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melleyvaa-blog · 7 years ago

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PBL Trigger 2

Why are just some companies interested in solving social problems?

1. What are the characteristics of the companies that worry about social problems?

The accompanying examples suggest three principles for moving toward this goal:

Concentrate your CSR efforts. Management time and resources are limited, so the greatest opportunities will come from areas where the business significantly interacts with—and thus can have the greatest impact on—society. These are areas where the business not only can gain a deeper understanding of the mutual dependencies but also in which the highest potential for mutual benefit exists.

Build a deep understanding of the benefits. Even after selecting your chosen areas of opportunity, finding the potential for mutual value creation is not always straightforward. The key is finding symmetry between the two sides and being open enough to understand issues both from a business and a societal perspective.

Find the right partners. These will be those that benefit from your core business activities and capabilities—and that you can benefit from in turn. Partnering is difficult, but when both sides see win–win potential there is greater motivation to realize the substantial benefits. Relationships—particularly long-term ones that are built on a realistic understanding of the true strengths on both sides—have a greater opportunity of being successful and sustainable.

https://www.mckinsey.com/global-themes/leadership/making-the-most-of-corporate-social-responsibility

2. What are the associations that are aware about social problems?

Since its foundation, UNESCO has given great importance to partnership with civil society organizations, in particular NGOs.

The role of civil society representatives is increasingly important in every sector of daily life, and partnership with civil society organizations is becoming indispensable for governmental organizations in pursuing their strategic objectives.

Two categories of partnership may be established with NGOs:consultative partnership and associate partnership.

1--Consultative partnership is designed to enable UNESCO to establish and maintain flexible and dynamic partnerships with any organization of civil society that is active in UNESCO’s fields of competence at whatever level, and to benefit from its expertise, the representativeness of its networks for the dissemination of information and, if appropriate, its operational capacities in the field. Moreover, this category of partnership should make it possible to facilitate the emergence of organizations which are representative of civil society, and their interaction at the international level, in those parts of the world where they are weak or isolated.

2--Associate partnership involves close and sustained cooperation in defining and implementing the Organization’s programmes. This partnership is established for a renewable period of eight years and is open to those international organizations having maintained a continuous and effective partnership (consultative status) with UNESCO for at least two years.

http://portal.unesco.org/en/ev.php-URL_ID=32914&URL_DO=DO_TOPIC&URL_SECTION=201.html+

3. Which are the requirements to be a social aware company?

Exxon Mobil is proud to announce that its exit from the extraction and production of nonrenewable resources is now complete. Back in 2015 the company began its 10-year journey out of fossil fuels by committing itself to a bold set of changes that have transformed the company and indeed the world. Key actions over the past decade include:

*-Hiring a new chief executive, formerly the president of the Environmental Defense Fund, an organization that believes economic prosperity and environmental stewardship go hand in hand;·

*-Being certified as a B-Corporation, a designation stipulating a material positive impact on society and the environment;·

*-Introducing a new class of shares whose value reflects both financial and environmental performance; and·

*-Transforming more than 10,000 Exxon and Mobil stations into local centers of sustainable transportation where customers can recharge their electric vehicles, buy or rent bicycles, and purchase discounted passes for local transit systems.

While this scenario sounds far-fetched, new research we conducted with Microsoft, Nestlé, Pfizer and Telus International reveals that announcements like this one may not be that unusual in 2025. “An intersection is coming where society will expect corporations to fill the void in the face of government cuts, and, likewise, corporations will expect their societal influence to increase as their social capital becomes the force of change in communities, countries and even entire global industries,” said Jeffrey Puritt, president of TELUS International.

https://www.forbes.com/sites/forbesleadershipforum/2014/12/04/in-the-future-companies-will-survive-only-if-they-help-solve-big-social-problems/#1a228295b158

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melleyvaa-blog · 7 years ago

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PBL Trigger 1

What are the basis to become an entrepreneur?

1. What are the basic steps to become an entrepreneur?

•Know Yourself

•Are you a Risk Taker?

•Market Research

•Examine Your Business Requirements

•Calculate Investment Requirements

•Developing your Marketing Strategy

•Developing Your Sales Plan

•Decide on an appropriate legal business structure

•Be aware of legal obligations that will affect your business

•Write your Business Plan

https://www.localenterprise.ie/Fingal/Start-or-Grow-your-Business/Start-a-Business/Taking-the-Initial-Steps/

2. How could you know your business idea is profitable?

* Why are you doing this? What’s your mission? All new businesses need a sense of purpose. Are you trying to improve people’s lives in some way? What are the core differentiators of your business that set you apart from the next person trying to build a similar business?

* What problem are you solving? You need to be solving some sort of real problem that exists in the world. If you aren’t solving a problem for potential customers, then how will you get people to buy your product or service?

* Who are you solving this problem for? As important as having a problem to solve, is having customers that have this problem. Knowing who your ideal customer is and how you can find them is critical to starting a successful business.

* How are your potential customers solving their problem today? This is where you want to write down a few notes about your competition. What choices do your customers have today? How is your solution better?

* Do you think you can make money? You don’t need to worry at this early stage about in-depth financial forecasts, but you should do some basic back-of-the-napkin calculations to make sure your idea can be profitable.

https://www.google.com.mx/amp/s/articles.bplans.com/business-ideas/good-ideas-for-business/amp/

3. What does an entrepreneur needs to become successful?

Tenacity

Risk tolerance

If you are doing it is maybe because someone is cheerleading you

Creativity

Intuition

Passion

Irrevocable commitment

Make effort to make it happen

To have a big personality

Never forget who you are and what do you want to do

https://www.google.com.mx/amp/s/www.forbes.com/sites/erikaandersen/2014/10/06/5-things-you-need-to-become-a-successful-entrepreneur/amp/

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melleyvaa-blog · 8 years ago

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PBL 7 FINANCE AND ACOUNTING BOOKS

1.- What new methods are effective to keep a good accounting?

Know exactly what you need to record:

All businesses will file a tax return to tell HMRC how profitable the company has been and therefore how much tax it owes. To do this accurately, you’ll need to keep records of all your business transactions. These include:

Invoices

Remember to keep all records for a minimum of six yearsThese are used to keep track of all your income. Invoices should include information about the type of work it was, the date it was finished, the amount paid and any extra information necessary – including company addresses and registration number. Make sure each invoice is numbered in sequential order so you know if there are any gaps in your records.

