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The Business Environment

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The Business Environment

Tony Burchfield

Dr. Nicole Ortloff

BUS100 – Intro to Business

In a world of high demand, many businesses have many different roles throughout the world, but ultimately are the drive and fuel for our economy that we live in. Through the course of time we’ve come to realize as a civilization that it was more practical in some cases to produce certain products, and trade for others. At the time this probably not considered to be a business transaction, but that was precisely what was shaping our future for decades to come.
For example, not everyone knows how to grow, or has the means to grow, certain crops but they might have a different skill set that they can provide services for in return for crops from a local farmer. If the farmer grew corn and a hunter had fur and meat, then a trade could be made. They barter with each other in order to acquire things that they don’t have specific skills/equipment to produce. This is a practical business transaction on a very basic level. If we were not to adapt this logical way of thinking, we would be able to live, but not very practically and efficiently. We would have to figure out ways to clothe, feed, and shelter ourselves on a daily basis with no shops of any kind to help. To live in this kind of society seems very primitive and irrational. Trade was created to better an economies sense of lifestyle and make goods and opportunities accessible all over the world, thus raising the standard of living. Businesses can primarily concentrate on producing one product to the best of their ability, thus becoming more efficient and productive which lowers cost, and sell it for a profit, thus creating a demand for better products across the globe. This concept has been the fuel that has brought us to our cutting edge products and goods on the market today. Through the highly competitive world that has become a global economy, profits have driven motives. But through this, another sector arose, the need for not-for-profit companies. Businesses fall into one of two categories, either For-Profit or Nonprofit organizations. A nonprofit organization is formed for the common good of the public, usually for a specific purpose. For-profit organizations are formed with the primary goal to earn a profit for owners, through any number of lawful business activities. Both of these operate as structured businesses but have advantages and drawbacks of their own. “Non-profit organizations should be present in the economy to create those services and good that are necessary for people, but are not profitable for companies to produce them. For-profit organizations pay taxes to the government and in this way make it possible for non-profit organizations to fulfill their role” (Fritz. Nonprofit.about.com). “Non-profit organizations can, and do, make a profit, but it must be used solely for the operation of the organization” (Fritz. Nonprofit.about.com) Some of the advantages of the Nonprofits include tax exemptions, eligibility for public and private grants, and limited liability. The grants help with cost by soliciting charitable donations. Also, the founders, directors, members, and employees are not personally liable for the nonprofits debts. However, if they do not perform their jobs in the nonprofit’s best interests, and the nonprofit is harmed, they can be held liable.
The impact of the U.S.’s current fiscal policy could be devastating to both our generation and much further future generations. From the enormous spending on military and national defense to the economic bail out and stimulus packages enacted by the government, the U.S. government is now operating at approximately 100% (visual.ly) of GDP (gross domestic product) with a large majority of that debt being held by foreign countries like China. There is some evidence to suggest that we are not investing enough in the public goods (infrastructure, education, etc.…) that promote healthy U.S. competitiveness.
“For the nation to prosper, we must remain an attractive location for companies to pay competitive wages consistent with high and rising living standards. This requires targeted investments by the government, especially in physical and informational infrastructure, education and training, and scientific research” (Walker & Kaplan, 2013).
