Economics in China

Today, Americans consider "human capital" a key to success in numerous modern, high-technology industries. As a result, government leaders and business officials increasingly stress the importance of education and training to develop workers with the kind of nimble minds and adaptable skills needed in new industries such as computers and telecommunications. But natural resources and labor account for only part of an economic system. These resources must be organized and directed as efficiently as possible. In the American economy, managers, responding to signals from markets, perform this function. The traditional managerial structure in America is based on a top-down chain of command; authority flows from the chief executive in the boardroom, who makes sure that the entire business runs smoothly and efficiently, through various lower levels of management responsible for coordinating different parts of the enterprise, down to the foreman on the shop floor.

Numerous tasks are divided among different divisions and workers. In early 20th-century America, this specialization, or division of labor, was said to reflect "scientific management" based on systematic analysis. Many enterprises continue to operate with this traditional structure, but others have taken changing views on management. Facing heightened global competition, American businesses are seeking more flexible organization structures, especially in high-technology industries that employ skilled workers and must develop, modify, and even customize products rapidly. Excessive hierarchy and division of labor increasingly are thought to inhibit creativity. As a result, many companies have "flattened" their organizational structures, reduced the number of managers, and delegated more authority to interdisciplinary teams of workers.  

From U.S. Department of State 
 

THE MARKETING MIX. ТНЕ FOUR PS.

     Buying, selling, market research, transportation, storage, advertising —  these are all part of the complex area of business known as marketing. In simple terms, marketing means the movement of goods and services from manufacturer to customer in order to satisfy the customer and to achieve the company's objectives. Marketing can be divided into four main elements that are popularly known as the four P's: product, price, placement, and promotion. Each one plays a vital role in the success or failure of the marketing operation. The product element of marketing refers to the good or service that a company wants to sell. This often involves research and development (R&D) of a new product, research of the potential market, testing of the product to insure quality, and then introduction to the market.                                      

     A company next considers the price to charge for its product. There are three pricing options the company may take: above, with, or below the prices that its competitors are charging. For example, if the average price of a pair of women's leather shoes is $27, a company that charges S23 has priced below the market; a company that charges $27 has priced with the market; and a company that charges $33 has priced above the market. Most companies price with the market and sell their goods or services for average prices established by major producers in the industry. The producers who establish these prices are known as price leaders.

     The third element of the marketing process — placement — involves getting the product to the customer. This takes place through the channels of distribution. A common channel of distribution is:

                 manufacturer —> wholesaler —>  retailer —> customer

     Wholesalers generally sell large quantities of a product to retailers, and retailers usually sell smaller quantities to customers.

     Finally, communication about the product takes place between buyer and seller. This communication between buyer and seller is known as promotion. There are two major ways promotion occurs: through personal selling, as in a department store; and through advertising,  as in a newspaper or magazine.      

     The four elements of marketing — product, price, placement, and promotion — work together to develop a successful marketing operation that satisfies customers and achieves the company's objectives. 
 

Exporting. 

    When a company exports goods abroad there are many problems it must consider, e.g. packaging, transportation, insurance and payment. First the goods must be packed to containers to protect them from damage. The containers or crates must be labeled clearly to show where they are going. The label may also show what the crates (containers) contain. Goods can be transported by sea or by air, by a shipping company or by an airline. If the goods are shipped then transportation must be arranged from the factory to the docks or quay. This can either be by road in tracks (or lorries) or by rail. The shipment must be insured (covered) against loss or damage in transit, i.e. while it is being transported. Sometimes the exporter takes out insurance and sometimes the importer insures the shipment. It depends on the terms of their agreement. If the goods are damaged in transit the company is covered by the insurance. Of course, someone has to pay for all these things. While goods are in transit they are called freight or cargo, so the company pays freight rates or shipping cost to the shipping company. If the goods are being transported by air, the company pays to the airline. The cargo is loaded at the docks or at the airport, and for this the company pays handling charges. Also the company must pay packaging charges or costs. Exporting brings foreign currency into the country, so governments encourage export trade by giving assistance to the exporters. Often companies borrow money (finance) from banks to finance exporting. This money is called export credit. A government department called the E.C.G.D. (Export Credit Guarantee Department) gives a guarantee to the bank. This guarantee means that the government carries the loss, if the foreign buyer does not pay. It is a kind of insurance cover for the bank and the exporting company. Another form of government assistance or incentive is tax relief or tax advantages. Every company must pay a proportion of its earnings to the government in the form of tax. Tax relief means that exporters pay less tax on money earned abroad. 
 
