Vision 2025: Economics and Business Dorla A. Evans, Ph.D. Professor of Finance The University of Alabama in Huntsville October 2000 Overview: now and in 2025 Macroeconomics -- economy Microeconomics -- business and industry Economic system is capitalism Private citizens own the means of production, i.e., capital Macroeconomics Interactions among goods, labor, and asset markets -- free markets Interaction of national economies which trade with each other Macroeconomic Issues Unemployment, inflation, and growth Fiscal policy Monetary policy International trade agreements Economic growth Measure of economic activity -- Gross domestic product (GDP) Y = C + I + G + NX Related to technological advances Economy in 2025 Capitalism reigns worldwide Global markets – Labor, goods, assets – Biggest markets in developing countries – Economic growth Global competition Trade is larger component of GDP Pockets of protectionism Greater interdependence of economic systems Freer markets Less regulation Lower transaction costs More information More choices Better allocation of world resources Stability Political and economic stability? – Depends upon cooperation – May see deeper business cycles – More democracies, more EU-type alliances – Fewer currencies, fewer trade restrictions – Genetic trade wars? Technology supports growth Improve Scale reducing manufacturing technology efficiencies Information technology Speed up New materials introduction of Faster integrated technology in circuits products and services Technology supports growth Fiber optics connections to homes Natural language processing Reduce medical cost of diagnosis and treatment Inexpensive energy Money Paper money and checks used less More security features for automated transactions Global financial institutions and 24-hour trading Control of inflation more difficult? Microeconomics Economic decisions within firms Interactions among firms within an industry Interactions among industries What is a business? Organization Utilizes funds from creditors and/or owners to pay for capital, labor, supplies Makes and distributes goods and/or services Make a profit sufficient to meet the requirements of the creditors and owners. Business wants to expand Sell ownership stake Stock $10 Company builds plant Firm rewards stockholders Stockholders may lose money X Business today Corporations dominate business landscape Limited liability – Reduces uncertainty – Spreads risk across many investors – Attracts capital for large-scale projects – Encourages innovation Business in 2025 Corporations reign Shareholder is king Customer is the decision- maker Organized in unique ways based upon product or service Employees spread worldwide Outsourcing common Goal of business today and 2025 Maximize shareholders’ wealth Implementing corporate goal Huge returns to stockholders! No current or future competitors Supplies are cheap Product demand high Buyers willing to pay high prices No risk Life in 2025 Internet Digital landscape Knowledge work e-lancers Demographics Genomics Porter’s elements of industry structure Potential Entrants Threat of new entrants Industry Competitors Suppliers Buyers Bargaining Bargaining power of Rivalry of power of suppliers existing firms buyers Threat of substitutes Substitutes Critical technologies Software Microelectronics and telecommunications Advanced manufacturing technology Materials Sensing and imaging technologies Transportation Software Limits use of hardware Need new operating Entry systems Suppliers Need advanced object- Buyers oriented programming Substitutes tools Rivalry Costly to develop but cheap to produce Role of standards Security Microelectronics and telecommunications Devices get smaller Entry Smart devices and Suppliers appliances Buyers Privacy Substitutes Direct contact with Rivalry customer Worker interaction Content vs delivery Advanced manufacturing technology Computer-assisted Entry manuf. and design Suppliers technologies Buyers Custom products Substitutes Small lot sizes Rivalry Flexible machine tools Handle new materials Materials Material created to fill need Entry Transform one material Suppliers into another Buyers Biomaterials and Substitutes biological manufacturing Rivalry of materials Storing, packaging, preserving, moving Cost barrier Sensing and Imaging Sensors increase Entry effectiveness of products Suppliers Connects real-time and Buyers communications Substitutes Imaging needed for wide Rivalry variety of purposes Earth Yellow/Green Live Brown Neutral Blue Wiring of a standard 13 amp British three- pin plug Transportation Entry Faster Suppliers Safer Buyers Lower energy usage Substitutes Less polluting Rivalry Interface with information system Health care Sources of disease Micro-devices for diagnostics and treatment Tailor therapies to individual Fewer side-effects Regenerate tissues Bibliography “The Amazing Future of Business,” Fortune, March 6, 2000. “New Forces at Work: Industry Views Critical Technologies,” Rand, 1998. Future Trends Newsletter, Center for Applied Information Technology, 2000. 1999 Future Themes, Wellington Management Company, 1999. “Designing a New Material World,” Science, v. 288, 12 May 2000. Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, 1980.
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