Transcript Cause - Костанайский Государственный Университет им. А

Костанайский государственный
университет им. А Байтурсынова
Самамбет Мензада Калмагамбеткызы
Business English and business
correspondence
1.The economy
GDP growth for different countries
Gross domestic product (GDP) measures the size of a country's economy. It represents the
total value of all goods and services produced over a specific time period. Growth in GDP
is one of the primary indicators used to gauge (= measure) the health of a country's
economy. Usually, GDP is expressed as a comparison to the previous quarter or year.
Government trade policy
The two poles of government policy are liberalization and protectionism.
* 'Liberalization' is associated with free markets, open borders, deregulation and
the free movement of capital around the world.
'Protectionism' is associated with government intervention, subsidies, quotas and
tariffs, and restrictions on the movement of capital.
*National governments do have some genuine choices here, even if they are
constrained by the policy of their regional trading bloc (eg the EU, NAFTA,
ASEAN). In the end most countries have a mixed economy which is somewhere
between the two extremes.
Generally speaking, free markets promote growth in the world economy, and
protected markets slow down the process (although they may have a beneficial
effect on particular industries inside a country).
Consumer confidence
If consumers are confident about tomorrow, they will spend more. The main
factors affecting consumer confidence are the level of unemployment - if
people's jobs are at risk, or they don't have a job, they will spend less - and
house prices - if people's houses are worth more than they paid for them, they
feel rich and will spend more freely.
Interest rates
Interest rates are set by Central Banks. When interest rates are low, consumers
and businesses can borrow money cheaply and there is a stimulus to the
economy. But the cheap credit also causes inflation and too much liquidity in
the system. This liquidity leads to bubbles in stock markets, housing markets,
etc. When the Central Bank sees the need to control inflation and cool growth
a little, it raises interest rates.
Exchange rates
Currencies fluctuate against each other: the euro against the dollar, the yen
against the yuan. This is due to many complex factors such as the underlying
strength of the economy, interest rate differentials and speculation. Having a
strong currency makes imports cheap for domestic consumers, but hurts
exporters (whose products become more expensive overseas).
The business cycle
Economies go through cycles of growth and contraction.
2. The business cycle
History shows that there is a business cycle that repeats
again and again, although of course the details vary each
time. Look at the diagram below. The outer circle is the
cycle of economic expansion and contraction. The next
circle inside shows some sectors of the economy that tend
to do well at particular times during this cycle. The circle
inside that shows interest rates and inflation. Finally, the
inner circle shows the stock market cycle.
Growth
• Let's go round the diagram, starting at twelve o'clock. This point
marks the end of weakness in the economy and the early signs of
growth. What has caused these green shoots? The clue is interest rates,
which bottomed out around eleven o'clock. Low interest rates mean
cheap borrowing for individuals and companies. Amongst the quickest
sectors to respond are consumer discretionary (eg restaurants, leisure,
travel) and technology.
• Once there are early signs of growth, transportation picks up (more
goods are being shipped), and industry spends more on capital goods
(eg machinery). During this period, inflation starts to rise, and so
bonds suffer. Bonds pay a fixed rate of interest to their bondholders,
and the value of this interest is eroded over time as inflation goes up.
The peak of the cycle
• All good things must come to an end. It's six o'clock on the diagram.
By now inflation has become a problem, and Central Banks have
raised interest rates to deal with it. That means that credit is tight, and
borrowing is expensive. The stock market recognizes that the end is
coming, and peaks just before the final peak in the economy. Investors
now switch to more defensive stocks like consumer staples (eg food,
household products) and utilities.
Contraction
• Now it's seven o'clock and we've entered the period of
contraction. Stock markets are falling. But Central Banks
see the danger and are lowering interest rates, to
encourage spending and avoid a recession. Bonds respond
positively to the drop in rates, and they also benefit from a
'flight to safety' effect as investors become cautious about
stocks.
