Main Motivations For Firms To Grow Economics Essay
Economicss in relation to concerns is diverse in nature and it is seen as the underlying capable affair that determines how net income and non-profit administrations react in relation to the concern environment. Begg & A ; Ward ( 2009 ) justifies the utility of economic sciences by saying that houses operate within an economic environment, hence every determination taken by such houses in relation to what to sell, how to sell, when to sell, who to sell to and even where to sell is determined entirely by the economic environment they find themselves. It puts into perspective how house ‘s compete, how different markets map and the manner such house ‘s make economic determinations and besides how they react to such determinations when made by viing houses.
George Higson ( 2005, pg.8 ) restates the necessity of the types of concern in both a absolutely competitory and an amiss competitory market ; wherein the enterpriser can work their cognition and do a net income making so within the latter compared to the former.
Main Motivations for Firms to turn
The chief aim for a house is to do money for its proprietors. Therefore a company is considered a net income maximizer and this may besides take to increase in size of the administration on the long tally. Begg & A ; Ward ( 2010, pg. 153-155 ) considered three options for a house to turn which are:
Horizontal growing – Making more of the same concern e.g. doing more of the same merchandise
Vertical Growth – The house can cut down its trading relationships by supplying its ain inputs e.g. organizing its ain gross revenues and distribution value concatenation.
Diversified growing – A house can get down to run in wholly new market.
The motive for most houses to turn can be attributed to two common factors viz. commercial aims and non-commercial aims:
Net income maximization: “ This is the end product degree at which the house generates the highest net income for its stakeholders ” ( Begg & A ; Ward, 2009 pg. 99 ) .The behaviorist theory of houses hold this premise clearly. Lipsey & A ; Harbury ( 1992, pg.152-154 ) proposed two regulations that ensures net income maximization.
Rule 1: Net income is maximised when the fringy cost ( MC ) is tantamount to fringy gross ( MR ) . Fringy cost is the cost of making one more unit of a merchandise, while fringy gross is the alteration in entire gross ensuing from a alteration of one unit in the rate of gross revenues per clip. This entails that all net incomes must hold been extracted when MC=MR.In Fig1.0, the house will bring forth an extra unit when MR & gt ; MC because it makes extra net income, but it will non bring forth any more unit when MR & lt ; MC as this will take to a loss.
hypertext transfer protocol: //www.economicshelp.org/blog/wp-content/uploads/2011/09/profit-maximisation.jpg
Fig 2.0: Fringy cost V. Fringy gross. Beginning: www.economicshelp.org
Rule 2: Called the ‘shutdown regulation ‘ which states that end product should be positive ( profitable ) if Entire gross ( TR ) is greater than or equal to the Total variable cost ( TVC ) i.e. TRa‰?TVC. “ Therefore a house may merely go on to bring forth provided that the gross generated exceeds the variable cost, if the variable cost is greater than the gross, so it would be better for the house to discontinue production and cut its losingss to the fixed cost already spent ” ( Lipsey & A ; Harbury,1992 pg.154 ) .
Market portion maximization
How good is a steadfast making in its market? The market portion answers this inquiry. Firms are motivated to turn based on the premiss of increasing their market portion in the industry. Increase in market portion may be attributed to gross revenues gross maximisation-gaining the maximal possible grosss from selling a merchandise, gross revenues volume maximization – bring forthing an end product from gross revenues that covers the entire cost of production. An oligopoly market has many houses viing for market portion, and a company with the purpose to turn would see its concern determination devising in line with the competitory competition available in the system.
Increasing stockholder value:
“ Separation of ownership from control exists in major concern, peculiarly the publically listed 1s where the stockholders who own the company are different from the directors that control the concern on a twenty-four hours to twenty-four hours footing ” ( Begg & A ; Ward, 2009 pg.179 ) .The principal-agent theory proposes that representatives of the stockholders have the authorization to increase returns on the investing on behalf of the concern proprietors.
