Multinational EnterpriseA multinational corporation or multinational enterprise is an organization that owns or controls productions of goods or services in one or more countries other than the home country. It can also be referred as an international corporation.

There are four categories of multinational corporations: (1) a multinational, decentralized corporation with strong home country presence, (2) a global, centralized corporation that acquires cost advantage through centralized production wherever cheaper resources are available, (3) an international company that builds on the parent corporation's technology or R&D, or (4) a transnational enterprise that combines the previous three approaches.

What Are Internal & External Environmental Factors That Affect Business?

Various internal and external factors greatly influence a business' success. While it is practically impossible to control forces outside the business, like world economic conditions and capital availability, management must guide and inspire internal operations to ensure a competitive position in the marketplace. Adaptability and innovation are crucial to gaining market share and staying profitable in fluctuating economic climates.

Operational Efficiency

Being competitive in a world market requires an innovative product or service, fair pricing and an excellent marketing plan. To meet these high standards, operational efficiency is required to keep the price competitive. A well-run business incorporates a shared goal to inspire a spirit of cooperation between departments. Dynamic leadership is paramount for running a profitable business in challenging times. Financial managers ensure that cash flow is available to meet payroll and to pay overhead expenses. Marketing management drives sales revenue by developing creative and effective ways to entice the customer to buy. To round out the management team, human resources recruits qualified professionals needed to make conducting business possible.

Marketability and Innovation

Consumers expect value. Armed with access to data and product information, today's consumer demands innovation and effective customer service. Prices and features can be compared easily on the Internet, or over a cell phone. The informed consumer forces companies to evolve into transparent marketing machines. With constant reviews of new products between friends, consumers speak their mind on Facebook and Twitter, dealing both praise and deadly criticism with record speed. For these reasons, a company's ability to market a product well determines success or failure very quickly and definitively.

The Internal Environment

An organization's internal environment is composed of the elements within the organization, including current employees, management, and especially corporate culture, which defines employee behavior. Although some elements affect the organization as a whole, others affect only the manager. A manager's philosophical or leadership style directly impacts employees. Traditional managers give explicit instructions to employees, while progressive managers empower employees to make many of their own decisions. Changes in philosophy and/or leadership style are under the control of the manager. The following sections describe some of the elements that make up the internal environment.

An organization's mission statement describes what the organization stands for and why it exists. It explains the overall purpose of the organization and includes the attributes that distinguish it from other organizations of its type.

A mission statement should be more than words on a piece of paper; it should reveal a company's philosophy, as well as its purpose. This declaration should be a living, breathing document that provides information and inspiration for the members of the organization. A mission statement should answer the questions, What are our values? and What do we stand for? This statement provides focus for an organization by rallying its members to work together to achieve its common goals.

But not all mission statements are effective in America's businesses. Effective mission statements lead to effective efforts. In today's qualityconscious and highly competitive environments, an effective mission statement's purpose is centered on serving the needs of customers. A good mission statement is precise in identifying the following intents of a company:

Customers who will be served Products/services what will be produced Location where the products/services will be produced Philosophy what ideology will be followed

Company policies are guidelines that govern how certain organizational situations are addressed. Just as colleges maintain policies about admittance, grade appeals, prerequisites, and waivers, companies establish policies to provide guidance to managers who must make decisions about circumstances that occur frequently within their organization. Company policies are an indication of an organization's personality and should coincide with its mission statement. The formal structure of an organization is the hierarchical arrangement of tasks and people. This structure determines how information flows within the organization, which departments are responsible for which activities, and where the decisionmaking power rests.

Some organizations use a chart to simplify the breakdown of its formal structure. This organizational chart is a pictorial display of the official lines of authority and communication within an organization.

The organizational culture is an organization's personality. Just as each person has a distinct personality, so does each organization. The culture of an organization distinguishes it from others and shapes the actions of its members.

Four main components make up an organization's culture:

ValuesHeroesRites and ritualsSocial network

Values are the basic beliefs that define employees' successes in an organization. For example, many universities place high values on professors being published. If a faculty member is published in a professional journal, for example, his or her chances of receiving tenure may be enhanced. The university wants to ensure that a published professor stays with the university for the duration of his or her academic career and this professor's ability to write for publications is a value.

Hero is an exemplary person who reflects the image, attitudes, or values of the organization and serves as a role model to other employees. A hero is sometimes the founder of the organization (think Sam Walton of WalMart). However, the hero of a company doesn't have to be the founder; it can be an everyday worker, such as hardworking paralegal Erin Brockovich, who had a tremendous impact on the organization.

