Strategic Business Decision Making

International Business Economics & Strategic Business Decision Making

Strategic Business Decision Making

• The classical Decision Making Process involves assessing the situation, gathering facts, identifying alternatives, establishing criteria, weighing alternatives, selecting the best option, and reviewing the decision.
• Pros: Simple and easily understood.
• Cons: Does not reflect the reality/iterative/political aspects, and ignores intuition.
• Mintzberg's General Model of the Strategic Decision Process includes Identification, Development, and Selection phases with various routines like recognition, diagnosis, and authorization.
• Defines decision as commitment to action, highlighting strategic-making aspects like interrupts, delays, comprehension cycles, and the importance of control and communication.
• Pros: Draws attention to key aspects.
• Cons: Complicated and lacks procedural guidance.
• Suggests seven useful patterns of strategic decisions: simple impasse, political design, basic search, modified search, basic design, blocked design, dynamic design.
• Donaldson-Lorsch Model considers Organizational Belief System, Constituency Expectation and Financial Guide System Constraints.
• Cynefin framework uses Ordered, Complex, Chaotic categories to improve Decision-Making, Adaptability, and Innovation, Crisis Management by reducing complexity, encouraging adaptability, and balancing best practice.
• The effects of Causal Attribution, Escalating Commitment and Distorted Recollections are biases affecting decisions.

International Business Economics

• Globalization is the shift toward a more integrated and interdependent world economy, driven by reduced trade barriers and technological advancements.
• Globalization of Markets merges distinct national markets into a global marketplace
• Globalization of Production involves manufacturing goods across multiple locations to leverage cost differences.
• Benefits include cost reduction and efficiency.
• The Globalization Debate concerns whether globalization is positive or negative, its pace, and its effects on politics, culture, and the environment.
• Pros: Economic growth, job creation, lower prices, and innovation; cons: job losses, income inequality, environmental concerns, and cultural erosion.

Government Policy and International Trade

• Tariffs are taxes on imports/exports, making foreign goods more expensive but raising consumer prices.
• Subsidies are government payments to domestic producers, aiding them in various forms.
• Import Quotas are direct restrictions on the quantity of goods imported, usually enforced through import licenses.
• Voluntary Export Restraint (VER) is a trade quota imposed by the exporting country at the importing country's request.
• Local Content Requirements mandate that a specific fraction of a good must be produced domestically.
• Administrative Policies are bureaucratic rules that hinder imports.
• Antidumping Policies punish foreign firms for dumping.

The case for Government Intervention

• Political arguments include protecting jobs/national security/human rights/unfair competition
• Economic arguments include infant industry and strategic trade policy.

Development of the World Trading System

• Specialization and open markets benefit all.
• Protectionism and the Smoot-Hawley Act (1930) led to retaliation and global trade slowdown and contributed to the Great Depression
• GATT (1947) aimed to reduce tariffs and encourage global trade, leading to an economic boom.

1980-1993 and beyond

• Rising protectionism targeted steel and autos, but the Uruguay Round (1986-1994) expanded GATT's scope beyond goods.
• The WTO (1995) covers goods, services, and intellectual property, standardizing trade rules and dispute settlement.

Foreign Direct Investment

• Share of ownership in a foreign business/project can have Economic Growth, Job Creation, Increased Exports, Improved Capital Flow.

Government Policy Instrument and FDI

• Financial Incentives encourage FDI, while Ownership Restrictions and Sanctions discourage it.
• Foreign Exchange Market facilitates buying and selling foreign currencies.
• Foreign Exchange is money of a foreign country.
• A foreign exchange transaction is an agreement between a buyer and a seller.
• Transfer function transfers purchasing power through instruments like bills of exchange, bank drafts, and telephonic transfers.

Economic Theories of Exchange Rate Determinant

• Mint Par Theory determines exchange rates based on gold content between currencies on gold standards.
• Balance of Payment Theory determines exchange based on the supply and demand of foreign currency, reflecting a country's BoP situation.
• Purchasing Power Parity Theory explains exchange rate and inflation as the ratio of the costs of the same good in two countries.

Currency Convertibility

• Freedom to convert domestic currency into other internationally accepted currencies and vice versa.

Types of Convertibility

• Current account convertibility refers to freedom in respect of Payments and transfers for current international transactions.

