Transcript Chapter 20 – Economy & Business – Powerpoint

CHAP…..20
ECONOMY AND
BUSINESS
CHAPTER TOPICS
SECT A - INDUSTRIAL SECTORS
1.
What are the main industries in Ireland?
2.
What is the role of agriculture in the economy?
3.
What is the role of the natural resource- based industries in the
economy?
4.
What is the role of manufacturing in the economy?
5.
What is the role of services in the economy?
SECT B - THE ECONOMY
1.
What are the main economic forces that impact on business?
2.
How does inflation affect business?
3.
How does interest rates affect business?
4.
How does unemployment affect business?
5.
How does the level of grants affect business?
6.
How does the level of economic growth affect business?
7.
How does the state of the natural environment affect business?
8.
How does taxation affect business?
What are the factors of production?
LAND
This comprises of everything supplied by nature (sea, rivers/lakes, forest, gas
fields mines) to the development of businesses. People receive rent for
the use of land.
LABOUR
This refers all the human work that is needed to operate a
business. People receive wages for this work.
CAPITAL
This is all the finance, machinery, equipment that is invested in
the company by the investors. This gets the business started.
ENTERPRISE
This is the human activity and initiative that is required for a
business to succeed. Pat McDonagh provided the enterprise
needed to make Supermacs a successful company. This
factor is in limited supply as not all business people are
blessed with a natural flair for innovation.
A – SECTORS OF INDUSTRY in Ireland
PRIMARY SECTOR – Natural based industries
• This refers to agricultural and extractive industries
such as fishing, drilling and mining
SECONDARY SECTOR –Manufacturing industries
• This relates to the construction sector, the
manufacturing industries such as chemicals,
computers developments
TERTIARY SECTOR – Service industries
• This is linked with retailing, tourism, transport and
finance industries etc
2. What is the role of agriculture in
the economy?
OTHER INDUSTRIES
AGRICULTURE INDUSTRY
3%
97%
BACKGROUND TO AGRICULTURE IN IRELAND
Traditionally agriculture in Ireland mainly consisted of
tillage & livestock farming. This sector has dramatically
changed due mainly Irelands inclusion in the EU’s
common agricultural policy CAP. It was once the
largest employer in this country but the numbers have
since declined due to:
• Modernisation of machinery and huge strides made in
technological developments has led to less demand for
employees in the agricultural industry.
• Increases in the numbers of imports of meat and
vegetables
Important issues & trends in Irish
Agriculture
1) Overproduction
Membership of the EU meant that farmers were given a
minimum price for their output. However, farm output
levels far exceeded what was expected resulting in the
EU having to buy up massive quantities of surplus beef,
milk, cereals etc.
This out of control situation forced the EU authorities to
introduce a annual quota system for all farmers. This
effectively put a limit on the amount of farm output
farmers could produce.
2) Diversification
For farmers to generate a worthwhile income in the
agricultural industry diversification into other farm
activities seemed a pro active way forward.
Examples of this type of diversification include:
• Open farms – geared towards tourists, community
groups school tours etc
• Farmhouse holidays – renovating old building for
modern usage, holiday package in a fishing location
• Organic farming – consumer awareness of food labels
now is at major marketing tool
• Forestry – replanting of farm land with forestry. The
government offer support and grant aid with this
development - COILLTE
3) Consumer confidence
The issue quality and safety of our foods has been
undermined in this country. Health scares such as
• “mad cow disease”, “angel dust” in beef,
• “salmonella” in eggs
• “Foot and mouth” disease on farmyard animals in
2001 – This led to a European wide epidemic where
disease could be passed from animal–humans alike. It
had a drastic affect on the agriculture industry leading
many farms being wiped out.
• “Bird flu” in poultry products and
• Pesticide on fruit and vegetables.
3. Natural Resource based Industries
26% of workforce in
SECONDARY SECTOR
Rest of Irish
workforce
26%
SECONDARY
SECTOR
74%
• Fishing:
The Irish government has seen the fishing industry as a
major growth area for the years ahead. The can be
attributed to the decline in the need for red meat
amongst consumers.
• Also fishing stocks have been greatly reduced for Irish
fishermen due to other vessels (Spanish fishermen)
ability to enter in our waters. This is termed as
depleting our fishing stocks.
• This presents a serious threat to the livelihood of
coastal communities that are dependent on fishing as
source of income.