Rites and rituals, the third component, are routines or ceremonies that the company uses to recognize highperforming employees. Awards banquets, company gatherings, and quarterly meetings can acknowledge distinguished employees for outstanding service. The honourees are meant to exemplify and inspire all employees of the company during the rest of the year.

Social network, is the informal means of communication within an organization. This network, sometimes referred to as the company grapevine, carries the stories of both heroes and those who have failed. It is through this network that employees really learn about the organization's culture and values.

A by-product of the company's culture is the organizational climate. The overall tone of the workplace and the morale of its workers are elements of daily climate. Worker attitudes dictate the positive or negative atmosphere of the workplace. The daily relationships and interactions of employees are indicative of an organization's climate.

Resources are the people, information, facilities, infrastructure, machinery, equipment, supplies, and finances at an organization's disposal. People are the paramount resource of all organizations. Information, facilities, machinery equipment, materials, supplies, and finances are supporting, nonhuman resources that complement workers in their quests to accomplish the organization's mission statement. The availability of resources and the way that managers value the human and nonhuman resources impact the organization's environment.

Philosophy of management is the manager's set of personal beliefs and values about people and work and as such, is something that the manager can control. McGregor emphasized that a manager's philosophy creates a selffulfilling prophecy. Theory X managers treat employees almost as children who need constant direction, while Theory Y managers treat employees as competent adults capable of participating in workrelated decisions. These managerial philosophies then have a subsequent effect on employee behavior, leading to the selffulfilling prophecy. As a result, organizational philosophies and managerial philosophies need to be in harmony.

The number of coworkers involved within a problemsolving or decisionmaking process reflects the manager's leadership style. Empowerment means delegating to subordinates decisionmaking authority, freedom, knowledge, autonomy, and skills. Fortunately, most organizations and managers are making the move toward the active participation and teamwork that empowerment entails.

When guided properly, an empowered workforce may lead to heightened productivity and quality, reduced costs, more innovation, improved customer service, and greater commitment from the employees of the organization. In addition, response time may improve, because information and decisions need not be passed up and down the hierarchy. Empowering employees makes good sense because employees closest to the actual problem to be solved or the customer to be served can make the necessary decisions more easily than a supervisor or manager removed from the scene.

Internal Environment affecting businessYour marketing plan addresses a variety of external factors that determine how consumers will view and accept your product or service. Solving that piece of the puzzle isnt the only requirement for a profitable business, however. If consumers are clamoring for what you sell but you cant deliver it efficiently, youll lose opportunities to grow, expand, maximize your products and even keep your doors open. Knowing what internal aspects of your operation to keep on top of will help you run the most profitable business possible.

Personnel

No matter what policies and procedures you implement to build a strong organization, people must manage them. The most critical internal factor that affects how your business performs is your people. Create a long-term organization chart to help you build the most efficient staff. Use a human resources professional to help you attract, hire and retain employees. Provide ongoing training, including management, communications and leadership seminars for your managers and continuing education and training for your workers. If you cant afford a full-time human resources person, meet with an HR firm to create plans to build and manage your staff, and perform quarterly audits of your efforts.

Accounting

Many of the decisions you make regarding your business depend on accurate financial reports to guide you. Even if your accountant is accurate, if you have limited data, such as from an annual budget, general ledger or bank statements, you wont be able to set optimal prices, manage your overhead and production costs and maintain adequate cash flow. Create a financial reporting system that includes profit-and-loss statements, an up-to-day balance sheet, receivables and payables reports, cash flow projections, debt tracking and budget variance analyses.

Technology

The more up-to-date your computers, software, phone systems, faxes and copy machines, the more efficient and productive your staff will be. Solicit input from your staff regarding what tools they feel will help them perform better. In addition to keeping current with technology, keep your employees trained in using what you provide them. From time to time, look at the equipment you use to make your product and determine if new machinery can help you manufacture quicker, with higher quality and at a lower cost than you are now.

Capital

One reason many small businesses fail is a lack of adequate capital. For example, you might have good sales but slow receivables. If you dont have adequate cash reserves or access to credit to pay your bills while you wait for customers to pay invoices, you might lose access to your suppliers, have to cut back on marketing or take out costly loans to make payroll. Work with your financial manager to create internal controls that help you maintain adequate working capital.

