CuaptTer 5 Contemporary Economic Issues Confronting the Filipino Entrepreneur LEARNING OBJECTIVES: -Acthe end of this chapter the learners willbe able to: 1, Identify the characteristic of an entrepreneur 2. analyze the effects of contemporary issues such as exchange rate and unemployment in our economic condition: |. understand investment and the kinds of investments and 4. discus the meaning and importance of rentals, Entrepreneurship Entrepreneurship isthe capacity and willingness to de ind manage a business venture + of backgrounds op, organ onder to make a profit, Entrepreneurs come from all ty alongwith any of risks and create all kinds of businesses, People From al ages may choose to become entrepreneurs, Some oxtn tiny craft shops, while others start huge construction companies, Entreprencurs try to ently the noeds ‘of the marketplace and to meet those neds by supplying a service or product, When they succeed, their businesses Nourish, and the profits go to them, When they fll, their cornpanies decline and Uhey may have to go out of business (Greene 2006), According to Hisich et al. (2008), the concept ofan entreprencur is further refined when priniples and terms from the business, managersl, and personal perspectives are considered. In particular, the ‘concept of entrepreneurship from a personal perspective has been thoroughly explored in this century “This exploration is reflected inthe fllowing three definitions of an entrepreneur “To an economist an entrepreneur is one who brings resources, labor, materials and other assets into combinations that make ther value greater than before, and one who introduces change, innovations, and a new order. Toa psychologist, such person i typically driven by certan Forces, the need to obtain or atain something, to experiment, to accomplish, or perhaps to escape the authority of others, To a businessman, an entreprencar appears as 3 Ahrest, an aggressive competitor whereas to another businessman, the same entrepreneur ‘may be anally, a source of supply, a customer, or someone who ercates wealth for others, as well at finds better ways to utilize resource, reduce waste, and produce jobs that others are lado getIn almost ll ofthe definitions of entrepreneurship, there is agreement that we are taking about a kind of bchavior that includes iniitve-takng, organiring and reorganizing socal and econotnle mechanters to tuen resources and situations to practieal account, and the acceptance of rk oF flare, Although each ‘efnition views the entreprencur from a slighty different perspective, they ll contain similar notions such as newness, organizing, creating, wealth, ad risk-taking Yet cach definition is somewhat restrictive, since cntreprencurs are found in all professions; education, medicine, research, iw architecture, engineering, social work, distribution, and the government Entrepreneurship is aso the dynamle process of ereating incremental wealth, The wealth is created by Individuals who assume the major rs in terms of equl or provide ‘value for some product oF service. The product or service may oF may not be new oF unique, but vale ‘must somchow be infused by the entreprencurby receiving and locating the necessary skills and resources, ime, ane/or career commitmen Entrepreneurship also the proces of ereating somthing new sith valuc by devoting the necesary time and effort, assuming the accompanying financial, psychi, and socal risks, and receiving the resulting rewards of monetary and personal satisfaction and independence Entrepreneurs and Employees Greene (2006) tells that an entrepreneur assumes risks. This makes them diffrent from employees. Employees are pcople who work for someone else. Both may make decisions, but ony the entrepreneur is direlly affected by the consequences of thore decisions, For example, Juan manages a record store owned hy Pero. Juan decides to keep the store open nti midnight ering the week If the addition hours bring in customers an increase profits, Juan may be praise by Pedro. He may even get a raise. However, Juan will ot directly receive any of the profits because he san employee. The earings wil flow to Pedro, the owner People go into business for themselves for many reasons, Some want to leave the fast-paced corporate environment, Others want to be at home but sil eam an income, Others want to pursue 2 personal dream. Your resons for wanting to hecome an entrepreneur may he completely different from these. Entrepreneurship is not for everyone, Some people lack the quali succesful entrepreneurs. Others lack the aptitude needed to run a business. For others, the benefits of entrepreneurship do not outweigh the disadvantages, Success as an entrepreneur requires a strong ‘commitment to a business and Tot of energy: Tobe able to commit yourself ally toa busines, you should choose afield that interests you and that will provide you with an experience you wil enjoy. ex needed to become Entrepreneurs and Inventors Accor son about the nature ofan en to Hisrich etal, (2008), there is great com an inventor, Inventors are people who create something for the first time. They are highly driven individuals motivated by their own work and personal ides. Besides being highly creative, an inventor tends to be well educated, with college of, most often, postgraduate degree education, and occupational experiences that contribute to creative development, An inventor is fre thinker, problem-solver able toreduce complex problems to simple ones, witha very high lve of self-confidence, willing to take risks,and has the ability to tolerate ambiguity and uncertainty. typical inventor laces high premium on being am achiever and measures achievement by