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Business
Business refers to at least three closely related commercial topics.
The first is a commercial, professional or industrial organization or enterprise, generally referred to as "a business."
The second is commercial, professional, and industrial activity generally, as in "business continues to evolve as markets change."
Finally, business can be used to refer to a particular area of economic activity, such as the "record business" or the "computer business".
This article is concerned primarily with the first definition of individual businesses, but also contains links to general business and management topics, in the sense of the second definition.
Individual businesses are established in order to perform economic activities. With some exceptions (such as cooperatives, non-profit organizations and generally, institutions of government), businesses exist to produce profit. In other words, the owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for expending time, effort and capital.
Types of Businesses
There are many types of businesses, and, as a result, businesses can be classified in many ways. One of the most common focuses on the primary profit-generating activities of a business, for example:
There are many other divisions and subdivisions of
businesses. The authoritative list of business types for
Business and Government
Most legal jurisdictions specify the forms that a business can take, and a body of commercial law has developed for each type. Some common types include partnerships, corporations (also called limited liability companies), and sole proprietorships.
Business and Management
The study of the efficient and effective operation of a business is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, service management, and information technology management, business intelligence.
Economics (from the Greek οίκος [oikos], 'house', and νομος [nomos], 'rule', hence "household management") is a social science that studies the production, distribution, trade and consumption of goods and services. Economics is said to be positive when it tries to objectively predict and explain consequences of choices, given a set of assumptions or a set of observations. The choice of which assumptions to make in building a model as well as which observations to highlight, however, is a normative choice. Economics is also said to be normative when it recommends one choice over another, or when a subjective value judgement is made.
Karl Polanyi defined economics as the study of the way humans transform nature to meet their needs.
Economics, which focuses on measurable variables, is broadly divided into two main branches: microeconomics, which deals with individual agents, such as households and businesses, and macroeconomics, which considers the economy as a whole, in which case it considers aggregate supply and demand for money, capital and commodities. Aspects receiving particular attention in economics are resource allocation, production, distribution, trade, and competition. Economic logic is increasingly applied to any problem that involves choice under scarcity or determining economic value. Mainstream economics focuses on how prices reflect supply and demand, and uses equations to predict consequences of decisions. The fundamental assumption underlying traditional economic theory is the idea of a utility-maximizing rational actor. Neoclassical economics is fundamentally predicated on this assumption, which is used to derive results concerning the functioning of a price system under decentralized market forces.
Economics is usually divided into two main branches:
Microeconomics, which examines the economic behaviour of individual actors such as businesses, households, and individuals, with a view to understand decision making in the face of scarcity and the allocation consequences of these decisions.
Macroeconomics, which examines an economy as a whole with a view to understanding the interaction between economic aggregates such as national income, employment and inflation. Note that general equilibrium theory combines concepts of a macro-economic view of the economy, but does so from a strictly constructed microeconomic viewpoint.
Attempts to join these two branches or to refute the distinction between them have been important motivators in much of recent economic thought, especially in the late 1970s and early 1980s. Today, the consensus view is arguably that good macroeconomics has solid microeconomic foundations. In other words, its premises ought to have theoretical and evidential support in microeconomics.
Economics can also be divided into numerous subdisciplines that do not always fit neatly into the macro-micro categorization. These subdisciplines include: international economics, labour economics, welfare economics, neuroeconomics, information economics, resource economics, environmental economics, managerial economics, financial economics, urban economics, rural economics, mathematical economics, development economics, industrial economics, retail economics, war economics, public finance, agricultural economics, transport economics, media economics, monetary economics, economic history, economic psychology, economic sociology, economic anthropology, economic archaeology, and economic geography.
There are also methodologies used by economists whose underlying theories are important.
The most significant example may be econometrics, which applies statistical techniques to the study of economic data. Computational economics relies on mathematical methods, including econometrics.
Another trend which is more recent, and closer to microeconomics, is to use social psychology concepts (behavioural economics) and methods (experimental economics) to understand deviations from the predictions of neoclassical economics.
In microeconomic theory supply and demand attempts to describe, explain, and predict the price and quantity of goods sold in competitive markets. It is one of the most fundamental economic models, ubiquitously used as a basic building block in a wide range of more detailed economic models and theories.
In general, the theory claims that where goods are traded in a market at a price where consumers demand more goods than businesses are prepared to supply, this shortage will tend to increase the price of the goods. Those consumers that are prepared to pay more will lead to an increase in the market price. Conversely, prices will tend to fall when the quantity supplied exceeds the quantity demanded. This process continues until the market approaches an equilibrium point, a point at which there is no longer any impetus to change. When producers are willing to supply the same quantity as buyers are willing to buy, the market is at equilibrium point where both the buyers as well as the sellers are agreeable to the price level.
The theory of supply and demand is important in the functioning of a market economy in that it explains the mechanism by which many decisions about resource allocation are made.
In order to measure the ebb and flow of supply and demand, a measurable value is needed. The oldest and most commonly used is price, or the going rate of exchange between buyers and sellers in a market. Price theory, therefore, charts the movement of measurable quantities over time, and the relationship between price and other measurable variables. In Adam Smith's Wealth of Nations, this was the trade-off between price and convenience. A great deal of economic theory is based around prices and the theory of supply and demand. In economic theory, the most efficient form of communication comes about when changes to an economy occur through price, such as when an increase in supply leads to a lower price, or an increase in demand leads to a higher price.
Exchange rates are determined by the relative supply and demand of different currencies — an important issue in international trade.
An area of economic controversy is about whether price measures value correctly.
Scarcity is central to economic theory, known more commonly as the Economic Problem, or Basic Economic Problem. Economic analysis is fundamentally about the maximization of something (leisure time, wealth, health, happiness - all commonly reduced to the concept of utility) subject to constraints. These constraints – or scarcity - inevitably define a trade-off. For example, one can have more money by working harder, but less time (there are only so many hours in a day, so time is scarce).
Scarcity is defined as: when the price is zero, the quantity demanded exceeds the quantity supplied. Price is a measure of relative scarcity. When the price is rising, the commodity is becoming relatively more scarce. When the price is falling, the commodity is becoming relatively less scarce.
Adam Smith considered, for example, the trade-off between time, or convenience, and money. He discussed how a person could live near town, and pay more for rent of his home, or live farther away and pay less, "paying the difference out of his convenience".
In marginalist economic theory, the price level is determined by the marginal cost and marginal utility. The price of all goods will be the cost of making the last one that people will purchase, and the price of all the employees in a company will be the cost of hiring the last one the business needs. Marginalism looks at decisions based on "the margins", what the cost to produce the next unit is, versus how much it is expected to return in profit. When the marginal return of an action reaches zero, the action stops. Marginal utility is how much more happiness or use a person receives from a purchase in contrast with buying less.
Marginal cost of production divides costs into "fixed" costs which must be paid regardless of how many of a commodity are produced, and "variable costs". The marginal cost is the variable cost of the last unit. Marginalism states that when the profit from the next unit will be zero, that unit will not be produced.
It could be argued that beneath an economic theory is a theory of value. Value can be defined as the underlying activity which economics describes and measures. It is what is "really" happening.
Adam Smith defined "labour" as the
underlying source of value, and "the labour theory of value"
underlies the work of Karl Marx, David Ricardo and many other classical
economists. The "labour theory of value" argues that a good or
service is worth the labour that it takes to produce. For most, this value
determines a commodity's price. This labour theory of price and the closely
related cost-of-production theory of value dominates the work of most classical
economists, but those theories are far from the only accepted basis for
"value". For example, neoclassical economists and
"Market theory" argues that there is no "value" separate from price, that the market incorporates all available information into price, and that so long as markets are open, that price and the value are one and the same. This theory rests on the idea of the "rational economic actor". This was originally asserted by Mill.
Economics relies on rigorous styles of argument. Economic methodology has several interacting parts:
Collection of economic data. These data consist of measurable values of price and changes in price, for measurable commodities. For example: the cost to hire a worker for a week, or the cost of a particular commodity, and how much is typically used.
Formulation of models of economic relationships, for example, the relationship between the general level of prices and the general level of employment. This includes observable forms of economic activity, such as money, consumption, preferences, buying, selling, and prices. Some of the models are simple accounting models, while others postulate specific kinds of economic behaviour, such as utility or profit maximization.
Production of economic statistics. Taking the data collected, and applying the model being used to produce a representation of economic activity. For example, the "general price level" is a theoretical idea common to macroeconomic models. The specific inflation rate involves taking measurable prices, and a model of how people consume, and calculating what the "general price level" is from the data within the model. For example, suppose that diesel fuel costs 1 euro a litre: to calculate the price level would require a model of how much diesel an average person uses, and what fraction of its income is devoted to this — but it also requires having a model of how people use diesel, and what other goods they might substitute for it.
Reasoning within economic models. This process of reasoning sometimes involves advanced mathematics. For instance, an established (though possibly unexamined) tradition among economists is to reason about economic variables in two-dimensional graphs in which curves representing relations between the axis variables are parametrized by various indices. One critical analysis of economic reasoning is studied in Paul Samuelson's thesis, Foundations of Economic Analysis: he identifies a class of assertions called operationally meaningful theorems which are those that can be meaningfully formulated within an economic model.
The
The term economics was coined around 1870 and popularized by influential "neoclassical" economists such as Alfred Marshall (Welfare definition), as a substitute for the earlier term “political economy”, which referred to "the economy of polities" – competing states. The term political economy was used through the 18th and 19th centuries, with Adam Smith, David Ricardo and Karl Marx as its main thinkers and which today is frequently referred to as the "classical" economic theory.
Economic thought may be roughly divided into three phases: Premodern (Greek, Roman, Arab), Early modern (mercantilist, physiocrats) and Modern (since Adam Smith in the late 18th century). Systematic economic theory has been developed mainly since the birth of the modern era.
There have been different and competing schools of
economic thought pertaining to capitalism from the late 18th century to the
early day. Important schools of thought are Mercantilism, Kameralism,
Physiocracy,
Neo-classical economics begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost creates an implicit price relationship between competing alternatives. In addition, in both market oriented and planned economies, scarcity is often explicitly quantified by price relationships.
Understanding choices by individuals and groups is central. Economists believe that incentives and desires play an important role in shaping decision making.
Concepts from the Utilitarian school of philosophy are used as analytical concepts within economics, though economists appreciate that society may not adopt utilitarian objectives. One example of this is the idea of a utility function, which is assumed to represent how economic agents rank the choices given to them. A given economic alternative can be thought of as a vector where the entries are answers to questions like "How many eggs should I buy?", "How many hours should I spend with my kids?", and "How much money should I set aside for later?". Then the utility function ranks these from best to worst, and the agent gradually learns to choose the best-ranked choice in the feasible set of his alternatives.
6. Economics and other disciplines
There is some tension between economics and theories of ethics, historically a branch of philosophy, which emphasizes how people ought to conduct and try to balance rights and duties. Modern economics deals with this tension explicitly. According to some thinkers, a theory of economics is also, or implies also, a theory of moral reasoning. One way economists deal with this is to qualify discussions of economic choice by noting the qualifier ceteris paribus ("all other things held constant...") referring to moral or social factors that are held equivalent for all choices that one might make.
Another premise is that economics fits within a finite ecosystem where there are at least some abundant resources. For instance, when fuelling a fire, people are usually concerned with finding the wood, and not with finding the air to burn it with. Economics explicitly does not deal with free abundant inputs – one criticism is that it often conflicts with ecology's view of what affects what. Human beings are, according to ecologists, merely one species participating in a vast energy system on this planet – economy is a subset of ecology that deals with just one species' habits and wants.
A third premise is that economics suggests market forms and other means of distribution of scarce goods that affect not just "desires and wants" but also "needs" and "habits". Much of so-called economic "choice" is involuntary, certainly given the conditioning that people have to expect certain quality of life. This leads to one of the most hotly debated areas in economic policy: namely, the effect and efficacy of welfare policies. Libertarians view this as a failure to respect economic reasoning.
They argue that redistribution of wealth is morally and economically wrong. And socialists view it as a failure of economics to respect society. They argue that disparities of wealth should not have been allowed in the first place. This led to both 19th century labour economics and 20th century welfare economics before being subsumed into human development theory.
The older term for economics, political economy, is
still often used instead of economics, especially by certain economists such as
Marxists. Use of this term often signals a basic disagreement with the
terminology or paradigm of market economics. Political economy explicitly
brings political considerations into economic analysis and is therefore openly
normative, although this can be said of many economic recommendations as well,
despite claims to being positive. Some mainstream universities (such as the
Marxist economics generally denies the trade-off of time for money. In the Marxist view, concentrated control over the means of production is the basis for the allocation of resources among classes. Scarcity of any particular physical resource is subsidiary to the central question of power relationships embedded in the means of production.
3 - Trade
Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.
Trade exists for many reasons. Due to specialization and division of labour, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have an absolute or comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations.
1. History of trade
Trade originated with the start of communication in prehistoric times. Trading was the main facility of prehistoric people, who bartered goods and services from each other. Peter Watson dates the history of long-distance commerce from circa 150,000 years ago.
Trade is believed to have taken place
throughout much of recorded human history. There is evidence of the exchange of
obsidian and flint during the stone age. Materials used for creating jewelry
were traded with
From the beginning of Greek civilization until the
fall of the Roman empire in the 5th century, a financially lucrative trade
brought valuable spice to Europe from the far east, including
The fall of the
From the 8th century to the 11th century, the Vikings
and Varangians traded as they sailed from and to
The tales of Marco Polo's travels to the far east sparked an interest in the spice trade.
Vasco da Gama started the Spice trade in 1498. The
spice trade was of major economic importance and helped spur the Age of
Exploration. Spices brought to
In the 16th century,
Trade in the East Indies was dominated by
In 1776, Adam Smith published the paper An Inquiry into the Nature and Causes of the Wealth of Nations. It criticised Mercantilism, and argued that economic specialization could benefit nations just as much as firms. Since the division of labour was restricted by the size of the market, he said that countries having access to larger markets would be able to divide labour more efficiently and thereby become more productive. Smith said that he considered all rationalizations of import and export controls "dupery", which hurt the trading nation at the expense of specific industries.
In 1799, the Dutch East India Company, formerly the world's largest company, became bankrupt, partly due to the rise of competitive free trade.
In 1817, David Ricardo, James Mill and Robert Torrens showed that free trade might benefit the industrially weak as well as the strong, in the famous theory of comparative advantage. In Principles of Political Economy Ricardo advanced the doctrine still considered the most counterintuitive in economics: when an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit.
John Stuart Mill proved that a country with monopoly pricing power on the international market could manipulate the terms of trade through maintaining tariffs, and that the response to this might be reciprocity in trade policy. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the economic surplus of trade would accrue to a country following reciprocal, rather than completely free, trade policies.
This was followed within a few years by the infant industry scenario developed by Mill. The New Trade Theory promoted the theory that government had the "duty" to protect young industries, although only for a time necessary for them to develop full capacity.