The External Environment

All outside factors that may affect an organization make up the external environment. The external environment is divided into two parts: Directly interactive: This environment has an immediate and firsthand impact upon the organization. A new competitor entering the market is an example.

Indirectly interactive: This environment has a secondary and more distant effect upon the organization. New legislation taking effect may have a great impact. For example, complying with the Americans with Disabilities Act requires employers to update their facilities to accommodate those with disabilities.

Directly interactive forces include owners, customers, suppliers, competitors, employees, and employee unions. Management has a responsibility to each of these groups. Here are some examples:

Owners expect managers to watch over their interests and provide a return on investments.

Customers demand satisfaction with the products and services they purchase and use.

Suppliers require attentive communication, payment, and a strong working relationship to provide needed resources.

Competitors present challenges as they vie for customers in a marketplace with similar products or services.

Employees and employee unions provide both the people to do the jobs and the representation of work force concerns to management.

The second type of external environment is the indirectly interactive forces. These forces include sociocultural, political and legal, technological, economic, and global influences. Indirectly interactive forces may impact one organization more than another simply because of the nature of a particular business. For example, a company that relies heavily on technology will be more affected by software updates than a company that uses just one computer. Although somewhat removed, indirect forces are still important to the interactive nature of an organization.

The sociocultural dimension is especially important because it determines the goods, services, and standards that society values. The sociocultural force includes the demographics and values of a particular customer base.

Demographics are measures of the various characteristics of the people and social groups who make up a society. Age, gender, and income are examples of commonly used demographic characteristics.

Values refer to certain beliefs that people have about different forms of behavior or products. Changes in how a society values an item or a behavior can greatly affect a business. (Think of all the fads that have come and gone!)

The political and legal dimensions of the external environment include regulatory parameters within which an organization must operate. Political parties create or influence laws, and business owners must abide by these laws. Tax policies, trade regulations, and minimum wage legislation are just a few examples of political and legal issues that may affect the way an organization operates.

The technological dimension of the external environment impacts the scientific processes used in changing inputs (resources, labour, money) to outputs (goods and services). The success of many organizations depends on how well they identify and respond to external technological changes.

For example, one of the most significant technological dimensions of the last several decades has been the increasing availability and affordability of management information systems (also known as MIS). Through these systems, managers have access to information that can improve the way they operate and manage their businesses.

The economic dimension reflects worldwide financial conditions. Certain economic conditions of special concern to organizations include interest rates, inflation, unemployment rates, gross national product, and the value of the U.S. dollar against other currencies.

A favorable economic climate generally represents opportunities for growth in many industries, such as sales of clothing, jewelry, and new cars. But some businesses traditionally benefit in poor economic conditions. The alcoholic beverage industry, for example, traditionally fares well during times of economic downturn.

The global dimension of the environment refers to factors in other countries that affect U.S. organizations. Although the basic management functions of planning, organizing, staffing, leading, and controlling are the same whether a company operates domestically or internationally, managers encounter difficulties and risks on an international scale. Whether it be unfamiliarity with language or customs or a problem within the country itself (think mad cow disease), managers encounter global risks that they probably wouldn't have encountered if they had stayed on their own shores.

Define 'Privatization'The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.

The process in which a publicly-traded company is taken over by a few people is also called privatization. The stock of the company is no longer traded in the stock market and the general public is barred from holding stake in such a company. The company gives up the name 'limited' and starts using 'private limited' in its last name.

What Is Fiscal Policy?

Fiscal policy is based on the theories of British economist John Maynard Keynes, which state that increasing or decreasing revenue (taxes) and expenditures (spending) levels influences inflation, employment and the flow of money through the economic system. Fiscal policy is often used in combination with monetary policy.

The government uses fiscal policy to influence the direction of the economy and meet economic goals by adjusting revenue and spending levels.

The two main tools of fiscal policy are taxes and spending. Taxes influence the economy by determining how much money the government has to spend in certain areas and how much money individuals have to spend.

10 Major Problems faced by the Small Scale Industries of IndiaMajor problems faced by the small scale industries are: (1) Finance (2) Raw Material (3) Idle Capacity (4) Technology (5) Marketing (6) Infrastructure (7) Under Utilisation of Capacity (8) Project Planning!(9) Skilled Manpower(10) Managerial

Small scale industries play a vital role in the economic development of our country.