Receipts

Keeping track of your expenses is the best way to stay tax-efficient. Hold on to any receipts that relate to your work, including travel, business lunches, office space and supplies. Consult your accountant for more information on what expenses you can claim. These can be stored digitally, which makes it even easier to record on the go.

You will also need to keep records of cashbooks, bank statements and wage books. The exact records you’ll need depends on your business and the sort of tax you need to pay. HMRC won’t accept excuses for why you haven’t kept the right documentation and you could be fined up to £3,000.

Remember to keep all records for a minimum of six years, as HMRC could decide to audit previous years at any point during this period.

https://www.theguardian.com/small-business-network/2015/apr/20/business-record-keeping-save-money-accounts

2.- How to keep on track the profit of our product?

You work hard to make money in your company, but what do you do to keep track of it all? Most small business owners don’t pay enough attention to their cash. Many times, it’s just an afterthought behind all the other daily operational issues. For others, it’s a mysterious black hole where they hope the money will be when they actually need it!

It is critical for every small business owner to have a process to keep track of the money flowing through their company. Owners also need to be able to check where that money is at every phase. The dangers of not diligently doing these are:

Leaks: Money is wasted through unnecessary expenses or paying too much of it. This includes cash not getting collected in a timely fashion from customers or from paying bills before they are due.

Theft: When money is not tracked, employees may be tempted to steal it. This typically happens by writing checks for phony vendors that get cashed by a dishonest employee. When bank statements are not reconciled, it’s easy for employees to write themselves a check from the company account.

Profit, but no cash: The company seems to be making money, but there is never much in the bank account when it is needed. The business owner can be overheard saying, “but where is all my money?”

These are problems you don’t want to have at all, and the last thing you need is to open yourself up to any unnecessary risk. Being able to track your money gives you important information that can be used to mitigate and perhaps even eliminate that risk.

Here is what every small business needs to track to safeguard its money and future.

Cost of Sales Expenses

A higher gross margin gives the company a greater chance of yielding a net profit. Changes in cost of sales—including inventory costs—need to be tracked carefully.

Depending on the business, a comprehensive project management system may need to be implemented to achieve this. If there is too little inventory, fill rates will be too low, and customers will leave dissatisfied. Too much inventory could mean that cash investments will be sitting idle on the shelves, stuck inside the company.

Payroll

In most service-oriented businesses, people are the highest expense. The total cost of labor needs to be tracked, including taxes, benefits, vacation time and other perks. A small business should not do payroll reporting inside their company. There are too many dangers of getting it wrong, especially not remitting government taxes on time.

Orders, Shipments and Returns

If a company does not track these carefully, people will complain. Customers now have the expectation that they will know where their orders are at all times. If a company does not know where it is, they will incur the cost of sending it again (and again).

Accurate and Timely Client Billing

Customers should be billed at the time that the product or service is delivered (not on a monthly basis). If billing is delayed, it will affect cash flow. If the billing it wrong, it will affect the customer experience and cash collection.

Cash Collection

Most customers want to pay on time. In corporations, however, “things” get lost, and every company has to ensure it is paid what is due on the date required. The company needs to have a standard accounts-receivables aging report to see “who owes how much money when.” This needs to be tracked over time to determine the “days’ sales outstanding” metric.

Timely Bill Payment

Small businesses need to pay their bills on time. This ensures that they get the trade credit they need to run their company. Paying bills late will result in a lot of angry, time-consuming phone calls from vendors. Have a standard accounts-payable list to understand who is owed when. Vendors will appreciate being warned if a payment will not be made on time.

Monthly Cash Financial Statements

Ultimately, these documents will tell the full story of where all the money is. Bank statements need to be reconciled with internal financial statements. It is critical not only to understand the profit and loss statement, but the balance sheet and cash flow statement as well. Get professional help on the key metrics that need to be reviewed every month.

More Big Data

Every small business needs to understand who their customers are, what it costs to acquire them and what their lifetime value is. Much of this can be extracted from data in a good financial accounting system.

https://quickbooks.intuit.com/r/accounting-money/how-to-track-the-money-in-your-business/

3.- What does an accounting book contain?

Introduction to Bookkeeping

The term bookkeeping means different things to different people:

Some people think that bookkeeping is the same as accounting. They assume that keeping a company's books and preparing its financial statements and tax reports are all part of bookkeeping. Accountants do not share their view.

Others see bookkeeping as limited to recording transactions in journals or daybooks and then posting the amounts into accounts in ledgers. After the amounts are posted, the bookkeeping has ended and an accountant with a college degree takes over. The accountant will make adjusting entries and then prepare the financial statements and other reports.

The past distinctions between bookkeeping and accounting have become blurred with the use of computers and accounting software. For example, a person with little bookkeeping training can use the accounting software to record vendor invoices, prepare sales invoices, etc. and the software will update the accounts in the general ledger automatically. Once the format of the financial statements has been established, the software will be able to generate the financial statements with the click of a button.

At mid-size and larger corporations the term bookkeeping might be absent. Often corporations have accounting departments staffed with accounting clerks who process accounts payable, accounts receivable, payroll, etc. The accounting clerks will be supervised by one or more accountants.

Our explanation of bookkeeping attempts to provide you with an understanding of bookkeeping and its relationship with accounting. Our goal is to increase your knowledge and confidence in bookkeeping, accounting and business. In turn, we hope that you will become more valuable in your current and future roles.

Bookkeeping: Past and Present

Accrual Method

Double-Entry, Debits and Credits

General Ledger Accounts

Debits and Credits in the Accounts

Asset Accounts

Liability and Stockholders' Equity Accounts

Income Statement Accounts

Recording Transactions; Bank Reconciliation

Adjusting Entries; Reversing Entries

Balance Sheet; Income Statement; Balance Sheet and Income Statement are Linked

Cash Flow Statement

Statement of Stockholders' Equity; Closing Cut-Off; Importance of Controls

https://www.accountingcoach.com/bookkeeping/explanation

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melleyvaa-blog · 8 years ago

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PBL 6 Business Plan

FINANCIAL

6.1 What types of companies exist and their pros and cons?

SPECIFIC COMMERCIAL TYPES

The commercial entities are where two or more persons (individuals or entities) contract and unit in a permanent manner to perform a common licit, possible goal of a preponderantly economic nature, constituting commercial speculation, and under certain formalities of incorporation an registry, under one of the following types:

The "Sociedad en Nombre Colectivo" (Company in Collective Name, also known as General Partnership), is a company in firm or trade name (including all the names of all of the partners or where there is a name missing, you are to place the words "and company" or other equivalent), where all of the partners have ancillary / subsidiary, unlimited and joint responsibility for the company's obligations. If you allow your name to be used in the company name, you become liable for the company's obligations. The company capital and/or ownership is not represented by negotiable instruments, instruments payable to the order of a person (stock) or bearer instruments (stock) and which company parts have restricted transferability. This company type description can be abbreviated by the letters "S. en N.C.". This type of company is a personal type company.