The Great Depression was a major economic recession that ran from 1929 to 1941. During this period, there was a great drop in trade and other economic indicators.
The lack of free trade was considered by many as a principal cause of the depression, and World War II. During the war, in 1944, 44 countries signed the Bretton Woods Agreement, intended to prevent national trade barriers, to avoid depressions. It set up rules and institutions to regulate the international political economy: the International Monetary Fund and the International Bank for Reconstruction and Development (later divided into the World Bank and Bank for International Settlements). These organizations became operational in 1946 after enough countries ratified the agreement. In 1947, 23 countries agreed to the General
Agreement on Tariffs and Trade (GATT) to promote free trade.
Free trade advanced further in the late 20th century and early 2000s:
1992 European Union lifted barriers to internal trade in goods and labour.
January 1, 1994 NAFTA (North America Free Trade Agreement) took effect
January 1, 1995 WTO (World Trade Organization) was created to facilitate free trade.
As of
mid-2005, there is a proposal for a Central American Free Trade Agreement,
which would also include the
1.1. Development of money
The first instances of money were objects with
intrinsic value. This is called commodity money and includes any
commonly-available commodity that has intrinsic value; historical
examples include pigs, rare seashells, whale's teeth, and (often) cattle. In
medieval
Currency was introduced as a standardized money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade for over 1500 years.
Numismatists have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious meta.
Ancient
The system of commodity money in many instances evolved into a system of representative money. In this system, the material that constitutes the money itself had very little intrinsic value, but none the less such money achieves significant market value through being scarce as an artifact.
1.2. Current trends
1.2.1.
The
The
1.2.2.
Beginning around 1978, the government of the People's
Republic of
The results of this reform has been spectacularly successful. By 2004, the GDP of the nation has quadrupled since 1978 and foreign trade exceeded $1 Trillion US. This occurred in spite of the backlash from the Tiananmen Square Massacre. The PRC maintains a $30 billion trade surplus, and is rapidly becoming a leader in industrial manufacturing. In 1991 the PRC joined the Asia-Pacific Economic Cooperation group, a free-trade organization. More recently, in 1999 they also joined the World Trade Organization.
2. International trade
International trade is the exchange of goods and services across national borders. In most countries, it represents a significant part of GDP. While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation, Globalization, Multinational corporations, and outsourcing. In fact, it is probably the increasing prevalence of international trade that is usually meant by the term "globalization".
Empirical evidence for the success of trade can be
seen in the contrast between countries such as South Korea, which adopted a
policy of export-oriented industrialization, and India, which historically had
a more closed policy (although it has begun to open its economy, as of 2005).
Trade sanctions against a specific country are
sometimes imposed, in order to punish that country for some action. An embargo,
a severe form of externally imposed isolation, is a blockade of all trade by
one country on another. For example, the
Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions, and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies. All of these are called trade barriers. If a government removes all trade barriers, a condition of free trade exists. A government that implements a protectionist policy establishes trade barriers.
The fair trade movement, also known as
the trade justice movement, promotes the use of labour, environmental and social
standards for the production of commodities, particularly those exported from
the Third and Second World's to the
3. Organisation of trade
Patterns of organising and administering trade include:
4 - International trade
International trade is the exchange of goods and services across international boundaries. It is also a branch of economics, which, together with international finance, forms the larger branch of international economics.
1. Regulation of international trade
Traditionally trade was regulated through bilateral
treaties between two nations. For centuries under the belief in
Mercantilism most nations had high tariffs and many restrictions on
international trade. In the 19th century, especially in
Free trade is usually most strongly supported by the
most economically powerful nation in the world. The
Traditionally agricultural interests are usually in
favour of free trade while manufacturing sectors often support protectionism.
This has changed somewhat in recent years, however. In fact, agricultural
lobbies, particularly in the
During recessions there is often strong domestic pressure to increase tariffs to protect domestic industries. This occurred around the world during the Great Depression leading to a collapse in world trade that many believe seriously deepened the depression.
The regulation of international trade is done through
the World Trade Organization at the global level, and through several
other regional arrangements such as MERCOSUR in South America, NAFTA between
the
2. Risks in international trade
The risks that exist in international trade can be divided into two major groups:
2.1. Economic risks
Risk of insolvency of the buyer
Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date
Risk of non-acceptance
Surrendering economic sovereignty
2.2. Political risks
Risk of cancellation or non-renewal of export or import licences
War risks
Risk of expropriation or confiscation of the importer's company
Risk of the imposition of an import ban after the shipment of the goods
Transfer risk - imposition of exchange controls by the importer's country or foreign currency shortages
Surrendering political sovereignty
UNCTAD/WTO (ITC)?
The International Trade Centre UNCTAD/WTO (ITC) is the focal point in the United Nations system for technical cooperation with developing countries in trade promotion. ITC was created by the General Agreement on Tariffs and Trade (GATT) in 1964 and since 1968 has been operated jointly by GATT (now by the World Trade Organization, or WTO) and the UN, the latter acting through the United Nations Conference on Trade and Development (UNCTAD). As an executing agency of the United Nations Development Programme (UNDP), ITC is directly responsible for implementing UNDP-financed projects in developing countries and economies in transition related to trade promotion.
ITC works with developing countries and economies in transition to set up effective trade promotion programmes for expanding their exports and improving their import operations. This covers six key areas:
- Product and market development: Direct export marketing support to the business community through advice on product development, product adaptation and international marketing for commodities, manufactures and services. The aim is to develop and market internationally competitive products and services to expand and diversify these countries' exports.
- Development of trade support services: Creation and enhancement of foreign trade support services for the business community provided by public and private institutions at the national and regional levels. The objective is to ensure that enterprises have the facilities to export and import effectively.
- Trade information: Establishment of sustainable national trade information services and dissemination of information on products, services, markets and functions to enterprises and trade organizations. The purpose is to lay a foundation for sound international business decisions and for appropriate trade promotion programmes.
- Human resource development: Strengthening of national institutional capacities for foreign trade training and organization of direct training for enterprises in importing and exporting. The goal is to achieve efficient foreign trade operations based on relevant knowledge and skills.
- International purchasing and supply management: Application of cost-effective import systems and practices in enterprises and public trading entities by strengthening the advisory services provided by national purchasing organizations, both public and private. The aim is to optimize foreign exchange resources expended on imports.
- Needs assessment and programme design for trade promotion: Conception of effective national and regional trade promotion programmes based on an analysis of supply potential and constraints, and identification of related technical cooperation requirements. The objective is to reinforce the link between trade policy and the implementation of trade promotion activities.
In all of these services ITC gives particular attention to activities with the least developed countries (LDCs).
Trade promotion projects
ITC's technical cooperation projects are carried out
in all developing areas, at the national, subregional, regional and
interregional levels. They are undertaken at the request of governments of the
countries concerned. Projects are administered from ITC headquarters in
National projects often take the form of a broad-based integrated country project, which includes a package of services to expand the country's exports and/or improve its import operations. In some cases national projects cover only one type of activity. Subregional, regional and interregional projects may also deal with either one or a combination of ITC services, depending on the trade promotion and export development requirements of the group of countries concerned.
All of ITC's technical cooperation projects are systematically monitored and evaluated to ensure that the objectives initially agreed to between the government(s) and ITC are being achieved.
In addition to specific technical cooperation projects with individual developing countries and economies in transition, or groups of these countries, ITC provides services from its headquarters in Geneva that are available to all such countries. These include publications on trade promotion, export development, international marketing, international purchasing, supply management, and foreign trade training, as well as trade information and trade statistics services of various types.
ITC's technical cooperation work is coordinated with a number of other organizations inside and outside the UN system. ITC maintains close liaison with UNCTAD and the WTO for specific technical cooperation activities, in addition to its more formal links with these two organizations for its overall technical cooperation programme. ITC's export market development activities are coordinated, whenever relevant, with the work of the Food and Agriculture Organization of the UN (FAO) and the United Nations Industrial Development Organization (UNIDO). Close contacts are maintained with UNDP, which provides financing for a portion of ITC's projects with developing countries and economies in transition, and whose Resident Representatives and Resident Coordinators serve as ITC's official representatives in their countries of assignment.
ITC also works with other UN organizations, regional development banks, intergovernmental bodies outside the UN system, nongovernmental organizations and numerous trade-related institutions. In particular it has developed a close association with import promotion offices that have been set up in various countries to promote exports from developing countries into their respective national markets. ITC is continuously broadening its contacts with foreign trade and business institutions as it extends its network of technical cooperation partners.
ITC's regular budget is funded in equal parts by the United Nations and WTO. It finances general research and development on trade promotion and export development, part of which results in published studies, market information and statistical services. This budget also covers overall administration of the organization.
Financing for ITC's technical cooperation activities in developing countries and economies in transition comes from UNDP, other international organizations, and voluntary contributions from individual developed and developing countries. Voluntary contributions consist of either trust funds for projects in other countries or funds-in-trust provided for projects in the donor's own country.
ITC's legal status is that of a "joint subsidiary organ" of WTO and the United Nations, the latter acting through UNCTAD. The broad policy guidelines for ITC's technical cooperation work are determined by the governing organs of ITC's parent bodies. Recommendations on ITC's future work programme are made to these two organs by ITC's annual intergovernmental meeting, the Joint Advisory Group on the International Trade Centre UNCTAD/WTO (JAG). The JAG also reviews ITC's proposals for its medium-term plan, which provides a general framework for ITC's activities over a six-year period and forms part of the overall UN Medium-Term Plan. Representatives of member states of ITC's parent organizations attend the JAG meeting. In addition to the review by these intergovernmental meetings, ITC's policies and programmes are periodically examined in meetings attended by representatives of its parent organizations and ITC's Executive Director.
Mr. J. Denis Bélisle, ITC's Executive Director, is
responsible for the management of ITC. Staff at ITC headquarters in
ITC does not have any regional or national field offices. However, each government with which ITC works, in both recipient and developed countries, appoints an official ITC liaison officer within its administration.
Postal address:
International Trade Centre UNCTAD/WTO (ITC)
Palais des Nations
1211 Geneva 10
Street location:
54-56 rue de Montbrillant, Geneva
Telephone: (41-22) 730 01 11
Telefax : (41-22) 733 44 39
Telex : 414 119 ITC CH
E-mail : ITCREG@INTRACEN.ORG
6 - International Trade Rules: What Every Exporter Should Know
by Jean-François Bourque, ITC Senior Advisor on Legal Aspects of International Trade. He can be contacted at bourque@intracen.org
On
average, almost everyone has witnessed the birth of two nations each year of
his or her existence. So, if you are 50 years old, then about 100 new countries
will have been created since your birth. Membership of the United Nations (UN)
grew from 51 original members in 1945 (there were 74 nation-states at that
time) to
The magnitude of this process is unprecedented. Now think what this means in terms of business laws: 191 or more countries equals the same number of legal systems.
Another crucial change also occurred in the last 50 years. For the first time in history, growth in world merchandise exports has completely outpaced growth in world output. Merchandise trade increased 18-fold while world merchandise output grew eightfold. Between 1990 and 2001 alone, world merchandise exports grew by 6%, while total merchandise production increased by only 2.4%.
The main
legal problem for companies in these cross-border times is that goods and
services flow across borders but do not erase them. Businesses have to cope
with a much more complex legal mosaic now than 50 years ago. No one — at least
in the legal world — foresaw these events. The UN’s founders instructed the
architects of the UN buildings in
Twenty years ago, business law was essentially associated in people’s minds with a particular nation. Every exporter has to realize that this is no longer the case. A variety of international rules — often outside the scope of national law — are also shaping the way trade is conducted.
Although the existence of some 200 legal systems has made international business more complex, the legal landscape is not so bleak as one might imagine. Through trial and error, at least six different processes have developed to harmonize the conduct of international business. These are international trade usages, commercial treaties, model contracts, model laws, regional trade laws and out-of-court dispute settlements.
International Commercial Terms, known as Incoterms, were the first major achievement in standardizing trade practices. Developed in 1936 by the International Chamber of Commerce (ICC), Incoterms guide the buyer and seller by allocating transport costs and risks, as well as determining responsibility for insurance and customs. The current version, Incoterms 2000, contains 13 terms and will probably not be revised before 2010.
In the banking sector, ICC has also standardized the practices for international letters of credit through its rules known as the Uniform Customs and Practice for Documentary Credits (UCP 500). The current version was released in 1993.
These are only two of the standardized trade practices developed by ICC, which are extensively used by international sellers and buyers. Further information can be found on ICC’s web site: https://www.iccwbo.org
Model contracts are growing in number and in use. They serve to standardize legal approaches across countries and cultures and answer frequently-asked questions when drafting international business agreements.
In the 1950s, standard contracts were used mainly in the commodity sector, where they are part and parcel of daily practice. The Grain and Feed Trade Association, for example, proposes 80 different contracts, all drawn up by trade members, for the sale of wheat, rice, beans and other cereals.
In non-specialized areas, model contracts were scarce. However, hundreds of thousands of small and medium-sized enterprises (SMEs) were entering into international contracts, often without legal assistance. The need arose, therefore, to provide model contracts in an ever-widening circle of activities. Thus the ICC, again a pioneer in the field, proposed a Model Contract for the International Sale of Manufactured Goods, while ITC presented a Model Contract for the International Sale of Perishable Goods. The texts of over 150 model contracts are published by ITC on its Juris International web site (https://www.jurisint.org).
A third set of common ground rules is found in trade treaties. Governments and national trade promotion organizations need to know which are the most basic treaties that a country should ratify to encourage trade. These treaties set out the basics for international sales, arbitration, patents, trademarks, transport and other issues. Ratifying them sends a signal that the country is adopting an internationally-recognized, safe legal context in which to conduct trade.
The UN treaty section alone contains over 40,000 treaties published in over 1,900 hard-copy volumes. The most important trade treaties signed in the last 50 years, however, number about 200. These can be found on Juris International web site.
Treaties are not very flexible. (A treaty is drafted through lengthy diplomatic conference meetings. It comes into force only when a certain number of countries have ratified it and it is not easily modified.) To provide flexibility, the United Nations Commission on International Trade Law (UNCITRAL) has developed a groundbreaking process to harmonize trade laws through “model laws”. UNCITRAL creates a model, and then governments simply incorporate that model into the laws of their respective countries. For example, in order to harmonize laws on arbitration, UNCITRAL developed a model law on international commercial arbitration that has been adopted by 45 countries on all continents.
Standardizing and harmonizing trade laws on a regional basis can stimulate intra-regional as well as other international trade.
The
success story in this case is in
Out-of-court settlement is also an enduring trend in modern business. Most countries are creating arbitration centres within their chambers of commerce for various pragmatic reasons, not the least of which is the impressive backlog of cases.
The Permanent Arbitration Court of the Croatian Chamber of Commerce has to face an enormous challenge, considering the number of cases before the Croatian courts; over 1.3 million court cases for a population of about 4 million. As Brendan Francis, an Irish author, said: “The best way to escape a problem is to solve it.”