Economies of range:
This motive for growing can be seen in companies with diversified growing. The cost of bring forthing two merchandises independently is greater than the cost of doing the two merchandises together. Cost ( A ) + Cost ( B ) & gt ; Cost ( A+B ) . Begg & A ; Ward ( 2009 ) summarizes this in the illustration of BBC intelligence assemblage services, where intelligence is gathered centrally and so drawn from by BBC News, BBC Evening News, BBC News Online and it cuts down on duplicate and reduces cost for the proprietors.
Business Survival & A ; Expansion
Vertical growing of a concern is the effort of a house to incorporate extra value-adding activities into its bing value-chain taking to decrease in production costs. Business start-ups may be in a market sector with the purpose of endurance in the first few old ages before acquiring a bridgehead in the market Firms may besides seek to keep out during an economic downswing ; illustrations include consolidation of major Bankss due to the fiscal meltdown. The concern proprietors are motivated because there is decrease of costs and increase in gross which maximises their net income.
Ethical duties are the new concern schemes being encouraged for sustainable development. This as one of the motives for a company to turn is to add value to the environment, guarantee the company adds value to the people that are its consumers. Ethical ends such as just trading and sustainability in the environment are major guideposts. These houses tend to gain that making the ‘right thing ‘ is the cardinal subject of their concern ; this enables their concern to turn as more people are taken to making concern with those that have this as portion of their administration control.
B ) National pride/wealth
Companies like NNPC ( Nigeria ) , NOC Libya, Aramco ( Saudi Arabia ) , Petro Ecuador etc. are illustrations of the national oil companies owned by oil bring forthing states. What is motive for growing? It is the national wealth of these states – petroleum oil. The growing of the national companies is motivated by the growing in the wealth of the state.
The motivations of any administration to turn can be remarkable or diverse, but it can be seen in the visible radiation of what the proprietors of the concern want in footings of addition in shareholding and profitableness, what the directors of the concern want in footings of addition gross ensuing in fat fillips, the period of concern which might tend the asceticism period e.g. the Greece state of affairs, the competition in footings of whether it oligopolistic or monopolistic and how big the concern is in footings of type of concern that is being operated. All these finally find how houses are motivated to turn.
Microeconomicss Assessment 2:
Measure the determination by Google to purchase Motorola. What economic constructs would back up this investing and in your sentiment why might the purchase of Motorola be anti-competitive.
The twenty-first century concern mentality is to be understood and managed as an economic system in which services, information and civilization – with the implicit in activities, minutess and relationships play a cardinal portion. Over the last few old ages, the manner we interact with engineering peculiarly telecommunications has changed enormously and this is because of the turning nomadic smartphone and tablet industry which has seen major turnarounds over the last five years- now referred to as the ‘post Personal computer epoch ‘ . August 15th 2011 News flash: Google Acquires Motorola Mobility in a trade deserving USD 12.5 billion, this was unexpected intelligence but it has become a watershed in modern-day concern history. The Economist in 2011 considered this the biggest acquisition by Google in its 13 old ages of being as the company spent a 3rd of its hard currency net incomes on this acquisition.
ECONOMIC CONCEPTS THAT SUPPORT THE GOOGLE-MOTOROLA DEAL
Vertical GROWTH: When two companies at different degrees in a perpendicular concatenation of merchandises join together. In this instance, hardware Client Motorola is acquired by the package client Google. Google is now vertically integrated because it now owns back-to-back phases of the perpendicular concatenation, ensuing in merchandise and cost efficiency. This follows in the same concern rule of Apple ‘s scheme of incorporating hardware and package concern.
MERGERS & A ; ACQUISITION: An “ acquisition ” arises where one concern acquires a controlling involvement in another concern ( Riley 2012 ) . There is a alteration of ownership, with the acquirer going the legal proprietor of the concern that has been sold. The stockholders of the acquired house would hold agreed a monetary value for their portions Riley ( 2012 ) . The Google trade was brokered at $ 40 per portion “ a 63 % premium on Motorola Mobility ‘s shutting monetary value ” ( Halliday ) . Amalgamations, on the other manus is the conveying together of 2 ‘equal ‘firms ‘ to better their concern.