 

Forms of Business Organization

There are three principal forms of business organization:

1.  the sole proprietorship;

2.  the partnership;

3. the corporation.

Sole proprietorship

The simplest form of business organization is the sole proprietorship, which is owned by one person. Many small businesses start out as sole proprietorships. The owner has relatively unlimited control over the business and keeps all the profits. These firms are usually owned by one person who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also have complete responsibility for any of its liabilities or debts. In case of breach of contract the business property and personal assets of the owner may be taken to pay judgments for damages awarded by courts.

Sole proprietorships are the most numerous form of business organization. No charter and permit are needed and there are no particular, legal requirements for organizing or conducting a sole proprietorship. When started, many sole proprietorships are conducted out of the owner's home, garage, or van c-nd inventory may be limited and may often be purchased on credit.

Main Features of a Sole Proprietorship:

(+) Easy to organize

(+) Owner has complete control

(+) Owner receives all income

(-) Owner has unlimited liability

(-) Benefits are not business deductions

Partnership

In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed.

There exist different types of Partnerships:

1.  General Partnership

Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

2. Limited Partnership and Partnership with limited liability "Limited" means that most of the partners have limited liability (to the extent of their investment) as well as limited management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

3. Joint Venture

Joint Venture acts like a general partnership, but it is formed for a limited period of time or a single project.

Main Features of a Partnership:

(+) Easy to organize, but needs agreement

(+) Partners receive all income

(-) Partners have unlimited liability

ECONOMIC SYSTEMS

  There are a number of ways in which a government can organize its economy and the type of system chosen is critical in shaping environment in which businesses operate.

    An economic system is quite simply the way in which a country uses its available resources (land, workers, natural resources, machinery etc.) to satisfy the demands of its inhabitants for goods and services. The more goods and services that can be produced from these limited resources, the higher the standard of living enjoyed by the country's citizens. There are three main economic systems:

    Planned economics (Плановая экономика)

  Planned economies are sometimes called" "command economies" because the state commands the use of resources (such as labour and factories) that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Planning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features.                 

  Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.

  Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in the five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation's overall aim to be reached.

  A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages:

*   Everyone in society receives enough goods and services to enjoy a basic standard of living.

*    Nations do not waste resources duplicating production.

*    The state can use its control of the economy to divert resources to wherever it wants. As a result, it can ensure that everyone receives a good education, proper health care or that transport is available.

  Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years:

*    There is no incentive for individuals to work hard in planned economies.

*    Any profits that are made are paid to the government.

*    Citizens cannot start their own businesses and so new ideas rarely come forward.                                                                             

*    As a result, industries in planned economies can be very inefficient.

  A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people's tastes and fashions. Planners are likely to under produce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattractive, may be overproduced. Planners are afraid to produce goods and services unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products. 
 
 
 
 
 
 
 

Markets and Monopolies  

     The term "market", as used by economists, is an extension of the ancient idea of market as a place where people gather to buy and sell goods. In former days part of a town was kept as the market or marketplace, and people would travel many kilometers on special market-days in order to buy and sell various commodities. Today, however, markets such as the world sugar market, the gold market and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together.

     In a free market, competition takes place among sellers of the same commodity, and among those who wish to buy that commodity. Such competition influences the prices prevailing in the market. Prices inevitably fluctuate, and such fluctuations are also affected by current supply and demand.