This sector can stimulate economic activity and is entrusted with the responsibility of realising various objectives generation of more employment opportunities with less investment, reducing regional imbalances etc. Small scale industries are not in a position to play their role effectively due to various constraints. The various constraints, the various problems faced by small scale industries are as under:

(1) Finance:

Finance is one of the most important problem confronting small scale industries Finance is the life blood of an organisation and no organisation can function proper in the absence of adequate funds. The scarcity of capital and inadequate availability of credit facilities are the major causes of this problem.

Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic base, have lower credit worthiness. Neither they are having their own resources nov are others prepared to lend them. Entrepreneurs are forced to borrow money from money lenders at exorbitant rate of interest and this upsets all their calculations.

After nationalisation, banks have started financing this sector. These enterprises are still struggling with the problem of inadequate availability of high cost funds. These enterprises are promoting various social objectives and in order to facilitate then working adequate credit on easier terms and conditions must be provided to them.

(2) Raw Material:

Small scale industries normally tap local sources for meeting raw material requirements. These units have to face numerous problems like availability of inadequate quantity, poor quality and even supply of raw material is not on regular basis. All these factors adversely affect t e functioning of these units.

Large scale units, because of more resources, normally corner whatever raw material that is available in the open market. Small scale units are thus forced to purchase the same raw material from the open market at very high prices. It will lead to increase in the cost of production thereby making their functioning unviable.

(3) Idle Capacity:

There is under utilisation of installed capacity to the extent of 40 to 50 percent in case of small scale industries. Various causes of this under-utilisation are shortage of raw material problem associated with funds and even availability of power. Small scale units are not fully equipped to overcome all these problems as is the case with the rivals in the large scale sector.

(4) Technology:

Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack requisite resources to update or modernise their plant and machinery Due to obsolete methods of production, they are confronted with the problems of less production in inferior quality and that too at higher cost. They are in no position to compete with their better equipped rivals operating modem large scale units.

(5) Marketing:

These small scale units are also exposed to marketing problems. They are not in a position to get first hand information about the market i.e. about the competition, taste, liking, disliking of the consumers and prevalent fashion.

With the result they are not in a position to upgrade their products keeping in mind market requirements. They are producing less of inferior quality and that too at higher costs. Therefore, in competition with better equipped large scale units they are placed in a relatively disadvantageous position.

In order to safeguard the interests of small scale enterprises the Government of India has reserved certain items for exclusive production in the small scale sector. Various government agencies like Trade Fair Authority of India, State Trading Corporation and the National Small Industries Corporation are extending helping hand to small scale sector in selling its products both in the domestic and export markets.

(6) Infrastructure:

Infrastructure aspects adversely affect the functioning of small scale units. There is inadequate availability of transportation, communication, power and other facilities in the backward areas. Entrepreneurs are faced with the problem of getting power connections and even when they are lucky enough to get these they are exposed to unscheduled long power cuts.

Inadequate and inappropriate transportation and communication network will make the working of various units all the more difficult. All these factors are going to adversely affect the quantity, quality and production schedule of the enterprises operating in these areas. Thus their operations will become uneconomical and unviable.

(7) Under Utilisation of Capacity:

Most of the small-scale units are working below full potentials or there is gross underutilization of capacities. Large scale units are working for 24 hours a day i.e. in three shifts of 8 hours each and are thus making best possible use of their machinery and equipments.

On the other hand small scale units are making only 40 to 50 percent use of their installed capacities. Various reasons attributed to this gross under- utilisation of capacities are problems of finance, raw material, power and underdeveloped markets for their products.

(8) Project Planning:

Another important problem faced by small scale entrepreneurs is poor project planning. These entrepreneurs do not attach much significance to viability studies i.e. both technical and economical and plunge into entrepreneurial activity out of mere enthusiasm and excitement.

They do not bother to study the demand aspect, marketing problems, and sources of raw materials and even availability of proper infrastructure before starting their enterprises. Project feasibility analysis covering all these aspects in addition to technical and financial viability of the projects, is not at all given due weight-age.

Inexperienced and incomplete documents which invariably results in delays in completing promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and incompetent entrepreneurs do not fully understand project details.

Moreover, due to limited financial resources they cannot afford to avail services of project consultants. This result is poor project planning and execution. There is both time interests of these small scale enterprises.

(9) Skilled Manpower:

A small scale unit located in a remote backward area may not have problem with respect to unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled workers may be reluctant to work in these areas and secondly, the enterprise may not afford to pay the wages and other facilities demanded by these workers.

