Multinational Enterprise

A multinational corporation or multinational enterprise is an organization that

owns or controls productions of goods or services in one or more countries
other than the home country. It can also be referred as an international
corporation.
There are four categories of multinational corporations: (1) a multinational,
decentralized corporation with strong home country presence, (2) a global,
centralized corporation that acquires cost advantage through centralized
production wherever cheaper resources are available, (3) an international
company that builds on the parent corporation's technology or R&D, or (4) a
transnational enterprise that combines the previous three approaches .

What Are Internal & External Environmental Factors That

Affect Business?
Various internal and external factors greatly influence a business' success.
While it is practically impossible to control forces outside the business, like world
economic conditions and capital availability, management must guide and
inspire internal operations to ensure a competitive position in the marketplace.
Adaptability and innovation are crucial to gaining market share and staying
profitable in fluctuating economic climates.
Operational Efficiency
Being competitive in a world market requires an innovative product or service,
fair pricing and an excellent marketing plan. To meet these high standards,
operational efficiency is required to keep the price competitive. A well-run
business incorporates a shared goal to inspire a spirit of cooperation between
departments. Dynamic leadership is paramount for running a profitable business
in challenging times. Financial managers ensure that cash flow is available to
meet payroll and to pay overhead expenses. Marketing management drives
sales revenue by developing creative and effective ways to entice the customer
to buy. To round out the management team, human resources recruits qualified
professionals needed to make conducting business possible.
Marketability and Innovation
Consumers expect value. Armed with access to data and product information,
today's consumer demands innovation and effective customer service. Prices
and features can be compared easily on the Internet, or over a cell phone. The
informed consumer forces companies to evolve into transparent marketing
machines. With constant reviews of new products between friends, consumers
speak their mind on Facebook and Twitter, dealing both praise and deadly
criticism with record speed. For these reasons, a company's ability to market a
product well determines success or failure very quickly and definitively.

The Internal Environment

An organization's internal environment is composed of the elements within the
organization, including current employees, management, and especially
corporate culture, which defines employee behavior. Although some elements
affect the organization as a whole, others affect only the manager. A manager's
philosophical or leadership style directly impacts employees. Traditional
managers give explicit instructions to employees, while progressive managers
empower employees to make many of their own decisions. Changes in
philosophy and/or leadership style are under the control of the manager. The
following sections describe some of the elements that make up the internal
environment.
An organization's mission statement describes what the organization stands for
and why it exists. It explains the overall purpose of the organization and
includes the attributes that distinguish it from other organizations of its type.
A mission statement should be more than words on a piece of paper; it should
reveal a company's philosophy, as well as its purpose. This declaration should
be a living, breathing document that provides information and inspiration for the
members of the organization. A mission statement should answer the questions,
What are our values? and What do we stand for? This statement provides
focus for an organization by rallying its members to work together to achieve its
common goals.
But not all mission statements are effective in America's businesses. Effective
mission statements lead to effective efforts. In today's qualityconscious and
highly competitive environments, an effective mission statement's purpose is
centered on serving the needs of customers. A good mission statement is
precise in identifying the following intents of a company:
Customers who will be served
Products/services what will be produced
Location where the products/services will be produced
Philosophy what ideology will be followed
Company policies are guidelines that govern how certain organizational
situations are addressed. Just as colleges maintain policies about admittance,
grade appeals, prerequisites, and waivers, companies establish policies to
provide guidance to managers who must make decisions about circumstances
that occur frequently within their organization. Company policies are an
indication of an organization's personality and should coincide with its mission
statement.
The formal structure of an organization is the hierarchical arrangement of tasks
and people. This structure determines how information flows within the
organization, which departments are responsible for which activities, and where
the decisionmaking power rests.
Some organizations use a chart to simplify the breakdown of its formal structure.
This organizational chart is a pictorial display of the official lines of authority and
communication within an organization.
The organizational culture is an organization's personality. Just as each person
has a distinct personality, so does each organization. The culture of an
organization distinguishes it from others and shapes the actions of its members.
Four main components make up an organization's culture:
Values
Heroes

