M – Commerce and Trends for 2010..

It wasn't not long ago online shopping joined the history. Now, the mobile revolution promises to repeat the same with the "anywhere experience" that boasts all about convenience. M-commerce (mobile commerce) is all about buying and selling of goods and services through wireless mobile devices such as cellular phones and personal digital assistants (PDAs), iPads etc. M–commerce is likely known as the next step of e-commerce. It enables users to access the Internet without the need of plug in.

As most of the consumers use mobile devices, they will quickly grasp the benefits of using the Web to make purchases on the go. This creates a huge opportunity and new revenue stream for many e-commerce businesses.

We experience the so called m-commerce in our day-to-day activities and popular among us to a certain extend even though we have not recognized that we are dealing with it. Such as below mentioned industries:

* Financial services, which has mobile banking facility - access bank accounts to check the balance, get alerts on mobile for deposits, pay bills stock brokering services etc

* Telecommunications, bill payment and account reviews can be checked through the handheld mobile device (Ex – Dialog EZ payment facility)

* Information services, which delivers of financial news, sports updates to a mobile device (Ex – Dialog news alert service)

* Entertainment industries like cinema – You can reserve seats at cinema hall via mobile (Ex - Dialog allows this service in Sri Lanka)

M-commerce is a new trend which has lot of potential. Even IBM and other companies are already experimenting with speech recognition softwares to ensure the security of m-commerce transactions.

When it comes to the world trade, in 2010 some significant milestones were added to the history of m-commerce. Such as;

* Bargain Hunting
With applications like RedLaser users can scan product bar codes and discover best prices retailers offer.

* Mobile Ticketing
Web sites like MovieTickets.com have stepped in to the industry with mobile ticketing applications.

* Banking
With balance checking and all the banking all other banking activities has increased the number of people using mobile banking applications two folds than the last year.

* Tangible Goods
According to eBay, one item is purchased every two seconds using eBay mobile application installed in iphones, Blackberries and Androids.

* Marketing
Text message marketing is a new trend and eBay’s recent launch of their Fashion application is another great example.

M-commerce revolution is here to open the doors to a new world. And it’s the second step of E-commerce. It is obviously another trend and an industry with more potential for the next generation.

Theories of Economic Development..

ROSTOW’S STAGES OF ECONOMIC GROWTH

This was provided in 1960 by W. Rostow and he identified five different economic stages for a country.

** Traditional society

** Preconditions for takeoff

Rastow identified these three nonindustrial sectors that provide the basis of economic growth and development.

1. Increased investments in transportation
2. Agricultural developments
3. Expansion of imports

** Takeoff

1. Net investments as a net national product must increase
2. At least one specific manufacturing sector must grow rapidly
3. A well established supportive framework should set up Ex – banks, tax systems etc

** The drive to maturity

** The age of mass consumption

THE BIG PUSH: BALANCED VS UNBALANCED GROWTH

This was provided by Ragner Nurske which is totally an unrealistic theory which assumes that all nations would start from zero and their economies have some historical strengths or investment capacity.

HIRSCHMAN'S STRATEGY OF UNBALANCED

GALBRAITH’S EQUILIBRIUM OF

Galbraith provided the following framework is necessary to achieve the successful industrialization.
1. Adequate security
2. Reliable infrastructure system
3. Supply of capital
4. State supported industries
5. Training and specialized education

AMARTYA SEN’S DEVELOPMENT AS FREEDOM

The noble prize winner offered the below mentioned framework which is realistic and practical.
1. Political freedoms
2. Economic facilities
3. Social opportunities
4. Transparency guarantees
5. Protective security

The main philosophy is these freedoms are essential for the development.

Protectionism and Tariffs..

Protectionism means the government interference in trade markets to protect specific industries in the economy. There are three main reason for the government interference in trade.

* Protecting industry to ensure the full employment.

* Protecting infant industries as they can’t compete with the established market giants.

* Industrialization objectives of a country justify a promotion of specific sectors of the economy to diversify the economy structure.

