirement and time table for training and education 10. The senior management should also keep themselves up to date with the current developments, debates and criticisms of TQM. After all TQM does practice what preaches 'continuous improvement' and this can help the company in their own continuous improvement. References Crosby PB. (1979) Quality is free, The art of making quality certain McGraw-Hill Dale, BG. (1999) Managing Quality - Third Edition Blackwell Business Feigenbaum AV. (1991) Total Quality Control, Third Edition Revised, 40th Anniversary Edition McGraw-Hill Gordon, J. (1994) An Interview with Joseph M Juran. (advocate of total quality management) Training, May 1994 v31 n5 p35 Grint, K. (1997) TQM, BPR, BSCs and TLAs: managerial waves or drownings? (total quality management; business process reengineering; just in time; balanced score cards; three-letter acronyms) Managerial Decision, Sept-Oct 1997 v35 n9-10 p731 Grossman, SR. (1994) Why TQM doesn't work...and what you can do about it. (Total Quality Management) Industry Week, Jan 3, v243 n1 p57 Harari, O. (1992,1997) Ten reasons TQM doesn't work (reprint, best of the cutting edge) V86 Management Review, 01-01-1997 Harari, O. (1993), The eleventh reason why TQM doesn't work. (Total Quality Management) Management Review, May 1993 v82 n5 p31 Hiam, A. (1994) Does Quality Work? A Review of Relevant Studies The Conference Board. New York The Institute of Management, Total Quality: Mapping a TQM Strategy, Checklist 029, Institute of Management The Institute of Management, Preparing for ISO9000, Checklist 004, Institute of Management Juran, JM. & Gryna, FM. (1988) Juran's Quality Control Handbook 4th Edition Kaye, M & Anderson, R. (1999) Continuous improvement: the ten essential criteria International Journal of Quality & Reliability Management, v16 n5 p485 Bibliography Beckford, J. (1998) Quality - A critical introduction Routledge, London & New York Beecroft, GD. (1999) The role of quality in strategic management Management Decision, v37 i6 BSI (1990) BSI Handbook 22 - Quality assurance British Standards Institute Conti, T. (1999) Vision 2000: positioning the new ISO 9000 standards with respect to total quality management models. Total Quality Management, July 1999 Easton, GS. & Jarrell, SL. (1998). The effects of total quality management on corporate performance: an empirical investigation. The Journal of Business, April 1998 v71 n2 p253 Fülsher, J. & Powell, SG (1999) Anatomy of a process mapping workshop The Journal of Business, v5 n3 p208 Harrington, JH. (19990 Performance improvement: a total poor-quality cost system The TQM Magazine v11 n4 p221 Heaphy, MS. & Gruska, GF. (1995) The Malcolm Baldrige National Quality Award - A Yardstick for Quality Growth Addison-Wesley Publishing Company Holland, R. (1997) TQM & STW Combine as the twin thieves of individualism Richmond Times-Despatch Wed July 9 1997 Kanji, GK. (1998) Total quality management - models Total Quality Management, Oct 1998 v9 i7 p633 Küger, V. (1999) Towards a European definition of TQM - a historical review The TQM Magazine v11 n4 p257 Laszlo, GP. (1999). Implementing a quality management program - three Cs of success: commitment, culture, cost The TQM Magazine v11 n4 p231 Lee, TY. Leung, HKN. & Chan KCC. (1999). Improving quality management on the basis of ISO 9000 The TQM Magazine v11 i2 McAbe, D. & Wilkison, A. (1998). The rise and the fall of TQM: the vision, meaning and operation of change. (total quality management) Industrial Relations Journal, March 1998 v29 n1 p18 McAdam, R & O'Neill, E. (1999) Taking a critical perspective to the European Business Excellence Model using a balanced scorecard approach: a case study in the service sector Managing Service Quality v9 n3 p191 McCormack. SP. Lewis, KJ. Mink, O. & Batten, JD. (1992) TQM: getting it right the first time Training & Development June 1992 v46 n6 p43 McFall, M. (1987) Expert systems - Computer-aided quality assurance Quality Sept 1987 Malone, MS. (1997) A way too short history of fads. (business and management fads) Forbes, April 7 1997 v159 n7 p71 Management Scotland (1999), Quality Scotland's Vision Issue 14 September/October 1999, The Institute of Management Marsh, J. (1996) The Quality Toolkit - A practical resource for making TQM happen Marsh, J. (1995) A proliferation of Quality Initiatives Total Quality Partnerships http//www.tqp.com Masson, R. (1999) Quality in Scotland The TQM Magazine V11 I1 Mohanty, RP. (1998) Understanding the integrated linkage: Quality and productivity Total Quality Management, Dec 1998 v9 i8 p753 Romano, C. (1994) Report card on TQM Management Review Jan 1994 V83 n1 p22 Seddon, J. (1989) A passion for quality Total Quality Management, May 1989 Taylor, L. (1993) Quality Street (Total Quality Management) New Statesman & Society, Oct 22, v6 n275 p25 Wilkes, N. & Dale, BG. (1998) Attitudes to self-assessment and quality awards: A study in small and medium-sized companies Total Quality Management Dec 1998, V9 i8 p731 Wilkinson, A & Willmott, H. (1996) Quality management, problems and pitfall: a critical perspective International Jounal of Quality and Reliability Management Feb 1996 v13 n2 p55 Xie, M. & Goh, TN. (1999) Statistical techniques for quality The TQM Magazine v11 i4 f:\12000 essays\business & economics (632)\Trend of Economics.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The Trend Towards Fewer and Larger Farms as Economic Growth Occurs The structure of US agriculture has been shaped towards less but the farms are larger. In the early times of this country, people could make a living on the 160 acres they had received from The Homestead Act of 1862. This act gave families clear titles to 160 acres if they had lived on it for five years. Though in today's changing world farmers have been forced to increase the sites of their operations or go out of the farming business. The farming business is a way of life to most of those who do it and do not want to quit doing it now but with the off of the farm incomes increasing all of the time it is making farmers change their way of life. The Agriculture Economics and Agribusiness textbook, sixth addition, says that there are three classifications of farms by economic size. The first classification is the expanding sector . This sector sales more than $100,000 per year of farm products, it is 16% of the farms in the US. It also produces 80% of all of the farm outputs or products in the US. The farms in this sector produce nearly all of the farm products produced the US but are only contribute to small parts of the farms in the US. The expanding sector of agriculture numbered 271,000 farms in the 1980's. This number increased to 326,000 farms by 1991. The off of the farm income of this sector is only $20,847 per farm. The total income per farm averaged $180,276 per year. This sectors main income comes from farming and very little of its income comes from off of the farm jobs. This sector is growing because there is becoming more big farms that produce most of our food. The second sector is called the declining sector. This sector includes the farms that sold products between $20,000 and $99,000 worth of products a year. Those farms decreased from 637,000 in 1980 to 549,000 in 1991. These farms produced only 16%of the total farming output. The income for those farms operators averaged $47,018 per farm in 1991. This used to be the most popular sector of farming people made there living off of small farms like this but within the last 20 years this sector has decreased growth and is decreasing more all the time. These small farms are either being bought out by the larger farms or the owners of these farms could not make a living at it. With the declining of this sector, it is leading more people to off of the farm jobs and is decreasing the agricultural world. The third sector of the three is the noncommercial farms, or the hobby farmers. These farms totaled 1,229,000 in the US in 1991. They produce a very small percentage of the products produced in the US. This sector total income equals $35,163 per year. Over 100% of this income comes from off of the farm jobs. This income equaled $35,206 a year on the average, this sector loses $43 a year in the farming business. These people do not mind taking the loss because they have other jobs and just farm as a hobby, part time or retirement operations. The farming world has changed a great deal in the past twenty years with new technology one person can do more so the size of the farms keeps growing. Although, with all of the cost of this technology, the small farms cannot compete with the big ones. Therefore, there are more and more of these farms going out of business. The three sectors of farming I talked about earlier covers all farms in the US. The first sector is growing because it takes more land and capitol to make a living from this day in time than it did in years past. The second one is getting smaller all the time because the small farmers like this cannot make a living still and are selling out to the large farms and moving to town. This group hurts the second sector because they do not mind taking losses by selling their products for less, they just farm for fun . The farms in the US are getting fewer but the size of these farms are growing. I think in the next twenty years we will see fewer farms but the sizes will be comparatively larger than they are today. f:\12000 essays\business & economics (632)\True Brand Loyalty.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ True Brand Loyalty Introduction A company's main question in relation to selling their products or services use do be: ,,How do I get people to buy my product?" Nowadays companies still greatly appreciate the answer to this question but they have also realized that getting customers is not the only thing they need to do. In today's rapidly moving world consumers don't stick with products for life. Advertisements and an increased feeling of independence have created consumers that will switch brands or products as soon as the feel the need to do so. What company's look for in this consumer environment is creating a so-called brand loyalty. This paper will explore the ways companies go about in creating this brand loyalty and it will investigate the circumstances and effects that come with it. It will start of by thoroughly explaining what brand loyalty exactly is. After that an overview of key success factors stimulating brand loyalty will be given and we will have a look at how these factors are influenced by different conditions. Examples will be provided. The relationships between brand loyalty and brand commitment and satisfaction will be explored. Finally a conclusion will be reached on how important brand loyalty is to companies and for what reasons. What is Brand Loyalty? Before one can give a definition of brand loyalty one first has to make the distinction between repeat purchasing behavior and brand loyalty. 'Repeat purchasing behavior is the actual rebuying of a brand.' So the behavioral aspect of this action. Brand loyalty also includes 'that behavior's antecedents'. This means the reason or fact occurring before the behavior. When talking about brand loyalty we can yet again make a distinction between two types: On the one hand we have spurious brand loyalty and on the other true brand loyalty. The former was defined by Bloemer and Kasper as the '(1) biased (2) behavioral response (3) expressed over time (4) by some decision-making unit (5) with respect to one or more alternative brands out of a set of such brand, (6) which is a function of inertia.' The key word here is inertia meaning without commitment towards the brand. Their definition the latter, and the most important one in this paper, is exactly the same on the first five points but differs for the sixth adding 'is a function of psychological (decision making, evaluative) processes resulting in brand commitment.' In this definition brand commitment is the key word. In laymen's words true brand loyalty refers to consumers sticking with a brand out of feelings of commitment towards that brand. For instance, when you bought a tube of Prodent toothpaste and you found it ok, you will not have to spend any valuable time on looking for other toothpaste brands, because you are already familiar with it. However, for a more brand-loyalty-sensitive product class like beer, the probability that a consumer will stick to one brand (like Grolsch Beer) is much higher. In the next paragraph we will now look at the relation between brand commitment and brand loyalty. Brand commitment Brand loyalty is based on the amount of brand commitment. The amount of commitment is not fixed, but can be considered as a continuum. The amount of commitment is based on the type of brand satisfaction. In this article, two types of satisfaction are taken into account. For the sake of this paper, a distinction has to be made between manifest and latent brand satisfaction. First, what is brand satisfaction? Bloemer defines it as "the outcome of the subjective evaluation that the chosen alternative (the brand) meets or exceeds the expectations" (pp 314). Bloemer then makes a distinction between manifest and latent satisfaction. The distinction basically rests on the degree of elaboration. This in turn depends on the level of motivation and capacity that a certain consumer needs in order to evaluate the product. Manifest satisfaction is the result of a high degree of elaboration. Latent satisfaction is based on the fact that "the consumer is not fully aware of his/her satisfaction, because of a lack of motivation and/or ability of the consumer to evaluate his/her brand choice" (pp.315). The linkage between satisfaction and brand loyalty Many literatures have been written on the relation between brand loyalty and consumer satisfaction. This relation seems quite obvious. Later on we will deal with an article from Bloemer and De Ruyter (forthcoming) in which they introduce some moderating effects on this relation. But before we do this, we will describe factors that influence consumer satisfaction. In this respect Oliver (1981 & 1993) provides us with some interesting insights. Oliver describes the process of consumer (dis)satisfaction with help of the disconfirmation theory. Shortly explained, this theory assumes that consumer satisfaction or dissatisfaction results from a positive or negative discrepancy (or disconfirmation) between the outcome and the expectations regarding a purchase" (Antonides and Van Raaij, 1998) (See appendix I). How exactly do these disconfirmations arise? With respect to services provided to consumers, the SERVQUAL model (see appendix II) gives some interesting explanations for these disconfirmations or discrepancies. The model goes further on Oliver's disconfirmation theory by defining and explaining other forms of disconfirmations than the one that arises out of the difference between expected and experienced service. These other discrepancies e.g. arise as a result of how consumer expectations are perceived by the service provider or how the actual service provided differs from the directives given about how to provide the service. The article of Antonides and van Raaij (1998) continues with how these discrepancies can result in consumer (dis)satisfaction and eventually perhaps in complaints. Factors influencing the satisfaction - brand loyalty relationship There are many conditions that influence the factors, which are crucial in stimulating brand loyalty successfully. These, a/o., include the market share, competition, price, brand switching costs, number of substitutes, and so on. However, less obvious, but still, very important factors include the ones proposed by De Ruyter and Bloemer in their article about customer loyalty in extended service settings. These are the factors of value attainment and positive mood in interaction with customer satisfaction that can play a significant role in influencing brand loyalty. The second figure in appendix II puts the moderating effect of the two factors on the satisfaction - brand loyalty relationship into a clear, comprehensive framework. Bloemer and De Ruyter explain the concept of value attainment as follows. In their search for products and services consumers are assumed to search for some sort of instrumental values. instrumental values include values like independence, politeness, responsibility etc. (Peter & Olson, 1996). Trying to achieve these specific values represents one moderating factor. The state of mood represents the other moderating factor. For example, when you walk into a store and see the smile of a happy salesman, your mood is probably positively affected. This positive mood, in turn, makes it more probable that satisfaction results into increased brand loyalty. The reason for Bloemer and De Ruyter to deal with this subject in this specific way, is because they find it useful to do this in the same way as George (1991), Judge (1993) and George & Jones (1996) did in their research in the context of work experience. These writers also considered the interacting effects of value attainment, job satisfaction and moods in explaining employee loyalty. So the paper of Bloemer and De Ruyter should be "viewed as an attempt to replicate these findings from the work experience context for the service experience domain." We will continue by explaining the marketing management complications of these findings. Marketing Management Implications Evaluating what has been said, the task of a marketing department is to have many manifested satisfied consumers, because they are the ones that are brand loyal. In order to have a high number of such consumers, marketing tools should be adequately implemented to increase the motivation and the capacity of the consumers to evaluate brand choice. This can be achieved by accentuating the differences between different brands and stressing the important characteristics of the brand, by providing clear and understandable information about the brand, or by building a permanent relationship with the customer. An example of a company that makes good use of these methods is Prodent. The Prodent company does this in its commercials by making possible consumers aware of the fact that the use of toothpaste is very important for the health of your teeth. They hope to achieve an increased motivation to evaluate different brands. Another example is Mars which through it's extensive advertising, especially through sporting events, wants to establish the fact that their candy bars are little stamina bombs giving their customers enough energy to make it through their day. They try to obtain a caring relationship with their customers. The previously mentioned increased motivation should result in higher degrees of manifest satisfaction and therefore into more brand loyalty. In order to get these potential consumers, Prodent stresses the unique system and characteristics the product has. Conclusion We can conclude by saying that according to us, as well as many professionals in this field, brand loyalty is a very important aspect of a firm's intangible assets and marketing strategy. Satisfaction is very important to consumers and by stimulating and manipulating this as well as other factors like price, number of substitutes and switching costs the satisfaction-brand loyalty relationship is positively influenced by companies aware of the importance. The implications of this knowledge marketing wise are customers should be stimulated to evaluate their choice between products by either stressing the differences between brands and focus on the important characteristics of the brand, by providing clear and understandable information about the brand. As was mentioned before Prodent is an example of a company that has recognized this and it can be seen as an example by other firms who not yet have established brand loyalty among their own target group. f:\12000 essays\business & economics (632)\Turn around is fair game.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Turn Around is Fair Game America's size and prosperity have made it the largest consumer of imported products in the world. Brightly lit shopping malls adorned with the latest foreign-made apparel, gadgets and trinkets, testify to the vast selection of goods available for purchase. There is a dark side to this enormous quantity of choices: a hefty price tag - the federal deficit. Unfair trade agreements, and, predatory pricing strategies and practices from abroad, placed those goods on the store's shelves. The United States Trade Representative (USTR), who is directly responsible to the President and Congress for trade negotiations; is forecasting a two hundred billion-dollar trade deficit for fiscal year 1996. The American people must demand reciprocal trade agreements for overseas business competitors. Complimentary trading would; put an end to subsidized dumping, curb the loss of manufacturing jobs, and, tear down the barriers associated with free trade. The practice of selling items at a price less than what it costs to make them is called dumping. Foreign governments subsidize the manufacturing processes of certain industries so their companies can displace the competition's industry. The television industry is a perfect example of subsidized dumping. The post World War II infusion of subsidized Japanese-made televisions, terminated the United States(U.S.) television manufacturing industry. In the late 1950's, half a million units crossed our borders, tax and tariff free. These television sets were made using cheaper components and cheaper labor. However, the cost of transportation, which would normally escalate each individual price, was paid for by the Japanese government. The pioneering inventors of the electronic marvel were forced out. No longer able to compete by meeting rapidly declining prices, companies had to stop production, liquidate all available assets, and release their entire work force. Unemployment figures for 1996 are predicted to be at seven percent (USTR, 1996.) This equates to nearly twenty million skilled American workers without jobs. The math is simple; imports cost an economy jobs, exports produce jobs. Reciprocal trading contracts would definitely curb the exponential loss of manufacturing jobs. Trade barriers are the largest problems facing American companies in overseas markets. The obstructions are sometimes overt, sometimes hidden and usually extremely complex. Deals are covertly impeded with complicated licensing and import procedures. Regulations concerning special specification standards and testing of American goods are hurdles deliberately enacted to block fair trade. If foreign governments were mandated to treat American businesses the same way native companies were treated, free commerce would truly be achieved. The U.S. has used an arsenal of tools to try to mitigate unfair trade practices and enhance U.S. access to overseas markets. These include: Section 301 of the 1974 Trade Act - Section 301 serves as the flagship of the President's fleet of trade remedies aimed at unfair trade practices. It calls on the USTR, subject to the specific direction (if any) of the President, to enforce U.S. rights under any trade agreement. It also allows the USTR to respond to any act, policy, or practice of a foreign country or instrumentality that is unjustifiable, unreasonable, or discriminatory and that burdens or restricts U.S. commerce. Under Section 301's broad mandate, the USTR may take any appropriate and feasible action to enforce U.S. trade agreement rights or eliminate trade practices unfairly burdening U.S. commerce. If the foreign country does not modify its practices, the USTR may deny it U.S. trade benefits or impose duties, fees, or other import restrictions upon that nation's goods or services. Under Section 301, retaliatory action has been taken by the U.S. to eliminate unfair trade activities of countries such as Japan as well as European Community countries. In other cases, its credible threat has been sufficient to achieve market-opening, trade-liberalizing results without imposing sanctions. Unfortunately, it is seldomly used. In most instances, Section 301 is used only as a last resort when all other available remedies have been exhausted. Often, bilateral negotiations and dispute-settlement procedures under the General Agreements on Tariffs and Trade (GATT) are used to resolve trade disagreements without resorting to Section 301. For example, bilateral negotiations have been successful in improving access to Japan's market for U.S. products, resolving South Korean unfair trade practices affecting intellectual property rights and insurance, and eliminating tariffs and import bans on several U.S. items in Taiwan. Economic principle tells us that free trade or freer trade will mean lower consumer prices, and, in the long term, job security in a stable, competitive economy. However, in the real world, the short term world, jobs are threatened by competition from abroad - no matter how fair that competition may be. The only way to achieve freer trade in the complex and delicate world of global business, is for the elected officials of America, to decree reciprocal trade agreements at the international bargaining table. These agreements will open doors for new economic opportunities in all nations. The agreements could eliminate all tariffs, reduce or eliminate most nontariff barriers, liberalize investment practices, cover trade in services, and support efforts at multilateral trade liberalization. As a result all nations' international competitiveness and living standards should markedly increase. f:\12000 essays\business & economics (632)\types of unemployment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ UNEMPLOYMENT In industrialized countries in which most people can earn a living only by working for others, being unable to find a job is a serious problem. Because of its human costs in deprivation and a feeling of rejection and personal failure, the extent of unemployment is widely used as a measure of workers' welfare. The proportion of workers unemployed also shows how well a nation's human resources are used and serves as an index of economic activity. Economists have described the types of unemployment as frictional, structural, and cyclical. The first form of unemployment is Frictional unemployment. Frictional unemployment arises because workers seeking jobs do not find them immediately. While looking for work they are counted as unemployed. The amount of frictional unemployment depends on the frequency with which workers change jobs and the time it takes to find new ones. Job changes occur often in the United States. A January 1983 survey showed that more than 25 percent of all workers had been with their current employers one year or less. About a quarter of those unemployed at any particular time are employed one month later. This means that a considerable degree of unemployment in the United States is frictional and lasts only a short time. This type of unemployment could be reduced somewhat by more efficient placement services. When workers are free to quit their jobs, some frictional unemployment will always be present. The second form of Unemployment is structural unemployment. Structural unemployment arises from an imbalance between the kinds of workers wanted by employers and the kinds of workers looking for jobs. The imbalances may be caused by inadequacy in skills, location, or personal characteristics. Technological developments, necessitate new skills in many industries, leaving those workers who have outdated skills without a job. A plant in a declining industry may close down or move to another area, throwing out of work those employees who are unable or unwilling to move. Workers with inadequate education or training and young workers with little or no experience may be unable to get jobs because employers believe that these employees would not produce enough to be worth paying the legal minimum wage or the rate agreed on with the union. On the other hand, even highly trained workers can be unemployed. This happened in the United States in the early 1970s, when the large numbers of new graduates with doctoral degrees in physics and mathematics exceeded the number of jobs available in those fields. If employers practice illegal job discrimination against any group because of sex, race, religion, age, or national origin, a high unemployment rate for these workers could result even when jobs are plentiful. Structural unemployment shows up most prominently in some cities, in some occupations or industries, for those with below average educational attainments, and for some other groups in the labor force. The third form of unemployment is cyclical unemployment. Cyclical unemployment results from a general lack of demand for labor. When the business cycle turns downward, demand for goods and services drops. Consequently, workers are laid off. In the 19th century, the United States experienced depressions roughly every 20 years. A long and severe depression occurred in the 1890s, when unemployment reached about 18 percent of the civilian labor force, and four less severe depressions occurred in the first quarter of the 20th century. The worst depression in United States history was in the 1930s. At its height, one worker in four was unemployed, and some remained out of work for years. In industrialized countries, with unemployment insurance and other forms of income maintenance, unemployment does not cause as great a hardship as it once did. Measures to stabilize the economy have made economic downturns briefer and less severe. f:\12000 essays\business & economics (632)\U S and Swedish Trends in Tax Reform.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S. and Swedish Trends in Tax Reform Tax reform has become a major governmental policy issue in the United States as well as in the rest of the world. Countries are attempting to balance both economic efficiency and provide equity in taxation. Governments are looking to rewrite tax codes to minimize their impact on economic growth. Specifically, governments throughout the world are attempting to preserve incentives built into taxation to maximize economic efficiency. At the same time, these governments are trying to cope with the growth in social welfare programs throughout the past three decades. In this paper I shall discuss two nations which dramatically overhauled their tax systems, and whether or not their goals with tax reform were achieved. In the article "The tax reform act of 1986: Did Congress love it or leave it?", Randall Weiss discusses the attitudes about taxes in the United States. He details the events and attitudes leading to the Tax Reform Act of 1986, and shows how public perception about taxes has changed since then. He also discusses some of the tax reform proposals that are now currently being thought about in Congress. In 1986 the United States Congress enacted the Tax Reform Act (TRA-86). The act passed with a great deal of bipartisan support. This support was made possible by two features of the act. The first was that federal income tax rates were to be cut dramatically. While this would lead one to believe that federal government receipts were cut substantially as well, it was the second important feature of the bill that allowed it to be revenue neutral. This feature was that the bill was to improve horizontal equity in the tax system. This would be accomplished by eliminating many of the deductions that many individuals, particularly the well to do, were allowed to make. Many of the complains about the tax system in the United States that preceded the Tax Reform Act were about the gross horizontal inequities that it allowed. A great deal of press preceding TRA-86 showed the public how many of the country's wealthiest individuals were able to get away with paying little or no federal income tax. Eliminating many of these tax deductions and loopholes had been the goal of several liberal Democrats for some time. In addition, conservatives in Congress wanted to reduce the escalating federal budget deficit at the time. Also, a prevailing attitude of the time was that reducing marginal tax rates would benefit the economy. It was believed that specific tax breaks and deductions to support economic growth would not be needed with the greatly reduced tax rates. The combination of Democrats wanting more vertical tax equity and Republicans wanting lower marginal rates allowed the Tax Reform Act to gain widespread support in Congress. Since TRA-86, tax policy in the United States has shifted away from base broadening and lower marginal rates toward more progressive taxation and targeted tax reductions. In 1990, and again in 1993, marginal tax rates were raised on wealthy individuals in an effort to close the mounting federal budget deficit. Also, the perception in the federal government was the special tax credits and deductions were needed to promote savings, education, and economic growth. This is a direct reversal of the ideas that lead to TRA-86. People no longer argued that tax rate reduction would in itself provide for economic efficiency. Currently, members of the United States Congress are introducing several different tax reform plans. Some of the plans, particularly the Republican plan for a flat income tax introduced by Rep. Dick Armey, would decrease the progressivity of the current tax system. In addition, a proposal for a national sales tax would result in a tax code that is less progressive than current law. On the other hand, a tax reform plan introduced by Rep. Dick Gephardt would make the tax system more progressive. All of these reforms are intended to reduce many of the remaining tax shelters left in place by TRA-86. The Republican plans in particular are not revenue neutral and are intended to increase investment in the economy and contribute to efficiency. However, these reforms are not in line with the policies enacted after TRA-86, and they are still years away in the future at best. In the article "Tax reform of the century - the Swedish experiment.", Agell, Englund, and Sodersten discuss the recent Swedish experiment in tax reform in 1991 (TR-91). As far back as 1978, the Nobel Laureate Gunmar Myrdal said that Sweden had become a "nation of waglers". Himself being greatly liberal, even Myrdal admitted that Sweden's highly graduated income tax was an incentive to cheat on taxes. Also, the high corporate tax rate, which originally was intended to encourage investment, created a capital lock in for corporations. This prevented companies from reinvesting their profits in different areas of their business to adapt to changing market conditions. Originally, it was believed that TR-91 would cost the Swedish government a 6% GDP loss in revenue. In actuality it cost about 1-2% of GDP in revenue. The top marginal tax rate on income dropped from 80% to 50%. In addition, the corporate tax was greatly reduced. To compensate for these losses, besides reducing the number of tax loopholes, VAT was broadened to include more products and housing was less subsidized by the tax code. In the short run this lead to sizable losses in read estates, and effective demand shifted from housing to capital instruments and financial assets. Later, the top marginal rate was increased to 55%, and many modification to TR-91 have already been made. The goals of TRA-86 and TR-91 were to increase economic efficiency through base broadening and reduce gross abuses of the tax system in both countries. To an extent, these goals were achieved. But both countries quickly reversed their desire to reduce or eliminate tax shelters and lower marginal rates. In efforts to reduce governmental budget deficits, top income tax rates were increased once again. It will be interesting to see whether the current tax reform proposals now being discussed in the U.S. Congress will take hold and shift policy back towards base broadening and more horizontal equity. f:\12000 essays\business & economics (632)\U S Automobile Industrys Share of the Market.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The U. S. auto industry's share of the market has experienced fluctuations over the past 50 years. These fluctuations have been caused by many reasons, but some of the main reasons include quality, price, and foreign competition. The Ford Motor Company, General Motors Company, and the Chrysler Corporation, a.k.a. "The Big Three", are the three largest manufacturers of automobiles in the world. " The Big Three" hold nearly 75% of the market and produce over 8 million automobiles per year. The largest competitors of " The Big Three" are Japanese auto producers that include Toyota, Nissan, and Honda. These three foreign manufacturers hold 20% of the market and produce about 2.7 million automobiles per year. General Motors Company, the world's largest automobile producer, originally was composed of four major vehicle manufacturers- Buick, Cadillac, Oldsmobile, and Oakland which became Pontiac. Presently, General Motors is made up of Buick, Cadillac, Oldsmobile, Chevrolet, Pontiac, and Saturn. During the first thirty years of operation GM's only major competition was from U. S. manufacturers. However, since the first foreign truck was imported from Japan in 1956, GM's share of the market began to decline. Foreign cars were smaller, more fuel efficient, less expensive, and often more reliable than their American counterparts. General Motor's market share dipped from nearly 44% in 1973 to below 30% in 1985. In response to this sudden drop in its share of the market GM founded the Saturn Company. Saturn produces compact cars very similar to Japanese imports at competitive prices. This response halted GM's declining share of the market. Today, General Motors maintains about 30% of the market. General Motors was the first large auto company to begin research on alternative fuel sources and continues to lead the way. Some developments of this research include the first production natural gas engine, and the first car powered completely by electricity. Many ideas are still in the process of being developed, such as affordable solar powered vehicles and ultralight plastic body parts. The Ford Motor Company, founded in 1903 by Henry Ford, was the largest car manufacturer in the world until 1929 when GM passed it. Ford is currently the second largest producer of automobiles in the world producing over 5 million cars per year and holding 25% of the market. In the late 1970s and early 80s when its share of the market was being taken over by foreign auto companies, Ford's response was different than that of GM's. Ford decided to buy small foreign companies and convert them to Ford production facilities. This would enable Ford to increase its share of the market in Europe and Asia. Also, this would allow Ford to avoid high tariffs placed on foreign cars in China and Japan. Ford motor company currently employs over 300,000 workers world-wide. In January of 1996, Ford merged its North American, South American, Asia-Pacific, European, and African Automotive Operations into a single organization, Ford Automotive Operations. This merger cut back on costs of developing new cars because now instead of five different organizations working on the same project only one organization would work on it. This decreased the amount of time and labor needed to improve or design new cars. In return the price of Ford products declined, resulting in more sales. Another approach of Ford was to enter joint-ventures with foreign companies. Through these joint-ventures the foreign companies would produce and assemble Ford automobiles for sale in that country. Ford is trying to assure future sales by researching vehicles that contain plastics that can be recycled into common materials. Also, Ford is currently working with the U. S. Department of Energy to develop alternative fuels, such as electricity, methanol/ethanol, natural gas and solar energy. The third member of the " Big Three", the Chrysler Corporation, was founded in 1921 when the Maxwell Motor Company failed and Walter P. Chrysler reorganized it. Chrysler was able to capture its share of the market when it acquired Dodge Brothers, Inc. and when Ford stopped production in 1927 to switch from producing the Model T to producing the Model A. During the 1950 and 60s Chrysler took over the operations of several small companies in France, Spain, and Britain. This enabled Chrysler to begin selling cars in Europe and compete with Ford and GM on foreign markets. In 1970, Mitsubishi Motors of Japan began producing compact cars under the Chrysler name to be sold in the United States. This led to a rise in Chrysler's share of the market until the early 80s when Mitsubishi began using its own name. To counter this move Chrysler formed a joint-venture with Renault of France to produce compact cars. Then in 1987 Chrysler purchased the Italian company, Nuova Automobili F. Lamborghini, maker of expensive sports cars. Chrysler also purchased the American Motors Corporation, the maker of Jeep products. These purchases increased Chrysler's share of the market from 11% to 16.3% and continuing to rise. Chrysler produces nearly 3 million automobiles a year under the Chrysler, Dodge, Plymouth, Jeep, and Eagle names. Chrysler is also in the process of producing alternative fuel cars. These include vehicles powered by electricity, liquefied natural gas, and gasoline-methanol mixture. The future share of the market for the " Big Three" should remain steady or even increase. Today, the " Big Three" is able to produce top-of-the-line, fuel efficient, affordable cars to compete with imports. The " Big Three" also leads the way in research on alternative fuels and designs that will make automobiles more efficient and less polluting. In conclusion, the United States automobile industry, which pioneered processes and technology in the early 1900s, has returned as the leader and will lead the auto industry into the 21st century. f:\12000 essays\business & economics (632)\U S Economy.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economics Paper Introduction How easy is it for smaller business men to achieve the Aamerican dream. How to stop corporate domination. The question I pose to you is " Is the American Dream still achievable?" The opportunity is there but for what select few is the opportunity available to. If the resources are out there but I can't tap into the resources they rae of no use to me. (Make note of the fact that we live in a market economy. Body Just about every definition of the "market" in the dictionary connotes an oppurtunity as a place where goods are bought and sold.(cite dict.) As an abstraction, a market is the possibility of sale. Goods "find a market", and we say there is is a market for a service or commodity when there is a demand for it, which means it can and will be sold. Markets are opened to those who want to sell and a convenience for those looking to purchase.(cite 2) The market represents "conditions as regards, opportunity for, buying and selling".(cite 2) The market implies offering and choice. The way a market economy works is that there are market pressures that develop for different commodities. The pressures work in one direction for a while, but at the same time pressures are budding that work in the opposite direction. As people look forward and see there's going to be some profit made from their production, they'll make decisions to increase volume, usually hiring more people, buying more materials, often bidding up their prices. When people are competing in the same market, that tends to generate more and more pressure in the direction of expansion. But at the same time, as costs and possibly interest rates rise, pressures begin to operate in the other direction, against profits.(cite 1) The public as a whole must get their fair share of the benefits. Macroeconomic reforms should translate into a more efficient delivery of public services, equity, social welfare and social security.(cite 3) The Economic Policy Institute (EPI) has released its findings on American living standards. The report, issued every other year on a decline that begsn in the late-1970's. The EPI's report also contends that the Americans are working more for less money because of slow growth in wages since 1989. According to the report, wages in the bottom 80% of men have declined since 1989. The report also contends that 20% of women have experienced a decline in trsl esgrd dincr the 1980's, a period in which wages fell but family income increased because of longer hours at work and increased participation of women in the workforce. Critics assert that the report wrongly focuses on declining wages as a gauge to the income of the American family. Such critics find spending a more appropriate means by which to measure income.(cite 4) One proposal would birng back the 10% income deduction for second earners that was eliminated in the Tax Reform Act of 1986.(cite 5) Under that rule, a couple with two earners can deduct from taxable income 10 percent of the earnings of the spouse with the lower earnings(generally, the wife) up to 30,000 of earnings.(cite 5) Since almost all married working women earn less than 30,000, this is equivalent to a 10 percent reduction in the wife's marginal tax rate.(cite 5) To get a sense of how substansial this offset would be, consider a typical middle-class two earner couple. The husband earns 45,000 per year, and the wife earns $15,000 per year by working 1,000 hours at $15 per hour. They pay tax at a marginal income tax rate of 28 percent plus a payroll tax of 7.65 percent.(cite 5) They also pay at a typical state income tax rate of 5 percent.(cite 5) As a result, the wife's $15 per hour wage produces only a net of $8.90 per hour.(cite 5) If she didn't change her work, the deduction would reduce her taxable earnings from $15,000 to $13,500.(cite 5) With a marginal income tac rate of 28 percent, that would cut her tax payments by 420 per year.(cite 5) That's how the current method of revenue estimation would evaluate the revenue effect of the deduction, a $420 revenue loss. But the 10 percent cut in her effective marginal income tax rate (which would result from deducting 10 percent of her earnings from taxable income) would raise her net hourly take-home by a little less than 5 percent, from $8.90 per hour to $9.32 per hour.(cite 5) Statistical studies of the labor supply of married women imply that a 5 percent increse in their net wages would increase the average hours worked by about 2 percent. In the current example, the wife would increase her work from 1,000 hours per year to 1,020 hours. The extra hours would raise her pretax earnings by $300. She would pay an additional $46 in Social Security payroll taxes.(cite 5) The tax payments reduce the revenue cost from the "static" $420 to $298.(cite 5) In addition to increasing the average number of hours worked by married working women, the lower marginal tax rate for married women would also encourage more married women to work. That increase in their labor force participation rate would mean more revenue to the Treasury.(cite 5) More has to be done in our economy to ensure that all business owners have an equal opportunity to be chosen for gavernment contracts. Investigators have suggested that government contracts are awarded to insider's companies instead of other, better qualified applicants. Therefore calling for a review of the application procedure due to the favortism shown to those with inside contacts and extensive legal support.(cite 6) The United States Treasury announced its plan to issue a new kind of Government bond that would protect the average investors from inflation while helpng the Government finance the national debt. The new bonds will offer returns that fluxuate in relation to inflation. They will be backed by the Government and priced so unexpected inflation will not erode their value. The new bonds are a way for the Government to tap into the $675 billion 401(k) market.(cite 7) The Congressional Budget Office says Clinton's 5-year budget package cuts any addition to the federal debt by $433 billion by 1998.(cite 9) The deficit reduction estimates for fiscal 1994 vary from $102 billion from the Whitehouse to the Congressional Budget Office figure of $83 billion provided in deficit reduction in the Fiscal year 1994.(cite 9) A number of factors have helped including the growing economy with low interest rates and inflation which has reduced the annual deficit by cutting interest cost on the ferderal debt. The econommy has also helped by reducing the boosts to indexed Social Security, boosting revenues, and by cutting the costs projected for the savings and loan bailout.(cite 9) This report is backed up by more recent findings by the Treasury department that the Federal budget deficit fell in the fiscal year ending in Sept. 1995, due to the fact that revenue rose more than spending.(cite 8) The deficit was $163.81 billion. This is down from $203.1 billion in Fiscal 1994. The deficit is the smallest it has been since 1989. Revenues for Fiscal 1995 rose to $1.351 trillion, up from $1.257 trillion in Fiscal 1994, while outlays rose to $1.514 trillion, up from $1.461 trillion in Fiscal 1994.(cite 8) Another sign of economic progress is the more recent rise of the Dow Jones. The New York based company began in 1881 as Charles Henry Dow and his partner Edward Jones invented a way of measuring the industrial average by which investors could make their money. The first index was created on May 26,1896, based on 12 smokestack firms, with the indicator closing at 40.94. After the crash of 1929, the World War II pushed the index up to 192.91 in 1945, with the index reaching the 5,000 mark on November 21, 1995. A record high of 5,778 was recorded on May 22. 1996, rising 13% in the first half on 1996.(cite 10). Macroeconomists between the early 1980's and early 1990's have tried to develop a new kind of model that can be applied to policymaking. This type of model could help determine policies related to deficit reduction. This rational expectation approach offers an alternative to the Keynesian approach, but more research in areas such as forecasting and credibilty is needed. New Keynesian models and real business cycle models have evolved from the rational expectaions model.(cite 13) The lack of representation of macroeconomists among Nobel Prize winners since 1987 reflects the disorganized state of macroeconomics. Macroeconomists have focused more on mathematical theories than real world applications, and they have been unable to explain fluctuations in the business cycle.(cite 12)The most popular theory for economic growth seems to be a change in the approach and interpretation of our economy. Th reason for this seems to be the fact that the problem with today's economy stems from the economist.(cite ) A common thread unites the research on the politics of macroeconomic policy, policy substitutability, the use of different policy instruments to affect the same goal is implicitly denied. Yet, economic theory indicates that policymakers have multiple policy instruments at their disposal that can be used alternately or in some combination to manipulate their economies.(cite 11) Another problem is that elite economists, including Nobel Prize and John Bates Clark medal winners, have had their papers rejected by journals for reasons ranging from excessive mathematical analysis to using sexist language.(cite 13) Some of the rejected papers have later been hailed as classics and accepted by other journals. We as a society need to give these theories a better look in hopes of finding a better path to economic growth. Conclusion What is possible today may not be possible tommorrow in our economy because it is forever changing and with that change comes comes unexpected profit and loss that can't be predicted. The fate of the American economy is virtually impossible to predict but by using past examples we can attempt to find ways to stir up economic growth and find a path to economic stability. (The truth is that in our society we can never really say that you can no longer achieve the American Dream because our economy is forever changing and as long as that holds true their is hope) f:\12000 essays\business & economics (632)\Unemployment 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Unemployment By getting the proper education and applying for a job, our unemployment has a good chance of decreasing a fair amount. Unemployment is a big issue since some people seem to think that they can stay unemployed and on welfare for their whole life and get a fair amount of money from our government. "Permanent unemployment is BAD. It's bad for people, it's bad for business and industry, it's bad for productivity and therefor prosperity" (Sartorius, unemployment 4-5). Some citizens believe that even though the current unemployment rate is only about five percent, that still is not that good considering how many people that there are in the United States of America. That is still over five million citizens remaining unemployed (Sartorius, unemployment 4-5). The unemployment rate for August in the United States was "5.1 percent, down three tenths of a piont since the prior month" (Griffin 1). Some researchers have found links between unemployment, poor mental health and poor general health possession. Other studies have shown that the informal support systems, like friends and relatives, can help absorb shock against the negative effects of unemployment (Unemployed 1). The latest unemployment rate for August '96 shows that 4.3 percent of Vermont's citizens are unemployed. That is about fourteen thousand people in just this one small state (Griffin 1). Think of how many people are unemployed in the entire United States. That would be over five million people. If people wanted to get out and get a job, they probobly could pretty easily. Instead of waiting for theirchecks from the government,they could get a job and bring home more money than the government sends considering that they have the proper education. One way to decrease unemployment would be to get the proper education to be successful in the job industry. For my solution to the problem, I can launch a page on the internet to let peeople know that they should try their best to achieve a well paying job. List of Works Cited Bibliography Griffin, Michael. " Vermont Unemployment Press Release." Vermont Labor Force Statistics. 26 Sept, 1996: 1. Online. Hilconet. Available http:\\www.cit.state.vt.us/det/detlmi/press.html Sartorius. " Downsizing ." Unemployment and Inflation. 25 Nov, 1996: 3. Online. Hilconet. Available http://www.islandnet.com/%7Earton/polunemp.html. Sartorius. " Unemployment." Unemployment and Inflation. 25 Nov, 1996: 4-5. Online. Hilconet. Available http://www.islandnet.com/%7Earton/polunemp.html. "Unemployed and on Welfare?" Unemployed and on Welfare? :1. Online. Hilconet. Available http://www.emerold.com/zines/health/depres%7E1/welfare.html. f:\12000 essays\business & economics (632)\Unemployment 5.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ By getting the proper education and applying for a job, our unemployment has a good chance of decreasing a fair amount. Unemployment is a big issue since some people seem to think that they can stay unemployed and on welfare for their whole life and get a fair amount of money from our government. "Permanent unemployment is BAD. It's bad for people, it's bad for business and industry, it's bad for productivity and therefor prosperity" (Sartorius, unemployment 4-5). Some citizens believe that even though the current unemployment rate is only about five percent, that still is not that good considering how many people that there are in the United States of America. That is still over five million citizens remaining unemployed (Sartorius, unemployment 4-5). The unemployment rate for August in the United States was "5.1 percent, down three tenths of a piont since the prior month" (Griffin 1). Some researchers have found links between unemployment, poor mental health and poor general health possession. Other studies have shown that the informal support systems, like friends and relatives, can help absorb shock against the negative effects of unemployment (Unemployed 1). The latest unemployment rate for August '96 shows that 4.3 percent of Vermont's citizens are unemployed. That is about fourteen thousand people in just this one small state (Griffin 1). Think of how many people are unemployed in the entire United States. That would be over five million people. If people wanted to get out and get a job, they probobly could pretty easily. Instead of waiting for theirchecks from the government,they could get a job and bring home more money than the government sends considering that they have the proper education. One way to decrease unemployment would be to get the proper education to be successful in the job industry. For my solution to the problem, I can launch a page on the internet to let peeople know that they should try their best to achieve a well paying job. List of Works Cited Griffin, Michael. " Vermont Unemployment Press Release." Vermont Labor Force Statistics. 26 Sept, 1996: 1. Online. Hilconet. Available http:\\www.cit.state.vt.us/det/detlmi/press.html Sartorius. " Downsizing ." Unemployment and Inflation. 25 Nov, 1996: 3. Online. Hilconet. Available http://www.islandnet.com/%7Earton/polunemp.html. Sartorius. " Unemployment." Unemployment and Inflation. 25 Nov, 1996: 4-5. Online. Hilconet. Available http://www.islandnet.com/%7Earton/polunemp.html. "Unemployed and on Welfare?" Unemployed and on Welfare? :1. Online. Hilconet. Available http://www.emerold.com/zines/health/depres%7E1/welfare.html. f:\12000 essays\business & economics (632)\Unemployment.