Rites and rituals

Social network
Values are the basic beliefs that define employees' successes in an
organization. For example, many universities place high values on professors
being published. If a faculty member is published in a professional journal, for
example, his or her chances of receiving tenure may be enhanced. The
university wants to ensure that a published professor stays with the university
for the duration of his or her academic career and this professor's ability to
write for publications is a value.
Hero is an exemplary person who reflects the image, attitudes, or values of the
organization and serves as a role model to other employees. A hero is
sometimes the founder of the organization (think Sam Walton of WalMart).
However, the hero of a company doesn't have to be the founder; it can be an
everyday worker, such as hardworking paralegal Erin Brockovich, who had a
tremendous impact on the organization.
Rites and rituals, the third component, are routines or ceremonies that the
company uses to recognize highperforming employees. Awards banquets,
company gatherings, and quarterly meetings can acknowledge distinguished
employees for outstanding service. The honourees are meant to exemplify and
inspire all employees of the company during the rest of the year.
Social network, is the informal means of communication within an organization.
This network, sometimes referred to as the company grapevine, carries the
stories of both heroes and those who have failed. It is through this network that
employees really learn about the organization's culture and values.
A by-product of the company's culture is the organizational climate. The overall
tone of the workplace and the morale of its workers are elements of daily
climate. Worker attitudes dictate the positive or negative atmosphere of the
workplace. The daily relationships and interactions of employees are indicative
of an organization's climate.
Resources are the people, information, facilities, infrastructure, machinery,
equipment, supplies, and finances at an organization's disposal. People are the
paramount resource of all organizations. Information, facilities, machinery
equipment, materials, supplies, and finances are supporting, nonhuman
resources that complement workers in their quests to accomplish the
organization's mission statement. The availability of resources and the way that
managers value the human and nonhuman resources impact the organization's
environment.
Philosophy of management is the manager's set of personal beliefs and values
about people and work and as such, is something that the manager can control.
McGregor emphasized that a manager's philosophy creates a selffulfilling
prophecy. Theory X managers treat employees almost as children who need
constant direction, while Theory Y managers treat employees as competent
adults capable of participating in workrelated decisions. These managerial
philosophies then have a subsequent effect on employee behavior, leading to
the selffulfilling prophecy. As a result, organizational philosophies and
managerial philosophies need to be in harmony.
The number of coworkers involved within a problemsolving or decisionmaking
process reflects the manager's leadership style. Empowerment means
delegating to subordinates decisionmaking authority, freedom, knowledge,
autonomy, and skills. Fortunately, most organizations and managers are making
the move toward the active participation and teamwork that empowerment
entails.

When guided properly, an empowered workforce may lead to heightened

productivity and quality, reduced costs, more innovation, improved customer
service, and greater commitment from the employees of the organization. In
addition, response time may improve, because information and decisions need
not be passed up and down the hierarchy. Empowering employees makes good
sense because employees closest to the actual problem to be solved or the
customer to be served can make the necessary decisions more easily than a
supervisor or manager removed from the scene.

Internal Environment affecting business

Your marketing plan addresses a variety of external factors that determine how
consumers will view and accept your product or service. Solving that piece of
the puzzle isnt the only requirement for a profitable business, however. If
consumers are clamoring for what you sell but you cant deliver it efficiently,
youll lose opportunities to grow, expand, maximize your products and even
keep your doors open. Knowing what internal aspects of your operation to keep
on top of will help you run the most profitable business possible.
Personnel
No matter what policies and procedures you implement to build a strong
organization, people must manage them. The most critical internal factor that
affects how your business performs is your people. Create a long-term
organization chart to help you build the most efficient staff. Use a human
resources professional to help you attract, hire and retain employees. Provide
ongoing training, including management, communications and leadership
seminars for your managers and continuing education and training for your
workers. If you cant afford a full-time human resources person, meet with an
HR firm to create plans to build and manage your staff, and perform quarterly
audits of your efforts.
Accounting
Many of the decisions you make regarding your business depend on accurate
financial reports to guide you. Even if your accountant is accurate, if you have
limited data, such as from an annual budget, general ledger or bank statements,
you wont be able to set optimal prices, manage your overhead and production
costs and maintain adequate cash flow. Create a financial reporting system that
includes profit-and-loss statements, an up-to-day balance sheet, receivables
and payables reports, cash flow projections, debt tracking and budget variance
analyses.
Technology
The more up-to-date your computers, software, phone systems, faxes and copy
machines, the more efficient and productive your staff will be. Solicit input from
your staff regarding what tools they feel will help them perform better. In addition
to keeping current with technology, keep your employees trained in using what
you provide them. From time to time, look at the equipment you use to make
your product and determine if new machinery can help you manufacture quicker,
with higher quality and at a lower cost than you are now.
Capital
One reason many small businesses fail is a lack of adequate capital. For
example, you might have good sales but slow receivables. If you dont have

adequate cash reserves or access to credit to pay your bills while you wait for
customers to pay invoices, you might lose access to your suppliers, have to cut
back on marketing or take out costly loans to make payroll. Work with your
financial manager to create internal controls that help you maintain adequate
working capital.