Nowadays
many business lawyers never actually work in the courtroom, but instead focus
on drafting contracts for businesses that aim to avert disputes before they
occur. This change of direction can draw a parallel with changes in the mindset
of quality controllers. Quality specialists like to recall a 1982 incident that
made news throughout the
A snapshot of today’s legal landscape would not be complete without mentioning intellectual property issues such as patents and licensing agreements.
On 12 June
2002, the US Congress recognized an impoverished Italian immigrant genius as
the inventor of the telephone, rather than Alexander Graham Bell. Antonio
Meucci found that sounds could travel through copper wire. In 1860 he rigged a
telephone to link his workshop to his paralysed wife’s bedroom. Meucci was
unable to commercialize his invention, nor to pay his way through the patent
application process. When Alexander Graham Bell, who conducted experiments in
the laboratory where Meucci’s materials had been stored, was granted a patent,
Meucci moved to annul the patent issued to
Had Meucci benefited from a training course on how to negotiate a licensing agreement, he might have thought of various contractual options to commercialize his invention, even without filing a patent.
7 - Globalization
Globalization
(or globalisation) is a modern term used to describe the changes in societies
and the world economy that result from dramatically increased international
trade and cultural exchange. It describes the increase of trade and investing
due to the falling of barriers and the interdependence of countries. In
specifically economic contexts, it is often understood to refer almost
exclusively to the effects of trade, particularly trade liberalization or
"free trade". Between 1910 and
Although all three aspects are closely intertwined, it is useful to distinguish economic, political and cultural aspects of globalization. The other key aspect of globalization is changes in technology, particularly in transport and communications, which it is claimed are creating a global village.
Meanings
"Globalization" can mean:
Globalism, if the concept is reduced to its economic aspects, can be said to contrast with economic nationalism and protectionism. It is related to laissez-faire capitalism and neoliberalism.
It shares a number of characteristics with internationalization and is often used interchangeably, although some prefer to use globalization to emphasize the erosion of the nation-state or national boundaries.
The formation of a global village — closer contact between different parts of the world, with increasing possibilities of personal exchange, mutual understanding and friendship between "world citizens", and creation of a global civilization.
Economic globalization — there are four aspects to economic globalization, referring to four different flows across boundaries, namely flows of goods/services, i.e. 'free trade' (or at least freer trade), flows of people (migration), of capital and of technology. A consequence of economic globalization is increasing relations among members of an industry in different parts of the world (globalization of an industry), with a corresponding erosion of National Sovereignty in the economic sphere. The IMF defines globalization as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology” (IMF, World Economic Outlook, May, 1997). The World Bank defines globalization as the "Freedom and ability of individuals and firms to initiate voluntary economic transactions with residents of other countries".
In the field of Management, globalization is a Marketing or Strategy term that refers to the emergence of international markets for consumer goods characterized by similar customer needs and tastes enabling, for example, selling the same cars or soaps or foods with similar ad campaigns to people in different cultures. This usage is contrasted with internationalization which describes the activities of multinational companies dealing across borders in either financial instruments, commodities, or products that are extensively tailored to local markets.
In the field of software, globalization is a technical term that combines the development processes of internationalization and localization.
The negative effects of for-profit multinational corporations — the use of substantial and sophisticated legal and financial means to circumvent the bounds of local laws and standards, in order to leverage the labour and services of unequally-developed regions against each other.
The spread of capitalism from developed to developing nations.
"The concept of Globalisation refers both to the compression of the world and the intensification of consciousness of the world as a whole" – Roland Robertson
1. History
Since the word has both technical and political meanings, different groups will have differing histories of "globalization". In general use within the field of economics and political economy, however, it is a history of increasing trade between nations based on stable institutions that allow firms in different nations to exchange goods with minimal friction.
The term "liberalization" came to mean the combination of laissez-faire economic theory with the removal of barriers to the movement of goods. This led to the increasing specialization of nations in exports, and the pressure to end protective tariffs and other barriers to trade. The period of liberalization of the 19th century is often called "The First Era of Globalization". Based on the Pax Britannica and the exchange of goods in currencies pegged to specie, this era grew along with industrialization. The theoretical basis was Ricardo's work on Comparative advantage and Say's Law of General equilibrium. In essence, it was argued that nations would trade effectively, and that any temporary disruptions in supply or demand would correct themselves automatically. The institution of the gold standard came in steps in major industrialized nations between approximately 1850 and 1880, though exactly when various nations were truly on the gold standard is a matter of a great deal of contentious debate.
The
"First Era of Globalization" is said to have broken down in stages
beginning with the first World War, and then collapsing with the crisis of the
gold standard in the late 1920's and early 1930's. Countries that engaged in
that era of globalization, including the European core, some of the European
periphery and various European offshoots in the
Globalization
in the era since World War II has been driven by Trade Negotiation Rounds,
originally under the auspices of GATT, which led to a series of agreements to
remove restrictions on "free trade". The
Other
bilateral trade agreements, including sections of
2. Nature and existence of globalization
There is
much academic discussion about whether globalization is a real phenomenon or
only an analytical artefact ("a myth"). Although the term is
widespread, many authors argue that the characteristics of the phenomenon have
already been seen at other moments in history. Also, many note that those features
that make people believe we are in the process of globalization, including the
increase in international trade and the greater role of multinational
corporations, are not as deeply established as they may appear. The
2.1. Characteristics
Globalization has become identified with a number of trends, most of which may have developed since World War II. These include greater international movement of commodities, money, information, and people; and the development of technology, organizations, legal systems, and infrastructures to allow this movement.
- Economically
o Increase in international trade at a faster rate than the growth in the world economy
o Increase in international flow of capital including foreign direct investment
o Erosion of national sovereignty and national borders through international agreements leading to organizations like the WTO and OPEC
o Development of global financial systems
o Increase in the share of the world economy controlled by multinational corporations
o Increased role of international organizations such as WTO, WIPO, IMF that deal with international transactions
o Increase of economic practices like outsourcing, by multinational corporations
- Culturally
o Greater international cultural exchange,
o
Spreading of multiculturalism, and
better individual access to cultural diversity, for example through the export
of
o However, the imported culture can easily supplant the local culture, causing reduction in diversity through hybridization or even assimilation. The most prominent form of this is Westernization, but Sinicization of cultures also takes place.
o Greater international travel and tourism
o Greater immigration, including illegal immigration
o Spread of local foods such as pizza and Indian food to other countries
- Development of a global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites and telephones
- Increase in the number of standards applied globally; e.g. copyright laws and patents
- The push by many advocates for an international criminal court and international justice movements (see the International Criminal Court and International Court of Justice respectively).
- Some argue that even terrorism has undergone globalization with attacks in foreign countries that have no direct relation with the own country.
Barriers to international trade have been considerably lowered since World War II through international agreements such as the General Agreement on Tariffs and Trade (GATT). Particular initiatives carried out as a result of GATT and the WTO, for which GATT is the foundation, have included:
- Promotion of free trade
Reduction or elimination of tariffs; construction of free trade zones with small or no tariffs
Reduced transportation costs, especially from development of containerization for ocean shipping.
- Intellectual Property Restrictions
o Harmonization of intellectual property laws across nations (generally speaking, with more restrictions)
o
Supranational recognition of
intellectual property restrictions (e.g. patents granted by
3. Anti-globalization
Various aspects of globalization are seen as harmful by public-interest activists as well as strong state nationalists. This movement has no unified name. "Anti-globalization" is the media's preferred term; it can lead to some confusion, as activists typically oppose certain aspects or forms of globalization, not globalization per se. Activists themselves, for example Noam Chomsky, have said that this name is meaningless as the aim of the movement is to globalize justice.
Indeed, the global justice movement is a common name. Many activists also unite under the slogan "another world is possible", which has given rise to names such as altermondialisme in French.
There is a wide variety of different kinds of "anti-globalization". In general, critics claim that the results of globalization have not been what was predicted when the attempt to increase free trade began, and that many institutions involved in the system of globalization have not taken the interests of poorer nations and the working class into account.
Economic arguments by fair trade theorists claim that unrestricted free trade benefits those with more financial leverage (i.e. the rich) at the expense of the poor.
Many "anti-globalization" activists see globalization as the promotion of a corporatist agenda, which is intent on constricting the freedoms of individuals in the name of profit. They also claim that increasing autonomy and strength of corporate entities increasingly shape the political policy of nation-states.
Some
"anti-globalization" groups argue that globalization is necessarily
imperialistic, is one of the driving reasons behind the
Some argue that globalization imposes credit-based economics, resulting in unsustainable growth of debt and debt crises.
Another more conservative camp in opposition to globalization are state-centric nationalists that fear globalization is displacing the role of nations in global politics and point to NGOs (non-governmental Organization) as impeding upon the power of individual nations.
The main opposition is to unfettered globalization (neoliberal; laissez-faire capitalism), guided by governments and what are claimed to be quasi-governments (such as the International Monetary Fund and the World Bank) that are supposedly not held responsible to the populations that they govern and instead respond mostly to the interests of corporations. Many conferences between trade and finance ministers of the core globalizing nations have been met with large, and occasionally violent, protests from opponents of "corporate globalism".
The movement is very broad, including church groups, national liberation factions, left-wing parties, environmentalists, peasant unionists, anti-racism groups, libertarian socialists and others. Most are reformist (arguing for a more humane form of capitalism) and a strong minority is revolutionary (arguing for a more humane system than capitalism). Many have decried the lack of unity and direction in the movement, but some such as Noam Chomsky have claimed that this lack of centralization may in fact be a strength.
Protests by the global justice movement have now forced high-level international meetings away from the major cities where they used to be held, and off into remote locations where protest is impractical.
Some "anti-globalization" activists object to the fact that the current "globalization" globalizes money and corporations and at the same time refuses to globalize people and unions. This can be seen in the strict immigration controls that exist in nearly all countries and the lack of labour rights in many countries in the developing world.
4. Pro-globalization (globalism)
Supporters of democratic globalization can be labelled pro-globalists. They consider that the first phase of globalization, which was market-oriented, should be completed by a phase of building global political institutions representing the will of World citizens. The difference with other globalists is that they do not define in advance any ideology to orient this will, which should be left to the free choice of those citizens via a democratic process.
Supporters of free trade point out that economic theories of comparative advantage suggest that free trade leads to a more efficient allocation of resources, with all countries involved in the trade benefiting. In general, they claim that this leads to lower prices, more employment and higher output.
Libertarians and other proponents of laissez-faire capitalism say higher degrees of political and economic freedom in the form of democracy and capitalism in the developed world produce higher levels of material wealth. They see globalization as the beneficial spread of democracy and capitalism.
Critics argue that the anti-globalization movement uses anecdotal evidence to support their view and that worldwide statistics instead strongly support globalization:
However, not all those improvements may be due to globalization.
Many pro-capitalists are also critical of the World Bank and the IMF, arguing that they are corrupt bureaucracies controlled and financed by states, not corporations. Many loans have been given to dictators who never carried out promised reforms, instead leaving the common people to pay the debts later. They thus see too little capitalism, not too much. They also note that some of the resistance to globalization comes from special interest groups with conflicting interests like Western world unions.
8 - Market
A market is a mechanism which allows people to trade, normally governed by the theory of supply and demand, so allocating resources through a price mechanism and bid and ask matching so that those willing to pay a price for something meet those willing to sell for it.
Both general and specialised markets, where only one commodity is traded, exist. Markets work by placing many interested sellers in one place, thus making them easier to find for prospective buyers. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy.
1. Marketplaces and street markets
A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world.
In the
In continental Europe, especially in
Markets are often temporary, with stalls only present
for one or two days a week ("market days"), however some (such as
Camden Market in
The Roman term for market, still in use in a related sense, is forum. The modern shopping mall can be seen as an extension of this concept.
2. Wholesale markets
A wholesale market is a market which primarily
sells to traders such as caterers and small shopkeepers, rather than to members
of the public, although members of the public are not necessarily excluded.
3. Economic markets and marketspaces
In modern times, mainly after the invention of the electronic computer, markets are not always located in a physical space. Such virtual markets consist of communication paths where information exchange is easy and deals may be struck. These are often called marketspaces. A notable example of this is the international currency market. The e-Bay web site can also be considered a marketspace.
9. Marketing
Marketing is the process of planning and executing the pricing, promotion, and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals.
Many companies, particularly prior to the 1970s, were product-focused, employing teams of salespeople to push their products into or onto the market, regardless of market desire. A market-focused, or customer-focused, organization instead first determines what its potential customers desire, and then builds the product. Marketing theory and practice is justified on the belief that customers use a product or service because they have a need, or because a product has perceived value.
Two major aspects of marketing are the recruitment of new customers (acquisition) and the retention and expansion of relationships with existing customers (base management).
Acquisition marketing is a four-step process that begins with analysing and defining a qualified universe of potential users or buyers (called a target market). After this first phase in the marketing process, a marketing effort attempts to capture the attention of the intended buyers within the targeted universe. Third, systematic effort must be put into getting the prospective buyers to accept the concepts or propositions being offered via the marketing effort. Finally, with all three of the previous steps achieved, the marketer must convert prospective buyers into actual buyers by getting them to take the desired action (purchase, rent, call, download, subscribe, refer, sell, follow the law, become a member, etc.).
Once a marketer has converted the prospective buyer, base management marketing takes over. The process for base management shifts the marketer to building a relationship, nurturing the links, enhancing the benefits that convinced the buyer in the first place and improving the products/service continuously to protect the business from competitive encroachments.
Marketing methods are informed by many of the social sciences, particularly psychology, sociology, and economics. Marketing research underpins these activities. Through advertising, it is also related to many of the creative arts.
1. Types of markets
The word market originally meant the place where the exchange between seller and buyer took place. Today we speak of a market as either a region where goods are sold and bought or particular types of buyer. When strategizing specialists in marketing comment about markets they are usually referring to the different groups of people and/or organizations. The four major market groups are 1) consumer, 2) business to business, 3) institutional, and 4) reseller.
2. Product, price, promotion, and placement
In popular usage, the term "marketing" refers to the promotion of products, especially advertising and branding. However, in professional usage the term has a wider meaning that recognizes that marketing is customer centred. Products are often developed to meet the desires of groups of customers or even, in some cases, for specific customers. McCarthy divided marketing into four general sets of activities. His typology has become so universally recognized that his four activity sets, the Four Ps, have passed into the language.
The Four Ps are:
Product: The Product management aspect of marketing deals with the specifications of the actual good or service, and how it relates to the end-user's needs and wants.
Pricing: This refers to the process of setting a price for a product, including discounts.
Promotion: This includes advertising, sales promotion, publicity, and personal selling, and refers to the various methods of promoting the product, brand, or company.
Placement or distribution refers to how the product gets to the customer; for example, point of sale placement or retailing.
These four elements are often referred to as the marketing mix. A marketer can use these variables to craft a marketing plan. The four Ps model is most useful when marketing low value consumer products. Industrial products, services, high value consumer products require adjustments to this model. Services marketing must account for the unique nature of services. Industrial or b2b marketing must account for the long term contractual agreements that are typical in supply chain transactions.