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Unemployment In industrialized countries in which most people can earn a living only by working for others, being unable to find a job is a serious problem. Because of its human costs in deprivation and a feeling of rejection and personal failure, the extent of unemployment is widely used as a measure of workers' welfare. The proportion of workers unemployed also shows how well a nation's human resources are used and serves as an index of economic activity. Economists have described the types of unemployment as frictional, structural, and cyclical. The first form of unemployment is Frictional unemployment. Frictional unemployment arises because workers seeking jobs do not find them immediately. While looking for work they are counted as unemployed. The amount of frictional unemployment depends on the frequency with which workers change jobs and the time it takes to find new ones. Job changes occur often in the United States. A January 1983 survey showed that more than 25 percent of all workers had been with their current employers one year or less. About a quarter of those unemployed at any particular time are employed one month later. This means that a considerable degree of unemployment in the United States is frictional and lasts only a short time. This type of unemployment could be reduced somewhat by more efficient placement services. When workers are free to quit their jobs, some frictional unemployment will always be present. The second form of Unemployment is structural unemployment. Structural unemployment arises from an imbalance between the kinds of workers wanted by employers and the kinds of workers looking for jobs. The imbalances may be caused by inadequacy in skills, location, or personal characteristics. Technological developments, necessitate new skills in many industries, leaving those workers who have outdated skills without a job. A plant in a declining industry may close down or move to another area, throwing out of work those employees who are unable or unwilling to move. Workers with inadequate education or training and young workers with little or no experience may be unable to get jobs because employers believe that these employees would not produce enough to be worth paying the legal minimum wage or the rate agreed on with the union. On the other hand, even highly trained workers can be unemployed. This happened in the United States in the early 1970s, when the large numbers of new graduates with doctoral degrees in physics and mathematics exceeded the number of jobs available in those fields. If employers practice illegal job discrimination against any group because of sex, race, religion, age, or national origin, a high unemployment rate for these workers could result even when jobs are plentiful. Structural unemployment shows up most prominently in some cities, in some occupations or industries, for those with below average educational attainments, and for some other groups in the labor force. The third form of unemployment is cyclical unemployment. Cyclical unemployment results from a general lack of demand for labor. When the business cycle turns downward, demand for goods and services drops. Consequently, workers are laid off. In the 19th century, the United States experienced depressions roughly every 20 years. A long and severe depression occurred in the 1890s, when unemployment reached about 18 percent of the civilian labor force, and four less severe depressions occurred in the first quarter of the 20th century. The worst depression in United States history was in the 1930s. At its height, one worker in four was unemployed, and some remained out of work for years. In industrialized countries, with unemployment insurance and other forms of income maintenance, unemployment does not cause as great a hardship as it once did. Measures to stabilize the economy have made economic downturns briefer and less severe. f:\12000 essays\business & economics (632)\Unions 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Unions Why Unions? "Unions are groups of working people who join to talk to employers about wages and conditions of work instead of workers talking to employers on an individual basis."1 Because they speak for everybody, unions can get a better deal for each worker than one employee could by negotiating with the employer. As seen in the short movie "WHY UNIONS?", non-unionized workers talks about the unfair treatment they experience in the work place. Through collective action, workers formed unions so they could have a voice in deciding wages, hours, working conditions and dealing with the many problems arises in the workplace. Unions are not just organizations trying to get more dollars and cents or better working conditions for people who hold union cards. People who don't enjoy the benefits of union protection get benefits too. "The labour movement was in the forefront of the struggles for public health care, for public education, for minimum wages, holidays and employment conditions."2 1 D. Martin, Form War To Peace, Canadian Labour Congress, Quebec, 1991, P.17 2 Notes On Unions, Canadian Labour Congress, Quebec, 1992, P.1 Union Nowadays "Unions are like businesses: their success depends upon attracting and retaining buyers (new members). Recently, one of the major problems faced by the union movement is that few Canadians understand what services unions come into public."3 The public also don't know the union is also helping Canada in other parts of areas such as economy, etc. The public think that the only time unions come into the public's eye is as a result of strike or withdrawal of services. This is because of the impressed strikes held by the union workers. The memorable one would be the strike held by the Toronto Transit Commission workers back in September 1991. The lack of transportation resulted in inconveniences among the public. The Canadian public becomes upset over conflict. The strikes make the public forget about the contributions of unions in other areas. "From a marketing perspective, the union movement has positioned itself like the nuclear industry -- it receives attention only when it is about to blow up, melt or leak."4 Five important needs for union movements are: 3 Alistair Davidson and Ian Mckinnon, "Unions need to study marketing," The Globe and Mail, May 8 1984, Business section, P.8 4 D. D. Carter, Canadian Industrial Relations In The Year 2000, Industrial Relations Centre, Kingston, 1992, P.50 1) job preservation 2) health preservation in the workplace 3) day-care 4) retraining 5) financial negotiations on behalf of members "Union leaders and members must become as sophisticated as management to support the attempt by Canadian business to survive fierce international competition."5 There are about four million members of Canadian unions and 10.5 million members of co- operatives. There are two choices: traditionally, unions have only tried to increase their members' standard of living by negotiating a higher wage, more benefits or fewer hours. "The union movement has played an important role in the past in the formation of new institutions such as credit unions. Today, new demands on the union movement will force it to examine its strategic choices."6 Above all, the union movement must structure itself to aid the survival of Canadian industry and Canadian jobs in a fiercely competitive world market. 5 Bryan D. Palmer, Solidarity: The Rise And Fall Of An Opposition In B.C., New Star Books, 1987, P.63 6 Peter Sinclair, Unemployment: Economic Theory And Evidence, Oxford Press, 1987, P.215 Canadian Labour Congress At the national level, the "organization of unions" is the Canadian Labour Congress (CLC). The CLC is the central body in Canada and is composed of about 85 national and international unions representing about 2.2 million workers. Labour's Social Objectives "The social objectives of the Canadian labour movement are a reflection of the aims and desires of a large segment of the country's working population."7 In some ways, the objectives are related to the economy. The objectives are: Health Programmes - the lack of available health care to all Canadians caused the labour movement to redouble its long-standing efforts to have a national medicare plan by which needed medical services would be available to all Canadians whatever their financial means. Medicare as a system of universal health care must be regarded as a public service and not merely as an insurance programme under which only a limited number of services are available. 7 Notes On Unions, Canadian Labour Congress, Quebec, 1992, P.5 P.5 Pensions - Unions have been consistently negotiated improvements in pension plans. By statistics, only 41.4% of employed Canadians (50.1% of men and 33.7% of women) belong to company pension plans. The CLC is convinced that an upgraded universal plan would eliminate any fear and want from old age. Poverty and Regional Disparities - The CLC has continually drawn attention to the unjust disparities existing among various sections of Canadian society and among different regions. Human Rights - The Canadian Labour Congress has devoted considerable effort to combatting discrimination and protecting basic human rights. Education - A basic human right, education must be available to all Canadians. The responsibility to present a well-rounded picture of all participating partners in the Canadian mosaic is a basic principle of an education system. Housing - The CLC suggests that the housing be regarded by governments as a social need and not as a regulator of economic activity Taxation - There CLC suggests that there is a strong feeling among union members that adjustments should be made to distribute more equitably the burden of taxes. Consumer Services - Efforts have been made to have the government undertake an investigation of the disparity between food prices paid to farmers and those charged to consumers. How It Is Related To The Economy "Unions' major objective is to bargain for a better wage. Labour is the basic element of a country's economy. Without labour, there will not be products which are made in Canada. If the labour are treated unfairly in their workplace, they don't have the spirit to work harder."8 As a result, the quality of Canadian product will be dropped and lose the competition on the international market. Therefore, there should be an agreement between employers and employees. The employer side gets the maximum profit while the employee side still gets a satisfactory wage. However, Canada's labour get higher wage in the world. Therefore, the cost of products are pretty high. Compare to the international market, the price of Canadian products are higher because of higher wages. Maybe it's a by-product of the bargaining higher and higher wages. The Canadian products will lose their competitiveness in the market. It is one of the reasons why Canada is experiencing recession right now. Another issue which affects Canada's economy is the free trade agreement between Canada and the United States. Through the process of this agreement, Canadian Labour movement has been trying to reject this proposal. However, the government still passed it. The labour movement is rejecting 8 David Edward, Times Of Trouble, National Library of Canada, Ottawa, 1983, P.30 it because they predict that the free trade will destroy the economy of Canada. Moreover, investors are transferring to the U.S. because there is lower cost. Free trade is another big reason for Canada's recession. EDUCATION AND ECONOMY "Chart A ( provided at the end of the report), shows that the university tuition fee price index went up 120% for all of Canada in the past ten years. This is the result of the withdrawal of government funding. Individuals must pay the difference. Federal spending in support of education and training fell by 7.6% in 1990-91 over spending in 1989-90. The portion of the federal budget going to education and training has dropped from 7.3% in 1985-86 to 6.4% in 1990-91."9 The share of federal funds going to provincial and territorial governments for education and training has dropped from 56% in 1984-85 to a low of 41.7% in 1990-91. The budget reflects that Canada is in a tough economic situation. Cutbacks are necessary in order to spend less money. In a sense, the budget is a mirror of the economy. An increase of services or spending indicates a good economic situation. A decrease of services or spending indicates a decline in the economy. One of the solutions 9 Cynthia Wiggins, "Death by 1000 cuts: Public services in peril," CLC Today, 1992 February issue, P.5 to survive during a tough economy is to cut back on educational spending. "Some people believe that the government is heading towards the privatization of education. Education is considered to be a basic human right. The necessary educational programmes and funding must be put in place to encourage lifelong learning."10 However, insufficient funding is being spent on education by the federal government. The labour unions keep protesting the retrenchment strategy on education. Knowledge means wealth to the country. If the workers are not well educated, they may produce poor quality goods. As a result, the country will lose its competitiveness in the world market. Similarly, the same theory can be applied to Canada. "If the retrenchment strategy continues, the public will cry out against paying taxes for insufficient government services. Labour unions continue to be concerned about the budget provided for education."11 10 Riane Mahon, Canadian Labour In The Battle Of The Eighties, Canadian Labour Congress, Quebec, 1983, P.168-169 11 Riane Mahon, Canadian Labour In The Battle Of The Eighties, Canadian Labour Congress, Quebec, 1983, P.171 Investments And Economy Investments are closely related to a country's economy. Investment is defined as a property or other possession acquired or invested in for future income or benefit. Unions also establish funds to invest in business. Usually, the local union invests the fund in a business located in the same area. Each union uses the fund to promote the economy if possible. Examples are provided in a newspaper called CLC Today (February 1992 issue). The worker-owned Solidarity Fund in Quebec recorded its best year in 1991. The return on investment was 13.04% for the year ending October 31. The cost of shares sold to workers in 1984 was only $10 per share. But it has increased to $14.80 per share recently. Most of the shareholders are members of the Quebec Federation of Labour. Fund managers have invested more than $245 million in Quebec in the past seven years. They estimate that 23,000 jobs have been created or saved as a result. Another example is provided by unions in British Columbia. Government, labour and business in B.C. are establishing an investment fund for the province's working people. The Working Opportunity Fund will be used to invest money in small and medium- sized B.C. businesses to help diversify the province's resource- based economy. The government is going to contribute $600,000 in start-up money and a $2 million loan guarantee. These examples illustrate the importance of unions in the Canadian economy. Economic Union "Canadians have greatly benefited from close economic integration. Canada's economic and political union which allows Canadians to live and grow together in a common land, has generated economic gain for all Canadians. After the post war period, Canada had one of the world's fastest growing economies. The reason is that the Canadian economy is flexible in adapting to change."12 However, Canada, like other countries, is facing both internal and external economic challenges. By examining chart B (provided at the end of report), it can be seen that there has been a dramatic change in the distribution of world exports in the past 18 years. Overall, exports in many countries areas are decreasing. Much of the decrease has been absorbed by Asia. Asia is the only area that has increased its world exports. This could mean that Asia will be the leading export area in the future. This is one of the external problems Canada is facing. "Therefore, economic union is being set up to enhance the economy of Canada. Two key factors are: i) a high degree of economic integration 2) an advanced degree of political integration."13 Economic and political integration go hand in hand 12 James Cronin, Work, Community and Power, Temple University Press, Philadelphia, 1983, pp 215-217 13 Solomon Barkin, Worker Militancy And Its Consequences, Praeger, New York, 1983, P.330 because, to maintain a high level of economic integration, each party of the economic association must be able to modify its policies. Economic union with political integration also provides the structural basis for the sharing of income. The facets of economic union that facilitate the relatively free flow of people, goods, services and capital have had an enormous impact not only on the structure of economic activity in Canada, but also in raising Canadians' incomes. Economic union raises productivity and incomes by making available a much larger market for producers in all provinces than the limited market. The size of the market made by economic union is also important for generating Canada's bargaining clout. Canada is the seventh largest industrial economy in the world. "Economic union helps to smoothen the impact of economic shocks, such as the grain price shock of 1986 - to the benefit of all Canadians. This is accomplished by providing stabilization and insurance benefits to the provinces. The economic union provides insurance benefits in the Canadian regions. With the many industrial structures across provinces, the insurance principle is very important to the Canadian economy. The stability of Canadian economy gives benefits to all Canadians."14 14 Statement On The Next Federal Budget, Ottawa, 1983, P.12 Conclusion Most people believe that bargaining is best accomplished by unions. However, unions get involved in all kinds of social activities. These activities influence the economy of Canada directly or indirectly. If there were no unions, Canadian workers would not enjoy being among the most highly paid labourers of the world. Without the unions, the privatization of education might become a reality. Other than bargaining for wages, unions also have to be socially responsible. But there is evidence that unions are helping people other than paid members. The prime objectives of the union is to provide better working conditions for workers. Bibliography 1 Barkin, Soloman, Worker Militancy And Its Consequences, Praeger, New York, 1983 2 Carter, D.D., Canadian Industrial Relations In The Year 2000, Industrial Relations Centre, Kingston, 1992 3 Cronin, James, Work, Community and Power, Temple University Press, Philadelphia, 1983 4 Davidson, Alistair, and Ian Mckinnon, "Unions need to study marketing," The Globe and Mail, May 8 1984, Business section, P.8 5 Edward, David, Times Of Trouble, National Library of Canada, Ottawa, 1983 6 Mahon, Riane, Canadian Labour In The Battle Of The Eighties, Canadian Labour Congress, Quebec, 1983 7 Martin, D., Form War To Peace, Canadian Labour Congress, Quebec,1991 8 Notes On Unions, Canadian Labour Congress, Quebec, 1992 9 Palmer, Bryan D., Solidarity: The Rise And Fall Of An Opposition In B.C., New Star Books, Vancouver, 1987 10 Sinclair, Peter, Unemployment: Economic Theory And Evidence, Oxford Press, England, 1987 11 Statement On The Next Federal Budget, Ottawa, 1983 12 Wiggins, Cynthia, "Death by 1000 cuts: Public services in peril," CLC Today, Ottawa, 1992 February Issue f:\12000 essays\business & economics (632)\Unions.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Unions why have unions witnessed a decline in membership in recent years? Introduction What are unions? Unions are influential and broadly based organizations which represent it's members, who are usually employee's. they have been around for a long in australia and experienced mixed responses from the general public as well as employer's. objectives of a union: the primary objective of a union is to provide or improve the well-being of it's member's. it was formed to couner the superior economic power of employer's. it's most important function is to maximise wages and salaries subject to certain employment constaints and to raise the economic conditions under which work is done. Why do employee's join unons? An employee can be motivated by instumental considerations, ideological beliefs or simply compulsion, but there seems to be 3 major factors that lead employees to be unionized: dissatisfaction with the economic aspects of the job desire to influencethose aspects of the work environment through union orientated means belief that benefits of unionism outweigh expected costs most commonly, employee's join because of their committment to the values or principles of unionism. (industrial relations- a contemporary analysis, deery s., plowman d., walsh j. p 7.16) why are unions witnessing decline? there are many possible reasons to suggest the decline in membership but 3 factors stand out: 1.) Changing composition of employment - private and public sector most of the employment growth that occured in the australian economy in the 80's and 90's was confined to the private sector whose union density rate of 25 % was considerably lower than that of the public sector which was 56 %. it was estimated that public enployment fell almost 8 %. - stuctural changes in the mix of industries, sectors and occupations. a continuing decline in the manufacturing sector to other sectors in the industry. the proliferation of non regular forms of employment, particularly casual jobs and self-employmentat the expense of traditonal full time jobs. but unions are seemed to be blamed for the low level representation of casuals. unions do not recruit casuals as assiduously as full timers, because uf the high organizational costs involved. - size of the firms 70 % of small workplaces with 5-19 employee's had no union member's compared with only 4 % of large workplaces with 500 or more employee's. moreover, 67 % of all workplaces in the private sector had no union members compared with less than 1 % in the public sector. - changes in the gender composition of the workplace female unionization rates have been considerably lower than males, despite the increasing number of women in the workplace over the past decade. this could be because of: 1.) occupational segmentation of the labour market - women are assigned to less unionized occupations and industries (part time work, lower labour force etc) 2.) Specific needs of women are not met - women feel that key issues relating to them are not addressed well enough and thus unfavour union membeship. women have different tastes and preferences and are not taken seriously in the workplace. 2.) casual effects of the business cycle and in particular to unemployment changes in the occupational structure and composition of the workplace, not so many layers of management, but more importantly to unemployment. there was a significant rise in the rate of unemployment in the 80's and 90's which had a negative effect.during periods of economic stagnation, unions have traditionally found it difficult to retain unemployed workers as member's. 3.) The accord in 1982 the actu (australian council of trade unions) and the labour party were constructing an alternative to ndexation and the agreement they reached was an important reason for labour's victory in 1983. this agreement was known as the accordand it was from this time on that a decline in union membership has become evident.the accord agreement provided a feature of help to develop and restucture industries where unemployment was the heaviest, but in return, the unions had to give up thier right to industrial action. union recruitment did not keep up with the expansion of service industries, and during the 80's the proportion of unionists was falling. "in the mid 80's, the unions have contributed to comply with policies that represent the extrapolation of labourism in directions undreamt of by unions who first gave the term meaning". (australian unions: b.ford & d.plowman) australian unions have faced and are facing wide ranging changes in internal and external markets, and this factor contributes to the decline in membership. the following labour market changes influence the structure, policies and properties of unions: A continuing decline in the proportion of employee's in agriculture and manufacturing sector an increase in the proportion of employee's in infomation and service based organizations a decline in entry level employment and career opportunities for low educated, low skilled people a decrease in traditional promotional opportunities at organizations is restructured t flattten hierarchical structures australia is undergoing population aging, where the number of people aged sixty and over are expected to increase from 2 million in 1981 to 3 million in 2001 and to 5 million in 2021. the above changes illustrate the growing concern by australian unionists and their unions. (australian unions : b.ford &d.plowman p309 ) according to the australian bureau of statistics, union membership has dropped from 51% of the workplace in 1976, tp 42% in 1988 (australian industrial relations: deery & plowman. 3rd ed p 227) these statistics show that union membership did not grow proportionally to the workforce expansion as happened in the past. the abs observed that union membership has fallen across all age groups, nearly all industries, and in both, public and private sector. another downfall of unions is that thay target worker and in the process they neglect the "aged" section of the employee workforce. on the other hand young workers show very little interest in unions in the initial stages of work. therefor the real concern of unions should not be union density amongst young workers but rather the broader membership problem facing unions. the decline in employment in the manufacturing sector proved to be a big blow to unions. most of the employment growth was in the private sector, which had less unionized members than the public sector. manufacturing enterprizes (more than 100 employee's) fell by 21% and small firms (less than 100 employee's) rose by 13% in australia in the past 20 years. (industrial relations: deery & plowman 3rd ed. p 228) It is also argued that ideas in association with "new idea" has had an impact on union density because of their influences on the policies of government. in the state of queensland, the decline in union density has been particurlarly acute. union density in this area has fallen from 48.8% in 1982 to 45.6% in 1986 and further to 39.2% in 1988. this occurrence was during the period of legislative policies directed against unions (regulation). governments do not only influence unions through legislation but rather as their role as employer's as well. (decline in union density: david peetz) another factor contributing to the decline is employee attitude towards uninos. a number of writers have highlighted the downward shift in community support for unions across the industrial world. in australia, public opinion polls show that unions are seen as been to powerful and as been unresponsive to member's needs. such perceptions and beliefs have supported the decline. a survey carried out by mcnair anderson polling agency and sentry holdings show that only 6% of those surveyed have confidence in unions, and more than 45% of union member's surveyed have "hardly any" confidence in unions leader's. Unions were also seemed to be blamed for both, inflation and strikes in the1980's, this caused by wage demands and union popularity. the role of management was seen, as been another damaging factor in the decline. firstly job satisfaction, wereby benefits are provided by empolyer's together with operational co-operation in order to satisfy employees. the theory being that content employee's need not be unionized. secondly, the role of companies to remove the representational role of unions. employees work hard to create a job environment condusive to flexible work and moreover rewards. another major reason for the decline is that union, over time lost their credibality. they failed in fulfilling their promises to employees which eventually led to employees withdrawing their membership as they now felt that unions were inedequate.the loss of membership was not only the loss of previous members, but also the loss of several new employees considering membership. it now becomes a very large task to regain credibality and thus restore confidence. although these are perspectives of majority of the citizens, uniions for a fact has "substantially improved the living standards of australians." (australian industrial relations: deery & plowman 3rd ed. 231). comparing to other countries, australia has a large number of trade unions internationally, most of which is small and has fewer than 5000 member's. Despite declining in membership, it is apparent that australian trade unionism remained fairly stable over the past half decade. although changes have occurred in the nature of the economy, in production and employment and in the level of technology, the distribution of australian trade unions has remained largely unaltered.there has been a decline in union membership in australia, but comparing to the u.s.a and the u.k, it is fairly stable. in the recent labour organization research, it is indicated that union density has been in a slump and is falling in all but a handful of countries, these exceptions being: south africa, the philippines, spain and turkey. australia on the otherhand is amongst those countries with the most steeply declining density, namely: new zealand, united states, united kingdom, france, greece, taiwan and israel. unionization is less than 20% in approximately 48 of the 92 countries for which the international labour organization reports data. (j.i.r 1998) australian union membership fell from 46%in 1986 to 31% in 1996. union density in australia fell most rapidly in the mining and manufacturing industry. it is also a fact that the actu's target of 200 000 members in the 2 years ending july 1997 failed and rather suffered the loss of about 86 000 members. (j.i.r. 1998) Due to the steep decline in union membership in the 1980's and 1990's, unions were convinced of a need to establish a more consolidated and more efficient organizational structure. however, this restructuring has proven to be nothing more than an elusive goal. there is little or no evidence to indicate that union recruitment efforts have become more effective because young employees and women have been significantly ununionized. this being the case, union recruitment is a fundamental factor in the future of australian unions. (cam 1005 reading kit:institutional focus of the employment relationship) from the evidence provided, this decline from the 1890's in trade unions is a long term trend. as in the 1890's, where trade unions suffered and where economicprosperity turned to depression and thereafter from 1901 until 1921 where union membership grew from virtually 0 to more than half of the australian workforce, and again a slump until 1924. as restructuring is important and vital to union movements, it is time consuming and is a procedure which has to be slowly phased in, due to these factors it is regardedas long term and cannot be corrected overnight. To conclude, we have looked at all the reasons contributing to the declining union members in australia. in speculation it can be seen that when this decline started, what contributed to the decline and the effects suffered by unions because of this decline. by comparing australia's membership decline to that of other countries faced with the same problems, it can be seen that the fall of membership has been moderate. as this paper outlines, all the varios causes contributing to these problems and the different sectors in the industry from which these problems originate, it is safe to say that unions are faced with a difficult task of restructuring, but as in the past where there has been decreases and increases in union membership, time will show the unpredictable shifts in union memberships in australia. f:\12000 essays\business & economics (632)\US and Japan Car Industries.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S and Japan Car Industries It is unfortunate that the U.S. chose to use automobiles as its wedge to open the alleged "closed" markets of Japan. One Japan-based managing executive of the Big Three has even admitted that they consider the Japanese automobile market to be open. Japan is not the island of protectionism in a sea of free trade that its critic allege. The problem for the U.S. auto-makers is not a lack of market access, but a lack of effort. The first step required for the U.S. auto makers to sell competitively in Japan is not to impose of ridiculous tariffs, but to have Detroit bring up the quality to Japanese standards. All in all, the U.S.'s decision to use automobiles as its wedge to open the Japanese market was surely a dangerous one. In addition, the utilization of unilateral actions by the U.S. is clearly a violation of international trade law. Not only is this decision a resemblance of managed trade but a policy which will weaken the leadership position of the U.S. in the world economy as well. The U.S. needs to do what the Japanese did when they penetrated the American market; hard market research and heavy investment. The Japanese spent billions of dollars studying American taste and manufacturing models that suited them. The Big Three have generally confined their efforts to sending models that they have made specifically for Americans. Bill Duncan, the head of the Japan Automobile Manufacturers Assn. states that "it was the basic principals of competition that made the Japanese automobile industry strong." One example which reflects the short-sightedness of the Big Three is the insufficient number of right-hand models available in Japan. Since cars in Japan are driven on the left side, all domestic makers produce right-hand drives. It's simple, the inconvenience of a left-hand drive, at tolls, parking lots or when overtaking another car is too dangerous. Naturally when the Japanese export their cars to the U.S., in each of the 190 versions sold, they provide American drivers with a steering wheel where they expect it; on the left side1. On the other hand U.S. exports have a grand total of 2 models which feature a right- hand drive. The Big Three sold a measly 22,000 left-hand models in 1994. Jeep sold 11,000 on their Cherokees alone, just because they remodeled it to a right- hand model2. Another area in which Detroit must seek change is in car size. In Japan, the normal American cars are just too big. 80% of the cars in Japan are under 2000cc (2L.) Imagine yourself driving on the jammed packed, narrow streets of Tokyo. The Big Three exports not a single model which falls within these specifications. In comparison, the successful Europeans have 124 models under 2000cc and listen to this Detroit, a selection of over 100 models which are right-hand drive3. This clearly implies that efforts by the Big Three seem to be insufficient compared to that of Europeans. An area of the Japanese car industry in which America showed tremendous dissatisfaction during the negotiation was the exclusive dealerships, or as Professor Morrison noted in his class, the "keiretsu." It is true, each domestic manufacturer is closely linked with dealers, but as the New York Times (June 28, '95) reports, the dealership issue is largely beside the point: the Big Three already have twice as many outlets in Japan as all the European auto makers combined, yet they sell fewer cars. In the past, America succeeded in cracking the European market with GM and Ford, putting extra care and money over the decades into establishing dealer networks. This shows in the statistics; as the two companies occupy 25% of the European market4. This brings us to a question: Why doesn't the U.S. after enjoying such a success in Europe, put in the same kind of effort into the Japanese market. Maybe U.S. companies should reconsider just what it takes to succeed. German auto-makers alone, who have commanded over 50% of the import market in Japan, have invested nearly $1 billion in Japan. "The massive investments helps. Dealers wonder how serious we are" says Volkswagen Japan manager Minoru Suzuki. Comparatively, American spending is estimated at $120 million, with Ford eating $100 million of the pie5. Along with the complaint about the keiretsu, Americans plead that astronomical land costs makes it hard to set up their own dealerships. However the same applies to Japanese makers as well. A couple years ago, Mazda, who is considered a minor player in the Japanese market, established a new dealership network for its new model. The fact is they competed under the same harsh conditions as the American but with fewer resources and still succeeded in establishing a very stable and profitable network. There are many other examples as well. The U.S. should keep their mouth closed and intensify their efforts in the Japanese market. As explained above, the reason for America's continued failure in taking a strong hold on the Japanese car industry is mostly a lack of effort. For that reason, the U.S.'s complaining about a lack of market access, their blaming market shortcomings on Japan and their utilization of unilateral actions to pry open the Japanese market will endanger America's position as an economic leader of the world. Automobiles is a large issue in trade negotiations, but a small part of the macro-economy. If the U.S. were to keep a stance similar to that which they held during the automobile negotiations in June and other nations retaliated to this stance, the world economy will head into a generation of managed trade. Bibliographic Sources "Big 3 and Japan." New York Times, June 26, 1995. Borrus, Amy with Bill Javetski. "Who's Afraid of the World Trade Organization." Business Week, June 5, 1995, p.35. Borrus, Amy with John Templeman, Keith Naughton, Edith Updike and Bureau Report. "Good Deal? Yes. Great Deal? No." Business Week, July 10, 1995, p.32-33. "Clinton's Phoney Peace." The Economist, July 1, 1995, p.13. Dornbusch, Rudi. "Sanctions against Japan: A Necessary Evil." Business Week, July 3, 1995, p.20. Hamilton, David. "Calmer Voices Amid the Trade Bluster." Wall Street Journal, June 22, 1995. "Ignorant Armies." National Review, June 26, 1995, p.20. Kelly, Kevin with Zachary Schiller and Edith Updike. "Buy Our Car Seats. Japan, or It's War." Business Week, June 26, 1995, p.42. Kuttner, Robert. "You Could Drive a Lexus through the Holes in the WTO." Business Week, June 12, 1995, p.24 "OK Mickey, Let's Say You Won." The Economist, July 1, 1995, p.65. "The New Thirst for Imports in Japan." Business Week, June 5, 1995, p.52. Updike, Edith. "Roadblocks, Roadblocks Everywhere." Business Week, June 19, 1995, p.58 Updike, Edith with Brian Bremner, Amy Borrus, David Woodruff and Larry Armstrong. "Japan's Auto Shock." Business Week, May 29, 1995, p.44. The New Strategies to Expand by Big Three (as of Dec. '95) GM - together with Toyota, will unveil a right-hand model of subcompact Cavalier - plans to offer U.S. built right-hand drive Saturn by 1997 - aims to sell right-hand drive Cadillacs in near future Ford - displayed right-hand version of new Taurus mid-size sedan and Explorer - Taurus will be available in spring '96 and Explorer in fall '96 - aims to expand distribution outlets to 700 from 310 by year 2000 - aims to push sales to 200,000 annually by year 2000 from 56,000 this year Chrysler - displayed five right-hand drive model which will be available by fall '95 - aims to expand oulets to 200 by next yeat from 100 this year - payed Seibu group $100 million to expand distribution network f:\12000 essays\business & economics (632)\Us and Russia relations after the defeat of the USSR 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Shkolnikov 1 US and Russia relations after the defeat of the USSR: The end of Cold War brought new challenges to Russian life, economy and politics. Actually, the post-Cold War period opened the new opportunities for Russia. Democracy made its first steps in the country. After seventy years of communism Russian people finally got a chance to live how the want, to say what they want and to do what they want. People got a chance to choose their own leader, to vote for the Congress members. And it was very confusing for the country. Russia needed somebody to come out and help in this critical situation. Probably, the first country to do that was the United States. Russians "needed and wanted effective advise and technical help from the United States" (Pickering 102). And the most amazing thing was that the United States didn't mind and, actually, wanted to help Russia. But why? Why the United States wanted to help Russians? And I think the answer to that is very simple: the United States realized that America and Russia must not think of each other as natural enemies, but must work together to make more peaceful world, even if they were ready to destroy each other not that long ago. United States needed Russia as a strong partner in the twenty first century. Russia went through many changes in its economy since the Russian Federation took over the Soviet Union. "An economy devoted almost entirely to the production of military goods was Shkolnikov 2 forced to begin to provide what its citizens demanded, not what its rulers ordered" (Pickering 100). But it wasn't that easy. Russian government appeared to be unexperienced in modernizing the economy. Most of the people in government came from the school of the Soviet Union, so they were unable to do anything without somebody's help. "... the United States provided Russia with massive augments of experience, delivered through government and private sector advisors as well as by bringing Russians in large numbers to the US for training and exchanges" (Pickering 102). But the help of the US wasn't just a gift; America had something they got out of the help they were providing in building the Russian economy. All big American companies went to the Russian market. "American firms are convinced of Russia's extraordinary potential as the market for US trade and as a host for investments" (Pickering 102). Russians were prefer to buy American clothes, food, cars and electrical devises. All new-born Russian private companies preferred to partner with American companies. Each year Americans were increasing the sales of their own products on the Russian market. As I said earlier, Russia devoted itself to the new type of the economy; with private sector businesses. But what they could do with all those weapons produced during the Soviet era? And the way out was found. Russia became the biggest exporter of military ammunition on the world market. The exports of oil also put Russia on the leading positions in the world. Everything was going just fine. "Russia was moving from pure stabilization to the resumption of economic Shkolnikov 3 growth" (Pickering 103). The only one thing that was bothering both countries, especially Russia, was the growth of Russian mafia. In the middle 90's the level of corruption in the Russian government was very high. Mafia controlled everything; starting from stores, which pay some percent of their income every month, and ending with police, which was completely under control of the mafia. The power of mafia really bothered American businessmen, who didn't want to pay them and didn't want to get shot by mafia. And since they refused to pay, the number of American businessmen shot in Russia was growing. But this doesn't really stops Americans from doing business in Russia. The other problem that Americans were concerned about is nuclear potential of Russia. During the leadership of the communism the USSR produced huge number of nuclear weapons and power stations. "US spends approximately $530 million each year on a bewilderingly large numbers of programs and initiatives focused on the weapons complexes of the former Soviet Union" (Zorpette 24). But because of the corruption in the top of the government the nuclear stations don't get the money for reconstruction. "Russians still run the dangerous reactors because they provide heat and electricity for nearby towns" (Zorpette 20). The military don't want to spend its own money on destroying the nuclear weapons so, since the army itself don't get the money that the United States provide, Russians destroy the nuclear weapons in some other cheap ways, which are not Shkolnikov 4 really good for the environment. The space programs are very important in the relationship of these two countries. Russia had great space potential. But the country needed money for keeping the space centers alive, for scientists who didn't have any money to live, for all those cosmonauts who were in the space and had to stay there for two or three years because country couldn't pay for them to get back. And the United States provided Russia with that help. The United States spend hundreds of millions of dollars. There is one reason for America to do that: it will be better if Russian technologists stay in Russia to work on peaceful space projects rather then hiring out to build missiles or other high-technology weapons for unstable developing nations such as Iran, Lebanon and Iraq. The United States say that Russians should contain crime problem, avoid conflicts such as the one with Chechnya, and keep the CIS (Commonwealth of Independent States) from turning into another USSR. The United States has nothing to worry about, because the level of crime in Russia is going down. The Russian police find ways to fight against mafia. Chechnya is an independent republic, since Russia after two years of war granted their independence. The conflict was a tough lesson for Russia and I don't think that Russia will ever be involved in something like that again. The United States shouldn't worry about the CIS. I don't think there is any way for the USSR to get back together. Wasn't it Yeltsin who made a historic decision to affirm the Shkolnikov 5 borders of the old Soviet republics as new international ones? Russia wanted to break the Soviet Union forever, and did it. Is it possible for Democracy to loose on the next presidential elections? No. Most of the people in Russia can see the difference between the USSR and Russia. Democracy made its first steps and people realized how miserable their life was during the Communism. Voting against Democracy is going to do any good for the country and people know that. In six years since the white-blue-red flag of Russian Federation replaced the hammer and sickle flying over the Kremlin, Russia made a number of difficult, courageous and correct choices. The country which has been destroyed by the communists came back as a strong and powerful nation. Democracy took its roots in the country. The rudiments of a market economy and a financial infrastructure are now in place. The ruble is stable; inflation is under control. The private sector rules the business in Russia. The country raised up from the ruins. And all this had been accomplished with the help of the United States. I can't say that all the Russian people appreciated what the Americans did. Some of them didn't like that at all. There are some people in the government who didn't like what the Americans do. Some of those have an assess to the media. So sometimes media writes about the United States as the country that wants to ruin Russia. "Americans who operate exchange programs and conduct research in Russia are concerned about a report attributed to a government agency there that characterized such US-sponsored Shkolnikov 6 activities as espionage" (Desruisseaux A44). I don't think that this is what Russians think. That is the opinion of those who had a good life during Communism. "Many Russians realize that the efforts represented by this supposed report are efforts to weaken and cripple Russia, and cut it off from the rest of the world" (Desruisseaux, A44). And this is exactly what Russians think. And I don't believe all those rumors about the next Cold War in the next century. Russia and United States have to work together to make the next century more peaceful then this one. Works Cited Desruisseaux, Paul "Report in Russia accuses US-backed programs of espionage." Chronicle of Higher Education 24 January 1995: A44 Pickering, Thomas A. "US - Russia relations." Vital Speeches of the Day 1 December 1994: 100-103 Zorpette, Glenn "Down the drain." Scientific American December 1996: 20, 24 US and Russia relations after the defeat of the USSR Alexander Shkolnikov English 112, 9:00 - 10:00 am M,W,F Prof. Cogan February 14, 1997 f:\12000 essays\business & economics (632)\US and Russia relations after the defeat of the USSR.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ US and Russia relations after the defeat of the USSR: The end of Cold War brought new challenges to Russian life, economy and politics. Actually, the post-Cold War period opened the new opportunities for Russia. Democracy made its first steps in the country. After seventy years of communism Russian people finally got a chance to live how the want, to say what they want and to do what they want. People got a chance to choose their own leader, to vote for the Congress members. And it was very confusing for the country. Russia needed somebody to come out and help in this critical situation. Probably, the first country to do that was the United States. Russians "needed and wanted effective advise and technical help from the United States" (Pickering 102). And the most amazing thing was that the United States didn't mind and, actually, wanted to help Russia. But why? Why the United States wanted to help Russians? And I think the answer to that is very simple: the United States realized that America and Russia must not think of each other as natural enemies, but must work together to make more peaceful world, even if they were ready to destroy each other not that long ago. United States needed Russia as a strong partner in the twenty first century. Russia went through many changes in its economy since the Russian Federation took over the Soviet Union. "An economy devoted almost entirely to the production of military goods was forced to begin to provide what its citizens demanded, not what its rulers ordered" (Pickering 100). But it wasn't that easy. Russian government appeared to be unexperienced in modernizing the economy. Most of the people in government came from the school of the Soviet Union, so they were unable to do anything without somebody's help. "... the United States provided Russia with massive augments of experience, delivered through government and private sector advisors as well as by bringing Russians in large numbers to the US for training and exchanges" (Pickering 102). But the help of the US wasn't just a gift; America had something they got out of the help they were providing in building the Russian economy. All big American companies went to the Russian market. "American firms are convinced of Russia's extraordinary potential as the market for US trade and as a host for investments" (Pickering 102). Russians were prefer to buy American clothes, food, cars and electrical devises. All new-born Russian private companies preferred to partner with American companies. Each year Americans were increasing the sales of their own products on the Russian market. As I said earlier, Russia devoted itself to the new type of the economy; with private sector businesses. But what they could do with all those weapons produced during the Soviet era? And the way out was found. Russia became the biggest exporter of military ammunition on the world market. The exports of oil also put Russia on the leading positions in the world. Everything was going just fine. "Russia was moving from pure stabilization to the resumption of economic Shkolnikov 3 growth" (Pickering 103). The only one thing that was bothering both countries, especially Russia, was the growth of Russian mafia. In the middle 90's the level of corruption in the Russian government was very high. Mafia controlled everything; starting from stores, which pay some percent of their income every month, and ending with police, which was completely under control of the mafia. The power of mafia really bothered American businessmen, who didn't want to pay them and didn't want to get shot by mafia. And since they refused to pay, the number of American businessmen shot in Russia was growing. But this doesn't really stops Americans from doing business in Russia. The other problem that Americans were concerned about is nuclear potential of Russia. During the leadership of the communism the USSR produced huge number of nuclear weapons and power stations. "US spends approximately $530 million each year on a bewilderingly large numbers of programs and initiatives focused on the weapons complexes of the former Soviet Union" (Zorpette 24). But because of the corruption in the top of the government the nuclear stations don't get the money for reconstruction. "Russians still run the dangerous reactors because they provide heat and electricity for nearby towns" (Zorpette 20). The military don't want to spend its own money on destroying the nuclear weapons so, since the army itself don't get the money that the United States provide, Russians destroy the nuclear weapons in some other cheap ways, which are not really good for the environment. The space programs are very important in the relationship of these two countries. Russia had great space potential. But the country needed money for keeping the space centers alive, for scientists who didn't have any money to live, for all those cosmonauts who were in the space and had to stay there for two or three years because country couldn't pay for them to get back. And the United States provided Russia with that help. The United States spend hundreds of millions of dollars. There is one reason for America to do that: it will be better if Russian technologists stay in Russia to work on peaceful space projects rather then hiring out to build missiles or other high-technology weapons for unstable developing nations such as Iran, Lebanon and Iraq. The United States say that Russians should contain crime problem, avoid conflicts such as the one with Chechnya, and keep the CIS (Commonwealth of Independent States) from turning into another USSR. The United States has nothing to worry about, because the level of crime in Russia is going down. The Russian police find ways to fight against mafia. Chechnya is an independent republic, since Russia after two years of war granted their independence. The conflict was a tough lesson for Russia and I don't think that Russia will ever be involved in something like that again. The United States shouldn't worry about the CIS. I don't think there is any way for the USSR to get back together. Wasn't it Yeltsin who made a historic decision to affirm the borders of the old Soviet republics as new international ones? Russia wanted to break the Soviet Union forever, and did it. Is it possible for Democracy to loose on the next presidential elections? No. Most of the people in Russia can see the difference between the USSR and Russia. Democracy made its first steps and people realized how miserable their life was during the Communism. Voting against Democracy is going to do any good for the country and people know that. In six years since the white-blue-red flag of Russian Federation replaced the hammer and sickle flying over the Kremlin, Russia made a number of difficult, courageous and correct choices. The country which has been destroyed by the communists came back as a strong and powerful nation. Democracy took its roots in the country. The rudiments of a market economy and a financial infrastructure are now in place. The ruble is stable; inflation is under control. The private sector rules the business in Russia. The country raised up from the ruins. And all this had been accomplished with the help of the United States. I can't say that all the Russian people appreciated what the Americans did. Some of them didn't like that at all. There are some people in the government who didn't like what the Americans do. Some of those have an assess to the media. So sometimes media writes about the United States as the country that wants to ruin Russia. "Americans who operate exchange programs and conduct research in Russia are concerned about a report attributed to a government agency there that characterized such US-sponsored activities as espionage" (Desruisseaux A44). I don't think that this is what Russians think. That is the opinion of those who had a good life during Communism. "Many Russians realize that the efforts represented by this supposed report are efforts to weaken and cripple Russia, and cut it off from the rest of the world" (Desruisseaux, A44). And this is exactly what Russians think. And I don't believe all those rumors about the next Cold War in the next century. Russia and United States have to work together to make the next century more peaceful then this one. Works Cited Desruisseaux, Paul "Report in Russia accuses US-backed programs of espionage." Chronicle of Higher Education 24 Januay 1995: A44 Pickering, Thomas A. "US - Russia relations." Vital Speeches of the Day 1 December 1994: 100-103 Zorpette, Glenn "Down the drain." Scientific American December 1996: 20, 24 f:\12000 essays\business & economics (632)\US and Swedish Trends in Tax Reform.