The External Environment

All outside factors that may affect an organization make up the external
environment. The external environment is divided into two parts:
Directly interactive: This environment has an immediate and firsthand impact
upon the organization. A new competitor entering the market is an example.
Indirectly interactive: This environment has a secondary and more distant effect
upon the organization. New legislation taking effect may have a great impact.
For example, complying with the Americans with Disabilities Act requires
employers to update their facilities to accommodate those with disabilities.
Directly interactive forces include owners, customers, suppliers, competitors,
employees, and employee unions. Management has a responsibility to each of
these groups. Here are some examples:
Owners expect managers to watch over their interests and provide a return on
investments.
Customers demand satisfaction with the products and services they purchase
and use.
Suppliers require attentive communication, payment, and a strong working
relationship to provide needed resources.
Competitors present challenges as they vie for customers in a marketplace with
similar products or services.
Employees and employee unions provide both the people to do the jobs and the
representation of work force concerns to management.
The second type of external environment is the indirectly interactive forces.
These forces include sociocultural, political and legal, technological, economic,
and global influences. Indirectly interactive forces may impact one organization
more than another simply because of the nature of a particular business. For
example, a company that relies heavily on technology will be more affected by
software updates than a company that uses just one computer. Although
somewhat removed, indirect forces are still important to the interactive nature of
an organization.
The sociocultural dimension is especially important because it determines the
goods, services, and standards that society values. The sociocultural force
includes the demographics and values of a particular customer base.
Demographics are measures of the various characteristics of the people and
social groups who make up a society. Age, gender, and income are examples of
commonly used demographic characteristics.
Values refer to certain beliefs that people have about different forms of behavior
or products. Changes in how a society values an item or a behavior can greatly
affect a business. (Think of all the fads that have come and gone!)

The political and legal dimensions of the external environment include

regulatory parameters within which an organization must operate. Political
parties create or influence laws, and business owners must abide by these laws.
Tax policies, trade regulations, and minimum wage legislation are just a few
examples of political and legal issues that may affect the way an organization
operates.
The technological dimension of the external environment impacts the scientific
processes used in changing inputs (resources, labour, money) to outputs (goods
and services). The success of many organizations depends on how well they
identify and respond to external technological changes.
For example, one of the most significant technological dimensions of the last
several decades has been the increasing availability and affordability of
management information systems (also known as MIS). Through these
systems, managers have access to information that can improve the way they
operate and manage their businesses.
The economic dimension reflects worldwide financial conditions. Certain
economic conditions of special concern to organizations include interest rates,
inflation, unemployment rates, gross national product, and the value of the U.S.
dollar against other currencies.
A favorable economic climate generally represents opportunities for growth in
many industries, such as sales of clothing, jewelry, and new cars. But some
businesses traditionally benefit in poor economic conditions. The alcoholic
beverage industry, for example, traditionally fares well during times of economic
downturn.
The global dimension of the environment refers to factors in other countries that
affect U.S. organizations. Although the basic management functions of planning,
organizing, staffing, leading, and controlling are the same whether a company
operates domestically or internationally, managers encounter difficulties and
risks on an international scale. Whether it be unfamiliarity with language or
customs or a problem within the country itself (think mad cow disease),
managers encounter global risks that they probably wouldn't have encountered
if they had stayed on their own shores.

Define 'Privatization'
The transfer of ownership, property or business from the government to the
private sector is termed privatization. The government ceases to be the owner
of the entity or business.
The process in which a publicly-traded company is taken over by a few people
is also called privatization. The stock of the company is no longer traded in the
stock market and the general public is barred from holding stake in such a
company. The company gives up the name 'limited' and starts using 'private
limited' in its last name.

What Is Fiscal Policy?

Fiscal policy is based on the theories of British economist John Maynard
Keynes, which state that increasing or decreasing revenue (taxes) and
expenditures (spending) levels influences inflation, employment and the flow of
money through the economic system. Fiscal policy is often used in combination
with monetary policy.

The government uses fiscal policy to influence the direction of the economy and
meet economic goals by adjusting revenue and spending levels.
The two main tools of fiscal policy are taxes and spending. Taxes influence the
economy by determining how much money the government has to spend in
certain areas and how much money individuals have to spend.

