Page 77 - Introduction to Business

CHAPTER 2 The Environment of Business 51

Celica is manufactured in Japan, the Tiburon in South Korea, and the Mustang in
the United States. Do you think the business systems in all these countries are the
same? If not, why are the systems different, and how? And why should that matter?
And how does this affect the way that one conducts business in a particular coun-
try? Do you know why the United States exports products like airplanes and soy-
beans and imports items like cars, shoes, stereos, and wine from other countries?
Also, if you decide to get involved in the export/import business after you graduate,
do you realize what you need to know in order to manage your firm successfully? In
this chapter we will explore these interesting issues carefully and in a very funda-
mental way, since a company’s options will always be limited by what is going on in
the world around it. There are some basic economic reasons and theories that
explain why countries export and import certain goods and services. The environ-
ment in which businesses operate is fascinating, and the more you understand the
business setting, domestic and global, the better prepared you will be to manage a
firm. This chapter will provide you with a fundamental understanding of why and
how countries exchange goods and services, and the challenges and opportunities
that businesses face operating in different economic systems. Economics deals
with the allocation of scarce resources (factors of production that we studied in the
previous chapter) among consumers and producers. In business, we utilize eco-
nomics to help provide us with insight into something that we are all interested in—
creating wealth and having the freedom to enjoy it.

Evaluating the Business Environment

For much of the nineteenth and early-twentieth centuries, countries did little to
directly manage their economies. This contributed to business cycles. With
advances in macroeconomic theory and practice, governments have come to a bet-
ter understanding of what major economic policy goals ought to be and what eco-
nomic policy tools governments could use to stabilize or smooth out economic per-
formance. Exhibit 2.1 lists the major goals and tools for managing an economy to
facilitate business development and growth. 1

EXHIBIT 2.1
Major Goals and Tools of Managing the Economy

Goals Tools
Output Fiscal policy
High levels of GDP Government expenditure
Rapid growth of real GDP Taxation policies
Employment Monetary policy
Low unemployment Control of money supply
Interest rate policy

Inflation Incomes policies
Low and stable prices Wage and price guidelines

Exchange rate stability Trade and exchange rate policies
Market-determined rates Liberalized trade policies
Flexible exchange rates

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