3. Technique
For a marketing plan to be successful, the mix of the four "p's" must reflect the wants and desires of the consumers in the target market. Trying to convince a market segment to buy something they don't want is extremely expensive and seldom successful. Marketers depend on marketing research, both formal and informal, to determine what consumers want and what they are willing to pay for.
Most companies today have a customer orientation (also called customer focus). This implies that the company focuses its activities and products on customer needs. Generally there are two ways of doing this: the customer-driven approach and the product innovation approach.
In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions. No strategy is pursued until it passes the test of consumer research. Every aspect of a market offering, including the nature of the product itself, is driven by the needs of potential consumers. The starting point is always the consumer. The rationale for this approach is that there is no point spending R&D funds developing products that people will not buy. History attests to many products that were commercial failures in spite of being technological breakthroughs.
In a product innovation approach, the company pursues product innovation, then tries to develop a market for the product. Product innovation drives the process and marketing research is conducted primarily to ensure that a profitable market segment exists for the innovation. The rationale is that customers may not know what options will be available to them in the future so we should not expect them to tell us what they will buy in the future. It is claimed that if Thomas Edison depended on marketing research he would have produced larger candles rather than inventing light bulbs. Many firms, such as research and development focused companies, successfully focus on product innovation. Many purists doubt whether this is really a form of marketing orientation at all. Some even question whether it is marketing.
Diffusion of innovations research explores how and why people adopt new products, services and ideas.
A relatively new form of marketing uses the Internet and is called internet marketing or more generally e-marketing, affiliate marketing or online marketing. It typically tries to perfect the segmentation strategy used in traditional marketing. It targets its audience more precisely, and is sometimes called personalized marketing or one-to-one marketing.
This section covers the importance of market research and explains how it can help you succeed with exporting your product or service. Different types of market research that you may want to conduct are identified, along with detailed information on how to conduct the research.
Why is Market Research Important?
Businesses that invest time researching audiences for their products increase their chances of succeeding in the international marketplace. Researching potential markets can help you:
identify where your product is most likely to sell
specify market segments
determine both domestic and international competitors; and
establish a fair market price for your product.
Conducting a systematic market search takes time, but normally pays off in the long run. Considering many of the factors involved with exporting in the beginning will save you from misfortunes in the end.
How Should You Conduct Market Research?
The two types of market research most businesses conduct are primary and secondary market research.
In conducting this type of market research, businesses collect data directly from the foreign marketplace initiating phone interviews, employing surveys, and directly contacting potential customers and representatives. Because it is tailored to a specific company and product, primary market research is time consuming and expensive. As a result, most small businesses begin researching their markets using secondary market research techniques.
In conducting secondary market research, businesses collect data from a number of resources including:
International news reports (televised, in print, and on-line)
Trade and economic statistics (in print, and online)
Trade agencies
Generally, exporters use all of these resources in combination starting with the first two, and conclude by confirming (and gathering additional) information from Trade Managers and Export Specialists at the given agencies.
Classifying the Product
Begin conducting market research by classifying your product to gather relevant trade statistics. This section covers information that will help you understand how product classification systems relate to market research. Additionally, the most helpful classification systems are explained along with details on where you can find codes for your product, and what you will want to do with them to progress with your research.
Most
Knowing which classification codes represent your product can help you track where similar products are being shipped, quantities shipped, and the revenue generated off the shipments. Knowing your codes can also help you gather other relevant demographic and economic information about potential markets.
There are many types of classification systems, differing from one another in format and purpose. These are the four classification systems you need to know about to effective conduct market research:
Harmonized System (HS) and the Schedule B
Standard International Trade Classification (SITC) system
Standard Industrial Classification (SIC) system, which is being replaced by
North American Industry Classification System (NAICS)
After you classify your product and ascertain the necessary codes, you will be ready to gather the trade statistics on your product.
What Other Aspects of Your Product Should Be Analyzed While Conducting Market Research?
As you conduct market research and classify your product, think about who your typical buyer will be. Think about who would benefit from using the product, and document the characteristics of the potential customer. Exporters with new products that are not yet classified may develop a customer profile to document the characteristics of a person or company that would buy their products. If this is the case, exporters may also want to gather trade statistics relating to the general group to which their product belongs.
Also, think about the quality of your product and the most appropriate price in any given country. To estimate a price, calculate the expense of manufacturing, storing and shipping the product, and consider increasing that number a percentage. However, your pricing structure may be affected by the economic climate of the given market, the exchange rate, and the purchasing power of your audience.
Using the classification codes from the last section, and referencing appropriate resources, you will be able to access specific trade statistics on your product. Many of the statistical resources mentioned will display information that may reveal:
Where a Product is Being Exported To
By looking at where a product is being exported to, you can identify markets into which like products are being sold. This information may indicate that an infrastructure (political, cultural, and economical) exists that will possibly support the sale of your product.
Where a Product is Being Imported From
By looking at where a product is being imported from, you can identify both domestic and international competitors by country and state. Markets with many competitors may be worth entering given that the standards or quality of your product and how you service it meet certain needs. However, too much competition as you begin to export may make it more difficult and expensive to penetrate a given market. Instead, look at entering smaller markets where few competitors have set up shop. If competitors are doing well and you foresee market growth potential, you may have an opportunity to start at the "ground" floor and grow with the market.
How Much Product (In Dollars and Quantities) is Being Shipped
By looking at how much of the product is being shipped in dollars and quantities, you can estimate the actual size of the marketplace. Later, you will need to consider the market population holistically (by country), and determine the gross national product (GNP) statistics for each. Think about how much of the population is buying the product (factoring in the quantities shipped and the revenue generated). Is a small sector of the population purchasing most of the product? Or is a large number of the population exercising their purchasing power?
Product's Trade History
By looking at a summary of the product's trade history over the last few years, you can estimate if the market is growing or shrinking consistently, or emerging. Look at shipments over the last three to five years. Think about which markets are growing consistently. Does the growth record indicate a trend? Identify markets that are shrinking. Is this reduction a result of a recession? Are there political or economical indicators that signal the potential for the market to emerge once the recession is over?
A vital part of identifying markets is researching countries of potential markets.
How does your product or service compare with competition in the foreign market?
Is your price competitive in the markets you're considering? Reflect on the monetary exchange rate, and current economic conditions in the markets you are pondering.
Who are your major customers? Exporters with unique products that have not been classified or sold previously will want to develop a customer profile to determine the most likely audience that will buy his or her products or services.
The three
largest markets for
All businesses that participate in the international marketplace are met with some type of barriers when they enter. Such barriers include:
Tariffs or taxes imposed on imported goods that, when high, may make it difficult to sell your product profitably in a foreign market.
Non-tariff barriers, such as laws and regulations that countries enact that protect domestic industries against foreign competition. Non-tariff barriers include import quotas or restrictions on quality of imports.
International Standards promoted by the International Standards Organization (ISO) involves establishing quality manufacturing and service standards, and certification and monitoring world wide. Originally advocated by the European Union, around 100 nations are now considering adopting ISO processes, as seen in the IS0 9000 (a generic family of standards and quality control systems). Nations are currently debating the advantages (saving money) and disadvantages (cost to certify) of adopting international standards.
Communication may be a problem if you do not speak your potential customer's language. Luckily, the international business language is English, hence you should be able to find someone who can speak English if you or someone in your employ does not speak the targeted market's language. Eliminate this barrier by ensuring someone on your staff knows the language (and culture) of your customer which may help put him or her more at ease.
Distribution arrangements may
present barriers if the market has not yet been explored by other
Under certain conditions, product modifications are necessary to conform with foreign government regulations. Modifications may also be necessary due to geographic, climatic, cultural, and electrical standards of foreign markets. If adaptations were not considered previously, be sure to analyse this aspect now to confirm that modification costs do not exceed your projected profits (making the product too expensive and unprofitable to export).
Once you have identified potential markets, considered competition, and looked at the feasibility of market entry, you will want to further research and evaluate those markets. Before you go on, make a list of 5 - 10 potential markets to target. Choose 3 - 5 large markets, and 3 - 5 smaller markets covering the bases of opportunities for potential international sales. Keep in mind, you'll further narrow your scope as you define the best target market identified through your research.
Identify characteristics and risks specific to the markets you are considering. These issues are include:
When examining market size, look at the overall population. Then, estimate the percent of potential buyers within that population. Look at the numbers that suggest how much the population spends on this type of import. While doing so, identify if there are domestic or international competitors already providing a similar product. If there are, what is the production rate of each? If possible, determine the price your competitors are charging, and compare your product's price and quality against theirs.
Entering smaller markets where few competitors have set up shop may give you the opportunity to start at the "ground" floor and grow with the market. However, if you enter smaller markets beware of the barriers you may encounter as a result (e.g., transportation and political infrastructure problems).
In researching demographics, look at the unemployment trends and educational levels of consumers in the target market. The more sophisticated the target market, the more difficult it may be to compete. Also identify the language and dialects spoken within a particular market and evaluate if you have the resources to communicate with customers in their language.
Examining the growth of the market over the last few years will tell you if it is consistently growing or shrinking. Look at the last three to five years of import history for your product (if available) within a given market. Also look at trends and growth forecasts. What do they tell you about the market and its potential for growth? Has it reached its peak? Is the market saturated with like products? Are the number of imports increasing or decreasing? If the numbers are increasing consistently, this indicates that the market is expanding. Seriously consider markets that are larger with strong growth potential to increase profit margins and reduce production costs.
Also
consider the industrial development stage of your market. Those that are just
beginning to industrialize may not have need for the latest technology.
However, some markets developing industrially may take advantage of the
progress made in more developed markets and leap ahead bypassing earlier
innovations and adopting later technology to help build their infrastructure
(e.g. the
Many factors influence market accessibility. The following is not an exhaustive list, but it may help you assess how accessible the market is to you and how accessible your product is to your targeted customers:
Import duties and tariffs costs may make sending your goods (or services) into the foreign marketplace unprofitable. To determine the duty or tariff rate, contact a trade agent to help you identify the Harmonized Tariff section which corresponds to your product. Remember, each country has its own schedule of duty rates.
Local and foreign suppliers may influence your marketplace accessibility. Be sure you know who your international competitors are. Compare the price and quality of your product with the competition's.
Sales representatives located within the country to which you wish to export can represent your product and act as an intermediary. Representatives may be able to give you ideas of the best ways to access the market and customers through different channels of distribution.
Promotional practices, such as how you advertise and promote your product will affect how much of the targeted market will have access to (and know about) your product.
Many factors affect economic stability of a marketplace (and country). Determine if the economic climate is thriving or diving? Recessing or growing? If possible, identify the GNP growth rate and per capita income. Also, ascertain the unemployment rate of the country. This will affect how much of the market can actually spend money to buy your product. Markets that are stable and growing are obviously more attractive to conduct business with.
Lastly, note that foreign countries undergoing economic and industrial development may not collect and disseminate trade statistics. If they do, these statistics may be in a form that cannot be easily interpreted. When such important market information is missing or not understandable, consult a trade agent or eliminate the market.
Many questions must be asked regarding the political climate of a potential market. Such questions include:
On what type of political system is the country and market based? Is the system stable?
Will the governmental system affect your customer's ability to import?
Will the political system affect tariff rates and licensing requirements?
Is the legal system supportive of international trade?
Are there legal tariff and non-tariff barriers? And are there incentives of which you should be aware?
If the market is politically unstable, how might that affect economic stability?
What is
the overriding attitude for doing business with companies in the
Has the market or country adopted the International Standards Organization's ISO 9000 processes?
With over 300 countries in the world, many have their own language, customs and culture. Being educated on the culture and values of your target markets will increase your success in the international marketplace.
Although the international business language is English, it may not be that way for long. It is to your advantage to speak the native language of your customer and understand his or her culture in order to communicate more effectively. Make sure you utilize your staff resources to their fullest to accomplish this task.
Customs
and culture also affect consumption of goods. Factors like colours, numbers,
and communication fit this category. For example, when considering product or
promotional gift colours, keep in mind that white is the colour of death in
Environmental factors such as climate can influence modifications you must make to your product in order to sell it in a given market. Determine if humidity or other climate issues will affect the product performance or appearance as it is in transit or as it is used or consumed.
Geographic factors can also affect your success in a given foreign market. Such factors include, transportation to the country or market and legal restrictions on travel. To enter a foreign market, a transportation system must be in place (i.e., there must be a way for you to get to your foreign customers). Keep in mind the longer and more remote the distance is to the market, the more the transportation and travel costs will be.
Considering characteristics and risks associated with each market, contemplate how your product must be modified to be sold successfully in each market. The costs of product adaptations add up quickly. Ponder what modifications are necessary and evaluate if the costs make the product unprofitable to export. Target those markets where minimal modifications are needed.
Having completed many of the steps of market research, analyse those markets that have the highest potential. As you research, you will find you have narrowed down your list from many potential markets to two or three markets most likely to purchase your product with minimal modification, and for an acceptable price.
Once you have evaluated and targeted your markets, visit them to confirm your research findings and begin to think about an export strategy. If possible, cluster potential markets and visit them all in one trip. You may want to think about representation and meet with a few distributors while you are there. Gather relevant data about travelling to your target market. Always keep in mind your budget and time throughout all stages of the export process.
Now that you have analysed many of the factors involved with beginning to export, synthesize what you have found and talk with a Trade Manager or Specialist about your findings. Trade Managers constantly update themselves with current international information, and may provide you with information about a country or market that you have not considered.
© 2003 TradePort
11 - Primer for Exporters: International Sales Contracts
Any firm developing its business in the international arena faces challenges, not least of which is the contract itself. It would be easy to refer the contractual issues to a specialist lawyer, but this may not be realistic for many firms. Two ready-to-use model international sales contracts are now available from ICC and ITC.
Until quite recently, international sales were hardly “international” at all in legal terms: the party with the greater bargaining power, often the buyer, would generally impose its standard terms and its own national law. If the parties came from different legal cultures — for example, from civil law and common law countries — then understanding and negotiating contract terms were even more difficult. These factors did nothing to foster trust, and therefore hindered international trade development.
In recent decades, however, much has been done to “level the playing field”. This sporting metaphor is not entirely out of place, as it captures the effect of instruments that help contracting parties to obtain balanced and easily comprehensible contract terms.
The key initiative was the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG). The convention has been adopted by more than 50 countries (most of them in the North). For countries that have not yet adopted the convention, parties wishing to conduct international trade can still base their contract on the principles in the convention.
The CISG proposes a broadly worded standard set of rights and obligations for both buyer and seller, including the options open to them if there is a problem with the contract.
Since 1994, the CISG has been accompanied by the UNIDROIT Principles of International Contracts. This wide-ranging set of principles seeks to cover a much broader range of contracts than just sales. As with the CISG, it provides valuable assistance to a party trying to find internationally accepted wording for any given contract term.