10 Major Problems faced by the Small Scale Industries of

India
Major problems faced by the small scale industries are:
(1) Finance
(2) Raw Material
(3) Idle Capacity
(4) Technology
(5) Marketing
(6) Infrastructure
(7) Under Utilisation of Capacity
(8) Project Planning!
(9) Skilled Manpower
(10) Managerial
Small scale industries play a vital role in the economic development of our
country.
This sector can stimulate economic activity and is entrusted with the
responsibility of realising various objectives generation of more employment
opportunities with less investment, reducing regional imbalances etc. Small
scale industries are not in a position to play their role effectively due to various
constraints. The various constraints, the various problems faced by small scale
industries are as under:
(1) Finance:
Finance is one of the most important problem confronting small scale industries
Finance is the life blood of an organisation and no organisation can function
proper in the absence of adequate funds. The scarcity of capital and
inadequate availability of credit facilities are the major causes of this problem.
Firstly, adequate funds are not available and secondly, entrepreneurs due to
weak economic base, have lower credit worthiness. Neither they are having
their own resources nov are others prepared to lend them. Entrepreneurs are
forced to borrow money from money lenders at exorbitant rate of interest and
this upsets all their calculations.
After nationalisation, banks have started financing this sector. These enterprises
are still struggling with the problem of inadequate availability of high cost funds.
These enterprises are promoting various social objectives and in order to
facilitate then working adequate credit on easier terms and conditions must be
provided to them.
(2) Raw Material:
Small scale industries normally tap local sources for meeting raw material
requirements. These units have to face numerous problems like availability of
inadequate quantity, poor quality and even supply of raw material is not on
regular basis. All these factors adversely affect t e functioning of these units.
Large scale units, because of more resources, normally corner whatever raw
material that is available in the open market. Small scale units are thus forced to
purchase the same raw material from the open market at very high prices. It will
lead to increase in the cost of production thereby making their functioning
unviable.
(3) Idle Capacity:

There is under utilisation of installed capacity to the extent of 40 to 50 percent in

case of small scale industries. Various causes of this under-utilisation are
shortage of raw material problem associated with funds and even availability of
power. Small scale units are not fully equipped to overcome all these problems
as is the case with the rivals in the large scale sector.
(4) Technology:
Small scale entrepreneurs are not fully exposed to the latest technology.
Moreover, they lack requisite resources to update or modernise their plant and
machinery Due to obsolete methods of production, they are confronted with the
problems of less production in inferior quality and that too at higher cost. They
are in no position to compete with their better equipped rivals operating modem
large scale units.
(5) Marketing:
These small scale units are also exposed to marketing problems. They are not
in a position to get first hand information about the market i.e. about the
competition, taste, liking, disliking of the consumers and prevalent fashion.
With the result they are not in a position to upgrade their products keeping in
mind market requirements. They are producing less of inferior quality and that
too at higher costs. Therefore, in competition with better equipped large scale
units they are placed in a relatively disadvantageous position.
In order to safeguard the interests of small scale enterprises the Government of
India has reserved certain items for exclusive production in the small scale
sector. Various government agencies like Trade Fair Authority of India, State
Trading Corporation and the National Small Industries Corporation are
extending helping hand to small scale sector in selling its products both in the
domestic and export markets.
(6) Infrastructure:
Infrastructure aspects adversely affect the functioning of small scale units.
There is inadequate availability of transportation, communication, power and
other facilities in the backward areas. Entrepreneurs are faced with the problem
of getting power connections and even when they are lucky enough to get these
they are exposed to unscheduled long power cuts.
Inadequate and inappropriate transportation and communication network will
make the working of various units all the more difficult. All these factors are
going to adversely affect the quantity, quality and production schedule of the
enterprises operating in these areas. Thus their operations will become
uneconomical and unviable.
(7) Under Utilisation of Capacity:
Most of the small-scale units are working below full potentials or there is gross
underutilization of capacities. Large scale units are working for 24 hours a day
i.e. in three shifts of 8 hours each and are thus making best possible use of their
machinery and equipments.