The "Sociedad en Comandita Simple" (Company in Simple Silent Partnership also known as a Limited Partnership), is a company in firm name or trade name (including all the names of the "comanditados" partners), and which consists of one or more "comanditado" partners that respond with ancillary/subsidiary, unlimited and joint responsibility for the company obligations and one or more "comanditario" partners that are solely responsible for the payment of their portions attributed to the company. The company capital/ownership is not represented by negotiable instruments, instruments payable to the order of a person (stock) or bearer instruments (stock), and which company parts have restricted transferability. This company type description (at the end of the company name)can be abbreviated by the letters "S. en C.S.". This type of company is a personal type company.

The "Sociedad de Responsibilidad Limitada" (Limited Responsibility Company, also known as the Limited Liability Company) is a company with a firm/trade name or denomination (made-up name), consisting of partners whose only obligation is to deliver their portions (money or assets) attributed to the company, which corporate parts are not represented by negotiable instruments, instruments payable to the order of a person (stock) or bearer instruments (stock) and which company parts have restricted transferability. If the person's name is included in the company name, that person will be liable for the larger of the company partner portions. This company can not have more than 25 partners and the company description (at the end of the name) can be abbreviated by the letters "S. de R. L.". This type of company is a mixed type (personal/assets).

The "Sociedad Anónima" (Limited Liability Stock Company, also known as the corporation) is a company with a denomination (made-up name) consisting of shareholders whose only obligation is to deliver the portions they subscribe to (in the corporate capital) and which are attributable to the company, which parts are represented by negotiable instruments (stock), (no bearer instruments/stock), and which company parts may or may not be of restricted transferability (depending on the company bylaws). This type of company requires a minimum of two stockholders in order to incorporate and exist. This type of company may, (if set in the articles of incorporation) have a variable capital portion which would permit it to raise or lower the variable portion without changing the articles of incorporation or bylaws (however it would require an extraordinary shareholders' meeting). This company type description (at the end of the name) can be abbreviated by the letters "S. A.", or if of the variable capital type then "S.A. de C.V.". This company is a capital type company (no personal) and is the one most commonly used in business in Mexico.

The "Sociedad en Comandita por Acciones" (Company in Silent Partnership by Stock, also known as the Limited Partnership with Shares") is a company subject to the rules that govern the "Sociedad Anónima" company (with exceptions); made up of one or more "comanditado" partners/shareholders with ancillary/subsidiary, unlimited and joint responsibility for the company obligations and one or more "comanditario" partners/shareholders that are only responsible for the payment of the company stock they subscribed.

This company only issues nominative stock and the "comanditado" partners may not sell their stock without the the prior approval of all of the "comanditado" partners and two thirds of the "comanditario" partners.

This company may exist under a firm name or a trade name or a denomination distinct to that of the names of the comanditado" partners. If all of the "comanditado" partners are not in the company name, then the words "and company" must be used in the name. Certain of the collective name company rules apply as well as do certain of the simple silent partnership company rules. This company type description (at the end of the name) can be abbreviated by the letters "S. en C. por A." and it is a mixed type company (personal and assets oriented).

CIVIL LAW TYPES

The "Sociedad Civil" (Civil Company) in Mexico is foreseen and governed by the Civil Codes of the several states of Mexico. This is a company where two or more persons contract and unit in a permanent manner to perform a common licit, possible goal of a preponderantly economic nature, without constituting commercial speculation (therefore not a commercial company). This company type description (at the end of the name) can be abbreviated by the letters "S. C.".

The "Asociación Civil" (Civil Association) in Mexico is foreseen and governed by the Civil Codes of the several states of Mexico. This is a company where two or more persons contract and unit in a permanent manner to perform a common licit, possible goal of a preponderantly non-economic nature, and without constituting commercial speculation. This also known as a common goal company. (Therefore not a civil company). This company type description (at the end of the name) can be abbreviated by the letters "A. C."

http://www.mexicolaw.com/LawInfo04.htm#Sociedad Anonima

6.2 How to create a financial plan in short term?

Companies develop short-term financial plans to meet budget and investment goals within one fiscal year. These plans have a higher degree of certainty compared to long-term plans. Short-term plans often are amended as financial and investment goals change. Businesses and individuals alike use short-term plans to manage short-term cash deficits.

Components

For many businesses, elements of working capital have the largest impact on their short-term cash flows. These elements generally include raw or finished inventory, debtors, creditors and cash. The movement in working capital sometimes creates large voids or deficits of cash that threaten a business’ going concern. This occurs because of the difference in the accounts payable and cash cycles. The accounts payable cycle is the time a company takes to pay for its inventories, and the cash cycle is the time debtors take to pay for products.

Cash Shortages

There are varied reasons that significant cash shortages occur. For example, a business might be following an aggressive marketing policy in which it allows its debtors to pay their dues over a longer period. Such a policy might dent the company’s cash-flows from two perspectives. First, it locks up money in receivables with debtors, and second, the company might fund additional inventories for newer sales, without recourse to business-based cash inflows. Enterprises also face such challenges when they buy new machinery, are assessed heavy court fines or while fighting natural calamities, such as hurricanes.

Cash-Flow Forecast

When it becomes evident that severe cash shortages will occur, a cash-flow forecast becomes necessary. The forecast should estimate total cash collections and total cash payments during each quarter in at least three various scenarios: worst case, most likely and best case. You'll need to know the difference between the total collections and total payments to ascertain whether there is a deficit in any quarter of the year. For each cash-inflow and outflow item, you must account for all relevant increases and decreases. This includes early payment discounts from creditors, deferred expense payments and cash sales.

