B200pA Environments Module Prepared and compiled by: Iman El Sabaa

General rules Don’t come to my lectures if you don’t feel you want to, but if you come please take the following into consideration: Don’t come to my lectures if you don’t feel you want to, but if you come please take the following into consideration:  Come prepared  Bring your text book and the study guide with you  Participate effectively  Maintain discipline  Try always to do your best, your best is more than enough for me

Note that For the sake of time we will properly meet more than two times per month as we have a lot to cover. For the sake of time we will properly meet more than two times per month as we have a lot to cover. But it doesn’t mean that I will cover all the chapters and all the issues in each chapter. {Guess what???!!! You are grown up now ;) } But it doesn’t mean that I will cover all the chapters and all the issues in each chapter. {Guess what???!!! You are grown up now ;) } The LMS link in the main forum that we will communicate together through so I advise you to check it on a regular basis The LMS link in the main forum that we will communicate together through so I advise you to check it on a regular basis

Course Content

The Only Obligatory chapters in Environments Module are: 1,2,4,5,6,8,9,10,12,14,15,17,18,19,21, 22,23,24,26 and 27 The Only Obligatory chapters in Markets Module are: 3,4,5,6,7,8,10,12, and 13 ALL OTHER CHAPTERS ARE OPTIONAL. ALL OTHER CHAPTERS ARE OPTIONAL.

Learning Outcomes of Environments Module 1. Understand what is the meaning of the Environment? 2. Use models to analyze business and its environments. 3. Understand the complex relationship between the behavior of businesses and their environments 4. Identify several methods businesses adopt for dealing with their environment.

Note that My presentations are not totally my own work in some cases I relied on the work of previous AOU tutors or materials sent from the UK. My presentations are not totally my own work in some cases I relied on the work of previous AOU tutors or materials sent from the UK. In some cases we will not follow in our lectures the same order of chapters found in your book. In some cases we will not follow in our lectures the same order of chapters found in your book.  For example we will cover the first 7 chapters of the Environments module with the following order: 2 then 6 then 1 then 8 then 9 then 4 and at last 5 2 then 6 then 1 then 8 then 9 then 4 and at last 5

Note that We will start by discovering what are the basic tools of environmental analysis (CH2), then knowing who are the key players of any economy (CH6), we will try to explore the issue of globalization (CH 1-8-9), and at the end we will address how different governments reacted to issues of internal economic problems and globalization (CH4-5) We will start by discovering what are the basic tools of environmental analysis (CH2), then knowing who are the key players of any economy (CH6), we will try to explore the issue of globalization (CH 1-8-9), and at the end we will address how different governments reacted to issues of internal economic problems and globalization (CH4-5) I think this is a more logical systematic order for those chapters I think this is a more logical systematic order for those chapters

Identifying Environmental Issues Chapter 2

Introduction It is an overview of different analytical tools that can help us understand the external environment which are: It is an overview of different analytical tools that can help us understand the external environment which are: 1. The STEP checklist 2. The Transformation Model 3. Mintzberg’s Physiognomy علم الفراسة / ملامح الوجه 4. Economic sector analysis 5. SWOT Analysis (see study guide P11)

The STEP checklist S Social factors Demographics, values, lifestyles Attitudes of buying, number of families in the area, etc T Technological factors Equipments available, technologies, etc Availability of shop, ATM, advertising, stock control system E Economic factors Economic growth, inflation, unemployment, etc Purchasing quantities, purchasing power of the buyers, pricing, P Political factors legislation, regulations, policies Tax, holidays working hours, customs on goods,

The Transformation model INPUTSOUTPUTS Processing Transforming inputs to outputs Organizations process people, energy, information, expertise, money, goods, etc to produce output

Mintzberg’s physiognomy Mintzberg views the environment as a set of interested people, groups and stakeholders, exerting influence and being influenced by business activities. Mintzberg views the environment as a set of interested people, groups and stakeholders, exerting influence and being influenced by business activities. He divided people and groups from a power perspective He divided people and groups from a power perspective These groups can be either internal or external These groups can be either internal or external

Mintzberg’s physiognomy See fig2.2 p14 for a more detailed representation

Economic sector analysis The environment can be viewed as a series of semi-independent competitive markets The environment can be viewed as a series of semi-independent competitive markets All organizations in the same sector produce similar products or services and are affected by nearly the same factors All organizations in the same sector produce similar products or services and are affected by nearly the same factors