the numberof inventions developed, An inventor isnot likely 1 view monetary benefits asa measure of socess, {An inventor difers considerably from an entrepreneur. Whereas an entreprencur falls in love with the ‘organization and with almost anything to ensure is survival aed growth, an inventor fll in Tove with the in acon and will only rehuctantly modify the invention to make it more commercially feasible, “The development of a new venture based on an inventor's work often requires the experience of an ‘entrepreneur and a team approach, 8 many inventors are unable to focus on usta invention long enough to commerialire It, Inventors often enjoy the proces of implementing their invention. ‘Types of Entrepreneurial Business 1. Apparel and other opal ‘Auto and home ‘Aopkance ropa fente products ‘supe stores aulomobve repair lectical goods ‘Cheizas and ‘uiing mataits | 2. Babyiting related products Grocers and elated | and euppy stores products Bootkaeping ‘eerories and other toting stores dectical equpment | 4. Hardware, plumbing, | Floral Consulting eating equipment Fabricated metal Fumie stores Dance insu products Lumber, constuction raters {it novelty and ictal services Food products souvent stows Machinery, xeminators Indust machinery | "" equipment supplies | 6. Grocery stores and equipment Flower decorating Motor voices Horawar sores Pring and automotive equgmont House clearing pubtaheg ower stores Paper, paper products Lown cae uber and ota bakers miscotareous pli | 9. Perum. patoeun | Painting = products stores Lame Prumbing ‘Stone, ly, and glass ‘Sporting goods and Die slows ‘Translating Travel agoncy| “Tutoring Source: rvepreneurship: eas in Acton‘Atypical SarbSanstore Sw sr stores are popular sal etal ‘outlets that can be found nao ll neghborhoads womeimeseven nevery ret comerin the Pippin Such tres “orm on importantecanome ard soc locatonin Fling communay and an “carpe of etaing busines, Characteristics of a Successful Entrepreneur Researchers hive identified several characteristics that distinguish succesful entrepreneurs from those that fil, Following ae the characteristics of succesfl entrepreneurs (Greene 2006). 1. Successful entrepreneurs are independent. They want to make their own decisions and do something they 2, Successful entrepreneurs re self-confident, Entrepreneurs make all the decisions, They must have the confidence to make choices alone and bounce back from poorly made decsicns, 3, Successful entrepreneurs have deter through hard times until goals are met. ination and perseverance. Entrepreneurs penist 4, Suecessful entrepreneurs are goal-oriented. 5, Successful entrepreneurs know what they want,and theyareabletofocuson ac! it, 6. Successful entrepreneurs have anced to achieve and to set high standards for themselves. They are constantly setting challenging new goals, ving, 7, Successful entrepreneurs are creative. They think of new ways to market their businesses and are always looking for new slutions to problems, 8. Successful entrepreneurs are able to act quickly. They are not ara © make quick decisions when necessary which helps them beat their competitors ‘Advantages of Entrepreneurship Many people see significant advantages in owning their businesses, Greene (2006) enumerates the shantages of entrepreseurdip as follow 1. Entrepreneurs are their own bosses. Nobody tells an entrepreneur whit to do, Entrepreneurs ‘contol their own destiniesEntreprencurs can choose a business that interests them, Entrepreneurs work in field that interests themn, Many combine hobbies ad interest with business, 4, Entrepreneurs can be creative, Entrepreneurs are always implementing erative Wess that they hennselves come up with 4. Entrepreneurs can make lots of money: Entrepreneurship involves risks, This means that entrepreneurs can make a lot of money if their busines cceeds, Disadvantages of Entrepreneurship ‘There are aso disadvantages to being an entrepreneur. Greene (2006) enumerates the diadvantages of entrepreneurship as follows 1. Entrepreneurship is risky, All small bsineses face the possibility of going out of business or docing roa. 2, Entrepreneurs face uncertain and irregular incomes. Entrepreneurs may make money one ‘month and lose money the next. 3, Entrepreneurs work long hours. Entrepreneurs never really are finished with their jobs, They can work long irregular hours. They receive no paid day off and they may have to work during evening and on weekends 4. Entrepreneurs must make all decisions by themselves, Unless they have partners, entreprencurs must make all the decisions alone The Entrepreneurial Process Entrepreneurial proces isthe proces of pursing new venture It involves more than jut problem solsnginatypical management ouldon, An nteprener must ed crate, and developanopportinty by overcnnng the force tht hinder the creation of something new: According to Hirich t (208), the proces goes trong fcr dint plmen 1. Mentifcation and evaluation of the opportunity 2, Development of the business plan 3, ete on ofthe required resources 4. Management ofthe resulting enterprise The Importance of a Good Business Plan {A good busines plan must be de ‘consutning phase ofthe entrepee cloped in order to exploit the defined opportunity. It isthe very time- sural process. An entrepreneur usually prepares a business plan before and docs not always have the resources to do 3 good join preparing the busines plans. A good business plan is essential in developing the opportunity and determining the responsiblity roqured, obtaining thote resources, and succesfully managing the resulting ventureThe Role of Entrepreneurship in Economic Development According to Hisich et (2008), the role of