Funding Shortages

If the cash-flow forecast shows that shortages are likely to occur during the year, you must make arrangements to cover them. One way to fund short-term deficits is through other short-term measures, such as increases in current liabilities, which can include negotiations for longer credit terms and short-term bank loans. You also can sell certain unwanted assets and offer discounts to debtors to encourage quicker payments.

http://smallbusiness.chron.com/shortterm-financial-planning-60081.html

6.3 How to document a business transaction?

Business transactions and documentation

In every business a number of transactions and events will take place every day. The role of financial reporting is to effectively measure the effects of those transactions and events, record the effects on the business and summarise those transactions and their consequences in a format that is useful to the users of the financial statements.

The main transactions that take place include sales, purchases (of goods and of services) and payroll related transactions. Others include rental costs, raising finance, repayment of finance, and taxation related costs to name but a few. All of these transactions must be adequately captured by the financial reporting system.

With most transactions a supporting document will be created to confirm the transaction has taken place, when the transaction took place and the associated value of the transaction. This documentation is vital to the financial accountant, who uses the information on the documents as a data source to initiate the measurement and recording of the transactions.

The table below summarises the main types of business documentation and sources of data for an accounting system, together with their content and purpose.

Contents

Purpose

Quotation

Quantity/description/details of goods required.

To establish price from various suppliers and cross refer to purchase requisition.

Purchase order

Details of supplier, e.g. name, address. Quantity/ description/details of goods required and price. Terms and conditions of delivery, payment, etc.

Sent to supplier as request for supply. To check to the quotation and delivery note.

Sales order

Quantity/description/details of goods required and price.

Cross checked with the order placed by customer. Sent to the stores/ warehouse department for processing of the order.

Despatch note (goods despatched note – GDN)

Details of supplier, e.g. name and address. Quantity and description of goods

Provided by supplier. Checked with goods received and purchase order.

Goods received note (GRN)

Quantity and description of goods.

Produced by company receiving the goods as proof of receipt. Matched with delivery note and purchase order.

Invoice

Name and address of supplier and customer; details of goods, e.g. quantity, price, value, sales tax, terms of credit, etc.

Issued by supplier of goods as a request for payment. For the supplier selling the goods/services this will be treated as a sales invoice. For the customer this will be treated as a purchase invoice.

Statement

Details of supplier, e.g. name and address. Has details of date, invoice numbers and values, payments made, refunds, amount owing.Issued by the supplier. Checked with other documents to ensure that the amount owing is correct.

Credit note

Details of supplier, e.g. name and address. Contains details of goods returned, e.g. quantity, price, value, sales tax, terms of credit, etc.

Issued by the supplier. Checked with documents regarding goods returned.

Debit note

Details of the supplier. Contains details of goods returned, e.g. quantity, price, value, sales tax, terms of credit, etc.

Issued by the company receiving the goods. Cross referred to the credit note issued by the supplier.

Remittance advice

Method of payment, invoice number, account number, date, etc.

Sent to supplier with, or as notification of, payment.

Receipt

Details of payment received.

Issued by the selling company indicating the payment received.

The above list is based upon the documents created by a traditional manufacturing company. Not all companies will produce all of these documents. In the same manner some companies may produce alternative forms of documentation, particularly if they operate in the services industry or overseas

http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Business%20Transactions%20and%20Documentation.aspx

#PBL IB FINANCIALPLAN

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melleyvaa-blog · 8 years ago

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PBL 5 Supply & Demand

Problem: HOW DOES THE SUPPLY AND DEMAND WORK IN THE MARKET?

5.1 ‘’What are the elastic and inelastic products and the impact in the market?’’

Inelasticity and elasticity of demand refer to the degree to which supply and demand respond to a price change. If the change in demand for a given product corresponds closely to the change in price for that product, the demand is considered to be elastic. If the change in demand for a given product does not correspond closely to a change in price for that product, the demand is considered to be inelastic. The elasticity of demand is calculated by dividing the percent change in quantity demanded by the percent change in price. If the elasticity quotient is greater than or equal to 1, the demand is considered to be elastic. If the elasticity quotient is less than 1, the demand is considered to be inelastic. When the data is graphed, elasticity of demand has a negative slope. An elastic demand is displayed as a more horizontal, or flatter, slope. An inelastic demand is displayed as a more vertical, or steeper, slope.

The most utilized example of a product with inelastic demand is salt. The human body requires a specific amount of salt per pound of body weight. Too much or too little salt could cause illness or even death. Therefore the demand for salt changes very little with the price. Salt has an elasticity quotient close to zero and a steep slope on a graph. A common example of an elastic product is gasoline. As the price of gas increases and falls with the international market, the demand (the distance driven by the population) rises and falls in near direct correlation. Gasoline has an elasticity quotient of 1 or greater and has a flatter slope on a graph.

http://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-elasticity-demand.asp

5.2 ‘’How the prices of oil impact the global economy?’’

Wide fluctuations in oil prices have played an important role in driving recessions and even regimes collapsing—which is why oil price movements are closely watched by economists, investors, and policymakers. The two recent cycles of historic highs and lows suggest that the world economy is in unchartered territory.

In 1973, Egypt and Syria waged a surprise war on Israel, which soon divided many countries into supporters of either side. Subsequently, several oil-exporting Arab nations curtailed oil production (known as “the oil embargo”), quadrupling oil prices within a quarter. This oil crisis was one of the biggest factors that pushed some oil-consuming, industrialized nations such as the United States and the United Kingdom into an economic recession that lasted over a year.1 History repeated itself when disruptions in Iran’s oil production during the Iranian revolution, followed by the Iraq-Iran war, caused oil prices to skyrocket in 1979–80. This time, in addition to a supply shock, increased inventory demand in anticipation of supply shortages and rising global demand contributed to the oil price rise. The price shocks had a substantial impact on US GDP, and the US economy went into a recession.2

The timeline of the Soviet Union collapse can be traced to Saudi Arabia deciding to stop protecting oil prices and increasing production fourfold in 1985. The sudden fall in oil prices was one of the key factors that weakened economic fundamentals of the Soviet Union. The region lost approximately $20 billion per year due to lower revenues from oil exports, which resulted in huge government borrowing in the following years. By 1989, the Soviet economy had stalled.3

Wide fluctuations in oil prices have played an important role in driving economies into recession and even regimes collapsing—which is why movements in oil prices are closely watched by economists, investors, and policymakers globally. Since 2008, oil prices have seen two cycles of highs and lows, with no indication of a steady path in the near future. The historic high values of oil prices during 2010–13 and the following prolonged downturn during 2014–16 (the longest since the 1980s) suggest that the world economy is in unchartered territory (figure 1).

