Notes

Question 3
1. GDP
2. CPI
3. Fiscal Policy
4. Stakeholder
5. Ethical Lapse
6. Trade Surplus / Trade Deficit
7. Protectionism
8. Marketing
9. Brand
10. Supply Chain


1. GDP: GDP stands for gross domestic product. It is market value of all goods produced in a country within a year minus import. It is very important to understand GDP esp. when dealing with macroeconomics. This is because GDP is one of the indicators for the economy. If the GDP increases, it means the economy is growing, however if the GDP decreases, it indicates that economy is shrinking. If you calculate GDP per capita, it helps indicate the buying power of each consumers in a nation as luxury goods have a bigger market in country with high GDP compared to country with low GDP. For example, India according to world bank had a GDP of 2.035 trillion $ during 2014, 2.112 trillion $ during 2015 and 2.264 trillion $ during 2016. From this info we find out that India has a healthy growing economy, which in turn becomes an attractive place to conduct business in. Amazon has invested heavily into entering the market in India due to the annual increase in GDP.
GDP of India: https://data.worldbank.org/country/india
Source for Amazon entering India: https://www.forbes.com/sites/greatspeculations/2016/06/09/why-amazon-is-betting-big-on-india/#295bb9864555

2. CPI: CPI stands for consumer price index. It is the rate of inflation and it is measured by measuring the price change of certain goods. In order to understand the market and the economy, CPI is very important as it is a good indicator of inflation. In both macro and micro field, CPI plays an important role. In Macroeconomics, it helps analyst forecast the economy based on inflation rate. While in Microeconomics, it helps companies adjust their product line by making cheaper to anticipate inflation. As of right now, According to Federal Reserve of USA, they are closely monitoring the CPI to keep it at 2% because a high CPI would lead to inflation while a low CPI would lead to a deflation. So, to keep the economy healthy, CPI needs to monitor and controlled.
Source for 2% CPI rate from Fed. https://www.federalreserve.gov/faqs/economy_14400.htm

3. Fiscal Policy: Fiscal policy is one of the response a government makes to affect the economy. The government can change its taxes and spending to acquire the results it seeks. It is important to understand this because, during recession, government's fiscal policy would generally be reduced taxes and increased government spending to stimulate the economy. Business can take advantages of such policies during recession. However, the government might also increase taxes and reduce spending to fight inflation. This is because with higher taxes and reduced spending, prices might fall.

4. Stake Holder: Stakeholder means everyone that is affected or concerned by the organization or business. It is important to understand stake holders because of the emergence of stake holder theory which mainly focuses on the impact of business on their stake holders. Normally businesses are mainly concerned with their shareholders and not the stake holder, however due to changing times, consumers and government have more power and have increased their demands to the point where business now have to pay close attention to stake holders to operate profitably. An example in real world would be the car industry, Car companies not only have to satisfy their shareholders, but the stake holders. The stake holders are people and government who are concerned about pollution, traffic and safety. Hence car companies have to limit their emission, safety regulation and its impact on traffic. BMW is currently in a car emission scandal where BMW had duped stakeholders about their diesel emission. This is why major stakeholder’s demands must be satisfied to create a win win scenario for both the business and its customers.
Link to BMW emission scandal: https://www.nytimes.com/2017/07/25/business/diesel-emissions-volkswagen-bmw-mercedes.html
5. Ethical Lapse: It is the mistake or error in judgement that has negative consequences. It may be intentional or unintentional. It is important in business because such actions can ruin the image and reputation of the company. According to Harvard business review, more CEO are being fired for ethical lapse than before. This shows that even top-level CEO are not immune from the consequences of ethical lapse. One of the examples of companies trying to reel back from ethical lapse are BMW from its emission scandal.
Sources: https://hbr.org/2017/06/ceos-are-getting-fired-for-ethical-lapses-more-than-they-used-to
6. Trade Surplus and Trade Deficit: Trade surplus means when export exceed import. On the other hand, Trade deficit means when import exceed export. It is important to understand this because this affects the macroeconomic. Nations that want healthy economy need to maintain trade surplus instead of deficit as it indicated that the goods produced in the nation are not being desired by other nations. For business companies, they too need to maintain trade surplus where cash inflow must always be net positive to ensure long run survival of the company
7. Protectionism: This is the case where trade is restricted to protect local companies or the local economy. This is mainly related in macroeconomics. It is important to understand this because nations use taxes, laws, and other regulation to protect their domestic market. One example of this is present in EU where they protect the local farmers by restricting importing of agricultural produce from outside of EU.
8. Marketing: Marketing is the social and managerial process by which individuals and groups obtaining what they need and want through creating, offering and exchanging product and value with others. It is very important to understand marketing because it is part of the 5 branches of business. The 5 branches of business are management, operation, finance, accounting and marketing. Through marketing approach, companies can create superior value by addressing the need of the customer.
9. Brand: Brand is more than just a name that differentiates it from its competitor. Brand is overall promise, experience and a message that the company delivers to its consumer. This is very important because business that have good brand can fully function on the brand name. For example, Nike clothing company does not own factories but instead outsources it to third parties. When the clothes are ready, Nike just brands it and sells it. The brand is what sells the clothes as the factories that produce the clothes do not have the brand strength that Nike has.
Source: https://www.unc.edu/~andrewsr/ints092/vandu.html
10. Supply Chain: It is the system or network that exist in a company and its supplier to produce and distribute product to its final consumers. This is very important because it is part of business logistics. Companies like apple have mastered supply chain management where they barely keep any inventory as they ship the goods from factory directly to its customers. This is important esp. in the tech field as inventory lose around 7% value each week due to fast changing nature of technology.
Source: https://www.bloomberg.com/businessweek