entrepreneurship in economic development volves more than just increasing per capita output and income. I involves iit and constituting change inthe structure of business and society This change fs accompanied by growth ad increased output which allows tore wealth tobe divided among the various participants, What in an arca facilitates the needed change anv development? One theory of economic growth depict innovation asthe key, no ony in developing new product forthe market but aso in stimulating investment interest in the new ventures beng created “The new investment expands the capacity and output, In spite of the importance of Investoen innovation in the economic development of an ae «volution process. This i the process through which innovation is developed and commercialized through entrepreneurial activity, which in turn simul there itil lack of understanding ofthe prodict. + economic growth, The innovation can, of course, be of varying degrecs of uniqueness, Most innovations introduced to the market are ordinary innovations, with tle uniqueness oF technology. As expected, there are fewer technological innovations and breakthrough nnovations, withthe number of actual innovations decreasing as the technology involved increases, Regardles ofits level of uniqueness of technology, cach innovation ‘volves nto and develops toward commercaiation, Ethical and Social Responsibility of Entrepreneurs The life of an entrepreneur is not easy. An entrepreneur must tke risks with his or her oven capital in order to sell and deliver products and services while expanding growth energy more than the average business person in order to innovate, In the face of daily strestes such as balancing ethical exigencies, economic expediency, and sactal responsible, the general business mat checking his or her moral stance, per may conn to a polnt of A manager's attitudes concerning corporate responsibil perceived to be supportive of ls and professional codes of ethis, On the other hand, entrepreneurs ‘with a relatively new company have few role model from which they can base their internal ethical code, Entrepreneurs tend to depend on their own personal systems much more than other managers when detersnining ethically appropriate actions are related to the organizational climate Although drawing more fom their own value systems, entrepreneurs seems to be particularly sensitive to peer pressure and general soctal norms in the community as well as pressures from thelr competitors, “he differences between entrepreneurs in ther types of communities and in diferent countrie reflect, tosome extent, the general norms and vals of the communities and countries involved. This is clearly the metropolitan as opposed to non-metropolitan locations within a single country. Internally, there is evidence to this effect about managers in general The significant increas in the numberof interationaly-orientd businesses affects the increased interest, in the similarities and diflerences in business attitudes and practices indifferent countries, This area has been explored to some extent within the context of culture and is now beginning to be explored to some extent based on the concept of ethics, The concepts of culture and ethics are somewhat relatedEthics refers tothe study of whatever igh and good for human. I isthe broad feof study exploring the general nature of moral and the specal moral choice to be made by the individual in his relationship 1 (Hisrich eta, 2008), with o Contemporary Economic Issues Investment Investment is the use of savings to become future income, The term more specifically refers to the use of funds to acquire capital goods, Capital goods are items that are necessary to produce other ‘goods and services, Examples of capital goods include factories, offices, machinery and computers, Many people sve or invest part oftheir current income to cons or gan more inthe fature, Some do this indretly by leting others invest their Funds, while others invest drctly in their own businesses Investments vital for economic development and growth. When people deposit funds in bank accounts, for example, banks lend some of those funds to busines firms, The firms, in turn, ase these bank loans ings and equipment to expand production. Many firms also raise Fans for business ‘expansion by issuing stocks and bonds that are sold to investors, to invest in new bul Governments issue bonds to obtain funds to invest in such projects as dams, roads, airports, and school, Alltypesofinvestment by individuals, business, and governments involve giving up present consumption ‘of goordsand services inthe expectation of even greater consumption in the future. th this way, investment cenliances a nation’ ability to produce goods and services, and thereby increases its standard of living (Barth & Ramesh L. 2001), Different Kinds of Investments. Before making any investment, people ould ear as nich 1s possible about how the money they are investing will be used, People shoul also assess what the expected return willbe from an investment Because every investment entails risk (posit of los), one should carefilly examine the expected return in relation to the risk involved, According to Barth & Ramesh L. (2001), there are two main kind of investments: Direct Investments Examples of direct investments are business investments and realestate investments 1 Business Investments, Buying small business may be the most demanding kind of investment Investors may be required to work hard to carn an acceptable return, For this reason, the investor tut be aure to choose the right business before making a commitment. Ia person buys or opens restaurant, or example, he or she