SHAREHOLDER VALUE: Shareholder value is created by bring forthing future returns for stockholders which exceeds the returns that they could anticipate to gain elsewhere. The returns measured in footings of hard currency flow while the cost of capital is used to bear down for the usage of the capital invested. If concerns are managed to better the value of the stockholders ‘ investing so it supports the aim of that concern to make and maximise stockholders ‘ wealth.
Competition: Government regulators in developed economic systems such as the UK, USA and Europe need to guarantee that concerns do non hold inordinate market power. Most states have regulators with the powers to keep powerful houses or prevent coup d’etats and amalgamations that have the possible to make such monopoly. In order to guarantee that Google did non travel this path: the US, European, China, Taiwan and Israeli authoritiess had to O.K. the trade before it could be consummated. The regulators have powers to forestalling the trade from traveling in front ( Riley, J 2012 ) .
Consolidation: Consolidation refers to the decrease in the figure of rivals in a market and the resulting addition in the market portion held by the leftover houses. This increases the market power of the acquirer by cut downing competition and can enable the house to increase monetary values. The hypertrophied concern can better efficiency by cut downing excess capacity or sharing resources ( Riley, J 2012 ) .
Globalization: Firms do non run within remarkable markets, they function within monolithic macroeconomic systems, and companies now understand how alterations in planetary macroeconomic events and political alterations affect their concern ( Begg & A ; Ward 2009 ) .
MY Opinion ON GOOGLE-MOTOROLA DEAL: ANTI-COMPETITIVE OR NOT?
Google Incorporated was established as a hunt engine company in 1997, it developed the Google hunt engine considered the largest hunt engine in the universe and in 2007, with the coming of nomadic computer science, it invested in the development of a nomadic calculating operating ecosystem called Android- this package has become the figure one operating system for nomadic devices with “ more than 150 million Android devices holding been activated worldwide ” harmonizing to Larry Page, Google CEO. Motorola is a market leader in the fabrication of smartphones, video solutions and place devices, established over 80 old ages ago it was one of the few companies that invested ab initio in the humanoid package, which today is an instant success in the industry. It is good known in the industry that the trade is an effort to procure Motorola ‘s over 17,000patents ; which will let Google to screen its Android operating system from legal suits and better place itself to vie with the current market leader in the handheld market, Apple. Google-Motorola trade is kindred to the Microsoft-Nokia trade in my sentiment and it is besides good to observe that unlike in the Personal computer epoch, the victors in the smartphone/tablet epoch would be those who are able to convey the whole value concatenation together merely like Apple did.
Second, Google has stated its committedness to maintain the humanoid package unfastened by saying “ This acquisition will non alter our committedness to run Android as an unfastened platform. Motorola will stay a licensee of Android and Android will stay unfastened. We will run Motorola as a separate concern ” Larry Page ( 2011 ) . It is gratuitous to state Google is now a direct rival to other hardware companies. Google is non favouring Motorola over any device maker every bit good. Finally, for the amalgamation of Google and Motorola to hold been approved by the EU and other regulators globally, so the jurisprudence modulating this facet has been purely adhered to. It is my belief that this brings healthy competition to Apple, Nokia-Microsoft and other major players- this most likely will drive invention in ways we have non seen earlier.
Supply an appraisal of the macroeconomic environment over the last 5 old ages ; and buttocks and measure how the macroeconomic environment has affected a peculiar concern.
Macroeconomicss being the overall economic environment wherein an organisation does concern includes the concern rhythms which can alter due to fluctuations in the over-all demand and supply of merchandises and services within such an economic system. Overall demand and supply can lift during an economic roar and besides dip during an economic recession. A concern therefore has to see these rhythms and issues of economic uncertainness to make up one’s mind how it conducts its concern. Begg & A ; Ward ( 2010 ) stated that the advantages of a house being cognizant of its immediate macroeconomic environment as “ houses that understand the macroeconomy and program enlargement and consolidation of the concern at the right times are more likely to thrive ” . A state ‘s macroeconomic issues can be charted with the undermentioned cardinal issues:
GDP – Gross Domestic Product – Is a step of the entire end product produced by an economic system in a given twelvemonth.