On the other hand small scale units are making only 40 to 50 percent use of
their installed capacities. Various reasons attributed to this gross underutilisation of capacities are problems of finance, raw material, power and
underdeveloped markets for their products.
(8) Project Planning:
Another important problem faced by small scale entrepreneurs is poor project
planning. These entrepreneurs do not attach much significance to viability
studies i.e. both technical and economical and plunge into entrepreneurial
activity out of mere enthusiasm and excitement.
They do not bother to study the demand aspect, marketing problems, and
sources of raw materials and even availability of proper infrastructure before
starting their enterprises. Project feasibility analysis covering all these aspects in
addition to technical and financial viability of the projects, is not at all given due
weight-age.
Inexperienced and incomplete documents which invariably results in delays in
completing promotional formalities. Small entrepreneurs often submit unrealistic
feasibility reports and incompetent entrepreneurs do not fully understand project
details.
Moreover, due to limited financial resources they cannot afford to avail services
of project consultants. This result is poor project planning and execution. There
is both time interests of these small scale enterprises.
(9) Skilled Manpower:
A small scale unit located in a remote backward area may not have problem
with respect to unskilled workers, but skilled workers are not available there.
The reason is Firstly, skilled workers may be reluctant to work in these areas
and secondly, the enterprise may not afford to pay the wages and other facilities
demanded by these workers.
Besides non-availability entrepreneurs are confronted with various other
problems like absenteeism, high labour turnover indiscipline, strike etc. These
labour related problems result in lower productivity, deterioration of quality,
increase in wastages, and rise in other overhead costs and finally adverse
impact on the profitability of these small scale units.
(10) Managerial:
Managerial inadequacies pose another serious problem for small scale units.
Modern business demands vision, knowledge, skill, aptitude and whole hearted
devotion. Competence of the entrepreneur is vital for the success of any
venture. An entrepreneur is a pivot around whom the entire enterprise revolves.
Many small scale units have turned sick due to lack of managerial competence
on the part of entrepreneurs. An entrepreneur who is required to undergo
training and counseling for developing his managerial skills will add to the
problems of entrepreneurs.
The small scale entrepreneurs have to encounter numerous problems relating to
overdependence on institutional agencies for funds and consultancy services,
lack of credit-worthiness, education, training, lower profitability and host of

marketing and other problems. The Government of India has initiated various
schemes aimed at improving the overall functioning of these units.

Technology Definition
The purposeful application of information in the design, production,
and utilization of goods and services, and in the organization of
human activities.
Technology is generally divided into five categories
1.Tangible: blueprints, models, Operating manuals, prototypes.
2.Intangible: consultancy, problem-solving, and training methods.
3.High: entirely or almost entirely automated and intelligent
technology that manipulates ever finer matter and ever powerful
forces.
4.Intermediate: semiautomated partially intelligent technology that
manipulates refined matter and medium level forces.
5.Low: labor-intensive technology that manipulates only coarse or
gross matter and weaker forces.
What Is Technology?
Technology is a body of knowledge devoted to creating tools, processing actions
and extracting of materials. The term Technology is wide and everyone has
their own way of understanding the meaning of technology. We use technology
to accomplish various tasks in our daily lives, in brief; we can describe
technology as products, processes or organizations. We use technology to
extend our abilities, and that makes people as the most important part of any
technological system.
Technology is also an application of science to solve a problem. But what you
have to know is that technology and science are different subjects which work
hand-in-hand to accomplish a specific task or solve a particular problem.
We apply technology in almost everything we do in our lives, we use technology
at work, we use it to , extract materials , we use technology for communication,
transportation, learning, manufacturing, creating artifacts, securing data, scaling
businesses and so much more. Technology is human knowledge which
involves tools, materials and systems. The application of technology results in
artifacts or products. If technology is well applied, it can benefit humans, but if it
is wrongly applied, it can cause harm to human beings.
Many businesses are using technology to stay competitive, they create new
products and services using technology, and they also use technology to deliver
those products and services to their customers on time.

The impact of technology in business

Over the last 10 years, we have undoubtedly witnessed a fundamental shift in
the way traditional businesses operate and engage with their customers
The explosion of the internet and mobile technology, and the seemingly endless
potential of the ways that they can be used, is outstripping and sometimes
undermining structures of working that have prevailed for more than a century.

And it keeps changing every day. These changes have also had a big influence
on how the business world operates. Its influence is felt in practically all aspects
of the day-to-day operations of businesses, large and small.
This revolution is removing commercial and technological barriers that have
previously hampered free communication between people. Major advancements
in mobile technology and the advent of mobile web mean we can now shop,
advertise, read, purchase and bank with our mobile device.
By challenging traditional business models, the convergence of readily available
internet services and mass mobile devices has delivered unimaginable benefits
to both consumer and brand.
Mobility delivers choice for the customer and also lowers barriers to entry for
third parties. Integrating old business models with new to provide choice to all
demographics, whether in internet or non-internet ready markets, will continue
to unlock the full potential of mobile technology to all industries.
There is no doubt that business technology has revolutionised the way
companies conduct business, but the question remains: are small business
owners ready for the shift in technology and if so, what resources have they got
in place to handle these rapid changes?
In a survey conducted by Small Business Technology Institute (SBTI) and Small
Business Technology Magazine, managers from more than 3000 companies
reported that after health care, managing the evolving technologies available is
proving to be a major concern.
The report also indicated that small businesses tend to allocate very limited
human and financial resources to support their IT functions; and small
businesses approach IT support on a reactive basis and rely heavily on tactical
support by product lenders.
This type of approach and decision making around an area that is arguably the
most important sector within any business operating under a rapidly evolving
marketplace is a sure fire way to get taken over by competitors or go out of
business.
For the very first time small businesses have the opportunity to implement
business technology and level the playing field with larger organisations a
chance that should not be taken lightly for those looking to remain in business.
While the list of advantages are too long to document, below you will find
several key advantages to how your business will improve as a result of
technological advances.

