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									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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