MGMT 1035 Week 7-12 Notes PDF

MGMT 1035 Week 7 Tutorial Part 1 - The Business of Alcohol Gin Craze Alcohol was mixed with juniper berries and other herbs for flavouring and medicinal purposes 16th century Dutch created “genever” which the British shortened to gin Inexpensive but political William III, Kin...

MGMT 1035 Week 7 Tutorial Part 1 - The Business of Alcohol Gin Craze Alcohol was mixed with juniper berries and other herbs for flavouring and medicinal purposes 16th century Dutch created “genever” which the British shortened to gin Inexpensive but political William III, King of England in the late 1600s, placed large tariffs on French brandy and wine, and gave tax breaks to British distillers of gin Gin became very inexpensive and was regularly abused Led to a backlash that included temperance movements and new government licensing to control production ○ The Gin Act of 1751 In 1800s, Gin recovered as a population drink ○ Was mixed with quinine water as an anti-malaria potion ○ Became gin and tonic Rum Distilled from molasses (a by-product of sugar manufacturing) ○ Rose to popularity in the 1700s Large sugar plantations were created in both French and British colonies in the Caribbean These required cheap labour, leading to a increase in the importation of African slaves Rum’s Impact Starting in 1731, the British sailors received a daily pint of Jamaican rum for each man and a half ○ Tradition lasted till the 1970s Rum remained political for much of its history American producers turned to whiskey instead Cuba Bacardi had been a supplier of rum to Spanish royalty from the 1880s from facilities in Cuba Rum and Coke called “Cuba Libre” which took on a different twist after the Cuban Revolution Castro then seized the distilleries The family fled to Puerto Rico and became a huge global producer of rum ○ Have thrived but want compensation from Cuba Bacardi founder Facundo Bacardi Part 2 - “Every day’s a Sunday” - the Temperance movement and Prohibition Prohibition: Restraining the liquor trade Prohibition is the act or practice of forbidding by law the manufacture, storage, (whether in barrels or in bottles), transportation, sale, possession, and consumption of alcoholic beverages Largely based on Protestant church moral beliefs, but also on economic argument Prohibition movements in Canada Influenced by both British and American examples Largely a protestant movement 2 major Canadian organizations in the 1800s ○ The Dominion Alliance for the Total Suppression of the Liquor Traffic ○ Women’s Christian Temperance Union Prominent role for women, tied to the suffrage movement The Politics of Prohibition Scott Act and Local Option Sir John A and drinking Reformers (Liberals) tended to favour The 1898 referendum The Wilfrid Laurier Government elected in 1896 had a large temperance segment Had a large following in Quebec which opposed prohibition Laurier decided to hold a non binding referendum Results were close ○ 278,380 in favour of prohibition ○ 264,693 against ○ Every province except Quebec saw a yes vote, but Quebec was over 80% against Laurier decided to do nothing WWI and Prohibition In 1901 PEI introduced prohibition, which would last until 1948 The other provinces began to do so in World War ○ Was seen as patriotic, and conserving food Only Quebec did not In March 1918, the federal government stopped the manufacture and importation of liquor Loopholes for “medical purposes”, etc Na Poo as soldier slang for “no more (idk hes covering it_ “Demon Rum”: Alcohol in the Trenches Most Canadian soldiers received a daily rum ration Considered essential as a morale-booster for men faced daily with death and living in horrendous conditions Used for medicinal purposes Private Ralph Bell: “when the days shorten, Prohibition After the war the lack of success in eliminating alcohol and the idea that enforcement was unbalanced and often unfair began to take hold. ○ For some idea that the state limited this “right” was an issue Criminal distribution also came to be seen as a problem The American Experience Prohibitionists were successful in passing the 18th amendment to the US constitution in 1920 ○ Alcohol remained illegal until 1933 when the 21st amendment repealed the 18th Ken Burns in a PBS documentary noted: On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades Lack of Success A history of Labatt’s brewery notes that in Canada the impact on business was severe: “The doors of 35 Ontario breweries had gone dark. Across the nation, prohibition had a similarly devastating effect on a once vibrant industry. The personal fortunes of many brewers were lost, legacies vanished, and hundreds of well-paying jobs disappeared.” The “business” of alcohol was simply driven underground in to a thriving black market ○ This opened the door to organized crime End of Prohibition In 1927, Ontario ended prohibition, replacing it with government control Over time the laws became more liberal For some years prohibition remained in the U.S making Canada a tourist destination for American drinkers and the U.S a market for smugglers from Canada LCBO  The solution in ontario was to create a government monopoly on distribution under tight controls Howard Ferguson, the Premier of Ontario, stated that the liquor control act was “... to allow people to exercise a God-given freedom under reasonable restrictions”. Article: Buzzkillers: A brief history of the LCBO LCBO was created in 1927 during Prohibition in the U.S to control alcohol sales and consumption in Ontario ○ First day of business June 1, 1927 11 years of prohibition Aimed to regulate the sale of alcohol, reduce public drunkenness, and generate government revenue Women and minorities were excluded from working in LCBO stores Indigenous people were prohibited from holding permits until 1959 LCBO operates as a government monopoly, controlling retail sales of alcohol in Ontario LCBO has adapted to consumer demands, expanding product offerings and improving customer service Faces competition from private retailers and online sales Permit books were replaced by wallet card in 1958, and the system was abolished in 1962 Self service stores in 1969 Former police chief Jack Ackroyd initiated “Project Image” in the 1980s to revamp the LCBO’s brand. ○ Introduced higher-end outlets, advertising, and empowering store managers Part Three - Trends in the Alcohol Industry Brand growth The global market controlled by a small number of MNEs The largest, AB InBev had annual revenue of $46.6 billion US in 2017 InBev was created in 2004 through a merger of AmBev and Interbrew ○ This merger was the third largest in corporate history Differences between alcohol MNEs and others The growth of Alcohol major companies is often driven by heritage brands and familiar names ○ Technology could be a factor Tensions between health and profit The health implications of alcohol  Governments want to control levels of consumption, but company profits rely on increased consumption ○ Some level of restriction on advertising in most countries Restricting Advertising 2 methods countries can employ to limit advertising of alcohol ○ Voluntary codes of conduct from producers Less effective ○ Restrictions by law or regulation Loi Evin: France’s regulation of alcohol marketing A high level of community and medical concern led to the adoption of legislation to prohibit advertising on television, in cinemas and all sponsorship Advertising that is allowed is restricted to info about the product, and no images of people or lifestyle Loi Evin No advertising should be targeted at young people, no ads are allowed on television and in cinemas, and no sponsorship of cultural or sport events is permitted When advertising is permitted, its content is controlled A health message must be included on each ad Law’s Success More successful with tobacco control Producers have lobbied to roll back some of the limitations Article - Gradual catch up and enduring leadership in the global wine industry OW countries (France, Italy, Spain, Germany, Portugal) produced 63% of global wine Argentina was a significant producer (7.4%) Rise in wine popularity in non-producing countries, like the UK, USA, and asia Emerging countries (Chile, Argentina, South Africa) enhanced scientific knowledge and production capabilities The global wine industry has undergone significant changes due to shifts in production, demand, and competition Historical dominance by Old World (OW) producers (France, Italy, Spain) is being challenged by New World (NW) countries (California, Australia, Chile, etc.). Decline in wine consumption in traditional OW markets, but rise in NW markets like the USA and UK.  