Indeed, the CISG and UNIDROIT are increasingly seen as tools that can be turned to at the negotiation stage when trying to counter oppressive terms proposed by the other side. Both texts can be found on the Juris International web site: https://www.jurisint.org
These instruments also help to harmonize international trade terms by reducing to a minimum the role to be played by a national system of law. In other words, if the parties use the CISG or UNIDROIT Principles as the basis for their contract terms, then relatively little remains under the authority of national “governing law”.
It would be wrong, however, to conclude that one can do away with “governing law”. There are always matters that are a question of public policy at law and cannot be varied by the parties — thus, for example, the scope of a provision regulating the “liquidated” (i.e. fixed) damages payable in the event of delayed performance is not entirely at the discretion of the parties. There are also key questions that neither CISG nor UNIDROIT address — transfer of title in the goods sold, for example.
Nevertheless, these instruments provide a very useful guide to firms when drafting an international sales contract.
The reader might well retort that this is all very well, but that specialist assistance remains appropriate in order to produce the contract itself. So what should businessmen or women do if they do not have an international lawyer at hand? What they need are model contracts, and it is good to be able to report that balanced international models are available. This article refers to only two of them: the International Chamber of Commerce (ICC) Model International Sales Contract for Manufactured Goods; and the International Commercial Sale of Perishable Goods Model Contract proposed by ITC.
Each model responds to concerns of contracting parties for the type of transaction in question. Thus, for example, since perishable goods are liable to deteriorate quickly, ITC’s International Commercial Sale of Perishable Goods Model Contract proposes that the buyer should be entitled to terminate at a relatively early date in the event of late delivery. The contract also foresees a rapid expertise procedure to deal with disputes regarding the quality of the goods. In comparison, ICC’s Model International Sales Contract for Manufactured Goods does not provide for an early fall-back cancellation date for late delivery because it would not be justified for manufactured goods.
Both provide contract terms ready for use; all the parties need to do is add the relevant details of their own commercial deal, such as name, address, description of goods, and price and payment terms. Both promote harmonization of international contracting practices through use of identical vocabulary and common reliance on the CISG and ICC Incoterms (International Commercial Terms — standard trade definitions). For more information, see https://www.iccwbo.org/index_incoterms.asp
The ITC model contract has been prepared with the aim of limiting the clauses that must be completed by the parties. It has fall-back provisions for everything except key information as to the parties’ identity and the description of the goods. The object here is to dispense with the need for a lawyer as far as possible. This is not to say, of course, that lawyers should be kept out of international contracts. They should certainly be used if a party foresees altering the equilibrium that these model contracts seek to propose, or to go further and “pick and choose” from the terms proposed in various instruments in order to assemble a contract.
Obviously, there is nothing wrong with drafting a contract afresh. But international sales call for specialist experience. Every attempt has been made in the ICC and ITC model contracts to allow businesses to avoid having to turn to specialists. Keep in mind, however, that the usefulness of the model forms is liable to be considerably reduced if they are substantially modified without specialist advice.
David
Brown is an English solicitor and French avocat
(lawyer). He is managing partner of the
12 - International Joint Ventures
by Michael Schneider, Jean-Paul Vulliety and Carolyn Olsburg
At long
last, specialists have agreed upon two model contracts for international joint
ventures. Legal experts from a
For several decades, companies’ legal departments secretly developed their own tailor-made joint venture contracts. They couldn’t do otherwise: no international model existed and no one dared to propose one in view of the diversity of legal cultures and practices.
A joint venture is a classic type of strategic alliance between two or more companies. It can be long or short term, and used for various activities: engineering, production and distribution, among others. It seemed that no model could suit all these needs and reconcile lawyers from diverse backgrounds. Yet the demand for international models was pressing.
In 1998, ITC conducted a worldwide survey on trade contracts. Over 245 trade promotion organizations (TPOs) from 125 countries responded. The survey showed that joint venture model contracts were requested and considered a priority by 77% of TPOs. Surprisingly, in less than two years a group of some 55 specialists from 45 countries, representing all legal cultures (see related article on ITC’s Pro-bono Committee on Model Joint Venture Contracts), have agreed on two models.
Joint venture model contracts provide the international business community with models for two forms of joint venture agreements. The contracts are especially designed for small and medium-sized enterprises (SMEs) in emerging economies and developing markets. These model contracts take into account the particularities of specific business fields, as well as the requirements of civil and common law legal systems. Both the guidelines and the texts of the model contracts have been reviewed by international trade law experts from various professional, cultural and legal backgrounds.
A joint venture may be about the joint performance of a single-activity contract, or about the organization of long-term cooperation between parties. Model contracts are already available for short-term single-activity joint ventures, such as a construction contract. See, for example, the International Federation of Consulting Engineers’ (FIDIC) construction, plant and design build, and engineering, procurement and construction (EPC) turnkey contracts at https://www.fidic.org So experts agreed that the need existed mainly for long- and medium-term joint ventures.
The joint venture model contracts vary with respect to both the objective of the joint venture and its joint implementation. As a result, two types of joint venture model contracts have been prepared: the first in view of creating a company; the second in view of cooperation without creating a company. These are applicable to different situations:
Incorporated joint venture contract. This is a model to create one or more joint venture companies, which are legal entities established to carry out a common activity. In this case, the joint venture agreement helps to prepare the creation of a company in a specific country. In addition to the joint venture agreement, the cooperation of the parties requires further legal instruments, usually articles of incorporation of the company, by-laws and a shareholders’ agreement.
Contractual joint venture contract. This model regulates cooperation between parties. A legal entity is not created, but a collaborative group exists. Only one legal instrument is usually necessary: the contractual joint venture agreement.
Model agreements are suitable for most commercial and industrial activities for which joint ventures are used, including transportation, prospecting for and developing natural resources, and the hotel and tourism industry.
The model agreements address: initial and additional contributions of the parties; management and representation of the joint venture and/or the joint venture company; external and internal liability of the parties; sharing of profits and losses; deadlock resolution; acquisition; loss and transfer of partnership status; exclusion of a partner, end of the joint venture; and dispute resolution.
An ITC book featuring these model agreements will be available in English and French in 2003. Legal terms and concepts are provided in each language, and an attempt is made to reflect characteristics of both the civil and the common law systems. Options to deal with various situations are also provided. A commentary, in the form of a “user’s guide”, is included. It also draws the parties’ attention to legislative provisions that are compulsory in certain states, in particular concerning tax law, inheritance law and company law. The agreements will also be online at https://www.juris.int.org
Michael
Schneider, Jean-Paul Vulliety and Carolyn Olsburg, lawyers at Lalive and
Partners,
For more information, check the Juris International web site (https://www.juris.int.org) or contact ITC at bourque@intracen.org
13 - Management
"Management" (from Old French ménagement "the art of conducting, directing", from Latin manu agere "to lead by the hand") characterises the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). Early twentieth-century management writer, Mary Parker Follett defined management as "the art of getting things done through people." One can also think of management functionally, as the action of measuring a quantity on a regular basis and of adjusting some initial plan, and as the actions taken to reach one's intended goal. This applies even in situations where planning does not take place. Situational management may precede and subsume purposive management.
Management is also called "Business Administration", and schools that teach management are usually called "Business Schools". The term "management" may also be used to describe the slate of managers of an organization, for example of a corporation.
There are 4 management functions and they are Planning, Organizing, Leading and Controlling.
1. Historical development
Some writers trace the development of management thought back to Sumerian traders and ancient Egyptian pyramid builders. Slave-owners through the centuries faced the problems of exploiting/motivating a dependent but sometimes recalcitrant workforce, but many pre-industrial enterprises, given their small scale, did not feel compelled to face the issues of management systematically. But innovations such as the spread of Arabic numerals (5th to 15th centuries) and the codification of double-entry book-keeping (1494) provided tools for management assessment, planning and control.
1.1. 19th century
Modern management as a discipline began as an off-shoot of economics in the 19th century. Classical economists such as Adam Smith and John Stuart Mill provided a theoretical background to resource allocation, production, and pricing issues. About the same time, innovators like Eli Whitney, James Watt, and Matthew Boulton developed technical production elements such as standardization, quality control procedures, cost accounting, interchangeability of parts, and work planning.
By the middle of the 19th century, Robert Owen, Henry Poor, and M. Laughlin and others introduced the human element with theories of worker training, motivation, organizational structure and span of control.
By the late 19th century, marginal economists Alfred Marshall and Leon Walras and others introduced a new layer of complexity to the theoretical underpinnings of management. Joseph Wharton offered the first tertiary-level course in management in 1881.
1.2. 20th century
By about 1900 we find managers trying to place their theories on a thoroughly scientific basis. Examples include Henry Towne's Science of management in the 1890s, Frederick Winslow Taylor's Scientific management (1911), Frank and Lillian Gilbreth's Applied motion study (1917), and Henry L. Gantt's charts (1910s). J. Duncan wrote the first college management text book in 1911.
The first comprehensive theories of management appeared around 1920. People like Henri Fayol and Alexander Church described the various branches of management and their inter-relationships. In the early 20th century, people like Ordwat Tead, Walter Scott and J. Mooney applied the principles of psychology to management, while other writers, such as Elton Mayo, Mary Parker Follett, Chester Barnard, Max Weber, Rensis Likert, and Chris Argyris approached the phenomenon of management from a sociological perspective.
Peter Drucker wrote one of the earliest books on applied management: Concept of the Corporation (published in 1946). It resulted from Alfred Sloan (chairman of General Motors until 1956) commissioning a study of the organisation. Drucker has gone on to write 32 books, many in the same vein.
H. Dodge, Ronald Fisher, and Thorton C. Fry introduced statistical techniques into management. In the 1940s, Patrick Blackett combined these statistical theories with microeconomic theory and gave birth to the science of operations research. Operations research, sometimes known as "management science", attempts to take a scientific approach to solving management problems, particularly in the areas of logistics and operations.
Some of the more recent developments include the theory of constraints, reengineering, and various information technology driven theories such as agile software development. The theory of constraints approach describes management decision-making as a continuous cycle of three basic questions:
1.What to change?
2.To what to change?
3.How to make the change happen?
Towards the end of the 20th century, business management came to consist of a number of separate branches, including:
Human resource management
Operations management or production management
Strategic management
Marketing management
Financial management
Information Technology management
Management by objective
1.3. 21st century
In the 21st century we find it increasingly difficult to subdivide management into categories in this way. More and more processes simultaneously involve several categories. Instead, we tend to think in terms of the various processes, tasks, and objects subject to management.
It is also the case that many of the assumptions made by management have been under attack from business ethics, critical management studies, and anti-corporate activism.
2. Nature of the work
Chief executive officer (CEO) - The CEO is ultimately responsible for the success or failure of the business. He, often with the assistance of a team of vice presidents, provides overall strategic direction for the firm. Strategic management decisions like what products to market, what market segments to target, what functions to outsource, what business model to employ, and what geographical areas to operate in are the responsibility of the CEO. The CEO is accountable to the board of directors. Typically a CEO will delegate many responsibilities to one or more executive vice presidents.
In small firms, the owner, president, or chief executive officer typically assume many roles and responsibilities.
Vice president, Marketing - An executive vice president of marketing might direct overall marketing strategies, advertising, promotions, sales, product management, pricing, and public relations policies. The direct reports of the EVP oversee advertising and promotion. In a small firm, they may serve as a liaison between the firm and the advertising or promotion agency to which many advertising or promotional functions are contracted out. In larger firms, advertising managers oversee in-house account, creative, and media services departments.
Marketing managers - Marketing managers develop the firm's detailed marketing plans and procedures. With the help of subordinates, including product development managers and market research managers, they determine the demand for products and services offered by the firm and its competitors. In addition, they identify potential markets—for example, business firms, wholesalers, retailers, government, or the general public. Marketing managers develop pricing strategy with an eye towards maximizing the firm's share of the market and its profits while ensuring that the customers are satisfied. In collaboration with sales, product development, and other managers, they monitor trends that indicate the need for new products and services and oversee product development. Marketing managers work with advertising and promotion managers to promote the firm's products and services and to attract potential users.
Promotions managers - Promotions managers supervise sales promotion specialists. They direct promotion programs that combine advertising with purchase incentives to increase sales. In an effort to establish closer contact with purchasers—dealers, distributors, or consumers—promotion programs may involve direct mail, telemarketing, television or radio advertising, catalogues, exhibits, inserts in newspapers, Internet advertisements or Web sites, in-store displays or product endorsements, and special events. Purchase incentives may include discounts, samples, gifts, rebates, coupons, sweepstakes, and contests.
Public relations managers - Public relations managers supervise public relations specialists. These managers direct publicity programs to a targeted public. They often specialize in a specific area, such as crisis management or in a specific industry, such as healthcare. They use every available communication medium in their effort to maintain the support of the specific group upon whom their organizations success depends, such as consumers, stockholders, or the general public. For example, public relations managers may clarify or justify the firms point of view on health or environmental issues to community or special interest groups.
They also evaluate advertising and promotion programs for compatibility with public relations efforts and serve as the eyes and ears of top management. They observe social, economic, and political trends that might ultimately affect the firm and make recommendations to enhance the firm's image based on those trends.
They may also confer with labour relations managers to produce internal company communications—such as newsletters about employee-management relations—and with financial managers to produce company reports. They assist company executives in drafting speeches, arranging interviews, and maintaining other forms of public contact; oversee company archives; and respond to information requests. In addition, some handle special events such as sponsorship of races, parties introducing new products, or other activities the firm supports in order to gain public attention through the press without advertising directly.
Sales managers - Sales managers direct the firm's sales program. They assign sales territories, set goals, and establish training programs for the sales representatives. Managers advise the sales representatives on ways to improve their sales performance. In large, multiproduct firms, they oversee regional and local sales managers and their subordinates. Sales managers maintain contact with dealers and distributors. They analyse sales statistics gathered by their staffs to determine sales potential and inventory requirements and monitor the preferences of customers. Such information is vital to develop products and maximize profits.
Account executive - The account executive manages the account services department, assesses the need for advertising, and, in advertising agencies, maintains the accounts of clients.
Creative director - The creative services department develops the subject matter and presentation of advertising. The creative director oversees the copy chief, art director, and associated staff.
Media director - The media director oversees planning groups that select the communication media—for example, radio, television, newspapers, magazines, Internet, or outdoor signs—to disseminate the advertising.
3. Areas of management
Adminstrative management
Change management
Communication management
Constraint management
Cost management
Crisis management
Customer relationship management
Earned value management
Facility management
Human interaction management
Integration management
Knowledge management
Land management
Logistics management
Marketing management
Operations management
Pain management
Perception management
Procurement management
Program management
Project management
Process management
Product management
Quality management
Resource management
Risk management
Skills management
Spend management
Stress management
Supply chain management
Systems management
Talent management
Time management
14 - Corporation
A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons;" they may also go by the name "AS" (anonymous society) or something similar, depending on language.
Legal status
The law typically views a corporation as a fictional
person, a legal person, or a moral person (as opposed to a natural person);
In common law countries: " . a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation." (Lord Haldane, 1915)
The most salient features of incorporation include:
1.Limited Liability. Unlike in a partnership, stockholders of a corporation hold no liability for the corporation's debts and obligations. As a result their "limited" potential losses cannot exceed the amount which they paid for the stock. Not only does this allow corporations to engage in risky enterprises, but limited liability also forms the basis for trading in corporate stock. A lender can, however, require a personal guarantee on a loan to a corporation, thus introducing personal liability.
