The study of macroeconomics reviews the performance of the economy as a whole. Generally speaking, the macroeconomics consists of diverse topics such like inflation, interest rate, economic growth, and change in the unemployment rate, the country’s trade performance with the rest of the world and so forth. Through the understanding and analysis of the macroeconomics of the country, the company will get the knowledge about the current macro environment of the country in which the company operates.
The use of the macroeconomics will help the company to identify the key factors of the environment so that the company can use this to generate the appropriate strategy to deal with the competitions. In the following, some examples and approaches will be demonstrated about how a manager/CEO may use macroeconomics for decision making.
As mentioned above, the macroeconomics is made of several different factors, the discussion will be shown based on these factors, and how the manager or CEO of the company use this information to make decisions on the company’s issues.
The inflation rate expresses the increasing rate of the goods and services prices within the certain periods quarterly or annually, usually, the increase in the inflation rate will dampen the purchasing power. For example, if the inflation rate increased to 5% in US, a $10 product will cost the consumers $10.5 now. It is important for the company, in the case of the increasing inflation rate; the manager/CEO of the company needs to reevaluate the company’s cost structures, and at the same time, concentrate on the customers. Under the higher inflation rate, the consumers will not buy as more products or services as before, the manager/CEO needs to think about the ways to pull up or maintain the sales. The manager/CEO may adopt the promotion in order to stimulate the consumers; also the newly developed products or services are feasible for the company to provide to the consumers, this will enhance the consumers’ confidence on the company, as well as the products or services.
The central bank will usually increase the interest rate to cool down the over heated economy by dampening the consumptions, with the higher interest rate, people will prefer to deposit more of their disposable incomes to the banks, thus less money will be consumed. In this situation, the company will confront with a comparatively indifferent market, the manager/CEO needs to find out the ways to activate its markets and consumers. In the other hand, the company needs to undertake more cost on its borrowing from banks because of the higher interest rate. It is important for the manager/CEO to pay attention to its expansions, projects as well as the investments. It is not a good time for the company to largely expand its businesses or investments, the manager/CEO needs to make the decision to control these business activities, and make efforts to avoid the excessive costs.#p#分页标题#e#
In addition, when the central bank decreases the interest rate in order to stimulate the economy, it is good time for the manager/CEO of the company to make the investments or expansions.
The economic growth indicates the trends of national output and living standards. For example, when a US based company wants to expand overseas, it is important for the manager/CEO to review the economic growth of other countries. China is a country with decades’ rapid economic development and growth, which indicates that the country is developing very fast, the people are better off day by day. Under this situation, it is probably that the investments in China will bring significant returns, in the other hand, if a region or country maintains a low or even negative economic growth, the manager/CEO may not consider.
This indicates the country’s trade situation with other countries. For example, the US-Sino trade maintains consecutive deficit in the recent years, under the pressure, the RMB to US dollar exchange rate was forced to increase significantly, now reached around 7.10. If the company also imports the materials from China, this will be a great burden for the company, under this situation, the manager/CEO may think about other ways to off set the negative effects. The company may open a subsidiary in China, so that the company will not need to waste a large amount of capital on the exchange. Also, the company may decide to conduct a joint venture or direct M & A with local companies, this will not only help the company to reduce the costs, but also improve its competitiveness.
Employment VS Unemployment就业与失业率
The company also needs to concern the employment rate, when the company seeks the investment or expansion opportunities, it is important for the company to know the labor force of the target region. Generally speaking, the normal unemployment rate remains at 4% - 5%, the investments or expansions of the company require certain number of labor force. It is not good to open a new plant in the region with extremely low unemployment rate, as there will be not sufficient and qualified labor force provided to the new plant. Therefore, the manager/CEO will review the employment situation of the target regions before the investments or expansions, with the purpose of making sure there is sufficient qualified labor force provided to the company.
It is concluded that the manager/CEO will carefully review the macroeconomics before making the decisions on the company’s strategies. The above factors are critical for the manager/CEO to take into account, also there are some other useful factors need to be considered. The manager/CEO will make full use of this information to make final decisions in terms of investment, expansion, divestment and so forth. Usually the factors should be joined together so that the manager/CEO will balance the overall effects in order to achieve the most appropriate decisions.#p#分页标题#e#