First Cycle (1970s-1980s): NW wines (e.g., California) gained traction due to innovations and market flexibility. Second Cycle (1990s-2000s): Chile and South Africa joined, leveraging production and marketing innovations. Recent Entrants (Post-2000s): New Zealand and Argentina succeeded in premium segments with strategic branding and terroir-focused marketing. Australian wine exports declined due to ○ Rising costs ○ Rigid production models unsuitable for changing consumer demands Argentina capitalized on favorable exchange rates and foreign investment to target high-value export markets. China’s wine consumption has grown rapidly, driven by a wealthy middle class. Demand for high-status wines (French and Australian) is rising. China’s domestic production is increasing, with firms like Yantai Changyu Pioneer Wine becoming globally competitive. Foreign investments in French, US, and Australian wine regions indicate China's growing influence. Global wine consumption is shifting toward non-traditional markets like Asia and the USA. Article: Pdf - How alcohol brands are pushing marketing boundaries A brand is a name or trademark that helps differentiate a product from competitors Many alcohol brands, such as Smirnoff and Budweiser, are familiar to both adults and children, with some brands recognized by children as young as 10 years old. Brand extensions (also called brand stretching) help companies grow sales by using the same brand name for different products. Alcohol brands are increasingly extending into food items (e.g., Jim Beam-flavored chips, Baileys ice cream). In response to increasing marketing restrictions, alcohol companies may use brand extensions as a way to bypass restrictions, similar to how tobacco companies used merchandise and non-tobacco products to promote their brands. Examples of alcohol brands in countries with tough restrictions (e.g., India) show how companies can extend their brand into other sectors like airlines and bottled water. MGMT 1035 Week 8 Tutorial Part 1: Seeing and Selling the World - The Business of Tourism Roman Holiday Rome’s power and empire made tourism possible Security to travel without fear and resources to do A Roman version of the Grand Tour developed to include southern Italy, Greece, Troy and Egypt to cruise the Nile Trips to spas, baths, etc Pilgrimages Christianity, Buddhism and Islam all featured a call for pilgrimage These journeys were sight-seeing opportunities and businesses sprang up to organize and conduct the trips Other businesses included inns and good and drink provisions Pilgrims on voyage to Mecca The Grand Tour Beginning in the 17th century, especially in England, it became the custom for young gentlemen to spend 2-3 years touring France, Italy and Greece and other European centres They saw the sights, especially classic architecture and art Only the rich could afford this Banks would arrange letters of credit with European banks Thomas Cook Travel The company was inherited by Cook’s grandsons in 1899 Remained in family hands until solid in 1928 to the Belgian company that ran the Orient Express During WW2 was taken over by the British railway companies After the war they were nationalized, so Cook’s was too Privatized in the 1970s Declared bankruptcy in 2019 Post World War 2 Travel and Tourism New jet plane technology makes travel easier Air travel expensive until the deregulation trend of the late 1970s and the advent of discount carriers, especially after 1990 End of the Cold War meant new destinations and new potential travellers How important is travel and tourism to the Global Economy? The World Travel and Tourism Council determined that in 2019, prior to the pandemic, Travel & Tourism accounted for 10.5% of all jobs and 10.4% of global GSP. Meanwhile, international visitor spending amounted to US$1.91 trillion in 2019  The World Travel & Tourism Council (WTTC) is projecting a record-breaking year for Travel & Tourism in 2024, with the sector’s global economic contribution set to reach on an all-time high of $11.1 trillion Part 2: Tools of Tourism - Commercial Cruises Cruise Ships Titanic to Queen Mary The idea of passenger cruise ships, where the voyage was not just the means of travel but part of the attraction, began with the Peninsular and Oriental Steam Navigation Company in 1844 They had been sailing from England to Mediterranean destinations delivering mail and people for some time, but in 1844 launched the cruise idea Advertising sea tours to destinations such as Gibraltar, Malta and Athens, sailing from Southampton Mauretania and Lusitania Owned by Cunard Line of England Launched in 1906 They were the largest ships ever built at the time Carried 50% more passengers than their largest competitors Designed for speed in response to competing shipping lines Started the tradition of dressing for dinner and advertised the romance of the voyage Carried 552 1st class, 460 2nd class, 1,186 3rds class = 2,198 passengers Lusitania torpedoed on 7 May 1915 by a German U-boat killing nearly 1,200 of the 1,959 people on board Titanic Luxury cruises, as opposed to simple transportation became increasingly competitive French and English lines built newer more ships The “unsinkable” Business, theatre and social leaders were travelling in first class Among them were the American millionaire John Jacob Astor IV and his wife Madeline Force Astor, Isidor Stratus from Macy’s and many others including the President of the Grand Trunk Railway, Charles Melville Hayes 3rd class passengers were accorded far fewer amenities Sinking of the Titanic The Titanic left Southampton, England on 10 April 1912  Stopped at Cherbourg, France, and Queenstown, Ireland, then set sail for New York At 11:40pm on Sunday, 14 April the ship struck an iceberg Titanic had gone down in only 2 hours and 40 min 1500 people died The Industry continues Trans ocean cruises remain the only method for many years Early air travel was difficult, so ships remained the choice The advent of large jet liners in the 1960s changed this and accentuated the decline of transatlantic and transpacific cruises By the 1980s only Cunard Lines serviced a small clientele of ocean crossers by offering a cruise experience on the Queen Elizabeth 2 Cruise Lines The ocean crossing trips have been replaced by the new style of cruise Cruise ships are organizes much like floating hotels, with a complete hospitality staff in addition to the usual ship’s crew Caribbean, Alaskan and other tours are the focus rather than a journey to a destination Facilities include night clubs sports facilities, etc Expansion of the Cruise Industry In 1970, about 500,000 people went on cruises: by 2013, that number was higher than 20 million The Love Boat, a tv series ran from 1977-1986 ○ Helped to popularize the idea of taking a vacation at sea on a ship Article - EXCHANGE --- Heard on the Street: The Math Behind The Megaships --- The cruise industry is bringing a whole new meaning to the phrase 'economies of scale' “The Love Boat” (1977-1986) was a hit tv show that helped popularize cruises Cruises were once seen as exclusive, expensive trips for “newly wed and nearly dead” Cruises have shifted from exclusive luxury to accessible, middle-class vacations Economic and Environmental Efficiency Cost Reduction Strategies: ○ Use of tax havens and employment of workers from developing countries.  ○ Economies of scale with larger vessels reducing per-passenger costs. ○ Onboard spending (e.g., drinks, spas, gambling) contributes significantly to revenue. Green Initiatives: ○ New ships, like Icon of the Seas, are powered by cleaner liquefied natural gas, use waste treatment, and produce water via desalination. ○ Industry goal: reduce greenhouse gas intensity ahead of International Maritime Organization targets. ○ Transition from older, less efficient ships (38 retired between 2020-2022). Icon of the Seas Highlights World's largest passenger ship: Capacity of 7,600 passengers and 2,350 crew. Features: 20 decks, seven pools, six waterslides, bumper cars, zip-line, rock-climbing walls, and dozens of dining and entertainment options. Challenges and Industry Trends Inflation has led to higher costs, reduced services (e.g., turndown service), and smaller portions (e.g., 7-ounce burgers). Larger ships face navigational limits in some destinations. The industry is recovering post-COVID-19, with record passenger numbers and rising stock prices (85% rebound on average in 2023). Part 3: Tools of Tourism - Commercial Aviation Article - Airways Magazine The first commercial flight took off in May 1908, flown by Wilbur Wright in North Carolina Just 1 year later, the first airline in the wold, the German airship company DELAG, was founded In 1914 was the first scheduled passenger service, and ran for 4 months 1920s was when commercial flights carrying paying passengers started to become common ○ The Lawson C-2 was built to carry passengers In 1935, the Douglas DC-3 revolutionalized air travel During the 1940s, the onset of WWII meant commercial aviation developments slowed considerably. First pressurized cabin by Pan Am The Golden Age of air travel was 1950s-1960s  British-owned Laker Airways, founded in 1966 by Freddie Laker, was one of the first airlines to start offering a budget alternative by adjusting its inflight offer. Today, the world’s largest low-cost carrier is Southwest Airlines in the US Post 9/11 there were security changes (2000s) Took until 2004 for air passenger numbers to reach pre-9/11 levels and until 2007 to reach a record high With covid-19, travel restrictions disrupted the industry Larger, economical aircraft like the Boeing 747 made air travel more affordable. Commercial Aviation First paying passenger flight Jan 1, 1914, the St. Petersburg-Tampa Airboat Line became the world’s first scheduled passenger airline service, operating between St. Petersburg and Tampa, Fla The first flight’s pilot was Tony Jannus, the first passenger was Abram C. Pheil a mayor of St. Petersburg who had bought the trip at a charity auction for $400 A service ran for many months, but limited to one passenger at a time Air Travel By the 1930s transpacific flights were expanding, although still rare The Clipper 314 Capable of comfortably flying 74 passengers and 10 crew to distances of up to 3,500 miles WW2 interrupts the expansion of commercial air travel, but also advances the technology The Boeing 747 The 747 was conceived while air travel was increasing in the 1960s Would carry large numbers of passengers over large distances Goes into service in 1970 It was now possible for airlines around the world to carry passengers at a reasonable fare further than ever before, more than 8000 miles without refuelling The status of the industry: Precovid and post Between 2004-2019 the total number of commercial flights in the world rose from 23.8 - 38.9 million This has been reduced by covid19 restrictions but projections still suggest levels over 21 million for 2020 and over 30 million for 2021 Statistics indicate air travel continues to get safer, but also indicate the cost to the environment is significant Article - The Rise of the All-Inclusive Resort Roman Influence: Early resort towns in coastal Italy catered to the Roman elite. 