2.Perpetual Lifetime. The assets and structure of the corporation exist beyond the lifetime of any of its shareholders, officers or directors. This allows for stability of capital, which thus becomes available for investment in projects of a larger size and over a longer term than if the corporate assets remained subject to dissolution and distribution.
1.1. Ownership and control
Humans, trusts, other corporations or other legal entities can hold shares. When no stockholders exist, a corporation may exist as a "non-stock corporation", a "membership corporation", or similar — this second type of corporation counts as a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not vouchsafed to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals.
Typically, a board of directors governs a corporation on the stockholders' behalf. The board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer, and other titled officers are chosen by the board to manage the affairs of the corporation.
1.2. Formation
Generally speaking, any corporation, whether domestically created or foreign (from another jurisdiction) must register in order to conduct business in that jurisdiction. As part of this registration, it must designate the principal address of the corporation (where to contact it in the event of legal process).
Corporations receive a charter from a state, and become regulated by the laws enacted by that state. The law of the state in which a corporation operates (if different from the state in which it originates) will generally regulate its activities.
1.3. Naming
Corporations generally have a distinct name. Historically, corporations were named after their membership: for instance, "The President and Fellows of Harvard College." Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership.
In most countries, corporate names include the term
"Corporation," or an abbreviation that denotes the corporate status
of the entity: "Inc." in the
Terms like those on the list above, known as words of limitation, obviously vary by jurisdiction and language. Their use puts all persons on constructive notice that they have to deal with an entity whose liability remains limited; one can only collect from whatever assets the entity still controls at the time one obtains a judgment against it.
2. Origins
2.1. Etymology
The word "corporation" derives from the
Latin corpus (body), representing a "body of people"; that is,
a group of people authorized to act as an individual. In the
2.2 Pre-modern corporations
Corporations have been present in some forms as far back as Ancient Rome. Although devoid of some of the core characteristics by which corporations are known today, they nonetheless were enterprises, sanctioned by the state, with a form of shareholders who invested money for a specific purpose.
With the collapse of the
Older corporate entities gained incorporation as "the person/people of xx". This reflected the people who made up the "body" and also emphasised their legal identity. The law classifies a corporation either as a corporation sole (one person) or as a corporation aggregate (any other number).
Examples include (the nickname appears in brackets with the nature of the corporation):
The Governor and Company of the Bank of
The Chancellor Masters and Scholars of the
The President and Fellows of
Her Majesty the Queen in Right of
The Archbishop of
The Dean, Chapter and Students of the
Using strict definitions, universities and colleges count as corporations since they merely comprise groups of people.
2.3. Development of modern commercial corporations
The alleged oldest commercial corporation in the
world, the Stora Kopparberg mining community in
Early corporations of the commercial sort, such as the Dutch East India Company, were formed under frameworks set up by governments of states to undertake tasks which appeared too risky or too expensive for individuals or governments to embark upon. Such corporations came to play a large part in the history of corporate colonialism.
3. Types of corporations
3.1. For-profit and non-profit
In modern economic systems, the corporate conventions of governance commonly appear in a wide variety of business and non-profit activities. Though the laws governing these creatures of statute often differ, the courts often interpret provisions of the law that apply to profit-making enterprises in the same manner (or in a similar manner) when applying principles to non-profit organizations — as the underlying structures of these two types of entity often resemble each other.
3.2. Closely-held and public
The institution most often referenced when the word "corporation" is used is a public or publicly traded corporation, the shares of which are traded on a public market (e.g., the New York Stock Exchange or Nasdaq) designed specifically for the buying and selling of shares of stock of corporations by and to the general public. Most of the largest businesses in the world are publicly traded corporations. However, the majority of corporations are said to be closely held, privately held or close corporations, meaning that no ready market exists for the trading of ownership interests. Many such corporations are owned and managed by a small group of businesspeople or companies, although the size of such a corporation can be as vast as the largest public corporations.
The affairs of publicly traded and closely held
corporations are similar in many respects. The main difference in most
countries is that publicly traded corporations have an additional burden of
complying with securities laws, which (especially in the
3.3. Multinational corporations
Following on the success of the corporate model at a national level, many corporations have become trans-national or multinational corporations: growing beyond national boundaries to attain sometimes remarkable positions of power and influence in the process of globalizing.
The typical "transnational" or "multinational" may fit into a web of overlapping ownerships and directorships, with multiple branches and lines in different regions, many such sub-groupings comprising corporations in their own right. Growth by expansion may favour national or regional branches; growth by acquisition or merger can result in a plethora of groupings scattered around and/or spanning the globe, with structures and names which do not always make clear the structures of ownership and interaction.
In the spread of corporations across multiple continents, the importance of corporate culture has grown as a unifying factor and a counterweight to local national sensibilities and cultural awareness.
4.
There are various types of corporations throughout the world.
In the
5. Corporate taxation
In many countries, including the
Where a double taxation system exists, the additional tax burden is often an incentive for smaller businesses to organize in the form of a partnership, limited liability company, or other type of entity that is not separately taxed. Such entities are often called "pass-through entities."
In the
15 - Bank
The essential function of a bank is to provide services related to the storing of deposits and the extending of credit. The evolution of banking dates back to the earliest writing, and continues in the present where a bank is a financial institution that provides banking and other financial services. Currently the term bank is generally understood as an institution that holds a banking license. Banking licenses are granted by financial supervision authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-bank. Banks are a subset of the financial services industry.
The word
bank is derived from the Italian banca,
which is derived from German language and means bench. The terms bankrupt
and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its
bench physically broken. Money lenders in
Typically, a bank generates profits from transaction fees on financial services and on the interest it charges for lending.
1. Services typically offered by banks
Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
Directly taking deposits from the general public and issuing checking and savings accounts
Lending out money to companies and individuals
Cashing cheques
Facilitating money transactions such as wire transfers and cashiers checks
Issuing credit cards, ATM, and debit cards
online banking
Storing valuables, particularly in a safe deposit box
2. Types of banks
There are several different types of banks including:
Central banks usually control monetary policy and may be the lender of last resort in the event of a crisis. They are often charged with controlling the money supply, including printing paper money. Examples of central banks are the Bank of England and the U.S. Federal Reserve Bank.
Investment banks
"underwrite" (guarantee the sale of) stock and bond issues and advise
on mergers. Examples of investment banks are Goldman Sachs of the
Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provides capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.
Private banks manage the assets of the very rich. The largest private bank in the world is Swiss bank UBS.
Savings banks traditionally accepted savings deposits and issued mortgages. Today, some countries have broadened the permitted activities of savings banks.
Postal savings banks
are savings banks associated with national postal systems.
Offshore banks
are banks located in jurisdictions with low taxation and regulation, such as
Commercial bank, is the term used for a normal bank to distinguish it from an investment bank. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with corporations or large businesses.
Retail banks
primary customers are individuals. An example of a retail bank is Washington
Mutual of the
Universal banks,
more commonly known as a financial services company, engage in several
of these activities. For example, Citigroup, a very large American bank, is
involved in commercial and retail lending; it owns a merchant bank (Citicorp
Merchant Bank Limited) and an investment bank (Salomon Smith Barney); it
operates a private bank (Citigroup Private Bank); finally, its subsidiaries in
tax-havens offer offshore banking services to customers in other countries.
Almost all large financial institutions are diversified and engage in multiple
activities. In
3. Susceptibility to crisis
Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those that owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others.
4. Role in the money supply
A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.
However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behaviour is called fractional-reserve banking and it is a central issue of monetary policy. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply. Even where the reserve ratio is not controlled by the government, a minimum figure will still be set by regulatory authorities as part of banking supervision.
5. Regulation
The combination of the instability of banks as well as their important facilitating role in the economy led to banking being thoroughly regulated. The amount of capital a bank is required to hold is a function of the amount and quality of its assets. Major banks are subject to the Basel Capital Accord promulgated by the Bank for International Settlements. In addition, banks are usually required to purchase deposit insurance to make sure smaller investors are not wiped out in the event of a bank failure.
Another reason banks are thoroughly regulated is that ultimately, no government can allow the banking system to fail. There is almost always a lender of last resort—in the event of a liquidity crisis (where short term obligations exceed short term assets) some element of government will step in to lend banks enough money to avoid bankruptcy.
6. How banks are viewed
Banks have a long history of being characterized as heartless, rapacious creditors, hounding honest folk down on their luck for the last dime.
In
“The bank is something else than men. It happens that every man in a bank hates what the bank does, and yet the bank does it. The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” – John Steinbeck, The Grapes of Wrath
7. Profitability
Large
banks in the
In the
past 10 years in the
A banknote
(more commonly known as a ‘bill’ in the
Originally, the value of money was determined by the intrinsic value of the material the money was made of, such as silver or gold. However, carrying around a lot of precious metal was cumbersome and often dangerous. As an alternative, banknotes would be issued. In financial terms, a note is a promise to pay someone money. Banknotes were originally a promise to pay the bearer an amount of precious metal stored in a vault somewhere. In this way the stored value (usually in gold or silver coins) backing the banknote could transfer ownership in exchange for goods or services.
The ability to exchange a note for some other kind of value is called "convertibility". For example a US silver certificate from the early 20th century was "payable in silver on demand" from the Treasury. If a note is payable on demand for a fixed unit, it is said to be fully convertible to that unit. Limited convertibility occurs when there are restrictions in the time, place, manner or amount of exchange.
Today, this is no longer true; the currency of all countries is now fiat money not backed by gold or silver.
The perception of banknotes as money has evolved over time. Originally, money was based on precious metals. Banknotes were seen as essentially an I.O.U. or promissory note: a promise to pay someone money, but not actual money. As banknotes became more widely used, they became more accepted as equivalent to precious metal. With the gradual removal of precious metals from the monetary system, banknotes are now simply considered as money.
Paper money originated in two forms: drafts, that is receipts for value held on account, and "bills", which were issued with a promise to convert at a later date.
Money is
based on the coming to pre-eminence of some commodity as payment. The oldest
monetary basis was for agricultural capital: cattle and grain. In Ancient
Mesopotamia, drafts were issued against stored grain as a unit of account. A
"drachma" was a weight of grain.
Such drafts were used for giro systems of banking as early as Ptolemaic Egypt in the first century BC.
However
the use of paper money as a circulating medium is intimately related to
shortages of metal for coins. In the 600s there were local issues of paper
currency in
In Europe the first banknotes were issued by Stockholms Banco, a predecessor of the Bank of Sweden, in 1660, although the bank ran out of coins to redeem its notes in 1664 and ceased operating in that year. It was 1694 when the Bank of England issued the first permanently circulating banknotes. The use of fixed denominations and printed banknotes came into use in the 18th century.
The ease with which paper money can be created, by both legitimate authorities and counterfeiters, has led both to a temptation in times of crisis such as war or revolution to produce paper money which was not supported by precious metal or other goods, thus leading to hyperinflation and a loss of faith in the value of paper money, e.g. the Continental Currency produced by the Continental Congress during the American Revolution, the Assignats produced during the French Revolution, the paper currency produced by the Confederate States of America, the financing of the First World War by the Central Powers, the devaluation of the Yugoslav Dinar in the 1990s, etc.
Most banknotes are made of heavy paper, sometimes mixed with linen, cotton, or other textile fibres. Generally, the paper used is different from ordinary paper: it is much more resilient, resists wear and tear, and also does not contain the usual agents that make ordinary paper glow slightly under ultraviolet light.
In 1988,
Top ten banking groups in the world ranked by capital in 2004 (In U.S. Dollars)
1.Citigroup — 73 billion
2.JP Morgan Chase — 69 billion
3.HSBC — 67 billion
4.Bank of
5.Credit Agricole Group — 63 billion
6.Royal Bank of
7.Mitsubishi Tokyo Financial Group — 40 billion
8.Mizuho Financial Group — 39 billion
9.HBOS — 36 billion
10.BNP Paribas — 35 billion
Top ten banking groups in the world ranked by assets in 2003 (In U.S. Dollars)
1.Mizuho Financial Group — 1,265 billion
2.Citigroup — 1,097 billion
3.Allianz AG — 1,002 billion
4.UBS AG — 907 billion
5.Sumitomo Mitsui Financial Group — 903 billion
6.Deutsche Bank — 892 billion
7.Fannie Mae — 888 billion
8.ING Groep NV — 843 billion
9.BNP Paribas — 835 billion
10.Mitsubishi Tokyo Financial Group — 832 billion
Top ten bank holding companies in the world ranked by profit in 2003 (In U.S. Dollars)
1.Citigroup — 20 billion
2.Bank of
3.HSBC — 10 billion
4.Royal Bank of
5.Wells Fargo — 7 billion
6.JP Morgan Chase — 7 billion
7.UBS AG — 6 billion
8.Wachovia — 5 billion
9.Morgan Stanley — 5 billion
10.Merrill Lynch — 4 billion
Top ten bank holding companies in the
1.Bank of America Corp. — 526 billion
2.Wells Fargo & Co. — 256 billion
3.Wachovia Corp. — 238 billion
4.J.P. Morgan Chase & Co. — 227 billion (1)
5.Citigroup Inc. — 193 billion
6.Bank One Corp. — 150 billion (1)
7.U.S. Bancorp — 112 billion
8.SunTrust Banks, Inc. — 78 billion
9.BB&T Corporation — 67 billion
10.National City Corp. — 64 billion
16 - Stock exchange
A stock exchange is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as other financial instruments and capital events including the payment of income and dividends.
The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.
Usually there is a central location at least for record-keeping, but trade is less and less linked to such a physical place and modern markets are becoming electronic networks; this gives them advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange.
A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded.
The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market.
Increasingly all stock exchanges are part of a global market for securities.
Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks.
The French word for stock exchange is bourse.
1. History of the Stock Exchange
In 12th century
In the late 13th century commodity traders in
In the middle of the 13th century
Venetian bankers began to trade in government securities. In 1351 the Venetian
Government outlawed spreading rumours intended to lower the price of government
funds. There were people in
The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.
2. Listing requirements
Companies have to meet the requirements of the exchange in order to have their stocks and shares listed and traded there. To be listed on the New York Stock Exchange (NYSE), for example, a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.
2. Ownership
Stock exchanges originated as mutual organizations, owned by its member stock brokers. There has been a recent trend for stock exchanges to demutualize, where the members sell their shares in an Initial public offering. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Stock Exchange (1998), Euronext (2000), Nasdaq (2002) and the New York Stock Exchange (2005).