Protectionism leads to higher prices for imported goods and may reduce the home country’s exports and employment in local markets. And it also increases the opportunity costs of a country.

The government interference in markets can be seen in two primary forms. The most direct method is applying tariffs to exports and imports of a country and the next way is non-tariff barriers.

TARIFFS

Tariffs may be applied to the goods entering the country as import duties or the goods leaving the country as export duties. There are three ways of assessing the so called tariffs.

* Ad volorem duties – Assess the value of the goods and levied on a percentage of the value

* Specific duties – Assessed according to the per unit basis. Ex : Per ton, Per meter etc.

* Compound tariffs – It’s a combination of both Ad volorem and specific duties.

Applying tariffs can be varied and can apply in selective basis. Some countries can be assessed higher duties on their imports than others while some countries can enter MNF (most favourited nation) status to sign agreements to step in to same preferential tariff zones. GATT (General Agreement on Tariff and Trade) is a good example which started with 19 countries but currently replaced with WTO (World Trade Organization) including 149 member nations.

Direct Investments and Multinational Corporations

A firm directly invests within foreign shores involves with capital, personnel and assets beyond domestic borders. The firm is responsible for the control over costs and operations of the foreign firm plus bears a responsibility for the risks involved in operating in an overseas country and environment. There are two types of direct investments, inward foreign direct investment and outward foreign direct investment.

Direct investments always flow into a country via MNCs. They make investments aiming two main reasons.

*Gain access to large markets.
*Take advantage of cost differentials in foreign markets.

Access to available economies of scale and improve the efficiency of their operations are other goals a firm aims to fulfill. MNCs are the leading and most trustworthy way of entering a foreign market and most commonly maximize the profit of the firm is the overall mission. Plus there are some defensive reasons we should consider, such as; counter strategic moves by its competitors and follow a market leader into new markets.

The ways of entering the foreign market through direct investments can be divided in to two categories.

*DRIP Investing - Dividend Reinvestment Plans (DRIPs)

This is mainly for individual investors. They can purchase shares for just nominal price without paying any commissions.

*DDP – Direct Participation Program

It’s a business venture designed to let investors interact directly in the cash flow and tax benefits of the underlying investment.

Licensing and Franchising..

*Licensing

Through licensing, a firm (licensor) grants a foreign entity (licensee) some type of intangible rights, which could be rights to process, a patent, a program, a trademark, a copyright or an expertise. In essence, the licensee is buying the assets of another firm in the form of know-how R &D.

Advantages of Licensing

Licensing provides advantages to both parties. The licensor receives profits in addition to those generated from operations in domestic markets. These profits may be additional revenues from a single process or method used at home that the manufacturer is unable to utilize abroad. The method or process could have the beneficial effect of extending the life cycle of the firm’s product beyond that which it would experience in local markets.

Additional revenues could also represent a return on a product or process that is ancillary to the strategic core of the firm in its domestic market; that is, the firm could have developed a method of production that is marketable as a separate product under a licensing agreement. In addition by licensing the firm often realizes increased sales by providing replacement parts abroad. Also it protects it self against piracy by having an agent (the licensed user) who watches for copyright or patent infringement. The licensee benefits from acquiring the rights to a process and acquires state-of-art technology while avoiding the R & D costs.

Disadvantages of Licensing

The prime disadvantage of licensing to the licensor is that it limits future profit opportunities associated with the property by tying up its rights for an extended period of time. Additionally, by licensing these rights to another, the firm loses control over the qulaity of it’s products and processes, the use or misuse of the assets and even the protection of its corporate reputation.

To protect against such problems, the licensing agreement should clearly delineate the appropriate use of the process, method or name as well as allowable market and reexport parameters for the licensee. The contract should also stipulate contingencies and resource, should the licensor or licensee fail to comply with its terms.