     Whenever people who are willing to sell a commodity contact people who are willing to buy it, a market for that commodity is created. Buyers and sellers may meet in person, or they may communicate in some other way: by letter, by telephone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for any given commodity: the lowest price which sellers will accept and the highest which consumers will pay. There are, however, no really perfect markets, and each commodity market is subject to special conditions. It can be said however that the price ruling in a market indicates the point where supply and demand meet.

     Although in a perfect market competition is unrestricted and sellers are numerous, free competition and large number of sellers are not always available in the real world. In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a monopoly, and may arise for a variety of different causes. It is possible to distinguish in practice four kinds of monopoly.

     State planning and central control of the economy often means that a state government has the monopoly of important goods and services. Some countries have state monopolies in basic commodities like steel and transport, while other countries have monopolies in such comparatively unimportant commodities as matches. Most national authorities monopolize the postal services within their borders.

     A different kind of monopoly arises when a country, through geographical and geological circumstances, has control over major natural resources or important services, as for example with Canadian nickel and the Egyptian ownership of the Suez Canal. Such monopolies can be called natural monopolies.

     They are very different from legal monopolies, where the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products.

     These three types of monopoly are distinct from the sole trading opportunities which take place because certain companies have obtained complete control over particular commodities. This action is often called "cornering the market" and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers which might lead to undesirable monopolies. 
 
 
 
 
 

Business cycles

The economy tends to move in a series of ups and downs, called business cycles, rather than in a steady pattern. The 1930s saw the greatest world-wide economic depression in the twentieth century, with nearly one-fifth of the UK labour force unemployed for an extended period. In contrast, the twenty-five years following the Second World War were a period of sustained economic growth, with only minor interruptions caused by modest recessions. Then the business cycle returned in more serious forma. There have been three major recessions in the United Kingdom during the last three decades (1973-5,1979-8l and 1990-2), and most other major countries have experienced a similar pattern.

   An understanding of business cycles is important for the owners and managers of firms. During recessions many businesses go bust, while profits fall for the survivors, in contrast, during a boom, demand for most products rise, profits rise, and most businesses find it easy to expand. Understanding the business cycle is, thus, important for successful businesses. Expanding capacity during the onset of a recession could be a recipe for disaster while having too little capacity during a boom may be a lost opportunity. Most importantly, although business cycles are beyond the control of individual firms, firms do need to understand that the economy moves in cycles. Governments sometimes claim that their policies will bring stable growth and the end to cycles, but business cycles have been around for a long time, and they are likely to be with us for much longer yet.

   Macroeconomics as a subject was invented to help produce policies that could ameliorate economic fluctuations. Much of what follows is devoted to explanations of why the economy goes through these ups and downs, and what, if anything, the government can do about them.  

Inflation

The annual UK inflation rate was over 25 per cent in 1975. This was the highest level reached in peacetime for at least three centuries, and at that rate inflation halves the purchasing power of money in three years. The government of Margaret Thatcher was elected in 1979 on the promise of eliminating inflation from the British economy. Inflation did fall below 5 per cent by 1984, but it rose again to around 10 per cent before the end of the decade. By the late 1990s the annual rate of inflation had fallen to around 2-3 per cent, which was the lowest level since the early 1960s. In May 1997 the incoming Labour government set a target level of inflation of 2.5 per cent and gave the Bank of England the power to set interest rates in order to achieve this target. From 1997 to 2002 inflation stayed within one percentage point of the target as intended. (We will discuss monetary policy in the UK and euro area in Chapter 28.)

   Swings in economic activity have usually accompanied swings in inflation. Generally, attempts by governments to control high inflation have tended to bring about recessions. However, the pattern of booms and recessions has been very similar across many different countries, so it cannot all be attributed to domestic government policy alone. Also, the relationship between inflation and recession seems to change over time. The 1979-81 UK recession was accompanied by inflation in the mid-teens, while the 1990-2 recession was accompanied by only single-figure inflation. The slowdown in major economies in 2000-2 was accompanied to anti-inflation policies.