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In this chapter, the focus of analysis is on

the impacts of business operations on


various sectors that it interacts with in its
production and distribution activities. In the
production process the operation of the firm
will need intermediate inputs or raw
materials to be processed by factor or
transforming inputs. Thus, the actions and
decisions of the business firm will have
effects on its suppliers of raw materials.
In the factor markets, a business company will
have an impression on the demand for labor,
land, funds, and in sourcing its managers. On
its distribution process, the outputs of a firm or
an industry are sold to other firms as
intermediate inputs, and as final products to
consumers, investors, government, and the
rest of the world. Because of these linkages, a
firm will have various influences on these
sectors mentioned about.
The effects are not only economic
and commercial but can be social,
cultural, and environmental as the
operation of a business firm has spill-
over effects on the environment
where it operates.
FRAMEWORK FOR SOCIOECONOMIC IMPACT
ANALYSIS

Since the intent of an impact analysis of a


business organization is to identify and
assess the effects of its operations on various
sectors, we propose a framework of analysis
anchored on the flow of its productive and
distributive activities. These activities involve
commercial transactions between the firms
and its suppliers and buyers.
Thus, when a firm purchases inputs
from its sellers there are benefits as
well as costs absorbed by the sellers.
Similarly, when a firm sells its
products to its customers there are
also positive as well as negative
consequences that buyers have to
realize.
The firm organizes its production activities
by sourcing raw materials or intermediate
inputs that factor inputs add value in the
transformation process. The purchase of
intermediate inputs is made from
commercial enterprises within and outside
the industry and outside the country.
On the other hand, the factor inputs
are purchased from various factor
markets including the labor market for
labor services, capital market for funds
to finance the acquisition of capital,
and the real estate market for land
and office space.
These intermediate inputs are processed
by various factor inputs through the
technology available to the firm to produce
the firm's output. After producing these
goods and services, the business firm
disposes these to two main categories of
buyers based on the degree of product
transformation.
A component of the outputs of the firm that are
still in semi processed stage is sold to other
firms that, will use it as intermediate goods for
their own production. The other component of
the firm's output is finished products that are
sold to final buyers including consumers,
investors, government agencies, and the rest
of the world as exports.
In all of these transactions, whether as a buyer of
inputs or seller of its outputs, the firm creates an
impact on its sellers and buyers.
But these impacts are directly felt by the suppliers of
inputs and owners of factor inputs because of the
commercial transactions made by the firm with
them. Thus, benefits or costs are realized and
internalized by buyers and sellers because they are
directly involved in these transactions.
However, there are spillover effects of these
transactions that may accrue to third parties that
are not part of these commercial transactions.
These spillover effects are also called
externalities.
Externalities are benefits reaped and costs
incurred by parties outside the transactions
between the firms and its suppliers, on the one
hand, and the firms and its customers or buyers,
on the other hand.
These spillover effects are recognized in
economic analysis and should be considered
in evaluating the impact of a firm or the
industry on the economy and society at large.

The effects can affect the community where


the firm operates. For example, the firm can
hire labor services from the pool of human
resources within a community.
The firm may also encourage other firms to
establish their presence in the community
resulting from the higher income and
purchasing power of the employed workers.
Other examples of spillover effects a firm's
operations are the impacts on the
environment including pollution, overfishing,
and forest degradation.
TRACING THE IMPACTS
THROUGH THE
SOURCING OF INPUTS
OF A BUSINESS FIRM
As mentioned earlier, a firm will need two
main categories of inputs in its production
process intermediate inputs and factor
inputs.
Intermediate inputs or raw materials can
be unprocessed primary products or semi
processed materials that need further
processing or transformation by the firm.
Factor inputs on the other hand are the
processing inputs. The major transforming
inputs include labor, management, capital,
land, and technology.
INTERMEDIATE INPUTS