Reducing business costs

Small business owners can use technology to reduce business costs. Business
technology helps automate back office functions, such as record keeping,
accounting and payroll. Business owners can also use technology to create
secure environments for maintaining sensitive business or consumer
information.
Improve communication Business technology can help small businesses
improve their communication processes. Emails, texting, websites and personal
digital products applications (apps), can help companies improve

communication with consumers. Using several types of information technology

communication methods allow companies to saturate the economic market with
their message.
Companies may also receive more consumer feedback through these electronic
communication methods. These methods also allow companies to reach
consumers through mobile devices in a real-time format.
Potential increase in business Technology allows small businesses to reach new
economic markets. Rather than just selling consumer goods or services in the
local market, small businesses can reach regional, national and international
markets. Retail websites are the most common way small businesses sell
products in several different economic markets.
Websites represent a low-cost option that consumers can access 24/7 when
needing to purchase goods or services. Small business owners can also use
internet advertising to reach new markets and customers through carefully
placed web banners or ads.

Considerations
Business technology allows companies to outsource business function to other
businesses in the national
and international business environment. Outsourcingcan help companies lower
costs and focus on completingthe business function they do best. Technical
supportand customer service are two common functionscompanies outsource.
Small business owners may consider outsourcing functions if they do not have
the proper facilities or available manpower. Technology allows businessesto
outsource functions to the cheapest areas possible, including foreign countries.
The society as we know it is going through a radical makeover, thanks to
constant connectivity everywhere.This is creating a need for a digital makeover
of everything from retail to our postal system. It is changing our infrastructure
needs and it is also increasing the velocityof business. To stay ahead of the
game business owners must also change the traditional way of operating their
day-to-day business.
The Impact of Technological Change on Business Activity
Businesses have been at the forefront of technology for ages. Business
technology has revolutionized the way companies conduct business. As
computers emerged in the 20th century, they promised a new age of information
technology. But in order to reap the benefits, businesses needed to adapt and
change their infrastructure. Small businesses use computers, servers, websites
and personal digital products to develop competitive advantages in the
economic marketplace.
Importance
Small business owners can use technology to reduce business costs. Business technology helps
automate back office functions, such as record keeping, accounting and payroll. Business owners can
also use technology to create secure environments for maintaining sensitive business or consumer
information. Many types of business technology or software programs are user-friendly. This allows
business owners with a minor background in information technology to use computer hardware and
software.

Features
Business technology can help small businesses improve their communication processes. Emails,
texting, websites and personal digital products applications, known as apps," can help companies
improve communication with consumers. Using several types of information technology
communication methods allow companies to saturate the economic market with their message.
Companies may also receive more consumer feedback through these electronic communication
methods. These methods also allow companies to reach consumers through mobile devices in a realtime format.
Function
Small businesses can increase their employees' productivity through the use of technology. Computer
programs and business software usually allow employees to process more information than manual
methods. Business owners can also implement business technology to reduce the amount of human
labor in business functions. This allows small businesses to avoid paying labor costs along with
employee benefits. Business owners may also choose to expand operations using technology rather
than employees if the technology will provide better production output.
Potential
Technology allows small businesses to reach new economic markets. Rather than just selling
consumer goods or services in the local market, small businesses can reach regional, national and
international markets. Retail websites are the most common way small businesses sell products in
several different economic markets. Websites represent a low-cost option that consumers can access
24/7 when needing to purchase goods or services. Small business owners can also use Internet
advertising to reach new markets and customers through carefully placed web banners or ads.
Considerations
Business technology allows companies to outsource business function to other businesses in the
national and international business environment. Outsourcing can help companys lower costs and
focus on completing the business function they do best. Technical support and customer service are
two common function companies outsource. Small business owners may consider outsourcing
function if they do not have the proper facilities or available manpower. Technology allows businesses
to outsource function to the cheapest ares possible, including foreign countries.