Franchising

Franchising is similar to licensing, except that in addition to granting the franchisee permission to use a name, process, method or trademark, the firm assists the franchisee with the operations of the franchise or supplies raw materials or both. Franchisee pays an initial fee and a proportion of it’s sales or revenue to the franchising firm.
Ex – KFC, McDonald’s, Hilton, Holiday Inn etc.

Advantages and disadvantages of franchising.

The advantages accruing to the franchisers are increased revenues and expansion of its brand name identification and market reach. The gratest disadvantage, as with licensing is coping with the problems of assuring quality control and operating standards. Other difficulties with franchises come with their need to make slight adjustments or adaptations in the standardized product or service.

Domestic versus International Business.

A firm needs to identify its potential market, locate adequate and available sources of supplies of raw materials and labor, raise initial amount of capital, hire personnel, develop a marketing plan, establish channels of distribution, and identify retail outlets. As an overlay upon this comprehensive system, the firm must also establish management controls and feedback systems, as well as accounting, finance and personnel functions.

When it comes to international business we have to consider about economies, cultures, government and political systems too. For example, economies can range from being market oriented to being centrally planned and political systems from democracies to autocracies.

It is more likely that domestic firms enter foreign markets in a progressive way, beginning with exporting, which involves the least amount of resources and risk, before moving to a full-scale commitment in the form of establishing wholly owned overseas subsidiaries. It must evaluate its own resources; personnel, assets, experience in overseas markets and suitability of its products or organization for transplantation overseas. These factors must be reviewed in light of the competition expected in markets abroad and the potential business opportunities that are so be created by the international operation.

All these factors must be weighted in terms of the overall short term and long term strategic goals and objectives of the firm.

Methods of Going International

*Exporting
*Licensing
*Franchising
*Management Contracts
*Contract Manufacturing
*Direct Investment
*Strategic Alliances
*Wholly Owned Subsidiaries
*Globalized Operations
*Portfolio Investments

Recent Trends in World Trade..

*Expanding Volume

*Increased Competition

*Increasing Complexity

*Trade in Services

The large volumes of trade, the existence of huge multinational business entities, and the rapidly changing international business environment merely emphasize the fundamental interrelationships of business firms, governments, economies, and the markets in the world today.

The study of international business is also provides the modern business manager with greater awareness of wider business opportunities than those available within local boarders, which, in strategic management terms, means that the parameters of the managers external environment, as well as possible configuration of the external environment, have expanded for the modern and progressive firm.

These developments over the past 50 years has set a trend likely to continue upward, with increases in the flow of goods, capital, investments and labor across national borders, and the growth of truly global industries and corporations.

The Multinational Corporations..

During its early stages, international business was conducted in the form of enterprises that were owned singly or in partnerships. As the size of organizations grew with industrialization and companies’ needs for capital increased, corporations began to displace privately held firms. These corporations had the distinct advantage of being entities with a separate legal identity, consequently limiting the liabilities of the principals or owners. At the same time, by issuing shares of stock, the corporation could tap an enormous pool of excess funds held by potential individual investors.

A multinational corporation is a firm that conducts international business from a multitude of locations in different countries. For example, Nestle, Sony Citygroup etc are some of leading MNCs in the current business world.

Advantages and Disadvantages of MNC aka Multinational Corporations
MNCs have certain unique advantages and disadvantages in their operations that make them quite different from purely domestically oriented companies.


ADVANTAGES

**Superior Technical Know-how
The most important advantage that MNCs enjoy is patented technical know-how, which enables them to compete internationally.

**Large Size and Economies of Scale
Most MNCs tend to be large. Some of them have sales that are larger than gross national products of many countries. The large size confers the advantage of significant economies of scale to MNCs.

**Lower Input Costs Due to Large Size
The large production levels of multinational necessitate the purchase of inputs in commensurately large volumes. Bulk purchase of inputs enable MNCs to bargain for lower input costs, and they are enable to obtain substantial volume discounts. The lowered input costs imply less expensive and therefore, more competitive finished products.

**Ability to Access Raw Materials Overseas
Many MNCs lower inputs and production costs by accessing raw materials in foreign countries. In many of these cases, MNCs supply the technology to extract or refine the raw materials, or both.