In recent months, oil prices have shown signs of a recovery, after touching a low of $26 per barrel in January 2016.4While many forecasters are optimistic about the recent price rise and are predicting that the oil glut may be over, some are concerned that there is a lot of uncertainty surrounding the current rebound. The direct influence of the Organization of Petroleum Exporting Countries (OPEC) on oil prices has changed due to rising competition from US shale oil producers. Instead of defending price levels, OPEC has changed its strategy to defend market share rather than price, by producing more at low prices. This supply strategy has been a critical factor in the current oil price trajectory. On the other hand, uncertainty in global demand poses downside risks to oil prices. The question everyone is asking is, “By how much and how soon will oil prices go up?” While oil prices are expected to rebound to $58 per barrel in the next couple of years, they are unlikely to reach the previous high of $100 per barrel anytime soon.5

EXPLAINING THE PAST DECADE’S DEMAND-SUPPLY CONUNDRUM

Historically, volatility in oil prices is often explained by shocks to demand and supply of oil arising from any combination of business cycles, geopolitical factors, the discovery of new fields, or technological changes. The past one-and-a-half decades have witnessed an interplay of all these factors, resulting in extreme oil price fluctuations (figure 2).

Oil prices surged during 2003–08 due to an unexpected global economic boom, especially in emerging Asian economies such as China and India, while oil producers failed to keep up with the rising demand. Post May 2007, rising inventories in anticipation of increasing demand added to the existing demand pressures. Within a year, oil prices nearly doubled, reaching $113 dollars in May 2008.

After a brief fall in oil prices during the 2008 financial crisis, prices quickly picked up by mid-2009 on the back of strong growth in some of the emerging nations. The political uprising and civil wars in a few Middle Eastern countries resulted in intermittent oil supply disruptions. Oil prices reached $100 per barrel in 2010 and remained steady at $90–120 per barrel during 2011–14.

All this changed, however, when oil prices dropped over 70 percent between June 2014 and January 2016, as supply outstripped demand. New oil fields and advancing technologies in the United States enabled US oil producers to increase production (figure 3). Post 2014, Libya and Iraq’s faster-than-expected resumption of oil production; US energy companies’ resilience in continuing supply despite falling prices; and increased production by Canada, Russia, and, lately, Iran after sanctions were lifted led to a sustained increase in oil supply.

However, the biggest contributor has been Saudi Arabia’s (the biggest oil producer within OPEC) unwillingness to not counter the increasing supply but instead maintain the production at historically high levels despite the perceived glut. Its intention might have been to preserve market share at the expense of Iran and the United States, even if that meant lower prices.

Meanwhile, global growth slowed because of the economic slowdown in China; modest growth in most of the advanced economies, including the United States; and increasing uncertainty in the Eurozone—leading to a steady fall in oil consumption growth by these big oil importers. Slowing demand growth amid rising supply resulted in a sharp increase in inventories during 2014–15. By the end of January 2016, oil prices slid to $26 per barrel—the lowest level since 2003.6

The magnitude and the duration of the fall in oil prices gradually started impacting revenues and investments made by the US energy companies that had borrowed heavily. Rising yields on the bonds (most of them non-investment grade) issued by these companies led to impending defaults. Consequently, crude oil production in the United States has started declining. While Iran, Saudi Arabia, and Russia have continued to boost oil production, unplanned supply disruptions due to production outages in a few countries, such as Nigeria, Canada, and Venezuela, have impacted the overall oil supply, and thereby prices. At the time of this writing, benchmark oil prices are close to $50 per barrel.

Much has been made of the alleged role of speculative trading in oil futures markets and hedging in determining oil prices, especially when oil prices touched record-high levels in 2008 or when they were in free fall post 2014. However, there is no significant evidence justifying this argument.7

https://dupress.deloitte.com/dup-us-en/economy/global-economic-outlook/2016/q3-understanding-economic-impact-of-fluctuations-in-oil-prices.html

5.3 ‘’Which organization policies regulate the oil market?’’

Energy Policies of IEA member countriesAvailable from the OECD iLibrary. Includes an annual compilation analysis of recent trends by the International Energy Agency and summaries of individual country reports.

Federal Energy Regulatory Commission (FERC)(Open Access) Regulates the interstate transmission of electricity, natural gas, and oil, reviews proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines, licenses hydropower projects and other responsibilities.

US Environmental Protection Agency: Laws and Regulations(Open Access) Regulatory information by topic and sector.

OPEC (Organization of Petroleum Exporting Countries) Find information on this organization, global oil news etc. Click on the Library tab for world oil outlook, annual statistical report, monthly oil market reports, and more.

http://libguides.ucalgary.ca/c.php?g=255170&p=1702667

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melleyvaa-blog · 8 years ago

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PBL 4 Global Business Environment File

Problem: HOW GOVERNMENT DECISIONS IMPACT THE NATIONAL ECONOMY?

How could subsidies benefit the economy of a country? Globalization Benefits World Economies

Most economists agree that globalization provides a net benefit to individual economies around the world, by making markets more efficient, increasing competition, limiting military conflicts, and spreading wealth more equally around the world. However, the general public tends to assume that the costs associated with globalization outweigh the benefits, especially in the short-term, which has caused problems we’ll explore in the next section on protectionism.

Some of the benefits of globalization include:

Foreign Direct Investment. Foreign direct investment (“FDI”) tends to increase at a much greater rate that the growth in world trade, helping boost technology transfer, industrial restructuring, and the growth of global companies.

Technological Innovation. Increased competition from globalization helps stimulate new technology development, particularly with the growth in FDI, which helps improve economic output by making processes more efficient.

Economies of Scale. Globalization enables large companies to realize economies of scale that reduce costs and prices, which in turn supports further economic growth, although this can hurt many small businesses attempting to compete domestically.

https://www.thebalance.com/globalization-and-its-impact-on-economic-growth-1978843

WHAT POLICIES ARE THERE TO SAVE THE ECONOMY?