Besides non-availability entrepreneurs are confronted with various other problems like absenteeism, high labour turnover indiscipline, strike etc. These labour related problems result in lower productivity, deterioration of quality, increase in wastages, and rise in other overhead costs and finally adverse impact on the profitability of these small scale units.

(10) Managerial:

Managerial inadequacies pose another serious problem for small scale units. Modern business demands vision, knowledge, skill, aptitude and whole hearted devotion. Competence of the entrepreneur is vital for the success of any venture. An entrepreneur is a pivot around whom the entire enterprise revolves.

Many small scale units have turned sick due to lack of managerial competence on the part of entrepreneurs. An entrepreneur who is required to undergo training and counseling for developing his managerial skills will add to the problems of entrepreneurs.

The small scale entrepreneurs have to encounter numerous problems relating to overdependence on institutional agencies for funds and consultancy services, lack of credit-worthiness, education, training, lower profitability and host of marketing and other problems. The Government of India has initiated various schemes aimed at improving the overall functioning of these units.

Technology DefinitionThe purposeful application of information in the design, production, and utilization of goods and services, and in the organization of human activities.

Technology is generally divided into five categories

1.Tangible: blueprints, models, Operating manuals, prototypes.

2.Intangible: consultancy, problem-solving, and training methods.

3.High: entirely or almost entirely automated and intelligent technology that manipulates ever finer matter and ever powerful forces.

4.Intermediate: semiautomated partially intelligent technology that manipulates refined matter and medium level forces.

5.Low: labor-intensive technology that manipulates only coarse or gross matter and weaker forces.

What Is Technology? Technology is a body of knowledge devoted to creating tools, processing actions and extracting of materials. The term Technology is wide and everyone has their own way of understanding the meaning of technology. We use technology to accomplish various tasks in our daily lives, in brief; we can describe technology as products, processes or organizations. We use technology to extend our abilities, and that makes people as the most important part of any technological system.

Technology is also an application of science to solve a problem. But what you have to know is that technology and science are different subjects which work hand-in-hand to accomplish a specific task or solve a particular problem.

We apply technology in almost everything we do in our lives, we use technology at work, we use it to , extract materials , we use technology for communication, transportation, learning, manufacturing, creating artifacts, securing data, scaling businesses and so much more. Technology is human knowledge which involves tools, materials and systems. The application of technology results in artifacts or products. If technology is well applied, it can benefit humans, but if it is wrongly applied, it can cause harm to human beings.

Many businesses are using technology to stay competitive, they create new products and services using technology, and they also use technology to deliver those products and services to their customers on time.

The impact of technology in businessOver the last 10 years, we have undoubtedly witnessed a fundamental shift in the way traditional businesses operate and engage with their customersThe explosion of the internet and mobile technology, and the seemingly endless potential of the ways that they can be used, is outstripping and sometimes undermining structures of working that have prevailed for more than a century.

And it keeps changing every day. These changes have also had a big influence on how the business world operates. Its influence is felt in practically all aspects of the day-to-day operations of businesses, large and small.

This revolution is removing commercial and technological barriers that have previously hampered free communication between people. Major advancements in mobile technology and the advent of mobile web mean we can now shop, advertise, read, purchase and bank with our mobile device.

By challenging traditional business models, the convergence of readily available internet services and mass mobile devices has delivered unimaginable benefits to both consumer and brand.

Mobility delivers choice for the customer and also lowers barriers to entry for third parties. Integrating old business models with new to provide choice to all demographics, whether in internet or non-internet ready markets, will continue to unlock the full potential of mobile technology to all industries.

There is no doubt that business technology has revolutionised the way companies conduct business, but the question remains: are small business owners ready for the shift in technology and if so, what resources have they got in place to handle these rapid changes?

In a survey conducted by Small Business Technology Institute (SBTI) and Small Business Technology Magazine, managers from more than 3000 companies reported that after health care, managing the evolving technologies available is proving to be a major concern.

The report also indicated that small businesses tend to allocate very limited human and financial resources to support their IT functions; and small businesses approach IT support on a reactive basis and rely heavily on tactical support by product lenders.

This type of approach and decision making around an area that is arguably the most important sector within any business operating under a rapidly evolving marketplace is a sure fire way to get taken over by competitors or go out of business.