Example: Killybegs, Burton port, Kinsale
• Mining:
This consists of extracting from the earth,
examples include metals, peat, coal, oil
(kinsale in Cork), and gas where possible.
Note:
January 2009 - TARA MINES in County
Meath are having on going talks on the
possibility of downsizing their particular
branch due to the on going economic crisis
• Forestry:
This is a small-scale industry in Ireland as this
country has very little forest cover. In Ireland
Coillte offer grant aid to farmers to switch
their land over to that of forest produce.
COILLTE have been given the job to develop
Ireland as a major wood exporting nation.
NOTE: Throughout the years from 2000 –
2007 this was a major growth market.
Tourism:
Prior to the global meltdown TOURISM was
seen as the worlds fastest growing industry.
Ireland is seen as a country of natural
unspoilt beauty, as a result it has opened
many employment opportunities in the
development of hotels and catering facilities.
Tourists (Especially Americans) are willing to
spend vast amounts of money here.
Seaside towns in the likes of Galway, Westport,
Clifden, and Killarney etc are seen as major
tourism hotspots.
Construction:
Is of major importance to the Irish economy as
it offers major employment opportunities
anywhere houses, factories, schools, hotels,
roads, bridges, hospitals, universities etc. are
being developed. Irish materials are made
readily available to help in the construction
sector; this helps to keep money in this
country.
NOTE: ECC, Clonbur, Co. Galway produce
timber produce for use in this country.
NOTE: 2008-2009 As a result of the
downturn in the Irish economy the Irish
construction sector slumped dramatically.
• Renewable Energy: Over the past 5-6 years many
developments have been made in renewable energy.
Ireland has strong potential for all wind, wave and
solar powered energy. The SEI (sustainable energy
Ireland) offers grant aid to customers who install a
renewable energy source to there house, business etc.
The future may see the government offer a tax break
incentive for customers WHO implement this
environmentally friendly source rather than use
other traditional methods such as oil, gas etc.
• Note: November 2008- Belmullet/Erris Region in north
County Mayo being discussed as potentially the new
headquarters of Sustainable Energy in Ireland (SEI)
4. Manufacturing Industry
• This industry converts the primary sector
products into finished goods, examples
include, computers, furniture etc
How Ireland targets foreign firms:
• In the mid 1960’S the iris government set up
the IDA which went about modernising the
irish economy and looking for foreign firms
to set up here.
Advantages of locating in Ireland;
• LOW corporation tax – 12 ½ %
• Availability of grants from IDA Ireland, FAS etc.
• Highly skilled educated work force for which
Ireland is noted
• Access to SEM – EU market – 27 countriespopulation of over 400 million
• Competitive wage levels compared to other EU
nations, japanese & US standards.
Top foreign businesses that have seen Ireland as
their location include
• DELL, VODAFONE
• INTEL, COCA COLA,
• NORTEL, ERICSONS,
• BOSTON SCIENTIFIC
• DFI - direct foreign investment
Promoting Indigenous Firms
In more recent years greater emphasis has been
placed on encouraging the start up of
indigenous firms.
Indigenous firms are “Irish owned and locally
based”
This indigenous manufacturing is being promoted
because the Irish government felt this country
was overly dependent on foreign firms locating
here. The Irish government wanted Irish firms
not foreign firms to provide jobs and create
wealth here.
The benefits of indigenous firms:
• They are more likely to remain loyal to this
country, this will protect levels of employment
• They may inspire other local based
entrepreneurs to develop similar businesses
• Indigenous firms tend to be labour intensive,
this will create good employment opportunities
for the Irish public.
Agribusiness
This refers to manufacturing firms that use
agricultural products such as dairy products,
meat, vegetables and cereals as their main
source of raw material.
• This sector exports up to 50%-60% of its
produce.
• 1/3 of the top 100 Irish businesses are from
the agribusiness background
• EXAMPLES: Kerry Group, GLANBIA PLC
IMPORTANT ISSUES &
TRENDS IN AGRIBUSINESS
• Retailing developments – selling products to large supermarkets
(Dunnes Stores, Tesco and large symbol stores (Spar, Centra)
• Research & Development – (R & D) amongst agric firms have
now become a must for these businesses to maintain their
market share. RIVAL firms are investing time and money in R &
D so agribusinesses must match this attitude to remain
competitive.
• Mergers / Takeovers / PLC’s – for agribusinesses to compete on
a global stage with large international business
mergers/takeovers and co-ops converting into PLC’s.