The impact of the production operation of the


firm on the suppliers of its intermediate inputs
will depend on the sources of raw materials,
types of suppliers, stage of product
transformation market power of the firm.
Internal vs. External Sources
Sourcing raw materials from internal suppliers
can create income and employment
opportunities to producers of these raw
materials. Because these domestic firms have
also linkages with other local industries, the
initial demand of the firm on raw materials
can have ripple effects on the other sectors.
Because of these multiplier effects, the impact
on sourcing raw materials from domestic
suppliers may have greater positive effects on
the local economy than sourcing it externally.
Sourcing intermediate inputs from foreign
suppliers will have direct effect on a foreign
economy and may involve the use of foreign
exchange for these external transactions.
Independent Suppliers vs Subsidiary of
Conglomerate
Sourcing intermediate inputs from independent
suppliers domestically may have greater ripple
effects than sourcing it from a subsidiary of a
conglomerate. Although it may be more convenient
and probably cheaper to source raw materials from
a conglomerate but the contributions of the
purchasing firm on inclusive growth may be
limited.
Usually, independent suppliers are small and
medium-scale companies that employ numerous
laborers. Thus, sourcing intermediate inputs from a
subsidiary of a highly integrated conglomerate may
displace traditional independent domestic suppliers.
This impact is similar to the dislocations of a
number of community-based groceries and variety
stores with the establishments of large scale
shopping malls in major urban areas in the country.
Raw vs. Semi processed Inputs
Sourcing intermediate inputs that are still very raw
in product transformation will have limited
multiplier effects unlike sourcing them under semi
processed state especially if these intermediate
inputs were sourced domestically.
Semi processed intermediate inputs imply that
they have undergone several stages of
processing and have contributed several layers
of value added. The value added in each stage
of transformation means that they have
employed several factor inputs and have
created income to owners of these factor
inputs.
Market Power of the Firm

If the purchasing firm has market power in the


industry it can exercise its market power over its
suppliers by extracting surplus from them. As a
sole buyer of raw materials the firm can bid the
lowest price to maximize its profit.
Similarly, as one of the major purchasers of
raw materials the firm can demand huge
discounts for the enormous volume it buys
from the suppliers. On the other hand, if the
purchasing firm is small and has limited
market power, it cannot ask for special
discounts more than what is normally given to
ordinary customers.
FACTOR INPUTS
SOURCING FOR LABOR SERVICES
The impact of the firm on the factor markets and the
owners of factor inputs will depend on the type of
factor inputs that company is using intensively in its
production process. For labor services, the source of
labor services, nature of engagement, basis of
compensation, degree of unionization of laborers,
presence of human resource development plan, and
working conditions will shape the impact on the labor
market of a firm's purchase of manpower services.
Within the Community vs. Outside the Community
It is beneficial to the laborers, firm and the community
if labor services are drawn from the community where
the firm is located. For the laborers, it can lower their
transportation cost going to the office and returning
home. To the firm, this may improve the productivity of
workers since they are not harassed by long hours of
commuting. To the community, it provides employment
opportunities to its people and brings accompanying
social benefits.
Direct Employment vs. Subcontracting
Although direct hiring may be expensive for the
business it has a number of positive effects on the
laborers. It can give them security of tenure, higher
compensation, and a number of monetary and
nonmonetary benefits. On the other hand, sourcing
labor services through subcontractors creates greater
income for manpower services companies. The direct
impact on the laborers is limited given the rapid
turnover under subcontracting scheme and the
accompanying insecurity of tenure.
'Minimum Wage vs. Market Rate
We know that laborers and semiskilled personnel are
usually paid the minimum wage as required by law.
However, companies also hire professionals and
technical staff whose services are also in demand
within the industry and other industries. In this case the
compensation package for professional staff is
determined by the prevailing market rate and not
mandated 'by the government regulation.
'Minimum Wage vs. Market Rate
With an attractive market-determined compensation
package the impact on highly skilled personnel is
stronger than the impact of minimum wage on
semiskilled workers. Oftentimes the minimum wage is
not enough for a married worker to provide a decent
living for a family of six. On the other hand, some
firms give professional personnel a number of
additional benefits including car plans, housing plans,
and education of children and medical insurance
coverage of members of the family.
Organized vs. Non-organized
In large companies, laborers are highly organized and
have strong unions. Their demands for higher
compensation, favorable working conditions, and other
benefits are usually coursed through regular collective
bargaining agreements between management and the
labor union. Meanwhile non-organized laborers do not
mean that they have lower compensation. However,
their compensation package is usually dependent on the
generosity of their employers determined upon
employment.
Human Resource Development
Some big firms provide training programs for the
human resource development of their workers. Some
training programs are specific and some are general.
General training given to personnel enhances their
skills that can be used in other companies and
industries. On the other hand, skills acquired in specific
training can only be used specific to the tasks workers
are assigned in the company.
Human Resource Development
A company that has a human resource development
program can provide employees a professional
development track. When they enter the company as a
management trainee, they can see the direction of their
potential professional career in the company. It is not
unusual in some companies for an individual to start as
an accounting clerk and retire as company president
because of the benefits of a human resource
development program.
Temporal and Spatial Working Conditions