The Effects of Monetary Policy

Monetary policy is the regulation of a country's money supply by the central
bank of a country or region. In the United States, the central bank is the Federal
Reserve Board. Monetary policy tools are used to help control the economy.
The primary tools used by a central bank are changes to the prime interest rate,
changes to the amount of money in circulation and changes in the reserve
requirements for banks.
Control Inflation
One of the primary impacts of monetary policy is on inflation. The goal of
monetary policy is to control inflation, or the value of currency, through changes
in monetary policy tools. When inflation rises, the central bank typically raises
interest rates. High inflation makes the costs of goods higher. Central banks
want to keep inflation low to keep the prices of goods stable relative to the value
of the currency.
Interest Rates
Monetary policy directly impacts interest rates. The central bank raises or lowers
the prime rate, or interest rate the central bank loans money to other banks, as
a tool to impact the economy. These actions have a trickle down effect on the
interest rates charged on loans, credit cards and any other financial vehicle that
is tied to the prime rate.
Business Cycles
Business is cyclic in nature and goes through periods of expansion and
contraction. Monetary policy attempts to minimize the speed and severity of
these expansions and contractions to maintain steady growth or decrease a
negative contraction. The goal is to keep an economy on a slow, but steady
growth pattern to prevent recessions during periods of contraction.
Spending
Monetary policy impacts the amount of money spent in an economy. When a
central bank decreases interest rates, more money is typically spent in an
economy. This increase in spending can equate to better overall health for an
economy. Likewise, when interest rates are increased, spending declines, which
could curtail inflation.

Employment
Employment levels relate to the health of an economy. When inflation is low and
an economy is stable or in an expansionary phase, employment levels are
higher than when inflation is high and an economy is in a contraction phase.

Changes in monetary policy that maintain economic stability and minimize

inflation, tend to keep unemployment low.
Effect of Monetary Policy
Unanticipated changes in monetary policy will produce both price (substitution) and income effects.
For example, suppose monetary authorities begin a program of expansionary (easy) monetary policy.
We would then expect the following sequence of events to occur with regard to the price effect:
Real

interest

rates

will

be

reduced.

As real interest rates are reduced, domestic financial and capital assets become less attractive as a
result of their lower real rates of return. Foreigners will reduce their positions in domestic bonds, real
estate, stocks and other assets. The financial account (or balance on capital account) will deteriorate
as a result of foreigners holding fewer domestic assets. Domestic investors will be more likely to
invest

overseas

in

the

pursuit

of

higher

rates

of

return.

The reduction in domestic investment by foreigners and the country's citizens will decrease the
demand for the nation's currency and increase the demand for the currency of foreign countries. The
exchange

rate

of

the

nation's

currency

will

tend

to

decline.

With no government intervention, the financial account and the current account must sum to zero. As
the financial account declines, the current account will be expected to improve by an equal amount. In
other words, the balance of trade should improve. The country's export will have become relatively
cheaper and imports will be relatively more expensive.
The effect of an expansionary monetary policy is to lower the exchange rate, weaken the financial
account and strengthen the current account. A restrictive monetary policy would be expected to result
in the opposite: a higher exchange rate, a stronger financial account and a weaker current account (a
more negative, or a less positive balance of trade).
With a program of expansionary (easy) monetary policy, the following sequence of events would be
expected to occur with regard to the income effect:
The domestic GDP will rise.
The rise in domestic GDP will tend to increase the demand for imports. The increase in imports will
cause the current account to deteriorate.
The increase in imports purchased will increase the need to convert domestic to foreign currency. As
a result, the exchange rate of the domestic currency will decrease.
With no government intervention, the financial account must now move toward a surplus as the
financial and current account must sum to zero. Due to the increase in imports, foreigners will now

have a surplus of the nation's currency. If foreigners do not use that currency to purchase the
country's exports (which would improve the current account balance), they will ultimately need to
invest that currency in the assets of the domestic country. This explains why countries such as China
and Japan invest large sums in assets such as U.S. Treasuries. The holders of the U.S. currency
must put it to work somewhere! Note that foreign investors are often getting better rates of return than
what might be readily apparent because the value of the domestic currency is falling relative to their
own

currency.

