Term 2 Project - What Price Coffee?

a) A multinational company is a company which has a factory in one country and ships its products elsewhere, typically based in third world countries as the aim is to reap economical benefits such as cheaper labor and materials. Coffee business can be described as MNCs because the coffee plant needs a particular environment to thrive in and thus it becomes essential to export this particular item from tropical companies.

b) Coffee is a very popular item all around the world. Many people actually drink so much of it that they develop a caffeine addiction. However the coffee plant only grows in certain areas of the world. Thus, to supply this demand, it is necessary for coffee businesses to operate on a global basis. By keeping its production facility (in this case, a farm) in one place, the company only has to upkeep standards in this one place rather than having to exert control over quality in numerous places. Figure 109.4 demonstrates the low costs of transportation and payment to farmers thus coffee MNCs have a strong opportunity to make a profit thus it makes sense to provide to the global market as it is a globally demanded product. A MNC must adhere to the laws of its host country therefore a company can maanipulate this in its favor with issues such as taxes or tariffs.

c) Factors affecting globalization include government funding and encouragement in the case of Vietnam. Until that point, farmers had focussed internally, growing rice crops but trade liberalization cleared the way for exportation in a country with a good coffee farming environment. Farmers in third world countries have opportunity to guarantee that they can sell their crops to this vast market thus avoiding complete poverty though the wages they get from this are pitiful. Also the pesticides and fertilizer Vietnam farmers used are contributing factors to the globalisation of coffee since it was this technology which allowed it to grow and thrive.

d) Globalization has caused the MNCs to have a lot of power; enterprising coffee producers find it nearly impossible to breakthrough in the market and the decisions that the MNCs make affect the market as a whole. The economies of scale which lower prices can cause a negative effect too such as in the case of Nestle who faces competition from coffees of higher qualities against their instant coffees when prices are low. Globalization also means that the brand name of the MNC is better known and the company has a bigger customer base. Globalization increases competition between the coffee companies, which also contributes to eliminating chances for new coffee enterprises to breakthrough into the market.

e) MNCs take advantage of the third world countries by employing its inhabitants at the lowest possible rates. These people are forced to accept these terms or face starvation. While the MNCs can argue that they are providing employment and economical benefits to these people, the company still uses the poverty there to increase its profit margin which in turn causes the farmers to be deprived of what we in the civilized world would class as adequate wages. However, with the global popularity of the MNCs it is possible that their businesses and their practices will come under the microscope for inspection now and again and to avoid world wide negative publicity, the treatment of the businesses third world employees will probably be better than less popular brands. Fair Trade members capitalize on the third world employees by promoting their treatment of their third world employees and associates in order to gain the publics favor.

MNCs, conglomerates and holding companies

1) A multinational company operates in two or more countries.

2) A company which owns a controlling interest of other diverse companies.

3) A multinational company owns and controls 100% of its offices and operations, whereas a holding company only owns a percentage. Both can be found in a range of countries. The multinational company has a host country whereas the holding company has a host business.

4) The founders of Google are Larry Page and Sergey Brin. Google was named after the math term googol to convey the vast amount of information the search engine contains. Google started primarily as an internet search engine. It generates a large amount of its revenue by advertising other businesses. It now offers blogs, merchandise, is available in many different languages, e-mail system, calendar, they are developing mobile phone technology and are available on a mobile phone. There are nine people on their board of directors.

5) Asset stripping is when the assets of a business are sold to generate profit. The company to buy the target company is called a corporate raider.

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6) Google has not encountered problems because its product is globally required. The internet is multinational therefore so should a search engine for the internet be too.

7) -

8) A conglomerate merger is when two companies from different sectors merge. The term may refer to a multi-industry company.

9) Virgin airlines also sells boats, CDs, clothing and musical instruments.

10) Diversity is good for a business because some products may be affected seasonally and it's always good not to rely on just one thing. The brand name of a company will become better known if it is associated with more than one type of product thus giving the company a marketing advantage.