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S. and Swedish Trends in Tax Reform Tax reform has become a major governmental policy issue in the United States as well as in the rest of the world. Countries are attempting to balance both economic efficiency and provide equity in taxation. Governments are looking to rewrite tax codes to minimize their impact on economic growth. Specifically, governments throughout the world are attempting to preserve incentives built into taxation to maximize economic efficiency. At the same time, these governments are trying to cope with the growth in social welfare programs throughout the past three decades. In this paper I shall discuss two nations which dramatically overhauled their tax systems, and whether or not their goals with tax reform were achieved. In the article "The tax reform act of 1986: Did Congress love it or leave it?", Randall Weiss discusses the attitudes about taxes in the United States. He details the events and attitudes leading to the Tax Reform Act of 1986, and shows how public perception about taxes has changed since then. He also discusses some of the tax reform proposals that are now currently being thought about in Congress. In 1986 the United States Congress enacted the Tax Reform Act (TRA-86). The act passed with a great deal of bipartisan support. This support was made possible by two features of the act. The first was that federal income tax rates were to be cut dramatically. While this would lead one to believe that federal government receipts were cut substantially as well, it was the second important feature of the bill that allowed it to be revenue neutral. This feature was that the bill was to improve horizontal equity in the tax system. This would be accomplished by eliminating many of the deductions that many individuals, particularly the well to do, were allowed to make. Many of the complains about the tax system in the United States that preceded the Tax Reform Act were about the gross horizontal inequities that it allowed. A great deal of press preceding TRA-86 showed the public how many of the country's wealthiest individuals were able to get away with paying little or no federal income tax. Eliminating many of these tax deductions and loopholes had been the goal of several liberal Democrats for some time. In addition, conservatives in Congress wanted to reduce the escalating federal budget deficit at the time. Also, a prevailing attitude of the time was that reducing marginal tax rates would benefit the economy. It was believed that specific tax breaks and deductions to support economic growth would not be needed with the greatly reduced tax rates. The combination of Democrats wanting more vertical tax equity and Republicans wanting lower marginal rates allowed the Tax Reform Act to gain widespread support in Congress. Since TRA-86, tax policy in the United States has shifted away from base broadening and lower marginal rates toward more progressive taxation and targeted tax reductions. In 1990, and again in 1993, marginal tax rates were raised on wealthy individuals in an effort to close the mounting federal budget deficit. Also, the perception in the federal government was the special tax credits and deductions were needed to promote savings, education, and economic growth. This is a direct reversal of the ideas that lead to TRA-86. People no longer argued that tax rate reduction would in itself provide for economic efficiency. Currently, members of the United States Congress are introducing several different tax reform plans. Some of the plans, particularly the Republican plan for a flat income tax introduced by Rep. Dick Armey, would decrease the progressivity of the current tax system. In addition, a proposal for a national sales tax would result in a tax code that is less progressive than current law. On the other hand, a tax reform plan introduced by Rep. Dick Gephardt would make the tax system more progressive. All of these reforms are intended to reduce many of the remaining tax shelters left in place by TRA-86. The Republican plans in particular are not revenue neutral and are intended to increase investment in the economy and contribute to efficiency. However, these reforms are not in line with the policies enacted after TRA-86, and they are still years away in the future at best. In the article "Tax reform of the century - the Swedish experiment.", Agell, Englund, and Sodersten discuss the recent Swedish experiment in tax reform in 1991 (TR-91). As far back as 1978, the Nobel Laureate Gunmar Myrdal said that Sweden had become a "nation of waglers". Himself being greatly liberal, even Myrdal admitted that Sweden's highly graduated income tax was an incentive to cheat on taxes. Also, the high corporate tax rate, which originally was intended to encourage investment, created a capital lock in for corporations. This prevented companies from reinvesting their profits in different areas of their business to adapt to changing market conditions. Originally, it was believed that TR-91 would cost the Swedish government a 6% GDP loss in revenue. In actuality it cost about 1-2% of GDP in revenue. The top marginal tax rate on income dropped from 80% to 50%. In addition, the corporate tax was greatly reduced. To compensate for these losses, besides reducing the number of tax loopholes, VAT was broadened to include more products and housing was less subsidized by the tax code. In the short run this lead to sizable losses in read estates, and effective demand shifted from housing to capital instruments and financial assets. Later, the top marginal rate was increased to 55%, and many modification to TR-91 have already been made. The goals of TRA-86 and TR-91 were to increase economic efficiency through base broadening and reduce gross abuses of the tax system in both countries. To an extent, these goals were achieved. But both countries quickly reversed their desire to reduce or eliminate tax shelters and lower marginal rates. In efforts to reduce governmental budget deficits, top income tax rates were increased once again. It will be interesting to see whether the current tax reform proposals now being discussed in the U.S. Congress will take hold and shift policy back towards base broadening and more horizontal equity. f:\12000 essays\business & economics (632)\US Auto Industry Market Share and Fluctuations.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S Auto Industry's Market Share and Fluctuations The U. S. auto industry's share of the market has experienced fluctuations over the past 50 years. These fluctuations have been caused by many reasons, but some of the main reasons include quality, price, and foreign competition. The Ford Motor Company, General Motors Company, and the Chrysler Corporation, a.k.a. "The Big Three", are the three largest manufacturers of automobiles in the world. " The Big Three" hold nearly 75% of the market and produce over 8 million automobiles per year. The largest competitors of " The Big Three" are Japanese auto producers that include Toyota, Nissan, and Honda. These three foreign manufacturers hold 20% of the market and produce about 2.7 million automobiles per year. General Motors Company, the world's largest automobile producer, originally was composed of four major vehicle manufacturers- Buick, Cadillac, Oldsmobile, and Oakland which became Pontiac. Presently, General Motors is made up of Buick, Cadillac, Oldsmobile, Chevrolet, Pontiac, and Saturn. During the first thirty years of operation GM's only major competition was from U. S. manufacturers. However, since the first foreign truck was imported from Japan in 1956, GM's share of the market began to decline. Foreign cars were smaller, more fuel efficient, less expensive, and often more reliable than their American counterparts. General Motor's market share dipped from nearly 44% in 1973 to below 30% in 1985. In response to this sudden drop in its share of the market GM founded the Saturn Company. Saturn produces compact cars very similar to Japanese imports at competitive prices. This response halted GM's declining share of the market. Today, General Motors maintains about 30% of the market. General Motors was the first large auto company to begin research on alternative fuel sources and continues to lead the way. Some developments of this research include the first production natural gas engine, and the first car powered completely by electricity. Many ideas are still in the process of being developed, such as affordable solar powered vehicles and ultralight plastic body parts. The Ford Motor Company, founded in 1903 by Henry Ford, was the largest car manufacturer in the world until 1929 when GM passed it. Ford is currently the second largest producer of automobiles in the world producing over 5 million cars per year and holding 25% of the market. In the late 1970s and early 80s when its share of the market was being taken over by foreign auto companies, Ford's response was different than that of GM's. Ford decided to buy small foreign companies and convert them to Ford production facilities. This would enable Ford to increase its share of the market in Europe and Asia. Also, this would allow Ford to avoid high tariffs placed on foreign cars in China and Japan. Ford motor company currently employs over 300,000 workers world-wide. In January of 1996, Ford merged its North American, South American, Asia-Pacific, European, and African Automotive Operations into a single organization, Ford Automotive Operations. This merger cut back on costs of developing new cars because now instead of five different organizations working on the same project only one organization would work on it. This decreased the amount of time and labor needed to improve or design new cars. In return the price of Ford products declined, resulting in more sales. Another approach of Ford was to enter joint-ventures with foreign companies. Through these joint-ventures the foreign companies would produce and assemble Ford automobiles for sale in that country. Ford is trying to assure future sales by researching vehicles that contain plastics that can be recycled into common materials. Also, Ford is currently working with the U. S. Department of Energy to develop alternative fuels, such as electricity, methanol/ethanol, natural gas and solar energy. The third member of the " Big Three", the Chrysler Corporation, was founded in 1921 when the Maxwell Motor Company failed and Walter P. Chrysler reorganized it. Chrysler was able to capture its share of the market when it acquired Dodge Brothers, Inc. and when Ford stopped production in 1927 to switch from producing the Model T to producing the Model A. During the 1950 and 60s Chrysler took over the operations of several small companies in France, Spain, and Britain. This enabled Chrysler to begin selling cars in Europe and compete with Ford and GM on foreign markets. In 1970, Mitsubishi Motors of Japan began producing compact cars under the Chrysler name to be sold in the United States. This led to a rise in Chrysler's share of the market until the early 80s when Mitsubishi began using its own name. To counter this move Chrysler formed a joint-venture with Renault of France to produce compact cars. Then in 1987 Chrysler purchased the Italian company, Nuova Automobili F. Lamborghini, maker of expensive sports cars. Chrysler also purchased the American Motors Corporation, the maker of Jeep products. These purchases increased Chrysler's share of the market from 11% to 16.3% and continuing to rise. Chrysler produces nearly 3 million automobiles a year under the Chrysler, Dodge, Plymouth, Jeep, and Eagle names. Chrysler is also in the process of producing alternative fuel cars. These include vehicles powered by electricity, liquefied natural gas, and gasoline- methanol mixture. The future share of the market for the " Big Three" should remain steady or even increase. Today, the " Big Three" is able to produce top-of-the-line, fuel efficient, affordable cars to compete with imports. The " Big Three" also leads the way in research on alternative fuels and designs that will make automobiles more efficient and less polluting. In conclusion, the United States automobile industry, which pioneered processes and technology in the early 1900s, has returned as the leader and will lead the auto industry into the 21st century. f:\12000 essays\business & economics (632)\US Investment in Mexico.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S Investment in Mexico Economics 580 Dr. Leon Haitham Boukhadour Fall 96 Mexico has established itself as one of the biggest emerging markets in the world today. It has exhibited many of the signs of a high growth economy, offering several advantages to prospective investors. Some highlights of the Mexican economy include " single-digit inflation, a balanced public budget, real economic growth (presently at a rate of 12 percent), a deregulated economy and a favorable investment climate" (Risk Management/ June 94, P.32). Mexico also possesses a strategic geographic location as a gate way to Latin American markets. Mexico is among the fastest- growing export markets for the United States. In 1985, Mexico became the third largest market for total U.S. exports, behind Canada and Japan. In 1992, Mexico surpassed Japan as the second largest export market for U.S. manufactured goods. Mexico now accounts for $1 out of every $10 of total U.S. exports. After the passing of NAFTA, bilateral trade was quite balanced in 1994, with the U.S. registering a surplus of $1.3 billion, virtually unchanged from 1993. However, there was a sharp increase in trade opportunities, as both import and export growth exceeded 20 percent. One-fifth of the total trade that occurs between the United States and Mexico was created in 1994. One of the major sectors that holds a large promise for the U.S. manufacturers is that of the automobile industry. The Mexican market for auto parts is expected to grow by 24 percent from 1994 levels to $16.9 billion in the year 2000. It is also expected that NAFTA will help increase the U.S. export share of the Mexican market to around 70 percent by the year 2000. In the long run, Mexico's location could profit the U.S. industries that establish themselves there, through an expanded free trade area in Latin America, which could include Argentina, Brazil, Venezuela, and Chile. Such expansion could prove crucial to the U.S. industry, as a strong export orientation helped sustain industry growth. Exports increased from 18.5 percent of total output in 1989 to 27.2 percent in 1991. And the level of employment which could be attributed to exports increased from 116,500 in 1989 to 154,200 in 1991. Mexico also offers some intriguing possibilities in terms of production facilities for U.S. based firms. In 1994 alone Mexican car and truck production totaled 1.173 million units, up 8.6 percent from 1993. The Mexican government had along term plan in terms of automobile production in Mexico, and it is in a phase now that favors foreign investors and exportation out of the Mexican market. Check the figure bellow to see how the plan has progressed so far. Assembly Manufacturing ISI Export Promotion Liberalization 1925-1962 1962-1969 1969-1989 1989- In previous years there were many barriers to trade, to date some still exist while many have been lifted or reduced substantially. U.S. firms seeking to take advantage of low Mexican wages, established many joint ventures in Mexico. These plants were known as maquiladora plants. These plants started as basically a "screwdriver and nuts operation" where firms merely assembled their cars in Mexico with no real manufacturing performed within these plants. There were several obstacles to the U.S. firms taking full advantage of the low Mexican wages. For a long time in Mexico, any cars sold domestically within Mexico had to contain 60 percent locally produced parts, including the engine. That rule has changed requiring 34 percent locally produced auto parts , falling to 29 percent by the year 2003 through NAFTA measures. Another major impediment to full-scale car production in Mexico was the 20 percent import tariff imposed on auto parts imported into Mexico. Also cars imported into the U.S. that were produced in Mexico used to incur a 2.5 percent duty. Since NAFTA's implementation at the beginning of 1994, half of all U.S. exports have been eligible for zero Mexican tariffs, including machine tools, electronic equipment, and computers; components vital to the operation of the plants. NAFTA reduced Mexico's auto parts tariff from 20 percent to 10 percent on January 1st, 1994 and lowered other barriers. And cars coming into the United States no longer incur a 2.5 percent duty. As a result of NAFTA, auto-makers have started integrating their Mexican plants into their North American operations, shifting mid-size to luxury car productions to their underutilized plants in the Midwest, while producing smaller sized cars in Mexico. Mexico will probably become a center of small-car production. That is what the local market favors, and lower labor costs will make small-car production more profitable. U.S. firms cannot survive by merely using Mexico as an exporting platform, rather, they do need a strong internal market and local revenue. Several obstacles still persist. The Mexican government continued to open the Mexican market to foreign investors following the implementation of NAFTA. Inflation dropped to about 7 percent in 1994, down from the high of 150 percent in 1987. However several factors deteriorated the outlook for the Mexican market. Namely an unresolved peasant uprising in Chipas, Political assassinations, and a series of high profile kidnappings. All of those contributed to investor skepticism towards Mexico. The devaluation of the Mexican peso, which went down as much as 50 percent against the dollar, was a mixed blessing. Though it lowered payroll costs, which make up roughly 80 percent of a typical maquildora's operating budget. It had several negative effects. For one the worker morale was negatively affected. Also as stated above, a strong local market is crucial for sustaining growth and profits. With the devaluation of the peso, auto sales in Mexico dropped 70 percent in the months following that crisis, also, the price of automobiles in Mexico went up 10 percent in pesos, despite being discounted 20 percent in dollar terms. Several U.S. firms are restructuring within Mexico in response to that devaluation, which helps their exports out of Mexico, but not their local market shares. They have announced cutbacks in production, and an increase in payrolls for their Mexican labor in terms of the peso. As a result, in 1994, vehicles that were destined for foreign sales increased by 20.8 percent, while those for domestic sales dropped by 28.6 percent. And in 1995, export production jumped to 700,280 vehicles, while production for Mexico shrank to 373,210 vehicles. All of these factors have deteriorated some of Mexico's automobile investment prospects. For example, Thrall Car Manufacturing, an Illinois-based rail-car builder, has put a hold on plans to start operations in Mexico. Most firms in the United States and Canada are adopting a more cautious attitude on business ventures in Mexico. Some of the reasons are the uncertainty of NAFTA benefits, Mexico's unstable financial exchanges, and the devaluation of the peso. The devaluation, more than anything else, is the real stumbling block for any company considering a Mexico venture. Most Mexican based firms have a dollar- based debt but peso-based profits. When the peso loses value, repaying the debt becomes a major task. Also current interest rates offered by Mexican banks fluctuate between 20 percent to 60 percent. While U.S. banks offer some relief, with a rate of 16 percent to 17 percent, it is still a counter productive rate. Most businesses cannot support a debt of 17 percent and still survive. As can be seen there major advantages, along with many risks for U.S. firms to open a plant in Mexico. There are ways for minimizing the risks, such as raising the capital abroad and undertaking local partners. But in general the outlook for the Mexican market should be a cautious one until the full effects of the NAFTA agreement are realized. References Higgs, Richard. "Mexico a lucrative market for U.S. suppliers, consultant says" Automobile News Feb 13th 1995: 86. " Economic woes take toll on Mexican workers" Automotive News Feb 13th 1995: 86. Jenkins, Rhys. " The political economy of industrial policy: automobile manufacture in the nearly industrializing countries" Cambridge Journal of Economics 19 (1995): 625-636. "NAFTA fans trade fire for U.S. auto suppliers" Rubber-and-Plastic-News-II Dec 13th 1993: 4. " NAFTA's effect on the Mexican Economy." Risk Management Jan 1994: 32. "Weak peso applies brakes in Mexico" Wards-automotive-Reports Jan 16th 1995: 1. f:\12000 essays\business & economics (632)\US Monetary Policy in 1995.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S Monetary Policy in 1995 When Alan Greenspan presented the Federal Reserve's semi-annual report on monetary policy to the Subcommittee on Domestic and International Monetary Policy, the Committee on Banking and Financial Services, and the U.S. House of Representatives on February, Dr. Greenspan touted a cautionary yet favorable view of the U.S. economy. He states that "With inflationary pressures apparently receding, the previous degree of restraint in monetary policy was no longer deemed necessary, and the FOMC consequently implemented a small reduction in reserve market pressures last July." (Greenspan, 1996, Speech) During the Summer and Fall of 1995, the economy experienced a strengthening of aggregate demand growth. According to Greenspan, this increase in aggregate demand brought finished goods inventories and sales into near equilibrium. The Fed's fine tuning of the economy seemed to be paying off. Greenspan had a positive outlook for the economy for the rest of 1995. He states "the economy, as hoped has moved onto a trajectory that could be maintained--one less steep than in 1994, when the rate of growth was clearly unsustainable, but one that nevertheless would imply continued significant growth and incomes." (Greenspan, 1996, Speech) Towards the end of the year, the economy showed signs of slowing. Fearing a prolonged slowdown or even a recession in the economy, and with inflationary expectations waning, Chairman Greenspan and the Federal Reserve cut rates again in December. (Greenspan, 1996, Speech) There are, of course, critics of 1995's monetary policy. Most of the criticism came in the early part of 1995 when the Fed raised rates again. In the article "Are We Losing Altitude Too Fast" from the May 1, 1995 issue of Time magazine written by John Greenwald, he explains that the economy might not be coming in for a "soft landing" like the fed predicts. Trying to sustain 2 to 3 percent growth might lead us into a recession. Mr. Greenwald explains how the Fed's actions in 1994 and early 1995 has hurt individuals and the economy as a whole. "Corporate layoffs are far from over," says Greenwald, "they generally accelerate when firms find themselves in an economy that is weakening." (Greenwald, Time, 5/1/95, p80) Unemployment and layoffs aren't the only thing to worry about according to Mr. Greenwald. The automobile industry and the housing markets are both getting hit in the pocket books. Paul Speigel, owner of a New York car dealership explains his woes by saying '"We're doing our best to keep up the volume by discounting, working on our customers, but the Fed's rate hikes have dampened the ability of many Chevrolet customers to buy that new vehicle."' John Tuccillo, chief economist for the National Association of Realtors states that the market (for new housing) "fell apart as mortgage rates rose above 9% last fall (1994), and still have not yet recovered." (Greenwald, Time, May 1, 1995. p81) Another outspoken, and cynical opponent to the Fed's monetary policy is Dr. Michael K. Evans, who is president of Evans Economics, Inc. and Evans Investment Advisors, Boca Roton, Fla. Dr. Evans wote an article in the Aug. 21, 1995 issue of Industry Week entitled "The Gang that Wouldn't Shoot Straight: Fed's Trample Over Their Own Rate Cut." Dr. Evans contends that lowering the federal funds rate in July was a mistake because the economy was already starting to recover without tampering by the Fed. He claims Greenspan knew full well that the economy was on the upswing, but cut rates anyway to try to ensure his reappointment come March 1996. Dr. Evans claims that vice-Chairman Alan Blinder also knew of the recovery but "he could not face his collegues at Princeton when he returned, unless he pushed for a rate cut." (Evans, Industry Week, Aug. 21, 1995. p122) Dr. Evans concludes that the Fed's actions in July were "purposely misleading, cravenly political, and just plain stupid." (Evans, Industry Week, Aug. 21, 1995. p122) Many people applauded the actions of the Fed in 1995, and defend them from the rampant "fed-bashing". One of the defenders of the Fed's monetary policy and Alan Greenspan is Rob Norton who wrote an article in the July 24, 1995 issue of Fortune entitled "The Blaming of Dr. Greenspan. (Federal Reserve Board Chairman Alan Greenspan Takes Blame for Economic Downturn)." Mr. Norton agrees with Greenspan that in February 1995 it was essential to raise interest rates because of an unsustainable rate of growth. He says that Greenspan was ahead of the game by doing this. "The conventional wisdom crowd claimed that here was no reason to fear that the economy was going to overheat," he goes on to say "By the fourth quarter of last year, real GDP was growing at a 5.1% rate--twice the average growth rate most economists consider sustainable in the U.S., given population growth and productivity increases." (Norton, Fortune, July 24, 1995. p39) Mr. Norton also does not believe that Alan Greenspan cut rates in July to ensure his re-nomination in March, 1996. He points out that during the 1988 Presidential campaign, with inflationary pressures present, many economists felt Greenspan would not raise rates because he is a loyal Republican, and he did not want to hurt the Republican's chances in the campaign. Chairman Greenspan went against most people's predictions and raised rates "just days before the Republican convention." (Norton, Fortune, July 24, 1995. p39) Another defender of the Fed's policies during 1995 is Michael Sivy, who is a chartered financial analyst and a former Wall Street research director, wrote an article titled "The Fed's Rate Cut Decision could Push The Dow to 4900 and Postpone a Recession," which appeared in the Aug. 1995 edition of Money magazine. He stated that Greenspan "decided to send businesses and consumers a clear signal: Interest rates won't go any higher." But Greenspan still was on the lookout for any inflationary pressures, so he reduced rates by a very small amount in July, which will be followed by more small rate cuts. Mr. Sivy states "With the Fed fine-tuning the economy like that, we think the Dow could tack on another 200 points to top 4900 by year-end." (Sivy, Money, Aug. 1995. p160) Through my research on 1995 monetary policy, I feel the Fed did a good job of monetary policy during 1995. During 1994 and early 1995 I believe the Federal Reserve were justified in their actions in stepping up interest rates. Inflationary pressures were definitely present at the time, and if the fed let the inflation occur, how high would they let it go? This might also mean going through disinflation in the future, which is a long and painful process. The Fed did the right thing by not even letting inflation "out of the bottle." As for the Fed's cutting of interest rates in the middle and latter parts of the year, I believe the data suggests the economy was slowing down, along with that, inflationary expectations were fading also. This made it relatively easy for the Fed to lower rates. But they made sure they watched inflationary pressures at the same time. I still haven't made up my mind whether Greenspan based part of his decision to cut rates on political reasons or not. Sure, he could probably make 10 times more in the private sector, but I believe more goes into it than that. Many people see the Chair of the Federal Reserve as the 2nd most powerful person in the U.S. right behind the President, this in itself could persuade Greenspan into pleasing the President who reappoints him. Another point would be going down in history. If Greenspan successfully obtains an unprecedented third term, he will probably be highly regarded in every history book yet to be made; it's doubtful that Greenspan would go down in history if he were the president of the Chase Manhattan Bank. As Rob Norton defended Greenspan in saying that he raised rates even though the Presidential election was just around the corner in 1988; Greenspan was only in the 2nd year of his 4 year term, so there wasn't any substantial political pressure, he still had about 3 years left of his term. At any rate, I believe that the Fed had a very successful year of monetary policy. The stock market soared, inflation and unemployment are both at respectable levels, so I just hope the Fed keeps it up, and President Clinton re-appoints Alan Greenspan. f:\12000 essays\business & economics (632)\US Postal Service Monopoly.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ US Postal Service Monopoly As many Federal departments and agencies lurch into an era of running without funds, the leaders of both parties of Congress are spending less and less time searching for a compromise to balance the budget, and more and more time deciding how to use it to their advantage on the campaign trail. Meanwhile money is easily borrowed to pay for government overhead. In an attempt to change this, on June 29, Congress voted in favor of HConRes67 that called for a 7 year plan to balance the Federal Budget by the year 2002 (Hager 1899). This would be done by incorporating $894 billion in spending cuts by 2002, with a projected 7 year tax cut of $245 billion. If this plan were implemented, in the year 2002, the U.S. Government would have the first balanced budget since 1969. There is doubt by citizens that a balanced budget will become reality. A recent Gallop Poll from January, 1996 showed the budget as the #1 concern among taxpayers, but 4/5 of those interviewed said they doubt the GOP will do the job (Holding 14). Meanwhile, an ABC poll from November reported that over 70% of those polled disapprove of the current performance by Congress, and most blamed politicians for failure to take action (Cloud 3709). These accusations of failure to follow through come with historical proof that Congress and Clinton have failed to compromise and resolve the issue. After all, current budget plans are dependent on somewhat unrealistic predictions of avoiding such catastrophes as recession, national disasters, etc., and include minor loopholes. History has shown that every budget agreement that has failed was too lax. One might remember the Gramm-Rudman-Hollings bill that attempted to balance the budget, but left too many exemptions, and was finally abandoned in 1990 (Weinberger 33). So after a pain-staking trial for GOP Republicans to create, promote, and pass their budget, as promised on campaign trail 94, Clinton rejected the very bill he demanded. This essentially brought the federal budget back to square one. Clinton thought such a demand on Republicans to produce a budget would produce inner-party quarrels and cause the GOP to implode. Instead, they produced a fiscal budget that passed both houses of Congress, only to be stalemated by a stubborn Democratic President Clinton. Meanwhile, Clinton bounced back with a CBO scored plan with lighter, less risky cuts to politically sensitive areas like entitlements. Clinton's plan also saved dollars for education and did not include a tax increase, but most cuts would not take effect until he is out of office, in the year 2001. Although Clinton is sometimes criticized for producing a stalemate in budget talks, the White House points out that the debt has gone down since Clinton took office, with unemployment also falling. Republicans are quick to state that Clinton originally increased taxes in 1993 and cut defense programs, but his overall plan was for an increasing budget without deficit reduction. Startling Facts about the budget: As of 1996, the national debt was at an all time high of $5 trillion dollars, with interest running at a whopping $250 billion per year (Rau M-1). This equals out to an individual responsibility of more than $50,000 per taxpayer. Nearly 90% of that debt has accumulated since 1970, and between 1980 and 1995, the debt grew by 500%. Currently, the debt grows by more than $10,000 per second (Rau M-l), and at current rates, a baby born in 1992 will pay 71% of his or her income in net taxes. At current rates, our government is about to reach its breaking point. If that's not enough to scare a taxpayer, by 2002, 60% of government spending will be for entitlements, and by 2012, these programs are projected to take up all government revenue (Dentzer 32). Not only economic development, but also family income is hurt by debt. With the cost of living going up, it becomes harder to find a job. According to the Concord Coalition, real wages peaked in 1973 and have gone down ever since. If the economy grew as fast as it did in 1950, without a debt, the median family income would be $50,000, compared to the present median of $35,000 (Rau M-1). As of current fiscal year's budget, the United States government spends $1.64 trillion yearly. $500 billion of that, or 1/3 of the total, is for discretionary spending (Rau M-1). This discretionary spending is the target for most cuts, and seems to be the easiest to make cuts in. Overall, the difference between the two parties budget plans is only $400 billion. This could easily be trimmed by eliminating tax cuts and adjusting the consumer price index to reality. Democrats say the GOP plan is too lopsided, and Republicans criticize the Democrat plan for being unrealistic. A study by the Urban Institute shows GOP cuts will be felt mainly by the bottom 1/5 of U.S. population. This should be more equally spread out across income brackets (Hosansky 1449). The GOP plan: By fulfilling campaign promises made by freshman Republican Congressmen to cut government spending, the GOP managed to pass a $1.6 trillion budget resolution by a party-line vote, in both houses of Congress (Hosansky 1450). This budget called for major cuts in education, environmental programs, discretionary spending, and the largest of all: entitlements. 70% of the money to balance the budget under the GOP plan would have come from entitlements. This is because entitlement programs currently take up $301 billion a year. Such cuts had already been partially implemented with the GOP cutting overall spending by 9.1% in 1996 alone. First, in an attempt to stop the projected bankruptcy of Medicare in 2002, Republicans cut $270 billion overall from the program, with hospital reimbursement cuts being the deepest (Hager 1283). Although stabilizing the fund is only expected to cost $130-$150 billion over 7 years, the GOP budget would reform the program to run better, and cheaper, by allowing it to grow at 6% yearly, instead of the current 10%. While both parties agree on premium hikes for beneficiaries, this is a touchy subject for the 38.1 Million elderly voters on Medicare in 1996 (Rubin 1221). Medicaid, another volatile program, would be cut $182 billion under the GOP proposal. This would entail placing a cap on the program's spending, and passing control of it to the individual state governments. For an estimated 39 million low-income people on Medicaid in 1996, the GOP plan cuts the program far more than Clinton's proposed $98 billion cut. Social Security is another program being cut. The government has already reduced the outlay for seniors 70 and younger who are on the program, but Republicans want more by increasing the eligibility for Social Security from 62 to 65 for early retirement, and 65 to 70 for standard retirement (Henderson 60). Smaller cuts included $11 billion in student loan reductions, $9.3 billion in labor cuts, $10 billion eliminated from public housing programs, and several other numerous disaster relief programs cut (Rubin 1222). The GOP also wants to eliminate programs initiated by Clinton like the National Service initiative, summer jobs, Goals 2000, and Americorps. Also, by terminating unnecessary farm programs, and cutting others by $12.3 billion, Republicans hope to cut the yearly $6 billion that the Federal Government spends on direct subsidies to farmers. Agricultural policies were also reformed and embedded into budget-reconciliation bills (Hosansky 3730). Clinton's Budget: Clinton's budget only surfaced after he vetoed the budget passed by Congress, and included shallower cuts, with little or no reform to entitlements. This plan was supported by most Democrats and was used as an alternate to a gutsy GOP budget. Clinton repeatedly trashed the Republican's efforts to make cuts on programs he feels important like student loans, agricultural programs, and entitlements. He accused Republicans of wanting to kill some all together. He has also threatened to veto a Republican plan to reform Medicare called Medical Savings Accounts, unless his programs are left intact (Hager 752). Under Federal law, the President is required to submit budget requests in 2 forms: Budget Authority (BA), the amount of new federal commitments for each fiscal year, and Outlays, the amount actually spent in the fiscal year (Rubin 1221). The plan that Clinton has presented is not only a budget resolution in the form of a campaign document, but also proof of how far the Republicans have moved him to compromise since the they took control of Congress. Most important, it does not readily translate into regular accounting principles used for government programming. This year's White House budget was a 2,196 page document that the GOP struck down immediately for not cutting taxes enough and neglecting to downsize the government (Hagar 752). "There is little or no change at all in this budget," said Pete Domenici (Senate Budget Committee Chairman), talking of Clinton's new budget. Among largest cuts within Clinton's plan was the downsizing of 1/5 to 1/3 of all programs that he felt were not a priority to present day government. In addition, he wanted to close loopholes presented to corporate taxation, that would save an estimated $28 billion. He vowed to keep programs like education, crime prevention, and research or environmental grants, while increasing the Pell Grant from $2,340 to $2,700. Attention was also placed on discretionary spending, with Clinton cutting a smaller $297 billion compared to GOP's $394 billion cut. According to the Office of Management and Budget, the President's plan cuts middle-income taxes by $107.5 billion in 7 years, small business by $7 billion, and cuts $3.4 billion from distressed urban and rural area relief (Rubin 1222). This was to be paid for by a $54.3 billion hike in corporate and wealthy-income taxes, and also in $2.3 billion of tighter EITC (Earned Income Tax Credit) adjustments. Although Clinton's plan was expected to cut a whopping $593 billion in 7 years to furthermore produce an $8 billion surplus in 2002, most cuts are long term without a clear goal. Clinton is sometimes criticized by Republicans for unwillingness to compromise. He has used vetoes and stubborn negotiations to protect personal priorities like education, job training, and environmental programs, but Republicans have also tried using domination to force him to comply. GOP Presidential candidate Bob Dole said if Clinton was serious about the budget, "we probably could have had an agreement on New Years Day," 1996 (Hosansky 1449). "The President is sitting on his hands while the federal debt keeps going up and up and up into the stratosphere," said Congressman Jesse Helms, Rep -North Carolina. But one must remember that President Clinton does have somewhat of an overwhelming power in this debate that Republicans can do nothing about. He is the single person that can veto laws sent to him, and also has the power to call Congress back into session if he is unhappy with the current situation. This was President Truman's "ace in the hole" back in 1948. A Neutral Proposal: As a neutral proposal, a group calling themselves the "Blue Dog's" have won support for their budget from both Republicans and Democrats. The group also known as the Concord Coalition includes many conservative Democrats that want to see shallower budget cuts with less reform to entitlements. They also believe a tax cut should be delayed until the budget is balanced. The Coalition believes that by reforming entitlement policy, rethinking government size, changing taxation methods, and consuming less, our budget can be balanced (Rau M-1). Defending Deficits: In defense of deficits, some may argue that the danger of the current situation is highly over rated. A budget deal has always had less to do with economics than with politics and morality. Budget deficits don't crowd out private investment, government spending does, and a large surplus may not be a sign of strength for a country. Some say it is impossible for every country to run either a surplus or a deficit. What matters is that a country can service its debts (Defense 68). During most of the 19th century, the United States borrowed from the world (a current-account deficit). By 1870, it was running a trade surplus, and by 1900 we had a current-account surplus. But in the early 2Oth century, the U.S. became the world's largest net creditor, and by 1970 it peaked by finally running into deficit in 1970. Finally, 1980 brought a deficit so large, that the government was a net debtor again (Bottom Line 14). Current Reductions: One of the ways we are currently reducing the deficit includes the introduction of "means testing." This means that people would get entitlements based on need. The government already has reduced Social Security for modest income seniors age 70 and younger, but budget cutters want to broaden that idea (Henderson 60). There are 2 major problems with means testing. First, it is considered inherently unfair. Some might argue that a person might blow all of their income before the entitlement reductions come into place. Second, it might reduce the incentive to work and encourage people to hide their income. For instance, beneficiaries of Social Security, ages 62-64, lose $1.00 yearly in benefits for every $2.00 they earn in income or wages above $8,160 per year (Henderson 60). Some say increasing eligibility requirements would solve some problems, and propose raising the age of early retirement from 62 to 65, and standard retirement from 65 to 70. Another touchy subject in budget reduction is the argument that the poor are being left out of savings. According to the Clinton Administration, the GOP budget would cause a family with income of $13,325 per year to lose 11% of their income (Whitman 42). United States Treasury Department studies say the bottom 1/5 income families would have net tax increase of an average $12 to $26 under the GOP plan. The top 1/5 income families would receive more than 60% of the tax relief. A HHS analysis states that the GOP plan would also boost child poverty rates from 14.5% to 16.1%, and poor families with children would loose 6% of their income. Conclusion: In the end, budget reduction is no easy task. "...fixing the National debt is like catching a train leaving the station. The longer we wait, the harder and farther we have to run," says the Concord Coalition (Rau M-1). "Both parties want the issue," instead of an agreement, said Representative Bill Orton. The center of attention for debate on budget cutting is politics, and whomever takes responsibility for reform gets left wide open to criticism. Although Congress and Clinton have spent the past year on debating the budget and the size of the Federal Government, most plans fall back on gimmicks, loopholes, and long-term plans. Even Democrats now agree to downsize the government, but the two parties disagree on how and where. As we trust our elected officials to make decisions in Washington on our behalf, we must show interest and aptitude on the end results. To accomplish a balanced budget deal, many suggest that we must not only balance spending, but reform entitlements, rethink government size, change tax methods, and depend less on Washington. Attendees of a conference on budget cutting in Jackson Hole, Wyoming suggested we deliver a budget that has a simple, quantifiable goal, that includes short term goals, and eliminated gimmicks. Countries like Sweden and Canada have successfully reformed fiscal policies. Sweden's government elected to abandon welfare, pensions, health insurance, unemployment programs, family assistance, and child allowances. Their deficit soon fell by 3.5% of GDP in one year alone (Urresta 51). Sweden's plan was three times as intense as Congress' current plan, while cutting spending in half the time. As for cuts, everyone must suffer. As entitlement debates continue, "the interests of older Americans are being protected at the expense of young people," says Neil Howe and Bill Strauss (Rau M- 1). Older Americans have good reason to protect programs that they have paid into for years, but those programs spend an overall per capita amount of 11 times as much on elderly than that spent on children altogether (Rau M-1). The youth are the future of America, and we should protect them too. Currently, poverty in US is 3 times as likely to affect the very young than the very old. By balancing the budget, "interest rates come down, the economy picks up - we will rebound," says Representative James Greenwood (Cloud 3709), and everyone should be happy with that. f:\12000 essays\business & economics (632)\US Wage Trends.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ U.S. Wage Trends The microeconomic picture of the U.S. has changed immensely since 1973, and the trends are proving to be consistently downward for the nation's high school graduates and high school drop-outs. "Of all the reasons given for the wage squeeze - international competition, technology, deregulation, the decline of unions and defense cuts - technology is probably the most critical. It has favored the educated and the skilled," says M. B. Zuckerman, editor-in-chief of U.S. News & World Report (7/31/95). Since 1973, wages adjusted for inflation have declined by about a quarter for high school dropouts, by a sixth for high school graduates, and by about 7% for those with some college education. Only the wages of college graduates are up. Of the fastest growing technical jobs, software engineering tops the list. Carnegie Mellon University reports, "recruitment of it's software engineering students is up this year by over 20%." All engineering jobs are paying well, proving that highly skilled labor is what employers want! "There is clear evidence that the supply of workers in the [unskilled labor] categories already exceeds the demand for their services," says L. Mishel, Research Director of Welfare Reform Network. In view of these facts, I wonder if these trends are good or bad for society. " The danger of the information age is that while in the short run it may be cheaper to replace workers with technology, in the long run it is potentially self-destructive because there will not be enough purchasing power to grow the economy," M. B. Zuckerman. My feeling is that the trend from unskilled labor to highly technical, skilled labor is a good one! But, political action must be taken to ensure that this societal evolution is beneficial to all of us. "Back in 1970, a high school diploma could still be a ticket to the middle income bracket, a nice car in the driveway and a house in the suburbs. Today all it gets is a clunker parked on the street, and a dingy apartment in a low rent building," says Time Magazine (Jan 30, 1995 issue). However, in 1970, our government provided our children with a free education, allowing the vast majority of our population to earn a high school diploma. This means that anyone, regardless of family income, could be educated to a level that would allow them a comfortable place in the middle class. Even restrictions upon child labor hours kept children in school, since they are not allowed to work full time while under the age of 18. This government policy was conducive to our economic markets, and allowed our country to prosper from 1950 through 1970. Now, our own prosperity has moved us into a highly technical world, that requires highly skilled labor. The natural answer to this problem, is that the U.S. Government's education policy must keep pace with the demands of the highly technical job market. If a middle class income of 1970 required a high school diploma, and the middle class income of 1990 requires a college diploma, then it should be as easy for the children of the 90's to get a college diploma, as it was for the children of the 70's to get a high school diploma. This brings me to the issue of our country's political process, in a technologically advanced world. Voting & Poisoned Political Process in The U.S. The advance of mass communication is natural in a technologically advanced society. In our country's short history, we have seen the development of the printing press, the radio, the television, and now the Internet; all of these, able to reach millions of people. Equally natural, is the poisoning and corruption of these medias, to benefit a few. From the 1950's until today, television has been the preferred media. Because it captures the minds of most Americans, it is the preferred method of persuasion by political figures, multinational corporate advertising, and the upper 2% of the elite, who have an interest in controlling public opinion. Newspapers and radio experienced this same history, but are now somewhat obsolete in the science of changing public opinion. Though I do not suspect television to become completely obsolete within the next 20 years, I do see the Internet being used by the same political figures, multinational corporations, and upper 2% elite, for the same purposes. At this time, in the Internet's young history, it is largely unregulated, and can be accessed and changed by any person with a computer and a modem; no license required, and no need for millions of dollars of equipment. But, in reviewing our history, we find that newspaper, radio and television were once unregulated too. It is easy to see why government has such an interest in regulating the Internet these days. Though public opinion supports regulating sexual material on the Internet, it is just the first step in total regulation, as experienced by every other popular mass media in our history. This is why it is imperative to educate people about the Internet, and make it be known that any regulation of it is destructive to us, not constructive! I have been a daily user of the Internet for 5 years (and a daily user of BBS communications for 9 years), which makes me a senior among us. I have seen the moves to regulate this type of communication, and have always openly opposed it. My feelings about technology, the Internet, and political process are simple. In light of the history of mass communication, there is nothing we can do to protect any media from the "sound byte" or any other form of commercial poisoning. But, our country's public opinion doesn't have to fall into a nose- dive of lies and corruption, because of it! The first experience I had in a course on Critical Thinking came when I entered college. As many good things as I have learned in college, I found this course to be most valuable to my basic education. I was angry that I hadn't had access to the power of critical thought over my twelve years of basic education. Simple forms of critical thinking can be taught as early as kindergarten. It isn't hard to teach a young person to understand the patterns of persuasion, and be able to defend themselves against them. Television doesn't have to be a weapon against us, used to sway our opinions to conform to people who care about their own prosperity, not ours. With the power of a critical thinking education, we can stop being motivated by the sound byte and, instead we can laugh at it as a cheap attempt to persuade us. In conclusion, I feel that the advance of technology is a good trend for our society; however, it must be in conjunction with advance in education so that society is able to master and understand technology. We can be the masters of technology, and not let it be the masters of us. Bibliography Where have the good jobs gone?, By: Mortimer B. Zuckerman U.S. News & World Report, volume 119, pg 68 (July 31, 1995) Wealth: Static Wages, Except for the Rich, By: John Rothchild Time Magazine, volume 145, pg 60 (January 30, 1995) Welfare Reform, By: Lawrence Mishel http://epn.org/epi/epwelf.html (Feb 22, 1994) 20 Hot Job Tracks, By: K.T. Beddingfield, R. M. Bennefield, J. Chetwynd, T. M. Ito, K. Pollack & A. R. Wright U.S. News & World Report, volume 119, pg 98 (Oct 30, 1995) f:\12000 essays\business & economics (632)\Used Car Business Making a Comeback.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. In the past 30 years, the United States auto industry has gone through many changes. In order to stay competitive with a foreign market, constantly threatening to eat away at profits, the American auto industry has had to respond by being flexible and adapt itself to this new situation. Although, in the past, they were slow to get the message sent out by the consumers, the domestic auto industry now seems to be more than willing to analyze, and answer, the demands of a smarter, savior consumer. The growth of the used car field has been a result of these demands. Rising, higher prices for new cars have caused the typical American consumer to examine alternate solutions for their transpiration needs. As the average car on the road is 8 years old, compared to 5.8 years in 1970, the signal to the auto industry has been that cars are being built better and consumers are not afraid to buy them. Of course, this choice does not come without an opportunity cost for the consumer. A used car will generally be bought on the condition "as is" or, at best, with a very limited warranty. If a buyer of a used car drives off the lot and finds they have purchased a vehicle that needs lots of money spent on it for repairs, they may possibly find themselves out of luck. Another downside may come as more people continue to saturate the market, looking for used cars to buy, the resources available will become scarce. An increase in used car prices may gradually start to rise. As the figures indicate, for now consumers seem to be content with taking this risk. Sales for used cars and trucks last year totaled at 15.1 million(going on your article's figures). The auto industry has been busy changing and evolving to answer consumer demands. One of these signs has been the growth of large auction houses that are appearing all over the country. Big investors are attracted by the potential profits, which are an average of 1.5% of the wholesale price. The auctioneers make their money by auctioning off used cars and trucks mainly to dealers only, and are supplied with vehicles that come from trade-ins, repossessions, leased vehicles, and smaller used car lots. With this reallocation of resources many of the smaller mom and pop used car lots have been bought out, or forced out of business. Competition is heating up with the rise in the number of auction houses. This has forced the auctions to be more selective in the kinds of vehicles they offer. More care is being spent to check title searches, odometer readings, and accident history of the vehicles that is an advantage for both the dealers and consumers. More money is being spent in advertising and offering perks to lure in prospective dealers. As some auto manufacturers are entering into the auction business independents are beginning to have cause to worry that their profits will begin to fall. The auto dealers are not sitting by being idle either. They are responding to consumer demands by building and expanding existing used car lots to sit side by side next to their new car showcases. The dealers are more than happy to do this as they can make more of a profit selling a late-model used car than on a new car. Without having to offer much of a warranty will also only add to this profit. Dealers still have an opportunity cost of their own to contend with. Just like a consumer, they have the risk when buying the cars from and auction, and take the chance of being stuck with a lemon. Also, for every dollar spent on their used cars, they have less money to spend on the new car section. The cycle of change in the auto industry is an ever evolving one. New car manufacturers will need to take a long, hard look at the industry and may be forced to make some changes to attract business back their way. They may be forced to lower prices, cut back production on new vehicles, or lay off workers if people continue to look for cheaper vehicles to purchase. Economists will be sure to keep an eye on the industry to see in which way the market will be moving next. f:\12000 essays\business & economics (632)\USJapan Automobile Trade Relations.