Transcript Economic Environment of Business

Economic
Environment of
Business
Lecture One: Overview of the UK
Economy
What do you need to do in this
module?
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Identify the structure of the UK economy and other
economies
Investigate the properties of different types of
business, finding out how firms grow and the limits
placed on such growth by policy makers
Discuss the impact of MNCs
Discuss international trade and development with
reference to IMF and World Bank
What current issues might be studied in
this module?
You might have included the following:
 Deindustrialisation
 Problems faced by small firms
 Restricted practices
 Corporate governance
 Merger and take over activity
 Globalisation
Why are we interested in the
structure of the economy?
We want to know how much income, inputs
(including employment), output and growth is
generated by each of the three broad sectors
within the economy:
 Primary
 Secondary
 Tertiary (Services)
This has implications for individuals and policy
Makers – State why?
What do these sectors do?
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Primary – extraction of natural resources (coal, oil,
fishing, forestry, agriculture etc.)
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Secondary – production and processing
(manufacturing, utilities, construction)
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Tertiary – everything else – includes private sector
(banking and finance, insurance, leisure and
distribution) and the public sector (defence, health
and education)
How can we measure the relative
importance of each section?
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Calculate the total absolute employment (or income,
or growth or output) for the economy as a whole
Calculate the same for one sector of the economy
Calculate the proportion of the total economy
contributed by the sector under investigation
The higher the proportion, the more important that
sector is to the economy
(see Page 8, Table 1.4 Griffiths & Wall, 2004 for an example)
Fig: One UK Employment Contribution By
Sector
90
78.6
80
71.3
70
61.4
58.5
60
54.4
50
46.9
%
Primary
Secondary
42.4
Tertiary
38.5
40
35.4
30
27.8
26.6
20
20
10
5.1
3.4
3
3
2.1
1.4
0
1964
1973
1979
1981
1990
2001
NB Absolute
employment
in a sector
may rise yet
the proportion
still fall!
Source: Labour
Market Trends
2002
Fig: Two: UK Sectoral Contribution to
GDP (Income).
80
69.7
70
63.2
60
53
50
Primary
Secondary
Tertiary
41
%
Note the
similar
pattern to
the
previous
graph!
60.4
40
36.5
34.2
28.6
30
20
10
6
3.1
2.6
1.7
0
1960
1980
1985
2001
Source: Labour
Market Trends
2002
From Figures One and Two what
do you observe?
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The UK Economy is experiencing a process of
change
The UK Economy is becoming increasingly
dependent on the Tertiary Sector as a source of
income and employment
Is this true for all economies? No! Depends on the
stage of economic development:
Pre- industrial
Industrial
Post- industrial (De-industrialisation)
Stages of economic development
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Pre- industrial – primary sector – hunter gatherer
etc.
Industrialised – development of secondary sector –
now a derived demand for tertiary sector (insurance,
banking etc.)
De-industrialised – dominance of tertiary sector as a
source of jobs, income etc. The cheaper raw
materials have been used up – costs of primary and
secondary sector production up. Industry moving to
developing economies (cheaper labour and
materials)
Why should we be interested in
the relative importance of each
sector?
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We want to find a job -78% of jobs are provided by
service sector – so training for a job in that sector
seems a sensible investment
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Government need to know policy implications: E.g.
structural unemployment from decline in primary and
secondary sectors creates a need for retraining and
regional policy due to large scale unemployment
Do we assume that the demand
for manufactured goods is
declining?
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NO! We are looking increasingly to imports to
meet our increasing demand for domestic
appliances, cars etc.
Can lead to balance of payments problems,
increased public sector borrowing
requirements, inflation, over-reliance on
suppliers – e.g. Russian gas etc.
Further Implications of
Deindustrialisation:
Lifelong learning
 Threats from developing economies and
liberalisation of service sector
Which of the following do you think is the worst
implication?
 Public debt
 Balance of payments problems
 Training requirements
 Inflation
 Competition from overseas
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Summary
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We identified the three broad sectors of an economy
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Primary
Secondary
Tertiary (Service)
We identified the process of change in the relative
importance of these sectors over time as providers
of employment, income, output and growth
We identified some of the implications for
economies experiencing deindustrialisation
Next Class
Firm Objectives:
 Consider the importance of the structure of a firm in
providing a solid base for its profit seeking activities
 Look at the lecture in advance and make notes