For the very first time small businesses have the opportunity to implement business technology and level the playing field with larger organisations a chance that should not be taken lightly for those looking to remain in business.

While the list of advantages are too long to document, below you will find several key advantages to how your business will improve as a result of technological advances.

Reducing business costs

Small business owners can use technology to reduce business costs. Business technology helps automate back office functions, such as record keeping, accounting and payroll. Business owners can also use technology to create secure environments for maintaining sensitive business or consumer information.

Improve communication Business technology can help small businesses improve their communication processes. Emails, texting, websites and personal digital products applications (apps), can help companies improve communication with consumers. Using several types of information technology communication methods allow companies to saturate the economic market with their message.

Companies may also receive more consumer feedback through these electronic communication methods. These methods also allow companies to reach consumers through mobile devices in a real-time format.

Potential increase in business Technology allows small businesses to reach new economic markets. Rather than just selling consumer goods or services in the local market, small businesses can reach regional, national and international markets. Retail websites are the most common way small businesses sell products in several different economic markets.

Websites represent a low-cost option that consumers can access 24/7 when needing to purchase goods or services. Small business owners can also use internet advertising to reach new markets and customers through carefully placed web banners or ads.

Considerations

Business technology allows companies to outsource business function to other businesses in the national

and international business environment. Outsourcingcan help companies lower costs and focus on completingthe business function they do best. Technical supportand customer service are two common functionscompanies outsource.

Small business owners may consider outsourcing functions if they do not have the proper facilities or available manpower. Technology allows businessesto outsource functions to the cheapest areas possible, including foreign countries.

The society as we know it is going through a radical makeover, thanks to constant connectivity everywhere.This is creating a need for a digital makeover of everything from retail to our postal system. It is changing our infrastructure needs and it is also increasing the velocityof business. To stay ahead of the game business owners must also change the traditional way of operating their day-to-day business.

The Impact of Technological Change on Business ActivityBusinesses have been at the forefront of technology for ages. Business technology has revolutionized the way companies conduct business. As computers emerged in the 20th century, they promised a new age of information technology. But in order to reap the benefits, businesses needed to adapt and change their infrastructure. Small businesses use computers, servers, websites and personal digital products to develop competitive advantages in the economic marketplace. ImportanceSmall business owners can use technology to reduce business costs. Business technology helps automate back office functions, such as record keeping, accounting and payroll. Business owners can also use technology to create secure environments for maintaining sensitive business or consumer information. Many types of business technology or software programs are user-friendly. This allows business owners with a minor background in information technology to use computer hardware and software.FeaturesBusiness technology can help small businesses improve their communication processes. Emails, texting, websites and personal digital products applications, known as apps," can help companies improve communication with consumers. Using several types of information technology communication methods allow companies to saturate the economic market with their message. Companies may also receive more consumer feedback through these electronic communication methods. These methods also allow companies to reach consumers through mobile devices in a real-time format.FunctionSmall businesses can increase their employees' productivity through the use of technology. Computer programs and business software usually allow employees to process more information than manual methods. Business owners can also implement business technology to reduce the amount of human labor in business functions. This allows small businesses to avoid paying labor costs along with employee benefits. Business owners may also choose to expand operations using technology rather than employees if the technology will provide better production output.PotentialTechnology allows small businesses to reach new economic markets. Rather than just selling consumer goods or services in the local market, small businesses can reach regional, national and international markets. Retail websites are the most common way small businesses sell products in several different economic markets. Websites represent a low-cost option that consumers can access 24/7 when needing to purchase goods or services. Small business owners can also use Internet advertising to reach new markets and customers through carefully placed web banners or ads.ConsiderationsBusiness technology allows companies to outsource business function to other businesses in the national and international business environment. Outsourcing can help companys lower costs and focus on completing the business function they do best. Technical support and customer service are two common function companies outsource. Small business owners may consider outsourcing function if they do not have the proper facilities or available manpower. Technology allows businesses to outsource function to the cheapest ares possible, including foreign countries.