Inflation – Is the rate of alteration in the mean monetary value degree. Inflation of n-percent indicates that monetary values have risen by n-percent during the old 12 months.
Unemployment – Is the figure of persons seeking work, but do non soon have occupations.
Current Account – Is the difference between exported and imported goods and services.
Interests rates – The monetary value of money which is set aside by the cardinal bank.
The authorities shortage – Is the difference between authorities disbursement and revenue enhancement reception.
A MACROECONOMIC ENVIRONMENT ( NIGERIA )
Historically “ Nigeria has a double economic system with a modern section dependant on oil net incomes, overlaid by a traditional agricultural and merchandising economic system. At independency in 1960 agribusiness accounted for good over half of GDP, and was the chief beginning of export net incomes and public gross. The oil sector, which emerged in the 1960 ‘s and was steadfastly established during the 1970 ‘s, is now of overpowering importance to the point of over-dependence: it provides 20 % of GDP, 95 % of foreign exchange net incomes, and about 65 % of budgetary grosss. The mostly subsistence agricultural sector has non kept up with rapid population growing, and Nigeria, one time a big net exporter, now imports nutrient. Based on GNP per capita, Nigeria is among the universe ‘s 20 hapless states. Economic growing since the early 1970 ‘s has been fickle, driven chiefly by the fluctuations of the planetary oil market. During the 1980 ‘s and 1990 ‘s Nigeria faced turning economic diminution and falling life criterions, a contemplation besides of political instability, corruptness, and hapless macroeconomic direction ( most notably the failure to diversify the economic system ) . ” ( hypertext transfer protocol: //www.iss.co.za/af/profiles/Nigeria/Economy.html ) . Over the last 5 old ages, ( 2007-2012 ) Nigeria has had a stable political environment, variegation of the economic system, and increase in the foreign direct investing. The state is besides sing a great engagement of globalisation which is doing development of substructure, divestment of authorities involvements from public endeavors. One of the purposes of the Nigerian economic system is to go one of the largest economic systems by the twelvemonth 2020 measured by the Gross Domestic Product ( GDP ) yardstick.
ASSESSMENT OF NIGERIA ‘S MACROECONOMIC End product:
The tabular array below shows the figures of Nigeria ‘s macroeconomic indexs as observed in the World Economic Outlook database ( 2012 ) . It shows that unemployment rate over 5 old ages, has increased steadily with the highest rate seen in 2011, despite the economic growing being experienced by the state. As the population keeps increasing the rate of unemployment is besides maintaining gait and this has resulted in high offense rates at extremely populated countries in Nigeria and has most late led to other frailties such as snatch and incendiarism, this has increased the cost of making concern in Nigeria. The entire investings in concerns in the state have been above the 20 per cent of the state ‘s GDP over the last 5 old ages. “ The involvement rate refers to the cardinal bank benchmark involvement rate. Traveling the benchmark involvement rate, the cardinal bank is able to do an impact on involvement rates of commercial Bankss, rising prices degree of the state and national currency exchange rate ” ( www.tradingeconomics.com ) . Businesss are affected based on the involvement rates they have to pay to Bankss for concern loans, while national currency exchange affects the local costs attached to imported goods and services. An addition in involvement rates may nevertheless take to a higher cost of making concern in a state.
The Gross Domestic merchandise ( GDP ) for Nigeria is normally published by the Nigerian Bureau of statistics and the latest figures for the GDP per capita shows an addition in the degree of income within the economic system.