Example: Kerry Group
• Consumer Pressure – health scares & food hygiene expectations
amongst consumers have led to agri businesses to focus in
producing more natural and healthier food products.
Important issues & trends in the
manufacturing Industry in Ireland
• Downsizing
Advances in technology such as CAD (Computer Aided Design),
CAM (Computer Aided Manufacturing) means that firm are
able to produce more output but require less staff.
Example: GUINNESS BREWERY, Dublin
• Low wage countries
Countries in Asia and eastern Europe are offering large TNC’s
better wage terms in return for same output that could be found
in Ireland. The only wage for Irish firms to remain competitive
on a global stage is to find a niche market, high quality product
Example 1: tourist hot spots such as CONNEMARA, BURREN ,
RING OF KERRY
Example 2: Oct 2008 DELL announce that they are– Moving plant
to LODZ in Poland
• High Tech Companies
OVER the past 10-15 years, IDA Ireland has been
placing a strong emphasis on attracting high
tech companies, such as those involved in
computers, biotechnology and chemical
production. These firms feature highly skilled,
well educated employees. The firms often pay
above the recommended wage prices to attract
and retain these employees.
NOTE:
This strategy is pursued to transform business in Ireland
from a low skilled, low wage economy (1960’s 1980’s) to a more technology based, high skilled high
wage economy (1990’s – present day)
• Competition for DFI
Competition between countries to attract
foreign investment is increasing. IDA Ireland is
facing stiff competition from foreign nations
who can offer bigger grants (e.g. the UK,
Germany) or have low wage employees (e.g.
Eastern Europe, Asia)
• Single European Market SEM
Since the emergence of Ireland in the EU trading block
it has been easier for Irish firms to trade freely on the
continent. To compete with these larger TNC’s Irish
firms have opted to form alliances, mergers and
takeovers to survive in the market place.
• Niche Marketing
Businesses that identify niche marketing in the global
economy where factors such as quality of design,
image, innovation or customer service are of more
importance than price.
Example: BAILEYS CREAM LIQUOR
• Environmental issues
There is a definite need for IRISH businesses to
develop environmentally friendly activities. This
will help to promote the business name and
keep the Ireland’s green reputation on the
global stage. This also acts as a marketing tool
to sell the produce.
5. What is the role of the services
industry in the economy?
Rest of
Workforce
32%
1
Service Industry
68%
services industry
rest of workforce
Important issues & trends in the
Services Sector
• Globalisation – for future development of the Irish
services sector Irish companies must enter the
international markets. This is already done by those
firms in telecommunications and financial services.
• Tourism- over the last 25 years improvements in travel
and living standards has led to the global tourism
industry to expand massively. This development has
seen the transport, retailing, communications and
leisure sectors match the services of competitor
countries.
NOTE: over 3 million tourists travel to Ireland every year
• Taxation – corporation tax for companies in the services sector pay a
higher rate of tax than those in those in the manufacturing industry.
• Information Technology – IT has had a huge effect on the range of
services available. People can now take out loans, buy products on the phone
or on the internet.
• Cost Effective - Many companies are now are of the opinion that it is
cheaper to have a employee trying to sell on the phone lines in a less
glamorous or high cost base than in the middle of a highly modern
expensive city.
EXAMPLE: NEW YORK medical clinics have some secretarial bases in
IRELAND.
Teleworking - THE widespread availability of the IT and communications
(such broadband internet connections) is making the opportunity for
teleworking from home very accessible to employees. This is useful for
those employees that have young families and also in the event of a flood to
particular area.
EXAMPLE: Counties Galway and a Clare were partially flooded for up on 2
weeks in late November/early December 2009
B- THE ECONOMY
6. WHAT are the main economic forces that
impact on business? /ECONOMIC VARIABLES
Exchange
rates
Economic
growth
Environmental
issues
Inflation
Business
Unemployment
Interest
rates
Taxation
Govt
grants
7. HOW does inflation affect business?
Inflation “is the rise in price of products from one year
to the next”
Low inflation is associated with periods of prosperity
It is also good for
• encourages business confidence
• creating competitive prices for customers
• Exporting product to foreign markets
• Keeping unemployment levels low as businesses are
generating good profits
High inflation
• damages business confidence
• Reduces the willingness to invest
• Reduces customer disposable income
• Can lead to foreign investors withdrawing
their capital form in economy
• Causes interest rates to rise
• Means exports are uncompetitive
8. Interest rates
Influence the cost and supply of money. Low interest rates instil
confidence.