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ It is unfortunate that the U.S. chose to use automobiles as its wedge to open the alleged "closed" markets of Japan. One Japan-based managing executive of the Big Three has even admitted that they consider the Japanese automobile market to be open. Japan is not the island of protectionism in a sea of free trade that its critic allege. The problem for the U.S. auto-makers is not a lack of market access, but a lack of effort. The first step required for the U.S. auto makers to sell competitively in Japan is not to impose of ridiculous tariffs, but to have Detroit bring up the quality to Japanese standards. All in all, the U.S.'s decision to use automobiles as its wedge to open the Japanese market was surely a dangerous one. In addition, the utilization of unilateral actions by the U.S. is clearly a violation of international trade law. Not only is this decision a resemblance of managed trade but a policy which will weaken the leadership position of the U.S. in the world economy as well. The U.S. needs to do what the Japanese did when they penetrated the American market; hard market research and heavy investment. The Japanese spent billions of dollars studying American taste and manufacturing models that suited them. The Big Three have generally confined their efforts to sending models that they have made specifically for Americans. Bill Duncan, the head of the Japan Automobile Manufacturers Assn. states that "it was the basic principals of competition that made the Japanese automobile industry strong." One example which reflects the short-sightedness of the Big Three is the insufficient number of right-hand models available in Japan. Since cars in Japan are driven on the left side, all domestic makers produce right-hand drives. It's simple, the inconvenience of a left-hand drive, at tolls, parking lots or when overtaking another car is too dangerous. Naturally when the Japanese export their cars to the U.S., in each of the 190 versions sold, they provide American drivers with a steering wheel where they expect it; on the left side1. On the other hand U.S. exports have a grand total of 2 models which feature a right-hand drive. The Big Three sold a measly 22,000 left-hand models in 1994. Jeep sold 11,000 on their Cherokees alone, just because they remodeled it to a right-hand model2. Another area in which Detroit must seek change is in car size. In Japan, the normal American cars are just too big. 80% of the cars in Japan are under 2000cc (2L.) Imagine yourself driving on the jammed packed, narrow streets of Tokyo. The Big Three exports not a single model which falls within these specifications. In comparison, the successful Europeans have 124 models under 2000cc and listen to this Detroit, a selection of over 100 models which are right-hand drive3. This clearly implies that efforts by the Big Three seem to be insufficient compared to that of Europeans. An area of the Japanese car industry in which America showed tremendous dissatisfaction during the negotiation was the exclusive dealerships, or as Professor Morrison noted in his class, the "keiretsu." It is true, each domestic manufacturer is closely linked with dealers, but as the New York Times (June 28, '95) reports, the dealership issue is largely beside the point: the Big Three already have twice as many outlets in Japan as all the European auto makers combined, yet they sell fewer cars. In the past, America succeeded in cracking the European market with GM and Ford, putting extra care and money over the decades into establishing dealer networks. This shows in the statistics; as the two companies occupy 25% of the European market4. This brings us to a question: Why doesn't the U.S. after enjoying such a success in Europe, put in the same kind of effort into the Japanese market. Maybe U.S. companies should reconsider just what it takes to succeed. German auto-makers alone, who have commanded over 50% of the import market in Japan, have invested nearly $1 billion in Japan. "The massive investments helps. Dealers wonder how serious we are" says Volkswagen Japan manager Minoru Suzuki. Comparatively, American spending is estimated at $120 million, with Ford eating $100 million of the pie5. Along with the complaint about the keiretsu, Americans plead that astronomical land costs makes it hard to set up their own dealerships. However the same applies to Japanese makers as well. A couple years ago, Mazda, who is considered a minor player in the Japanese market, established a new dealership network for its new model. The fact is they competed under the same harsh conditions as the American but with fewer resources and still succeeded in establishing a very stable and profitable network. There are many other examples as well. The U.S. should keep their mouth closed and intensify their efforts in the Japanese market. As explained above, the reason for America's continued failure in taking a strong hold on the Japanese car industry is mostly a lack of effort. For that reason, the U.S.'s complaining about a lack of market access, their blaming market shortcomings on Japan and their utilization of unilateral actions to pry open the Japanese market will endanger America's position as an economic leader of the world. Automobiles is a large issue in trade negotiations, but a small part of the macro-economy. If the U.S. were to keep a stance similar to that which they held during the automobile negotiations in June and other nations retaliated to this stance, the world economy will head into a generation of managed trade. Bibliographic Sources "Big 3 and Japan." New York Times, June 26, 1995. Borrus, Amy with Bill Javetski. "Who's Afraid of the World Trade Organization." Business Week, June 5, 1995, p.35. Borrus, Amy with John Templeman, Keith Naughton, Edith Updike and Bureau Report. "Good Deal? Yes. Great Deal? No." Business Week, July 10, 1995, p.32-33. "Clinton's Phoney Peace." The Economist, July 1, 1995, p.13. Dornbusch, Rudi. "Sanctions against Japan: A Necessary Evil." Business Week, July 3, 1995, p.20. Hamilton, David. "Calmer Voices Amid the Trade Bluster." Wall Street Journal, June 22, 1995. "Ignorant Armies." National Review, June 26, 1995, p.20. Kelly, Kevin with Zachary Schiller and Edith Updike. "Buy Our Car Seats. Japan, or It's War." Business Week, June 26, 1995, p.42. Kuttner, Robert. "You Could Drive a Lexus through the Holes in the WTO." Business Week, June 12, 1995, p.24 "OK Mickey, Let's Say You Won." The Economist, July 1, 1995, p.65. "The New Thirst for Imports in Japan." Business Week, June 5, 1995, p.52. Updike, Edith. "Roadblocks, Roadblocks Everywhere." Business Week, June 19, 1995, p.58 Updike, Edith with Brian Bremner, Amy Borrus, David Woodruff and Larry Armstrong. "Japan's Auto Shock." Business Week, May 29, 1995, p.44. The New Strategies to Expand by Big Three (as of Dec. '95) GM - together with Toyota, will unveil a right-hand model of subcompact Cavalier - plans to offer U.S. built right-hand drive Saturn by 1997 - aims to sell right-hand drive Cadillacs in near future Ford - displayed right-hand version of new Taurus mid-size sedan and Explorer - Taurus will be available in spring '96 and Explorer in fall '96 - aims to expand distribution outlets to 700 from 310 by year 2000 - aims to push sales to 200,000 annually by year 2000 from 56,000 this year Chrysler - displayed five right-hand drive model which will be available by fall '95 - aims to expand oulets to 200 by next yeat from 100 this year - payed Seibu group $100 million to expand distribution network f:\12000 essays\business & economics (632)\Utopia Z.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Utopia Z: Recreation Besides being able to live comfortable and easily, the people also have a lot of recreation to do, with in Utopia Z. All of the recreation, is located in the recreation dome, which is located between the Construction Plant, and the Hospital Dome. The Recreation Dome is filled with different activities, such as artificial ski-mountains, a swimming pool, and amusement park, an ice arena, a playground, a football field/track, a bungee jumping station, and a large field for miscellaneous activities. One of the biggest attractions in this dome, is the artificial ski-mountains. These mountains are constructed with sturdy steel frames, and with artificial snow. This mountain is equipped with chairlifts, and three different ski-runs designed for different skill levels. The dome also has an extra large swimming pool, equipped with many slides. This pool is designed to fit in as many as 1,000 people. The swimming pool can also simulate tidal waves. And aside of that, it has a whirlpool, and a steam room. For the kids' amusement, we have put in a mini-amusement park, which contains a couple of rollercoaster rides, a Ferris wheel, and many other rides, designed for children and adults of all ages. Along with that, the amusement park, also has many carnival games. Beside all of that, we have the football field, which also includes a track for running. The football field includes a computerized refereeing system, which will run the game, and also keep track of the score. Another big addition to the Recreation Dome is the built-in Ice Arena. This Ice Arena also has a computerized refereeing system. But besides that, the Ice Arena is pretty close to the modern ones we have today, along with a couple of little improvements. The dome also has another little addition, the playground, which is specially designed for the younger kids. This large playground is pretty close to the ones we have today. This playground maintains and cleans itself, which makes the playground sanitary for the kids. One of the biggest, and most unusual attractions to the dome, is the 400 feet bungee jump site, designed for the older more-daring people. This site is restricted to citizens 19 or younger, so this is only intended for adults. This site is equipped with a vacuum capsule, which transports the users to the top of the tower. Along with all those activities, we have also included a gigantic playing field for whatever activities the citizens can think of. Whether it is Baseball, Frisbee, walking their pets, whatever, this field will serve their needs. Although the dome has many attractions already, it still has extra space for future additions. Utopia Z: Agriculture Since Utopia Z, is a fully self-maintained unit, it is able to supply and grow it's own food. This is all done in the Agriculture Dome, which is located at the center, shown on the diagram. This dome is especially bigger than all the other domes. Actually, it is precisely 10 times larger than it's surrounding domes. A giant growth light is also installed into the dome to provide the crops and animals with artificial sunlight. This light actually provides a better, more concentrated light than the sun can provide on Earth. The dome is separated into 3 sections, designed to supply Utopia Z with vegetables and livestock of all kinds. Two of the sections are used to grow plants and vegetables. They are purposely separated into sections, in case, one of them are malfunctioning. These two sections are equipped with strong durable beams that encircles the area. These beams supply water to all the plants and crops evenly. Besides the watering system, the ground of the dome is also equipped with a fertilizing system. This system, evenly and regularly, inserts fertilizing material to the soil, keeping it full of nutrition for the plants. The third dome is provided for the livestock of Utopia Z. This section contains a very complex shelter for the animals, and a large grazing field for the animals. The shelter provided for the animals, is a very complex system designed to take care of the livestock without the aid a human being. This shelter supplies the animals regularly with clean food and water. It also cleans the mess and odors and animals make, keeping the dome sanitized for the other animals and plants. This system also aids the animals in injures, keeping them healthy. All without the aid of a single human being. Past that, the shelter is equipped with a large grazing field, which is guarded by a heavy-duty steel fence, which automatically opens and closes for the animals at the set time. The grazing field, allows the animals to get the exercise and freedom, that they get on Earth. There is also a watering system and a fertilizing system installed for the field. Many of the foods are distributed to citizens of Utopia Z. But a fraction of it, is stored in the Storage Dome, located between the Hospital Dome and the Court and Government Dome. This is done, in case, and major failure occurs in the Agriculture Dome. This well equipped system, will supply the citizens with almost all the different foods, that can be found on Earth. Utopia Z: Conclusion In conclusion, Utopia Z is a very efficient, self-maintained unit, and can supply the citizens with all neccessary living needs. Although Utopia Z, supplies all the citizens with sufficient amounts of food, it also supplies water to them. This is done at the "core" of the unit, near the energy generator plant (shown on diagram). Utopia Z collects water not by direct source, but by gathering the neccessary minerals needed to develop water from space. Because water is made, it is very clean, so there will not be a need for filters. The water is then run through a very complex system, which distributes equal amounts of water to the people. A fraction of it, will be stored into a water tank, for emergencies. Utopia Z, not only supplies the citizens with materials need to maintain life, but it also gives them many other recreations to do. We have supplied them with a Recreation Dome. Utopia Z, also has a Court and Government Dome which settles problems for the citizens. The citizens on Utopia Z, have to go through a very straight-forward, but effective system using "stars" as ranking. So in conclusion, Utopia Z can almost give every to the citizens, that they could get on Earth. We can garantee that the citizens will enjoy and nice relaxing, no stress, life on this unit. Utopia Z : Living Arrangements The citiznes of Utopia Z live in a very clean, and healthy environment. They live in a very simple, but effective way. The homes in Utopia Z are divided into two different sections. One is a average, with normal area and the other is for four stars and greater. The four stars and five live neer the bottom while the three stars and less live up higher. Even though this is a non biest colony people that have not followed the rules and or break a law their food is given at an amount just so that they can live and no more. Food is given to everyone and if more is wanted you must go and buy it with their own credits, which can also be used to purches other items around for plessure. Credits can be exchanged for many free time activities, including the Recreation dome, hospital, extra food and set-up gift stores. Credits are also spent on a annual monthly fee to support our station. Credits can be earned in two ways buy doing a job and every two weeks credits are put in their savings to buy extra goods and activities that are wanted. Water runs free through the water system so there is water available twenty-four hours a day. Water is stored in one area incase of a virus getting in the water supply. Waste products are shot into space where a machine collects them and turns them into fresh nice smelling farming soil. Utopia Z, has many domes insuring that life will be safe, some domes include, Recreation dome, Government dome, Storage dome, Construction plant, a prision and an Ariculture dome. People get from their homes to these places by space suction that sucks capsules from one end to the other in approxamitly thirty second. Twenty people can fit in a capsule and there are twelve normal capsules and two emergency tubes. Families are only aloud to have two children and one animal. These rules are set so that the population doesn't grow over 10,000. Utopia Z, has both animal and plant products. This isures a healthy and balanced diet, and also gives choice in what one chooses to eat. Utopia Z: Education In Utopia Z schooling is very different ways, but also similare in others. School starts at age four which is called adgustment schooling, basicly to get the children away from play and use to the idea of school. Five year olds go into Learners, then on to grade one through to grade twelve and then on to a trade school. The schooling takes place at home. The teacher is a holographic image produced by a screen with s hard-drive attached. A (S.C.D.) or super compaced disk, is incerted and at a spacifice time comes on and teaches. This teacher is programed to teach the way the student best lerns. This goes on through trade school, which is also manditory. Learning setions are three hours long with a ten minute brake in between. Students have to spend three hours a week on studing and homework, this starts in grade one. The study time is not manditory as of grade sevon, if the person gets a (B) average, but continues if grades are less. Study time is timed by a clock that is used to punch in and out. There is also a test that goes every month to see how the progress of the students are going. Dropouts are concidered fools and are not aloud anything special. They are rated as a one star and are not give a monthly fee and are pushed back into the school. If the student tries it again they will not be pushed back but will live with no honor untill they go back and complete the training. Utopia Z: Law Utopia Z is a very stricked yet peaceful space station. If a crime is made there are strong thuro investigations making sure nothing is left out. Everyone that was neer the spot were the crime took place is asked questions and put under a lie detector and nothing is taken for granted. If people that were neer the crime couldn't help then eventually everyone one the station on the station will be investigated. There is also camras so the criminal doesn't have that good of a chance. The rules or laws are basiclly the same as in Canada and probably the whole World. The punshments are totaly different in most cases. Some examples of crimes and punishments. Murder--------------------------------Death Murder, (self defence)-----------------Nothing Steeling (first time, small thing)------One month in prison Steeling (first time, big thing)---------One hand chopped off Steeling (twice small)------------------One hand chopped off Steeling (twice big)---------------------Death Steeling (three times)-------------------Death Drugs/Weapons,(one time)-------------Hand chopped off Drugs/Weapons, (twice)---------------Death B&E------------------------------------Prision-death Rape------------------------------------Wipped then death If you get sent to death, you die without your last meal and then you get shot into space. The death sentances and all other sentances go for all ages from four- till age of death. If you do a crime and are put in jail or any other punishment then you become a one star and can't even start gaining higher stars for ten years and can never get a higher star then three stars. This will also make the people think twice before making a crime. Utopia Z: Introduction This is the year 1997, we (Canadian developers inc.) have developed a self supporting, self contained space-station. The space-station is rotating earth at a rate of .5/day. We have named the station; Utopia Z. We have selected 10,000 lucky individuals randomly from Earth. Approximately 2-4 people from each sex were selected from each Country. Utopia Z is equipped fully for all circumstances, including meteroids showers, alien attacks (for those who believe), etc.. As far as energy resources, Utopia Z uses the only energy resource which can be obtained from space, Solar Energy. When the station passes by the sun, the energy is stored in panels, then transferred to the energy generator plant. We have developed a "rating system", which we like to call the "star system", each citizen is rated from 1-5, 1 being the lowest, and 5 being the highest. For example, a government official would be rated at 5, while a criminal would be rated at 1. Utopia Z's currency, is similar to Earth's "credit card" system. We use a card which records the amount of money spent on an iten, in its memory. This process is fully explained later in our report. Transportation is very different from Earth's. We use tubes which launch the citizens in capsuls to their destination, safely. Utopia Z is self supporting; in the idea that we raise and grow all our own food products. The food is grown in domes on the higher part of the station. The food is then sent to markets, where it is sold to the citizens. We also have a huge selection of recreational things, including; three ski hills, football field, Olympic size swimming pool, ice arena, childrens playroom, amusement park, and a bungee-jumping tower. We hope that you take the time to fully read our report on our newly developed space-station. "It's one small step for man, one large leap for man kind." Utopia Z: Government Utopia Z's government consists of the following: The government officals wear uniforms, with sewed on stars on their chestm the stars signify how highly rated the official is in the civilization. Ordinary citizens are rated on the same basis, but do not need to wear uniforms. Criminals or ex-criminals are rated at 1 star. Only the government officials have the right to input their ideas on the civilization to the President, who then relays the input to the King/Queen. The government officials are elected in a civilized manner by the citizens, once every six years. If an official dies, or becomes seriously ill, it is up to the next highest rated official to chose a new official to take the missing official's position. If a government official is found guilty of any crime, he is automatically removed from government and downgraded to 1 star. Utopia Z: Population Utopia Z has a very consistent population. To this date, we have a population of 9,998. Utopia Z's population was originally chosen by wither one or two people from each sex being randomly from each, the privledged few, then had to take a thorough medical exam, to make sure of perfect medical condition. Once a male and female have married, and decide to start a family, they may have a maximum of two children, to keep down the population in the station. Once a female has given birth to two children, Once a female has given birth to two children, it is mandatory for her to use birth-control. From the ages of 6-18, it is mandatory for that portion of the population to go through some kind of education. If education is refused, the child will be down graded to a 1 start citizen until the age of 19. Medi-Care is supplied freely to those who are in need of it, no matter of their economic situation. There is a limit of $6,000 of medical care to one individual, annually. University's/College's are set up in such a matter, so that only a limited amount of people are able to take a certain course in a certain field. This is to make sure there aren't 1000 shoe repairmen, for example. Utopia Z: The Economy Utopia Z's economy is a growing interest. Utopia Z is not in deby by any means. Ordinary citizens (2 stars), earn a living as any person on Earth would. The jobs relate around the station, business's offer products and services which people on the station are in need of. Employers pay there employee's by way of upgrading there "card". A computer is given to the employer from a government official, which is used to upgrade the employee's "card". The way the "card system" works is; when a peron purchases an item/service, the person who runs the business scans the buyer's card through a computer, imprinting the amount spent into the card's memory. At the end of each month, it is mandatory for every citizen to bring there cards to a government agency, and pay off there debts. Jobs related to the space station (ie. Litter picking), which are not claimed by a 2 star citizen, are assigned to a 1 star citizen by a government official. Private property can be purchased through a long and slow process by filing a report to a government agency, stating what you would like the property for, for how long, etc.. Private property may be used for building homes for citizens with 3 stars or higher. f:\12000 essays\business & economics (632)\Venezuelas economy as a whole.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Venezuela's economy as a whole VENEZUELA'S ECONOMY AS A WHOLE ECONOMY Venezuela is rich in oil and other mineral resources. Its per capita income is about average for Latin America. The country's public external debt (excluding the obligations of the central bank and PDVSA, the parastatal oil company) stood at approximately $26.5 billion in 1996. The economy grew by 4.5% in real terms in 1997. Consumer prices rose only 37.6% in 1997 compared to the record 103% of 1996. The government is hoping for inflation of 24% during 1998. The Venezuelan economy is making a comeback under the Agenda Venezuela, propelled primarily by the opening of the petroleum sector to foreign investment (the "apertura"), a far-reaching privatization program, and plans to reform public sector operations. Oil prices have shown a continual decline since 1996, which is serving to erode the budgetary surplus from 4.5% in 1996 to an estimated 1.5% in 1997. In July 1996, the Venezuelan Government and the IMF formally announced a $1.4 billion stand-by loan. The World Bank and Inter-American Development Bank are also contributing to efforts to promote fundamental structural reforms--in the judiciary, electoral system, and social security/severance pay programs. Petroleum and Other Resources Venezuela's economy is dominated by petroleum, and the country is a founding member of the Organization of Petroleum Exporting Countries (OPEC). In 1997, this sector accounted for more than one-quarter of GDP, almost three-quarters of export earnings, and almost half of central government's revenues. Most of Venezuela's energy exports consist of crude oil, but the country is also the United States' leading foreign source of refined petroleum products. The Government of Venezuela has opened up much of the hydrocarbon sector to foreign investment, promoting the establishment of massive new petrochemical joint ventures and reactivation of inactive fields. The Venezuelan petroleum corporation and foreign oil companies signed eight contracts for exploration and production joint ventures in July 1996. These contracts are expected to generate over $15 billion in foreign investment. A range of other natural resources, including iron ore, diamonds, coal, bauxite, hydroelectric power, gold, and nickel are in various stages of development. In 1996, CVG, the state-owned mining firm, announced its first joint venture with a foreign company to develop the Las Cristinas gold mine. Congress is also considering legislation which would update Venezuela's 1945 mining law in an effort to encourage greater private sector participation in mineral extraction. Manufacturing, Agriculture, and Trade Manufacturing contributed 15.6% of GDP in 1997. The manufacturing sector grew slightly (2.2%) in direct contrast with the contraction in 1996. Venezuela manufactures and exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It also produces cement, tires, paper, and fertilizers, and assembles cars for both the domestic and export market. The "Agenda Venezuela" envisions the privatization of a range of state-owned enterprises, including banks. Agriculture accounts for 4% of GDP, 12% of the labor force, and 24% of Venezuela's land area. Venezuela exports beef, rice, coffee, and cocoa. However, the country is not self-sufficient in most areas of agricultural production and imports about 60% of food consumed. In 1996, U.S. firms exported approximately $475 million of agricultural products including wheat, soybeans, corn, soymeal, and cotton to Venezuela, our third-largest agricultural export market in Latin America. The U.S. usually accounts for slightly more than a third of Venezuela's food imports. Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years, non-traditional (i.e. non-petroleum) exports have been growing rapidly but still constitute only about one-fourth of total exports. The United States is Venezuela's leading trade partner. During the first 10 months of 1997, the United States registered $3.0 billion in exports (about 38% of Venezuela's total) and purchased $12.9 billion in imports (about 55% of Venezuela's total). Venezuela's trade with other Andean Pact members, particularly Colombia, is growing in importance. Labor and Infrastructure Venezuela's labor force of about 8.8 million is growing faster than total employment. At the end of 1997, official unemployment was 12.8%, but unofficial estimates are higher. The public sector employs 14% of the work force, while less than 1% work in the capital-intensive oil industry. About 25% of the labor force is unionized. Unions are particularly strong in the public sector. Venezuela has an extensive road system. With the exception of air service, transportation and communications have failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway, but only one functioning rail line serves the rest of the country. Economical indicators GDP (1997 est.): $72.1 billion. Growth rate (1997): 4.5%. GDP per capita: $3,164. Natural resources: Petroleum, natural gas, coal, iron ore, gold, other minerals, hydroelectric power, bauxite. Agriculture (4.7% of GDP): Products--rice; coffee; corn; sugar; bananas; dairy, meat, and poultry products. Petroleum industry (27.6% of GDP): Oil refining, petrochemicals. Manufacturing (15.6% of GDP): Types--iron and steel, paper products, aluminum, textiles, transport equipment, consumer products, and petroleum refining. Trade (1997 est.): Exports--$23.7 billion: petroleum ($18.3 billion), iron ore, coffee, steel, aluminum, cocoa. Major markets--U.S. (Jan.-Oct.1997, 55%), Japan, Germany, Colombia, Netherlands, Brazil, Italy. Imports--$10.6 billion: machinery and transport equipment, manufactured goods, chemicals, foodstuffs. Major suppliers--U.S. (Jan.-Oct. 1997, 38%), Japan, Germany, France, Canada, Italy, Colombia, Brazil. Exchange rate (Dec. 1997): 504.25 bolivars=U.S.$1. Word Count: 863 f:\12000 essays\business & economics (632)\VIRTUAL BANKING .TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ TABLE OF CONTENTS 01.00............ EXECUTIVE SUMMARY 02.00............ TRENDS IN RETAIL BANKING 03.00............ ABOUT THE INTERNET 04.00............ VIRTUAL BANKING AND APPLICATIONS 04.01............ SMART CARDS 05.00............ EXAMPLES 06.00............ SECURITY ON THE INTERNET 06.01............ CRYPTOGRAPHY 06.02............ FIREWALLS 06.03............ TRUSTED OPERATING SYSTEMS 07.00............. REGULATIONS AND PROBLEMS 08.00............ CONCLUSION . 09.00.......... REFERENCES 01.00 EXECUTIVE SUMMARY The Internet is emerging as an efficient delivery channel for financial services. With Internet banking, customers do not need to have special bank-issued software. Banks maintain their identity and can differentiate themselves by customizing the services and information they provide over the Internet. 02.00 TRENDS IN RETAIL BANKING What does better customer mean? Increasingly, customers are demanding more convenient ways to do their banking. An Ernst and Young study (Technology in Banking Report) concluded that "nothing changes in the banking world if customers cannot get financial services when and where they wish...this means anywhere, at any time." Statistics show that ATM's, telephone banking, and home banking account for over fifty percent of all banking transactions today, and total non-branch activity is growing at fifteen percent a year. In one survey (Web-Tech, Inc., May 17, 1995), eighty-two percent of 18- to 34-year olds polled preferred banks with 24-hour service. Customers are also demanding a more sophisticated mix of products tailored specifically to their financial needs, and non-bank competitors are better fulfilling these needs. Banks today hold only 20% of household financial assets, versus 34% twenty years ago; they have 30% of business deposits, versus 42% only seven years ago. Nonbank credit card providers have gained inroads against banks, holding a 25% market share versus 5% in 1986 (WebTech, Inc., May 17, 1995). Internet banking offers an attractive solution to this redesigned products and services. Customers have 24-hour graphical-interface access to their accounts and appreciate that their bank is doing something to make banking easier for them. 03.00 ABOUT THE INTERNET The Internet has exploded in the last two years thanks to the invention of the so-called "browser." A browser is a point-and-click software program that allows "surfers" to navigate around the Internet without knowing any UNIX commands. The first browser was developed by the National Center for Supercomputing Applications, a government agency. With a browser and access to the Internet, you can order a pizza, listen to and purchase a CD, stroll through the Louvre, or view satellite photographs of Scotland. Although it may get congested from time to time, the Internet itself is extremely reliable. There is not actually any one network that is the Internet; it is made up of thousands of networks that connect to each other through common routes, and they all agree to carry each other's traffic. There is a lot of money flowing up from local access providers to these national players, guaranteeing that the infrastructure will continue to expand to meet demand. Because so many resources are shared, the Internet is also very efficient. It costs a lot less to connect a business to the Internet than to lease telephone lines that customers dial into with their modems. Most likely Internet users will continue to be charged for the size of the "pipe" connecting them to the Internet. The number of commercial entities with an Internet presence doubled in the first three months of 1995. Modems will keep getting faster, allowing more information, better graphics, and full-motion video to be downloaded more easily. However, in five years most households will probably buy their Internet access from their cable company, who will provide them with a 10 megabit-per-second connection through their cable wire. A 10-MB connection would download in one second a file that takes a 28.8K modem five and a half minutes to download (WebTech, Inc., May 17 1995). 04.00 VIRTUAL BANKING AND APPLICATIONS Picture a bank without any branches. No tellers. No rows of desks. no racks of brochures, no automated teller machines outside. Picture, in fact, a virtual bank, one that for the customer exists only in his or her office or home, as images on a computer screen. US financial institutions are moving towards "virtual banking." This strategy is about making bank products and services available to customers any time and any place they want them. As virtual banking becomes more popular, it is very likely that more customer service will be seen while the number of traditional teller-staffed branches will decline. Bank customers will move away from traditional banking and will become more dependent on electronic transactions using ATMs or PCs (Britt, Savings&Community Banker, February 1995, p.9). Thanks to the revolution, financial institutions are using software programs, online services, and even the Internet to allow customers to check balances, pay bills, and transfer funds among accounts, Bankers promise that, in the near future, we will also be able to more easily buy certificates of deposit, mutual funds, and other investments, and even apply for loans electronically. For most people, today's best option may be plug into their bank through one of three leading home-budgeting software programs: Intuit's Quicken, Microsoft Money, and Managing Your Money. By charging $5 to $20 a month for such services, banks are sure to cash in on the high-tech superhighway. For customers, the job is made easy. All that is required is a personal computer, software and a modem. On-screen instructions, laden with colorful graphics and pictures, explain how to select and work on various tasks. The system automatically calculates and updates account balances and keeps records of bills. A handful of banks have already set up home pages on the Internet to provide information to their existing and potential customers about upcoming services. They started their transactions. Internet banking differs from the traditional PC banking model in several ways. In most home banking ventures, the bank sends an application software program to the customer which runs on the customer's PC. The customer then dials into the bank with their modem, downloads data, and runs the programs that are resident on their computer, perhaps sending back a batch of requests such as transfers between accounts. It demands more and more space and speed from the customer's computer. With Internet banking, on the other hand, there are potential customers who already have all the software they need to do their banking, since all they need is a browser. The actual banking software resides on the bank's server in the form of their home page. This software can be updated at any moment with new information, such as new prices or products, without having to send anything to the customer; it can also continue to expand and become more sophisticated without becoming cumbersome for the customer to operate. Banking with a browser, on the other hand, involves a continuous, interactive session, initiated by a local telephone call to a local access provider or online service. A home page in the Internet is not only a customized product tailored specifically for that bank's customers, but an advertisement for the bank as well. Early entrants in the Internet banking market will benefit on multiple fronts. These banks will appeal to a vast new potential market who represent an attractive demographic segment: educated, professional, affluent. These new customers will save banks money because they will visit branches less frequently and will switch from paper to electronic transactions. More importantly, by developing internal expertise today, banks can position themselves to react quickly to competitive moves and consumer trends as the financial services industry evolves. These banks will see the benefits of early players and they will enjoy the public relations boost that comes from being a market leader(WebTech, Inc., May 17, 1995). INTERACIVE APPLICATIONS In Columbus, Ohio, Huntington Bancshares Inc. has put its stamp on the virtual bank concept with Huntington's Access, an automated branch office that's always open. The Access branch houses both traditional and advanced-function automated teller machines that use imaging technology to display deposited checks for verification and to cash a check to the nearest dollar. Also on site is the Personal Touch screen, interactive video kiosks where customers can conduct a variety of transactions. At the touch screen, customers are able to talk face to image with a customer service representative. Banks find themselves facing a window of customer opportunity. "In a lot of their other business transactions, the retail customer in general is learning to self-serve. And, of much more importance, he or she is learning to self-sell," says George Bollenbacher, manager of strategy and business development for worldwide financial services at Unisys Corp. In short, they are ready for self-banking. Some progressive banks already have a presence on the World Wide Web. Wells Fargo Bank of San Francisco gives customers access to current account balance information and transaction histories at its Web site Using browsers from Netscape Communications Corp. First Union Bank, in alliance with Open Market Inc. plans by year's end to offer full Web transaction services to its 10 million customers (Kay, A., Communications Week, August 14, l995, p.36-40). 05.00 SMART CARDS Employees at Bank of America, Chemical, Wells Fargo, and other large U.S. banks use them to buy lunch and snacks. Smart cards-plastic cards with computer chips-are starting to be used for prepayment, debit, and credit purchases all over the world. In the U.S., smart cards can be only used at a contained group of machines, or for one purpose. "They are part of the broader shift to electronic delivery, to making ATMs more functional, to using PCs and the Internet to do home banking, to going to POS terminals to get cash back, to getting electronic benefits transfer off a card." says Edgar Brown, senior vice- president of alternative delivery products at First Union, Charlotte, N.C. One of the advantage of using chips on cards with or instead of magnetic stripes is better security. Microprocessor chips are very difficult to alter or forge. Chips can carry more information than magnetic stripes can. A microprocessor chip can store up eight kilobytes of data. Smart cards make possible cheaper and faster payments. Money can be deducted from a chip without on-line authorization. This makes for a two-second transaction versus an up-to-two-minutes one, and telecommunications costs are saved (Lunt, P., ABA Banking Journal, September 1995, p.46). 09.00 REFERENCES Britt, P. (1995, February). Savings&Community Banker. Humpehreys, K. (1995). Security First Network Bank. http://www.sfnb.html. Internet Banking. (1995, May 17). WebTech, Inc. Online information. Kay, A. (1995, August 14). Interactive Applications. Communications Week, 36-40. Lunt, P. (1995, September). ABA Banking Journal, 46. Wells Fargo Bank. (1995, May). The Orange County Register. f:\12000 essays\business & economics (632)\Virtual Banking.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Virtual Banking TABLE OF CONTENTS 01.00............ EXECUTIVE SUMMARY 02.00............ TRENDS IN RETAIL BANKING 03.00............ ABOUT THE INTERNET 04.00............ VIRTUAL BANKING AND APPLICATIONS 04.01............ SMART CARDS 05.00............ EXAMPLES 06.00............ SECURITY ON THE INTERNET 06.01............ CRYPTOGRAPHY 06.02............ FIREWALLS 06.03............ TRUSTED OPERATING SYSTEMS 07.00............. REGULATIONS AND PROBLEMS 08.00............ CONCLUSION . 09.00.......... REFERENCES 01.00 EXECUTIVE SUMMARY The Internet is emerging as an efficient delivery channel for financial services. With Internet banking, customers do not need to have special bank-issued software. Banks maintain their identity and can differentiate themselves by customizing the services and information they provide over the Internet. 02.00 TRENDS IN RETAIL BANKING What does better customer mean? Increasingly, customers are demanding more convenient ways to do their banking. An Ernst and Young study (Technology in Banking Report) concluded that "nothing changes in the banking world if customers cannot get financial services when and where they wish...this means anywhere, at any time." Statistics show that ATM's, telephone banking, and home banking account for over fifty percent of all banking transactions today, and total non-branch activity is growing at fifteen percent a year. In one survey (Web-Tech, Inc., May 17, 1995), eighty-two percent of 18- to 34-year olds polled preferred banks with 24-hour service. Customers are also demanding a more sophisticated mix of products tailored specifically to their financial needs, and non-bank competitors are better fulfilling these needs. Banks today hold only 20% of household financial assets, versus 34% twenty years ago; they have 30% of business deposits, versus 42% only seven years ago. Nonbank credit card providers have gained inroads against banks, holding a 25% market share versus 5% in 1986 (WebTech, Inc., May 17, 1995). Internet banking offers an attractive solution to this redesigned products and services. Customers have 24-hour graphical-interface access to their accounts and appreciate that their bank is doing something to make banking easier for them. 03.00 ABOUT THE INTERNET The Internet has exploded in the last two years thanks to the invention of the so-called "browser." A browser is a point-and-click software program that allows "surfers" to navigate around the Internet without knowing any UNIX commands. The first browser was developed by the National Center for Supercomputing Applications, a government agency. With a browser and access to the Internet, you can order a pizza, listen to and purchase a CD, stroll through the Louvre, or view satellite photographs of Scotland. Although it may get congested from time to time, the Internet itself is extremely reliable. There is not actually any one network that is the Internet; it is made up of thousands of networks that connect to each other through common routes, and they all agree to carry each other's traffic. There is a lot of money flowing up from local access providers to these national players, guaranteeing that the infrastructure will continue to expand to meet demand. Because so many resources are shared, the Internet is also very efficient. It costs a lot less to connect a business to the Internet than to lease telephone lines that customers dial into with their modems. Most likely Internet users will continue to be charged for the size of the "pipe" connecting them to the Internet. The number of commercial entities with an Internet presence doubled in the first three months of 1995. Modems will keep getting faster, allowing more information, better graphics, and full-motion video to be downloaded more easily. However, in five years most households will probably buy their Internet access from their cable company, who will provide them with a 10 megabit-per-second connection through their cable wire. A 10-MB connection would download in one second a file that takes a 28.8K modem five and a half minutes to download (WebTech, Inc., May 17 1995). 04.00 VIRTUAL BANKING AND APPLICATIONS Picture a bank without any branches. No tellers. No rows of desks. no racks of brochures, no automated teller machines outside. Picture, in fact, a virtual bank, one that for the customer exists only in his or her office or home, as images on a computer screen. US financial institutions are moving towards "virtual banking." This strategy is about making bank products and services available to customers any time and any place they want them. As virtual banking becomes more popular, it is very likely that more customer service will be seen while the number of traditional teller-staffed branches will decline. Bank customers will move away from traditional banking and will become more dependent on electronic transactions using ATMs or PCs (Britt, Savings&Community Banker, February 1995, p.9). Thanks to the revolution, financial institutions are using software programs, online services, and even the Internet to allow customers to check balances, pay bills, and transfer funds among accounts, Bankers promise that, in the near future, we will also be able to more easily buy certificates of deposit, mutual funds, and other investments, and even apply for loans electronically. For most people, today's best option may be plug into their bank through one of three leading home-budgeting software programs: Intuit's Quicken, Microsoft Money, and Managing Your Money. By charging $5 to $20 a month for such services, banks are sure to cash in on the high-tech superhighway. For customers, the job is made easy. All that is required is a personal computer, software and a modem. On-screen instructions, laden with colorful graphics and pictures, explain how to select and work on various tasks. The system automatically calculates and updates account balances and keeps records of bills. A handful of banks have already set up home pages on the Internet to provide information to their existing and potential customers about upcoming services. They started their transactions. Internet banking differs from the traditional PC banking model in several ways. In most home banking ventures, the bank sends an application software program to the customer which runs on the customer's PC. The customer then dials into the bank with their modem, downloads data, and runs the programs that are resident on their computer, perhaps sending back a batch of requests such as transfers between accounts. It demands more and more space and speed from the customer's computer. With Internet banking, on the other hand, there are potential customers who already have all the software they need to do their banking, since all they need is a browser. The actual banking software resides on the bank's server in the form of their home page. This software can be updated at any moment with new information, such as new prices or products, without having to send anything to the customer; it can also continue to expand and become more sophisticated without becoming cumbersome for the customer to operate. Banking with a browser, on the other hand, involves a continuous, interactive session, initiated by a local telephone call to a local access provider or online service. A home page in the Internet is not only a customized product tailored specifically for that bank's customers, but an advertisement for the bank as well. Early entrants in the Internet banking market will benefit on multiple fronts. These banks will appeal to a vast new potential market who represent an attractive demographic segment: educated, professional, affluent. These new customers will save banks money because they will visit branches less frequently and will switch from paper to electronic transactions. More importantly, by developing internal expertise today, banks can position themselves to react quickly to competitive moves and consumer trends as the financial services industry evolves. These banks will see the benefits of early players and they will enjoy the public relations boost that comes from being a market leader(WebTech, Inc., May 17, 1995). INTERACIVE APPLICATIONS In Columbus, Ohio, Huntington Bancshares Inc. has put its stamp on the virtual bank concept with Huntington's Access, an automated branch office that's always open. The Access branch houses both traditional and advanced-function automated teller machines that use imaging technology to display deposited checks for verification and to cash a check to the nearest dollar. Also on site is the Personal Touch screen, interactive video kiosks where customers can conduct a variety of transactions. At the touch screen, customers are able to talk face to image with a customer service representative. Banks find themselves facing a window of customer opportunity. "In a lot of their other business transactions, the retail customer in general is learning to self-serve. And, of much more importance, he or she is learning to self-sell," says George Bollenbacher, manager of strategy and business development for worldwide financial services at Unisys Corp. In short, they are ready for self-banking. Some progressive banks already have a presence on the World Wide Web. Wells Fargo Bank of San Francisco gives customers access to current account balance information and transaction histories at its Web site Using browsers from Netscape Communications Corp. First Union Bank, in alliance with Open Market Inc. plans by year's end to offer full Web transaction services to its 10 million customers (Kay, A., Communications Week, August 14, l995, p.36-40). 05.00 SMART CARDS Employees at Bank of America, Chemical, Wells Fargo, and other large U.S. banks use them to buy lunch and snacks. Smart cards-plastic cards with computer chips- are starting to be used for prepayment, debit, and credit purchases all over the world. In the U.S., smart cards can be only used at a contained group of machines, or for one purpose. "They are part of the broader shift to electronic delivery, to making ATMs more functional, to using PCs and the Internet to do home banking, to going to POS terminals to get cash back, to getting electronic benefits transfer off a card." says Edgar Brown, senior vice- president of alternative delivery products at First Union, Charlotte, N.C. One of the advantage of using chips on cards with or instead of magnetic stripes is better security. Microprocessor chips are very difficult to alter or forge. Chips can carry more information than magnetic stripes can. A microprocessor chip can store up eight kilobytes of data. Smart cards make possible cheaper and faster payments. Money can be deducted from a chip without on-line authorization. This makes for a two-second transaction versus an up-to-two-minutes one, and telecommunications costs are saved (Lunt, P., ABA Banking Journal, September 1995, p.46). 09.00 REFERENCES Britt, P. (1995, February). Savings&Community Banker. Humpehreys, K. (1995). Security First Network Bank. http://www.sfnb.html. Internet Banking. (1995, May 17). WebTech, Inc. Online information. Key, A. (1995, August 14). Interactive Applications. Communications Week, 36-40. Lunt, P. (1995, September). ABA Banking Journal, 46. Wells Fargo Bank. (1995, May). The Orange County Register. f:\12000 essays\business & economics (632)\Waterford Crystal A Case Analysis.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Waterford Crystal A Case Analysis HISTORY OF WATERFORD CRYSTAL Waterford Glass was started by two brothers, George and William Penrose, in 1783. It was the most notable of all Irish crystal companies. In 1799, the Penrose brothers sold Waterford Glass to the Gatchell family. The crystal industry was prosperous until 1825. Irish glass manufacturers began to slowly close due to high export duties, the economic depression, and a lack of capital. Waterford Glass was the last to close in 1851. It was reestablished nearly a century later by Charles Bacik and Bernard Fitzpatrick. In 1947, they set up a factory in Waterford, Ireland. A turning point in the company's history came in 1950 when Joe McGrath made a sizable investment in Waterford Glass. He invested the capital needed to convert the small crystal manufacturing company into one with the potential to become a major player in the crystal industry. This investment gave his family control for the next thirty-five years. Joe McGrath was committed to Ireland and providing jobs for his country. He wanted to reduce the country's high unemployment level. His focus for Waterford Glass was on growing the company through exports to the United States. In 1966, Joe McGrath's son, Paddy McGrath, took over management of Waterford Glass. Like his father, he was dedicated to Ireland and to providing employment opportunities for the Irish. McGrath's quest to provide more jobs for the Irish led him to diversify the company. By 1983, the company had acquired more than thirty non-core businesses. To reflect the expansion, management changed the company's name to Waterford Glass Group. In 1985, Paddy McGrath resigned as chairman of Waterford Glass. Concurrent with Paddy McGrath's resignation, Paddy Hayes was appointed chairman and CEO of Waterford Glass Group. He immediately began to sell off the non-core businesses in an effort to reduce the company's high debt level. Waterford Glass's debt was virtually eliminated with the issue of American Depository Shares (ADS) on the United States NASDAQ market. On November 28, 1986, Waterford Glass acquired Wedgwood, a two hundred year old manufacturer and marketer of fine bone china. Paddy Hayes was named the chairman and CEO of both companies and Paddy Byrne was appointed CEO of Wedgwood. In 1989, the company's name was changed to Waterford Wedgwood. Three divisions were created as a result of this acquisition: the Waterford Crystal division, the Wedgwood division, and the Creative Tableware division. In 1989, Paddy Hayes resigned from his position as chairman and CEO of Waterford Wedgwood. Paddy Hayes was succeeded by Paddy Byrne as CEO of Waterford Wedgwood. Paddy Galvin was appointed as CEO of Waterford and Paddy Byrne continued as the CEO of Wedgwood. In 1990, the ownership of the company began to shift from Ireland. This was the result of an equity investment made by the Morgan Stanley/Fitzwilton consortium. On April 5, 1990, the workers at Waterford Wedgwood went on strike. The strike occurred when management took steps to reduce high labor costs. The strike lasted fourteen weeks causing significant problems for the local community. In December 1990, Waterford Wedgwood became two independent entities. Concurrent with the restructuring of the company, Paddy Byrne resigned. In September 1991, Waterford introduced a new brand of crystal called "Marquis by Waterford Crystal." THE CRYSTAL BUSINESS Today, the craftsmen of Waterford are supreme artists as they were in the 18th century. Having craft and design skills is the critical element in establishing and maintaining a competitive advantage. The combined skills of the craftsmen create the distinctive patterns known all over the world. The exceptional clarity of Waterford Crystal is achieved through several steps that have remained almost unchanged for over two centuries. Waterford products are manufactured by a strict process of mixing, blowing, cutting and polishing. Manufacturing crystal is very labor intensive. Labor costs are generally 50 to 55 percent of the manufacturing costs. Chemicals are mixed to create a unique formula that gives Waterford crystal its special sparkle and light refractive qualities. It is then heated to 1400 degrees centigrade in a natural gas fired furnace for at least 36 hours to produce molten crystal. A blower, using the traditional tools and techniques as in the 18th century, gathers a quantity of crystal from the furnace on the end of a blowing iron with a twisting motion. This is then smoothed with a wooden block that has been soaked in water and resembles the shape of the desired item. The craftsman then blows the piece, either by machine or by mouth, to its full shape. Crystal pieces are similarly cut to its unique pattern by either machine or by hand. Those crystal pieces that are mouth blown and hand cut have the highest quality of all crystal products. No other crystal is cut as deeply as Waterford's. Some of the company's core competencies are its crystal's sparkle of light refractive qualities and unique 18th century designs. The assembly and packing of the crystal for distribution takes a considerable amount of time to complete. After the crystal is polished, everything is carefully checked and measured. Every possible step is taken to ensure that every piece of crystal arrives at its destination safely and securely. With its quality craftsmanship and design expertise, Waterford has gained a reputation for quality around the world. Based on price and brand name recognition, crystal products are divided into three market segments: high-end (in which Waterford Crystal was dominant in), medium, and low-end. These markets can be further divided into three subgroups: stemware and giftware, premium and incentive, and catalog mail order. The major distribution channels of these crystal products are department stores. Waterford Crystal is unique among other crystal manufacturers in that its stemware patterns are never discontinued. If a replacement is needed for a stem pattern bought many years ago, it can be specially made. 1950 - 1985 THE MCGRATH FAMILY ERA Joe McGrath, being intensely pro-Ireland, was more concerned with growing the company in order to provide jobs for his country than making a profit. He focused on doing so through exports to the United States, so in 1961 Waterford established a marketing subsidiary in the United States. A distributing company was established in the United Kingdom three years later. Sales revenues and profits were on the rise. Employment had grown and the company moved its operations to a larger location. Financing came from loans and stocks. When Joe McGrath's son Paddy McGrath took over management in 1966, the family controlled 40% of the company's equity and their success continued. Paddy, like his father, had that strong dedication and sense of responsibility to his homeland. His goal of investing in Ireland and creating new jobs led him into the acquisition of multiple businesses. Waterford Glass, which then changed to Waterford Glass Group, went beyond the manufacture and sale of high-quality crystal and into fine bone china, car assembly, and department stores. The acquisition of these businesses increased the company's debt to 50 million Irish punts. Employment multiplied and of course labor rates increased, especially with workers being paid on a piece-rate basis. By mid- 1980s, Waterford's labor rates were 77% above the average industrial salary in Ireland. Management signed a three-year labor agreement that again raised labor-related costs by 44% over the life of the agreement. A typical labor agreement is renegotiated every year, which allows labor to accommodate for inflation and the such. In 1984 Avenue Investments, the holding company, which maintained control of Waterford Glass, made poor investments and had to sell its 20% stake in Waterford Glass to Globe Investment Trust of London. In order to meet Globe's standards, Waterford found itself having to meet an external standard for return of invested capital. Shortly after that, McGrath resigned as chairman of Waterford Glass. 