At the same time, some projections have shown a shift away from public goods, and towards government funded entitlement programs such as Medicare. Long term projections at the current rate of fiscal policy point to an accumulation of debt that would devastate investment in both public goods and private capital. Without people and company’s investing in these, lenders begin to demand substantially higher returns. Fiscal policy failings become evident when the large current account deficit is examined. “It has become clear, though, that reduced saving, not increased investment, explains the rising U.S. capital account surplus.” (hbr.org) Americans are simply not saving as much nor investing. Which in turn leads to a decrease in government intake and less funding for government programs indeed like entitlement programs like Medicare. The government then borrows against other programs, like SSI, to “make up the difference.” The U.S. is borrowing money to consume, not to invest in the future. This is like running up a large credit card debt buying fancy furniture and appliances with little to no means of paying back that money, and not using the credit cards to invest in your future like paying tuition to enroll in school to help achieve a better, higher paying job. Finally, “These fiscal problems matter to business leaders in two main ways. First, policy makers looking to reduce deficits may choose spending cuts and revenue increases that hinder—rather than support—the ability of companies to compete. Second, capital markets will visit the sins of the public sector upon the private one. If the cost of borrowing rises for the U.S. government, it will rise for private-sector borrowers as well. In that case, the economy will suffer from insufficient investment in both public goods and private companies” (Vietor & Weinzieri, 2012).
Often times Fiscal and monetary policy go hand in hand with each other. Although the government controls and enacts the fiscal policy, and ultimately congress controls the monetary policy, it allows the Federal Reserve (or Fed) to oversee the operations. Changes in monetary policy often correlate directly to the amount of interest on loans first to institutions, which correlate to changes in interest on business and personal loans that these institutions give out. Monetary policy was used heavily during the recession of 2008 with the government providing direct bailouts for several large and established companies. “Total assistance from the Federal Reserve at the beginning of August 2007 was approximately $234 million provided through liquidity facilities, with no direct support given. In mid-December 2008, it reached a high of $1.6 trillion, with a near high of $108 billion given in direct support” (Labonte, 2012). While Monetary policy can be very effective and is instituted immediately sometimes it is not effective. “In cases where economic activity is extremely depressed, monetary policy may lose some of its effectiveness. When interest rates become extremely low, interest-sensitive spending may no longer be very responsive to further rate cuts. Furthermore, interest rates cannot be lowered below zero. In this scenario, fiscal policy may be more effective” (Vietor & Weinzieri, 2012). While the current state of government assistance goes against traditional laissez – fare economics, a good combination of fiscal and monetary policy can both promote U.S. competitiveness in a world market and spur more spending and financial stability at home. Mountain biking is a worldwide sport/activity that a wide range of individuals can enjoy. The mtb (mountain biking) industry has been stable for some time now and hasn’t seen a huge boom since the 1970’s, when the market became saturated (NBDA, 2011). My strategy for taking it to the next level would be to use these individuals that these bike company’s sponsor to market their product globally. Take for instance Brook MacDonald a New Zealand native who rides for TREK (Trek World Racing, 2013), I think it would be ideal for Brook to organize a ride with the public in what area he’s in - once a month. Seeing how these guys are traveling across the world to follow the season for mountain biking, they would reach out to people all over the world. If every sponsored rider was to do this, then I think mountain biking would see another big boom very soon. I’ll continue with mountain biking and discuss how shareholders are impacted by their socially responsible efforts. Mountain biking organizations, other than a few fundraisers and scholarships, aren’t positioned to help out with the things that would boost the sport directly. It usually falls on individuals and organized bike clubs to upkeep local mountain biking parks and trails. So the shareholders of companies like Giant, Trek, or Raleigh don’t really see an impact on their company’s social responsibilities. I personally think this would be a discussion for their boards to have and ultimately decide if it would be worth the efforts to invest in helping with the maintenance of these trails and park. I believe if they were to help support this cause that it would generate more bikers and in return a higher revenue for their company in the long run.

Works Cited:
Labonte, M. (2012, February 12). Monetary policy and the Federal Reserve: Current policy and conditions. Retrieved from www.fas.org/sgp/crs/misc/RL30354.pdf

NBDA. (2011). A look at the bicycle industry’s vital statistics. Retrieved from http://nbda.com/articles/industry-overview-2011-pg34.htm

Trek World Racing. (2013). Riders. Retrieved from http://dh.trekworldracing.com/riders/
Vietor, R. H. K., & Weinzieri, M. (2012, March). Macroeconomic policy and U.S. competitiveness. Retrieved from www.fas.org/sgp/crs/misc/RL30354.pdf

Walker, D., & Kaplan, R. (2013, April 11). Current fiscal policy harms U.S. competitiveness. Retrieved from finance.fortune.cnn.com/2013/04/11/fiscal-policy-competitiveness/

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