may need to work long hours for te operate profitably 2. Real Estate, People invest in realestate when they buy homes, land, or rental properties Real estate tay increase in value over tine and thus be sold for a profi, It may alto produce income directly, in the form of rent, or indirectly, nthe form of erops, mineral, or timber: Ie may produce a higher rate‘of return than many other kinds of investments and isan especially god investment during periods of inflation, when property values tend to rise slong with ather prices, But real estate prices can fal sharply during times of recession or depression, The drawback to realestate Investment is that reselling property may tke a considerable amount of ime. I ther words, such investments are low {in liquidity —that i, the case with which an investment can be turned into cash without loss. Indirect Investments Examples of direct investments are through financial institutions in such forms a savings, accounts, and stocks and bonds 1 Savings Account. Savings account is common kind of investment. Funds deposited ina savings account ata bank, credit union, oF savings institution earn interest at a specified annual rate. Most banks offer money market accounts, certificates of deposit, and ather special savings plans, Moncy ‘market accounts pay an interest rate that reflcts conditions inthe money market, where short-term government and corporate securities are traded. Funds deposited in a certifeae of deposit cannot be ‘withdrawn without penalty fora specified period, such as one oF two years, Both types of accounts ‘ypieally pay higher rate of interest than regular savings accounts, Most banks ad savings ins are privately owned and operat fora profit. Credit unions, in contrast are not-for-profit cooperative ‘organizations operating for the benefit of members, All net earnings (earnings minus expenses) are pasted on to members the form of lower loan costs oF higher returns on deposits, Some types of savings accounts yield lower rates of interest than some other types of investments, Nevertheless, they tract investors with low income or litle investment experience because they involve minimal risk nthe Philipines, the risk is low because such accounts in almost all banks and other depository {institutions are insured up to 500,000 pesos through the Philippine Deposit Inurance Corporation epi, 2, Bonds.These inchide government securities ane corporate bonds. Government securities are fasucd by the government, These investments pay interest at a specified rate over a certain period Savings honds ised by the government are popular among investors because they ate sold in small denominations and ate safe. Most savings bonds can be redeemed in cath, if necessary, after six ments, end pay interest rates reflecting buy other types of government bonds, inluding trasury bonds. These bonds ae traded on stock ‘exchanges and typically pay a higher rate of interest than savings bonds, Some ofthese bonds pay a fixed fall pid on certain other securities, People investing can of terest If prices rise unexpectedly, however, the purchasing power ofthese bonds also 3. Stocks. Those include two types of corporate securities: (1) common stock, and (2) prefered stock, A-common stock represents shares of ownership ina company. The stockholders of a firm share in its profits and in losses, to, but only tothe extent oftheir investments. Ifa business firm has profitable year, the stockholders may receive cash dividends, The exact rate of returns on any common stock depends on its dividend andthe price at which it trades inthe market, If firta sulfers inca losses during a year, itmay not pay a dsidend, and its stock price may even decline, A company mayalso decide to use its profits to expand its operations rather than to pay dvidend, Some stockholders ray not object to such a strategy as long asthe firm's stock price rises. Appreciation (inerease in the value) ofa stock represents a capital gon. Capital gains are the profits earned from the sale of stocks, real estate, of other income: producing property. On the other hand, a preferred stock Isa type of corporate security that has features of both bonds and common stock. Like corporate bonds, prefered stock promises a fixed rate of return. The corporation must pay this return before ft distributes any dividends to investors in common stock, Thu, preferred-stock holders face less 3k than common-stock holders. Unlike bond owners, however, prefered stock holders have no legal rights to force a corporation to pay them the promised annual returns if the frm has insllcint catnings todo so. Hoth common and preferred stocks can yield higher returns than bons Other Kinds of Indirect Investments. |, Mutual Funds, These are companies that invest in a variety of securities and sell hares in those sccurtes to all types of investors, They oller some advantages to ndvidua investors For example, rutual funds employ specialists who select specific stocks or honds that they consider mos likely to the goals ofa fund, such as capital appreciation or low risk, Mutual funds also permit investors to ov securtics ina large and wide variety of firms, This concept i alld diverfication Diversification reduces the overall risk of los to investors cause losses incurred by one firm may be ofc by profit earned by another. The cash dividends that mutual funds pay to thei shareholders are generally taxable, Shareholders may automatically reinvest these dividends in addtional share of the rutual funds, Some mata! funds are called money market funds and invest only in government and corporate short-term securities. These funds provide an alternative to the savings accounts