Lower interest rates lead to
•
businesses borrowing large sums of money to invest. This
creates jobs.
•
More disposable income for consumers due to lower
mortgages, cheaper car finance deals etc.
•
The negative side of the low IR would be for savers in banking
institutions. They would be getting a low return on their
savings.
•
High interest rates can lead to less spending and if continued
could lead an economic recession
NOTE: 2008 –2009 Ireland is amongst one of the worlds leading
countries that are in an economic recession
9. Levels of unemployment
When unemployment is high
• it reduces the amount of disposable income,
which can have negative implications for
business
• means higher taxes as well as high crime levels
• People find it difficult to get work and may
have to be retrained. For many there would be a
confidence factor as well as there world of work
having changed.
10. Government Grant Aid
The grants offered to Irish businesses are a huge incentive to
develop company’s in this country.
• These grants act to encourage indigenous (home grown) firms
to set up here. (O’ Brien Sandwich Bar, Bewleys café)
• It also helps to attract large TNC’s (Boston Scientific, Nortel,
Google) to locate in this country.
This in turn helps to boost levels of employment and increases the
wealth of the state.
Grants that from a particular sector of the economy, (i.e.)
agriculture, enterprise, environment, technology & science etc.
receive financial support from that area
NOTE:
Grants for expansion can be sourced from FORBAIRT, CEB’s, IDA
Ireland.
11. Level of economic growth
Economic growth refers to an increase in the amount of
goods and services produced from a country’s resources.
• GNP – gross national product
• GDP – gross domestic product
A decline in economic growth/GNP may signal a
recession.
A recession occurs “when economic growth slows down or
ceases”
A depression is a “severe and prolonged period of negative
growth”, the govt starts to shrink instead of grow.
Depressions are accompanied by very high levels of
unemployment.
Economic growth can affect business in the following ways
1. Confidence & sales: If GNP increases this has a
knock on effect to the production and sales in
the economy. This leads to confidence being
instilled in consumers, businesses etc.
If GNP falls there will be a fall of in sales and
this leads to business failures and possible
unemployment/redundancies
2. Profits
• One negative of excessive levels of GNP would
be workers demanding wage increase in line
with wealth of economy.
• This could see increases in prices of goods and
in turn high levels of inflation.
• Also a decline in GNP will see increases taxes
12. Environmental Issues
Electronics, agriculture, tourism and services are Ireland’s
main wealth generating industries and all stand to gain
from a healthy environment. However the confidence
of these areas may decline if the government continues
in their belief to introduce “green taxes” .
The continued awareness of green products is hugely
beneficial for Ireland as it already has a clean, healthy
green image. This led the way for Irish firms to turn to
the green way of thinking and as a result improve sales.
Product areas that were to the forefront of these
sectors include, organic food, recycled products,
eco-tourism, bottled water etc.
13. Taxation
• Low corporation tax has played a prominent role in
attracting foreign businesses to this country.
• High corporation tax reduces the amount of profits
the owners of a business can earn
• If prices of goods are increased, the VAT added can
discourage sales i.e. the price is to expensive
• High employers PRSI contributions increase the cost
of employing staff, therefore it may discourage
businesses from employing new staff
• ALSO the reduction in capital gains tax CGT from 40%
to 20% has stimulated investment in the Irish
economy.
14. Exchange Rates
Exchange rates are the “prices of one countries products
expressed in terms of another currency”
• Having strong currencies attracts overseas capital into
an economy. A strong currency may lead to exports
being over priced in foreign markets.
• When a currency weakens it favours exporters, whose
produce becomes cheaper.
• A weak currency results in imported inflation. This
could lead to industrial unrest, with workers
demanding higher pay levels.
KEY DEFINITIONS
• Downsizing
• Inflation
• Direct Foreign Investment - DFI
• Manufacturing Industry
• Recession
• Depression
• GNP
LC EXAM QUESTIONS
2004
20 marks
Using examples analyse the role of the Irish
government in creating a suitable climate for
business enterprises.
2001
25 marks
Analyse how the economic variables in the Irish
Economy have an impact on a local economy?
2001
10 marks
Illustrate your understanding of the term “inflation”?
LC EXAM QUESTION
LC EXAM QUESTION
LC EXAM QUESTION