Table 1.0: International Monetary Fund, World Economic Outlook Database, October 2012
Fig 1.0: Nigeria Interest rate Source: www.tradingeconomics.com
NIGERIA ‘S MACROECONOMIC ENVIRONMENT AS IT AFFECTS THE MTN BUSINESS
The pick of company for the macroeconomic analysis is the MTN Group peculiarly the Nigerian subordinate of this pan-African company with 22 other concern operational footmarks in Africa and the Middle East. The company has been able to interrupt barriers in stomping its market leading in the country of telecommunications and information engineering. The company has been able to take the hazard of come ining a political unstable state which was basking a nascent democracy. The company bidded for the GSM license won and set up its substructure with the authorities assuring responsibility free importing of indispensable equipment to setup its substructure. The decrease of involvement rates and responsibility free importing brought an addition in concern activity between 2009 and 2011 taking to a a rise in rising prices rate and weakening of the national currency but an addition in the involvement rate to 12 % in 2012has increased is the likeliness for a bead in concern activities while rising prices diminutions and national currency strengthens. The addition in population is supplying a good concern land for MTN Nigeria because the ingestion rate additions, while the downside of this is the comparative unemployment rate which reduces the demand for services and the security issues associating to unemployment has caused MTN Nigeria to relocate its operations from some parts of the state. Telecommunication services are seen as really indispensable due to the hungriness of the population to be connected in more ways than one and this is assisting the concern even as the economic system grows. Chen & A ; Mahajan ( 2010 ) relates that “ most macroeconomic variables normally affect the corporate liquidness of the company and determines whether it can do determinations to spread out its services web or go on to pull off its bing web and maximizing net income ” .
Mentions, bibliography & A ; web sites
Microeconomicss Assessment 1:
Begg, D. and Ward, D. ( 2009 ) . Economicss for Business, 3rd Edition. London: McGraw-Hill.
George Higson ( 2005 ) Business Economicss: Enterprise, Efficiency & A ; Regulations. www.economisonline.co.uk.
Lipsey, R & A ; Harbury, C ( 1992 ) .first Principles of Economics 2nd erectile dysfunction. Oxford: Oxford University Press.
hypertext transfer protocol: //www.forbes.com/sites/jacquelynsmith/2012/03/15/the-worlds-most-ethical-companies/2/
Microeconomicss Assessment 2:
Begg, D & A ; Ward, D. ( 2009 ) . Economicss for Business, 3rd Edition. London: McGraw-Hill.
Halliday, J ( 2011 ) . Google looks to ‘supercharge ‘ Android with Motorola Mobility, Available at hypertext transfer protocol: //www.guardian.co.uk/technology/2011/aug/15/google-buys-motorola-mobility ( last accessed January 11th, 2013 ) .
Riley, J ( 2012 ) . Coup d’etats and Mergers- the Language of M & A ; A. Available at hypertext transfer protocol: //www.tutor2u.net/blog/index.php/business-studies/comments/takeovers-and-mergers-the-language-of-ma ( last accessed January 11th, 2013 ) .
Google ( 2011 ) . Facts about Google ‘s acquisition of Motorola. Available at: hypertext transfer protocol: //www.google.com/press/motorola/ ( last accessed January 11th 2013 )
Larry Page ( 2011 ) Google Official Blog. Boosting Android: Google to Acquire Motorola Mobility. Available at: hypertext transfer protocol: //googleblog.blogspot.com/2011/08/supercharging-android-google-to-acquire.html
hypertext transfer protocol: //www.jamesrobertson.com
MTN Nigeria Corporate Information, Available at: hypertext transfer protocol: //www.mtnonline.com/about-mtn/corporate-information ( accessed July10, 2012 ) .
MTN Group Annual Report ( 2011 ) Available at: hypertext transfer protocol: //www.mtn.com/investors/financials/pages/annualreports.aspx? yr=2011 ( accessed July13, 2012 ) .
MTN Nigeria News Story, Available at: hypertext transfer protocol: //ictafrica.ning.com/profiles/blogs/mtn-nigeria-stanbic-ibtc-seal-mobile-money-deal ( accessed July 13, 2012 ) .
Moody ‘s Upgrades MTN Group ‘s Ratings with a Positive Outlook, Available at: hypertext transfer protocol: //www.cellular-news.com/story/53034.php ( last accessed July 16, 2012 ) .
hypertext transfer protocol: //www.economicsonline.co.uk/Business_economics/Motives.html
Riley ( 2012 )
( Halliday ) .