Labor Economics, Human Capital and Industrial Organization

Labor economics

• Studies labor markets, employer/employee behavior, and factors influencing employment and wages.
• Examines labor supply (individuals' willingness to work) and demand (employers' need for labor); types include macro and micro-labor economics, focusing on large-scale trends and individual participants, respectively.
• Vital for shaping job creation policies and addressing inequality/discrimination; promotes economic growth and inclusivity
• Human capital refers to the skills, knowledge, experience, and health of individuals that contribute to their productivity and economic value and Influences growth, innovation, and competitiveness.
• Agency theory explores the optimal form of contract to control relationships, human theory focuses on skills and knowledge of owners, and motivation theory understands what drives to an outcome.

Role of Human Capital in Economic Development

• A well-educated and skilled workforce leads to higher productivity, greater innovation, and stronger global competitiveness, Japan and south Korea developed through education and technology investments.
• IO applies the economic theory of price to industries, studying firm behaviors and regulatory/antitrust policies.
• Theory of the firm describes existence, behavior, structure and market relationship. Describes the need they fulfill to society.

Firm Behavior and Strategies

• Behaviour is achieved through Pricing Strategies (lower pricing to stay competitive), product differentiation (Advertising), Mergers and Acquisitions (increasing market power) and Government Regulation (Antitrust and Competition Policy)

Labour Market

• The labor market refers to the supply of and demand for labor.

Two Types of Labor Market

• A primary market, focuses on permanent, full-time jobs, and the secondary market, part-time roles.

Two Types of Labor Supply

• Internal (shifting existing employees) and external (open marketplace).

Understanding the Labor Supply and Demand

• In the goods market, economists use price as the primary determinant of the quantity supplied and the quantity demanded of a good.
• In the labor market, wages represent the price of labor services and determine the demand and supply of labor.
• Labor market, businesses and households meet to transact labor services Firms represent the demand side, and households represent the supply side.

Labor Demand & Supply

• Demand for labor increases as wages fall, but an increases in wages reduces the labor provided.

Factors affecting labor supply

• Population Growth and geographical/occupational mobility, globalisation, education and training.

Factors affecting labor Demand

• Economic Conditions and Minimum Wage, technological advancement Local recruitment policies and number of businesses

the Role of Skills in Economic Growth

• Increased productivity to provide efficiency
• Skills such as problem-solving
• Higher Wages and Employment boost income and spending

Innovation and technological Advancement

• New technologies improve productivity

Firm behaviour in different market

• Firms operate in different market structures, influencing pricing, output, and Key factors: cost structures, consumer demand, government regulations, and market power.
• In perfect competition, Firms are maximised when marginal cost = revenue.
• In monopolies, entry is prohibited, and profits are maximised when consumers pay higher costs
• In monopolistic comp firms control their products through branding, quality, advertising due to brand loyalty.

M & A

• A business combination like an acquisition or merger that two direct competitive businesses

Four Types of Mergers and Acquisitions

• Vertical, Horizontal, Conglomerate or Congeric.

Antitrust Policies

• Prevent monopolies and promote competition

Keys of Antitrust Policies

• Enforces RA 10667 to ensure competitiveness
• Global examples include the EU, the US and China
• Challenges for policies are corruption, globalisation and digital economy.
• Impacts include technology and economy growth

Finance Economics and Political Economy

• Money is a medium of exchange serving as a store of value, unit of account, and standard payment, simplifies trade, and promotes growth.
• The types of Money are Commodity, Fiat and Digital
• Plays a role of Market efficiancy and interest rates
• Provides money and economic stability.

Ways to invest/saving money

• Saving is setting aside for the future versus Investment to get a return, people save money because of an emergency, or retirement and various option
• The functions of Banks are to hold money safely to help increase money through lending

Investing

• Companies provide opportunities to buy a percentage of the company, but may lower the company and have volatility occur

Interest

Interest may be earned or spent due to loans

• Governments are the economic stabilisers to implement policies/rates, labour etc.
• Taxes are money that people and businesses pay to the government
• Spending includes improvements like education, healthcare and building infrastructure
• Governments also do International Trade
• Ricardos theory states advantage raises living standards

Country Growth and Poor

• What helps a country grow rich and not poor - historical and political factors