The following points highlight the six main public policies to promote Economic Growth. The Policies are:

1. Altering the Saving Rate

2. Reduction in Non-Plan Revenue Expenditure

3. Policies to Raise the Rate of Productivity Growth

4. Technological Progress

5. Reduction in Government Regulation

6. Industrial Policy.

# 1. Altering the Saving Rate

According to the Solow model of growth, the rate of saving and investment is a key determinant of a country’s rate of growth and standard of living of its citizens. In the Solow model the saving rate determines the steady-state levels of capital and output. Only one particular saving rate generates the Golden Rule steady state, i.e., the rate which maximises consumption per worker and, thus, economic well-being.

In order to ascertain whether an economy is at, above, or below the Golden Rule steady- state, we have to compare the net marginal physical product of capital (MPK – δ) with the rate of growth of output (n + g). We know that at the Golden Rule steady state, MPK – δ = n + g.

(i) Reduction in personal income tax:

ADVERTISEMENTS:

A tax cut imparts the needed dynamism to the economy.

As the US Supreme Court commented:

“The power to tax is not only the power to destroy but also the power to keep alive.” Tax cut promotes growth in various ways. It encourages people to work hard, save more and take more risks (i.e., invest more in venture capital).

Apart from reducing the nominal tax rate, it is necessary to index tax brackets to inflation to prevent ‘bracket creep’, i.e., an increase in the marginal tax rate. The application of supply-side economic policies in the 1980s under the dynamic leadership of Ronald Reagan has proved conclusively that tax cuts increase labour supply and, therefore, output.

Personal income tax cuts increase personal saving. Lower marginal tax rates improve incentives for labour supply, saving and investment.

(ii) Reduction in business taxes:

The tax policy should be such as to encourage capital formation by increasing the after-tax return to investment. An important component of the policy should be accelerated cost recovery system, which is a set of accelerated depreciation allowances for business plant and equipment.

For example, a piece of equipment that could have been depreciated over a 10-year period can be allowed to be depreciated over a 5-year period. In addition, the investment tax credit for certain types of equipment can be increased to encourage capital formation.

These business tax cuts aim at offsetting the inflation-induced increase in the effective tax rate on business profits. Such tax cuts are consistent with the supply-side view that the best way to encourage corporate capital formation is by increasing the after-tax return to investment. Even low capital gains tax is unlikely to have a favourable effect on saving and thus, on capital formation.

ADVERTISEMENTS:

Advantages and disadvantages:

The aims of tax reforms are: first, to broaden the tax base by eliminating many deductible items and, second, to reduce marginal tax rate. The combination of these actions is offsetting in nature. So total tax revenues will neither rise nor fall.

However, to keep tax reform from reducing tax revenues, there is need to remove many reductions and eliminate a number of tax shelters. This is likely to encourage tax evasion and avoidance.

If savings are highly responsive to the real interest rate, tax cut that increases the real return to savings would be effective. So a judicial policy is to tax households on the basis of their consumption rather than on the basis of their savings. This means exempting that portion of income which is saved from taxation.

Government Saving:

The government can also save more by reducing the budget deficit. One way of doing this is to curtail government purchases. Alternatively, raising taxes to reduce deficit or increase the surplus will also increase national saving by forcing people to consume less.

However, the Barro-Ricardo equivalence theorem suggests that tax increases without changes in current or planned government purchases do not affect consumption or national saving.

There are two ways of raising the rate of saving. The government can directly increase the rate of saving by increasing its own saving, called public saving. Public saving is the excess of government tax revenue over government expenditure.

When government expenditure exceeds its revenue, there is a deficit in the budget. This amounts to negative public saving1. So it is necessary for the government to generate a surplus in the budget to ensure that public saving is positive. If the government generates a budget surplus it can repay some of the debt and stimulate investment.

The government can also affect national saving by influencing private saving — saving of the household sector and the corporate sector (i.e., retained earnings of corporations). This is largely a matter of incentives. Various public policies may be used to provide such incentives. However, economists differ in their opinion regarding how much private saving responds to incentives.

Public Policy # 2.

Reduction in Non-Plan Revenue Expenditure

No doubt personal and business tax cut should increase aggregate supply and, therefore, produce non-inflationary real output growth. Moreover, such growth would increase tax base and, therefore, increase tax revenues to offset, largely, or even completely, the revenue loss due to the lower tax rates.

However, to ensure that demand is not overly stimulated, the economy is not overheated and to keep the budget deficit as small as possible, there is need to cut non-plan revenue expenditure in areas such as housing and income support programmes (including subsidies) so as to reduce the magnitude of public debt.

A fall in the size of public debt will also reduce the interest burden on such debt.

Disadvantage:

Failure to cut spending, together with tax reduction will lead to high government budget deficit. The consequent inflation may act as a growth-retarding factor.

Public Policy # 3.

Policies to Raise the Rate of Productivity Growth

Perhaps the most important factor affecting the long-run living standards is the rate of productivity growth. According to the Solow model only sustained growth in productivity can lead to continuing improvement in output and consumption per worker.

Government policy can attempt to increase productivity in three ways:

(i) Improving infrastructure:

The Solow model assumes that there is only one type of capital, viz., physical capital. While the private sector invest in plants, machinery, computers and robots, the government invests in various forms of public capital, called infrastructure.

There is a strong link between productivity and quality of a nation’s infrastructure — its highways, bridges, utilities, dams, airports and other publicly owned capital. Highways linking one state with others reduce the cost of transporting goods and stimulate tourism and other industries.

It is necessary for the government to recognise both the market’s efficiencies and its imperfections. So there is a case for a ‘stimulus package’ consisting of public investment in infrastructure, worker retraining and partnership between business and government to move resources from ‘sunset’ industries (i.e., industries losing comparative advantage) to sunrise industries (i.e., industries gaining comparative advantage).

(ii) Building human capital:

There is another type of capital — human capital — which is equally important in promoting growth and prosperity of nations. Such capital refers to the knowledge and skills that workers achieve through education and training which lead to skill formation, improved efficiency and enhanced productivity. Human capital, much like physical capital, enhances an economy’s ability to produce goods and services.

Raising the level of human capital requires investment. N. G. Mankiw and David Romer in explaining international differences in living standards have demonstrated clearly that human capital is at least as important as physical capital.