**Ability to Shift Production Overseas
The ability ot shift production overseas is another advantage enjoyed by MNCs. To increase their international competitiveness, MNCs relocate their production facilities overseas, thereby taking advantage of lower costs of labor, raw materials and other inputs and utilizing incentives offered by host country.

**Scale Economies in Shipment, Distribution and Promotion

**Brand Image and Goodwill Advantages

**Access to Low-Cost Financing

**Financial Flexibility

**Information Advantages

**Managerial Experience and Expertise

**Diversification of Risks


DISADVANTAGES

**Business Risks
Since MNCs conduct business outside the borders of their own countries, they deal with the currencies of other countries, which render them vulnerable to fluctuations in exchange rates.

**Political Risks

**Different Legal Systems

**Host-Country regulations

**Cultural Differences

**Operational Difficulties

What is International Business..?

In it’s purest definition, international business is described as any business activity that crosses national boundaries. The entities involved in business can be private, governmental or the mixture of the two. International business can be broken down into four types.

Foreign Trade

Trade in Services

Portfolio Investments

Direct Investments

In foreign trade, visible physical goods or commodities move between countries as exports or imports. Exports consist of merchandise that leaves a country. Imports are those items brought across national boards into a country.

In addition to tangible goods, countries also trade in services, such as insurance, banking, travel, consulting and hotels. The international firm is paid for services it renders in another country. The earnings can be in forms of fees or royalties.

Portfolio investments are financial investments made in foreign countries. The investor purchases debt or equity in expectation of nothing more than a financial return on the investment.

Direct Investments are differentiate by much greater levels of control over the project or enterprise by the investor

By the 1880s the Industrial Revolution was in full swing in Europe and the US, and the production grew to unprecedented levels,abetted by scientific invention, the development of new sources of energy, efficiencies achieved in production and improvements in transportation such as domestic and international railroad systems. Growth continued in upward spiral mass production met and surpassed domestic demands, pushing manufacturers to seek enlarged, foreign markets for their products. It led ultimately to the emergence of the multinational corporation (MNC) as a new organizational entity in the international business world.

Interdependence and the Gains from Trade..

Each person consumes goods and services produced by many other people both in our country and around the world. Interdependence and trade are desirable because they allow everyone to enjoy a greater quantity and variety of goods and services.

COMPARATIVE ADVANTAGE.

There are two ways to compare the ability of two people in producing a good. The person who can produce the good with the smaller quantity of inputs is said to have an absolute advantage in producing the good. The person who has the smaller opportunity cost of producing the good is said to have a comparative advantage. The gains from trade are based on comparative advantage, not absolute advantage. In other words the comparison among producers of a good according to their opportunity cost.

ABSOLUTE ADVANTAGE

The comparison among producers of a good according to their productivity.

OPPORTUNITY COST

Whatever must be given up to obtain some item.


COMPARATIVE ADVANTAGE AND TRADE..

Trade makes everyone better off because it allows people to specialize in those activities in which they have a comparative advantage. The principle of comparative advantage applies to countries as well as to people. Economists use the principle of comparative advantage to advocate free trade among countries.

Microeconomics And Macroeconomics...

The field of economics is traditionally divided into two broad subfields. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. Macroeconomics is the study of economywide phenomena, including inflation, unemployment, and economic growth.

DEMAND CURVE

The demand curve shows how the quantity of a good demanded depends on the price. According to the law of demand, as the price of a good falls, the quantity demanded rises. Therefore, the demand curve slopes downward.

CALCULATING THE SLOPE OF A LINE. To calculate the slope of the demand curve, we can look at the changes in the x- and y-coordinates as we move from the point Ex. (21 novels, $6) to the point (13 novels, $8). The slope of the line is the ratio of the change in the y-coordinate (-2) to the change in the x-coordinate (+8), which equals -1/4.