offered bby banks, Money market funds usualy pay higher rates of interest than bank sayings accounts because they operate without all the expenses of traditional banks, Most money market funds, moreover, allow investors to write checks agsnst their investment in the Funds, Because money market funds only make short-term investments, there is relatively little variation in net asct vale. As a reslt, such funds are liquid. Inthe United States, however, investors putting thei money into mutual funds are not protected agunat las bya federal insurance program, Life Insurance. Life insurance companies sll insurance policies that also act as a savings account, A person typically buys life insurance to provide financial protection fr family members in the event of death, Many types of life insurance, however, include a savings provision, An insurance company sets aside part of each premium (insurance payment) paid after a policy has been enforced fora certain period. This amount, called the sah vale ofthe policy, accumulates, and earns a specified rate of interest, In this way it resembles a savings account, The cash value ofan insurance policy may be particularly useful in an emergeney involving an unplanned expense, Policy holders can terminate their life insurance forthe cash valve or keep the poh nd borrow against it as cash value The Buying of Stocks According to Barth & Ramesh (2001), many people who buy stocks place their order witha brokerage ‘company. A broker may ill in the order by purchasing the desired shares from dealers or investmentbank that sell newly issued securities. The broker may also rely the purchase order toa representative at a stack exchange where stacks are trded. The representative then caries out the requested transaction, “The investor pays the purchase price ofthe shares plus commission fr the brokers services. The broker ako sells stocks for investors, In the late 1990s and arly 2000s, many investors began buying and selling stacks electronically through computers, a method of investing called online investing. Online investing, aso called electronic trading or e-trading, became more common as the internet began to grow in popularity, nividvals who invest online have more control over their investments than do people who invest through traditional brokers. They can access their brokerage accounts virtually anytime and from anywhere in the world, ‘Moat online brokerage services charge lower and cheaper contusions than traditional brokerage firms hhc they climinate many expenses, such a those of a arge sa and oie space Rent “The word rent has a spectal meaning in economics, To most people, rent is what they have to pay to use something that belongs to someane els, They rent an apartment to live in, they rent car on vacation, oF they rent a tuxedo for a special evening Technically, the eommon usage of the term isno diferent from ite definition in economics, butt certainly is not complicated than a monthly rent check. Rent isa payment ofa factor of production in excess ofits opportunity cost tis what is paid to any inp, in more than you would have had to pay it FourTypes of Rents Acconing to Davis (1997), there are four different types of rent. Each example or type adheres to the basi definition, but lightly diferent nits application, As you look at these types of rent, keepin mind its basic definition and se how it applies in each cas, |, Inframarginal Rent. Your best course Is to consider this term in pieces “Ina” means below oF under, “Marginal” means atthe margin othe end or lst, It s qual rent earned by a perfectly ‘competitive firm i the short run, 2, Pure Economic Rent, Pure economic rent i any payment made to a factor of production or anything that is Bixee in supply 4. Quasi Rent. Ina perfect competition, firms llth they earn no profit The price they receive is equal tothe «an pay forall of thei inputs, but they make no prof product for jst what it costs to produce it, so arginal cot of producing the good, Firms 4. Monopoly Rent. They are payments made toa monopolist that ate more than the minimum that the fi tm would accepUnemployment and Minimum Wage Unemployment is when a person, who is actively searching for employment, i unable to find work. Unemployment often used as a measure of the health ofthe economy. The most frequent measure of unemployment is the unemployment rate, which isthe number of wnemployed people divided by the ‘numberof people in the labor force. Some ofthe effects of unemployment are health concerns, increased ‘rime rate, and low standards of living. On the other hand, minimum wage is the lowest salary that “employers can legally pay their workers The minimum wage i the Philippines is governed by the Labor Code ofthe Philippines andi implemented bythe Department of Labor and Employment. Labor sues arise when some employers do not implement what was set by the government 1. Frictional Unemployment | arises when a person i in-between jobs. Aer a person leaves a company, it naturally takes time to find another job ‘making tis type of unemployment short-lived tis also the least problematic from an economic stanepoint 2. Cyclical Unemployment | toccurs due tothe business cycle itselt. Cyclical unemployment rises during recessions and decines during perods of economic growth. 3. Structural Unemployment | comes about through technological advancements, when people lose therjobs because their skis re already outdated. ‘An Ansuerto Unemployment “The Philippines sable to ak over na as the"Call enter Capa f the Wor or having the biggest employment because ofthe excelent communication ils nd good command ‘oF Enlh of ipinos compared to other counties nthe word