The Effects of Monetary Policy Monetary policy is the regulation of a country's money supply by the central bank of a country or region. In the United States, the central bank is the Federal Reserve Board. Monetary policy tools are used to help control the economy. The primary tools used by a central bank are changes to the prime interest rate, changes to the amount of money in circulation and changes in the reserve requirements for banks.Control InflationOne of the primary impacts of monetary policy is on inflation. The goal of monetary policy is to control inflation, or the value of currency, through changes in monetary policy tools. When inflation rises, the central bank typically raises interest rates. High inflation makes the costs of goods higher. Central banks want to keep inflation low to keep the prices of goods stable relative to the value of the currency.Interest RatesMonetary policy directly impacts interest rates. The central bank raises or lowers the prime rate, or interest rate the central bank loans money to other banks, as a tool to impact the economy. These actions have a trickle down effect on the interest rates charged on loans, credit cards and any other financial vehicle that is tied to the prime rate.Business CyclesBusiness is cyclic in nature and goes through periods of expansion and contraction. Monetary policy attempts to minimize the speed and severity of these expansions and contractions to maintain steady growth or decrease a negative contraction. The goal is to keep an economy on a slow, but steady growth pattern to prevent recessions during periods of contraction.SpendingMonetary policy impacts the amount of money spent in an economy. When a central bank decreases interest rates, more money is typically spent in an economy. This increase in spending can equate to better overall health for an economy. Likewise, when interest rates are increased, spending declines, which could curtail inflation.

EmploymentEmployment levels relate to the health of an economy. When inflation is low and an economy is stable or in an expansionary phase, employment levels are higher than when inflation is high and an economy is in a contraction phase. Changes in monetary policy that maintain economic stability and minimize inflation, tend to keep unemployment low.Effect of Monetary Policy Unanticipated changes in monetary policy will produce both price (substitution) and income effects. For example, suppose monetary authorities begin a program of expansionary (easy) monetary policy.

We would then expect the following sequence of events to occur with regard to the price effect:

Real interest rates will be reduced.As real interest rates are reduced, domestic financial and capital assets become less attractive as a result of their lower real rates of return. Foreigners will reduce their positions in domestic bonds, real estate, stocks and other assets. The financial account (or balance on capital account) will deteriorate as a result of foreigners holding fewer domestic assets. Domestic investors will be more likely to invest overseas in the pursuit of higher rates of return.The reduction in domestic investment by foreigners and the country's citizens will decrease the demand for the nation's currency and increase the demand for the currency of foreign countries. The exchange rate of the nation's currency will tend to decline.With no government intervention, the financial account and the current account must sum to zero. As the financial account declines, the current account will be expected to improve by an equal amount. In other words, the balance of trade should improve. The country's export will have become relatively cheaper and imports will be relatively more expensive.The effect of an expansionary monetary policy is to lower the exchange rate, weaken the financial account and strengthen the current account. A restrictive monetary policy would be expected to result in the opposite: a higher exchange rate, a stronger financial account and a weaker current account (a more negative, or a less positive balance of trade).With a program of expansionary (easy) monetary policy, the following sequence of events would be expected to occur with regard to the income effect:The domestic GDP will rise.The rise in domestic GDP will tend to increase the demand for imports. The increase in imports will cause the current account to deteriorate.The increase in imports purchased will increase the need to convert domestic to foreign currency. As a result, the exchange rate of the domestic currency will decrease.With no government intervention, the financial account must now move toward a surplus as the financial and current account must sum to zero. Due to the increase in imports, foreigners will now have a surplus of the nation's currency. If foreigners do not use that currency to purchase the country's exports (which would improve the current account balance), they will ultimately need to invest that currency in the assets of the domestic country. This explains why countries such as China and Japan invest large sums in assets such as U.S. Treasuries. The holders of the U.S. currency must put it to work somewhere! Note that foreign investors are often getting better rates of return than what might be readily apparent because the value of the domestic currency is falling relative to their own currency.

In summary, the income effect of expansionary monetary policy tends to lower the domestic currency exchange rate, weaken the current account and work to improve the financial account. A restrictive monetary policy tends to cause the opposite due to the income effect. The domestic currency exchange rate increases, the current account improves and the financial account weakens.