Temporal working conditions refer to the shifts in


duration of work. In services industries like health
and BPO, they operate 24 hours a day and 7 days a
week. Workers that are assigned at night or
graveyard shift may have to bear the health, social,
and personal impacts of this time assignment
compared with those who work from 8 a.m. to 5
p.m.
Temporal and Spatial Working Conditions

Spatial working conditions refer to situations


where the workers are assigned in fields and
places other than the normal business office.
Construction workers, telecommunications
repairmen, miners, electrical engineers, teachers,
and even soldiers are given a special hazard pay
for special spatial assignments.
SOURCING FUNDS FOR CAPITAL FORMATION

Funds are needed by a company to start its


operation, purchase equipment, and expand its
physical plant. The impact of a firm's acquisition
of funds on the financial market and the owners of
capital will depend on where the funds are raised,
manner on how the foreign funds are raised, and
the rate of return.
Own Savings vs. Capital Market (Slide 1)

There are several options in raising funds to


finance the capital expenditure of firms. They can
source it from their own savings or retained
earnings. Another possibility is to raise these funds
from the capital market including banks, bond, and
equities market.
Own Savings vs. Capital Market (Slide 2)

Many small companies and business ventures


source their funds from their own resources
including savings and retained earnings. For
example, many retirees utilize a portion of their
retirement benefits to finance business ventures.
Similarly, returning OFWs who have saved
sufficient funds can use part or all of their savings
to start commercial ventures.
Own Savings vs. Capital Market (Slide 3)

Although this option can make entrepreneurs


escape the excessive interest rates charged by
informal lenders including loan sharks this
alternative can carry heavy risks on entrepreneurs:
If the business enterprise is not properly planned,
business failure may drain the savings if not the
wealth of these OFWs and retirees.
Own Savings vs. Capital Market (Slide 4)

Large companies have the option of raising funds


by borrowing from commercial banks. Even larger
business firms can expand their funds through the
issuance of bonds and selling of initial public
offerings (IPO) or share of stocks of the company's
equity in the capital market domestically.
Own Savings vs. Capital Market (Slide 5)

As companies increasingly source their funds from


the financial sector this option creates income
opportunities in the banking system, and the
capital markets. In addition, because of due
diligence, proper guidance, and credit rating
evaluation provided by banks and other financial
institutions there is a degree of assurance that their
clients can pay their financial obligations.
Own Savings vs. Capital Market (Slide 6)

For example, if the borrowing firm is faced with


too many risks, the credit rating agency can give
low credit worthiness. In turn, this information is
used by banks by charging higher interest rates on
the loans of the borrowing company.
Foreign Borrowing vs Foreign Direct Investment (Slide 1)

There are number of large domestic firms that


source their funds from abroad. They can do this
by borrowing or by inviting foreign partners
through foreign direct investment (FDI).
Foreign Borrowing vs Foreign Direct Investment (Slide 2)

In the case of foreign borrowing, the return to the


funding institution is measured by the rate of
interest charged to the loan of a business firm. On
the other hand, there are greater benefits to the
foreign partners if funding is sourced through
foreign direct investments. First, foreign partners
can have substantial shares in the equities of the
business company.
Foreign Borrowing vs Foreign Direct Investment (Slide 3)

Second, this substantial equity can give foreign


investors policy and managerial influence in the
operations of the firm. Third, aside from the return
on the money that they have infused, they are also
paid management fees as well as royalties for
patents and technologies that they have provided
the domestic partner firm.
Market Determined vs. Regulated Rates of Return (Slide 1)

Business ventures are undertaken to make profits.