20th Century Milestones: Paid holidays in the 1930s allowed mass vacationing. The advent of Butlin’s camps in the UK and Club Med in the 1950s introduced the modern all-inclusive resort concept. Host communities creates jobs and drives tourism Global tourism sees major contributions from the growing Chinese middle class. Caribbean: Home to nearly half of the world's 860 all-inclusive resorts. Hainan, China: Hosts 99 million visitors annually, surpassing many Western destinations Early resorts catered to Western colonial leisure but have expanded globally. Tourism reflects broader economic and social shifts, including the rise of middle-class consumers worldwide. MGMT 1035 Week 9 Tutorial Part 1 - The History of Global Finance What is money? Any generally accepted medium of exchange which enables a society to trade goods without the need for barter: any objects or tokens regarded as a store of value and used as a medium of exchange Coins and banknotes collectively as a medium of exchange. Later also more widely: any written, printed, or electronic record of ownership of the values represented by coins and notes which is generally accepted as equivalent to or exchangeable for these More specifically Coins: valued for metal content or as representative tokens Paper money: issued to represent value. From ancient China to modern societies Digital currency: exchanged as information, rather than physical money All of these work only with a shared consensus of value Kinds of Money Commodity money: gold and silver coins, and shells, grain or other items of agreed value Token money: coins or paper that can be exchanged for the face value of gold or silver ○ The “gold standard” is an example  Flat money: money issued by a government that is not backed by gold or another commodity but rather by declaration of the issuing government Potosi and silver Last week we saw the conquest of Potosi and its result in Spanish expansion “Potosi was the first city of capitalism, for it supplied the primary ingredient of capitalism - money” Jack Weatherford Impact The influx of gold and especially silver from South and Central American changed the economies of the world The transition to cash in Europe helped facilitate the development of a capitalism based on the exchange of money rather than barter. Spanish silver changed the nature of trade with China and other parts of Asia. ○ Also drove other European countries to seek their own colonial opportunities An aside! Potosi in Bolivia and the surrounding area are now one of the world leading sources of lithium, an essential part of modern batteries for use in electric cars and other devices How, and for whom, that resource is developed will be the next chapter in Potosi’s influence on capitalism What is a bank? Banks and Central Banks The Bank of England, the model for most Central Banks, was formed in 1694 Designed to raise money for the government to finance a navy 1.2 million pounds raised, in return the Bank could issue notes against government bonds Became the bank for the government accounts Bank of England By the end of the 18th century the Bank issued currency, managed the public debt and had become “the bankers bank” holding enough gold to cover currency issued by itself and other banks in Englands Other Central Banks In the USA, the Federal Reserve Created Dec 23, 1913 Response to financial crises and a desire to ease ups and down in the economy Centralize control of monetary system  Regulate banks Lender of last resort for banks Set interest rates The bank of Canada Federal Reserve Act of 1913 in the US not copied in Canada Canada abandoned the gold standard officially in 1931 Royal Commission established in 1933 to study issue Bank of Canada established in 1935 Central control of Canada’s monetary supply Initially controlled by private interests but transferred to federal government control in 1938 Control of currency Standardized currency established by 1950 Chartered Banks in Canada These are the banks most of us are familiar with They take deposits and make loans The banks operate under charters issued by the federal government Originally banks issues their own bills, supported by their holding of gold or other assets Chartered Banks in British North America Bank of Montreal established in 1817, Bank of Nova Scotia in 1832 Limits on the amount of debt in relation to deposits General conservative nature of chartered banking in British North American resulted in a branch banking system Different approach from banking in the US, where a fear of centralized authority and monopoly resulted in a loose system of many banks Evolution of Banking in Canada Bank failures more common before 1923 Home Bank Failure in 1923 led to much stronger regulation ○ Important when Depression hit in 1929 In 1964, the Royal Commission on banking and finance (Porter Commission) recommended “a more open and competitive banking system,” and its suggestions led to major reforms and changes The 1967 Bank Act revision lifted the 6% annual interest-rate ceiling banks could charge on personal loans and allowed banks to enter the mortgage field Part 2 - The Euro shaking up global finance Video - A short history of the Euro  The Euro is a common EU policy but not used by all countries in the EU yet Denmark has a formal opt-out, other EU members are legally bound to adopt the euro eventually The Euro name is consistent across all EU languages and alphabets Where It All Started 1957 (Treaty of Rome): Talk of working together on money and the economy began here. Back then, the world used the Bretton Woods system, where currencies were tied to the US dollar, which was tied to gold. When Bretton Woods ended in 1971, EU countries saw they needed their own way to keep currencies stable. The First Plan: Werner Report (1970) Suggested creating a shared European currency, but countries had to: ○ Coordinate budgets (spend money wisely). ○ Let money move freely between countries. ○ Fix currency exchange rates permanently. Initial Attempts at Monetary Cooperation Currency Snake (1972): ○ Member States pegged currencies to each other within a 2.25% fluctuation band. Essentially countries tried to keep their currencies close in value by limiting how much they could go up or down ○ Failed due to oil crises and uncoordinated national responses. European Monetary System (EMS, 1979) Created a virtual currency, the European Currency Unit (ECU). Introduced Exchange Rate Mechanism (ERM): ○ Fixed but adjustable exchange rates with fluctuation bands. Aimed to stabilize exchange rates and promote monetary cooperation. Path to Economic and Monetary Union (EMU) Delors Plan (1989): ○ Proposed a 3-stage process to implement EMU: 1. Get countries to work more closely on economic rules. 2. Set up a shared system to manage money (like the European Central Bank). 3. Replace national currencies with one European currency. Germany was initially reluctant to give up the Deutsche Mark  ○ But after the Berlin Wall fell, Germany agreed to join the project in exchange for support for its reunification In 1992, the Maastricht Treaty set the rules for the Euro: ○ Countries had to meet certain conditions (like having low inflation and debt) ○ The UK and Denmark chose not to join the Euro Problems and Progress In 1992, Denmark voted against the Maastricht Treaty, and speculation against weaker currencies caused economic trouble. ○ The Italian lira and British pound dropped out of the system. ○ The rules on currency values had to be relaxed to keep things working. The EU kept moving forward: ○ Set up the European Monetary Institute in 1994 to prepare for the euro. The Euro Is Born 1999: The euro was launched as a "virtual" currency (used in banks, no coins or notes yet). 2002: Euro coins and banknotes started being used. The euro is now used in 19 out of 27 EU countries ○ It is a major part of Europe’s economy and identity Article - Euro vision; The international role of the euro The Euro was launched to rival the US dollar as a global currency but has lagged behind The US dollar dominates as the preferred currency ○ 60% of foreign reserves and cross-border loans are in dollars. ○ The euro only accounts for around 20%. Commodities (like oil) are mostly traded in dollars, limiting the euro’s global role. COVID-19 and New Developments 1. EU Bonds (NGEU Scheme): ○ Next Generation EU (NGEU) ○ In 2021, the EU issued €20 billion bonds to support pandemic recovery. ○ These bonds, backed by all EU states, are similar to US Treasury bonds (safe and stable). ○ Investors see them as a new, reliable way to save in euros. 