The bottom of the cycle
• Eventually, financials start to recover as they anticipate
more borrowing, and then the general stock market finds a
bottom about six to nine months in advance of an upturn
in the real economy. Just like at the top of the cycle, the
market seems to know that a turn in the real economy is
coming. Now the economy is starting to show signs of
strength and the whole cycle repeats again.
3. International trade
Deciding to export
• Why export? The two most important reasons are likely to be: To
increase sales and revenue. Exporting will allow you to take advantage
of any under-used capacity, increase production, reduce unit costs
through economies of scale and increase profits if things go well. To
diversify. Relying on just your own domestic market is risky. Selling to
other countries allows you to spread the risk.
But before deciding to export there is a lot of research to be done on the
foreign market:
• Background: economic situation, political stability/ currency risk.
• Market size and likely product demand.
• Competition: similar products already in the market.
• Distribution channels: agents (who act on your behalf and receive a
commission, but don't buy goods on their own account), or distributors
(who actually purchase goods from you for resale, like a wholesaler).
• Promotional material: sales and support material needed in the local
language.
• Customer service: procedures for enquiries, complaints, warranty
claims, servicing, etc.
• Legal requirements: technical, safety and environmental standards.
• The first step in exporting is likely to involve an
intermediary (eg local agent, distributor). They will have
local knowledge and contacts in the unfamiliar market. Tf
things go well, the exporter may then decide to establish its
own presence in the foreign market such as setting up a
sales office and warehouse. This allows direct contact with
customers, faster delivery and more control of the local
market.
• Two key issues for an exporter are a) the method of
payment - see the table below - and b) who pays for
transportation. This latter issue is covered in the contract
by specifying the relevant Incoterm {International
Commercial Term) for that particular consignment (=
quantity of goods shipped at the same time).
3. FINANCING INTERNATIONAL
TRADE
Cash-in-advance (Pre-payment)
The importer pays the invoice in advance, before shipment.
Where they only pay a part in advance, it's called a 'down
payment'
Letter of credit (L/C)
One bank guarantees payment to another bank. The
importer pays when the exporter presents certain listed
documents to their bank. Typical documents needed are;
transportation documents (eg bill of lading), insurance
documents, commercial documents (eg invoice).
Documentary collection
A cheaper variation of an L/C. The two banks make no
guarantees, but simply handle the exchange of documents.
Open account
The supplier ships the goods, and the importer pays later,
according to the terms of the contract. This is more risky,
and is only used if the importer has established a good
credit history.
Consignment purchase
The importer receives the goods and holds them in stock, but
only pays for them after they have been sold to the end
users.
Setting up and growing a business
Initial idea
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Someone has an idea for a new business (a 'start-up'). Maybe they spot a gap
in the market, or maybe they have an idea that is similar to existing offers, but
with a competitive edge. Potential sources of finance for this new business
include self-funding, backers such as friends and family members, a bank loan,
and a venture capital firm.
A bank will want some sort of security in case the loan is not repaid, and
sometimes the person's house is offered as collateral. The fourth option,
venture capital (VC), is attractive for businesses with a high profit potential in
the medium term, but high start-up costs. A VC company will offer funds and
take on the risk of the business failing, but in exchange will want a large
number of shares. They aim to sell these later, when the business goes public.
When financing is in place, the business is registered as a legal entity: sole
trader, partnership, limited company, etc.
Early months and growth phase
Now the business can start trading. The risk of failure in the first two years is
very high. Often the problem isn't sales, but cash flow: the company has to
wait for its invoices to be paid, and meanwhile the debts are piling up. The
bank will only extend its line of credit up to a point.
But hopefully the business achieves a critical mass of customers, and
establishes itself in the marketplace. It enters a growth phase. This early
growth tends to be organic - turnover increases, the company employs more
staff, it develops a supply network, etc. The majority of small companies just
continue in this way - growing or shrinking year by year depending on their
managerial skills and general market conditions.
Selling the business
Cause: behaviour of some employeesHowever, there are other
possibilities. The founder of the business may decide to sell
the business as a going concern. They might sell to a
competitor, or to a company wanting to expand into that
market. The buyers here are looking to grow through a
strategy of acquisitions (- takeovers), an alternative to the
strategy of organic growth.