There is a strong connection between productivity growth and human capital. The government can affect human capital development through educational policies, worker training and health programmes.

However, such programmes are justified if benefits exceed costs. There is clearly a case for greater commitment to human capital formation as a way to boost productivity growth.

For promoting investment in human capital the government has to make investment on such capital. It is because such capital generates technological externality (or knowledge spill). Since social benefit from such investment exceeds private benefit the government has to take the lead in making investment in human capital or subsidise such investment.

(iii) Entrepreneurship Development:

One crucial form of human capital, ignored by the Solow model is entrepreneurial skill. Entrepreneurs or the captains of industries act as an engine of growth. It is because they are people with the ability to build a new product, business or introduce something new to the market.

Productivity growth may increase if the government were to remove unnecessary barriers to entrepreneurial ability (such as excessive red tape, rent seeking, bribery and corruption at all levels) and the people with entrepreneurial skills make intensive use of those skills.

(iv) Encouraging research and development (R&D):

The government may also stimulate productivity growth by affecting rates of scientific and technical progress. The benefits of scientific progress, like those of human capital development, spread throughout the economy.

Basic scientific research is always beneficial from society’s point of view. So the government should make more investment on such policy. Even more applied, commercially- oriented research deserves government support and financial aid.

Public Policy # 4.

Technological Progress:

Various public policies are designed to promote technological progress. Most such policies encourage the private sector to allocate substantial amount of resources to technological innovation. This can be done by the patent system which gives protection to intellectual property rights for a specific time period.

At the same time the government can play an active role in promoting a few specific industries which are the carriers of rapid technological progress, called knowledge-intensive industries or sunrise industries.

Public Policy # 5.

Reduction in Government Regulation:

Excessive government regulation in the form of air quality, worker safety and consumer product safety often proves to be very costly and retards economic growth. So the aim of government policy should be to eliminate wasteful or outdated regulations and to make necessary regulations more efficient and flexible.

Some specific regulatory measures may be to decontrol petroleum markets, abolish licensing regulations, reduce monopoly control and stop excessive monopoly hunting and to introduce a cost-benefit analysis of government expenditure.

Public Policy # 6.

Industrial Policy:

Apart from giving support for basic science and technology, the government can encourage technological development through industrial policy. In general, industrial policy is a growth strategy in which the government uses taxes, subsidies or regulations in order to influence the nation’s pattern of development.

To be more specific, the government should subsidise and promote ‘high tech’, industries, so as to try to achieve or maintain national leadership in technologically dynamic areas.

For at least two reasons free markets fail to allocate resources in case of high technology, viz., (i) borrowing constraints and (ii) spillovers.

Borrowing constraints refer to the limits imposed by lenders on the amounts that individuals or small firms can borrow. Due to borrowing constraints, private companies, especially start-up firms, may have difficulty in obtaining enough financing for some projects. Development of a new super-computer, for example, may require a huge amount of investment in R&D and involve a long period during which expenses are high and cash flows are unlikely to be generated.

Spillovers occur when one company’s innovation — say, the development of an improved computer memory chip — generates aggregate supply externality, i.e., it stimulates a flood of related innovations and technical improvements by other companies and industries.

The innovative company may thus enjoy only some of the total benefits of its breakthrough while bearing the full development cost. Since social benefit exceeds private benefit, without government subsidy such companies may not have a sufficiently strong incentive to innovate.

These two arguments in favour of government intervention assume that the government is skilled enough at picking ‘winning’ technologies. A danger of industrial policy is that wrong industries may emerge due to favouritism shown by the politicians. At the same time industries with the maximum economic promise may be neglected.

In general industrial policy is not desirable because, in choosing industries to target, governments have frequently backed the wrong industries; the costly attempt to develop those industries which are unlikely to show much promise in the long run. Alternative policies — such as a tax break for all research and development spending — promote technology without requiring the government to target specific industries.

However, government intervention may be desirable in some cases, notably in the early development stages of technologically innovative products, such as computers and CAT scanners. In reality, we find that the potential for beneficial spillovers in these cases is very large.

So there is a strong justification for government intervention in such areas, even though many projects the government may choose to support ultimately will not prove to be economically feasible.

http://www.economicsdiscussion.net/economic-growth/6-main-public-policies-to-promote-economic-growth/15432

WHY DOES THE GOVERNMENT SUBSIDIZE THEIR OWN COMMODITIES?

The World Trade Organization has a broader definition of subsidies. It says a subsidy is any financial benefit provided by a government which gives an unfair advantage to a specific industry, business or even individual. The WTO mentions five types of subsidies:

Cash subsidies, such as the grants mentioned above.

Tax concessions, such as exemptions, credits or deferrals.

Assumption of risk, such as loan guarantees.

Government procurement policies that pay more than the free-market price.

Stock purchases that keep a company’s stock price higher than market levels.

These are all considered subsidies because they reduce the cost of doing business. (Source: “Defining Subsidies,” World Trade Report 2006, World Trade Organization.)

The U.S. federal government offers many more subsidies that it thinks will improve the economy. For example, the Cash for Clunkers program in 2009 was a subsidy to auto dealers, according to the BEA. In the program, dealers received a $3,500-$4,500 subsidy from the federal government after discounting a new vehicle to a consumer who traded in an old car. The goal was to jump-start the economy after the recession. It also aimed to encourage people to buy more fuel-efficient vehicles and lessen U.S. reliance on foreign oil. (Source: “How Is the CARS Program Reflected in the National Income and Product Accounts (NIPAs)?” BEA FAQs.)

https://www.thebalance.com/government-subsidies-definition-farm-oil-export-etc-3305788

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melleyvaa-blog · 8 years ago

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PBL 3 Business Functions File

Problem:DIFFERENT ORGANIZATIONS AND WAYS TO WORK INSIDE A COMPANY

1. What kinds of organizational structures are there?

There are four categories of multinational corporations: (1) a multinational, decentralized corporation with strong home country presence, (2) a global, centralized corporation that acquires cost advantage through centralized production wherever cheaper resources are available, (3) an international company that builds on the parent corporation’s technology or R&D, or (4) a transnational enterprise that combines the previous three approaches.

http://www.businessdictionary.com/definition/multinational-corporation-MNC.html

2. What roles and responsabilities are needed as a company grows?

When it comes time to hire an executive team, you’ll need to find people to fill the following roles:

Chief Executive Officer (CEO). The fact of the matter is, the CEO is the boss of everyone and is responsible for everything.

