Professional Documents
Culture Documents
Economics and The Business Environment
Economics and The Business Environment
• U-form
U-form business organisation
C h ie f e x e c u t iv e
P r o d u c t io n F in a n c e S a le s P u r c h a s in g
The Internal Organisation of the Firm
• U-form
– advantages
• direct control by central executive of the firm
• clear goals
• M-form
M-form business organisation
H e a d O f f ic e
D iv is io n 1 D iv is io n 2 D iv is io n 3
P r o d u c t io n F in a n c e S a le s P u r c h a s in g
The Internal Organisation of the Firm
• M-form
– advantages
• reduced length of information flows
• enhanced level of control
– problems
• bureaucracy and communication problems
• conflicts between divisions
• The flat organisation
• The holding company
– role of parent company and subsidiaries
The Aims of the Firm
• Alternative theories
– managerial objectives
The Aims of the Firm
• PEST analysis
– Political / legal factors
– Economic factors
• the microeconomic environment
• the macroeconomic environment
– Social / cultural factors
– Technological factors
• Using PEST analysis
– relations between the four sets of factors
– importance of the economic factors
The External Business Environment
• Classifying industries
– Classifying production
• primary production
• secondary production
• tertiary production
Output of industrial sectors
(as % of GDP)
Primary
2.8% Secondary
42.3%
54.9%
Tertiary
1974
Output of industrial sectors
(as % of GDP)
Primary Primary
23.3%
42.3%
54.9%
70.9%
Tertiary Tertiary
1974 2002
Employment by industrial sector
(% of total employees)
Primary
3.4% Secondary
41.9%
54.7%
Tertiary
1974
Employment by industrial sector
(% of total employees)
Primary Primary
18.4%
41.9%
54.7%
79.8%
Tertiary Tertiary
1974 2002
The External Business Environment
• Classifying firms into industries
– nature of an industry
– industrial sectors
– why classify firms into industrial sectors?
• helps in analysing trends
• identifying specific needs
• helps to understand relationships between firms
• Standard industrial classification
– nature of the system of classification
– sections, subsections
• divisions, groups and classes
Standard industrial classification: 1992
The External Business Environment
• by employment
The Determinants of Business Performance
– factors of production
• labour
• land and raw materials
• capital
The Economist's Approach to Business