Motto: In varietate concordia (Unity in diversity)
Headquarters:
Parliament:
Official languages
Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Irish, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Slovak, Slovene, Spanish, Swedish
Presidencies
- European Council: Tony Blair
- Council of the EU:
- Commission: José Manuel Durão Barroso
- Parliament: Josep Borrell
As EEC: Treaty of
- Signed: 25 March 1957
- Enforced: 1 January 1958
As EU:
- Signed: 7 February 1992
- Enforced: 1 November 1993
Population: Ranked 3rd
- Total (2005): 457,030,418 (EU-25)
- Density: 116.4 people/km²
Largest city:
GDP (2005): Ranked 1st3
- Total (PPP): $ 12,332,296
- Per capita (PPP): $26,900
Currencies: Euro (EUR or €), British pound (GBP or £), Cyprus pound (CYP), Czech koruna (CZK), Danish krone (DKK), Estonian kroon (EEK), Hungarian forint (HUF), Latvian lats (Ls), Lithuanian litas (Lt), Maltese lira (MTL), Polish złoty (PLN), Slovak koruna (SKK), Slovene tolar (SIT), Swedish krona (SEK)
The European Union or EU is an intergovernmental and
supranational union of 25 European countries, known as member states. The
European Union was established under that name in 1992 by the Treaty on
European Union (the Maastricht Treaty). However, many aspects of the
The European Union's activities cover all areas of public policy, from health and economic policy to foreign affairs and defence. However, the extent of its powers differs greatly between areas. Depending on the area in question, the EU may therefore resemble:
a federation (for example, on monetary affairs, agricultural, trade and environmental policy)
a confederation (for example, on social and economic policy, consumer protection, home affairs)
an international organisation (for example, in foreign affairs)
A key activity of the EU is the establishment and administration of a common single market, consisting of a customs union, a single currency (adopted by 12 of the 25 member states), a Common Agricultural Policy and a Common Fisheries Policy.
The most important EU institutions are the Council of the European Union, the European Commission, the European Parliament and the European Court of Justice.
1. Status
The members of the European Union have transferred to
it considerable sovereignty — more than that of any other non-sovereign
regional organisation. As has been mentioned, in certain areas the EU begins to
take on the character of a federation or confederation. However, in legal
terms, member states remain the masters of the Treaties, which means that the
On 29 October 2004, European heads of government
signed the Treaty establishing a Constitution for
The current and future status of the European Union
therefore continues to be subject of political controversy, with widely
differing views both within and between member states. This debate has gained
intensity following the rejection of the constitutional treaty by
For example, in the
2. Current issues
Major issues currently facing the European Union cover its membership, structure, procedures and policies; they include the adoption, abandonment or adjustment of the new constitutional treaty, the Union's enlargement to the south and east, resolving the Union's problematic fiscal and democratic accountability, and revision of the rules of the Stability and Growth Pact, the future budget and the Common Agricultural Policy.
At the next Intergovernmental Conference (IGC), which
is a semi-annual meeting of EU member states' heads of state and government, EU
member states must decide on how it will allocate the EU budget. The EU budget
is called the "Financial Perspective", and it is renegotiated every
seven years. The next Financial Perspective will be for 2007-2013. Issues that
will be controversial during upcoming budget debates will be the British
rebate,
3. Origins and history
Attempts to unify the disparate nations of
Given Europe's heterogeneous collections of languages
and cultures, these attempts usually involved military subjugation of unwilling
nations, leading to instability, others have lasted thousands of years and
large spells of peace and economical and technological progress as in the
The first full customs union was originally known as
the
4.1. Member states and enlargement
The European Union has 25 member states, an area of
3,892,685 km² and approximately 460 million EU citizens as of December 2004. If
it were a country, it would be the seventh largest in the world by area and the
third largest by population after
Since its inception with six countries, nineteen further states have joined in successive waves of enlargement:
1952:
1973:
1981:
1986:
1990:
1995:
2004:
4.2. Future enlargement and close relationships
Croatia is currently the only other official candidate country, but negotiations have been postponed for the time being until cooperation with the UN War CrimesTribunal in The Hague satisfies the EU.
Most European Free Trade Association members are parties to the EEA-treaty (which set up the European Economic Area), which means that they are participants in many aspects of the EU single market.
5. Institutions and legal framework
The functioning of the European Union is supported by several institutions:
The European Parliament (732 members 750 max.)
The Council of the European Union (or 'Council of Ministers') (25 members)
The European Commission (25 members)
The European Court of Justice (incorporating the Court of First Instance) (25 judges (& 25 judges of CFI))
The European Court of Auditors (25 members)
The European Council (25 members) - whose unique role is perhaps better described as that of a "quasi-institution"
There are several financial bodies:
European Central Bank (which alongside the national Central Banks, composes the European System of Central Banks)
European Investment Bank (including the European Investment Fund)
There are also several advisory committees to the institutions:
Committee of the Regions, advising on regional issues
Economic and Social Committee, advising on economic and social policy (principally relations between workers and employers)
Political and Security Committee, established in the context of the Common Foreign and Security Policy, monitoring and advising on international issues of global security.
Lastly, the European Ombudsman investigates complaints of maladministration by EU institutions.
6. Single market
Many of the policies of the EU relate in one way or another to the development and maintenance of an effective single market. Significant efforts have been made to create harmonised standards – which are designed to bring economic benefits through creating larger, more efficient markets.
The power of the single market reaches beyond the EU borders, because to sell within the EU, it is beneficial to conform to its standards. Once a non-member country's factories, farmers and merchants conform to EU standards, much of the cost of joining the union has already been sunk. At that point, harmonising domestic laws in order to become a full member is relatively painless, and may create more wealth through eliminating the customs costs.
The single market has both internal and external aspects:
6.1. Internal policies
Free trade of goods and services among member states (an aim further extended to three of the four EFTA states by the European Economic Area, EEA).
A common EU competition law controlling anti-competitive activities of companies (through antitrust law and merger control) and member states (through the State Aids regime).
The
Schengen treaty allowed removal of internal border controls and harmonisation
of external controls between its member states. This excludes the
Freedom for citizens of its member states to live and work anywhere within the EU, provided they can support themselves (also extended to the other EEA states).
Free movement of capital between member states (and other EEA states).
Harmonisation of government regulations, corporations law and trademark registrations.
A single
currency, the Euro (excluding the
A large
amount of environmental policy co-ordination throughout the
A Common Agricultural Policy and a Common Fisheries Policy.
Common system of indirect taxation, the VAT, as well as common customs duties and excises on various products.
Funding for the development of disadvantaged regions (structural and cohesion funds).
6.2 External policies
A common external customs tariff, and a common position in international trade negotiations.
Funding for programmes in candidate countries and other Eastern European countries, as well as aid to many developing countries, through its Phare and Tacis programmes.
6.3 Co-operation and harmonisation in other areas
Freedom for citizens of the EU to vote in local government and European Parliament elections in any member state.
Co-operation in criminal matters, including sharing of intelligence (through EUROPOL and the Schengen Information System), agreement on common definition of criminal offences and expedited extradition procedures.
A common
foreign policy as a future objective, however this has some way to go before
being realised. The divisions between the member states (in the letter of
eight) and then-future members (in the
A common security policy as an objective, including the creation of a 60,000-member European Rapid Reaction Force for peacekeeping purposes, an EU military staff and an EU satellite centre (for intelligence purposes).
Common policy on asylum and immigration.
Common funding of research and technological development, through four-year Framework Programmes for Research and Technological Development. The Sixth Framework Programme is running from 2002 to 2006.
7. Economy
The European Union has the second largest economy in
the world, behind that of the United States of America with a 2005 GDP of
12,329,110 2. The EU economy is expected to grow further over the next decade
as more countries join the union - especially considering that the new States
are usually poorer than the EU average, and hence the expected fast GDP growth
will help achieve the dynamic of the united
18 - GLOSSARY
Accountancy (also accounting
in American English) – Accountancy is measurement, disclosure or provision of
assurance about information that helps managers and other decision makers make
resource allocation decisions. Financial accounting is one branch of
accounting and historically has involved processes by which financial
information about a business is recorded, classified, summarized, interpreted,
and communicated. Practitioners of accountancy are known as accountants.
Officially licensed accountants are recognized by titles such as Chartered
Accountant (UK), Certified Public Accountant (US). Accountancy attempts to
create accurate financial reports that are useful to managers, regulators, and
other stakeholders such as shareholders, creditors, or owners. The day-to-day record-keeping
involved in this process is known as bookkeeping. At the heart of modern
financial accounting is the double-entry book-keeping system. This
system involves making at least two entries for every transaction: a debit
in one account, and a corresponding credit in another account. The sum
of all debits should always equal the sum of all credits. This provides an easy
way to check for errors. This system was first used in medieval
Asset - In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e.g. a company, the measurement of which can be expressed in monetary terms.
Barter - Barter is a form of trade where goods or services are exchanged for a certain amount of other goods or services, i.e. there is no money involved in the transaction. Barter trade was common in societies where no monetary system existed or in economies suffering from a very unstable currency (as when hyperinflation hits) or a lack of currency. The disadvantage of using barter in the past was that it depended on the mutual coincidence of wants. Before any transaction could be undertaken, the needs of one person must mirror the needs of another person. That is, if you have a surplus of goats and need more wheat, you must find someone who has a surplus of wheat and needs more goats. To overcome this mutual coincidence problem, intermediaries developed that would store, trade, and warehouse commodities. However, the intermediaries often suffered from extreme risk.
Capitalism - In common usage capitalism refers to an economic system in which all or most of the means of production are privately owned and operated, and where investment and the production, distribution and prices of commodities (goods and services) are determined privately in a free market, rather than by the state. Those in control of the means of production generally run them for monetary profit. Capitalism contrasts with socialism and communism, where the means of production, and the resulting products, are owned and used by the state, or by the community collectively. Capitalism is also contrasted with feudalism, where land may be privately operated, but is owned by the state and held in fee. An economy with a large amount of intervention (which may include state ownership of the means of production) in combination with capitalist characteristics is often referred to as a mixed economy, rather than a capitalist one. If intervention is to such a degree that it overwhelms private decision, such an economy is often referred to as statist. Some economists oppose all or almost all such state control over an economy. All of the economies in the developed world are usually considered as capitalist or as mixed economies based in capitalism.
Cheque (also check in American English) – A cheque is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.
Company - A company is, in general, any group of persons
united to pursue a common interest. The term is often used to identify an
association formed for profit, that is an organization that buys and sells
goods or services to make money, such as a partnership, a joint-stock company, a
for-profit corporation. In
Competition - Seen as a pillar of capitalism in that it may stimulate innovation, encourage efficiency, or drive down prices, competition is touted as the foundation upon which capitalism is justified. According to microeconomic theory, no system of resource allocation is more efficient than pure competition. Competition, according to the theory, causes commercial firms to develop new products, services, and technologies. This gives consumers greater selection and better products. The greater selection typically causes lower prices for the products compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly). However, competition may also lead to wasted (duplicated) effort and to increased costs (and prices) in some circumstances. Similarly, the psychological effects of competition may result in harm as well as good. Three levels of economic competition have been classified. (1) The most narrow form is direct competition (also called category competition or brand competition), where products that perform the same function compete against each other. For example, a brand of pick-up trucks competes with several different brands of pick-up trucks. (2) The next form is substitute competition, where products that are close substitutes for one another compete. For example, butter competes with margarine, mayonnaise, and other various sauces and spreads. (3) The broadest form of competition is typically called budget competition. Included in this category is anything that the consumer might want to spend their available money on. For example, a family that has €20,000 available may choose to spend it on many different items, which can all be seen as competing with each other for the family's available money.
Consumer - In economics, consumers are individuals or households that "consume" goods and services generated within the economy. Since this includes just about everyone, the term is a political term as much as an economic term when it is used in everyday speech. Typically when businesspeople and economists talk of "consumers" they are talking about person-as-consumer, an aggregated commodity item with little individuality other than that expressed in the buy/not buy decision. However there is a trend in marketing to individualize the concept. In standard microeconomic theory, a consumer is assumed to have a budget which can be spent on a range of goods and services available on the market.
Debt - Debt is that which is owed. A person who owes debt is called a debtor. A person to whom it's owed is called a creditor. Debt is used to borrow purchasing power from the future.
Deposit - A deposit is a specific sum of money taken and held on account, by a bank as a service provided for its clients. A financial institution wishing to take deposits is generally required be under financial supervision, and to hold a banking license. The sum of the held deposits represents an asset, which the bank in turn can use to give loans.
Distribution - Distribution is one of the four aspects of marketing. The other three parts of the marketing mix are product management, pricing, and promotion. Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as: What kind of distribution channel to use? Should the product be sold through a retailer? Should the product be distributed through wholesale? Should multi-level marketing channels be used? How long should the channel be (how many members)? Where should the product or service be available? When should the product or service be available? Should distribution be exclusive, selective or extensive? Who should control the channel (referred to as the channel captain)? Should channel relationships be informal or contractual? Should channel members share advertising (referred to as co-op ads)? Should electronic methods of distribution be used? Are there physical distribution and logistical issues to deal with? What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)?
Double-entry book-keeping - Double-entry book-keeping is the standard
accounting practice for recording financial transactions. It was invented by
the merchant venturers of
Econometrics - Econometrics literally means 'economic measurement'. It is a combination of mathematical economics, statistics, economic statistics and economic theory. The two main purposes of econometrics are to give empirical content to economic theory and also to empirically verify economic theory. For example, econometrics could empirically verify if indeed a given demand curve slopes downward as economic theory would suggest. Empirical content is also given in that a numerical value would be given to this slope, while economic theory alone is usually mute on actual specific values.
Entrepreneurship -
Entrepreneurship is the practice of starting new organizations, particularly
new businesses. It may involve creating many job opportunities but it is often
a difficult undertaking, as a majority of new businesses fail. Entrepreneurial
activities are substantially different depending on the type of organization
that is being started. Our understanding of entrepreneurship owes a lot to the
work of economist Joseph Schumpeter and the
Equity - Equity is the name given to the whole area of the legal system in countries following the English common law tradition that resolves disputes between persons by resort to principles of fairness and justness. Equity comes into play typically when none of the parties to the dispute has done anything against the law, but their rights or claims are in conflict. Thus, it is to be contrasted with "law," which is the legal principles from the common law, the laws enacted by governments, and the "case law" (the principles set forth in courts' opinions deciding cases).
Good - A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. If an object or service is sold for a positive price, then it is most likely a good since the purchaser considers the utility of the object or service more valuable than the money. In economics, a good does not need to be a physical object. For example, a service such as getting a haircut would be a good as long as the recipient wanted it. The same object can be both a good and a bad for a single person. For example, slices of pizza can have positive utility for the first five slices consumed at one sitting, but the next slice can have zero utility, and any more slices consumed would have negative utility.
Gross domestic product (GDP) - Gross Domestic Product is the total value of final goods and services produced within a country's borders in a year In economics, gross domestic product is a measure of the value of economic production of a particular territory in financial capital terms during a specified period. It is one of the measures of national income and output. It is often seen as an indicator of the standard of living in a country. GDP differs from gross national product (GNP) in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.