2. Improved Stability of the Euro:  ○ During the pandemic, quick action by the ECB and EU governments boosted confidence in the euro. ○ Unlike past crises (e.g., 2008), the euro proved resilient, enhancing its credibility. Europe wants a stronger euro so they can rely less on the dollar and avoid following US policies A stronger euro makes it cheaper for European governments and businesses to borrow money. Challenges Facing the Euro 1. Limited Bonds: ○ NGEU bonds might end by 2026, and the total amount (€1 trillion) is small compared to US debt ($20 trillion). 2. Structural Weaknesses: ○ The eurozone lacks full financial union (e.g., risk-sharing among banks). ○ Thin, fragmented capital markets and no single financial hub after Brexit hurt its global role. 3. Dependence on the Dollar: ○ Global banks still need dollars for transactions, limiting the euro’s reach Future Possibilities Digital Currencies: ○ The ECB is considering a digital euro, which could improve the currency’s global status. ○ New technologies might reduce the dollar's dominance and create room for other currencies like the euro and China’s yuan. Shared Global Leadership: ○ Instead of replacing the dollar, the euro might help balance the global monetary system, reducing America's financial dominance. Overall, the Next Generation EU (NGEU) is significant as it is aiming to strengthen the euro and reshape the European Union’s financial system Part 3 - Currency Exchange Video - Exchange rate systems explained Currency value is determined by market forces Currency fluctuates freely Exchange rates Currency flotats day-to-day based on market forces but central bank intervenes occasionally Central bank may buy or sell currency to support or weaken it Exchange rate becomes a part of macroeconomic policy Moderate reliance on foreign exchange reserves Examples: Brazil, india, south korea, singapore, china (2% band against USD) Semi-Fixed Exchange Rates How it works: ○ Currency allowed to fluctuate within a narrow, fixed range (bands). ○ Central bank intervenes if currency moves outside prescribed limits. Key features: ○ Mix of flexibility and stability. ○ Foreign exchange reserves needed for interventions. Examples: China, Jamaica, Croatia, Ethiopia. Fixed Exchange Rates How it works: ○ Currency pegged to another currency or basket of currencies. ○ Central bank intervenes to maintain a fixed exchange rate. Key features: ○ Requires large foreign exchange reserves to manage pegs. ○ Changes in currency value are termed devaluation (lowered) or revaluation (increased), unlike appreciation or depreciation in floating systems. ○ Offers stability for trade but less flexibility for monetary policy. Examples: Hong Kong (pegged to USD), Denmark (pegged to Euro), Bulgaria. Currency Board System How it works: ○ Domestic currency is fully backed by foreign reserves or assets like gold. ○ Fixed exchange rate relationship maintained rigorously. Key features: ○ Foreign reserves must match domestic currency supply. ○ Ensures full convertibility at a fixed rate. Examples: Hong Kong, Bulgaria. Article - The world is seeing how the dollar really works The Dollar’s Global Power Sanctions on Russia: The U.S. showed its power by freezing Russia's reserves after the Ukraine invasion. This showed how much control the U.S. and its allies (like NATO) have over the global financial system. World’s Main Currency: The dollar is the most trusted currency because it’s widely available, easy to use, and backed by a strong U.S. economy and military. Attempts to Replace the Dollar: ○ Countries like Russia, China, and India tried using other currencies like China’s renminbi. ○ These alternatives are slow to grow and depend on China’s economy, which is currently losing money from foreign investors. What Happened to the Dollar in 2022 Rising Dollar: The Federal Reserve raised interest rates to fight inflation, which made the dollar stronger. Effects of a Strong Dollar: ○ Countries that borrowed in dollars had higher debt costs, making it harder to pay back loans. ○ Many currencies, like the euro and yen, lost value compared to the dollar. ○ Rising dollar prices increased global inflation and caused many countries to raise their own interest rates. How the Dollar’s Strength Affects the World Economic Problems: ○ Countries like Sri Lanka and Argentina couldn’t handle higher debt costs and faced crises. ○ Poor countries that borrowed with adjustable interest rates are now struggling as rates rise. Debt Issues: ○ Over half of the world’s poorest countries are at risk of financial collapse. ○ Borrowing in local currency is safer, but not all countries do this. Why the Dollar System Survives Resilience: ○ Many countries have learned to manage dollar risks better (e.g., borrowing in their own currency). ○ The U.S. Federal Reserve supports other countries in crises through currency exchange programs.  Strength from Partnerships: The U.S. works closely with allies to keep the dollar system stable. Looking Ahead U.S. Economy’s Role: ○ If the U.S. economy slows down and inflation falls, the Federal Reserve may stop raising interest rates, easing pressure globally. ○ If not, rising rates will keep hurting weak economies. The Dollar’s Edge: No matter what happens, the dollar remains dominant because it’s so deeply tied to global trade and finance. It’s a system where the U.S. often wins, even when others lose. Article - Is the Big Mac Index a good guide for currency speculators Big Mac Index Overview: The Big Mac Index measures currency valuation using the cost of a Big Mac across countries (Purchasing Power Parity - PPP). If a Big Mac costs less in one country than in the U.S., the local currency may be undervalued. Hong Kong Dollar and the Big Mac Index: In 2020, the Big Mac Index suggested that the Hong Kong dollar was undervalued by 54.8%. This sparked discussions about the city's fixed exchange rate to the U.S. dollar and the risk of devaluation. Practical Use of the Index: Economists argue that deviations from fair currency value may correct over time (1-3 years). Example: If you bought the most undervalued currency in 2013 (Ukrainian hryvnia) and sold it in 2014, you'd have profited despite losses in inflation and interest rates. Limitations of the Big Mac Index: The index doesn't consider local factors (e.g., wages, productivity), which affect currency values. Adjusted versions account for GDP per person to offer better insights. Investment Implications: Currency speculation using PPP (like the Big Mac Index) shows mixed results.  Gains depend on specific circumstances, and long-term profits are uncertain. Expert Views: The Big Mac Index is fun and simple but lacks sophistication for serious currency analysis. Economists highlight that PPP-based strategies offer limited success and are better suited for long-term trends rather than short-term gains. Conclusion: While the Big Mac Index is a creative tool for understanding currency misalignment, its utility for investors or speculators is limited without deeper analysis and context. MGMT 1000: Week 10 - The Textile Industry Part 1 - Cottons, textiles and backgrounds A t-shirt T Shirt represents many aspects of the cotton’s history It is universal, almost everyone owns one Usually inexpensive The ethics of manufacture can be controversial Early cotton Archaeology and early history show cotton has grown, and has been used by people, in both South and Central America since perhaps as early as 5000 B.C.E 3000 B.C.E it is grown and spun in both the Indus river valley In early Egypt they knew of cotton but linen was more normal The spread of cotton to Europe Europe and early Greece used clothing made of wool Like silk, cotton made its way west through trade and war Herodotus, and early Greek historian described cotton as “a wool exceeding in beauty and goodness that of sheep” Alexander the Great invaded India and his men found the cotton clothes of the conquered more comfortable than there own By the middles ages cotton is in Europe Muslim traders, and later conquerors, spread spinning and cotton use to Spain and Sicily Spreads into Europe  Columbus finds cotton in the Bahamas, which the natives are using for clothing ○ He is impressed by the colours By 1500 it is becoming more common in Europe Begins to be grown in America By the early 1610s cotton is being grown in Virginia The Spanish had grown it in Florida even earlier In Virginia it expands the slave economy that already existed with tobacco India is a major source of supply India had a large supply, a work force and the secret of dying cotton They supplied most of Europe in exchange for gold ○ In the 1600s and early 1700s India was the source of 95% of British cotton Supply is limited by price and limited technology BEIC and cotton The British East India Company began to import cotton in the 1690s ○ Calico, a brightly coloured version became very popular Wool and line makers tried, at times successfully to keep it out As the BEIC grew in power it was able to sell cotton back into India after processing in England The advent of colonial cotton in America and the Caribbean also led to an expansion of English cotton use and production The restrictions Cotton production was limited by a number of factors Cotton had to be combed to remove the seeds or it went bad Cotton needed to be spun into thread in order to be turned into cloth Thread needed to be loomed to create the cotton fabric All of these relied on manual labour or rudimentary technology Industrialism changes everything The Spinning Jenny Spinning had been a “craft” taking place on a wheel in worker’s homes ○ Cotton was spun into thread In 1764 James Hargreaves invented the Spinning Jenny which could do 8 spindles at once Thread still a little weak, but improving The image is of the Hargreaves Spinning Jenny Richard