The Impact of Economic
Policies on Business
Hey there, fellow marketers. Husain Khan
here, and today we're going to continue our conversation on the economic
policies analysis, looking at the macro-environmental factors that influence
business, and today we're going to talk about is probably the most impactful
macro factor out there that will influence business, and that's the economy.
The impact of economic policies on
business economic policy is the term used to describe government actions that
are intended to influence the economy of a city-state or nation some examples
of these actions include setting tax rates setting interest rates and
government expenditures economic policies set by governments usually have broad
effects on businesses depending on the size of the country.
Governments spend up to trillions of
dollars in a single year economic policies that affect legislation also have a
big impact on businesses in this video we are going to explore some economic
policies and their impacts on businesses taxes an increase in corporate income
taxes has a direct effect on a business a tax increase on business profits
hurts a company's overall financial performance some corporations and small
businesses argue that businesses should pay less in taxes not more the
companies maintain that with a lower tax base.
They can boost the economy by investing
more money in the business resulting in more jobs when business tax rates
increase some companies respond by raising prices on goods and services
spending more spending by the government may help certain businesses for
example businesses such as construction companies and engineering firms benefit
when a government spends billions of taxpayer pounds on new roads bridges and
airports defense firms specializing in military weapons systems rely almost
entirely on governments committed to a strong defense that is why defense
contractors spend considerable time and effort trying to affect economic policy
decisions more spending by the government also helps certain businesses providing
educational services choices.
Usually, a government cannot increase
spending in one area without taking away from something else a government with
an economic policy dictating more money spent on defense may have to reduce
support for building more schools for example that could result in less work
for construction firms forcing companies in that industry to reduce staff or
freeze open positions wages a country's economic policy could also affect wages
increases to national minimum wage benefits workers by allowing them to earn
more money for the same work that is usually good for the workers but it can be
challenging for businesses.
Because it increases costs labor costs
are usually a company's greatest expense some corporations argue that they
cannot compete against companies located in countries offering a much lower
minimum wage that can result in a company transferring many job functions to
foreign countries trade policy can affect a business by making it
easier or more difficult to trade across international borders trade policy can
include the imposition of import tariffs quotas on imports and exports of
certain goods and subsidies for local producers to support them against
international competition governments often enter into bilateral trade
agreements with other countries with the aim of reducing tariffs and barriers
to business and establishing a free trade area or common market.
However, this can be helpful to some businesses
but can also lead to increased competition from abroad interest rates
government policy can influence interest rates a rise in which increases the
cost of borrowing in the business community higher rates also lead to decreased
consumer spending resulting in to decrease in investment lower interest rates
attract investment as businesses increase production the government can
influence interest rates in the short run by printing more money which might
eventually lead to inflation businesses do not thrive when there is a high
level of inflation regulations and permits trade regulations the federal
national minimum wage and the requirements for permits or licenses have effects
on business.
For example, periodic health inspections
must be carried out in all restaurants businesses might spend a lot of money
and time to comply with regulations that ultimately prove to be ineffective and
unnecessary fair and effective regulations, however, promote business growth
foreign direct investment FDI foreign direct investment or FDI is a company's
physical investment in another country acquisition of a foreign firm or
investment in a joint venture or strategic alliance with a foreign company in
its local market investment of a foreign company in another country can provide
new technologies capital products organizational technologies management skills
and potential cooperation and business opportunities for local businesses.
For example, Volkswagen a European
automotive manufacturing company is building a plant in Tennessee its
investment needs local small businesses as suppliers from the construction
sector during building from suppliers of equipment and accessories in the
automotive industry and from other businesses such as cleaning services and
plumbers.
However foreign products arriving at the
country at lower prices can create competition and force local businesses to
lower their prices and reorganize their operations in terms of costs local
businesses may lose their customers or even their business relations with other
companies as they start cooperating with the new foreign one exchange rate the
exchange rate will play an important role for firms who export goods and import
raw materials a depreciation devaluation will make exports cheaper and
exporting firms will benefit however firms importing raw materials will face
higher costs of imports an appreciation makes exports more expensive and
reduces the competitiveness of exporting firms however at least raw materials
eg oil will be cheaper following an appreciation for further support at talent
and skills hub you can be supported by our instructors' academic skills advisors
and mentors for the impact of economic policies on business.
I mean, look, if the economy's going
well, business is a lot easier. We're not negotiating as much, people are
buying more things, it's just a lot easier to do business. When the economy is
down, and it's tough times, man. You got more loss than you got to deal with.
You got more people not be able to pay their bills. You got fewer customers, ugh,
it's a really tough time paying your own bills, there's a lot of things you
have to think about as a business, as a company. Because look, the economy has
ruined great companies, the economy, I mean, one of the things they say, the economy will take down any president or any King, because people don't have
jobs.