The slope of a line is the ratio of the vertical distance covered to the horizontal distance covered as we move along the line. This definition is usually written out in mathematical symbols as follows.

slope = Δy
___
Δx

[first y-coordinate - second y-coordinate = Δy , first x-coordinate - second x-coordinate = Δx]

With a graph like the demand curve, there is no doubt about cause and effect. Because we are varying price and holding all other variables constant, we know that changes in the price cause changes in the quantity someone demands.

Economic Models.

#1 - THE CIRCULAR-FLOW DIAGRAM

A visual model of the economy that shows how dollars flow through markets among households and firms. In this model, the economy has two types of decisionmakers—households and firms. Firms produce goods and services using inputs, such as labor, land, and capital (buildings and machines). These inputs are called the factors of production. Households own the factors of production and consume all the goods and services that the firms produce. Households and firms interact in two types of markets. In the markets for goods and services, households are buyers and firms are sellers. In particular, households buy the output of goods and services that firms produce. In the markets for the factors of production, households are sellers and firms are buyers. In these markets, households provide firms the inputs that the firms use to produce goods and services.

Let’s take a tour of the circular flow by following a dollar bill as it makes its way from person to person through the economy. Imagine that the dollar begins at a household, sitting in, say, your wallet. If you want to buy a cup of coffee, you take the dollar to one of the economy’s markets for goods and services, such as your local Starbucks coffee shop. There you spend it on your favorite drink. When the dollar moves into the Starbucks cash register, it becomes revenue for the firm. The dollar doesn’t stay at Starbucks for long, however, because the firm uses it to buy inputs in the markets for the factors of production. For instance, Starbucks might use the dollar to pay rent to its landlord for the space it occupies or to pay the wages of its workers. In either case, the dollar enters the income of some household and, once again, is back in someone’s wallet. At that point, the story of the economy’s circular flow starts once again.

#2 - THE PRODUCTION POSSIBILITIES FRONTIER

A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. Another of the Ten Principles of Economics is that the cost of something is what you give up to get it. This is called the opportunity cost. The production possibilities frontier shows the opportunity cost of one good as measured in terms of the other good.

A SHIFT IN THE PRODUCTION POSSIBILITIES FRONTIER.
For example, if a technological advance in the computer industry raises the number of computers that a worker can produce per week, the economy can make more computers for any given number of cars.An economic advance in one industry shifts the production possibilities frontier outward, increasing the number of first item and the second item, the economy can produce. As a result, the production possibilities frontier shifts outward. Because of this economic growth, society might move production from one point to another, enjoying more computers and more cars.

The production possibilities frontier simplifies a complex economy to highlight and clarify some basic ideas. Some of the concepts mentioned briefly are; scarcity, efficiency, tradeoffs, opportunity cost, and economic growth.

How The Economy As A Whole Works?

PRINCIPLE #8: A COUNTRY’S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS AND SERVICES

Almost all variation in living standards is attributable to differences in countries’ productivity—that is, the amount of goods and services produced from each hour of a worker’s time.

PRINCIPLE #9: PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY

Simply define as inflation, an increase in the overall level of prices in the economy. What causes inflation? In almost all cases of large or persistent inflation, the culprit turns out to be the same—growth in the quantity of money. When a government creates large quantities of the nation’s money, the value of the money falls.

PRINCIPLE #10: SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT

Reducing inflation is often thought to cause a temporary rise in unemployment. The curve that illustrates this tradeoff between inflation and unemployment is called the Phillips curve, after the economist who first examined this relationship. The tradeoff between inflation and unemployment is only temporary, but it can last for several years. The Phillips curve is, therefore, crucial for understanding many developments in the economy. In particular, policymakers can exploit this tradeoff using various policy instruments. By changing the amount that the government spends, the amount it taxes, and the amount of money it prints, policymakers can, in the short run, influence the combination of inflation and unemployment that the economy experiences. Because these instruments of monetary and fiscal policy are potentially so powerful.