1985 - 1989 THE PADDY HAYES YEARS The Waterford Board of Directors announced Paddy Hayes chairman and CEO of Waterford Glass Group in 1985. Hayes had strong experience and managerial know-how. He recognized how the company's various businesses outside of the crystal industry were creating low profits, poor cash flow, and had a lack of commitment toward winning a competitive advantage. These non-core businesses had low market share and were in a slow growth industry, therefore, Hayes knew they had to be liquidated. He then sold the retail division holdings for 7.4 million punts, the Aynsley China division for 19.7 million punts, and the printing division for 5.7 million punts. Within 18 months, Hayes was able to rid the company of nearly all its debt. Outstanding debt dropped to 22 million Irish punts and the debt/equity ratio was reduced 21% in a year. By 1989 the company, now Waterford Wedgwood, consisted of four divisions all focusing on the manufacturing and sale of crystal and china. ACQUISITION OF WEDGWOOD Although Waterford had sold off all of its non-core businesses, the company still wanted to diversify into other markets similar to the crystal industry. In 1986, Waterford Glass purchased Wedgwood China for 255.5 million punts. Waterford Glass issued ordinary shares of stock to the public in exchange for their share of Wedgwood stock. Fourteen shares of Waterford Glass stock were issued for three shares of Wedgwood China stock that raised 166.6 million punts toward the purchase of Wedgwood. Before the issuance of the shares Ireland owned 42%, more than any other country, of Waterford's stock. After the issuance of the shares, the United Kingdom held 55% of Waterford's stock and Ireland only 35%. Ireland was not the shareholders' main concern for the first time. In addition, Paddy Hayes sold the non-core businesses of Wedgwood to reduce the debt even further. Trent Sanitaryware, a company that produced bathroom fixtures, sold for 26.5 million punts the Ranton Estate, a hunting reserve, sold for 2.8 million punts and two facilities in Australia sold for 2.4 million punts. However, the debt level that was previously zero increased to a level of 67.3 million punts after the purchase of Wedgwood. Management thought that they could decrease this debt level through savings from the operations of the two companies. Wedgwood China, famous in both British and Japanese Markets for quality, was a 200 year old company based in England. Wedgwood had 18 factories and 6,600 employees while Waterford only had 5,300 employees at the time of the purchase. The company made fine bone china with a high quality image though the market was controlled by porcelain china. The fine bone china attracted people because it was made very thin and translucent giving it a delicate and eloquent appearance. The core competencies of the two companies as well as the strategies were basically the same. Both of the companies used excellent manufacturing skills to gain a competitive advantage over their competitors. Waterford Glass and Wedgwood also had the same international strategies of producing a high quality standardized product for each country to which they distributed. Though the acquisition created high amounts of debt, Waterford's management thought the purchase would be beneficial as a strategic move. Paddy Hayes felt that the two companies could benefit from each other because Wedgwood was striving for the same brand name image of high quality and prestige that Waterford was striving to obtain. Management thought that the image of Wedgwood would complement the products of Waterford and vice versa. Another reason that Waterford thought highly of the acquisition was Wedgwood's channels of distribution. The distributions of the two companies were similar because both sold high quality products through high-end retail shops. Waterford thought that they could reduce distribution costs through a world wide distribution network. Waterford now had access to 150 Wedgwood distribution shops in Britain and the Wedgwood sales network in Japan. Also, Wedgwood increased penetration into other markets by gaining access to Waterford's sales network in the United States. Management wanted to market the products separately but use the same distribution channels to lower the distribution costs for both companies. Waterford estimated that they could save 10 million punts annually with the new distribution network. Unfortunately, the two companies' brand name recognition did not benefit one another. Waterford's crystal was the premier brand in the United States while Wedgwood's china image was weakest in the United States. The crystal of Waterford and the china of Wedgwood were both sold in retail shops; however, the crystal was sold at full price with no discounts and the china could not be sold without offering a discount. As a result, the crystal and the china could not be in the same area of the store preventing Wedgwood's name to be associated with Waterford's crystal. The strategy of brand name recognition complementing each other did not succeed in the United States but it did work in Japan. In Japan, Wedgwood had a high quality image while Waterford Glass' image in Japan was weak. Wedgwood's base and quality image in Japan increased the image of Waterford's crystal and in turn increased sales. In 1987, all of Japan's major department stores carried Waterford crystal. Even with the difficulties surrounding Wedgwood's sales in the United States, Waterford still changed its name to Waterford Wedgwood in 1989. The Wedgwood division consistently contributed operating profits year after year averaging 20 million punts in profits from the mid 1980's to the early 1990's. In addition, the operating expenses for the Wedgwood China division were far lower than the Waterford division. For example, an employee of Waterford Crystal division made three times as much as an employee from Wedgwood. The Waterford division needs to coordinate some of their activities with the Wedgwood division to share knowledge on how to improve their profitability. A strong competitive advantage can be gained through the sharing of ideas across all of Waterford Wedgwood divisions. PRESENT CONDITIONS AT WATERFORD At their lowest peak, Waterford reported a one year loss of 21.3 million punts, reflecting high operating costs, unfavorable exchange rates (weak US dollar) and additional provisions relating to stocks and debtors in the United States. It was dreadfully obvious that Waterford Crystal had become over-dependent on the United States market. Also, the loss was caused by exceptional restructuring provisions of 18.4 million punts with the separation of the Wedgwood porcelain product line. Around 1990, at the height of Waterford's problems, the company was near the point of insolvency. Mr. O'Donoghue, now Waterford's Chief Executive, was sent to the U.S. to restructure the company's retail business. He spent just under a year in the U.S., which now accounts for about 70% of sales. Mr. O'Donoghue said that US sales are likely to continue to account for about 70% of company sales, but it will be a 70% slice of a bigger pie. In 1990, Fitzwilton, U.S. merchant bank Morgan Stanley, and an investment group headed by Dr. Tony O'Reilly invested 80 million punts for a 29.9% stake in Waterford Wedgwood - the holding company for Waterford Crystal and Wedgwood -- as part of a financial restructuring. This restructuring included 1990's wage freezes and a new investment scheme that secured over 200 million punts to stabilize the company's finances. Since the 1990 restructuring, the investment group has been steadily recovering from heavy losses. By the end of March 1995, profits have doubled to 22.6 million punts and the group paid dividends for the first time since 1988. Also, the group appears to be on target to increase profits by at least 20% for the full year. ENVIRONMENTAL AWARENESS Waterford Crystal was one of eight Irish environmental demonstration projects to receive a partial grant from the European LIFE fund. This partial grant was used by Waterford Crystal towards a 2.7 million punt project that seeks to develop and demonstrate an emission free process for glass manufacturing. The company already meets the highest national and international standards. This move keeps Waterford in line with their strategic objective of being at the forefront of technological development within the industry. In an interim report that ended June 30, 1996, Waterford Wedgwood reported an increase of 28% in profit before taxes and sales rose by 8%. This performance was principally due to record sales in the United States and Ireland. Both markets saw increases of 17% and a further strong contribution from its Marquis brand, which equates for nearly 30% of Waterford's sales. To date, the Marquis brand has not cannibalized sales from the Waterford brand, but sales in western Europe could be characterized as "difficult conditions." Today, Waterford Crystal employs 1500 people. It has an estimated market value in Ireland worth 12 million punts and its export market value is 50 million punts. Not only has Waterford increased crystal sales in its key markets, it has also transformed the actual business of producing crystal into something of a tourist attraction. The company's factory tours attracted 230,000 visitors last year making it the forth largest tourist destination in Ireland. This year Waterford estimates tourist numbers will rise to 250,000. Furthermore, in 1996, Waterford Crystal has highlighted a campaign where it will specifically target the Northern Ireland market. Currently, Waterford is a distant second to Tyrone Crystal that controls 65% of Northern Ireland. INDUSTRIAL ANALYSIS Threat of new Entrants: There is little threat of a new entrant either coming on the scene or drastically affecting the new market share of Waterford due to the labor intensive craftsmanship needed for the high end crystal market. The Crystal market seems to be heading into the mature market phase that is indicated with slow growth. The demand for high end crystal is already fulfilled by the present companies of Waterford/Wedgwood (Ireland), Lalique (France), St. Louis (France), Baccarat (France) and Orrefors (Sweden). Bargaining power of Suppliers: Power of the suppliers is considerably low due to the relative abundance of the silica, red litharae, and potash, which are the basic ingredients to the sparkling multimillion dollar crystal industry. Bargaining Power of buyers: The bargaining power of the buyer is somewhat high when compared to the necessities of a household. If the customer does not like what they are being shown, for whatever reason, they can simply leave the store without purchasing the crystal. The product that Waterford produces must be of value to the customer to make them purchase it over the competitors crystal. Threat of Substitutes: The threat of substitutes is moderate to low. When purchasing high-end crystal, the question is not one of price, but one of quality. In the US, if you want the best, then there is no substitute. You may select from one of the before mentioned high-end crystal producers, but they are competitors and not substitutes. Intensity of Rivalry: The intensity of rivalry is high, but less so in the United States, where nearly 70% of Waterford's products are shipped. In the United States, Waterford is a household name, so when people look for crystal, they look for Waterford quality. RECOMMENDATIONS n The Waterford division needs to coordinate their activities with the Wedgwood division to share knowledge on how to improve their profitability. A strong competitive advantage can be gained through the sharing of ideas across all of Waterford Wedgwood divisions. n They should possibly expand beyond its core business by using brand enhancing. n They should look at expanding into existing markets such as U.S. (which now represents 70% of sales), Britain, Japan, Australia and Northern Ireland as well as build sales in new markets such as Thailand, Taiwan and South Korea to keep globally competitive. n Being globally successful will allow Waterford Wedgwood to cope more easily with localized fluctuations in demand and become less dependent on its U.S. market. n They should improve on operating efficiencies along with the ever increasing cost of their main core competency of skilled labor. n They should extend the growth rate of its new mid-priced Marquis line of stemware into all market areas. f:\12000 essays\business & economics (632)\Welfare 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Welfare Welfare is a government program that provides money, medical care, food, housing, and other things that people need in order to survive. People who can receive help from these welfare programs are children, elders, disabled, and others who cannot support their families on their current income. Another name for welfare is public assistance. There are many organizations that supply this public assistance. Such as Salvation Army and other groups. Public assistance benefits help many people who live below the poverty line, an income level is established for families. If your income is below this you would be eligible to receive this help. Welfare in the United States Federal and state governments in the Unites States serve the poor people through about 60 public assistance programs. Most people receive help through one of the four major programs. These programs are Medicaid, Aid to families with dependant Children, Social Security, or Supplemental Security, or the food stamps program. I will discuss the four programs individually. Medicaid provides free medical care to the poor people. Funds vary from state to state. In some situations, people who may be able to pay daily needs, but can't afford large medical bills may also be able to receive Medicaid. Some services paid for are bills such as doctor's visits and nursing home care. Most Medicaid funding comes from the federal government. The rest is supplied by the state. Each state runs their own Medicaid program. A.F.D.C. provides cash benefits to dependent children and the parents or the guardians taking care of them. Most families that qualify for A.F.D.C. have just one parent in the home. About 80 percent of these families are headed by a woman. A.F.D.C. also pays benefits to two-parent families if both parents are unemployed. Most A.F.D.C. funding comes from the federal government. The states provide the rest of the money and administer the program. The sizes of families' payment vary from state to state. Next is Social Security Income. This provides financial Aid to people in need who are at least 65 years old, blind, or disabled. The federal government finances and administers social security income programs in most states, though some states supply the federal payment and are able to run their own programs. Finally, the Food Stamp Program helps low-income households buy more and better food than they could otherwise afford. Each participating household receives a certain number of coupons called food stamps. The stamps are issued by the federal government. The number of stamps a household receives varies with the family's size, income, and expenses. Cooperating grocery stores accept the stamps like money for food purchases only. There are other programs such as energy assistance and public housing. Energy assistance, which is federally financed but administered by the states, helps people pay fuel bills. Public housing provides low cost rental apartments in government owned buildings. State and local governments fund and administer their own general assistance programs. These programs provide financial aid for needy people who do not qualify for other types of welfare. People waiting to receive assistance from other programs also may get temporary emergency aid from general assistance. Back in the early days, welfare resembled the English system. Social governments were responsible for helping the poor. But the colonies and later the states, sometimes helped the local government provide aid. The first federal welfare program, began after the Revolutionary War, they provided pensions to war veterans. During the Civil War these pensions were expanded to cover soldiers' widows and orphans. In the early 1900's, primary responsibility for providing welfare benefits shifted from local to state governments. During these years, states enacted programs to aid dependent children and the elderly. The criticisms of welfare ranges over a number of social and economic issues. Some people criticize welfare programs for not providing high enough benefits to eliminate poverty. Spending on welfare would have to increase greatly to eliminate poverty, and many people believe the cost is already too high. Many critics of the welfare system charge that providing a steady income to needy people encourages idleness. Actually, most welfare benefits go to elderly, blind, and disabled people and mothers with young children. But welfare does discourage some recipients from working harder by reducing benefits if their income increases. Many people also criticize the welfare system for being too complex and costly to administer. Each program has its own eligibility requirements and ways of calculating benefits, and these rules vary from state to state. Public officials collect detailed information about applicants to determine their eligibility for benefits. This process is time-consuming and costly. Some people cheat the system by not reporting all the income they earn. But suppliers of services to welfare recipients account for most of the fraud in welfare. Some physicians, pharmacists, and others have been overpaid because they have made up false bills. In my opinion I believe you need welfare because people do need help. But I would lower its percent because it won't hurt that much. Most importantly we have to do a better job at finding all the people who cheat the program and make them work to repay it. Bibliography 1. World Almanac and Book of Facts 1995 Published by: Funk & Wagnalls Corporation 2. World Almanac 1989 Published by: Washington Times Corporation f:\12000 essays\business & economics (632)\Welfare Toil and Trouble.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Welfare: Toil and Trouble Millions of Americans are signed up for welfare; the program designed to aid poor and needy families. Unfortunately, it has now become a way of life for many. Many argue that welfare is not destroying our culture and creating a dependent people who have learned to abuse certain privileges that come with living in America, but history has proven that this is not true. Last August, when President Clinton signed the welfare reform bill, he said "Today, we are taking a historic chance to make welfare what it was meant to be: a second chance, not a way of life." Welfare was designed to give a boost to the poor-to help struggling families make it through the year while they got back on their feet. What it has become is a target for gluttonous mothers and others who have no values. Many mothers who are on welfare have become used to it, and instead of using the money and aid to stay alive while they look for a job, they are sitting at home waiting by the mailbox for the next check to come in. In the meantime, many mothers are having more kids, because-more kids, more welfare money. These women relish the thought of getting free money in the mail-for doing absolutely nothing. Welfare is destroying out culture. Many argue that welfare is necessary for many families, and that it must not be cut. Some argue that it is giving starving families the boost they need to make it one more year. This is only partially true. Yes, we need welfare, but we also need to limit the amount of time a family can stay on it. By letting families stay on welfare for extended periods of time, we are only creating a lazy, dependent culture. Mothers figure that the welfare check will come in the mail, so where's the motivation for going out and getting a job? There isn't one. This is why President Clinton signed the welfare reform bill. He knows that the welfare laws need to be refined, and he has chosen himself as the apostle for this chore. Many people are abusing welfare in more ways than one. The most common form of welfare abuse is just staying on it too long, and using it as an income, instead of a boost. There are worse cases, though, which clearly show the need for reform. Many mothers are using welfare as an income, and using the money for purposes other than survival. Many are using the money to buy drugs. Inevitably, these drugs lead to an even more destructive way of life. Many of these moms become even more promiscuous, having babies for the money that will be added to her monthly check. Welfare is destroying our society. It is creating and encouraging a slothful and idle culture, and it needs to stop. In the past, honest, hardworking people who just needed a push used welfare. Quickly though, welfare has become something that too many depend on. Many of the families on welfare are poor and lazy. Satisfied with their monthly check, many of the recipients use it as their only form of income, and do nothing else. The government is only encouraging and enabling their idleness by paying these people to sit around doing nothing. These people, if not for the welfare reform bill, would have spent their lives avoiding work for as long as the government would allow, which is usually a lifetime. An example of this idleness is Eulalia Rodriquez. This Jezebel, who calls herself Rodriguez, has been on welfare for twenty-six years, has fourteen children on welfare, seventy-four grandchildren and fifteen great-grandchildren. Rodriguez is sick of people criticizing her for being on public assistance. "I'm sick of people acting like I'm some kind of crook. We've got a lot of kids to feed." She failed to mention the fact that she lives in a six-bedroom, three-story apartment nestled in a gated Boston community called Harbor Point. What's worse, these people even have the nerve to complain, whining about how the minimum wage is too low, and that the jobs offered have no dignity. The nerve. Then there are the immigrants. Not the immigrants who come to America looking for freedom and a new life-I'm talking of the ones who invade our beaches and our borders, and head straight for the welfare sign up desk. These people suck up tax dollars from the honest and hard working, and give the society nothing in return. No more. These people will all be cut off with the new bill. The greedy mothers, the lazy families, the leeching immigrants-they all signal that we need to change the system. So we begin anew. Starting over with a new plan, and a new attitude, destined to succeed, and not likely to fail. No, it is not harsh or discriminating, and yes, it is very necessary. f:\12000 essays\business & economics (632)\Welfare.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Welfare In the recent February article of the Los Angeles Times, Clinton has announced to go on with a plan to help people of welfare. Clinton challenged corporate bosses five months ago to take people in from welfare and trained them. One of the main contributors of the project is a chief executive officer of the Monsanto Ca., the nation's fourth largest chemical maker. Clinton singled out the Monsanto company and other companies for helping out welfare workers. Monsanto has hired five recipient and found almost twenty more jobs for others. Under the new laws of the welfare reforms, the able body workers should work within the two years of recieving benefits. Some of the good things out of this plan is that by the year 2005, only 14% of jobs will be done by more of the dependent poor people. This is bad because 46% of aid recipients had not completed high school or earned a General Equivalency Diploma. The ability to absorb more welfare recipients is limited by the high- technology chemical, agricultural, fiber and pharmaceutical development and manufacturing. These workers would have limited skills. Monsanto is highly protecteive of the privacy of its special new hires. The new employees are hired to fill a variety of clerical and light general- labor positions. They will not be identified as the company's welfare-to-work initiative. The possible short-term effect this would have on society is that people, on welfare, would be able to work and get paid for it. This will allow them to be able to build finance of their own that they will be able to help them with their lives. The long-term effect, though it seemed good for the people, would be bad for everyone else who weren't on welfare. This would be because the people working off welfare would really be working off the tax payers money. So, the people who aren't living off welfare would be paying higher taxes and the people who are living on welfare would be paying less taxes. Education Education is an important factor in society today. Without education, we wouldn't be able to boost our technology. Boosting the technology would then help us in the medical field, help us build better houses that are more durable to earthquakes, etc. I think that we should spend more of the budget on education. If we spended more on education, we would be able to get more, better teacher to teach our children. With more teachers on the field, we would be able to teach more students than normal. To help the teachers out in there teaching, money would be put in to buy new, improved, and revised version of books. Thought this seems good and all, the short- term effect would be that this would only be able to happen for a certain amount of time. This is because the people would be spending a lot of money on education, so the taxes would rise which is bad. In the long run, though, with the increase in money for education, we would be able to learn a lot more. In time, we would be able to find the cures for the deadly diseases that is in society today. I believe that all parts of society would benefit from this because of the possible cause that will happen when we are able to treat AIDS the same way we treat the common cold. The only disadvantage is that of the money. I don't really think people would agree with the budget becuase they would want to keep the money for themselves. In general, if we spent more on education than on welfare, we would be able to think of better ways to improve the way we live and build a better place where people can work and live peacefully. f:\12000 essays\business & economics (632)\Wendy History.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Wendy's History Wendy's Frostys " I opened the first Wendys restaurant because I felt that there should be a place where fresh hamburgers are made just the way the customer wants it." That is as true today as it was thirty one years ago when Dave Thomas first spoke those words. People put their trust into Wendys everytime that they eat there. Infact Wendys is the only fast food place that offers the Frosty (Wendys Web Page). November 15th 1969, in Columbus, Ohio, was a very phantasmagoric day in Dave's life. He opened his very first restaurant naming it after his little baby girl, Wendy. He expected nothing more from his little family owned restaurant, but Dave decided to approach fast food in a different angel. On November 21st 1970 he broke new grounds by opening a new feature, the pick up window. Now he could do twice as much business at the same time. This idea expanded to all of the quick service industries. Over the next thirty ones years, Dave opened up over five thousand Wendys Restaurants, not only in the United States but in twenty-seven other countries around the world. With competition rising among other fast food places, such as McDonalds, Burger King, and Arbys. Promotion would be one of his great ideas (Wendys Web Page). A garbage collector, Craig Randall, found a discarded Wendys cup. The cup had a peel off label for instant winners. Hoping to discover a coupon good for a free chicken sandwich, Craig peeled off the label to find that he instantly won two hundred thousand dollars towards a brand new home and became an instant celebrity. Craig's whirl wind Osborne 2 media tour included the "Tonight Show," "Jay Leno," and hundred of media outlets hungry for a new unbelievable story. This brought many new customers to Wendys to try their luck at the new game. Soon after many other fast food places tried the same promotion ideas and were also very successful (Pook, Cory). Wendys features two main products, the chili and the Frosty. The Frosty is a cool creamy dairy desert that will also quench and thirst. Although is thicker than a milk shakes it isn't quick as thick as Ice cream. In comparison to the other dairy deserts that the other fast food places sell, Wendys has the least fattening deserts of them all. The Frosty at Wendys has 330 calories in a twenty oz. Cup. While Arbys has 390 calories, Burger King has 570 calories, and McDonalds has 470 calories ( Thomas, Dave). So not only does Wendys have fresh food that is made when you order it but it also has the least fattening dairy deserts around. You might be wondering what exactly are in these scrumptious deserts. Frostys are made up of many ingredients such as: skim milk, cream, sugar, corn syrup, cocoa, dextrose, disodium phosphate, carboxymethlcellubse, vegetable mono, natural and artificial flavors ( Thomas, Dave). With all of these ingredients combined and stored in a cooler, you get a Frosty. You might also be wondering how much these Frostys cost. Compared to the other fast food places the Frosty is priced very reasonably and for the most part even less expensive. You can purchase for the low price of ninety-five cents or you can get the super value menu price of 99 cents for a medium. But for all those chocolate lovers who Osborne 3 crave the large size it is a mere dollar twenty-nine. So not only are Frostys low fat but they are also very affordable. So as you can see, the Frosty is the best thing to cool down with on a steamy hot summer day. Dave Thomas is cooking up a way to create strawberry and vanilla Frostys right now. But until then, keep enjoying the chocolate Frosty at their super price and their low calorie nutrition! f:\12000 essays\business & economics (632)\Were In the Money.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ We¹re In The Money A frequently asked question by a customer is ³Can you break a hundred dollar bill?² If this request has been granted, why do the cashiers take the bill and turn it into a biology experiment? Between pouring a liquid on the note and/or holding it up to the light to check for authenticity, is our currency system in danger? As of the beginning of 1996, the Chairman of the Federal Reserve and the Secretary of the United States Treasury, prove their economic wizardry by making the new one hundred dollar bill nearly impossible to counterfeit in attempt to protect our economy. This is just the first step in improving our currency system. Counterfeiting U.S. currency is an illegal practice that has has been around for years and, unfortunately,is getting worse. ³Last year, ...the Secret Service cooperated with the Italian authorities¹ seizure of $43.8 million in counterfeit U.S. currency, Germany¹s capture of more than $19 million in counterfeit cash, and the Canadian authorities; seizure of than $129 million in counterfeit U.S. currency.² (Gomez, Bertha. ³Officials Say..²) In a small town north of Chicago, two high school seniors were arrested for the use of counterfeit bills. With the use of the internet and a color printer, these two teenagers were able to create and pass their counterfeit twenty dollar bills through the high school cafeteria but were later arrest by police after trying to use their money at a local Taco Bell. If teenagers are finding ways to counterfeit money, that should tell someone that we need to do something to protect our economy for the future. In attempt to enhance our currency system, the one hundred dollar bill was completely redesigned last year and released at the beginning of this year. This new bill contains a security thread, a watermark, a larger portrait, varriable-color ink and infrared fibers. It is called the 1996 series. Next year the fifty dollar bill will change and so forth. At first, economist talked about recalling all of US currency, but later this idea was ruled out o keep a smooth transition and to honor the new bills at current face value. If our economy is at its strongest, who paid for the creation of the series 1996? The Federal Reserve, under the direction of Alan Greenspan, paid for this currency improvement. When the fed decides the economy is growing at a too quick a pace, or inflation is getting out of hand, it can take action to slow spending and decrease the money supply. The fed does this by selling securities on the open market. This in turn, reduces bank¹s reserves and forces the interest rate to rise so the bank can afford to make loans. People seeing these rises in rate will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the fed will effect all aspects of business, from the price level to interest rates on credit cards. In a recent article from the Wall Street Journal, criticizes the fed¹s action in raising the interest rates, and complains that the fed has fallen behind in it¹s job. It discusses the plan for a Neutral policy and what the fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today¹s standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but the fed will probably continue to raise interest rates. (³Fed Moves Too...² Wall Street Journal) Rise and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. Directly after the Fed¹s actions, the stock market is immediately effected. Unfortunately, this new bill is not completely counterfeit proof. According to an article from...... by Ron Moreau and Russell Watson, Two men, in a Thai resort of Pattaya, use counterfeit bills (series 1996) in a photo shop. The shop owner did examine the bills but did not realize they were fake. High Quality counterfeit bills are thought to be produced in several countries; Iran, Syria and Russia are frequently named as suspected sources. The equilibrium that the Fed is looking for occurs when an interest rate is set that makes the quantity of a real money available be willingly held. Because this is such a delicate system this equilibrium is never exactly met, and the Fed¹s job is to try to keep the market at or near this form of equilibrium. Unfortunately this case is never exactly met, and the market can easily suffer because of it. It seems that no matter what the United States Treasury creates for a currency system, as long as it is an inanimate object, someone will try to copy it. But, what if our currency system was strictly based on a credit? This will be the United States currency of the future. Our world has advanced so far with the aid of the computer. Ten years ago, computers were for only a weak version of typing. We have come so far from the past. Technology will improve in the years to come. The money in our wallets is just a special type of paper with a special type of ink. It does not back gold like it use to. In the future, we will have two cards in our wallet. A credit card, if we so choose to own one, and a currency card. Our treasury and federal reserve will design a feasible system where paper money is something of the past. Work Cite ³Fed Moved Too Slow On Increasing Rates.² Wall Street Journal 11 April 1994. ³Who Controls The Fed?.² Investors Business Daily 19 August 1996 Gomez, Berta ³U.S. Officials Say Currency Counterfeiting Remains Small.² USIA Staff Writer (1996) WWW Internet Access. Moreau, Ron and Russell Watson. The Hard-Up North Koreans are suspected of making nearly perfectly fakes of U.S. $100 bills. f:\12000 essays\business & economics (632)\What Are Five Factors Which Contribute To The Failure Of New Restaurants.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ What Are Five Factors Which Contribute To The Failure Of New Restaurants? Darren Atlee Economics January 13, 1995 Definition of Business Failure: Business that ceased operation following assignment or bankruptcy; ceased operation after foreclosure or attaching; voluntary withdrawal leaving unpaid debts. It is a common assumption in the restaurant industry that restaurants fail at an exceedingly high rate, the highest failure rates in the U. S. economy. In researching this topic, statistics numbers and percentages fly around routinely. All give somewhat the same concept; in the starting years, most restaurants fail. The most often cited statistic is the 95/5 ratio. 95% success and 5% failure. Conversely, another favorite concept exists. Somewhere between 50 to 80 percent of all new restaurants which open this year will fail within the first 12 months of opening their doors. The same conventional wisdom also suggests that about 50% of the remaining restaurants will fail in their second year of operation and another 33% in the third year. This means that if 100 new restaurants were to open this year, 50 to 80 would fail before their first anniversary. That would leave 30 restaurants open in the year two. Half of these 30 would subsequently fail in their second year, and a final third of those remaining would fail in their third year. As a result, there is about a 90% compound failure rate over the first 3 years of a restaurants lifespan. (Mullen & Woods, 61) You are not alone if you feel intimidated by the numbers. They can be quite blunt and negative which attributes to one simple fact - it takes planning, research and risk to venture into the restaurant world. There are five major factors which can lead to success or, in this case, failure of new restaurants: capital, type of establishment, location, labor and management. In order to start any business, an entrepreneur needs money or capital. This capital could include all expenses, such as loans, rent, payroll, and insurance. Some argue this is what causes restaurants to fail. Given the information that restaurants are most likely to fail than succeed, it is always difficult and often impossible to interest bankers in making loans to entrepreneurs who operate in a high risk industry. Even when loans for restaurants are available, restaurateurs often must pay higher interest rates or provide more extensive collateral requirements to secure these "high risk" loans than might be required for another "less risky" venture. (Mullen& Woods 61) It is not difficult for a restaurant to fail when it has poorly planned financially. Many times restaurateurs fail to accommodate the business with enough cash flow to support the projected three year start period. Some expenses cannot be avoided nor controlled like raw materials which are essential regardless if business booms or busts in the early period. Operators must realize that if business is low, so too should their overhead costs. If there is no income, there is no money to pay expenses, thus the restaurant goes under. Some external factors may effect restaurant expenses which owners have little control over. Government legislation could cause higher taxes and operation fees which could force some franchise owners, even in large chains, to sell rather than sign new agreements. (Nathan, 66) With insurance cost at already high rate for restaurants, new health-care reforms could be an added burden, especially for independent restaurants. Some sources predict that these reforms could be so costly that it could eliminate ten percent of the industry's nine million jobs in '95. Many factors could lead to ultimate failure of restaurants due to poor financing and uncontrolled external factors. The term failure means a lot of different things. Going broke certainly constitutes a failure, but terminations and nonrenewals of franchises are also failures in many cases. Selling the store to another franchisee or to the company could also qualify depending on what motivates the sale. In some cases, a restaurant in a poor location may change hands several times- each a failure- yet each change of ownership may go unnoticed because the signage, menu, and interior decor will be virtually unchanged. (Nathan, 66) When opening a restaurant, owners must investigate fully the factors of the type of establishment they want to create and the location of this establishment. Both are essential in the success of the restaurant. Some restaurateurs aim to target their patrons, they go directly for what they think they want. Say there is an overabundance of Chinese restaurants, maybe the people would flock to a new Mexican restaurant. He will take that risk and start his business. There are two major type of restaurants, specialized menu and diverse menu. A diverse menu franchise such as McDonald's has a failure rate of about 2%. (Nathan, 66) This is because people have a choice in what they eat , and because of the good reputation. Though these are fairly successful, specialized restaurants such as Cinnabon or Wings to Go may also be very successful. Their product or specialty could prove to be the only place around to get it or most likely the best. The failure rate of these specialized establishments is closer to 40%. (Nathan, 66) Clearly, it is not difficult for an entrepreneur to miscalculate his venture. It might be a bad time economically for that particular town to open that type of specialized business. Starting a restaurant from scratch is not the only option, some say that it could be just as beneficial to buy a franchise that has already been established. Though there is still a great amount of risk, wise advice leads toward buying a restaurant that has weathered three years of operation. Even this type of venture requires research. Entrepreneurs must investigate their market before beginning a project. Restaurants depend primarily on their local consumer markets and secondarily on traveling market for their business. Thus they should study their market by looking at extreme factors such as both the prime and local lending rates, cost- of-living index, factory lay-off or hiring, and the general unemployment levels. (Mullen and Woods. 64) What usually happens is that when a local economy takes a downturn, a flurry of new restaurants appears which create more jobs and filter out the weaker and more poorly-managed restaurants over the next two years. (Mullen and Woods, 65) Some restaurateurs believe that an original and strong concept for a restaurant is most important. The food is commendable but the way it is presented and delivered is extraordinary. Some also believe that it is most beneficial if all of these types of restaurants are lumped together in a town so that people can choose. A case in point is Brinker Intl., the US's biggest restaurant business. Owner and operator Norman Brinker believes his insight has led him to look for prime sights. His ideal; Control an intersection and put a different restaurant concept on each corner. That way, if a Brinker restaurant loses business, chances are, it will lose to another Brinker restaurant. (Palmeri, 62) After an entrepreneur has taken his idea or concept with his restaurant, he must find people to run his business, that is if he does not run it by himself. Restaurant managers are a vital part of success. Some of their most important jobs is to control, oversee and train the employees of the restaurants. This is not an easy task, given that restaurant help constantly changes and rotates. This workforce is huge. This year the number of restaurant workers went up from 6.74 million in '89 to 7.24 million in '94. 42% of all women and 31% of all men in the US have worked in foodservice at one time in their lives. (NRA factbook) It may be a concern of the manager that there may not be a large enough pool of quality help to hire. If their establishment is not a solid one, managers must realize that interested workers must at some point decide if they are interested working for a firm that is at high risk of failure. (Mullen and Woods, 61) Higher quality employees may be scarce, thus efficient training must take place. Low quality training by the manager could prove to be a deficiency to the restaurant. Poor training equals poor efficiency and service which equals less patrons which equals low income which equals bankruptcy. Managers must set and keep a company standard. Many restaurants publish official handbooks which outline the standards. It is up to the managers to keep the help up to and working toward that standard. Managers and restaurant operators also must frequently reevaluate their establishments to direct their goals toward their patrons. They must find out what the people want and deliver. Fast Food chains such as McDonald's, Burger King, and Wendy's have lured customers in with selectively lowered prices and bargain meal combinations; by delivering value, they can offset the damage lower prices do to revenue. (Thorrien, 97) The restaurants that have not gone beyond the customer's expectations have failed, or will soon fail, because of mismanagement and ability to change. All cannot be blamed on the management, individual firm failure could be attributed uncontrolled external factors. This observation leads to contradict the notion that good management can always overcome negative environmental conditions. (mullen and Woods, 63) The numbers which illustrate the success and failure of restaurants may be discouraging but they show that this business is one of competition and risk. Factors such as capital, type of establishment, location, labor, and management all contribute to the success or failure of restaurants. The majority last less than a year, and the fortunate handful stay in operation for generations, others make their share and move on. This business is best described by an equation simply stated by Atlanta attorney Rupert Barkoff, "One third are doing well, one third are doing okay, and one third are having difficulty." (Hartnet, 67) f:\12000 essays\business & economics (632)\What are the History Laws Profitability and Social Responab.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ WHAT ARE THE HISTORY, LAWS, PROFITABILITY, AND RESPONSIBILITES TO THE CONSUMER OF ADVERTISING HARD LIQUOR ON TV IN THE UNITED STATES? INTRODUCTION Purpose The goal of this report is to inform the reader of the recent events that prompted hard liquor advertising on TV. In addition, the laws associated with advertising across this media, as well as recent legislative endeavors to control such advertising. Furthermore, the report also focuses on the potential profitability the distilled spirit's industry will gain from advertising across this media and the industries social responsibilities to the consumer. Sources and Methods Research for this report is gathered mainly from information found on the World Wide Web. Some information was gained through newspaper articles obtained by using the InfoTrac system in the Ruth Scarborough Library on the Shepherd College Campus. Refer to the bibliography for specific information references. History Research by the Distilled Spirits Council of the United States (DISCUS) found that 30 to 50 percent of Americans think that distilled spirits are being advertised on TV. Since Prohibition the hard liquor industry voluntarily agreed not to advertise their products, first on radio in 1936, and of TV in 1948. However, the industry is being faced with declining sales. Their competitors such as the beer and wine industries have grown. The sales of beer and wine have increased dramatically, leaving the hard liquor industry behind. The main reason for this occurrence is due to the fact that these industries have tapped into the resource of advertising on TV. Consequently, this has prompted the hard liquor industry to reevaluate its current marketing situation. The first company to take the leap to TV is Seagram. The Seagram company began advertising 30-second Crown Royal whiskey commercials in Corpus Christi, Texas. 1 2 Definitions The words "distilled spirit" is used throughout this report. Distilled spirits and hard liquor in this report have the same meaning. Distill means to let fall, exude, or precipitate in drops or in a wet mist according to Webster's Dictionary. Hard liquor is the end result of this process using the appropriate ingredients. Distilled spirit is any alcoholic beverage not defined as beer or wine. Laws Constitutional The right to advertise is constitutionally protected commercial free speech under the First Amendment. This fact is being upheld in a recent commercial free speech decision by the Supreme Court. The case of 44 Liquormart, Inc. vs. Rhode Island upholds the industry's commercial free speech rights by insuring that beverage alcohol is allowed the same protection under the First Amendment as other legal products and services. In addition, the Courts also ruled that truthful and non-misleading advertising is an essential part of the free enterprise system. Withholding this form of advertising deprives the consumers of knowledge that is needed to make conscious and informed decisions. Federal Regulations Advertising hard liquor on TV is a constitutionally protected right, however, the industry must follow strict Federal regulations. An advertisement of distilled spirits can not contain any false or misleading statement that tends to create a misleading impression of the product to the consumer. Furthermore, a statement in an advertisement cannot say anything bad about a competitor's product. Provisions are made also for a statement's design that cannot contain any material that is obscene or indecent. Federal regulations do not permit claims of distilled spirits having curative or therapeutic qualities. This practice was very popular in the 1800's and early 1900's. Traveling salespersons would often stage a show in the middle of small towns claiming a miracle cure for various sicknesses. Most often, the cure would involve alcohol consumption causing the consumer to become intoxicated. This advertising was false and misleading. Flags, seals, coats of arms, crests, and other insignias which can be capable of relating to the American flag or a branch of the armed forces is strictly prohibited. The advertisement can not mislead the consumer into thinking that the product is endorsed, made, used by, or produced for any of the government, organizations, or families these insignias are associated. 3 The use of deceptive advertising techniques such as subliminal techniques are also prohibited under federal regulations. Subliminal techniques refer to any advertising technique that attempts to convey a message to a person by means of images or sounds that are very brief. These messages usually cannot be perceived at a normal level of awareness according to federal regulations. The federal regulations above are only a select few. There are many constraints on advertising distilled spirits. In addition to advertising constraints there are many prohibited practices concerning bottling and labeling of hard liquor. Persons who are interested in finding out this information it can be found on the World Wide Web at http://143.231.208.199/. 104TH Congress Bills Federal regulations for hard liquor advertising are very strict. However, some lawmakers believe that the regulations are not strict enough. United States Representative Joe Kennedy, Democrat from Massachusetts, is a major player in introducing legislation to further restrict or stop distilled spirits advertising. Mr. Kennedy introduced several bills to the 104th Congress. The first bill he introduced is known as the "Children's Protection from Alcohol Advertising Act of 1996". The purpose of this bill is to establish advertising requirements for alcoholic beverages. Restrictions proposed by this bill are that no alcoholic beverage can be advertised on any audio tape, audio disc, videotape, video arcade game, computer game or in film. Furthermore, no outdoor advertising of alcoholic beverages can be located within one thousand feet of any school, playground, or other public facility where persons under 21 are expected to be present. Another major provision of this bill is to restrict any advertisement on TV between the hours of 7:00 A.M. and 10:00 P.M. to be limited to only a picture of the beverage with factual, objective audio information about the beverage. A second bill introduced by Mr. Kennedy is the "Sensible Advertising and Family Education Act". The act requires Surgeon General's Warnings on all media advertisements on TV. Such warnings as "Alcohol is a drug and may be addictive" (WWW, Sensible Advertising and Family Education Act). A third bill introduced is the "Alcohol Advertising Accountability Act of 1996". The bill proposed by Mr. Kennedy and others requires the Secretary of Health and Human Services to report annually to the Congress on alcohol advertising. The report consists of alcohol advertising profiles and its effects on consumers. In addition, the above bill will require the Secretary of Health and Human Services to establish a panel to assist in gathering information. The information will consist of the 4 media used by alcohol advertising to reach children. Furthermore, the total expenses for alcoholic beverage advertising in each media such as TV, magazines, and radio. The report will also identify the types of themes, especially on TV ads, of advertising beverage alcohol. The report content will also include a determination of the extent young people are exposed to alcohol advertising. The relationship between alcohol advertising practices and underage drinking will also be evaluated. Consequently, the evaluation of the above factors will include recommendations for legislation by the Secretary of Health and Human Services. The most recent bill introduced by Mr. Kennedy is the "Just Say No Act". His undying efforts to ban alcohol advertising is enforced in this bill. Mr. Kennedy suggests that distilled spirits on any medium of electronic communication shall be unlawful. PROFITABILITY Target Market The market for distilled spirits is shrinking as its loyal customers are aging. The need for a younger market has spawned the industries decision to advertise in order to increase profits. The graph below represents the percentage of people who say they drink, and their respective age. Furthermore, the graph compares the type of alcohol each age group is inclined to drink. Corporate Profits 5 According to Impact, a publication for the alcoholic beverage industry, distilled spirits will show its first growth in 15 years. The total spirits category is expected to rise 0.3 percent. In addition, the top 25 premium brands are expected to be up 4.9 percent. Crain Communications Inc. suggests that "the turnaround comes as some liquor marketers are attempting to move into TV..."(WWW, Spirits Sales Drought Eases). Media Profits Corporations are not the only beneficiaries to increasing profits. The media has much more revenue to gain from this venture to TV. However, the major networks, do not want to air hard liquor advertisements. They fear they will lose money from beer and wine marketers. This is not the case with locally owned affiliates and some cable networks. They will accept part of almost $228 million the industry spends annually on advertising. SOCIAL RESPONSIBILITY DISCUS Code of Good Practice DISCUS is the trade association representing producers and marketers of distilled spirits sold in the United States. The association claims, " the industry holds itself to a higher standard than required by any laws or regulations that apply to the marketing or advertising of beverage alcohol "(WWW, DISCUS Code of Good Practice: An Enduring Example...). The industry not only has to follow strict government regulations, as discussed in the law section of the report, but has its own voluntary Code of Good Practice for distilled spirits advertising. According to DISCUS the code has two fundamental principles: " (1) to ensure responsible, tasteful, and dignified advertising and marketing of distilled spirits to adult consumers who choose to drink", and " (2) to avoid targeting advertising and marketing of distilled spirits to individuals below the purchase age" (WWW, DISCUSS Code of Good Practice: An Enduring Example...). The Code of Good Practice contains provisions on responsible content and responsible placement of spirits advertising. A few provisions are firstly, distilled spirits should not be advertised or marketed in any manner directed or primarily intended to appeal to persons below the legal drinking age. Secondly, distilled spirits advertising should not depict a child or portray objects, images, or cartoon figures that are popular with children. Finally, distilled spirits advertising should portray distilled spirits and drinkers in a responsible manner. 