Arkwright Arkwright added a water powered system which made a much stronger thread This was required if industrial production was to be possible  One person could to the work of many 1768 angry mob destroys Arkwright’s factory The Power loom Reverend Edmund Cartwright patented a powered loom in 1785 which was improved over the following years to allow faster weaving of more thread By 1800 the introduction of steam power of each stage made massive productivity possible Need more cotton The restriction created by the need to “comb” the cotton meant only slow increases in yield, even in the new American fields The solution would be the cotton gin ○ Patented by Eli Whitney Results of the First Industrial Revolution in England Increased production levels Cotton cloth output 21 million yards in 1796 347 million yards in 1830 This allows Britain to dominate world cotton industry for decades The work force In England, children and women were prime sources of labour Inexpensive and compliant 1833 Factory Act, this banned children from working in textile factories under the age of nine ○ From 9-13 they were limited to nine hours a day and 48 hours a week Conclusion Cotton facilitate the transition of England into the first industrial power ○ English technology allowed them to mass produce cotton fabric and gave them global control of this commodity That strength allowed them to dominate the economies of countries like India It created a powerful industrial economy and and expanded middle class, but at the expense of horrible working conditions for women and children America gets in the cotton business Throughout the late 18th and early 19th centuries, American industrial spies roamed the British Isles, seeking not just new machines but skilled workers who could run and maintain those machines Francis Cabot Lowell talked his way into a number of British mills and memorized the plans to the Cartwright power loom. When he returned home, he built his own version of the loom, and became the most successful industrialist of his time Lowell’s mill girls Lowell, Massachusetts, named in honour of Francis Cabot Lowell, was founded in the early 1820s as a planned town for the manufacture of textiles By 1840, the factories in Lowell employed at some estimates more than 8000 textile workers, commonly known as mill girls or factory girls. These “operatives” - so-called because they operated the looms and other machinery - were primarily women and children from farming backgrounds The decline at Lowell In the 1830s cloth prices drop and wages are cut and hours extended After Lowell sells this trend continues On 3 occasions the girls went on strike until in 1845 Massachusetts passed laws to help them, which were largely ignored Wave of poor Irish immigrants replaces the more independent in the late 1840s and 1850s King Cotton By the 1850s cotton accounted for more than 50% of US exports By the late 1850s, cotton grown in the US accounted for 77% of the 800 million pounds of cotton consumed in Britain ○ It also accounted for 90% of the 192 million pounds used in France, 60% of the 115 mill pounds spun in the Zollverein, and 92% of the 102 mill pounds manufactured in Russia US Civil War “Slavery stood at the center of the most dynamic and far-reaching production complex in human history” - Sven Beckert It was thought essential in the south but many in the north and elsewhere were troubled by both the ethical problem and the instability of slave systems Civil War 1861-1865 Aside from the implications for north and south it also created chaos in the world cotton market Lost access to American cotton caused England to look to India and the Middle East Led to some sympathy for the South in England and friction between the North and England End of the War The end of the war and of slavery meant looking for new ways to get cotton Sharecropping replaced slavery New sources in other parts of the world became important  Emphasized and increased global reach of the industry, even when American cotton returned to the market Triangle to Rana Plaza Triangle Shirtwaist Factory New York March 25, 1911 - fire destroys factory The fire caused the deaths of 146 garment workers - 123 women and 23 men - who died from the fire, smoke inhalation, or falling or jumping to their deaths Oldest victim was Providenza Panna at 43, and the youngest were 14 yr olds Kate Leone and Sara Rosaria Maltese Rana Plaza and the cost of cotton In may 2013 a clothing factory in the Rana Plaza building in Bangladesh Faculty construction, dispute indications it was unsafe workers were sent back to work Collapse killed 1134 people Launched huge debate about responsibility and western consumers and merchants Article 1 - The evolution of the textile industry series introduction Origins of the Textile Industry Dates back to prehistoric times, with humans starting to wear clothes between 500,000 and 100,000 years ago. Early textile trade hubs: ○ Ancient China, Turkey, and India (all located along the Silk Road). Historical Influence of Fashion Fashion trends have always shaped the textile industry: ○ Egypt: Linen and animal skin for Pharaohs. ○ Byzantine Empire: Luxurious purple silk. Consumer demand and product costs are key drivers of textile production and trade. Key Success Factors in the Textile Industry Efficiency in operations: Essential for companies to thrive. Securing contracts: Important to partner with clothing marketers. Article 2 - The Silk Road: The international ramifications of ancient textile trade Formation and Importance of the Silk Road The Silk Road was an ancient trade network linking China and Rome via India and Central Asia.  Established around 100–200 BCE, it connected two powerful empires: ○ Chinese Empire (source of silk). ○ Roman Empire (major consumer of silk). Silk was highly valued in Rome: ○ Luxury item for aristocrats and elites. ○ Symbolized wealth and status. China's Monopoly on Silk Up until 300 AD, silk production was a Chinese state secret: ○ Chinese weavers and harvesters were prohibited from sharing production techniques. ○ This monopoly ensured high demand and limited supply. Cultural and Economic Impact Facilitated one of the first long-distance geopolitical and economic relationships. Key exchanges: ○ Tangible goods: Silk, spices, and gems. ○ Intangible assets: Spread of ideas, philosophies, and religions between Western and Asian cultures. Unintended Consequences The Black Plague spread via the Silk Road in the 14th century, killing over 20 million Europeans (one-third of the population). Legacy of the Silk Road Pioneered the foundation for modern international trade and political relationships. The Roman demand for Chinese silk influenced the structure of today's global economy. Article 3 - The Textile Industry during the Industrial Revolution Key Features of the Industrial Revolution Began in England in the 1700s, fueled by its colonial power and resources: ○ Raw materials: Cotton, silk, sugar, tobacco, gold from the Americas and Asia. ○ Exports: Finished products like textiles and metalware. Britain’s advantages: ○ Ports, population growth, water, and coal supply made it ideal for industrialization. ○ Controlled most international trade; by the late 1790s:  57% of exports went to North America and the West Indies. 32% of imports came from these regions. Transition from Cottage Industry to Factories Pre-industrial textiles were made by hand in a cottage industry: ○ Workers produced textiles at home, deciding their own schedules, but it was inefficient. To meet growing demand, technological advancements revolutionized production: ○ Hargreaves’ Spinning Jenny: Increased thread production speed. ○ Arkwright’s Water Frame: Improved thread quality. ○ Boulton and Watt Steam Engine: Enhanced industrial efficiency. Expansion to the United States British technology was introduced to the U.S. in the 1780s by Samuel Slater. U.S. innovations boosted textile production: ○ Eli Whitney’s Cotton Gin: Sped up seed separation, increasing cotton output by 50x. ○ Francis Cabot Lowell: Established factories that produced cloth from raw cotton in a single location. Lowell factories employed young women (e.g., "Lowell girls") as cheap labor. Societal Impacts of the Industrial Revolution Urbanization: By 1850, more people in Britain and the U.S. lived in cities than rural areas. Emergence of the middle class: Growth of wealth among non-aristocratic families. Women in the workforce: ○ Factories hired women for cheap labor, providing them financial independence. ○ Example: Lowell girls employed in U.S. textile mills. Legacy The Industrial Revolution laid the foundation for: ○ Modern industrial practices. ○ Urbanized societies. ○ Gender roles in the workforce. Article 4 - Working condition in the textile industry Economic Significance The textile industry generates $450 billion annually and employs over 25 million people globally. Production rates: Over 120 billion pounds of textiles are produced yearly, driven by high consumer demand. ○ Cotton demand: At an all-time high, with annual consumption exceeding 120 million tons. Fair Trade and Environmental Concerns Only 0.5% of textile revenue ($3 billion) qualifies as “fair trade or environmentally stable” (as of 2007). Sweatshops are common in developing countries and contribute to exploitative practices: ○ Working conditions: Long hours (10–18 hours daily, up to 80 hours weekly). Unsafe environments (poor ventilation, exposure to toxins). Minimal pay and lack of labor union protections. ○ Women face additional challenges: Higher rates of abuse. Poor