They're like, hey, I don't have a job, I
need someone else to help me out here, you know? When you think about that,
this is a really big issue that businesses have to think about, and so what I
want to talk about are some of the economic factors that businesses do need to
look at when, when they're looking at these macro factors, and that's why you
say is, what's the market like? What is the economy like? Is it booming? Is it
busting? What's going on? It's going to have a d- dramatic effect on things.
When, when the stock market's going up, people feel like the economy is
going well. They're spending more money when the stock markets tanking.
They're like, oh, I don't know if I
should spend money that way. Think about its unemployment. If you're not sure
about your job, which isn't a bad economy, usually those things usually people
are the higher unemployment rate, we have issues, and then people are like, look.
If I'm not sure if I'm going to have a job tomorrow, am I- am I going to? Am I going
to buy that car today? Am I going to buy that house today? Am I going to go on
that vacation today? No, and so maybe I'm not going to purchase now and that
impact is something that businesses have to think about. Right now, hey, people
are not going on vacations. People are not buying cars.
So what can Ford do? What can, you know,
the travel companies do to get people to start traveling again? We have to
think about strategies to mitigate these problems.
I mean, that's why when things are good,
it was easy to ask your parents for another Nintendo game. When economic times
are bad. They're like, hey, we need to kind of, we need to save some money
right now. So you think about that in your own life. You have seen it, and that's
why you have to realize in financial crises, it's going to be different. Like 2008, nine financial crisis, banks got hit, because what was the thing that
was tanking? Oh, all those bad loans were coming due, and they- no one was
paying them.
So the banks got hit really hard, but
then Walmart and Aldi during the last financial crisis, I mean, I think they
did, okay, because people started instead of going to the more expensive
grocery stores and stuff, they started going to Walmart. They started going to Alde
to save the money, because they had less to spend, or they didn't want to spend
as much, so it's really kind of interesting how bad economic times will have
different impacts on different businesses, and the magnitude of how much it
hurts, like bad economic times, hurt universities, but also help universities
because one, bad economic times, people are losing their job, people go back to
school to learn again.
So hey, the master’s program suffers kick
up, but if you're a public school, and the people aren't, as many people have
jobs and aren't paying taxes to fill the coffers of the state, well, then the
public university gets less money from the government. Uh oh, we have a problem
there. Okay, so what's our plan to mitigate these risks? And so businesses will
do that figure out away. Like I know, the University of Illinois, their business
school, took out an insurance plan in case something like this happens.
Just in case they can get through it. So
we really have to look at that. Because even if your business is doing well, in
the tougher times, you might not want to advertise your S class, fancy Mercedes
a lot. You might want to focus more on your A class or M class Mercedes, which
is more of an affordable price point, all right? And so if you look at
different economic things, you have- you look at, you know, fluctuations in the
GDP, you know, I mean, it can have a big impact, because people overall feel if
we have more money or less money, a-and for businesses, one business itself
cannot jumpstart the economy, and but the thing is, is we all can be suffering
from a bad economy.
So we had to think about the
psychological impact of a fast-growing, you know, stock market or h- improving
GDP or decreasing GDP, or a drop in stock market that all goes into there, and
so we'll see in the economic sense you might look at in terms of changes in
government spending. Now, if we have a $1 trillion stimulus package, hey,
that's putting a trillion dollars into the economy that people can spend on
certain goods.
Hey, what does that mean? that means more
people are going to come in and stock up on their staples, things they need to
have, but for other businesses, that might mean, oh, people are going to have a
little extra money, so maybe instead of, you know, they weren't going to buy a
car, maybe they will so I'm going to advertise the lower price car to get
people through the doors. Another thing you might look at, changes in tax rates.
I mean, think about it. If you- you if
you see that, oh, they lower our taxes, that means I have more money to spend,
or if they raise the taxes, people might be spending even less. I mean, have
you ever noticed when it's around tax season, they'll be like, oh, use your tax
refund to buy a refrigerator. Use your tax refund for the down payment on your
new car. They know these things happen, so that might influence our business.
Also, you might look at exchange rates and how they fluctuate.
That can be a big deal that influences
businesses, especially internationally because if it's i- if your currency and
the other currency are one-to-one, hey, we can charge 100 for it. But if one of
the currencies drops a lot, I'm still charging 100 for my product, but the
other place, that means it's 140, or, if the exchange rate goes the other way,
and the other economy gets stronger and yours gets weaker, then you're only
charging, it's 98. You're like, wait a minute, what's going on here, you have
all these fluctuations; you have to take into account too.
So there are a lot of economic factors
out there that companies really need to think about, that they can't directly
control, but they do need to think about, hey, what we do to avoid these
problems, or at least, mitigate these issues or take advantage of these
opportunities. So I hope this helps you out and I wish you all the best. Bye.
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