6 Public Education DISCUS members of the distilled spirits industry claim to pay a vital role in fighting alcohol abuse. DISCUS supports, develops or initiates social responsibility efforts to educate the public about beverage alcohol. The Century Council is a non-profit organization mainly supported by DISCUS and its members. Their objective is to reduce alcohol abuse across the U.S. The Century Council investigates, funds, and implements innovative approaches to address the problems of underage drinking and drunk driving. DISCUS and its members not only support the Century Council but various other organizations as well. A few of these organizations are the: White House Leadership Conference on Youth, Drug Use, and Violence, the National Commission Against Drunk Driving(NCADD), BACCHUS ( Boosting Alcohol Consciousness Concerning Health of University Students), and "Friends Don't Let Friends Drive Drunk". Everyone of these organizations deal with the curbing of underage drinking, alcohol abuse, and other various problems. DISCUS involvement with the above organizations are not the only social obligations the establishment is concerned with. In 1994 they initiated legislation to Congress known as the "Drunk Driving Prevention Act". The act make provisions to include mandatory alcohol and drug education for drivers. In addition, the ban of open containers in vehicles and zero tolerance for drivers under age 21 who are caught drinking. The act also includes Administrative Licenses Revocation(ALR) whereby authorizing a police officer to confiscate the license of any driver who fails a chemical test or refuses to take one. Many of these laws are in use today, thereby being adopted by state legislature. Parental Guidance Roper Starch research organization conducted a national survey asking young people what influenced their decision to drink or not drink. The survey resulted in 60 percent citing their parents as their primary influence, 28 percent cite their peers, while only 4 percent site advertisements. The results of this research suggest that distilled spirits advertising is not the culprit for alcohol abuse. Improper parental guidance and lack of public education is the determining factors in alcohol abuse. CONCLUSION The conclusion reached through this report's findings are that: 7 . The distilled spirits industry should be allowed to advertise on TV along with beer and wine. The industry should get equal and fair treatment as the other alcohol industries afforded by the First Amendment. . Government will always pose regulations on industry. The role of the government is to protect and serve the citizens of the U.S. The distilled spirits industry has and will continue to abide by these regulations. The industry claims to hold itself to higher standards than that of the regulations imposed by government. . The answer to America's alcohol problems is not to ban advertisements. Free speech and the promise of a better tomorrow is what makes this country great. Public education, parental guidance and freedom of choice are the answer to the problems. ii BIBLIOGRAPHY Code of Federal Regulations. CITE: 27 CFR Sec.5.63. EXPCITE Title 27. CHAPTER I. SUBCHAPTER A, PART 5, Subpart H. Online. Http://143.231.208.199/cgi-bin/fastweb..wAAA+distilled%26spirits%26advertising. Code of Federal Regulations. CITE: 27 CFR Sed.5.65. EXPCITE Title 27. CHAPTER I. SUBCHAPTER A, PART 5, Subpart H. Online. Http://143.231.208.199/cgi-bin/fastweb...wAAA+distilled%26spirits%26advertising. Crain Communications Inc. "Spirits Sales Drought Eases:." (Dec. 1996). Online. Http://adage.com/ns-search/news-an.../. Dallas(AP). "Liquor Ads Start on Television After Decades-Long Voluntary Ban." The New York Times. (June 12,96). Online. Http://www.newstimes.com/archive/jun1296/ nab.htm. Distilled Spirits Council of the U.S. "Beverage Alcohol Advertising: A Constitutionally Protected Right." Online. Http://www.discuss.health.org/adcode/const.htm. Distilled Spirits Council of the U.S. "DISCUS Code of Good Practice: An Enduring Example of Social and Corporate Responsibility." Online. Http://www.discuss.health.org /adcode/code.htm. Distilled Spirits Council of the U.S. "Distillers Change Advertising Code to Advance Equal Treatment." Online. Http://www.discus.health.org/adcode/prad.htm. Distilled Spirits Council of the U.S. "Distillers Spirits Advertising in Perspective." Online. Http://www.discus.health.org/adcode/adpers.htm. Distilled Spirits Council of the U.S. "Social Responsibility and Public Education: The Distilled Spirits Industry's Commitment to Curbing Alcohol Abuse." Online. Http://www.discuss.health.org/adcode/social.htm. Jackson, Jerry T. "Dor Issues Policy Statement Regarding Liquor Advertising." (July, 1996). Online. Http://www.state.ga.us/Departments/DOR/pressrel/p071296a.htm. McDowell, Bill., Teinowitz, Ira. "Cable Network To Take Liquor Ads." (Nov., 1996). Online. Http://adage.com/news_and_features/features/19961111/article5.html. iii U.S. House Of Representatives. "Alcohol Advertising Accountability Act of 1996(Introduced in the House). "Online. Http://rs9.loc.gov/cgi-bin/query12?c104: H.R.+3475:. U.S. House Of Representatives. "Childrens Protection from Alcohol Advertising Act of 1996(Introduced in the House)." Online. Http://rs9.loc.gov/cgi-bi/query/2?c104: H.R.3473:. U.S. House Of Representatives. "Just Say No Act(Introduced in the House)." Online. Http://rs9.loc.gov/cgi-bin/query/2104:H.R.+3644:. U.S. House Of Representatives. "Sensible Advertising and Family Education Act." Online. Http://rs9.loc.gov/cgi-bin/query/1?c104:./temp/~c104H0mc!e817:. i Part Page I. INTRODUCTION .................................................................... 1 A. Purpose ................................................................................ 1 . Sources and Methods ............................................................1 . History ...................................................................................1 . Definitions ............................................................................2 . LAWS .......................................................................................2 . Constitutional .......................................................................2 . Federal Regulations .............................................................2 . 104th Congress Bills .............................................................3 . PROFITABILITY ..................................................................... 3 A. Target Market .......................................................................4 . Corporate Profits .................................................................5 C. Media Profits .......................................................................5 . SOCIAL RESPONSABILITY ...................................................5 . DISCUS Code of Good Practice ..........................................5 . Public Education ..................................................................6 . Parental Guidance .................................................................6 . CONCLUSION ............................................................................6 VI. BIBLIOGRAPHY ...................................................................... ii f:\12000 essays\business & economics (632)\What Are The History Laws, Profitability, and Responsibilities To The Consumer.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ What Are The History, Laws, Profitability, and Responsibilities To The Consumer Of Advertising Hard Liquor on TV In The United States? INTRODUCTION Purpose The goal of this report is to inform the reader of the recent events that prompted hard liquor advertising on TV. In addition, the laws associated with advertising across this media, as well as recent legislative endeavors to control such advertising. Furthermore, the report also focuses on the potential profitability the distilled spirit's industry will gain from advertising across this media and the industries social responsibilities to the consumer. Sources and Methods Research for this report is gathered mainly from information found on the World Wide Web. Some information was gained through newspaper articles obtained by using the InfoTrac system in the Ruth Scarborough Library on the Shepherd College Campus. Refer to the bibliography for specific information references. History Research by the Distilled Spirits Council of the United States (DISCUS) found that 30 to 50 percent of Americans think that distilled spirits are being advertised on TV. Since Prohibition the hard liquor industry voluntarily agreed not to advertise their products, first on radio in 1936, and of TV in 1948. However, the industry is being faced with declining sales. Their competitors such as the beer and wine industries have grown. The sales of beer and wine have increased dramatically, leaving the hard liquor industry behind. The main reason for this occurrence is due to the fact that these industries have tapped into the resource of advertising on TV. Consequently, this has prompted the hard liquor industry to reevaluate its current marketing situation. The first company to take the leap to TV is Seagram. The Seagram company began advertising 30-second Crown Royal whiskey commercials in Corpus Christi, Texas. Definitions The words "distilled spirit" is used throughout this report. Distilled spirits and hard liquor in this report have the same meaning. Distill means to let fall, exude, or precipitate in drops or in a wet mist according to Webster's Dictionary. Hard liquor is the end result of this process using the appropriate ingredients. Distilled spirit is any alcoholic beverage not defined as beer or wine. Laws Constitutional The right to advertise is constitutionally protected commercial free speech under the First Amendment. This fact is being upheld in a recent commercial free speech decision by the Supreme Court. The case of 44 Liquormart, Inc. vs. Rhode Island upholds the industry's commercial free speech rights by insuring that beverage alcohol is allowed the same protection under the First Amendment as other legal products and services. In addition, the Courts also ruled that truthful and non-misleading advertising is an essential part of the free enterprise system. Withholding this form of advertising deprives the consumers of knowledge that is needed to make conscious and informed decisions. Federal Regulations Advertising hard liquor on TV is a constitutionally protected right, however, the industry must follow strict Federal regulations. An advertisement of distilled spirits can not contain any false or misleading statement that tends to create a misleading impression of the product to the consumer. Furthermore, a statement in an advertisement cannot say anything bad about a competitor's product. Provisions are made also for a statement's design that cannot contain any material that is obscene or indecent. Federal regulations do not permit claims of distilled spirits having curative or therapeutic qualities. This practice was very popular in the 1800's and early 1900's. Traveling salespersons would often stage a show in the middle of small towns claiming a miracle cure for various sicknesses. Most often, the cure would involve alcohol consumption causing the consumer to become intoxicated. This advertising was false and misleading. Flags, seals, coats of arms, crests, and other insignias which can be capable of relating to the American flag or a branch of the armed forces is strictly prohibited. The advertisement can not mislead the consumer into thinking that the product is endorsed, made, used by, or produced for any of the government, organizations, or families these insignias are associated. The use of deceptive advertising techniques such as subliminal techniques are also prohibited under federal regulations. Subliminal techniques refer to any advertising technique that attempts to convey a message to a person by means of images or sounds that are very brief. These messages usually cannot be perceived at a normal level of awareness according to federal regulations. The federal regulations above are only a select few. There are many constraints on advertising distilled spirits. In addition to advertising constraints there are many prohibited practices concerning bottling and labeling of hard liquor. Persons who are interested in finding out this information it can be found on the World Wide Web at http://143.231.208.199/. 104TH Congress Bills Federal regulations for hard liquor advertising are very strict. However, some lawmakers believe that the regulations are not strict enough. United States Representative Joe Kennedy, Democrat from Massachusetts, is a major player in introducing legislation to further restrict or stop distilled spirits advertising. Mr. Kennedy introduced several bills to the 104th Congress. The first bill he introduced is known as the "Children's Protection from Alcohol Advertising Act of 1996". The purpose of this bill is to establish advertising requirements for alcoholic beverages. Restrictions proposed by this bill are that no alcoholic beverage can be advertised on any audio tape, audio disc, videotape, video arcade game, computer game or in film. Furthermore, no outdoor advertising of alcoholic beverages can be located within one thousand feet of any school, playground, or other public facility where persons under 21 are expected to be present. Another major provision of this bill is to restrict any advertisement on TV between the hours of 7:00 A.M. and 10:00 P.M. to be limited to only a picture of the beverage with factual, objective audio information about the beverage. A second bill introduced by Mr. Kennedy is the "Sensible Advertising and Family Education Act". The act requires Surgeon General's Warnings on all media advertisements on TV. Such warnings as "Alcohol is a drug and may be addictive" (WWW, Sensible Advertising and Family Education Act). A third bill introduced is the "Alcohol Advertising Accountability Act of 1996". The bill proposed by Mr. Kennedy and others requires the Secretary of Health and Human Services to report annually to the Congress on alcohol advertising. The report consists of alcohol advertising profiles and its effects on consumers. In addition, the above bill will require the Secretary of Health and Human Services to establish a panel to assist in gathering information. The information will consist of the media used by alcohol advertising to reach children. Furthermore, the total expenses for alcoholic beverage advertising in each media such as TV, magazines, and radio. The report will also identify the types of themes, especially on TV ads, of advertising beverage alcohol. The report content will also include a determination of the extent young people are exposed to alcohol advertising. The relationship between alcohol advertising practices and underage drinking will also be evaluated. Consequently, the evaluation of the above factors will include recommendations for legislation by the Secretary of Health and Human Services. The most recent bill introduced by Mr. Kennedy is the "Just Say No Act". His undying efforts to ban alcohol advertising is enforced in this bill. Mr. Kennedy suggests that distilled spirits on any medium of electronic communication shall be unlawful. PROFITABILITY Target Market The market for distilled spirits is shrinking as its loyal customers are aging. The need for a younger market has spawned the industries decision to advertise in order to increase profits. The graph below represents the percentage of people who say they drink, and their respective age. Furthermore, the graph compares the type of alcohol each age group is inclined to drink. Corporate Profits According to Impact, a publication for the alcoholic beverage industry, distilled spirits will show its first growth in 15 years. The total spirits category is expected to rise 0.3 percent. In addition, the top 25 premium brands are expected to be up 4.9 percent. Crain Communications Inc. suggests that "the turnaround comes as some liquor marketers are attempting to move into TV..."(WWW, Spirits Sales Drought Eases). Media Profits Corporations are not the only beneficiaries to increasing profits. The media has much more revenue to gain from this venture to TV. However, the major networks, do not want to air hard liquor advertisements. They fear they will lose money from beer and wine marketers. This is not the case with locally owned affiliates and some cable networks. They will accept part of almost $228 million the industry spends annually on advertising. SOCIAL RESPONSIBILITY DISCUS Code of Good Practice DISCUS is the trade association representing producers and marketers of distilled spirits sold in the United States. The association claims, " the industry holds itself to a higher standard than required by any laws or regulations that apply to the marketing or advertising of beverage alcohol "(WWW, DISCUS Code of Good Practice: An Enduring Example...). The industry not only has to follow strict government regulations, as discussed in the law section of the report, but has its own voluntary Code of Good Practice for distilled spirits advertising. According to DISCUS the code has two fundamental principles: " (1) to ensure responsible, tasteful, and dignified advertising and marketing of distilled spirits to adult consumers who choose to drink", and " (2) to avoid targeting advertising and marketing of distilled spirits to individuals below the purchase age" (WWW, DISCUSS Code of Good Practice: An Enduring Example...). The Code of Good Practice contains provisions on responsible content and responsible placement of spirits advertising. A few provisions are firstly, distilled spirits should not be advertised or marketed in any manner directed or primarily intended to appeal to persons below the legal drinking age. Secondly, distilled spirits advertising should not depict a child or portray objects, images, or cartoon figures that are popular with children. Finally, distilled spirits advertising should portray distilled spirits and drinkers in a responsible manner. Public Education DISCUS members of the distilled spirits industry claim to pay a vital role in fighting alcohol abuse. DISCUS supports, develops or initiates social responsibility efforts to educate the public about beverage alcohol. The Century Council is a non-profit organization mainly supported by DISCUS and its members. Their objective is to reduce alcohol abuse across the U.S. The Century Council investigates, funds, and implements innovative approaches to address the problems of underage drinking and drunk driving. DISCUS and its members not only support the Century Council but various other organizations as well. A few of these organizations are the: White House Leadership Conference on Youth, Drug Use, and Violence, the National Commission Against Drunk Driving(NCADD), BACCHUS ( Boosting Alcohol Consciousness Concerning Health of University Students), and "Friends Don't Let Friends Drive Drunk". Everyone of these organizations deal with the curbing of underage drinking, alcohol abuse, and other various problems. DISCUS involvement with the above organizations are not the only social obligations the establishment is concerned with. In 1994 they initiated legislation to Congress known as the "Drunk Driving Prevention Act". The act make provisions to include mandatory alcohol and drug education for drivers. In addition, the ban of open containers in vehicles and zero tolerance for drivers under age 21 who are caught drinking. The act also includes Administrative Licenses Revocation(ALR) whereby authorizing a police officer to confiscate the license of any driver who fails a chemical test or refuses to take one. Many of these laws are in use today, thereby being adopted by state legislature. Parental Guidance Roper Starch research organization conducted a national survey asking young people what influenced their decision to drink or not drink. The survey resulted in 60 percent citing their parents as their primary influence, 28 percent cite their peers, while only 4 percent site advertisements. The results of this research suggest that distilled spirits advertising is not the culprit for alcohol abuse. Improper parental guidance and lack of public education is the determining factors in alcohol abuse. CONCLUSION The conclusion reached through this report's findings are that: . The distilled spirits industry should be allowed to advertise on TV along with beer and wine. The industry should get equal and fair treatment as the other alcohol industries afforded by the First Amendment. . Government will always pose regulations on industry. The role of the government is to protect and serve the citizens of the U.S. The distilled spirits industry has and will continue to abide by these regulations. The industry claims to hold itself to higher standards than that of the regulations imposed by government. . The answer to America's alcohol problems is not to ban advertisements. Free speech and the promise of a better tomorrow is what makes this country great. Public education, parental guidance and freedom of choice are the answer to the problems. BIBLIOGRAPHY Code of Federal Regulations. CITE: 27 CFR Sec.5.63. EXPCITE Title 27. CHAPTER I. SUBCHAPTER A, PART 5, Subpart H. Online. Http://143.231.208.199/cgi- bin/fastweb..wAAA+distilled%26spirits%26advertising. Code of Federal Regulations. CITE: 27 CFR Sed.5.65. EXPCITE Title 27. CHAPTER I. SUBCHAPTER A, PART 5, Subpart H. Online. Http://143.231.208.199/cgi- bin/fastweb...wAAA+distilled%26spirits%26advertising. Crain Communications Inc. "Spirits Sales Drought Eases:." (Dec. 1996). Online. Http://adage.com/ns-search/news-an.../. Dallas(AP). "Liquor Ads Start on Television After Decades-Long Voluntary Ban." The New York Times. (June 12,96). Online. Http://www.newstimes.com/archive/jun1296/ nab.htm. Distilled Spirits Council of the U.S. "Beverage Alcohol Advertising: A Constitutionally Protected Right." Online. Http://www.discuss.health.org/adcode/const.htm. Distilled Spirits Council of the U.S. "DISCUS Code of Good Practice: An Enduring Example of Social and Corporate Responsibility." Online. Http://www.discuss.health.org /adcode/code.htm. Distilled Spirits Council of the U.S. "Distillers Change Advertising Code to Advance Equal Treatment." Online. Http://www.discus.health.org/adcode/prad.htm. Distilled Spirits Council of the U.S. "Distillers Spirits Advertising in Perspective." Online. Http://www.discus.health.org/adcode/adpers.htm. Distilled Spirits Council of the U.S. "Social Responsibility and Public Education: The Distilled Spirits Industry's Commitment to Curbing Alcohol Abuse." Online. Http://www.discuss.health.org/adcode/social.htm. Jackson, Jerry T. "Dor Issues Policy Statement Regarding Liquor Advertising." (July, 1996). Online. Http://www.state.ga.us/Departments/DOR/pressrel/p071296a.htm. McDowell, Bill., Teinowitz, Ira. "Cable Network To Take Liquor Ads." (Nov., 1996). Online. Http://adage.com/news_and_ features/features/19961111/article5.html. U.S. House Of Representatives. "Alcohol Advertising Accountability Act of 1996(Introduced in the House). "Online. Http://rs9.loc.gov/cgi- bin/query12?c104: H.R.+3475:. U.S. House Of Representatives. "Childrens Protection from Alcohol Advertising Act of 1996(Introduced in the House)." Online. Http://rs9.loc.gov/cgi- bi/query/2?c104: H.R.3473:. U.S. House Of Representatives. "Just Say No Act(Introduced in the House)." Online. Http://rs9.loc.gov/cgi-bin/query/2104:H.R.+3644:. U.S. House Of Representatives. "Sensible Advertising and Family Education Act." Online. Http://rs9.loc.gov/cgi-bin/query/1?c104:./temp/~c104H0mc!e817:. I. INTRODUCTION ...................................... 1 A. Purpose ..................................... 1 Sources and Methods .................................1 History .............................................1 Definitions .........................................2 LAWS ................................................2 Constitutional ......................................2 Federal Regulations .................................2 104th Congress Bills ................................3 PROFITABILITY .......................................3 A. Target Market ................................4 Corporate Profits ...................................5 C. Media Profits ................................5 SOCIAL RESPONSABILITY ...............................5 DISCUS Code of Good Practice ........................5 Public Education ....................................6 Parental Guidance ...................................6 CONCLUSION ..........................................6 VI. BIBLIOGRAPHY ....................................ii d f:\12000 essays\business & economics (632)\What Went Wrong with America.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ What Went Wrong with America's Schools? Education is the key to any countries economic success. For a country to be economically sound, the business and industry within that country must be financially prosperous. In todays high tech world economy, businesses and industries need well educated employees to prosper. Therefore, the deterioration of a countries educational system should be considered a major economic problem. Between 1965 and 1980, the performance of American students dramatically declined, the educational system fell backwards, and it is affecting todays schools, as well as the future of the US's work force. During that 15 year period, US students' test scores severely dropped in comparison to other industrial countries. After 1980, the dropping scores leveled off, and recently, they have begun in increase. But American students must play catch-up with the rest of the world, and todays public school system is not prepared to facilitate the major leap forward that our educational system needs. Before 1965, America's public school system was producing better educated students with less money and fewer supplies than today. Each class was approximately 40% larger than today's classes, and they functioned with about one-third of the real dollar expenditures of present day schools. They taught with fewer books and less equipment, and did not have any of todays audio-visual material and equipment. Then, between 1965 and 1980, real dollar expenditures per student doubled as teacher to student ratio dropped by one forth. Yet, with more money and fewer students per class, student achievement deteriorated in every available measure. In 15 years, national SAT scores declined by 5 points annually. That 75 point drop has put the US behind greatly, and has left todays students with a lot of ground to make up in order to reach other countries test score levels. The cause of this dramatic drop can not been attributed to any one thing. The decline was sudden, sharp, and affected every region and socioeconomic group in the country. Because the 60's and 70's were a time of major changes, nothing that happened in that era can be ruled out. But a few major changes within the educational system have been linked to the decline. The first major change was the unionization of teachers. Before 1960, there were virtually no teacher's unions. Then, starting in 1960, there was a large movement of teacher's unions. By 1970, more than 50% of all teachers were members of one union or another. Today, around 75% of teachers are unionized. Teachers strikes, which were almost nonexistent before 1960, now seem to mark the beginning of fall. While the new unions help to give teachers more job security, higher pay, and pension plans, they often affected the educational process. Another major change in the educational system was that schools began to become more centralized. This started soon after WWII. After the wars end, there were approximately 100,000 school districts in the United States. By 1970, that number had reduced to less that 20,000. The physical unification of school was not as important as was the financial centralization of schools, which began in the 60's. Before the unifications, local school boards raised about 60% of their own school funds, mostly with real estate taxes. The bulk of the rest of the needed funds came from state government. By 1980, though, local school boards were receiving 60% of their funds from the government and generated only 40% of their own funds. Those schools that received increased government funds first were some of the first to decline. This added to the theory that a schools performance is hindered by the bureaucratic controls over them that are less responsive to the school's and parents' concerns. As more money was coming from the government, the teachers and parents had less of a say in how those funds were spent. Recently, the educational system has shown improvement, and test scores are improving as well, but it is still not enough to bring us up to international levels. US students are playing catch-up with other countries. But many schools do not have the needed financial support to increase the learning environment. The government support is not available because taxes do not bring in enough to cover all of the governments needs. This lack of school funds forces schools to lay off teachers, which increases class sizes and puts more work on the already overworked teaching staff. Schools are also starting pay- to-play program with their sports and school sponsored activities. Some schools are being forced to completely eliminate art and industrial education classes. Colleges are also affected by the shortage of funds. As government funding is cut, colleges must raise their tuition, which makes it harder for people to afford college. This causes a drop in college-educated workers. This drop will dramatically decrease the economic gain of many large businesses, which will affect the nations economy. Although schools are doing better and test scores are increasing, the rate of increase needs to accelerate significantly. There are a few ways to help increase our rate of recovery. One way is to increase government funds to schools. Lack of proper financial support has surpassed drug abuse as America's leading concern with public education. And 68% of the population say they would be willing to pay more taxes to schools. Many, 85%, support distributing funds more equally throughout each state by taking some of the funds from wealthier school districts and giving it to districts with greater need. This would even out the schools financially and allow poorer districts access to needed funds. A second way to increase our schools progress is to dramatically alter high school learning. Fashion high schools more like colleges. Make each class more challenging, and extend each class period to 90 minutes instead of 45 minutes, but make classes every-other day. While students would end up spending as much time in each class altogether, ninety minute classes are much more productive. They allow teachers to get more involved with each topic, and longer classes allow more time for teachers to help students one on one. Longer classes also allow students to have time to start homework in class. An increase in head-start and preschool programs would help significantly as well. By starting children in the learning process early, they learn more rapidly and perform better in school. Although this is not a quick way to increase student skills, it is an effective way to insure good students later. Another way to improve students is to test them for graduation. Before any student graduates, they must first pass a test to rate their skills in different skills. In order to graduate, you must pass that test. Using the SAT 's would be appropriate. Have taking the SAT 's mandatory and set a minimum to pass. If the student passes, then he/she graduates. This would insure that everyone who graduates from high school has at least a certain skill level. Allowing parents to choose which school their child attends could also help increase the effectiveness of our high schools. By allowing parents to choose, a compentiton is formed between schools. This competition could force schools to offer improved curriculums to attract students. Competition could streamline the educational system and make it more effective with less money. I believe that the best way to improve our future economy is to restructure our public high school system. America needs to increase funding of public schools, and the school system needs to be revamped, to better prepare students for college and the work force. As the system is today, most high school students are not graduating with the needed knowledge or study skills to succeed in college. Much of high school is spent goofing around, not learning. By using college classes as a model, high schools could prepare students more effectively, and increase the overall learning rate in public schools. The educational collapse of the 70's and 80's has left America with a lower learning rate and lower test scores. But with the restructuring of public teaching and the present increase in learning and test scores, America will be on its way to being a leader in education again. And with a well educated work force, the US economy will continue to grow and prosper. Bibliography Stanley M. Elam, Lowell C. Rose, and Alec M. Gallup, "The 25th Annual Phi Delta Kappa/Gallup Poll of the Public's Attitudes Toward the Public Schools," Phi Delta Kappan, October 1993, pages 137-152 William Kristol and Jay P. Lefkowitz, "Our Students, Still at Risk," New York Times, 3 May 1993, p.A-23 Sam Peltzman, "What's Behind the Decline of Public Schools?" USA Today, July 1994, pages 22-24 The Carnegie Foundation for the Advancement of Teaching, "More than Survival" 1980 copyright by Jossey-Bass Publishers, San Francisco, CA Gerald W Bracey, "The Third Bracey Report on the Condition of Public Education" Phi Delta Kappan, October 1993, pages 105-117 Jim Fox, "The Wrong Whipping Boy" Phi Delta Kappan, October 1993, pages 118-119 f:\12000 essays\business & economics (632)\what went wrong with americas schools.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Education is the key to any countries economic success. For a country to be economically sound, the business and industry within that country must be financially prosperous. In todays high tech world economy, businesses and industries need well educated employees to prosper. Therefore, the deterioration of a countries educational system should be considered a major economic problem. Between 1965 and 1980, the performance of American students dramatically declined, the educational system fell backwards, and it is affecting todays schools, as well as the future of the US's work force. During that 15 year period, US students' test scores severely dropped in comparison to other industrial countries. After 1980, the dropping scores leveled off, and recently, they have begun in increase. But American students must play catch-up with the rest of the world, and todays public school system is not prepared to facilitate the major leap forward that our educational system needs. Before 1965, America's public school system was producing better educated students with less money and fewer supplies than today. Each class was approximately 40% larger than today's classes, and they functioned with about one-third of the real dollar expenditures of present day schools. They taught with fewer books and less equipment, and did not have any of todays audio-visual material and equipment. Then, between 1965 and 1980, real dollar expenditures per student doubled as teacher to student ratio dropped by one forth. Yet, with more money and fewer students per class, student achievement deteriorated in every available measure. In 15 years, national SAT scores declined by 5 points annually. That 75 point drop has put the US behind greatly, and has left todays students with a lot of ground to make up in order to reach other countries test score levels. The cause of this dramatic drop can not been attributed to any one thing. The decline was sudden, sharp, and affected every region and socioeconomic group in the country. Because the 60's and 70's were a time of major changes, nothing that happened in that era can be ruled out. But a few major changes within the educational system have been linked to the decline. The first major change was the unionization of teachers. Before 1960, there were virtually no teacher's unions. Then, starting in 1960, there was a large movement of teacher's unions. By 1970, more than 50% of all teachers were members of one union or another. Today, around 75% of teachers are unionized. Teachers strikes, which were almost nonexistent before 1960, now seem to mark the beginning of fall. While the new unions help to give teachers more job security, higher pay, and pension plans, they often affected the educational process. Another major change in the educational system was that schools began to become more centralized. This started soon after WWII. After the wars end, there were approximately 100,000 school districts in the United States. By 1970, that number had reduced to less that 20,000. The physical unification of school was not as important as was the financial centralization of schools, which began in the 60's. Before the unifications, local school boards raised about 60% of their own school funds, mostly with real estate taxes. The bulk of the rest of the needed funds came from state government. By 1980, though, local school boards were receiving 60% of their funds from the government and generated only 40% of their own funds. Those schools that received increased government funds first were some of the first to decline. This added to the theory that a schools performance is hindered by the bureaucratic controls over them that are less responsive to the school's and parents' concerns. As more money was coming from the government, the teachers and parents had less of a say in how those funds were spent. Recently, the educational system has shown improvement, and test scores are improving as well, but it is still not enough to bring us up to international levels. US students are playing catch-up with other countries. But many schools do not have the needed financial support to increase the learning environment. The government support is not available because taxes do not bring in enough to cover all of the governments needs. This lack of school funds forces schools to lay off teachers, which increases class sizes and puts more work on the already overworked teaching staff. Schools are also starting pay- to-play program with their sports and school sponsored activities. Some schools are being forced to completely eliminate art and industrial education classes. Colleges are also affected by the shortage of funds. As government funding is cut, colleges must raise their tuition, which makes it harder for people to afford college. This causes a drop in college-educated workers. This drop will dramatically decrease the economic gain of many large businesses, which will affect the nations economy. Although schools are doing better and test scores are increasing, the rate of increase needs to accelerate significantly. There are a few ways to help increase our rate of recovery. One way is to increase government funds to schools. Lack of proper financial support has surpassed drug abuse as America's leading concern with public education. And 68% of the population say they would be willing to pay more taxes to schools. Many, 85%, support distributing funds more equally throughout each state by taking some of the funds from wealthier school districts and giving it to districts with greater need. This would even out the schools financially and allow poorer districts access to needed funds. A second way to increase our schools progress is to dramatically alter high school learning. Fashion high schools more like colleges. Make each class more challenging, and extend each class period to 90 minutes instead of 45 minutes, but make classes every-other day. While students would end up spending as much time in each class altogether, ninety minute classes are much more productive. They allow teachers to get more involved with each topic, and longer classes allow more time for teachers to help students one on one. Longer classes also allow students to have time to start homework in class. An increase in head-start and preschool programs would help significantly as well. By starting children in the learning process early, they learn more rapidly and perform better in school. Although this is not a quick way to increase student skills, it is an effective way to insure good students later. Another way to improve students is to test them for graduation. Before any student graduates, they must first pass a test to rate their skills in different skills. In order to graduate, you must pass that test. Using the SAT 's would be appropriate. Have taking the SAT 's mandatory and set a minimum to pass. If the student passes, then he/she graduates. This would insure that everyone who graduates from high school has at least a certain skill level. Allowing parents to choose which school their child attends could also help increase the effectiveness of our high schools. By allowing parents to choose, a compentiton is formed between schools. This competition could force schools to offer improved curriculums to attract students. Competition could streamline the educational system and make it more effective with less money. I believe that the best way to improve our future economy is to restructure our public high school system. America needs to increase funding of public schools, and the school system needs to be revamped, to better prepare students for college and the work force. As the system is today, most high school students are not graduating with the needed knowledge or study skills to succeed in college. Much of high school is spent goofing around, not learning. By using college classes as a model, high schools could prepare students more effectively, and increase the overall learning rate in public schools. The educational collapse of the 70's and 80's has left America with a lower learning rate and lower test scores. But with the restructuring of public teaching and the present increase in learning and test scores, America will be on its way to being a leader in education again. And with a well educated work force, the US economy will continue to grow and prosper. Bibliography Stanley M. Elam, Lowell C. Rose, and Alec M. Gallup, "The 25th Annual Phi Delta Kappa/Gallup Poll of the Public's Attitudes Toward the Public Schools," Phi Delta Kappan, October 1993, pages 137-152 William Kristol and Jay P. Lefkowitz, "Our Students, Still at Risk," New York Times, 3 May 1993, p.A-23 Sam Peltzman, "What's Behind the Decline of Public Schools?" USA Today, July 1994, pages 22-24 The Carnegie Foundation for the Advancement of Teaching, "More than Survival" 1980 copyright by Jossey-Bass Publishers, San Francisco, CA Gerald W Bracey, "The Third Bracey Report on the Condition of Public Education" Phi Delta Kappan, October 1993, pages 105-117 Jim Fox, "The Wrong Whipping Boy" Phi Delta Kappan, October 1993, pages 118-119 What Went Wrong with America's Schools? By Econ 115 November 17, 1994 Education is the key to any countries economic success. For a country to be economically sound, the business and industry within that country must be financially prosperous. In todays high tech world economy, businesses and industries need well educated employees to prosper. Therefore, the deterioration of a countries educational system should be considered a major economic problem. Between 1965 and 1980, the performance of American students dramatically declined, the educational system fell backwards, and it is affecting todays schools, as well as the future of the US's work force. During that 15 year period, US students' test scores severely dropped in comparison to other industrial countries. After 1980, the dropping scores leveled off, and recently, they have begun in increase. But American students must play catch-up with the rest of the world, and todays public school system is not prepared to facilitate the major leap forward that our educational system needs. Before 1965, America's public school system was producing better educated students with less money and fewer supplies than today. Each class was approximately 40% larger than today's classes, and they functioned with about one-third of the real dollar expenditures of present day schools. They taught with fewer books and less equipment, and did not have any of todays audio-visual material and equipment. Then, between 1965 and 1980, real dollar expenditures per student doubled as teacher to student ratio dropped by one forth. Yet, with more money and fewer students per class, student achievement deteriorated in every available measure. In 15 years, national SAT scores declined by 5 points annually. That 75 point drop has put the US behind greatly, and has left todays students with a lot of ground to make up in order to reach other countries test score levels. The cause of this dramatic drop can not been attributed to any one thing. The decline was sudden, sharp, and affected every region and socioeconomic group in the country. Because the 60's and 70's were a time of major changes, nothing that happened in that era can be ruled out. But a few major changes within the educational system have been linked to the decline. The first major change was the unionization of teachers. Before 1960, there were virtually no teacher's unions. Then, starting in 1960, there was a large movement of teacher's unions. By 1970, more than 50% of all teachers were members of one union or another. Today, around 75% of teachers are unionized. Teachers strikes, which were almost nonexistent before 1960, now seem to mark the beginning of fall. While the new unions help to give teachers more job security, higher pay, and pension plans, they often affected the educational process. Another major change in the educational system was that schools began to become more centralized. This started soon after WWII. After the wars end, there were approximately 100,000 school districts in the United States. By 1970, that number had reduced to less that 20,000. The physical unification of school was not as important as was the financial centralization of schools, which began in the 60's. Before the unifications, local school boards raised about 60% of their own school funds, mostly with real estate taxes. The bulk of the rest of the needed funds came from state government. By 1980, though, local school boards were receiving 60% of their funds from the government and generated only 40% of their own funds. Those schools that received increased government funds first were some of the first to decline. This added to the theory that a schools performance is hindered by the bureaucratic controls over them that are less responsive to the school's and parents' concerns. As more money was coming from the government, the teachers and parents had less of a say in how those funds were spent. Recently, the educational system has shown improvement, and test scores are improving as well, but it is still not enough to bring us up to international levels. US students are playing catch-up with other countries. But many schools do not have the needed financial support to increase the learning environment. The government support is not available because taxes do not bring in enough to cover all of the governments needs. This lack of school funds forces schools to lay off teachers, which increases class sizes and puts more work on the already overworked teaching staff. Schools are also starting pay- to-play program with their sports and school sponsored activities. Some schools are being forced to completely eliminate art and industrial education classes. Colleges are also affected by the shortage of funds. As government funding is cut, colleges must raise their tuition, which makes it harder for people to afford college. This causes a drop in college-educated workers. This drop will dramatically decrease the economic gain of many large businesses, which will affect the nations economy. Although schools are doing better and test scores are increasing, the rate of increase needs to accelerate significantly. There are a few ways to help increase our rate of recovery. One way is to increase government funds to schools. Lack of proper financial support has surpassed drug abuse as America's leading concern with public education. And 68% of the population say they would be willing to pay more taxes to schools. Many, 85%, support distributing funds more equally throughout each state by taking some of the funds from wealthier school districts and giving it to districts with greater need. This would even out the schools financially and allow poorer districts access to needed funds. A second way to increase our schools progress is to dramatically alter high school learning. Fashion high schools more like colleges. Make each class more challenging, and extend each class period to 90 minutes instead of 45 minutes, but make classes every-other day. While students would end up spending as much time in each class altogether, ninety minute classes are much more productive. They allow teachers to get more involved with each topic, and longer classes allow more time for teachers to help students one on one. Longer classes also allow students to have time to start homework in class. An increase in head-start and preschool programs would help significantly as well. By starting children in the learning process early, they learn more rapidly and perform better in school. Although this is not a quick way to increase student skills, it is an effective way to insure good students later. Another way to improve students is to test them for graduation. Before any student graduates, they must first pass a test to rate their skills in different skills. In order to graduate, you must pass that test. Using the SAT 's would be appropriate. Have taking the SAT 's mandatory and set a minimum to pass. If the student passes, then he/she graduates. This would insure that everyone who graduates from high school has at least a certain skill level. Allowing parents to choose which school their child attends could also help increase the effectiveness of our high schools. By allowing parents to choose, a compentiton is formed between schools. This competition could force schools to offer improved curriculums to attract students. Competition could streamline the educational system and make it more effective with less money. I believe that the best way to improve our future economy is to restructure our public high school system. America needs to increase funding of public schools, and the school system needs to be revamped, to better prepare students for college and the work force. As the system is today, most high school students are not graduating with the needed knowledge or study skills to succeed in college. Much of high school is spent goofing around, not learning. By using college classes as a model, high schools could prepare students more effectively, and increase the overall learning rate in public schools. The educational collapse of the 70's and 80's has left America with a lower learning rate and lower test scores. But with the restructuring of public teaching and the present increase in learning and test scores, America will be on its way to being a leader in education again. And with a well educated work force, the US economy will continue to grow and prosper. Bibliography Stanley M. Elam, Lowell C. Rose, and Alec M. Gallup, "The 25th Annual Phi Delta Kappa/Gallup Poll of the Public's Attitudes Toward the Public Schools," Phi Delta Kappan, October 1993, pages 137-152 William Kristol and Jay P. Lefkowitz, "Our Students, Still at Risk," New York Times, 3 May 1993, p.A-23 Sam Peltzman, "What's Behind the Decline of Public Schools?" USA Today, July 1994, pages 22-24 The Carnegie Foundation for the Advancement of Teaching, "More than Survival" 1980 copyright by Jossey-Bass Publishers, San Francisco, CA Gerald W Bracey, "The Third Bracey Report on the Condition of Public Education" Phi Delta Kappan, October 1993, pages 105-117 Jim Fox, "The Wrong Whipping Boy" Phi Delta Kappan, October 1993, pages 118-119 What Went Wrong with America's Schools? By Econ 115 November 17, 1994 f:\12000 essays\business & economics (632)\Why Are Gasoline Prices Going Up So High.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Why Are Gasoline Prices Going Up So High? If everyone else in the world is paying a lot more for gas, why shouldn't Americans? Take your average spoiled American who blames the Arabs for raising the gas prices unfairly in order to make a bigger profit. It's true, gas prices have gone up by a lot in the last few months, but is that unfair? Prices still are a lot higher in Canada, Europe and just about any other developed nation, according to Mike Royko in the May 2, 1996 issue of the Chicago Tribune. Ted Z. Manuel in a letter entitled "Voice of the People" of the Chicago Tribune, said "Most anywhere in Europe, gas costs are from $3.00 to $5.00 per gallon. We scream when it hits a $1.35 to $1.75 a gallon, which if adjusted for inflation actually is cheaper than 25 years ago." It seems that Americans just think the world owes them a favor. Maybe it's time that they start playing fairly and stop feeling so sorry for themselves!!! According to many articles, Americans have a lot more to be thankful for than they do to complain about. For one, cars use gas a lot more efficiently than they did in the past. According to Royko, "even today's luxury cars give you better gas mileage than the cheapest Chevies, Fords and Plymouths did not that long ago." What does this mean? This means that gas prices should logically go up. It's the basic law of supply and demand. It's true that more Americans are driving, but the gasoline suppliers still deserve to get paid fairly. And what about inflation? Well, when you take inflation into account, the price for gasoline is less now than it was forty years ago. Just another example of how Americans are spoiled brats. According to Charles Krauthhammer of the May 6, 1996 issue of the Washington Post, increases in gasoline prices aren't as simple as supply and demand. He feels that there are short run and long run reasons for the increasing prices. On the short run, we can thank an extra long winter for using up a lot of our gasoline reserves. For the long run, we can thank car loving American drivers, who like to go really fast and really far in their fancy sport cars that get terrible gas mileage. Another reason for an increase in price, is that U.S. crude oil production is in serious decline. According to Krauthhammer, "in 1970, it was 9.6 million barrels a day. Today it is 6.5 million." The reason it's in serious decline is simple. We're using it up, and at increasingly fast rates. The more we use, the less there will be, so doesn't it make sense that we should pay more for something that is becoming extinct? According to Mary McCormick-Barger, in a Chicago Tribune article called Fuel's Paradise, "present estimates show that oil will be gone in 35 to 70 years." If we are not careful and don't find alternatives, none of us will be driving!!! The gasoline issue is not cut and dried. Many Americans may blame it on money hungry Arabs and whine about having to pay more to fuel their expensive cars, but can we really feel sorry for them??? I myself am from Europe and think that people in America have it pretty good. If anything, maybe they should stop driving such expensive cars at the speeds that they do, and maybe take a bike trip every once in a while. f:\12000 essays\business & economics (632)\Why Did Gasoline Prices Go Up.