maternity support and less accommodating workspaces. Global Dependence on Sweatshops The textile industry is a key economic driver for many developing nations: ○ Cambodia: Textiles account for 80% of export earnings. ○ Bangladesh: Textiles make up 75% of national income. Despite exploitative conditions, many workers view sweatshop jobs as better alternatives to poverty or unsafe street life. Rise of Homeworkers Homeworkers: Subcontracted workers produce textiles from home, earning on a per-piece basis. ○ Up to 60% of garment production in China and Latin America is completed by homeworkers. Conclusion The textile industry provides essential economic stability to developing nations despite the challenges of poor working conditions. High global demand for textiles ensures the continuation of such practices, though ethical and sustainable reforms remain critical. Part 2 Article 1: Colonialism and the Indian textile industry The British had restrictions and bans on Indian textiles Economic Interests and Industrial Dominance One of the main reasons behind the British ban on Indian textiles was to safeguard the interests of the British industrial and manufacturing sectors During the Industrial Revolution, Britain experienced major growth in mechanized textile production ○ High demand for raw materials, especially cotton By imposing restrictions on Indian textiles, the British aimed to secure a steady supply of raw cotton from India ○ Allowed the British to capitalize on the raw materials Ultimately strengthening Britain’s dominance in the global textile trade Protectionism and Market Control The ban was rooted in protectionist policies British government implemented tariffs, taxes, and import duties on Indian textiles Colonial Exploitation and Economic Drain British colonial authorities were also engaged in systematic exploitation of India’s resources and wealth Undermining Indigenous Craftsmanship Undermining indigenous craftsmanship, such as handloom weaving, which was at the heart of the Indian textile industry British aimed to diminish traditional Indian textile practices Eroded India’s cultural identity and weakened its economic resilience Social Control and Colonial Hegemony Restricting or banning certain Indian textile products asserted British control over the economy and society The British made sure that India remained a supplier of raw materials and a consumer of British manufactured goods Article 2: ‘Fast’ fashion 1800s: The Industrial Revolution  Before industrialization, people made their clothes at home using materials like wool. The Industrial Revolution introduced textile machines, factories, and the sewing machine (patented in 1846), making clothes cheaper and easier to mass-produce. Ready-made clothing (standardized sizes) became common. Outsourced home workers called "sweaters" worked for low wages, a precursor to today’s sweatshops. Early 1900s-1950s: Growth and Tragedy Mass production grew due to World War II, which encouraged functional, standardized clothing. Factory tragedies, like the 1911 Triangle Shirtwaist Factory fire (146 deaths), highlighted poor working conditions. After the war, middle-class consumers embraced factory-made clothing. 1960s-2000s: The Rise of Trend-Driven Fashion 1960s: Youth demanded affordable, fast-changing trends, fueling the rise of large textile mills in developing countries. Brands like Zara, H&M, and TopShop emerged, focusing on trendy and cheap clothes. ○ Zara introduced the idea of speed-focused production: designing and selling clothes within 15 days. ○ H&M started in Sweden (1947), expanded to London (1976), and reached the U.S. in 2000. By the 1990s-2000s, fast fashion dominated, and U.S. brands like Forever 21 joined the trend. Recent Times: Problems and Criticism Labor exploitation: Sweatshops overseas, often with poor working conditions and low wages. Environmental issues: Huge waste and unsustainable production practices. Public figures like Kate Middleton and Michelle Obama wearing fast fashion brands like Zara and H&M gave it legitimacy. Why Fast Fashion Works Affordability: Appeals to consumers looking for trendy clothing at low prices. Speed: Quickly adapts to new trends and delivers them to stores. Democratization of Fashion: Makes trendy clothing accessible to people across different economic backgrounds. Challenges of Fast Fashion Today The system focuses on moving faster but causes significant issues: ○ Labor injustices. ○ Waste and environmental damage. There’s growing awareness of the need to slow down fashion production and focus on sustainable choices. Article 3: Empires of Cotton The Preeminence of Cotton by 1861 Cotton was the backbone of the world’s most significant manufacturing industry by the 19th century. British merchant John Benjamin Smith described cotton manufacturing as the "greatest industry" ever. Global Impact (1862): ○ ~20 million people worldwide were involved in cotton cultivation/production (1 in every 65 people). ○ In England, cotton sustained up to 25% of the population and accounted for nearly half of exports. The United States' Dominance By the late 1850s: ○ U.S. provided 77% of Britain's cotton supply and dominated other major European markets. ○ Cotton exports comprised 61% of U.S. export value, placing the country at the center of global trade. Key to U.S. Success: Abundant land, labor (slavery), and credit. Cotton was central to the prosperity of the Atlantic economy but heavily reliant on enslaved labor. Slavery and Capitalism Slavery underpinned the dynamic global cotton economy, providing cheap labor for plantation agriculture. British bureaucrat Herman Merivale acknowledged that the wealth of industrial cities like Manchester was built on the exploitation of enslaved labor. Critics viewed the dependence on slavery as morally and politically unstable, sparking fears of rebellion and economic disruption. The Civil War’s Global Impact (1861-1865) Fort Sumter (April 1861): Start of the Civil War disrupted global cotton supply chains. The Confederacy’s cotton export ban and Union blockades caused a "cotton famine," with exports to Europe plummeting from 3.8 million bales (1860) to nearly zero (1862). Cotton shortages led to global industrial and societal upheavals, particularly in Europe and India. Emancipation and the Cotton Industry 4 million enslaved workers gained freedom during the Civil War, largely through their own resistance and participation in the Union war effort. Emancipation raised critical questions about how cotton production could continue without slavery. Post-War Reconstruction of Cotton Production Experiments during the war in Egypt, India, and Brazil tested "free labor" cotton production. Labor, not land, was identified as the limiting factor in cotton cultivation. By 1865, global efforts focused on rebuilding cotton networks without resorting to slavery, with alternatives like sharecropping and wage labor emerging. Economic and Political Lessons The interconnectedness of global markets became starkly evident during the war. States and cotton capitalists learned the importance of state intervention in maintaining trade networks. Despite the disruptions, the global cotton industry adapted, ensuring cotton’s centrality to industrial economies. Key Takeaways  The Civil War exposed the fragility of a global economy built on slavery but also initiated efforts to shift toward free labor systems. Cotton remained essential to industrial capitalism, supported by new labor relations and government involvement. The "empire of cotton" endured, with its global trade networks rebuilt post-war, reflecting the resilience and adaptability of capitalism. MGMT 1035 - Week 11 Part 1 - The history of the Oil and Gas industry What is gasoline? Initially gasoline was a byproduct of the refining of oil into kerosene Prior to the internal combustion engine, it had limited use In the USA in the 1800s it was routinely dumped, often into nearby rivers Internal Combustion In Germany internal combustion cars were developed in the 1870s and by the mid 1880s Karl Benz had begun commercial production The necessity to use gasoline created a new market for what had been discarded in the past Bertha Benz journey Ways to consider gasoline’s impact One way to look at this influence is to consider individuals who benefited from the increasing importance of gasoline William Knox Darcy who developed the oil industry in Persia and elsewhere in the middle east Founded what became British Petroleum John D.Rockefeller The American example Founded Standard Oil Had used gasoline as a fuel to heat oil in the refining process Internal combustion gave him a huge new market Standard Oil becomes a virtual monopoly Technology The power of gasoline made internal combustion engines much superior to other types Henry Ford’s Model T made the car more widespread In agriculture tractors replaced steam engines Society  Cars need highways Cars allow more suburban spread Cars require the expansion of networks of gas stations Changes in the oil business Increased markets for gasoline mean increased exploration for sources In Canada this means exploration in Alberta In the US the shift to Texas, Oklahoma Globally the Middle East becomes more important War Gasoline becomes an essential tool of war Tanks, ships, planes and transport all need it As a strategic resource it becomes a cause of conflict as well Politics American and British roles in the August 1953 coup against Iranian Premier Mohammad Mossadeq In 1953 the CIA and the U.K. organized a coup in Iran to replace the popular government with one more amenable to the oil and gas industry. This is one example of the influence of the industry on world events OPEC The Organization of Petroleum Exporting Countries The oil embargo they launched in 1973 caused a recession in the western economies Environment Not just use in cars Production in refineries Transportation of product ○ Tankers, pipelines, etc Land issues with pipelines Canada Oil and gasoline are still critical to the Canadian economy One way of looking at this is to look at companies and individuals Imperial Oil, a branch of Rockefeller’s Standard Oil Petrocanada Started as a Crown Corporation during the economic crisis in the 1970s Was to be a “window on the industry” Eventually privatized Article: What is petroleum? What Is Petroleum? Definition: A naturally occurring liquid found beneath the Earth’s surface, refined into fuel, plastics, and other products. Formation: Created over millions of years from decomposed organic matter under high heat and pressure. Usage: Powers vehicles, heating units, machines; also used in plastics. Key Takeaways 1. Energy Source: Non-renewable fossil fuel critical to the global economy and geopolitics. 