These profits are not only income to the owners of
capital but also serve as signals for the
attractiveness of the business venture. It is the
responsibility of the managers of the company to
give the owners of capital a fair rate of return on
their investments. Otherwise, these investors may
be discouraged to pursue this business.
Market Determined vs. Regulated Rates of Return (Slide 2)

The return on investment can be determined by


market forces or it can be regulated. If rate of
return is market determined this will depend on
how the company manages its business operations.
Usually, this is done by enhancing demand and
revenues, on the one hand, and in minimizing its
costs, on the other hand.
Market Determined vs. Regulated Rates of Return (Slide 3)

This has been extensively discussed in the


previous chapters on how firms maximize their
profits. High rates of return are usually observed
in industries where a firm or few firms exercise
market power. Firms with limited market power,
on the other hand, will have to manage the various
competitive forces (identified by Porter)
confronting the firm in enhancing its rate of return.
Market Determined vs. Regulated Rates of Return (Slide 4)

On the other hand, the rate of return can be regulated by the


government. There are cases when the government gives a
franchise or a monopoly to firms in the operations of utilities
including the provision of gas, water, and electricity. As
natural monopolies, they will need huge amount of capital,
equipment, and physical plant to operate these large scale
utilities. As a result, the government makes sure that these
firms earn a reasonable rate of return. If they are not assured
of this reasonable rate of return, the provision of these basic
utilities is compromised.
Market Determined vs. Regulated Rates of Return (Slide 5)

If the regulated rates of return in these utilities are


substantially higher than the prevailing interest rates and the
normal range of rates of return on business, they become very
attractive business enterprises that give higher returns and
income to the investors even if the industry is regulated.
However, even if these utility companies are assured of high
rates of return, they are subject to regular review of
government regulators, critical public scrutiny, and the huge
capital requirements.
SOURCING FOR LAND INPUTS (Slide 1)

A business company will need an office space to


conduct its commercial operations. Beyond an
office space, there are commercial operations that
will require vast tracts of land. For example, the
plantations of pineapples, bananas, and sugar are
usually land-intensive compared with the
manufacture of electronics and business process
outsourcing.
SOURCING FOR LAND INPUTS (Slide 2)