IPO
Another possibility is that the founders may decide to go
public (= float/list on the stock exchange). Here, they sell
their original privately-held shares at an IPO (initial public
offering). This brings in a huge amount of money, some
going directly to the owners as reward for their hard work,
the rest going back into the business as reinvestment.
TEN REASONS WHY A NEW BUSINESS CAN FAIL
1. Poor initial market research
Cause: Starting a business with a good idea, some money and a lot of enthusiasm but no serious research
Solution: Take time to research the market thoroughly before you start trading
2 Cash flow problems
Cause: buying too much stock, customers paying late or not at all, suppliers needing
to be paid on time
Solution: produce realistic cash flow forecasts and pay strict attention to budgets
3 Failure to listen to customers
Cause: Sticking with your own original ideas for too long
Solution: Actively seek the views of customers, and act on what they say
4 Bad business location
Cause: false economy - a cheap lease in the wrong is neighbourhood
Solution: remember that accessibility for customers is
5 Ineffective marketing
Cause: thinking that a good product will sell itself
Solution: be creative, constantly review the marketing plan
6 Overexpansion
Cause: being too ambitious
Solution: be realistic
7 Overspending
Cause: spending your seed money too soon
Solution: planning, keeping some cash in reserve
8 Poor customer service
Cause: behaviour of some employees
Solution: training, monitoring, company culture
9 Underestimating the competition
Cause: assuming that you have customer loyalty
Solution: watch competitors closely
10 Failure to change
Cause: complacency after initial success, lack of
innovation
Solution: be flexible, recognize opportunities, adapt
5. Company types and corporate
governance
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Company types
In law, there are various types of business entity. For each one there are
different legal arrangements to register the company, different
requirements for presenting accounts, etc. The main business types are;
Sole trader (UK) / Sole proprietorship (US)
A single person owns and operates a business. Legally, the business has no
separate existence from its owner (proprietor). This means that all the
debts of the business are the debts of the owner.
Partnership (UK and US)
Two or more people work together and share the risks and profits. Just like
a sole proprietor, the partners are fully liable for (- responsible for) any
debts the business has. This is referred to in law as 'unlimited liability'.
Company (US and UK) / Corporation (US)
The business is a legal entity that is separate from its owners - the
shareholders. The owners are not fully liable for the debts of the business.
Instead, their liability (= potential risk) is restricted to their share capital.
This is the amount of cash that they have contributed to the company. This
is referred to in law as 'limited liability'.
There are two main types of companies:
Private company: the shares (AmE stocks) are private in the sense that they
cannot be bought by members of the public. The vast majority of companies
fall into this category. They're often smaller companies, with shares held by
a few business associates or family members. Public company: the shares
are openly traded on a public stock exchange. These are the large, often
well-known businesses. The word 'public' should not be confused with
'state-owned'. A 'state-owned enterprise' (SOE) is owned by the
government.
The Board
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Public companies are controlled by a board of directors ('the
Board'), elected by the shareholders. Not all Boards are fully
independent, but in general their role is to:
Set long-term strategy.
Appoint a Chief Executive Officer (CEO) and other
members of the senior management team to run the
company day-to-day.
Ask questions about any short- or medium-term strategy
developed by the CEO, and then support it once they have
agreed.
Oversee the preparation of the financial statements.
Appoint and ensure the independence of the company’s
auditors.
Oversee and manage risk.
Set an annual dividend,
Who chooses the Board? In theory, it's the shareholders. At the
Annual General Meeting (AmE Annual Meeting of Stockholders) the
shareholders can question Board members vote to accept or reject
the dividend, vote on replacements for retiring Board members,
etc. But, in practice, the situation may be different. In particular,
most shares are held by large institutions, and these may simply
sell their stake if they aren't happy, instead of trying to change the
Board. In reality many Board members are chosen by the CEO and
the shareholders simply approve these members.