TEN PRINCIPLES OF ECONOMICS

#1: People Face Tradeoffs
#2: The Cost of Something Is What You Give Up to Get It
#3: Rational People Think at the Margin
#4: People Respond to Incentives
#5: Trade Can Make Everyone Better Off
#6: Markets Are Usually a Good Way to Organize Economic Activity
#7: Governments Can Sometimes Improve Market Outcomes
#8: A Country’s Standard of Living Depends on Its
#9: Prices Rise When the Government Prints Too Much Money
#10: Society Faces a Short-Run Tradeoff between Inflation and Unemploymemt

How People Interact..

Previous four principles showed how individuals make decisions. The next three principles concern how people interact with one another.

PRINCIPLE #5: TRADE CAN MAKE EVERYONE BETTER OFF

Trade allows each person to specialize in the activities he or she does best, whether it is farming, sewing, or home building. By trading with others, people can buy a greater variety of goods and services at lower cost. Countries as well as families benefit from the ability to trade with one another. Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services.

PRINCIPLE #6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY
Today, most countries that once had centrally planned economies have abandoned this system and are trying to develop market economies. In a market economy, the decisions of a central planner are replaced by the decisions of millions of firms and households. Firms decide whom to hire and what to make. Households decide which firms to work for and what to buy with their incomes. These firms and households interact in the marketplace, where prices and self-interest guide their decisions. Economist Adam Smith made the most famous observation in all of economics: Households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes. prices are the instrument with which the invisible hand directs economic activity. Prices reflect both the value of a good to society and the cost to society of making the good.

PRINCIPLE #7: GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES

Although markets are usually a good way to organize economic activity, this rule has some important exceptions. There are two broad reasons for a government to intervene in the economy: to promote efficiency and to promote equity. That is, most policies aim either to enlarge the economic pie or to change how the pie is divided. Economists use the term market failure to refer to a situation in which the market on its own fails to allocate resources efficiently. One possible cause of market failure is an externality. An externality is the the impact of one person’s actions on the well-being of a bystander. Another possible cause of market failure is market power. Market power refers to the ability of a single person (or small group of people) to unduly influence market prices.

What is Economics?

The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as a household cannot give every member everything he or she wants, a society cannot give every individual the highest standard of living to which he or she might aspire.

Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold. There is no mystery to what an “economy” is. Whether we are talking about the economy of Colombo of Sri Lanka, or of the whole world, an economy is just a group of people interacting with one another as they go about their lives. Because the behavior of an economy reflects the behavior of the individuals who make up the economy.

Economics with four principles of individual decision making will help to get a brief idea of what we are talking.

PRINCIPLE #1: PEOPLE FACE TRADEOFFS

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. When people are grouped into societies, they face different kinds of tradeoffs. The classic tradeoff is between “guns and butter.” The more we spend on national defense to protect our shores from foreign aggressors (guns), the less we can spend on consumer goods to raise our standard of living at home (butter).

Another tradeoff society faces is between efficiency and equity. Efficiency means that society is getting the most it can from its scarce resources. Equity means that the benefits of those resources are distributed fairly among society’s members. In other words, efficiency refers to the size of the economic pie, and equity refers to how the pie is divided. Often, when government policies are being designed, these two goals conflict.

PRINCIPLE #2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT

Because people face tradeoffs, making decisions requires comparing the costs and benefits of alternative courses of action. In many cases, however, the cost of some action is not as obvious as it might first appear. The opportunity cost of an item is what you give up to get that item. When making any decision, decision makers should be aware of the opportunity costs that accompany each possible action. In fact, they usually are.

PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE MARGIN

Economists use the term marginal changes to describe small incremental adjustments to an existing plan of action. Keep in mind that “margin” means “edge,” so marginal changes are adjustments around the edges of what you are doing.

PRINCIPLE #4: PEOPLE RESPOND TO INCENTIVES

Because people make decisions by comparing costs and benefits, their behavior may change when the costs or benefits change. That is, people respond to incentives. Public policymakers should never forget about incentives, for many policies change the costs or benefits that people face and, therefore, alter behavior.