The impact of a firm's purchase of land and the


rental of office spaces provided by buildings in
commercial and business districts in major cities
on the market for land and owners of real estates
and buildings will depend on the land intensity of
production, location of the land, and opportunity
costs.
Land Intensity of Business (Slide 1)
It is not only agricultural plantations that use extensive land resources
in their production. Mining as well as logging companies will also
require concessions from the government to exploit enormous mining
sites' and forest lands. Thus, large plantations allot a huge amount of
money for the purchase or lease of these tracts of land. For those with
concessions with the government to exploit natural resources, they pay
royalties or rents based on the amount of minerals extracted and trees
harvested from the natural resources. More than the purchase price paid
to the owners of land and the regular rent and royalty remitted to the
government, these huge plantations and mining companies have to
build roads, production facilities, sociocultural amenities, and other
infrastructure. These investments on their lands have positive spillover
effects on the community.
Land Intensity of Business (Slide 2)
On the other hand, because these companies are intensive in the
utilization of land and natural resource, their impacts on the
environment can also be substantial. In clearing the land, they may cut
trees and may result in deforestation. The sourcing of water
underground may lead to soil deterioration. If water is sourced from the
rivers it may compete with other users of water for industrial,
commercial, and residential use. Extracting minerals can lead to noise
and water pollution as well as soil erosion. The disposal of wastes of
these huge extractive operations can' threaten ecological balance as
chemicals mixed with 'water at warmer temperatures are dislodged in
rivers, bays, and seas.
Location of Business and Opportunity Cost of Land Use (Slide 1)
In urban areas where industrial and services industries
are situated the payment for the use of land is usually
determined by the opportunity costs of land. Because
Manila has become congested and the price of land has
increased substantially over the years many
manufacturing companies have relocated their physical
plants in nearby provinces in CALABARZON. In these
areas there are enough spaces to build their factories with
the price of land still relatively cheaper.
Location of Business and Opportunity Cost of Land Use (Slide 1)
Because the price of land in commercial and business districts
in Makati, Taguig, and Pasig has soared, owners of land have
constructed high rise buildings and condominiums for sale and
rent. They charge high rental rates to cover the acquisition price
of land, construction cost, real estate tax, and the maintenance
of the building. Since services industries like BPOs, banks,
accounting firms, consultancy services, and service industries
are not land-intensive, they situate their offices in these
commercial and business districts. They are willing to pay high
rental rates in these areas just to be near to their clients and give
legitimacy and prestige to their business.
SOURCING FOR MANAGERS AND PROFESSIONALS (Slide 1)
The decision on how to organize the intermediate inputs
and how to supervise other factor inputs is done by the
management team from the supervisors to the chief
operating officer of the company. The impact of the firm
on the hiring of its officers, managers, and supervisors
will depend on the manner of recruitment and training of
these highly skilled professionals.
Insiders vs. Outsiders (Slide 1)
In some small companies, the management team is
homegrown sometimes drawn from the owners or
relatives of family owned enterprises. They start as
clerks, move on as supervisors, assigned as managers,
and conclude their career as top officers of the company.
These homegrown managers are known for their loyalty
and are knowledgeable of the ins and outs of the
organization. On the other hand, they may lack the
dynamism and creativity of managers drawn from other
firms and industries.
Insiders vs. Outsiders (Slide 2)
Because of this drawback, some companies especially the
large corporations have resorted to recruiting
professional managers from other companies. Because of
this need for fresh ideas in management "headhunters"
are always on the lookout for skilled talents within the
industry resulting in fast turnover of skilled professionals
in many companies. Nowadays, it is almost the norm for
young technical professionals and managers to stay in the
company not more than five years.
In-house vs. Outsourced Training (Slide 1)
In large corporations, supervisors, and managers undergo
continuing training to upgrade their professional skills. The
training can be done within the corporation or with universities
and other training institutions. For in-house training, they can
do this within the company or in the headquarters of big
corporations within and outside the country as done by some
accounting firms. Since in-house training can be quite
expensive for smaller firms, their options are to give grants to
their supervisors and managers to take up graduate courses in
management or advanced technical degrees in some of the
leading universities near 'the company.
In-house vs. Outsourced Training (Slide 2)
Recruiting talents for the management team can also be drawn from the
pool of professionals abroad. Countries like Singapore are able to hire
professional and technical staff from all over the world by paying them
handsomely and providing with favorable working conditions.
Singapore also looks at the global talent market because it has small
pool of talents relative to its economic dynamism. For the Philippines,
we cannot take this option because of our surplus of professional
talents. In addition, our services sector is relatively close to global trade
particularly on the supply mode of movement of natural persons.
Although, with the liberalization of the tourism industry, we have
agreed to allow a limited number of foreign professionals including
managers and chefs to enter and work in the country's leading hotels.
PAYMENT OF TAXES (Slide 1)
Although taxes paid by business enterprises to the government
is not a payment arising from the use of factor inputs like labor,
capital, and land, it is still considered a component of
production cost just like wages, interest, and rent. Taxes are
paid at different levels of government from the barangay level
to the national government for the conduct of business
enterprise. Business permits, business taxes, municipal sales
taxes, and real estate taxes are paid at the local government
unit. However, value added-tax, import duties, export taxes, and
income taxes including royalties are due to the national
government.
PAYMENT OF TAXES (Slide 2)
Business-friendly local government units in highly urbanized
cities all over the Philippines including Cebu City, Davao City,
Quezon City, and San Fernando City are able to attract a
number of business establishments in their areas which enable
them to collect huge tax revenues. Meanwhile, Makati City,
Taguig City, and Pasig City are able to provide above-norm
public services to their citizens and business establishments
because of the handsome tax revenues collected from many
business companies and organizations that have established
commercial presence in their highly developed business
districts.
PAYMENT OF TAXES (Slide 3)
Meanwhile, the expanded value added taxes collected by business
establishments all over the country and paid to the national government
have been allocated for financing government programs including the
provision of health insurance to the poor and senior citizens. Aside from
collecting taxes the national government offers a number of fiscal
incentives to companies in pioneering industries. Some of the
incentives given to select business companies are income tax holidays,
tax exemption in the payment of import duties, and the provision for
rapid depreciation of capital equipment. These measures are given so
that these select companies can recoup their initial investment at a
faster rate and can use the funds for reinvested for expansion of the
company.
PAYMENT OF TAXES (Slide 4)
There are however, micro business ventures that do not pay
taxes since they operate in the informal sector. Since their
business activities are not registered with government agencies
they do not pay the fees for the issuance of business permits.
There is no basis for computing the value-added tax due to the
government because these micro enterprises do not issue
receipts on their commercial transactions. In addition, many
small scale entrepreneurs are exempted from paying income tax
since their micro enterprises generate revenues not sufficient to
give them the minimum income subject to income tax.
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TRACING THE IMPACTS
THROUGH THE DISTRIBUTION
OF OUTPUTS OF A FIRM
In the previous section, we focused on the
impacts of the firm on the various sectors
that contribute in its production process
from the suppliers of raw materials to the
suppliers of factors inputs and the
government units that collects various
forms of business taxes. In this section, we
will channel our discussion on the
disposition of the output produced by
the business establishment.
As presented in our framework, the output
can be sold to other industries as
intermediate inputs for further processing.
Meanwhile, a portion of the output is sold
domestically as final outputs to local
consumers, investors, and government
agencies. The other portion of the output,
intermediate and final, is sold in the
global market as exports.
I. OUTPUT AS INTERMEDIATE INPUTS
Aside what was already discussed in the
sourcing of intermediate inputs, the
contribution of a firm can be assessed in
terms of its contributions on the integration
of industries and in enhancing the
productivity of the buying firms and
industries by selling its output as
intermediate inputs to other firms.
Contributions on Industrial Integration (Slide 1)