As both price and the income effects of monetary policy move in the same direction regarding their impact on the exchange rate, it is clear that expansionary (restrictive) monetary policy will lower (raise) the country's exchange rate. The effect of monetary policy on the current and financial accounts is not so clear because the price and income effects move in opposite directions. For example, the price effect of easy money on the current account tends to strengthen it, while the income effect tends to weaken the current account. Since the effects move in opposite directions, it is not immediately clear what the ultimate impact will be.We should note that investors can buy and sell financial assets such as stocks and bonds more quickly than producers and consumers can sell and buy physical goods. So initially, interest rate (substitution) effects would be expected to dominate. An unanticipated increase in the money supply will cause the exchange rate to go down, the financial account to weaken and current account to gain strength. Over time, the income effect will come into play. A rising GDP will cause both the trade balance and financial account to weaken.Some argue that for an economy with a foreign sector, monetary policy can create cyclical movements that tend to destabilize an economy. Unanticipated expansionary monetary policy initially causes the trade balance to improve, but as time progresses, it causes the trade balance to become more negative. It initially causes the capital account to weaken due to lower interest rates, but then later tends to improve it. In the long run, the main effect of the expansionary monetary policy is a lowering of the nation's currency exchange rate, which is the international equivalent to the long-run effect of expansionary monetary policy, inflation. Empirical evidence indicates that countries with high rates of monetary supply growth experience both inflation and declining currency exchange rates. An important point to consider is the exchange rates of two countries - their relative rates of money supply growth will help determine how the exchange rate changes.Fiscal policy changes will produce both price (substitution) and income effects for exchange rates and balance of payments. Suppose government policymakers enact a program of unanticipated fiscal stimulus. This would be expected to cause the following sequence of events to occur with regard to the price effect:Greater government budget deficits caused by tax cuts and/or increased spending will increase the demand for investable funds, which will cause interest rates to rise.The increase in interest rates will cause capital inflows (foreigners will purchase more domestic financial assets). As a result, the capital account will strengthen (become more positive or less negative).Foreign investors will need to exchange their currency for the domestic currency. The increased demand for the domestic currency will cause its exchange rate to increase.If there is no government intervention with the balance-of-payments, the current account will need to become more negative (or less positive). The trade balance will weaken as imports increase and/or exports decrease. This makes sense because the strengthening of the nation's currency will make its exports relatively less attractive to foreigners and imports will be less expensive relative to the country's consumers and domestic businesses.

To summarize, the price effect of a stimulative fiscal policy is to raise the value of the domestic currency, strengthen the capital account and weaken the current account. A restrictive fiscal policy would have the opposite effects: a weaker domestic currency, a weaker capital account (there would be net capital outflows) and a stronger current account.

With a program of fiscal stimulus, the following sequence of events would be expected to occur with regard to the income effect:

The tax cuts and/or increase in government spending associated with the fiscal policy, and the associated multiplier effect, will increase GDP.The rise in GDP will cause the demand for imports to increase and the current account will be weakened (become more negative or less positive).More domestic currency will need to be converted into foreign currencies to purchase the increased quantity of imports. The increased supply of domestic currency on the international markets will cause the exchange rate to decline.With no government intervention, the financial account will need to become more positive (or less negative) in order to compensate for the weakening of the current account. Foreigners will be holding more of the domestic currency and are therefore in a position to purchase more of the nation's financial assets. Also, as the domestic economy is improving, they may find it more attractive as a place to invest.

To summarize, the income effect associated with fiscal stimulus will tend to lower the exchange rate of the country's currency, weaken the current account (trade balance) and strengthen the financial account.

Fiscal policy price and income effects move in the same direction with regard to their impact on the financial and current accounts. Stimulating fiscal policy will clearly weaken the current account (balance of trade) and strengthen the capital account. Restrictive fiscal policy will strengthen the current account (balance of trade) and weaken the capital account.

The impact of fiscal policy on exchange rates is not so clear because the price and income effects work in opposite directions. The income effect tends to weaken the currency exchange rate, while the price effect will tend to strengthen the currency exchange rate. Because foreign investors can trade financial assets (such as stocks and bonds) more quickly and easily than consumers and producers can alter the purchase and sale of physical assets, the price effect would be expected to have the larger initial effect. Over time, the income effect will increasingly come into play.

So initially, the fiscal stimulus should cause the domestic currency to appreciate. Over time, as the demand for imports is stimulated, the domestic currency will weaken. If the fiscal stimulus is associated with inflation, there will be a further weakening of the domestic currency. Note that the fiscal stimulus will also have the effect of worsening the balance of trade and increasing the financial account in both the short and long run.

A stimulative fiscal policy is good for the economy when it is operating below full employment levels. There are a couple of factors that will mitigate the positive effects. One factor is that government deficits will work to increase interest rates, which can crowd out private investment. Another factor is that after foreign capital comes in (due to higher interest rates), the domestic currency exchange rate rises. This leads to a rise in imports, which reduces GDP. These two factors lessen the positive effects of fiscal policy stimulus.