SOWT analysis S- Strengths S- Strengths O- Opportunities O- Opportunities W- Weaknesses W- Weaknesses T- Threats T- ThreatsNote S&W Internal Environment O&T External Environment

Note that Some of these tools emphasise the flow of resources around the environment (like the transformation model), Some of these tools emphasise the flow of resources around the environment (like the transformation model), Others emphasise the people in it (like Mintzberg’s physiognomy), Others emphasise the people in it (like Mintzberg’s physiognomy), While others see the environment as principally defined by its structure (like the STEP analysis model). While others see the environment as principally defined by its structure (like the STEP analysis model).

End of Chapter two

The Management of the UK Economy Chapter six By David Coates

Introduction This chapter looks at a pictorial model of the economy known as the circular flow of income model. This chapter looks at a pictorial model of the economy known as the circular flow of income model. Key terms are aggregate demand and the multiplier effect. Key terms are aggregate demand and the multiplier effect. The chapter considers Keynesian economics in more detail and cover monetarism. The chapter considers Keynesian economics in more detail and cover monetarism.

Building a model of the economy Let us Check together the following slides which represent the key players in any economy. Let us Check together the following slides which represent the key players in any economy. The Source of the coming slides is: ©2000Claudia Garcia-Szekely The Source of the coming slides is: ©2000Claudia Garcia-Szekely

Purchase Goods and Services (Consume) Lend Money (Save: bonds, stocks) Sell Labor Services Work Pay taxes Households

Produce Goods and Services Borrow Money to purchase equipment, buildings (Invest) Buy labor and other inputs (hire) Pay taxes Firms

Banks and Other Financial Intermediaries Lend at 7% Pay 4% Profit 3% Lenders Savers Borrowers Spenders Financial Institutions

Federal Reserve Bank The Federal Reserve Bank or The Central Bank Controls the Amount of Money in Circulation

Borrows Money from the Public Buys goods and Services Collects Taxes (T) Government

Rest of the World Exports (X) Imports (IM) Goods purchased by other countries Goods purchased from other countries

Goods and Money…

Purchases Goods and Services from firms Pays Wages, Interest, Dividends, and rent Money Goods Labor, savings, use of buildings Money

The Government Purchase Goods and Services from firms Firms pay Taxes Computers, cars, etc. Corporat e taxes. Payments for goods and services Government provides services Highways, protection, etc

Income, sales taxes Government bonds The Government Purchase Services from households and borrows funds engineers, lawyers, etc Government pays Wages and Interest Pay taxes Government provides services

Imports: purchase foreign made goods and services Exports: sell domestic goods and services to other countries

What one party spends another receives as income… Households spend on goods and services Firms receive those payments as income Households pay taxes Government receive those payments as income Government purchase goods and services Households and firms receive those payments as income

Households, Firms, Government and Rest of World purchase (buy) goods and services Firms supply (sell) goods and services

Firms and Government demand (hire)labor Households supply (work)labor

Households, Firms and Government demand (Borrow) funds Households supply (Lend) funds

Extra activity Solve Activity 4 p20 in your study guide Solve Activity 4 p20 in your study guide

Policy Objectives and Management of the Economy Note that after the 2 nd world war governments were committed to 4 policy objectives: P57 Note that after the 2 nd world war governments were committed to 4 policy objectives: P57  High and stable employment (flow of labor) 40’s &50’s then 80’s  Rising living standards (flow of goods)  Price stability (controlled inflation) 80’s  Healthy Balance of payments (exports/ imports flows) 60’s &70’s Check diagram 6.6 p58 Check diagram 6.6 p58

The Management of Demand Keynes was a strong advocate of increasing aggregate demand for goods and services by expanding government spending, as a solution for mass unemployment and great depression. Keynes was a strong advocate of increasing aggregate demand for goods and services by expanding government spending, as a solution for mass unemployment and great depression. He believed that cutting government spending wont bring the economy out of depression He believed that cutting government spending wont bring the economy out of depression As The money generated by the government creates ultimately an amount of income and demand higher than the initial public spending. As The money generated by the government creates ultimately an amount of income and demand higher than the initial public spending.