Corporate governance
Corporate governance
This whole issue of the role of the Board, how senior
managers are responsible to shareholders, and how the
company is run, is referred to as 'corporate governance'.
Traditionally, different regions of the world have had
different models of corporate governance
Nowadays this traditional pattern is breaking down, and
the situation is more mixed. However, the following basic
principles of corporate governance are widely accepted:
Respect for the rights of shareholders.
A clear definition of the roles and responsibilities of Board
members.
Integrity and ethical behaviour.
Disclosure (- giving full information) and transparency
Global issues for the 21st century
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Geopolitics and the world economy
What big-picture issues are likely to dominate geopolitics and the world
economy in the coming decades? Here are some suggestions:
1 The growth of the BRICs
The big story of the 21st century is the growth of Brazil, Russia, India and
China (plus the Middle East). This is certain to translate into increased
geopolitical influence for these countries.
The decline of the dollar
One impact of the previous trend is that the dollar will lose its status as the
world's reserve currency. Central banks will hold fewer dollars, and oil will
be priced in a range of currencies. But what else will happen in the
currency area? Will a common Asian or Latin American currency emerge?
And what about the internal conflict over the euro - should it be strong to
fight inflation or weak to help exporters?
Climate change
Global warming is happening. However, any solution that holds back the
progress of developing countries is likely to be resisted. Developing
countries can accuse the developed nations of hypocrisy - western countries
have already been through their industrial phase and now have the luxury
of thinking about sustainable growth. Developing nations don't have this
luxury.
Global issues for the 21st
century
• Peak oil
• Global oil production is going to peak very soon -there's just
not enough left in the ground. So supply is shrinking. Also,
developing nations are hungry for oil - for transport, industry,
etc. So demand is rising. Put together falling supply and rising
demand and you get one thing: much higher prices for the
foreseeable future.
• Energy security and alternative energy
• Some countries have a lot of energy resources, others don't.
And if you don't, you have a major geopolitical problem. It's
called dependency. Put this issue together with peak oil, and it
points in one direction: alternative energy. But some green
activists are unrealistic about this - solar, wind, tidal, etc can
only meet a fraction of the world's energy needs. The one
technology that might make a difference is nuclear. And that,
of course, is controversial.
Management and business
• Managers were asked, 'What do you think will be the key
business issues of the 21st century?' Read their replies
below.
• For me, branding and design are the key issues.
Customers can easily find good quality and value-formoney - all our competitors offer this. To survive, you need
more than this, you need branding. Without a strong brand,
you have no customer Loyalty and no pricing power. And
linked to branding is design - customers will pay for design.
These are the major battlefields in modern business, not
cost or quality.
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In our organization, finding and developing talent is
going to be a major issue. There's a declining birthrate, and
the increased mobility of Labour means that workers can
choose where they work and for whom. So talent is going
to be in short supply. And that's particularly true for
knowledge workers and creatives. We will need to find ways
to motivate them and retain them inside our organization.
Management and business
• In the modern workplace, managing diversity is going to
become increasingly complex. We've got issues of gender,
ethnicity and age. We try to make equal opportunities work, but
we haven't done as well as we'd Like. And now we have new
problems of multicultural management across national borders.
Imagine the problems when team members from different
cuLtural backgrounds hold virtual meetings on the web without
the chance to get to know each other in person.
• The issue that we talk about more and more these days is CSR corporate social responsibility. I'm talking about fair trade, the
environmental impact of business, the effect on local
communities, sustainable development, labour practices and stuff
Like that. Campaigns by activists can affect your profits and
destroy your brand.
• Win many industries a major issue is the threat caused by the
• Internet. Basically, if it can be digitized, it can be pirated. The
music and software industries have already been hit badly by this,
the film industry is next and publishing will follow.
• Generally speaking, globalization has been good for business. But
now there is a backlash against globalization amongst the
public. This is creating political pressures for protectionism and for
Local sourcing to protect jobs. For us that means reduced access
to world markets and higher costs.