In summary, the income effect of expansionary monetary policy tends to lower the domestic currency
exchange rate, weaken the current account and work to improve the financial account. A restrictive
monetary policy tends to cause the opposite due to the income effect. The domestic currency
exchange rate increases, the current account improves and the financial account weakens.
As both price and the income effects of monetary policy move in the same direction regarding their
impact on the exchange rate, it is clear that expansionary (restrictive) monetary policy will lower
(raise) the country's exchange rate. The effect of monetary policy on the current and financial
accounts is not so clear because the price and income effects move in opposite directions. For
example, the price effect of easy money on the current account tends to strengthen it, while the
income effect tends to weaken the current account. Since the effects move in opposite directions, it is
not immediately clear what the ultimate impact will be.
We should note that investors can buy and sell financial assets such as stocks and bonds more
quickly than producers and consumers can sell and buy physical goods. So initially, interest rate
(substitution) effects would be expected to dominate. An unanticipated increase in the money supply
will cause the exchange rate to go down, the financial account to weaken and current account to gain
strength. Over time, the income effect will come into play. A rising GDP will cause both the trade
balance and financial account to weaken.
Some argue that for an economy with a foreign sector, monetary policy can
create cyclical movements that tend to destabilize an economy. Unanticipated
expansionary monetary policy initially causes the trade balance to improve, but
as time progresses, it causes the trade balance to become more negative. It
initially causes the capital account to weaken due to lower interest rates, but
then later tends to improve it. In the long run, the main effect of the
expansionary monetary policy is a lowering of the nation's currency exchange
rate, which is the international equivalent to the long-run effect of expansionary
monetary policy, inflation. Empirical evidence indicates that countries with high
rates of monetary supply growth experience both inflation and declining
currency exchange rates. An important point to consider is the exchange rates
of two countries - their relative rates of money supply growth will help determine
how the exchange rate changes.
Fiscal policy changes will produce both price (substitution) and income effects
for exchange rates and balance of payments. Suppose government
policymakers enact a program of unanticipated fiscal stimulus. This would be

expected to cause the following sequence of events to occur with regard to the
price effect:
Greater government budget deficits caused by tax cuts and/or increased
spending will increase the demand for investable funds, which will cause
interest rates to rise.
The increase in interest rates will cause capital inflows (foreigners will purchase
more domestic financial assets). As a result, the capital account will strengthen
(become more positive or less negative).
Foreign investors will need to exchange their currency for the domestic
currency. The increased demand for the domestic currency will cause its
exchange rate to increase.
If there is no government intervention with the balance-of-payments, the current
account will need to become more negative (or less positive). The trade balance
will weaken as imports increase and/or exports decrease. This makes sense
because the strengthening of the nation's currency will make its exports
relatively less attractive to foreigners and imports will be less expensive relative
to the country's consumers and domestic businesses.
To summarize, the price effect of a stimulative fiscal policy is to raise the value
of the domestic currency, strengthen the capital account and weaken the current
account. A restrictive fiscal policy would have the opposite effects: a weaker
domestic currency, a weaker capital account (there would be net capital
outflows) and a stronger current account.
With a program of fiscal stimulus, the following sequence of events would be
expected to occur with regard to the income effect:
The tax cuts and/or increase in government spending associated with the fiscal
policy, and the associated multiplier effect, will increase GDP.
The rise in GDP will cause the demand for imports to increase and the current
account will be weakened (become more negative or less positive).
More domestic currency will need to be converted into foreign currencies to
purchase the increased quantity of imports. The increased supply of domestic
currency on the international markets will cause the exchange rate to decline.
With no government intervention, the financial account will need to become
more positive (or less negative) in order to compensate for the weakening of the
current account. Foreigners will be holding more of the domestic currency and
are therefore in a position to purchase more of the nation's financial assets.
Also, as the domestic economy is improving, they may find it more attractive as
a place to invest.
To summarize, the income effect associated with fiscal stimulus will tend to
lower the exchange rate of the country's currency, weaken the current account
(trade balance) and strengthen the financial account.
Fiscal policy price and income effects move in the same direction with regard to
their impact on the financial and current accounts. Stimulating fiscal policy will
clearly weaken the current account (balance of trade) and strengthen the capital
account. Restrictive fiscal policy will strengthen the current account (balance of
trade) and weaken the capital account.
The impact of fiscal policy on exchange rates is not so clear because the price
and income effects work in opposite directions. The income effect tends to
weaken the currency exchange rate, while the price effect will tend to strengthen
the currency exchange rate. Because foreign investors can trade financial
assets (such as stocks and bonds) more quickly and easily than consumers and
producers can alter the purchase and sale of physical assets, the price effect
would be expected to have the larger initial effect. Over time, the income effect
will increasingly come into play.

So initially, the fiscal stimulus should cause the domestic currency to appreciate.
Over time, as the demand for imports is stimulated, the domestic currency will
weaken. If the fiscal stimulus is associated with inflation, there will be a further
weakening of the domestic currency. Note that the fiscal stimulus will also have
the effect of worsening the balance of trade and increasing the financial account
in both the short and long run.
A stimulative fiscal policy is good for the economy when it is operating below full
employment levels. There are a couple of factors that will mitigate the positive
effects. One factor is that government deficits will work to increase interest
rates, which can crowd out private investment. Another factor is that after
foreign capital comes in (due to higher interest rates), the domestic currency
exchange rate rises. This leads to a rise in imports, which reduces GDP. These
two factors lessen the positive effects of fiscal policy stimulus.