The Management of Demand In other word government spending will increase aggregate demand and would have a multiplier effect In other word government spending will increase aggregate demand and would have a multiplier effect  Dig holes and burry them The control of the demand side of the economy to achieve policy objectives. The control of the demand side of the economy to achieve policy objectives. List of sources of expansion. p59-60 List of sources of expansion. p59-60

The Management of Demand Aggregate demand = c+ i+ g+ (x-m) Aggregate demand = c+ i+ g+ (x-m)  c (consumer demand)  I (investment demand)  g (Government spending)  x (revenue from exports)  m (revenue spent on imports)

The Management of Demand The Simple Multiplier Process. The Simple Multiplier Process. Check an illustration of the Multiplier on p60 Check an illustration of the Multiplier on p60

Keynesianism in practice The Keynesian theory tried to prove that the government is the chief architect in managing the economy The Keynesian theory tried to prove that the government is the chief architect in managing the economy But Keynesianism came under attack in the 1980s because of two main weaknesses But Keynesianism came under attack in the 1980s because of two main weaknesses

Difficulty #1:limited competitiveness/ local global tension If we have inefficient local industry (lack of competitiveness) or in other words foreign goods are relatively cheaper or better in quality, this will lead to a deteriorating balance of trade If we have inefficient local industry (lack of competitiveness) or in other words foreign goods are relatively cheaper or better in quality, this will lead to a deteriorating balance of trade

Difficulty #1:limited competitiveness/ local global tension The government should work towards improving the conditions of the supply side of the economy, and not to act only on the demand side, in order to secure a productive and effective economy. The government should work towards improving the conditions of the supply side of the economy, and not to act only on the demand side, in order to secure a productive and effective economy. Read stages of understanding the issue P62-63 Read stages of understanding the issue P62-63

Difficulty #1:limited competitiveness/ local global tension The strength of an economy rests not only on the economic factors of the supply and the demand sides, but also depends on extra economic or non- economic factors like: The strength of an economy rests not only on the economic factors of the supply and the demand sides, but also depends on extra economic or non- economic factors like:  The quality of education,The quality of management, Social peace and sound healthy industrial relations, Efficient civil service

Difficulty #2: Supply Management/ Public private relationship If a money supply growth exceeds the growth of national production; it will result in high inflation rates and ultimately lead to economic disequilibrium If a money supply growth exceeds the growth of national production; it will result in high inflation rates and ultimately lead to economic disequilibrium  Check what is meant by the supply side on P63 A new school of thought had emerged which is the Monetarism A new school of thought had emerged which is the Monetarism

Monetarism It is a school of thought with a belief that the prime task of Government was to control the supply of money because it is the key to price stability, economic growth and full employment. It is a school of thought with a belief that the prime task of Government was to control the supply of money because it is the key to price stability, economic growth and full employment. The control of the supply side of the economy to achieve policy objectives The control of the supply side of the economy to achieve policy objectives

Monetarism They call for “Free markets” as necessary conditions for sound economic decisions, industrial productivity and competitiveness. (liberal) They call for “Free markets” as necessary conditions for sound economic decisions, industrial productivity and competitiveness. (liberal) Efficient firms attract new investments in an environment free from inflation. Efficient firms attract new investments in an environment free from inflation. Investments are made by both domestic investors and foreign investors looking for good return on capital. Investments are made by both domestic investors and foreign investors looking for good return on capital.

Note Check all the diagrams of the section titled building a model of the economy p56-58 Check all the diagrams of the section titled building a model of the economy p56-58 Stages of the competitive decline of UK based industry according to Keynesian explanation p62-64 Stages of the competitive decline of UK based industry according to Keynesian explanation p62-64 Box of the Supply Side P63 Box of the Supply Side P63 Criticism of Keynesian economics by the Monetarists p65-66 Criticism of Keynesian economics by the Monetarists p65-66

Note Criticism of Monetarists p66 last paragraph Criticism of Monetarists p66 last paragraph Further Criticism of Keynesian economics by the Monetarists p67-68 Further Criticism of Keynesian economics by the Monetarists p67-68 Contemporary policy options P68-70 Contemporary policy options P68-70 Read your study guide p20-22 Read your study guide p20-22

Extra activity Indicate whether the following is a Keynesian policy or a Monetarists one Indicate whether the following is a Keynesian policy or a Monetarists one  Reduction of government involvement in money markets.  Altering taxes and terms of private credit Reduction in trade union legal rights.  Government investment in industry and infrastructure.  Denationalization.

End of chapter six

Thank You