2. Industry Influence: Drives global politics and economy due to its wide applications. 3. Environmental Impact: Toxic emissions contribute to global warming and environmental damage. 4. Alternatives: Solar, wind, and biofuels are being explored. Petroleum Industry Categories: ○ Upstream: Exploration and extraction of raw materials. ○ Midstream: Transportation and storage. ○ Downstream: Refining and marketing of petroleum products. Classification: ○ Based on origin, sulfur content, and API gravity (density measure). Top Oil Reserves (2022): Venezuela, Saudi Arabia, Canada. Pros and Cons of Petroleum Pros: ○ Stable energy source. ○ High power output and ease of transportation. ○ Multiple uses (fuel, plastics, etc.). Cons: ○ Carbon emissions harm the environment. ○ Drilling and transport can cause ecological damage. ○ Non-renewable, with a finite supply. Investing in Petroleum Options: Oil futures, ETFs, and mutual funds in the energy sector. Popular Funds: ○ Vanguard Energy Fund (VGENX).  ○ Fidelity Select Natural Gas Fund (FSNGX). ○ ETFs like Invesco Dynamic Energy (PXE). Alternatives to Petroleum Renewable Energy: ○ Wind: Uses turbines for energy. ○ Solar: Harnesses the sun. ○ Biofuels: Derived from organic materials like vegetable oils. The Bottom Line Petroleum remains vital but has significant environmental drawbacks. The shift towards renewable energy is essential for long-term sustainability. Part 2 - The oil and gas marketplace Article 1 - Oil and petroleum products explained Supply and Demand Dynamics Economic Growth: Drives energy demand, particularly for transportation and industrial needs. Global Energy Consumption: Petroleum accounts for one-third of global energy use; heavily relied on for transportation, heating, and electricity. Role of OPEC Influence on Prices: Sets production quotas for member countries, controlling 72% of global reserves (2021) and 37% of production. Factors Affecting Influence: ○ Member compliance with quotas. ○ Consumer responses to high prices. ○ Competition from non-OPEC producers. ○ Efficiency of OPEC production vs. others. Spare Capacity: Acts as a buffer during supply disruptions; Saudi Arabia holds the largest spare capacity Geopolitical Events and Supply Disruptions Major Disruptions: ○ Arab Oil Embargo (1973–74). ○ Iranian Revolution and Iran-Iraq War. ○ Persian Gulf War (1990–91). ○ Conflicts in Libya, Venezuela, and the Middle East. Market Response: Low spare capacity and inventories amplify price volatility during disruptions Weather Impacts Hurricanes and Cold Weather: Disrupt production and strain supply chains, leading to seasonal price spikes. Market Dynamics Global Auction: Crude oil prices are determined by worldwide bidding in tight (high demand/low supply) or loose (low demand/high supply) markets. Spot vs. Futures Markets: ○ Spot Market: Immediate delivery at current prices. ○ Futures Market: Contracts to buy or sell oil at a fixed future price; used for hedging or speculation. Price Volatility Inelastic Supply and Demand: Limited short-term ability to adjust production or consumption leads to sharp price changes. Market Signals: ○ Rising prices indicate supply shortages. ○ Falling prices indicate excess supply. Price Outlook Uncertainty: Oil prices are influenced by a complex mix of economic, political, and environmental factors, making long-term projections challenging. Article 2 - OPEC Formation of OPEC (1960) Founding Members: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela. Purpose: Stabilize global oil markets, ensure fair oil prices, and guarantee a steady supply. Reason for Creation: Response to falling oil prices due to competition with Soviet oil and dominance of "The Seven Sisters" (major oil companies like Esso, BP, Mobil, etc.). Early Challenges (1960s) Internal Disputes: Members struggled to agree on export limits; flooding the market reduced prices, conflicting with OPEC’s goals. Geopolitical Issues: ○ Six-Day War (1967): Arab members failed to agree on boycotting Israel, causing division.  ○ Declaration of Sovereignty (1968): Asserted member nations' rights over their oil resources, aligning with decolonization efforts. New Members: ○ Qatar (1961), Indonesia (1962), Libya (1962), UAE (1967), Algeria (1969). Competition: New oil discoveries (Nigeria, North Sea, Alaska) challenged OPEC’s market share. The 1970s: Rise in Influence Oil Embargo (1973): ○ Triggered by U.S. support for Israel in the Yom-Kippur War. ○ OPEC’s Arab members embargoed oil to the U.S., UK, Canada, Japan, and others, causing global shortages and soaring prices. ○ Shifted economic power toward OPEC nations but revealed their reliance on Western companies for refining and distribution. Market Share Growth: OPEC supplied 56% of global oil by 1973, gaining influence but not total control. Limitations: Other nations adjusted supply chains, reducing the embargo's long-term effects. The 1980s: Declining Control Iranian Revolution & Iran-Iraq War (1979-1988): Reduced oil production from Iran; other OPEC members compensated. Competition and Alternatives: ○ Exploration in the Gulf of Mexico, North Sea, and Siberia reduced OPEC’s market share. ○ Countries shifted to alternative energy (coal, nuclear power, natural gas) to reduce dependence. Internal Conflicts: Quota disagreements led to oversupply and a price crash in 1986. Recovery: Prices rebounded but remained below pre-1986 levels. The 1990s to Present Iraq-Kuwait Conflict (1990): ○ Iraq invaded Kuwait, disrupting oil production. ○ Other OPEC members, especially Saudi Arabia, filled the supply gap. Post-Cold War Dynamics: ○ The USSR’s collapse (1989) disrupted global oil production and reduced competition. ○ Ecuador and Gabon temporarily left OPEC, seeking freedom from production quotas. Ongoing Challenges:  ○ Conflicts in Libya, Nigeria, Iraq, and Syria caused periodic supply disruptions. ○ OPEC faced increasing pressure from non-OPEC producers and alternative energy development. Key Takeaways Influence: OPEC can manipulate global oil prices but lacks full market control. Internal Challenges: Member disagreements and external competition reduce effectiveness. Global Impact: Geopolitical events, energy alternatives, and technological advancements continually shape OPEC’s role in the oil market. Article 3 - Explaining price differences Key Oil Price Benchmarks 1. Brent Oil: ○ Global benchmark from North Sea oil fields. ○ Light, sweet oil with easy access to coastal ports for global transport. ○ Commands high prices due to quality and accessibility. 2. West Texas Intermediate (WTI): ○ U.S. benchmark, produced in landlocked regions like Oklahoma. ○ Light oil but trades at a discount to Brent due to transport challenges and U.S. export restrictions. ○ Oversupply in the Midwest further lowers its price. 3. Western Canada Select (WCS): ○ Canadian benchmark for heavy oil mixed with bitumen and diluents. ○ Heavier and lower quality than WTI, located farther from markets, leading to further price discounts. Alberta’s Oil and Pricing Oil Sands Products: ○ Includes blends like “dilbit” (bitumen + diluents). ○ Heavier than WCS, priced even lower. Bitumen Pricing: ○ "Bitumen netback" = Price after deducting transport and diluent costs. ○ Lower prices affect producer revenues and royalties. Impact on Alberta's Royalties Royalties depend on the value Albertans receive from oil production. Challenges:  ○ Lower oil quality and geographic distance result in unavoidable price discounts. ○ Limited access to global markets increases discounts further. Solution: Improved market access can reduce discounts and increase resource value. MGMT 1035 Week 12 - The Service Industry Part 1 - An overview of the Service Industry Deindustrialization and the rise of the service economy The service economy is many things ranging from fast food, heart surgery, to consulting ○ Eduction, healthcare, finance Service economy is intangible things (advice, experience, attention) The service sector: it’s not about wine and cloth anymore! Currently, the service sector is 50% of all employment, and 67% of global GDP In Canada, half of the population worked in agriculture in 1867, down to only 4% in 1987. In 1911, two thirds of workers produced goods and one third worked in service, and by 1987 that had reversed New technology changes things David Ricardo talks about 2 countries trading wine and cloth ○ At that time you could trade things