Skoda

a) The employees (and their trade union in relation to the conflict) and the managers who have to deal with the strike.

b) The managers and directors have to get the employee strike underhand because they may involve their unions and cause legal issues for the company, the managers may lose their jobs. During the strike, the company is losing money which could be blamed on the managers for not handling the situation.

c) There would really have to be representatives from both sides of the argument come together to discuss the issue and try to achieve a compromise which suits both sides. On the one hand, people need wages to live and so it is important that people are paid fairly for the quality and amount of work that they do. The company may simply have to let people go in order to keep costs down and be able to afford decent wages for the remaining employees.

Inflation and Recession Questions.

1) Why do govts consider it a priority to control inflation?

Inflation can cause recession in an economy which would cause high unemployment and instability in the nation, plus personal effects like depression. For a govt to have a healthy nation, there has to be a decent economy.

2) 2 main causes of inflation - explain.

Demand Pull inflation which is when there is excessive aggregate demand. This is caused by there is a rise in consumption, investment, goverment spending or international trade earnings. People or businesses spend more money at a fast rate which fuels inflation.

Cost Push inflation - when the cost of production is increased, so must the price.

3) 2 reasons why inflation is bad for business.

A business is affected in cost by inflation. Wages may need to be increased to cope with the higher cost of living thus the business has to satisfy its employees. Also, raw materials and advertising may also cause a higher cost to the business. International business will suffer a fall in export earnings.

4) IF there is Demand Pull inflation, unemployment will be high thus making some people redundant or unable to start working. Also if more national output is being produced, there will also tend to be unemployment. Thus employees are negatively affected by inflation.

Consumers are also nagatively affected since they have less money to spend and the cost of living is higher.

5) Demand-side policies - the government aims at tackling aggregate demand wither by reducing taxes or increasing their spending, this is dealing with expansionary fiscal policy. Expansionary monetary policy is used to boost aggregate demand by reducing interest rate to make it more of an option for people and businesses to borrow money. Protectionist measures concern local business and their competition with international businesses by placing a tariff in order to give local producers a price advantage.

Supply-side policies - aim at increasing aggregate supply in the economy. This is achieved by lowering corporation tax or reducing interest rates. The government may also spend more on education and training in order to ensure a future of skilled workers.

6) Q 1.5.3

a) African countries are likely to utilise international trade, any rise in international trade earnings may cause inflation. The government may have increased its spending to try to deal with the problem which is counter productive since this also can lead to inflation. Costs of production being increased due to inflation worsens the situation.

b) Already 80 percent of the population are below the poverty line, if the inflation continues this percentage can only increase. Such a depressive situation is not good for the inhabitants and the Zimbabwean government may be having to deal with high levels of resentment from its nation. If the number of people below the poverty line grows, less people will have money to spend and the economy will fail altogether.

Peak/Boom - economic activity is at its highest. Unemployment will be low and expenditure , investment and export earnings will be high. Employees are likely to be receiving bonuses as the business is making a good profit.

Recession - When there has been a dip in the level of economic activity for half a year. There will be a decrease in aggregate demand at this time. People will be more cautious with their money so investments will decrease. Unemployment will be rising at this time as businesses try to cut costs.

Slump/Trough - This is when unemployment is high and expenditure is at its lowest. Businesses will have a poor cash flow and some may even close down.

Recovery/Expansion - national income will increase, thus consumption, investment, exports and employment will rise gradually.

A business can cope with recession by -

Cost reduction methods - being more conscious about the amount of their bills, finding a better deal from suppliers or moving to cheaper premises as well as some staff redundancies in extreme cases,

Price reductions - as people are being more cautious with their money, they're likely to go with the cheapest option of a good or service.

Outsourcing - costs of production may be lowered by utilising overseas opportunites thus enabling the company to lower its prices and have an advantage over its competition.

Non-pricing strategies - special offers and good after sales care will make the consumers think they are getting more for their money.

Growth via improved quality of factors of production -

Capital goods - the more investment the better. Spending money on an economy's infrastructure will keep it healthy and attract business investments in the future.

Education and Training - The more educated and trained people are, the more capable they are at their jobs making them a bigger asset to the economy.