Gross national income (GNI) – See Gross national product
Gross national product (GNP) (also Gross national income, GNI) - Gross National Product is the total value of final goods and services produced in a year by a country's nationals, including profits from capital held abroad. Final goods are goods that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final goods. The same tires, if sold to a consumer, would be a final goods. Only final goods are included when measuring national income. If intermediate goods were included too, this would lead to double counting; for example, the value of the tires would be counted once when they are sold to the car manufacturer, and again when the car is sold to the consumer. Only newly produced goods are counted. Transactions in existing goods, such as second-hand cars, are not included, as these do not involve the production of new goods.
Income - Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a business. For example, most individuals' income is the money they receive from their regular paycheques. In business and accounting, income (also known as profit or earnings) is, more specifically, the amount of money that a company earns after paying for all its costs. To calculate a company's income, it starts with its amount of revenue, deducts all costs, including such things as employees' salaries and depreciation, and the number that results is its income, which may be a negative number. This money is typically reinvested in the business, paid in corporate tax and used to pay the owners (the shareholders) a dividend. The distribution of income within a society can be measured by the Lorenz curve and the Gini coefficient. National income, measured by statistics such as the Net National Income (NNI), measures the total income of all individuals in the economy.
Incoterm - Incoterms or international commerce terms are a series of international sales terms that is widely used throughout the world, divides transaction costs and responsibilities between buyer and seller, reflects state of the art transportation practices and closely corresponds to the U.N. Convention on Contracts for the International Sale of Goods. Incoterms deal with the questions related to the delivery of the products from the seller to the buyer. This includes the carriage of products, export and import clearance responsibilities, who pays for what, and who has risk for the condition of the products at different locations within the transport process. Incoterms are always used with a geographical location and do not deal with transfer of title. They are devised and published by the International Chamber of Commerce (ICC). The English text is the original and official version of Incoterms 2000, which have been endorsed by the United Nations Commission on International Trade Law (UNCITRAL). Authorized translations into 31 languages are available from ICC national committees. Examples of Incoterms are: FAS = Free Alongside Ship (named loading port); FOB = Free On Board (named loading port); CFR = Cost and Freight (named destination port); CIF = Cost, Insurance and Freight (named destination port); CPT = Carriage Paid To (named destination port); CIP = Carriage and Insurance Paid to (named destination port); DAF = Delivered At Frontier (named place); DES = Delivered Ex Ship (named port).
Industrial Revolution - The Industrial Revolution was the major
technological, socioeconomic and cultural change in the late 18th and early
19th century resulting from the replacement of an economy based on manual
labour to one dominated by industry and machine manufacture. It began in
Interest - In finance, interest has three general definitions. (1) Interest is a surcharge on the repayment of debt (borrowed money). (2) Interest is the return derived from an investment. (3) Interest is the right to one's claim in a corporation, such as that of an owner or creditor. Economists sometimes refer to interest as rent on money. As with any rental, the market price (or rate) is subject to change to reflect market conditions. The fraction by which the balances grow is called the interest rate. Interest rates are very closely watched market indicators, and have a dramatic effect on finance and economics.
Loan - A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. The borrower initially receives an amount of money from the lender, which he pays back, usually but not always in regular instalments, to the lender. This service is generally provided at a cost, referred to as interest on the debt. Acting as a provider of loans is one of the principal task for financial institutions. For banks, loans are generally funded by deposits. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. Other types of debt include mortgages, credit card debt, bonds, and lines of credit. A mortgage is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The bank, however, is given the title to the house until the mortgage is paid off in full. If the borrower defaults on the loan, the bank can repossess the house and sell it, to get their money back. The abuse in the granting of loans is known as predatory lending. It usually involves granting a loan in order to put the borrower in a position that one can gain advantage over him or her.
Macroeconomics - Macroeconomics is the study of the entire economy in terms of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behaviour of prices. This is in contrast to microeconomics which is the study of the economic behaviour of individual consumers, firms, and industries. Macroeconomics can be used to analyze how best to influence government policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments.
Marketing mix - The marketing mix approach to marketing is one model of crafting and implementing marketing strategies. It stresses the "mixing" of various decision factors in such a way that both organizational and consumer objectives are attained. The model was developed by Neil Borden who first started using the phrase in 1949. When constructing the mix, marketers must always be thinking of who their target market are. They must understand the wants and needs of the customer then construct marketing strategies and plans that will satisfy these wants. The mix must also meet or exceed the objectives of the organization. A separate marketing mix is usually crafted for each product offering or for each market segment, depending on the organizational structure of the firm. The most common variables used in constructing a marketing mix are price, promotion, product and distribution (also called placement). They are sometimes referred to as the four P's. In the long term, all four of the mix variables can be changed, but in the short term it is difficult to modify the product or the distribution channel. The marketing mix model is often expanded to include sub-mixes. For example, the promotion variable can be further decomposed into a promotional mix consisting of advertising, sales promotion, personal selling, publicity, direct marketing, undercover marketing, viral marketing, and e-marketing. Within the promotional mix, advertising can be further broken down into an "advertising media mix" that specifies how much emphasis is placed on television ads, radio ads, newspaper ads, internet ads, magazine ads, etc.
Measures of national income and output - Measures of national income and output are used in economics to estimate the value of goods and services produced in an economy. They use a system of national accounts or national accounting first developed during the 1940s. Some of the more common measures are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI). There are different ways of calculating these numbers.
Merchant bank - A
merchant bank is a bank that provides financial services only to companies, not
to people. Merchant banks, now so called, are in fact the original
"banks". These were invented in the middle ages by Italian grain
merchants. As the Lombardy merchants and bankers grew in stature on the back of
the Lombard plains cereal crops many of the displaced Jews who had fled
persecution in
Microeconomics - Microeconomics is the study of the economic behaviour of individual consumers, firms, and industries and the distribution of production and income among them. It considers individuals both as suppliers of labour and capital and as the ultimate consumers of the final product. It analyzes firms both as suppliers of products and as consumers of labour and capital. Microeconomics seeks to analyze the market form or other types of mechanisms that establish relative prices amongst goods and services and/or allocates society's resources amongst their many alternative uses.
Nation-state - A nation-state is a specific form of state, which exists to provide a sovereign territory for a particular nation, and derives its legitimacy from that function. In the ideal model of the nation-state, the population consists of the nation and only of the nation: the state not only houses it, but protects it and its national identity. The nation-state did not always exist, and most of the present nation-states are located on territory that once belonged to another, non-national, state. They came into existence at least partly as a result of political campaigns by nationalists. The establishment of a nation-state can be considered the central demand of any nationalist movement. A nation-state is typically a unitary state with a single system of law and government. It is almost by definition a sovereign state, meaning that there is no external authority above the state itself. Dependent territories of any kind are not considered nation-states, until they achieve independence. The nation-state implies the parallel occurrence of a state and a nation.
Net national income (NNI) Net National Income is an economics term used in National income accounting. It can be defined as the Net National Product (NNP) minus indirect taxes.
Pricing - Pricing is one of the four aspects of marketing. The other three parts of the marketing mix are product management, promotion, and distribution. Pricing involves asking questions like: How much to charge for a product or service? What are the pricing objectives? Do we use profit maximization pricing? How to set the price (cost-plus pricing, demand based or value-based pricing, rate of return pricing, or competitor indexing)? Should there be a single price or multiple pricing? Should prices change in various geographical areas, referred to as zone pricing? Should there be quantity discounts? What prices are competitors charging? Do you use a price skimming strategy or a penetration pricing strategy? What image do you want the price to convey? Do you use psychological pricing? How important are customer price sensitivity and elasticity issues? Can real-time pricing be used? Is price discrimination or yield management appropriate? Are there legal restrictions on retail price maintenance, price collusion, or price discrimination? Do price points already exist for the product category? How flexible can we be in pricing (the price floor is determined by production factors like costs, economies of scale, marginal cost, and degree of operating leverage; the price ceiling is determined by demand factors like price elasticity and price points)? Are there transfer pricing considerations? What is the chance of getting involved in a price war? How visible should the price be (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? What sort of payments should be accepted (cash, cheque, credit card, barter)? A well chosen price should do three things: (1) achieve the financial goals of the firm (e.g.: profitability); (2) fit the realities of the marketplace (will customers buy at that price?); (3) support a products positioning and be consistent with the other variables in the marketing mix. Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product. From the marketers point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. The effective price is the price the company receives after accounting for discounts, promotions, and other incentives.
Product management - Product Management is one of the four areas of marketing. Product Management is responsible for defining the products in the marketing mix; the other three parts of the marketing mix are pricing, promotion, and distribution. Product management deals with questions like: What products to produce and sell? What new products to add? What existing products to discontinue? How long will it take for a product to penetrate the market? How many products to have in the product line? How to balance a product portfolio? How to introduce a product to the market (a 'Go to market' strategy)? Whether to use a product differentiation strategy? What is the best product positioning? What brand name to use? Whether to use individual branding or family branding? Whether to use product bundling or product lining? What logo to use? It also considers the product life cycle and the planned obsolescence.
Production - In microeconomics, production is the act of making things, in particular the act of making products that will be traded or sold commercially. In national accounts and macro-economics, production is an activity by which transactors use inputs to produce outputs; more specifically, economic production is an activity carried out under the control and responsibility of a resident institutional unit that uses inputs of labour, capital, and goods and services (factors of production) to produce outputs of goods and services.
Promotion - Promotion is one of the four aspects of marketing. The other three parts of the marketing mix are product management, pricing, and distribution. Promotion involves disseminating information about a product, product line, brand, or company. It comprises four subcategories: advertising, personal selling, sales promotion, publicity and public relations. These four variables create a promotional mix or promotional plan. A promotional mix specifies how much attention to pay to each of the four subcategories, and how much money to budget for each. A promotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image.
Protectionism - Protectionism is the economic policy of protecting a nation's manufacturing base from the effects of foreign competition by means of very high tariffs on imported goods, restrictive quotas, or other means of reducing importation. This contrasts with the free trade model, in which foreign products are exempted from tariffs, allowing foreign producers to access a domestic market without the tax burden incurred by domestic manufacturers. Protectionism has frequently been associated with mercantilism, the belief that it is beneficial to maintain a positive trade balance, and import substitution. Protectionism comes in two variants, depending on whether the tariff is intended to be collected (traditional protectionism) or not (modern protectionism).
Revenue - In business, revenue is the amount of money that a
company actually receives from its activities, mostly from sales of products
and/or services to customers. To investors, revenue is less important than
profit, or income, which is the amount of money the business has earned after
deducting all the business's expenses. Revenue growth is an important indicator
of the market reception of a company's products and services. Yet a company
cannot focus solely on revenue, but must also manage the costs of raising the
revenue. The term top line is often heard as a synonym for revenue; this
term comes from the fact that in a company's income statement (profit and loss
account), revenue is generally shown at the top, then all the company's costs
and expenses beneath that, and then the income, or the bottom line, is at the
bottom. In Europe (including the
Socialism - Socialism is an ideology with the core belief that
a society should exist in which popular collectives control the means of power,
and therefore the means of production. In application, however, the de facto meaning of socialism has
changed with time. Although it is a politically loaded term, it remains
strongly related to the establishment of an organized working class, created
through either revolution or social evolution, with the purpose of building a
classless society. It has also, increasingly, become concentrated on social
reforms within modern democracies. In Marxist theory, it also refers to the
society that would succeed capitalism, and in some cases develop further into
communism. Marxism and communism are both very specific branches of socialism
that do not represent socialism as a whole. The word dates back at least to the
early nineteenth century. It was first used, self-referentially, in the English
language in 1827 to refer to followers of Robert Owen. In
Stock – see: Share
Supply and demand - The supply and demand model describes how prices vary as a result
of a balance between product availability at each price (supply) and the
desires of those with purchasing power at each price (demand). In microeconomic
theory, the partial equilibrium supply and demand economic model originally
developed by Alfred Marshall attempts to describe, explain, and predict changes
in the price and quantity of goods sold in competitive markets. The model is
only a first approximation for describing an imperfectly competitive market. It
formalizes the theories used by some economists before
Tariff - A tariff is a political act, sometimes known as the customs duty. A revenue tariff is set with the intent of raising money for the government. A protective tariff, usually applied to imported goods, is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition. Tariffs are similar to tolls, which are applied to people rather than goods. Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy and agricultural policy. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. Some economic theories hold that tariffs are a harmful interference with the individual freedom and the laws of the free market. The opposition to all tariffs is called the free trade principle; the World Trade Organization (WTO) aims to reduce tariffs and to avoid countries discriminating between other countries when applying tariffs. There are two mains ways of implementing a tariff: (1) an ad valorem tariff is a fixed percentage of the value of the good that is being imported; (2) a specific tariff is a tariff of a specific amount of money that does not vary with the price of the good.
Trade barrier - A trade barrier is a general term that describes any government policy or regulation that restricts international trade. Barriers can take many forms, including: import duties, import licenses, export licenses, quotas, tariffs, subsidies. Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Examples of free trade areas are: North American Free Trade Agreement (NAFTA), European Free Trade Association (EFTA), European Union (EU), South American Community of Nations (SACN).
Trade union (also labour union in American English) - A union is an organisation formed by workers. Most typically, a single union will represent workers in a particular industry (industrial unionism) or craft (craft unionism), within all or part of a country. Unions are often divided into "local" and united in national federations. Typical examples could be all the assembly workers for one employer, all the teachers in a local school district, or all the workers in a particular industry. In many countries, a union may acquire the status of a legal entity (called a "collective bargaining agent" in the USA) with a mandate to negotiate with employers to maintain and improve wages and working conditions, such as working hours and other terms of employment for the workers it represents. In such cases, unions have certain legal rights, most importantly the right to negotiate collectively with an employer (or employers)— meaning that such things are not set unilaterally by management, but must be agreed upon by both parties. In many circumstances workers may typically threaten strikes or other collective action to pressure employers to negotiate. In some countries unions are closely aligned with political parties and use their organizational strength to advocate for social policies and legislation favourable to their members or to workers in general. Although their political structure and autonomy varies widely from country to country, union leaderships are usually formed through elections.
Value - In general, the value of something is how much a product or service is worth to someone relative to other things. In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply. Other economists often simply equate the value of a commodity with its price, whether or not the market is competitive. In classical economics, price and value were not seen as equal. In this tradition "value" refers to "the innate worth of a commodity, which determines the normal ('equilibrium') ratio at which two commodities exchange." It is part of a cost-of-production theory of value and price. Ricardo used a "labour theory of price" in which a commodity's "innate worth" was the amount of labour needed to produce it. In another classical tradition, Marx distinguished between the "value in use" (use-value, what a commodity provides to its buyer), "value" (the socially-necessary labour time it embodies), and "exchange value" (how much labour-time the sale of the commodity can claim, Smith's "labour commanded" value). Economists such as Ludwig von Mises asserted that "value" was always a subjective quality. There was no value intrinsic to objects or things and value derived entirely from the psychology of market participants. Thus, it was false to say that the economic value of a good was equal to what it cost to produce or to its current replacement cost.
Wholesale - Wholesaling consists of the sale of goods/merchandise to retailers, to industrial, commercial, institutional, or other professional business users or to other wholesalers and related subordinated services.
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