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ WHY ARE GASOLINE PRICES GOING UP SO HIGH? If everyone else in the world is paying a lot more for gas, why shouldn't Americans? Take your average spoiled American who blames the Arabs for raising the gas prices unfairly in order to make a bigger profit. It's true, gas prices have gone up by a lot in the last few months, but is that unfair? Prices still are a lot higher in Canada, Europe and just about any other developed nation, according to Mike Royko in the May 2, 1996 issue of the Chicago Tribune. Ted Z. Manuel in a letter entitled "Voice of the People" of the Chicago Tribune, said "Most anywhere in Europe, gas costs are from $3.00 to $5.00 per gallon. We scream when it hits a $1.35 to $1.75 a gallon, which if adjusted for inflation actually is cheaper than 25 years ago." It seems that Americans just think the world owes them a favor. Maybe it's time that they start playing fairly and stop feeling so sorry for themselves!!! According to many articles, Americans have a lot more to be thankful for than they do to complain about. For one, cars use gas a lot more efficiently than they did in the past. According to Royko, "even today's luxury cars give you better gas mileage than the cheapest Chevies, Fords and Plymouths did not that long ago." What does this mean? This means that gas prices should logically go up. It's the basic law of supply and demand. It's true that more Americans are driving, but the gasoline suppliers still deserve to get paid fairly. And what about inflation? Well, when you take inflation into account, the price for gasoline is less now than it was forty years ago. Just another example of how Americans are spoiled brats. According to Charles Krauthhammer of the May 6, 1996 issue of the Washington Post, increases in gasoline prices aren't as simple as supply and demand. He feels that there are short run and long run reasons for the increasing prices. On the short run, we can thank an extra long winter for using up a lot of our gasoline reserves. For the long run, we can thank car loving American drivers, who like to go really fast and really far in their fancy sport cars that get terrible gas mileage. Another reason for an increase in price, is that U.S. crude oil production is in serious decline. According to Krauthhammer, "in 1970, it was 9.6 million barrels a day. Today it is 6.5 million." The reason it's in serious decline is simple. We're using it up, and at increasingly fast rates. The more we use, the less there will be, so doesn't it make sense that we should pay more for something that is becoming extinct? According to Mary McCormick-Barger, in a Chicago Tribune article called Fuel's Paradise, "present estimates show that oil will be gone in 35 to 70 years." If we are not careful and don't find alternatives, none of us will be driving!!! The gasoline issue is not cut and dried. Many Americans may blame it on money hungry Arabs and whine about having to pay more to fuel their expensive cars, but can we really feel sorry for them??? I myself am from Europe and think that people in America have it pretty good. If anything, maybe they should stop driving such expensive cars at the speeds that they do, and maybe take a bike trip every once in a while. 1 f:\12000 essays\business & economics (632)\Why Is Managerial Accounting Important To An MBA Graduate.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Why Is Managerial Accounting Important To An MBA Graduate An MBA Graduate Defined An MBA is a degree awarded to individuals who complete required coursework in the field of Management Science. The MBA title stands for Master of Business Administration and implies that the person holding the degree is qualified to hold a position in senior management within a firm. An MBA manager is similar to the captain of a ship. He is responsible for making decisions and plans about the firm and for controlling the firm's employees. The goal of an MBA manager is to maximise the firm's value through the use of the firm's tangible and intangible assets. He maximises this value by obtaining the highest Profits possible. In the following discussion, I will examine how senior management in general and MBA graduates in particular can use the field of Managerial Accounting to make decisions/plan and control employees in order to maximise Profits. For clarity throughout this essay, senior managers and MBA graduates should be considered as one in the same. Managerial Accounting Defined Managerial Accounting is the process of using information systems to provide data to senior managers who then use this data for decision-making/planning and monitoring employee performance in order to maximise profits. The data that senior managers use is supplied by the Financial Accounting function. This information is used to improve the performance of the Marketing function, which generally provides the Revenue of the firm and the Operations function, which generally incurs most operating costs. Marketing and Operations are thus the functional areas which an MBA graduate is generally concerned. Managerial Accounting is vital to a business's success because it quantifies a firm's performance. By quantifying certain performance variables, senior management can carry out its two most important functions: 1) Decision-Making/Planning and 2) Controlling Employee Behaviour. The Theory of the Firm tells us that a business exists to maximise the value of equity investors have supplied. Profits result from decisions about what items to produce and sell (Marketing) and planning what inputs are necessary for this production and distribution activity (Operations). Value maximisation results from maximising Revenue and minimising Total Costs. In business, resources are always limited or finite. Therefore, they must be employed in the most economical and productive capacity in order to maximise profits. MBA graduates are often hired to obtain the highest profits possible; therefore, value maximisation is achieved or forgone as a result of their decision-making and leadership. The field of Managerial Accounting is concerned with helping senior managers use data provided by the Financial Accounting function about the Marketing department and Operations department to achieve the highest profit levels attainable thus increasing the value of the firm as much as possible. Managerial Accounting is therefore cross-functional in the purest sense and should be employed in all areas of a business. The Financial Accounting Role in Managerial Accounting To make informed decisions, MBA managers must use a scientific approach rather than simply following their intuition. This scientific approach often uses historical data supplied by accountants in the Financial Accounting department to plan future activities and monitor employee performance. This historical data includes such items as Balance Sheets, Income Statements, Statements of Cash Flows and Statements of Retained Earnings. Data from these sources can be further extrapolated into measures such as Return on Assets (ROA) and Return on Investment (ROI). The Financial Accounting documents provide senior managers with a tangible starting point for decision-making/planning and analysing employee performance. Through this perspective, we can see that Financial Accounting is backward-looking whereas Managerial Accounting is forward-looking. It is worth noting that in establishing a Financial Accounting system, senior managers must often make a trade off between information used for decision-making/planning and information used form employee control. Different systems provide better information in one area or the other so executive management must make a choice about which function is more important. To illustrate how Financial Accounting systems could help MBA graduates solve Marketing and Operations problems, let's consider a maker of bottled drinks. Suppose a bottled drink firm makes 5 different drinks; 3 sugary sodas, 1 sports drink and 1 premium bottled water. Each drink is manufactured at its own separate facility but the distribution and sales force is the same for all 5 drinks. Financial Accounting documents are broken down on the basis of each individual drink. These documents which detail Revenue and Cost figures are the starting point for Managerial Accounting. It is this information which senior managers can use to make decisions and plans for the Marketing and Operations divisions. Managerial Accounting takes these Financial Accounting numbers one step further and reacts by making decisions about resource utilisation, production planning and monitoring employees. In the bottled drinks case for example, good senior managers might make a decision to devote more resources to increased production for the sports drink that may be fuelling profit growth. Or similarly, Financial Accounting data could show an unusual spike in labour costs, which might alert senior management to a problem with employee control. The main point to remember is that Financial Accounting provides the numbers that Managerial Accounting uses for planning/decision-making and employee control. The Role of Managerial Accounting in Marketing Profits are the residual income from Revenue earned producing and selling less the Costs of producing and selling. Marketing is generally responsible for the Revenue side of the equation and is therefore important in Managerial Accounting. The question for MBA managers is one of: what to products to produce, what price to charge for the products, how to promote the products and how to distribute the products in order to achieve the greatest profit. Maximizing Revenue while minimizing costs does this. Managerial Accounting uses Financial Accounting data to make Marketing decisions and plans about future output. Financial Accounting for example, assembles data on sales into Total Revenue figures to determine where the greatest sources of Revenue have been. Managerial Accounting is also concerned with controlling the behavior of Marketing employees to maximize profits. To illustrate how Financial Accounting data can be used for Managerial Accounting problems concerning planning/decision-making in Marketing, let's once again consider the bottled drinks case. In order to decide which area to devote more resources to, an MBA graduate could examine the past three yearly Income Statements to see which drink provided the most Revenue and/or the highest profit margin. Similarly, he could look at the Return on Assets of a particular drink and compare it to the others to see which was providing the highest return on assets used in their production and distribution. These are all important measures because they give senior managers insight into how each item is affecting the bottom line-profit. Suppose for example the sports drink has shown higher Total Revenue growth figures than the other 4 drinks for the past 3 years and the Net Profit Margin has grown at an even faster pace. This growth could be attributable to many causes such as an increase in the playing of sports or the changing preferences of consumers away from sugar-filled sodas. Although the possible cause is important, what is vital to the MBA manager is the Financial Accounting numbers that reveal the trend. Here, senior management may decide to increase the promotional spending on the sports drink to spur further growth. To further illustrate, suppose senior management needs to decide whether to continue making one of the 3 sugary soft drinks it currently offers. Financial Accounting data has shown that the orange flavored drink offered has produced declining Revenues. Management must decide if the trend will continue or could be reversed. If the trend won't reverse, the drink will be discontinued; however, if there are good prospects of a recovery in sales, the product will be revamped and reintroduced. Here we can see that the Marketing function has provided data on Revenue to the Financial Accounting function. Managerial Accounting is concerned with helping the MBA manager look at this financial information in the context of the Marketing function and make a decision on whether to use resources to produce and sell a particular item. The second goal of Managerial Accounting, controlling employee behavior, can also be achieved within the Marketing function. As was stated earlier, the Marketing function generally provides Revenue to the firm. In order to maximize Revenue, employee efforts have to be guided by MBA managers towards the best interests of the firm. Suppose a field salesman for the bottled drinks company is very keen on selling orange soda; the reasons for this are unclear, but this particular individual has directed his efforts towards orange soda at the expense of the other 4 offerings. We are able to glean this information from Financial Accounting figures, which show him selling more orange soda than any other employee, but his overall sales numbers are near the bottom of the list. Orange soda, however, is not a very profitable item and thus his efforts in this area are not adding much to the firm's profits. Here, an MBA manager could step in and attempt to redirect this man's efforts toward the other more profitable products. This is a classic example of a senior manager controlling employee behavior to maximize profits. To summarize, MBA managers can use Financial Accounting data for planning/decision-making and employee control within the Marketing function. This is the essence of Managerial Accounting and shows why it is an important field for the MBA graduate. The Role of Managerial Accounting in Operations The second component in the profit equation is Total Costs. A firm's Operations division is usually responsible for most of a firm's costs because of inputs such as materials and labor used in the production process. These Costs are defined as being fixed or variable according to the level of output. An MBA Operations manager should be concerned with minimizing the costs of these items in both categories but especially Variable Costs. As was stated earlier, an MBA manager must not only plan and make decisions, he must also control employee behavior. Employees and lower level managers will often act in their own self-interest rather than in the interest of the firm. Managers and employees have personal biases and preferences that sometimes result in less than maximum Revenue and more than minimum Costs. Financial Accounting systems collect data that can be use to evaluate employee performance and alert senior MBA management to such problems. To illustrate an Operations function employee control problem an MBA graduate might face, let's once again consider the bottled drink example. Suppose the Income Statement for the premium bottled water division has shown an increase in Variable Costs for the adhesive labels used on the bottles. Since Profits are a simple function of Revenue and Costs, the increase in the price of labels has resulted in a decrease in Net Income, which is antithesis to the concept of value maximization. Senior management has decided to examine why the per unit cost of the labels has jumped so much. When they go to the factory where the bottled water is produced, they discover that the plant manager is a golfing buddy of the label supplier and has forged a deal to pay a higher price for labels than is necessary as a favor to his friend. Here we can see that the plant manager is working in his self-interest to preserve and enhance his friendship. He is not working in the interest of the firm by paying a higher price than is necessary. As a result of the discovery, senior management replaces the plant manager with someone more forthright and hence label costs are reduced. Here, Financial Accounting information (the cost of labels on the Income Statement) from the Operations function has provided data to use in Managerial Accounting (controlling employee behavior). Now let's consider a planning/decision-making problem within the Operations function that can be addressed by MBA graduates through Managerial Accounting. As was stated earlier, much of a firm's Total Costs are attributable to the Operations function. These costs are revealed in Financial Accounting documents outlining costs such as the Income Statement. Suppose senior management has noticed a decrease in profits for the lemon-lime soda the firm produces. By examining the Financial Accounting data they have found an unexpected increase in the cost of lime flavoring that is used because a supplier of the product has gone out of business. Here, an MBA manager must make a decision about alternative sources available for the flavoring input and as always look to buy it at a lower price. Once again, Financial Accounting data (cost information from the Income Statement) has been used by senior managers to solve a planning/decision-making problem within the Operations function. Summary In conclusion, Managerial Accounting is process MBA graduate managers can use to gain insight into planning/decision-making and employee control. The process involves examining Financial Accounting data and then applying that information to maximize Profits through the Marketing and Operations functions. Specifically, maximizing Revenue in Marketing and minimizing Costs Operationally. Managerial Accounting is scientific in its approach rather than intuitive and should be used by MBA graduates interested in maximizing the value of their firm. f:\12000 essays\business & economics (632)\Why Is Monopolies Harmful and How Can Regulation Ameliorate These Harmful.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Why Is Monopolies Harmful and How Can Regulation Ameliorate These Harmful Effects? Why is monopoly 'harmful? How can regulation ameliorate these harmful effects? What problems confront the regulators? In order to deduce that a monopoly is 'harmful', there must be another market system which is preferable to monopoly so as to offer greater benefits to the public. A monopoly can therefore be compared to perfect competition. If the benefits of perfect competition outweigh the benefits of monopoly then a monopoly can be regarded as 'harmful' since the consumers are not receiving the maximum possible utility for their purchases. Monopolies are criticised for their high prices, high profits and insensitivity to the public. Some governments therefore, in the light of these protests, advocate policies relating to monopolies, in order to regulate their power in favour of the public's interest. There are several reasons why monopolies may be against the public interest. It is claimed that monopolies produce at a lower level output and charge a higher price than under perfect competition in both the short run and the long run. Consider the diagram above. Assume that this monopolist attempts to maximise profits. Equating MC=MR yields an output of Qm and a price of Pm. If the same industry existed under perfect competition however, the price would be Ppc and output would be Qpc since under perfect competition P=MC=AR. The price in such a situation would thus be lower than under monopoly and output would be greater. Consumers obviously benefit if this is the case since P=MC implies P=Marginal utility so that consumers are maximising their total utility(Under monopoly P>MC and therefore arguably, not the optimum). In the long run under monopoly, supernormal profits persist. Under perfect competition complete freedom of entry leads to the elimination of these profits and forces firms to produce at the bottom of the long run average cost curve. Under monopoly however, there are barriers to entry so as to prevent new firms from entering the industry and reducing the monopolist's profits to the normal level. Higher prices and lower output thus continue to persist in the long run. Due to lack of competition, it is argued, a monopolist has no incentive to develop new techniques in order to survive. A monopolist can therefore make supernormal profits without using the most efficient techniques. Under perfect competition, in order for firms to survive, the most efficient techniques must be adopted or developed whenever possible or else the firm which fails to do so will be forced to shutdown. This argument leads to the conclusion that monopolies have higher cost curves than firms under perfect competition(Assuming that the monopolist does not use supernormal profits to finance research and development and hence reduce costs. ). Even if a monopolist does invest in research and development, although prices will fall and output will rise, extra supernormal profits received will merely accumulate with old profits. These high profits lead to the question of distribution of income. The answer to this question is a normative one and is thus subject to much controversy. It is therefore up to the government to decide if intervention is necessary to curb a monopolist's power and hence to uphold the public interest. If the government weighs up the cost and benefits of ' monopoly' and concludes that they are in fact 'harmful', the government can adopt policies of intervention or regulation. The diagram below shows how a government can keep the price at a maximum Pm below market equilibrium. The government may feel that a price of op1 is excessive so a price of opm is implemented. At this price however, the monopolist is only willing to supply oq1 units while quantity demanded is oq3 units. There is thus an excess in demand(Or shortage in supply) of oq3-oq2 units. In such a case the price should rise but it can't because of the price maximum. The monopolist would thus have to sell its output on a 'first come, first served' basis, or some sort of rationing system will have to be organised for those who desire the good and can afford to pay for it. Alternatively a government can adopt an RPI-X formula(As in the UK with privatised industries), which provides an incentive for monopolies to be as efficient as possible. If the monopolist reduces its costs below X the monopolist can still make large profits. If the monopolist does not succeed in doing so a loss is inevitable. Monopolies are thus forced to cut costs if profits are to be attained. There are however various problems with regulation. Since the government gives the regulator power to implement decisions. Who is to say that the regulator's perception of the public interest coincides with the government's?(Since the government acts in the public interest, or is supposed to anyway.) Moreover, regulation is very complex and difficult especially with large powerful firms which exert political influence. There is thus a danger of regulatory capture. This is where the regulator is persuaded to operate in the monopolists' interest rather than in the public interest. Regulatory capture may be due to corruption or due to regulators actually believing the managers point of view. f:\12000 essays\business & economics (632)\Why Launch An Advertising Campaign.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Why Launch An Advertising Campaign To start off, when your company is just becoming established in the British market, consumers will have no knowledge of your product, we must encourage or persuade the consumer to buy your product. To make customers aware of the product we must advertise. Large scale advertising mainly consists of advertising on TV, Radio, newspapers and other large scale media. This ensures that advertising reaches the largest amount of people in the shortest amount of time. It is likely that the consumer will be more interested in the product if they hear of on a national level such as TV or Radio. We must watch out for other companies in Britain that sell a similar product or overseas companies that sell in Britain so Pakanawa can analyse the British marketing strategy and improve upon it. Market Segmentation is also another factor to take notice of. Market segmentation helps to differentiate products for different age groups. For most product, there are segments of the market that you need to specifically advertise to. Fore example, different methods of advertising would be needed if you were to advertise to parents than to the children. For a lot of products their are a lot of age groups that you need to advertise for and these must be taken into consideration. We must analyse the different market segments that are applicable to Pakanawa and investigate how we can exploit these different market segments. An ad campaign is a very sensible idea because no-one will know about our products without the use of advertising. This means that we must concentrate on a good ad campaign so people will know about our products. Approximate prices are shown below for large scale advertising: TV Price agreed with company (500,000 + ) Radio (250,000 + ) Newspaper lineage ad 250 Newspaper full page 700-900 Cinema booklets 650.00 per cinema Flyers 0.08 per flyer As is shown above, advertising is very expensive when done on a large scale so to justify any form of large scale advertising it must be proven to be effective. At Pakanawa(tm) we must consider all angles of the media and come to a conclusion about advertising. What sort of advertising should you use? By far the most far reaching of these strategies is Television advertising. A large amount of people watch TV and this type of advertising will reach many social groups. Although this type of advertising is very expensive and even more so during peak times, TV advertising should be seen by the masses and encouraging a lot of new customers, so in time, TV advertising will pay for itself. This will prove to be a very effective form of advertising media and should be adopted in the Pakanawa situation. To boost sales even more, and to prolong the life of the Pakanawa product line, another form of advertising should be taken aboard. Newspaper advertising would also be a good idea. Newspaper advertising would reach another section of the consumer market and would also be very effective in the right context. A full page newspaper advert is a lot of money but would bring in a lot more customers and make many more people aware of the product. It is important to make people aware of the product so they will buy it, there are many advantages of the Television over the newspaper, such as the fact that TV is a captive market and if you can vary the showing times of the advertisement then you can vary the consumer group that will be receiving them. A bad point, however, as is with most forms of advertising, is the delay between seeing the advertisement and buying the product. There is also a delay similar to this with newspaper advertisements but the delay is not usually as long as is the one with TV advertising. Below the line promotion Below the line promotion refers to advertising that does not rely on large scale media such as TV or Radio. Forms of this are direct mailing, exhibitions and trade fairs, sales promotions and product placing. In the case of Pakanawa it would be sensible to follow some of these ideas but not all of them. For example, it would not really be a good idea to exhibit the product at a trade fair without first having a sales promotion or product placing. The only form mentioned that would not be suitable would be direct mailing, to which the general public refer to a junk mail. The question arises whether you would mail the children that are likely to want the product or whether to mail the parents that would buy the product for their children. If you were to mail the children then the parents could get very annoyed at the fact that you went directly to the children instead of through their guardians. Although if you were to mail the parents there would not be a very large chance that it would also reach the children, who would be the driving force of the sale of the product. Sales promotion or endorsements would be a good idea as this would ensure that more people heard about the product and it would be more appealing if a well known children's presenter was to endorse the product. Branding Multiple product branding would be the best idea for Pakanawa as with multiple branding the firm is not always known as the same one and with Pakanawa's toys, the different products under different brands could inhibit the sale of the other brands. With multiple product branding the company would be recognised as selling all these products and with a well established market this would benefit the company although multiple branding has one advantage over this, if the company has had bad publicity, with the other brands, a knock on effect of the other products is limited. Therefore, I think that the best form of branding for Pakanawa's toys would be multiple product branding. Product Development We must also consider product development to extend the product life cycle and retain interest in the series of products produced by Pakanawa. To fully conduct a product development scheme we must conduct some market research into the attitudes of the customers and what they think can be done to improve the products provided by Pakanawa. We must come up with new ideas fairly frequently and brainstorming should be encouraged. Safety must always be improved on in Pakanawa products and a team of designers must be considering product development all of the time. Merchandising and packaging Merchandising is an attempt to influence customers at the point of sale. The point of sale is anywhere that a customer buys a product. Customers are intended to buy based on what they see rather from a sales assistant. Therefore at Pakanawa a vital factor in influencing customers is the way in which the items are displayed. To sell the products effectively we must take into consideration the effect that the packaging should have on the customers and the way in which displays of this particular product are arranged. A good idea would be to have a 'space ship' or something similar to encourage people to look and to buy the product. To influence customers at the point of sale, a number of tactics must be employed as we must first draw the customers attention to the display and to the product, and finally, to the price of the product. Why a sales team? The job of a sales team is to create interest in the product with the public and retailers. The overall aim of a sales team is to create the highest level of distribution of the product and to promote the product so representatives of a firm are interested in purchasing this product to sell it in their shops. They should initially aim to start small and encourage interest in the media, the public and shareholders. The whole image of the company rests on the sales team as it is their job to promote the product and the company and to stop any bad press about the company. They should try and convince buyers with market research that there product will sell and that buying this product is a good investment. They could offer commission or discounts to firms for bulk buying and high sales. A sales team should also be allowed full control over the bartering of the goods and should set there own guidelines within a broad range of company guidelines. Legal and Public problems A few problems may be made of the fact that the product is cuddly yet violent in its own kind of way, with the image being of a scary bear. Some extremists may consider this to be unacceptable and may want the bear banned from sale or put out a campaign against the product. This should easily be solved with a well briefed PR team that have a capacity to lie. All doubts should be dispelled and children illustrated playing happily with the bear and there should be no other legal or PR problems, but it helps to have a well briefed PR team. f:\12000 essays\business & economics (632)\Why Restaurants Fail.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Darren Atlee Economics January 13, 1995 Topic: Restaurants Specific Topic: Failure of Restaurants Question: What are Five factors which contribute to the failure of new restaurants? Definition of Business Failure: Business that ceased operation following assignment or bankruptcy; ceased operation after foreclosure or attaching; voluntary withdrawal leaving unpaid debts. It is a common assumption in the restaurant industry that restaurants fail at an exceedingly high rate, the highest failure rates in the U. S. economy. In researching this topic, statistics numbers and percentages fly around routinely. All give somewhat the same concept; in the starting years, most restaurants fail. The most often cited statistic is the 95/5 ratio. 95% success and 5% failure. Conversely, another favorite concept exists. Somewhere between 50 to 80 percent of all new restaurants which open this year will fail within the first 12 months of opening their doors. The same conventional wisdom also suggests that about 50% of the remaining restaurants will fail in their second year of operation and another 33% in the third year. This means that if 100 new restaurants were to open this year, 50 to 80 would fail before their first anniversary. That would leave 30 restaurants open in the year two. Half of these 30 would subsequently fail in their second year, and a final third of those remaining would fail in their third year. As a result, there is about a 90% compound failure rate over the first 3 years of a restaurants lifespan. (Mullen & Woods, 61) You are not alone if you feel intimidated by the numbers. They can be quite blunt and negative which attributes to one simple fact - it takes planning, research and risk to venture into the restaurant world. There are five major factors which can lead to success or, in this case, failure of new restaurants: capital, type of establishment, location, labor and management. In order to start any business, an entrepreneur needs money or capital. This capital could include all expenses, such as loans, rent, payroll, and insurance. Some argue this is what causes restaurants to fail. Given the information that restaurants are most likely to fail than succeed, it is always difficult and often impossible to interest bankers in making loans to entrepreneurs who operate in a high risk industry. Even when loans for restaurants are available, restaurateurs often must pay higher interest rates or provide more extensive collateral requirements to secure these "high risk" loans than might be required for another "less risky" venture. (Mullen& Woods 61) It is not difficult for a restaurant to fail when it has poorly planned financially. Many times restaurateurs fail to accommodate the business with enough cash flow to support the projected three year start period. Some expenses cannot be avoided nor controlled like raw materials which are essential regardless if business booms or busts in the early period. Operators must realize that if business is low, so too should their overhead costs. If there is no income, there is no money to pay expenses, thus the restaurant goes under. Some external factors may effect restaurant expenses which owners have little control over. Government legislation could cause higher taxes and operation fees which could force some franchise owners, even in large chains, to sell rather than sign new agreements. (Nathan, 66) With insurance cost at already high rate for restaurants, new health-care reforms could be an added burden, especially for independent restaurants. Some sources predict that these reforms could be so costly that it could eliminate ten percent of the industry's nine million jobs in '95. Many factors could lead to ultimate failure of restaurants due to poor financing and uncontrolled external factors. The term failure means a lot of different things. Going broke certainly constitutes a failure, but terminations and nonrenewals of franchises are also failures in many cases. Selling the store to another franchisee or to the company could also qualify depending on what motivates the sale. In some cases, a restaurant in a poor location may change hands several times- each a failure- yet each change of ownership may go unnoticed because the signage, menu, and interior decor will be virtually unchanged. (Nathan, 66) When opening a restaurant, owners must investigate fully the factors of the type of establishment they want to create and the location of this establishment. Both are essential in the success of the restaurant. Some restaurateurs aim to target their patrons, they go directly for what they think they want. Say there is an overabundance of Chinese restaurants, maybe the people would flock to a new Mexican restaurant. He will take that risk and start his business. There are two major type of restaurants, specialized menu and diverse menu. A diverse menu franchise such as McDonald's has a failure rate of about 2%. (Nathan, 66) This is because people have a choice in what they eat , and because of the good reputation. Though these are fairly successful, specialized restaurants such as Cinnabon or Wings to Go may also be very successful. Their product or specialty could prove to be the only place around to get it or most likely the best. The failure rate of these specialized establishments is closer to 40%. (Nathan, 66) Clearly, it is not difficult for an entrepreneur to miscalculate his venture. It might be a bad time economically for that particular town to open that type of specialized business. Starting a restaurant from scratch is not the only option, some say that it could be just as beneficial to buy a franchise that has already been established. Though there is still a great amount of risk, wise advice leads toward buying a restaurant that has weathered three years of operation. Even this type of venture requires research. Entrepreneurs must investigate their market before beginning a project. Restaurants depend primarily on their local consumer markets and secondarily on traveling market for their business. Thus they should study their market by looking at extreme factors such as both the prime and local lending rates, cost-of-living index, factory lay-off or hiring, and the general unemployment levels. (Mullen and Woods. 64) What usually happens is that when a local economy takes a downturn, a flurry of new restaurants appears which create more jobs and filter out the weaker and more poorly-managed restaurants over the next two years. (Mullen and Woods, 65) Some restaurateurs believe that an original and strong concept for a restaurant is most important. The food is commendable but the way it is presented and delivered is extraordinary. Some also believe that it is most beneficial if all of these types of restaurants are lumped together in a town so that people can choose. A case in point is Brinker Intl., the US's biggest restaurant business. Owner and operator Norman Brinker believes his insight has led him to look for prime sights. His ideal; Control an intersection and put a different restaurant concept on each corner. That way, if a Brinker restaurant loses business, chances are, it will lose to another Brinker restaurant. (Palmeri, 62) After an entrepreneur has taken his idea or concept with his restaurant, he must find people to run his business, that is if he does not run it by himself. Restaurant managers are a vital part of success. Some of their most important jobs is to control, oversee and train the employees of the restaurants. This is not an easy task, given that restaurant help constantly changes and rotates. This workforce is huge. This year the number of restaurant workers went up from 6.74 million in '89 to 7.24 million in '94. 42% of all women and 31% of all men in the US have worked in foodservice at one time in their lives. (NRA factbook) It may be a concern of the manager that there may not be a large enough pool of quality help to hire. If their establishment is not a solid one, managers must realize that interested workers must at some point decide if they are interested working for a firm that is at high risk of failure. (Mullen and Woods, 61) Higher quality employees may be scarce, thus efficient training must take place. Low quality training by the manager could prove to be a deficiency to the restaurant. Poor training equals poor efficiency and service which equals less patrons which equals low income which equals bankruptcy. Managers must set and keep a company standard. Many restaurants publish official handbooks which outline the standards. It is up to the managers to keep the help up to and working toward that standard. Managers and restaurant operators also must frequently reevaluate their establishments to direct their goals toward their patrons. They must find out what the people want and deliver. Fast Food chains such as McDonald's, Burger King, and Wendy's have lured customers in with selectively lowered prices and bargain meal combinations; by delivering value, they can offset the damage lower prices do to revenue. (Thorrien, 97) The restaurants that have not gone beyond the customer's expectations have failed, or will soon fail, because of mismanagement and ability to change. All cannot be blamed on the management, individual firm failure could be attributed uncontrolled external factors. This observation leads to contradict the notion that good management can always overcome negative environmental conditions. (mullen and Woods, 63) The numbers which illustrate the success and failure of restaurants may be discouraging but they show that this business is one of competition and risk. Factors such as capital, type of establishment, location, labor, and management all contribute to the success or failure of restaurants. The majority last less than a year, and the fortunate handful stay in operation for generations, others make their share and move on. This business is best described by an equation simply stated by Atlanta attorney Rupert Barkoff, "One third are doing well, one third are doing okay, and one third are having difficulty." (Hartnet, 67) Darren Atlee Economics January 13, 1995 Topic: Restaurants Specific Topic: Failure of Restaurants Question: What are Five factors which contribute to the failure of new restaurants? Definition of Business Failure: Business that ceased operation following assignment or bankruptcy; ceased operation after foreclosure or attaching; voluntary withdrawal leaving unpaid debts. It is a common assumption in the restaurant industry that restaurants fail at an exceedingly high rate, the highest failure rates in the U. S. economy. In researching this topic, statistics numbers and percentages fly around routinely. All give somewhat the same concept; in the starting years, most restaurants fail. The most often cited statistic is the 95/5 ratio. 95% success and 5% failure. Conversely, another favorite concept exists. Somewhere between 50 to 80 percent of all new restaurants which open this year will fail within the first 12 months of opening their doors. The same conventional wisdom also suggests that about 50% of the remaining restaurants will fail in their second year of operation and another 33% in the third year. This means that if 100 new restaurants were to open this year, 50 to 80 would fail before their first anniversary. That would leave 30 restaurants open in the year two. Half of these 30 would subsequently fail in their second year, and a final third of those remaining would fail in their third year. As a result, there is about a 90% compound failure rate over the first 3 years of a restaurants lifespan. (Mullen & Woods, 61) You are not alone if you feel intimidated by the numbers. They can be quite blunt and negative which attributes to one simple fact - it takes planning, research and risk to venture into the restaurant world. There are five major factors which can lead to success or, in this case, failure of new restaurants: capital, type of establishment, location, labor and management. In order to start any business, an entrepreneur needs money or capital. This capital could include all expenses, such as loans, rent, payroll, and insurance. Some argue this is what causes restaurants to fail. Given the information that restaurants are most likely to fail than succeed, it is always difficult and often impossible to interest bankers in making loans to entrepreneurs who operate in a high risk industry. Even when loans for restaurants are available, restaurateurs often must pay higher interest rates or provide more extensive collateral requirements to secure these "high risk" loans than might be required for another "less risky" venture. (Mullen& Woods 61) It is not difficult for a restaurant to fail when it has poorly planned financially. Many times restaurateurs fail to accommodate the business with enough cash flow to support the projected three year start period. Some expenses cannot be avoided nor controlled like raw materials which are essential regardless if business booms or busts in the early period. Operators must realize that if business is low, so too should their overhead costs. If there is no income, there is no money to pay expenses, thus the restaurant goes under. Some external factors may effect restaurant expenses which owners have little control over. Government legislation could cause higher taxes and operation fees which could force some franchise owners, even in large chains, to sell rather than sign new agreements. (Nathan, 66) With insurance cost at already high rate for restaurants, new health-care reforms could be an added burden, especially for independent restaurants. Some sources predict that these reforms could be so costly that it could eliminate ten percent of the industry's nine million jobs in '95. Many factors could lead to ultimate failure of restaurants due to poor financing and uncontrolled external factors. The term failure means a lot of different things. Going broke certainly constitutes a failure, but terminations and nonrenewals of franchises are also failures in many cases. Selling the store to another franchisee or to the company could also qualify depending on what motivates the sale. In some cases, a restaurant in a poor location may change hands several times- each a failure- yet each change of ownership may go unnoticed because the signage, menu, and interior decor will be virtually unchanged. (Nathan, 66) When opening a restaurant, owners must investigate fully the factors of the type of establishment they want to create and the location of this establishment. Both are essential in the success of the restaurant. Some restaurateurs aim to target their patrons, they go directly for what they think they want. Say there is an overabundance of Chinese restaurants, maybe the people would flock to a new Mexican restaurant. He will take that risk and start his business. There are two major type of restaurants, specialized menu and diverse menu. A diverse menu franchise such as McDonald's has a failure rate of about 2%. (Nathan, 66) This is because people have a choice in what they eat , and because of the good reputation. Though these are fairly successful, specialized restaurants such as Cinnabon or Wings to Go may also be very successful. Their product or specialty could prove to be the only place around to get it or most likely the best. The failure rate of these specialized establishments is closer to 40%. (Nathan, 66) Clearly, it is not difficult for an entrepreneur to miscalculate his venture. It might be a bad time economically for that particular town to open that type of specialized business. Starting a restaurant from scratch is not the only option, some say that it could be just as beneficial to buy a franchise that has already been established. Though there is still a great amount of risk, wise advice leads toward buying a restaurant that has weathered three years of operation. Even this type of venture requires research. Entrepreneurs must investigate their market before beginning a project. Restaurants depend primarily on their local consumer markets and secondarily on traveling market for their business. Thus they should study their market by looking at extreme factors such as both the prime and local lending rates, cost-of-living index, factory lay-off or hiring, and the general unemployment levels. (Mullen and Woods. 64) What usually happens is that when a local economy takes a downturn, a flurry of new restaurants appears which create more jobs and filter out the weaker and more poorly-managed restaurants over the next two years. (Mullen and Woods, 65) Some restaurateurs believe that an original and strong concept for a restaurant is most important. The food is commendable but the way it is presented and delivered is extraordinary. Some also believe that it is most beneficial if all of these types of restaurants are lumped together in a town so that people can choose. A case in point is Brinker Intl., the US's biggest restaurant business. Owner and operator Norman Brinker believes his insight has led him to look for prime sights. His ideal; Control an intersection and put a different restaurant concept on each corner. That way, if a Brinker restaurant loses business, chances are, it will lose to another Brinker restaurant. (Palmeri, 62) After an entrepreneur has taken his idea or concept with his restaurant, he must find people to run his business, that is if he does not run it by himself. Restaurant managers are a vital part of success. Some of their most important jobs is to control, oversee and train the employees of the restaurants. This is not an easy task, given that restaurant help constantly changes and rotates. This workforce is huge. This year the number of restaurant workers went up from 6.74 million in '89 to 7.24 million in '94. 42% of all women and 31% of all men in the US have worked in foodservice at one time in their lives. (NRA factbook) It may be a concern of the manager that there may not be a large enough pool of quality help to hire. If their establishment is not a solid one, managers must realize that interested workers must at some point decide if they are interested working for a firm that is at high risk of failure. (Mullen and Woods, 61) Higher quality employees may be scarce, thus efficient training must take place. Low quality training by the manager could prove to be a deficiency to the restaurant. Poor training equals poor efficiency and service which equals less patrons which equals low income which equals bankruptcy. Managers must set and keep a company standard. Many restaurants publish official handbooks which outline the standards. It is up to the managers to keep the help up to and working toward that standard. Managers and restaurant operators also must frequently reevaluate their establishments to direct their goals toward their patrons. They must find out what the people want and deliver. Fast Food chains such as McDonald's, Burger King, and Wendy's have lured customers in with selectively lowered prices and bargain meal combinations; by delivering value, they can offset the damage lower prices do to revenue. (Thorrien, 97) The restaurants that have not gone beyond the customer's expectations have failed, or will soon fail, because of mismanagement and ability to change. All cannot be blamed on the management, individual firm failure could be attributed uncontrolled external factors. This observation leads to contradict the notion that good management can always overcome negative environmental conditions. (mullen and Woods, 63) The numbers which illustrate the success and failure of restaurants may be discouraging but they show that this business is one of competition and risk. Factors such as capital, type of establishment, location, labor, and management all contribute to the success or failure of restaurants. The majority last less than a year, and the fortunate handful stay in operation for generations, others make their share and move on. This business is best described by an equation simply stated by Atlanta attorney Rupert Barkoff, "One third are doing well, one third are doing okay, and one third are having difficulty." (Hartnet, 67) Darren Atlee Economics January 13, 1995 Topic: Restaurants Specific Topic: Failure of Restaurants Question: What are Five factors which contribute to the failure of new restaurants? Definition of Business Failure: Business that ceased operation following assignment or bankruptcy; ceased operation after foreclosure or attaching; voluntary withdrawal leaving unpaid debts. It is a common assumption in the restaurant industry that restaurants fail at an exceedingly high rate, the highest failure rates in the U. S. economy. In researching this topic, statistics numbers and percentages fly around routinely. All give somewhat the same concept; in the starting years, most restaurants fail. The most often cited statistic is the 95/5 ratio. 95% success and 5% failure. Conversely, another favorite concept exists. Somewhere between 50 to 80 percent of all new restaurants which open this year will fail within the first 12 months of opening their doors. The same conventional wisdom also suggests that about 50% of the remaining restaurants will fail in their second year of operation and another 33% in the third year. This means that if 100 new restaurants were to open this year, 50 to 80 would fail before their first anniversary. That would leave 30 restaurants open in the year two. Half of these 30 would subsequently fail in their second year, and a final third of those remaining would fail in their third year. As a result, there is about a 90% compound failure rate over the first 3 years of a restaurants lifespan. (Mullen & Woods, 61) You are not alone if you feel intimidated by the numbers. They can be quite blunt and negative which attributes to one simple fact - it takes planning, research and risk to venture into the restaurant world. There are five major factors which can lead to success or, in this case, failure of new restaurants: capital, type of establishment, location, labor and management. In order to start any business, an entrepreneur needs money or capital. This capital could include all expenses, such as loans, rent, payroll, and insurance. Some argue this is what causes restaurants to fail. Given the information that restaurants are most likely to fail than succeed, it is always difficult and often impossible to interest bankers in making loans to entrepreneurs who operate in a high risk industry. Even when loans for restaurants are available, restaurateurs often must pay higher interest rates or provide more extensive collateral requirements to secure these "high risk" loans than might be required for another "less risky" venture. (Mullen& Woods 61) It is not difficult for a restaurant to fail when it has poorly planned financially. Many times restaurateurs fail to accommodate the business with enough cash flow to support the projected three year start period. Some expenses cannot be avoided nor controlled like raw materials which are essential regardless if business booms or busts in the early period. Operators must realize that if business is low, so too should their overhead costs. If there is no income, there is no money to pay expenses, thus the restaurant goes under. Some external factors may effect restaurant expenses which owners have little control over. Government legislation could cause higher taxes and operation fees which could force some franchise owners, even in large chains, to sell rather than sign new agreements. (Nathan, 66) With insurance cost at already high rate for restaurants, new health-care reforms could be an added burden, especially for independent restaurants. Some sources predict that these reforms could be so costly that it could eliminate ten percent of the industry's nine million jobs in '95. Many factors could lead to ultimate failure of restaurants due to poor financing and uncontrolled external factors. The term failure means a lot of different things. Going broke certainly constitutes a failure, but terminations and nonrenewals of franchises are also failures in many cases. Selling the store to another franchisee or to the company could also qualify depending on what motivates the sale. In some cases, a restaurant in a poor location may change hands several times- each a failure- yet each change of ownership may go unnoticed because the signage, menu, and interior decor will be virtually unchanged. (Nathan, 66) When opening a restaurant, owners must investigate fully the factors of the type of establishment they want to create and the location of this establishment. Both are essential in the success of the restaurant. Some restaurateurs aim to target their patrons, they go directly for what they think they want. Say there is an overabundance of Chinese restaurants, maybe the people would flock to a new Mexican restaurant. He will take that risk and start his business. There are two major type of restaurants, specialized menu and diverse menu. A diverse menu franchise such as McDonald's has a failure rate of about 2%. (Nathan, 66) This is because people have a choice in what they eat , and because of the good reputation. Though these are fairly successful, specialized restaurants such as Cinnabon or Wings to Go may also be very successful. Their product or specialty could prove to be the only place around to get it or most likely the best. The failure rate of these specialized establishments is closer to 40%. (Nathan, 66) Clearly, it is not difficult for an entrepreneur to miscalculate his venture. It might be a bad time economically for that particular town to open that type of specialized business. Starting a restaurant from scratch is not the only option, some say that it could be just as beneficial to buy a franchise that has already been established. Though there is still a great amount of risk, wise advice leads toward buying a restaurant that has weathered three years of operation. Even this type of venture requires research. Entrepreneurs must investigate their market before beginning a project. Restaurants depend primarily on their local consumer markets and secondarily on traveling market for their business. Thus they should study their market by looking at extreme factors such as both the prime and local lending rates, cost-of-living index, factory lay-off or hiring, and the general unemployment levels. (Mullen and Woods. 64) What usually happens is that when a local economy takes a downturn, a flurry of new restaurants appears which create more jobs and filter out the weaker and more poorly-managed restaurants over the next two years. (Mullen and Woods, 65) Some restaurateurs believe that an original and strong concept for a restaurant is most important. The food is commendable but the way it is presented and delivered is extraordinary. Some also believe that it is most beneficial if all of these types of restaurants are lumped together in a town so that people can choose. A case in point is Brinker Intl., the US's biggest restaurant business. Owner and operator Norman Brinker believes his insight has led him to look for prime sights. His ideal; Control an intersection and put a different restaurant concept on each corner. That way, if a Brinker restaurant loses business, chances are, it will lose to another Brinker restaurant. (Palmeri, 62) After an entrepreneur has taken his idea or concept with his restaurant, he must find people to run his business, that is if he does not run it by himself. Restaurant managers are a vital part of success. Some of their most important jobs is to control, oversee and train the employees of the restaurants. This is not an easy task, given that restaurant help constantly changes and rotates. This workforce is huge. This year the number of restaurant workers went up from 6.74 million in '89 to 7.24 million in '94. 