Health Technology - A healthy staff are less likely to take time off or retire early, also they are more capable to do their jobs if they are healthy.

Changes in labour force :

Changes in demography - Fall in birth rate means there are less workers and an ageing populatoin. A baby boom will lead to a large workforce. Education commitments might mean people start work later or need flexible hours or part time work.

Changes in participation rates - this measures the number of people who are self employed or employed as a percentage of the total labour force. This can be caused by government incentives such as lower rates of income tax.

Changes in net migration - this is the difference between immigration and emigration.

Barriers of growth for LEDCs are that their may not be enough education for an efficient workforce and with this inefficiency there may not be enough revenue to put back into remedying the infrastructure of the economy, especially as a large percentage of money is used to pay back debts. The large population is also a barrier as it is a drain on resources since the majority lack sufficient education and training.

Ethics and Social Resposibility

Ethics - moral principles which quide decision making and strategy.

Morals - concerned with what is right and wrong from a social point of view, decided by individual people, not an abstract business.

Corporate Social Resposibilities - socially resposible firms whichact morally towards their stakeholders, such as their employees and their community.

Social Auditing - a way to ensure that socially resposible objectives are being implimented. It is an independant assessment of how a firm's actions affect society.

Unethical Business Behaviour

Toxic waste from factorys and plants using chemicals has been dumped into oceans and rivers affecting nature and safety. This is disposal of waste in an environmentally unfriendly manner.

Factorys with huge chimneys have an option to install equipment to strip the fumes of the noxious gases but this option is not always taken. This is causes pollution by using environmentally unfriendly production processes.

Children in third world countries are often hired as very cheap labour and are forced to work in terrible conditions. This could be exploitation of suppliers or workforce.

Advantages

Improved Corporate Image - avoid bad media and attract positive PR. People will feel more socially responsible for using the company.

Increased Customer Loyalty - Customers will favour a socially resposible firm which may result in repeat business.

Cost Cutting - by being more concerned with social matters a business could save money. For example, reducing packaging to help the environment or avoiding litigation costs.

Improved Staff Motivation - Employees are likely to be proud to work for a business which cares about society. This will increase staff productivity and may reduce turnover. Also, socially responsible businesses are more likely to ensure good working conditions for workers.

Improved Staff Moral - ethics in a business may attract a motivated staff.

Disadvantages

Compliance Costs - it is sometimes more expensive to behave ethically in business. Time and money spent on farm environments for example to produce organic food and good conditions for animals.

Lower Profits - if it is not possible to cover the compliance costs by raising the prices of goods or services then the cost will be deducted from the profit.

Stakeholder Conflict - not everyone will prioritise ethics in a business. Profit and short-term goals may be more important to some people.



Popular businesses are often involved in helping to improve society in some way. Helping the community for example allows the business to become familiar with its community and gain familiarity with its residents. Positive PR is also a benefit of acting socially resposible. Being socially irresponsible results in bad press and thus customers do not wish to support such a company, thus acting oppositely can only be a good thing, from this point of view.



A social audit is used to ensure that all their socially responsible objectives are being carried out. There would be negative media press on the company if the business stated that it was being socially responsible only to find out that some branches or employees were not upholding the firms socially resposible policies.

Franchising

The difference between a franchise opportunity and setting up a business is mainly who is in charge. A franchisee has to report back to the franchisor which he/she wouldn't have to do in their own business. All major decisions are made or approved by the franchisor. Marketing is provided for the franchisee. The franchisee does not have to spend time and money building up the business, gaining the name of the company a good reputation, he/she just has to uphold one which already exists. The franchisee has to pay the franchisor whereas a business owner has no one above themselves to pay.

Popular, well-known names are likely to be in the Oregon area franchise if it succeeds in gaining one because this will help make the franchise successful.

The Premier League may seek to make itself a more well-known name globally and thus offer its franchise to similar companies in other countries. This would mean teams would have more cultural influence, more competition, more players trying to get a place on the team and make the team members more famous.

Testing

Testing 1, 2.