as fast as you could communicate Trading services only becomes more important with time From manufacturing to service Long history of service sector Role in industrialization Ties to urbanization There was a shift from farming to industrialization As more people lived in cities, demand for all kinds of services grew (education, entertainment, etc) Detroit and Deindustrialization 1930 compared to 2014 In 1900 detroit had a population of 285 000 people In 1950, it grew to 1.4 million By 2010 the population declined after In the 70s and 80s, US automakers did not pay attention to Jap (toyota, honda) ○ The auto industry was already seeing job losses and manufacturing began to slow down Pittsburgh: From Steel to Healthcare Circa 1905 compared to 2023 Pittsburgh began to rapidly lose steel jobs ○ A process that accelerated in the 1980s ○ By the end of that decade, 75% of Pittsburgh's steel making capacity was closed Between 1980 and 1983, about 95 000 manufacturing jobs were cut By 1990, half of the Pittsburgh population disappeared In 1980 healthcare surpassed steel as the largest employer in the area In 2010, healthcare grew to be as large as steel had been in 1950 at its peak Represents the rise of the service economy Pittsburgh shows the link between the industrialization and the service sector In recent decades, Pittsburgh has grown its population for its service industries including education, healthcare, and finance Global Cities in the 1980s New York, London, Tokyo Paradoxes of globalization and urbanization Uneven distribution of benefits of the service sector Service sectors tends to be well paid or not well paid at all As multinational corporations grew and expanded in many countries, a grow of centralized and specialized workers became necessary Article: TheWorldCounts - Summary of the service industry What is the service sector? Characterised by “Non-material” activities such as transportation, a haircut, or hotel and restaurant visits ○ Also known as intangible goods The service sector is over twice as big as the industrial and manufacturing sectors combined It makes up 63.6% of the global economy US has the largest service sector in the world ○ Accountable for 30% of the total global output of the sector Definition of a service: “The five I’s” Intangibility ○ Services are not manufactured and can’t be transported ○ Do not involve physical goods being transferred Inseparability ○ Services are produced and consumed at the same time Inventory ○ Services can’t be stored for future use Inconsistency  ○ Each service is unique Involvement ○ Both the service provider and consumer must participate in the service process Services can have severe environmental impacts Have significant social and environmental consequences ○ Ex: tourism is a major polluter ○ Transpiration is responsible for over 14% of global greenhouse gas emissions The Cruise Industry One of the dirtiest sectors in the service economy Large cruises can generate over 200,000 gallons of human sewage and 1 million gallons of greywater per week Waste is dumped directly into the ocean often, including hazardous materials like oil and biohazardous waste Emits toxins into the atmosphere One ship can product as much pollution as 350,000 cars Global consequences 84,000 people die each year due to shipping related air pollution Petroleum dumping from ships contributes to massive environmental degradation, with 100 million gallons of petroleum spilled into oceans annually - about 10 times the amount spilled in the 1989 Exxon Valdez disaster Modern services: The Quaternary and Quinary sectors of the economy 59% of the economy makes up quaternary and quinary sectors in the western world The quaternary sector is knowledge-based and includes industries such as: ○ Information technology ○ Consultation services ○ Research & development ○ Education ○ Financial services ○ Design, culture, media, entertainment One of the largest economic sectors in developed countries The quinary sector is focused on top-level decision making. Includes roles like: ○ CEOs, top executives, and government officials ○ Often referred to as gold-collar professionals, they make decisions that affect large populations or entire countries Part 2 - Offshoring, outsourcing and the global economy What is offshoring? “The location of productive facilities outside a firm’s home market, for the purpose of making goods to be sold in that home market.” Offshore production distribution in sales are often managed entirely within a single multinational enterprise rather than transaction between independent parties Different but related to outsourcing Outsourcing is when a company purchases goods or services from a independent supplier that could have been precured domestically ○ Primary difference is corporate control Offshoring involves a company establishing and managing its own facilities in a foreign location Outsourcing relies on a external supplier ○ One can lead to another ○ In some cases both overlap within the same industry Advanced economies experienced deindustrialization How did offshoring become a thing? Institutions ○ Offshoring first took off in the US ○ The general agreement on tariffs and trade ○ Trade barriers ○ The IMF ○ The world bank supported economic development The end of Bretton Woods Technology ○ Better ship design ○ Air travel ○ Overall created more efficient global freight network Communications ○ Improvements in teletype technology ○ Reduced communications costs ○ Satellite technology expanded Offshoring Electronics Production US companies offshoring production in East Asia beginning in the 1960s ○ In Hong Kong, Japanese firms like Sony took advantage of British colonial trade preferences By 1970s, a clear global production model had been established “Global production” in the 1980s ○ By the 1980s, companies had shifted to more complex strategies  ○ “Global production” - a strategy of spreading different stages of production across multiple countries, often based on that countries market conditions, their politics, stability, and the technology available in that country The goal was to overall make the production process more efficient The semiconductor industry which started offshoring in 1963, expanded rapidly ○ Many Americans set operations in East Asia Is more offshoring inevitable? Efficiency vs fragility of global production Difficult to offshore research and development ○ Many companies prefer being close to their customers ○ More and more focus on quality and customization What have been the effects of offshoring? Controversial practice Some countries like Taiwan and Hong Kong have benefited ○ With the cost of poor working conditions ○ Inequality increased overall Not widely distributed, and no global convergence just yet Offshore Finance De Beers case, 1906 IMF definition of an Offshore Financial Center: A “country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy.” Now represents 8-10% of global GDP Offshoring finance essentially means moving banking out of the control in regulation of the country it was in, often for minimizing and avoiding taxes and escaping regulations ○ Tax neutral What are the effects of offshoring finance? Controversial practice Lost tax revenue Panama papers (2016) ○ Millions of leaked documents that serviced this industry How are the two “offshores” related? Technology/communications Timing End of Bretton Woods  Decolonization Article: MIT Sloan Management - Get Ready for the Next Supply Disruption Impact of COVID-19 on Supply Chains The COVID-19 pandemic exposed vulnerabilities in global supply chains, challenging planning and processes. Only 16% of organizations had emergency response centers pre-pandemic. Companies prioritized strengthening risk management protocols and tools but struggled due to limited systematic capability development. Loblaw's Experience During COVID-19 Challenges: ○ Emergency plans were tailored for local issues, not large-scale disruptions like pandemics. ○ Scenario plans were untested; no comprehensive playbook for restoring flows across the network. ○ Initially treated COVID-19 as a health issue, recognizing its supply chain impact late. Responses: ○ Created a pandemic task force to manage disruptions using real-time demand systems. ○ Manually adjusted order volumes, rerouted trucks, and prioritized resources. ○ Engaged in more frequent communication with vendors to address shortages. ○ Learned to onboard carriers quickly and emphasized alternative sourcing strategies. Lessons: ○ Better monitoring of external conditions could have enabled faster mitigation. ○ Future plans now include comprehensive contingency measures and improved collaboration with suppliers. The ADDAPT Framework Anticipate ○ Recognize known triggers and foresee risks ○ Use simulations, drills, and expert input to prepare for disruptions Detect ○ Set up systems to identify supply chain deviations early ○ Focus on critical product flows to priortize responses Diagnose ○ Investigate disruptions  ○ Use insights to formulate short-term fixes and prevent future disruptions Activate ○ Deploy resources swiftly to stabilize disrupted flows. ○ Suspend non-critical processes for agility during crises Protect ○ Use lessons from past disruptions to improve long-term defenses. ○ Revamp sourcing, transportation, and capacity strategies. Track ○ Continuously monitor supply chain health and leading indicators. ○ Use data to validate recovery and protection measures. By mastering ADDAPT, companies can navigate future disruptions with reduced impact on customers, employees, and suppliers.