Chief Operating Officer (COO). A COO handles a company’s complex operational details.

President. Fills gaps left by the COO and CEO. Or sometimes, the title goes to someone you want at the strategy table but who doesn’t have an obvious C-level title.

Chief Financial Officer (CFO). Plain and simple, your CFO handles the money. They create budgets and financing strategies

Chief Marketing Officer (CMO). Recently, companies have been bringing in a marketing expert at the C-level rather than as just a vice president.

Chief Technology Officer (CTO). A CTO should keep up with technology trends, integrate those trends into the company’s strategy, and make sure the company keeps current when it’s necessary.

https://www.entrepreneur.com/article/83618

3. How does growth affect the companies’ managment?

There are many ways that leadership within a company influences company culture, but these stood out to me:

*Collectivism vs. individualism

*Attitude determines altitude

*A leader’s attitude will really determine if a company’s going to succeed or not.

*Leadership and engagement leads to innovation

*Quite frankly, when you have amazing leadership you feel motivated to succeed and achieve.

*When you have a leader that wants to engage employees and bring a positive atmosphere to the office it makes the job a lot easier, it sparks innovation.

http://www.innovationmanagement.se/2014/07/23/leaderships-influence-companys-culture/

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melleyvaa-blog · 8 years ago

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PBL 2 MISSION, VISION & STRATEGY FILE

Problem: HOW CAN COMPANIES KEEP EVOLVING THROUGH MARKET CHANGES?

How can companies benefit from their core competences?What strategies can companies do to survive in the market?

Actually Look At Your Competition

Knowing your competition like the back of your hand should be a priority and if you don’t know, start learning today.

As a small business, you have many competitors. You likely have local, or semi-local, competitors. You may independent contractors or freelancers that compete with you. And on the internet, you have thousands of businesses that your customers can reach. It’s a big world, but don’t let that intimidate you. Start by knowing the basics about your competitors.

It is important to know who offers the same products and services, who is cheaper, who is more expensive and how they fill their client’s needs.

Research & Analyze Your Industry

Even more so than researching your competition, you also need to research and analyze your industry. Be up to date on the trends and what is coming up for the next 6 months to a year. Be proactive and know these things before they happen.

There are many industry newsletters, news trackers/tickers and subscriptions you can sign up for to keep you in the loop. Look at what others in the industry are doing and see if there are profitable actions you could be taking as well.

Be Unique

Your value proposition must include at least one aspect that is different than your competitors. You can call it your “it factor.” Look closely at your current value proposition, if yours doesn’t do this already you are at a disadvantage – and need to re-think it.

The goal is to offer something that sets you apart and can be seen as better than your competitors in at least one way. Maybe you are cheaper, or you offer more value, or you provide a different service. Either way, you need to have that one thing that sets you apart.

Develop Your Online Brand & Image

It is not enough in today’s competitive market to have some business cards, pamphlets and a generic website. You need to develop your online brand and image in a way to make yourself stand out above your competition. There are many ways to do this:

Spend the necessary time and money to have a killer website. Even if this means hiring the work out, do it.

Invest in Content Marketing and SEO Services.

Promote yourself and create a corporate culture that will promote you as well.

Develop a strategic business and marketing plan; implement and track. (This leads me to my final point…)

Create, Implement & Track Your Business And Marketing Plan

Coming from a business and marketing background, this final section is something I feel very strongly about.

No business will survive forever if they don’t take the time to do the basics right. Creating a business and marketing plan is where everyone should start. Then implementing, actually utilizing, and tracking your plans and budgets should follow.

The biggest mistake most businesses make is not taking this part seriously.

Maybe they develop a budget, but then don’t ever really look at it, or at least not until it’s too late. The same goes with their business and marketing plans – they hire some expensive firm to build them, but then never follow through and actually use them. http://www.activemarketing.com/news/strategy/small-business-marketing-tips/

How do the changes in the market impact companies?

Gains or losses in market share can have significant impacts on a company’s stock performance, depending on industry conditions. Market share is essentially the percentage of an industry’s total sales that the company earns. Changes in market share have a larger impact on the performance of companies in cyclical industries where there is low growth.

In contrast, changes in market share have less impact on companies in growth industries. In these industries, the total pie is growing, so companies can still be growing sales even if they are losing market share. For companies in this situation, the stock performance is more affected by sales growth and margins than other factors.

In cyclical industries, competition for market share is brutal. Economic factors play a larger role in the variance of sales, earnings and margins, more than other factors. Margins tend to be low and operations run at maximum efficiency due to competition. Since sales come at the expense of other companies, they invest heavily in marketing efforts or even loss leaders to attract sales.

In these industries, companies may be willing to lose money on products temporarily to force competitors to give up or declare bankruptcy. Once they gain greater market share and competitors are ousted, they attempt to raise prices. This strategy can work, or it can backfire, compounding their losses. However, this is the reason why many industries are dominated by a few big players, such as discount wholesale retail with stores including Sam’s Club, BJ’s Wholesale Club and Costco. http://www.investopedia.com/ask/answers/061515/how-does-market-share-affect-companys-stock-performance.asp

How can companies benefit from their core competencies?

A Core Competency is a deep proficiency that enables a company to deliver unique value to customers. It embodies an organization’s collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. Such a Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the benefits a company’s products offer customers. The litmus test for a Core Competency? It’s hard for competitors to copy or procure. Understanding Core Competencies allows companies to invest in the strengths that differentiate them and set strategies that unify their entire organization.

How Core Competencies work:

To develop Core Competencies a company must take these actions:

Isolate its key abilities and hone them into organizationwide strengths

Compare itself with other companies with the same skills to ensure that it is developing unique capabilities

Develop an understanding of what capabilities its customers truly value, and invest accordingly to develop and sustain valued strengths

Create an organizational road map that sets goals for competence building

Pursue alliances, acquisitions and licensing arrangements that will further build the organization’s strengths in core areas

Encourage communication and involvement in core capability development across the organization

Preserve core strengths even as management expands and redefines the business

Outsource or divest non-core capabilities to free up resources that can be used to deepen core capabilities