42% of all women and 31% of all men in the US have worked in foodservice at one time in their lives. (NRA factbook) It may be a concern of the manager that there may not be a large enough pool of quality help to hire. If their establishment is not a solid one, managers must realize that interested workers must at some point decide if they are interested working for a firm that is at high risk of failure. (Mullen and Woods, 61) Higher quality employees may be scarce, thus efficient training must take place. Low quality training by the manager could prove to be a deficiency to the restaurant. Poor training equals poor efficiency and service which equals less patrons which equals low income which equals bankruptcy. Managers must set and keep a company standard. Many restaurants publish official handbooks which outline the standards. It is up to the managers to keep the help up to and working toward that standard. Managers and restaurant operators also must frequently reevaluate their establishments to direct their goals toward their patrons. They must find out what the people want and deliver. Fast Food chains such as McDonald's, Burger King, and Wendy's have lured customers in with selectively lowered prices and bargain meal combinations; by delivering value, they can offset the damage lower prices do to revenue. (Thorrien, 97) The restaurants that h f:\12000 essays\business & economics (632)\Will the Global Economy Help or Hurt The Next Generation of Americans.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Will the Global Economy Help or Hurt The Next Generation of Americans? Will the global economy help or hurt the next generation of Americans? This is the question I am going to investigate in this paper. The global economy is the system pertaining to the production, distribution and consumption of goods and services around the globe. It is important that we understand the global economy because it is and will be affecting the way we learn, work and live. How all of these factors are affected will be discussed in the following paper. I take the position that the global economy will hurt the next generation of Americans. One argument for this position is that our schools are not adequately preparing out students for the types of new work that will be required in the next generation. American schools are using teaching techniques that taught existed in the 1950's. Textbooks date back to the early 1970's. Requirements may have changed but our reaching techniques have not. Every year, students take the same courses with the same prerequisite: A good memory. True, they are teaching classes that are essential to get into a good college but are they teaching the skills that our future generation will need? Are students going to be able to problem solve? Are today's students going to be able to access tomorrow's information? Our schools teach American students to be good at memorization. To be able to spit out recorded information. "You do have the knowledge but you are basically robots with skin; machines, tape recorders that teachers use to record their information. At the end of a chapter, they rewind you and press the 'play' button to see if you can repeat everything they said."1 Also, our schools are not stressing the importance of math and science. Because of this fact, foreign born workers such as engineers are taking over the jobs American workers could have. Our students need to be truly smart because memorized skills can only go so far. Grades cannot always determine the real skills of the students. Anybody can receive a diploma but what do these grades really mean? Not much unless a student can apply their memorized skills for the new way of work. "Just possibly we have a surplus of graduates and a scarcity of real skills."2 The improvement of our educational system, not the number of degrees we hand out, is the only way the next generation can thrive in the global economy. An objection to this position is that our school system is preparing our students in the best way possible. First, we really can't blame the schools for lack of supplies or updated technology. Quite possibly our teachers are the ones who are not prepared and we certainly can't expect schools to do everything. School is simply a basis for learning. "The true inputs to education are students, hard work, quality teaching and rigorous standards and parental engagement. When these are missing money and reorganization can't compensate."3 Also grades in some ways do represent how ambitious a student is about school and whether they get work done on time both of which are qualities of a good worker. High schools in the United States are better than you think. " In the most recent international comparison of reading, which was done in 31 nations, American kids finished second to Finland."4 "We have an evolutionary process where we are getting better and better..."5 Yet the following argument can reply to the latter objection. Our schools may be better than we think but are they good enough to prepare our students for the new way of work? What I mean by this is being able to use technology, apply real life skills and think on their own. Reading and math skills may be second out of 31 nations but what you may not know is "23% of Americans don't finish high school compared to Japans 2%"6 Also, "American students attend school the least amount of days (180 in fact) compared to other economically strong countries such as Britain's 192 days, Japan's 243 and Germany's 290 days."7 So, we have the highest drop out rate and we spend the least amount of time in school. These numbers could explain why our students are behind intellectually with other countries. This could mean our economy may suffer as well. What can we do to improve this though? Already, more colleges are "lowering admission standards so more kids will attend"8. This means our students can pick their schools and school will compete for good students. If we use more technology this will enable students to access information that was not currently available. Businesses should also be involved in helping our schools because today's students are tomorrow's workers. They are the future doctors, lawyers and engineers. "Schools aren't day care centers or churches or scout troops. Their primary mission isn't to teach our children how to drive a car, play football, cook meals, avoid pregnancy or prepare them for marriage, their main job is to teach them academic skills that will enable our kids to earn a living and contribute to a vital nation."9 A longer school year with more emphasis put on math and science and an "increase in the intellectual challenge of courses"10 is the only way America's students will be able to compete and succeed in the global economy. A second position as to why the global economy will hurt the next generation of Americans is due to the arising and already prospering information revolution. due to the changes in technology, the next generation of Americans, "the people presently in their teens and 20's, will be the first generation in America to have a lower standard of living than their parents."11 The facts are all over, either we keep up with the changing world or get out of the way. Technology will pass them by. "New technology replaces workers or companies turn to corporate downsizing to save money"12 "American companies are moving production overseas using new technology to replace workers"13 The evidence is all there, every year more than a half a million good jobs are eliminated by the nation's most prestigious companies. "Workers are going to have to improve their skills or get new ones altogether so they can stay ahead of the game"14 The gap between man and machine needs to decrease. "By the year 2010 or 2015, computer literacy will be no more remarkable than telephone literacy today. Nearly every skilled job will require it."15 Because so many companies are downsizing and merging, this will result in a decrease of jobs and an increase in employment. "The price of beating overseas competition has been bitterly high; wave after wave of corporate downsizing layoffs, wage increases limited or foregone and the replacement of full time workers for part time or temporary hired hands."16 Due top the fact that many people will be out of full time jobs this means more people will be working two part time or temporary jobs." People holding two or more jobs constitute 6.1% of the labor force; more than the unemployment rate."17 Many workers complain this is exhausting. An auto plant worker in Michigan is being asked to do the work of two people, he says, "If somebody retires, all they do is take the work and give it to somebody else."18 This is a similar situation for a worker at a nearby telephone company who says, "I'm doing the work of three people, by the time I get home all I have time for is a shower, dinner and a little sleep and then it's time to do it all over again."19 Another change that the information revolution has caused is the growing number of people working at home. "Home based businesses employ roughly 14 million people nationwide. Nearly 2/3 of these businesses employed, 5.6 million were full time and 8.4 million part time."20 But whether you work for a company or are self employed, part time and temporary workers only draw wages not benefits. So this in the end, a loss of benefits and overworking will result in a lower standard of living for Americans which in turn can only hurt the next generation and the global economy. Yet an objection to this argument would be that the information revolution does not play a major role in our global economy. The unemployment rate is the lowest its been in five years and downsizing "increases productivity or output per worker hour that has helped make the US number one."21 The new work changes are creating jobs, not destroying them. "Despite the persistence of unemployment, the US is still creating about two million jobs per year net and that puts it well ahead of some of the competitors"22 "President Clinton likes to note that 2/3 of the nearly forty million Americans with no health care live in families with full time workers"23 So really full time workers might not be better off after all. Jobs are growing and this is especially noticeable in Oakland county in Southeast Michigan. "Last year in 1994, 9,000 jobs were added and a U-M study predicts 47,000 more jobs will be created next year."24 With all these new job creations our economy will only grow and succeed into the future. A reply to this objection though would be that despite all the job creations, people are still going to be working two or more jobs that have no benefits. The job creations may sound positive but it won't change the standard of living that "generation X" is going to face. "Falling wages have put he traditional American family into play as the one earner middle class family becomes extinct. With children needing ever more costly education's for ever longer periods of time, the cost of supporting a family is rising sharply just as earnings plunge. Mothers are going to have to work longer hours if the family is going to have it's old standard of living."25 This means that people are going to have to work twice as hard for the same quality of living. This also means a constant upgrading of skills necessary for peak job performance. "Important efforts should be better education and a committed and constant upgrading of skills. Our future is a more educated one rather than a cheaper one. Technological revolutions in the past have consistently led to gains in production, commerce, employment and living standards."26 Yet if workers don't improve their skills and constantly upgrade them, shrinking the gap between man and machine, this revolution will be detrimental to the welfare of our workers, their families and most importantly the global economy. Despite all the information on how the global economy will hurt the next generation of Americans, there are also ways in which it will help the next generation. My objection to my original position; that is the global economy will hurt the next generation of Americans is that it will instead help them due to the new ag f:\12000 essays\business & economics (632)\Women As Leaders.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Women As Leaders More and more women are rising to the leadership challenge, even in some of the most male-dominated industries. The increase in the number of women attending university, in the workplace or starting their own business has demonstrated to men who own businesses that women can be both managers and mothers, thus showing their male counterpart that women can in fact "do it all". In this paper the history of women in the workforce will be outlined, as well as the challenges they face. The changing attitudes towards women taking over family businesses will be looked at briefly, how women lead along with a comparison to how men lead, and a critique and conclusion of their leadership style will also be discussed. History and The Challenges Women Face A number of events have occurred over the last twenty-five years or so that have resulted in the rise of the female in the work-for-pay world. Beginning in the mid-1970's, women began going to business school and earning their Master's of Business Administration and, as a result, building on that education and gaining work experience (Nelton, 1999). The days of the one income family are over. Females need to be armed with a university or college degree to be a contributor to this century's model of the family unit and in this time of "education inflation", the demand for higher education is growing at a staggering rate. In the corporate sector, the generation of women who entered the corporate world two to three decades ago have blazed the trail now followed by ever-growing numbers of women (Shaiko, 1997). The great strides women are making in the work force can be attributed to numerous factors including the: "passage of equal employment opportunity legislation's, modifications in job requirements, more females on the buying side, elevated educational achievements by females, more women in business schools, the huge percentage of female business school graduates with 'androgynous' orientations, and the willingness of many young women to postpone marriage and child-bearing." (Comer, et.al, 1997) While women continue to make progressive strides toward equality, few have risen to the highest positions-leading companies to the new millenium (Andorka, 1998). Fortunately, women can now demand equal treatment in their respective organizations as a result of the aforementioned changes in history. Many companies have policies in places that require equality at work and punishment for those who do not adhere to such policies. There is a vast amount of evidence that women tend to occupy less powerful, lower paid, and lower status organizational positions than men. These divisions not only occur vertically, but on a horizontal scale as well. Women who seek to enter management level positions fight against stereotypes, discrimination, and myths, not to mention the fight to balance work and family. They have also been overwhelmed by unfamiliar products, skeptical clients or customers, guy talk, a scarcity of female associates and little or no empathy (Comer, et.al., 1997). Sheila Wellington, President of Catalyst, a non-profit organization for the advancement of women to corporate and professional leadership, said in a speech on October 23, 1996 to the Economic Club of Detroit in Detroit Michigan: "Let me be clear, I believe that most obstacles to women's advancement to the top are not intentional, they are a result of unexamined assumptions about women's career interests and of policies and practices that have existed unquestioned over time in the corporate culture. With real commitment to change, the situation is remediable." (Wellington, 1996) Perhaps, the "glass ceiling" that women are under is not the intent of their male counterparts. I believe that it is the socialization of men and women in our society that has lead to this imbalance in the work force. But, somewhere along the line, men have to realize and acknowledge the socialization they have endured is creating much disharmony and discontent among their female colleagues. The Torch is Passed- to the Daughter Twenty years ago, there was no place for women in most family businesses (Nelton, 1999). If they did have a position, it was presumably as secretary, assistant, or some other "behind-the-scenes" role. The traditional successor to the family business was the first-born son and if there was no son, then the widow was discouraged from running the company and urged to sell the business. Those days have since past. As women are achieving higher levels of education and are being employed in more prominent positions, their leadership roles in family organizations have increased (Brody, 1994]. Many young women are refusing to accept the rule of "primogeniture" (Nelton, 1999). Primogeniture is defined as a birthright or an inheritance. Although women are making great strides in this arena, there is still the feeling out there that the son should be considered first and the daughter as a second option, only if there is no son or if the son declines the offer. But, Nelson says that, "young women by and large feel that if they want to go into the family business, the opportunity is there." In each of the cases described by Nelson, the fathers encouraged their daughters to become involved in the family business. As well, each father let his daughter run the show once she was named CEO-the surest sign of support (Nelton, 1999). In more and more families and in business in general, gender is becoming a "non-issue". As roles increasingly change on the home front, the business world will soon mirror the changes taking place in the family structure. Nelton also urges women in leadership roles to not lose sight of the bottom line. She says it is "easy for women to get caught up in the management of people" (Nelton, 1999). She goes on to say that if you cannot prove that you are also profit-driven, you will never make it to the successor level. The Battle of the Sexes There are many characteristics that women inherently possess that make them great leaders. Women tend to handle juggling many tasks at the same time better than men do. Because women have traditionally been the primary caregiver in the home as well as taking care of the household chores, "juggling" or time management has become second nature to them. Although women are skilled in handling many tasks, studies have shown that women are for the most part, people-oriented, rather than task-oriented (Comer, et.al., 1997). Women also value relationships and tend to spend time nurturing those relationships with their family, as well as subordinates (Andorka, 1998). Coaching, counseling, and mentoring, and the building of relationships are among the many characteristics needed to be an effective leader. In the past, commanding and controlling were thought to be the answer to gaining compliance and hard work from employees. The majority of men lean toward the traditional 'command and control' style and were more likely to view job performance as a series of transactions with subordinates offering rewards for services rendered or punishment for inadequate performance (Brody, 1994). Women understand the effectiveness of immediate praise and tend to be more supportive of one another and the people who work for them. Men wait for proof of achievement before extending gratitude or compliments. In the book, Selling is a Woman's Game, Nicki Joy outlines the characteristics she feels are unique to women that make them prone to leadership roles: "The talent to multi-task, willingness to pay attention to detail, their interest in people, their skill in picking up body language, moods and undertones of conversation, and their superior listening skills" (Comer, et.al., 1997) It is important to note that while the majority of women do possess all or some of these inter-personal skills, men are quite capable of exhibiting these same characteristics and it is also possible that there are women who do not possess any of these characteristics. Women are also said to be easy to motivate, are trustworthy and cooperative, and are careful planners (Blanchard, 1988). Current studies suggest that women tend to have strong skills in collaboration and group processes. Many behavioral scientists have concluded that, in general, women's leadership style seeks consensus among subordinates rather than the more typically male independent decision making style. Women are sometimes faced with criticism for being too passive, but if she opts for a more task-oriented, directive style of leadership, she is seen as too aggressive or masculine-a "bitch" (Andorka, 1998). They use an interactive approach to management in which they encourage employees participation but also attempt to "enhance other people's sense of self-worth and to energize followers" (Brody, 1994). Women in leadership roles in organizations are usually highly involved in the day-to-day operations and they seek advice from the community and their peers. When it comes to leadership and management, women "tend to lead in circles rather than pyramids" (Brody, 1994). That is to say that they lean towards creating a cooperative atmosphere rather than a hierarchical, competitive environment. They possess superior creative problem solving and intuitive management skills, these among their other interpersonal skills have been encouraged throughout their lives and they have relied on those very skills in each and everyone of their relationships. Because of women's socialization, these characteristics have come to the forefront. As children, women are encouraged to listen, to build relationships, to be considerate of other's feelings and opinions and so on. As a result, a new breed of leaders was born. The Leadership Challenge What, if any, characteristics of a leader outlined in the Leadership Challenge, do women possess? Well, to begin with Part 4, Enabling Others to Act. Kouzes & Posner found in their research that in cases of success, it was almost never done alone. Women possess a superior sense of teamwork, cooperation, and collaboration. "If the goal is to improve performance, the winning bet will be on cooperation over competition every time. Competition almost never results in best performance; pursuing excellence is a collaborator's game" (Kouzes & Posner, p. 152). Especially in joint tasks, cooperation and collaboration are keys to success. Enabling others to act is innate in women. Again, as primary caregivers, they are subject to letting their children go and experience life and make their own mistakes, this is just second nature to women. Reciprocity is key in executing effective leadership. Women focus a lot of their energy and time in maintaining and building relationships with the people around them. Reciprocity is one of the components of building a relationship, "reciprocity also leads to predictability and stability in relationships, which can keep both relationships and negotiations from breaking down" (Kouzes & Posner, p. 157). Reciprocity is described as having the willingness to be cooperative and an unwillingness to be taken advantage of. To foster collaboration encompasses what women leaders are. The sharing of information and resources is, again, like second nature to women. This is through their socialization. That is not to say that all women possess these characteristics, but it is based on the majority through studies and extensive research. Building trusting relationships is the embodiment of the female psyche. Without trust in the people around them, their effectiveness as a leader, employee, wife, mother or friend is non-existent. Women strive for trust in the people they connect with on daily basis and they strive to be trusted. "Trust is at the heart of fostering collaboration. It's the central issue in human relationships within and outside the organization" (Kouzes & Posner, p. 163). It is a universal fact that women are exemplary listeners. It is the key in understanding the people you work with. To understand what is important to them is crucial to a successful business relationship. To know what an employee needs to feel fulfilled and to work to capacity, superior listening and communication skill are necessary. Celebrating accomplishments are also a fundamental practice in leadership. As mentioned previously, women are more likely to celebrate accomplishments and provide immediate praise to successful subordinates, unlike their male counterparts. Women are drawn to creating social support networks. Once again, women's socialization comes to the forefront. Females are taught by example that to be happy and fulfilled you need your own little "support network" made up of friends and family. When women have problems or need advice they immediately call upon their network for assistance. Unlike men, who by nature, tend to withdraw and put the decision making process solely on their own shoulders. Conclusion Although women do possess many of the characteristics of effective leaders, they are not prone to lead by example (Comer, et.al., 1997). Due to the clash in the scheduling of work and their personal lives, women are torn between being a driven leader and being an effective leader in the home. But, again, gender is not always the determining factor in leadership capabilities. There are exceptions to each of the rules outlined within this paper. It is important to take note that there are male leaders that possess each of these qualities and are superior leaders. Alternatively, there are men and women who possess little or few of these characteristics and have still risen to the top of their ranks in terms of leadership style and capability. f:\12000 essays\business & economics (632)\Women Executives.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Women Executives Even though women constitute 40% of all executives and administrative posts (up from 24% in 1976), they are still restricted mostly to the middle and lower positions, and the senior levels of management are almost entirely male domains. A 1990 study of the top Fortune 500 companies by Mary Ann Von Glinow of the University of Southern California, showed that "women were only 2.6% of corporate officers (the vice presidential level up)." Of the Fortune Service 500, only 4.3% of the corporate officers were women - even though women are 6l% of all service workers. Even more disturbing is that these numbers have "shown little improvement in the 25 years that these statistics have been tracked". (University of Michigan, Korn/Ferry International). What this means is that at the present rate of increase, it will be 475 years - or not until 2466 before women reach equality with men in the executive suite. This scenario is not any better on corporate boards. Only 4.5% of the Fortune 500 industrial directorships are held by women. On Fortune Service 500 companies, 5.6% of corporate directors are women. The rate of increase is so slow that parity with men on corporate boards will not be achieved until the year 2116 - or for 125 years. (The Feminist Majority Foundation News Media Publishing Inc., 1995) In 1980, only one woman held the rank of CEO of a Fortune 500 company. This woman came into the top management by inheriting the company from her father and husband. In 1985, this executive was joined by a second woman who reached the top - by founding the company she headed. Even though the newspapers are reporting that women have come a long way and are successful in the corporate world, women are banging into a "glass ceiling" that is "so subtle that it is transparent, yet so strong that it prevents women from moving up the corporate hierarchy". (Ann Morrison, The Feminist Majority Foundation and News Media, Inc, 1955) Women can see the high- level corporate positions but are kept from reaching the top. According to Morrison (http//www.feminist.org/research/ewb glass.ntml.) and her colleagues, the glass ceiling is not simply a barrier for an individual, based on the person/s inability to handle a higher-level job. Rather, the glass ceiling applies to women as a group who are kept from advancing higher because they are women. Just as the overall labour market remains sharply segregated by sex, women executives are concentrated into certain types of jobs - mostly staff and support jobs - and these offer little opportunity for getting to the top. The highest ranking women in most industries are in non-operating areas such as personnel, public relations. or, sometimes finance specialties that rarely lead to the most powerful top-management positions. It seems that women are shut out of jobs in the route that is taken by CEOs and presidents and even when they do get a line job it will more than likely not be in the significant part of the business or the type of job that can stamp them as leaders. It seems to be that the biggest barrier to women in top management levels is the bunch of boys sitting around a table making all the decisions. In other words when a decision has to be made concerning who should be promoted to management, male corporate leaders are inclined to select people as much like themselves as possible - so there is no astonishment that women are often not even considered at promotion time. The guys at the top look at their former colleagues and old school ties. Women executives are often left out of social activities because they do not fit into the "boys club". Even on a more traditional level, women report there are "certain kinds of meetings" they do not get invited to because they are not seen as policy makers. In a Wall Street Journal//Gallup study 80% of the executive women stated they believe there were disadvantages to being a woman in the business world. They stated that men did not take them seriously, they have been mistaken for a secretary at business meetings, they have been prevented from moving up the ladder because of male attitudes towards women and they believed they are paid less than men of equal ability. Many corporate environments tolerate sexual harassment which intimidates and demoralizes women executives. However, many women hesitate to speak out, fearing it will jeopardize their careers. In conclusion, many women have been discouraged from going to the top by a set of myths suggesting women are not suited for top management and that any problems are being solved gradually. (E.g. conflicts with family and home responsibilities, women at the top are frequently single, divorced or have no children, proving how difficult it is to combine family and career, women executives cost the corporation more because they must divide their attention between career and family, women are not as serious about their careers, women are not suited for top management because they are not aggressive enough and lack the self confidence required for the top jobs - to mention a few.) These myths seem work to keep women in their place and to justify the lack of progress for women. Worse yet, these myths often place blame on women rather than on sex discrimination. Men in corporate management tend not to perceive discrimation as a real problem, thereby making it virtually impossible to implement effective remedies. White men have ranked problems encountered by women executives as insignificant compared to how women ranked them. Therefore, without constant pressure from the outside and strong legal remedies, the very real problems of race and sex discrimination in the executive suite may never be adequately addressed. Even though feminists have fought to establish and vigorously enforce guidelines and laws prohibiting sex discrimination in employment, women feel they are a long way from equality in the ranks of American business. They feel that further gains depend on getting more feminists into decision-making positions and creating new strategies for change. f:\12000 essays\business & economics (632)\Women in buisness.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Even though women constitute 40% of all executives and administrative posts (up from 24% in 1976), they are still restricted mostly to the middle and lower positions, and the senior levels of management are almost entirely male domains. A 1990 study of the top Fortune 500 companies by Mary Ann Von Glinow of the University of Southern California, showed that "women were only 2.6% of corporate officers (the vice presidential level up)." Of the Fortune Service 500, only 4.3% of the corporate officers were women - even though women are 6l% of all service workers. Even more disturbing is that these numbers have "shown little improvement in the 25 years that these statistics have been tracked". (University of Michigan, Korn/Ferry International). What this means is that at the present rate of increase, it will be 475 years - or not until 2466 before women reach equality with men in the executive suite. This scenario is not any better on corporate boards. Only 4.5% of the Fortune 500 industrial directorships are held by women. On Fortune Service 500 companies, 5.6% of corporate directors are women. The rate of increase is so slow that parity with men on corporate boards will not be achieved until the year 2116 - or for 125 years. (The Feminist Majority Foundation News Media Publishing Inc., 1995) In 1980, only one woman held the rank of CEO of a Fortune 500 company. This woman came into the top management by inheriting the company from her father and husband. In 1985, this executive was joined by a second woman who reached the top - by founding the company she headed. Even though the newspapers are reporting that women have come a long way and are successful in the corporate world, women are banging into a "glass ceiling" that is "so subtle that it is transparent, yet so strong that it prevents women from moving up the corporate hierarchy". (Ann Morrison, The Feminist Majority Foundation and News Media, Inc, 1955) Women can see the high-level corporate positions but are kept from reaching the top. According to Morrison (http//www.feminist.org/research/ewb glass.ntml.) and her colleagues, the glass ceiling is not simply a barrier for an individual, based on the person/s inability to handle a higher-level job. Rather, the glass ceiling applies to women as a group who are kept from advancing higher because they are women. Just as the overall labour market remains sharply segregated by sex, women executives are concentrated into certain types of jobs - mostly staff and support jobs - and these offer little opportunity for getting to the top. The highest ranking women in most industries are in non-operating areas such as personnel, public relations. or, sometimes finance specialties that rarely lead to the most powerful top-management positions. It seems that women are shut out of jobs in the route that is taken by CEOs and presidents and even when they do get a line job it will more than likely not be in the significant part of the business or the type of job that can stamp them as leaders. It seems to be that the biggest barrier to women in top management levels is the bunch of boys sitting around a table making all the decisions. In other words when a decision has to be made concerning who should be promoted to management, male corporate leaders are inclined to select people as much like themselves as possible - so there is no astonishment that women are often not even considered at promotion time. The guys at the top look at their former colleagues and old school ties. Women executives are often left out of social activities because they do not fit into the "boys club". Even on a more traditional level, women report there are "certain kinds of meetings" they do not get invited to because they are not seen as policy makers. In a Wall Street Journal//Gallup study 80% of the executive women stated they believe there were disadvantages to being a woman in the business world. They stated that men did not take them seriously, they have been mistaken for a secretary at business meetings, they have been prevented from moving up the ladder because of male attitudes towards women and they believed they are paid less than men of equal ability. Many corporate environments tolerate sexual harassment which intimidates and demoralizes women executives. However, many women hesitate to speak out, fearing it will jeopardize their careers. In conclusion, many women have been discouraged from going to the top by a set of myths suggesting women are not suited for top management and that any problems are being solved gradually. (E.g. conflicts with family and home responsibilities, women at the top are frequently single, divorced or have no children, proving how difficult it is to combine family and career, women executives cost the corporation more because they must divide their attention between career and family, women are not as serious about their careers, women are not suited for top management because they are not aggressive enough and lack the self confidence required for the top jobs - to mention a few.) These myths seem work to keep women in their place and to justify the lack of progress for women. Worse yet, these myths often place blame on women rather than on sex discrimination. Men in corporate management tend not to perceive discrimation as a real problem, thereby making it virtually impossible to implement effective remedies. White men have ranked problems encountered by women executives as insignificant compared to how women ranked them. Therefore, without constant pressure from the outside and strong legal remedies, the very real problems of race and sex discrimination in the executive suite may never be adequately addressed. Even though feminists have fought to establish and vigorously enforce guidelines and laws prohibiting sex discrimination in employment, women feel they are a long way from equality in the ranks of American business. They feel that further gains depend on getting more feminists into decision-making positions and creating new strategies for change. f:\12000 essays\business & economics (632)\Women in the work place.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Women in the work place The past decades there has been a dramatic increase of women participating in the labor force from countries all over the World including Canada. In 1950, one Canadian worker in five was a woman. By 1980 this percentage had doubled, and women are expected to make up more than 44 percent of the labor force by the end of this century. The increase in female participation started occurring during the 1970's. This increase also caused the largest baby boom that the Canadian female labor force had ever witnessed. In North America it is common for women to have part-time or summer jobs, and the participation rate of teenage girls is high. It is also mostly high throughout the world in places as United Kingdom because of the fewer women going to school. But in places like France, Italy, and Japan the female participation rate is very low. In most of the countries the labour force is most participated in the age groups between 20 and 24. The labor force of mature women is very high in Sweden, because of the encouraged day care facilities, which also provides the females with legislation that provides them with excellent benefits. In Japan there is a drop in female economic activity, the reason why is it affects their marriage and the care of their only child. An observation of labor force participation rates in Canada show that female rates rose a lot between 1971 and 1981, while the male rate rose unnoticeably. The increase in the female participation rate was found in all age groups except in older women. For women aged 15 to 19 the rate was as almost as high as the men. But the largest increase was in the age group of 25-44 years old, where the rate rose almost 50 percent. This meant that the participation rates of the females had become more alike with the men. Family status also influenced the female participation rate but later on during 1981 it had a more less affect than in 1971. According to statistics just over one quarter of married women with young children were working, but this later changed and grew by 76 percent over a 10-year period of time. The rate also showed an increase of 47 percent for widowed, divorced, and separated women with children. However single women with young children showed a slight decrease. However the female participation rate is not so much related to family status as today as it was many years ago. During the period of 1971 through 1981 the involvement of married women went through a major change. Fewer women saw marriage as a reason to interrupt their participation in the job force, and couple tended to postpone having children or not having any at all. While women with young children tended to participate less in the labor market and quit their jobs more frequently than men. Females did the exact opposite of what men did when they had children while working, and in some cases were actually more stable than men without children. This showed that the couple's attitude towards having children influenced a decrease in the female labor force participation rate. In 1981 most women spent an average of 1,247 hours a year working, compared with 1,431 hours in 1971 which had dropped about 15 percent. Even men saw their average hours decrease by 13 percent. Not only more women were working, more were working part-time for only part of the year which meant more women on the unemployment rolls. In the 1960's the unemployment rate for females was 3 percent and ten years later increased to 7 percent. Since June 1982 the unemployment rate for men was 11-13 percent and the women's just above that rate which could also exceed that of the men near the end of the century. Only about 11 percent of women had part-time jobs because they couldn't find full-time employment or because they wished to spend more time to their education or their families, or for other reasons. Although 24 percent of the women working part-time would have preferred a full-time job if it had been available. According to the Statistics Canada study, in 1970 women were extremely poorly paid which showed a big earnings difference than the men. This started changing in the 1970's, which rose the females earning to 51.2 percent of that of a man. Ten years later it had reached 54.4 percent. If it weren't for the decrease in annual hours for the females the earnings difference would have been reduced even further. By 1980 the female's earnings had risen to 72 percent of that of a man. The female labor force would be incomplete without equal pay for equal or equivalent work. This issue was the most important issue to women in low-paid jobs. If the principal of equal pay for equal work were fully applied men and women would both receive the same hourly wage which would raise female earnings dramatically. The issue of equal pay for equal work most often comes up in discussion to improve the economic status of the women at the bottom of the payroll, many of them who are not in unions. When women first started entering the labor force they were hassled by the males because they were supposed to traditional work in the house and take care of the family. Which was the reason of their low wages to disapprove of women working. These traditions reflected their wages and the positions people were willing to offer to women. Working women experience problems such as sexual harassment and being fired because of pregnancy. Most of the people want to correct the unequal treatment of women in the work force and make it equal for everyone. Some of the methods, which can be used to support equality, are to introduce a federal legislation to guarantee equal pay for equal work. To also set wages according to the value of the work done by the employer. Which would be difficult to measure the value of one person's work compared to another persons. We could also offer women better benefits and a better pension when they retire their job. People's attitudes towards women in the work force are slowly starting to change and more opportunities for women are being available for them. The unequal treatment of working women will take years to change and will always stay an important issue. Word Count: 1073 f:\12000 essays\business & economics (632)\Work.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Work During the birth of this country, Puritans had to work hard to ensure the success of the new state. In order to make work more appealing, the Puritans emphasized the fruits of labor. This attitude, reflected in modern day by the act of "working for a living," is considered as a "badge of pride." Puritan attitudes toward work and the attitudes of two modern day writers toward work all agree that the act of working has virtuous effects, an attitude that I share because of my working experience (Clee and Clee 233-234). Three different attitudes toward work, expressed by several writers whom I have recently studied agree that hard work yields positive rewards. Henry F. Bedford, a history teacher at Phillips Exeter Academy, and Trevor Colbourne, a teacher at the University of New Hampshire, examine the Puritan attitude toward work in their book The Americans: A Brief History. Puritans stress the goodness of working by relating it to religious beliefs. Sloth is sinful, but the Puritans also pointed out that it was self-defeating. Leisure is even considered an "evil temptation" (Bedford and Colbourne 235-238). Marge Piercy, a modern day poet, essayist, and novelist, attempts to explain why work is desirable on contemporary terms in her poem "To Be of Use." To Piercy, hard workers who really persevere are admirable because of the fact that the world is full of temptations to stop working, or to not work altogether. This admiration for determination is apparent because work is as "common as mud," and it must be done sometime (Piercy 242-243). Wendell Berry, an English teacher at the University of Kentucky, explains the basis of the desire to work in his essay "The Joy of Work." In response to the prediction that there will be no work in the future, Berry emphasizes the importance of work to human nature. He explains that people do work because of "fellow feeling," and that people get satisfaction from doing work (Berry 244-247). The concept of satisfaction as a product of hard work has been proven valid to me through my years of experience. All of these selections agree that work is a basic part of life: without it, one would have a void in his life where satisfaction would be. Success of humanity depends on work. f:\12000 essays\business & economics (632)\Working An American Necessity.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ During the birth of this country, Puritans had to work hard to ensure the success of the new state. In order to make work more appealing, the Puritans emphasized the fruits of labor. This attitude, reflected in modern day by the act of "working for a living," is considered as a "badge of pride." Puritan attitudes toward work and the attitudes of two modern day writers toward work all agree that the act of working has virtuous effects, an attitude that I share because of my working experience (Clee and Clee 233-234). Three different attitudes toward work, expressed by several writers whom I have recently studied agree that hard work yields positive rewards. Henry F. Bedford, a history teacher at Phillips Exeter Academy, and Trevor Colbourne, a teacher at the University of New Hampshire, examine the Puritan attitude toward work in their book The Americans: A Brief History. Puritans stress the goodness of working by relating it to religious beliefs. Sloth is sinful, but the Puritans also pointed out that it was self-defeating. Leisure is even considered an "evil temptation" (Bedford and Colbourne 235-238). Marge Piercy, a modern day poet, essayist, and novelist, attempts to explain why work is desirable on contemporary terms in her poem "To Be of Use." To Piercy, hard workers who really persevere are admirable because of the fact that the world is full of temptations to stop working, or to not work altogether. This admiration for determination is apparent because work is as "common as mud," and it must be done sometime (Piercy 242-243). Wendell Berry, an English teacher at the University of Kentucky, explains the basis of the desire to work in his essay "The Joy of Work." In response to the prediction that there will be no work in the future, Berry emphasizes the importance of work to human nature. He explains that people do work because of "fellow feeling," and that people get satisfaction from doing work (Berry 244-247). The concept of satisfaction as a product of hard work has been proven valid to me through my years of experience. All of these selections agree that work is a basic part of life: without it, one would have a void in his life where satisfaction would be. Success of humanity depends on work. f:\12000 essays\business & economics (632)\World War 2.TXT +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ here's one on the deficit for those economics classes Subject: the deficit good or bad Deficit Spending "Spending financed not by current tax receipts, but by borrowing or drawing upon past tax reserves." , Is it a good idea? Why does the U.S. run a deficit? Since 1980 the deficit has grown enormously. Some say its a bad thing, and predict impending doom, others say it is a safe and stable necessity to maintain a healthy economy. When the U.S. government came into existence and for about a 150 years thereafter the government managed to keep a balanced budget. The only times a budget deficit existed during these first 150 years were in times of war or other catastrophic events. The Government, for instance, generated deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, and World War I. However, as soon as the war ended the deficit would be eliminated and the economy which was much larger than the amounted debt would quickly absorb it. The last time the budget ran a surplus was in 1969 during Nixon's presidency. Budget deficits have grown larger and more frequent in the last half-century. In the 1980s they soared to record levels. The Government cut income tax rates, greatly increased defense spending, and didn't cut domestic spending enough to make up the difference. Also, the deep recession of the early 1980s reduced revenues, raising the deficit and forcing the Government to spend much more on paying interest for the national debt at a time when interest rates were high. As a result, the national debt grew in size after 1980. It grew from $709 billion to $3.6 trillion in 1990, only one decade later. Increase of National Debt Since 1980 Month Amount -------------------------------------------- 12/31/1980 $930,210,000,000.00 * 12/31/1981 $1,028,729,000,000.00 * 12/31/1982 $1,197,073,000,000.00 * 12/31/1983 $1,410,702,000,000.00 * 12/31/1984 $1,662,966,000,000.00 * 12/31/1985 $1,945,941,616,459.88 12/31/1986 $2,214,834,532,586.43 12/31/1987 $2,431,715,264,976.86 12/30/1988 $2,684,391,916,571.41 12/29/1989 $2,952,994,244,624.71 12/31/1990 $3,364,820,230,276.86 12/31/1991 $3,801,698,272,862.02 12/31/1992 $4,177,009,244,468.77 12/31/1993 $4,535,687,054,406.14 12/30/1994 $4,800,149,946,143.75 10/31/1995 $4,985,262,110,021.06 11/30/1995 $4,989,329,926,644.31 12/29/1995 $4,988,664,979,014.54 01/31/1996 $4,987,436,358,165.20 02/29/1996 $5,017,040,703,255.02 03/29/1996 $5,117,786,366,014.56 04/30/1996 $5,102,048,827,234.22 05/31/1996 $5,128,508,504,892.80 06/28/1996 $5,161,075,688,140.93 07/31/1996 $5,188,888,625,925.87 08/30/1996 $5,208,303,439,417.93 09/30/1996 $5,224,810,939,135.73 10/01/1996 $5,234,730,786,626.50 10/02/1996 $5,235,509,457,452.56 10/03/1996 $5,222,192,137,251.62 10/04/1996 $5,222,049,625,819.53 * Rounded to Millions Federal spending has grown over the years, especially starting in the 1930s in actual dollars and in proportion to the economy (Gross Domestic Product, or GDP). Beginning with the "New Deal" in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt sought to use the full powers of his office to end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to nearly $7 billion in 1934 and to over $8 billion in 1936. Then, U.S. entry into World War II sent annual Federal spending soaring to over $91 billion by 1944. Thus began the ever increasing debt of the United States. What if the debt is not increasing as fast as we think it is? The dollar amount of the debt may increase but often times so does the amount of money or GDP to pay for the debt. This brings up the idea that the deficit could be run without cost. How could a deficit increase productivity without any cost? The idea of having a balanced budget is challenged by the ideas of Keynesian Economics. Keynesian economics is an economic model that predicts in times of low demand and high unemployment a deficit will not cost anything. Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used. For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic system. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980's when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit. This means as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. But, what if the government spends money on programs that do not increase its assets or productivity. For instance consider small businesses. If the company invests money to higher a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on a paper clips when they have staplers they will just lose the money spent on the paper clips. This frivolous spending is what makes a deficit dangerous. Then the governments net worth decreases putting it into serious debt. Debt should not be a problem because we can just borrow more, right? This statement would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the private sectors essentially reallocating its own countries funds to spend on its country. This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars. Deficit dollars then translate into demand for goods that aren't being produced. Referring back to the small business example, if a company is selling all the products it can produce they can still higher another salesman. But since there are no more goods to be sold the salesman only increases the number of consumers demanding the product. Without actually increasing sales. The problems of deficit spending out of a recession even out through two negative possibilities, inflation and crowding out. Inflation means there is more demand or money than there are goods this causes an increase in prices and drives down the worth of the dollar. This depreciation of the dollar counters the cost of the deficit but destroys the purchasing power of the dollar. A five dollar debt is still a five dollar debt even if the five dollars are only worth what used to be a five cent piece of bubblegum. Despite its dangers inflation is used to some extent to curb the debt. Crowding out is when the government is looking for the same capital that the business sector wants to invest. This causes fierce competition for funds to invest. The fierce competition causes an increase in interest rates and often business will decide against further investment and growth. The government may have the money to build new highways but the truckers cannot afford trucks to use on them. The governments needs will "crowd out" business needs. This turns potential assets into waste. However, there is a third option which would allow the government to run a deficit and avoid the negative aspects of inflation and crowding out. Borrowing from foreign sources is a tangible and recently very common practice. Attracted by high interest rates and stability, foreigners now buy huge amounts of U.S. national debt. Of course this cannot be the perfect solution otherwise no one would be concerned about the debt. The problem with borrowing from external sources is the lack of control the government has over foreign currency and debts. Internal debts can be paid with increased taxes, inflation, and other monetary controls the government has but external debts can extremely damaging to a country if it cannot buy enough of the foreign currency to pay the interest. Running a deficit is apparently good for an economy that is operating inside its production possibilities curve but it can be damaging to an economy operating on the curve. A deficit managed properly has the effect of increasing demands. An economy inside its curve can increase supplies in reaction. An economy on the curve can increase demand but its supplies cannot increase causing prices to rise, or inflation. If there is no deficit and the curve shifts to the right then supplies will not increase and the country will no longer be operating on the curve. A deficit must be maintained to insure that the economy grows with its resources. Is the U.S.'s current debt bad or good? The trick is finding out how large the deficit should be in order to allow for growth without waste. The U.S.'s deficit is bad at this point because the U.S. is close to its maximum production capabilities, and deficit money is being wasted. For example two of the largest portions of the budget: defense and social security. Defense spending produces little or nothing except in times of war. Judging by the current status of the United States as the only existing "Nuclear Super Power" war is not a tangible event in the near or distant future. The way social security is managed creates a huge waste. As managed, social security is money spent to immobilize a large and fairly capable part of the work force. It encourages elderly people not to work by spending deficit money on them. Reducing productivity and increasing the debt at the same time. In its current state the U.S. should attempt to reduce its deficit but eliminating it is not necessary and could do more damage than good.