If the output of the firm is used by other


industries as intermediate inputs, the
selling firm is contributing to the integration
of the economic sectors. This integration
made possible through the forward and
backward linkages of industries that create
additional income and employment to
various sectors of the economy.
Contributions on Industrial Integration (Slide 2)

In turn, this integration leads to higher


economic growth. If the firm did not
supply this intermediate input and the
purchasing firm sourced its raw
materials overseas, the additional
income and employment are generated
abroad and the linkages in the domestic
economy are limited.
Contributions to Productivity of Other
Industries (Slide 1)
A more important impact of a producing firm on
the firm purchasing its products as intermediate
inputs is the effect on the productivity of the
buying firm. This is made possible if the selling
firm produces quality intermediate inputs whose
price are affordable and competitive. The use of
quality and low priced inputs can lower the
production cost of a firm, thus increasing its
productivity.
Contributions to Productivity of Other
Industries (Slide 2)
This in turn, intensifies the linkages created by the
sales of intermediate inputs. Another factor that can
contribute to the productivity of the purchasing firm
is a reliable delivery of intermediate inputs. For
example, the quality of services provided by various
services industries including transportation, storage,
and trading can enhance the competitiveness of the
other economic sectors buying the services of these
industries.
II. OUTPUT AS FINAL DEMAND
The other portion of the output of a firm can be
disposed as final demand. This means that these
products and services are consumed for their worth
in enhancing consumers' welfare and not to be used
for further processing or transformation in the
production and distribution activities in the domestic
market. The three major domestic buyers of final
goods and services are consumers, investors, and
government agencies.
Personal Consumption (Slide 1)
An output of a business enterprise can affect
households as consumers of these goods and
services. The quality of the output can affect the
level of satisfaction and welfare of the consumers.
The impact on the consumers can be shaped by the
price of the commodity, the quality of the product,
and in addressing the wants of its target
consumers.
Personal Consumption (Slide 2)
Many consumers consider the affordability of the
commodity as the primary consideration in their
demand for the product. Based on our previous
discussion on demand analysis, consumers would
demand more of the commodity if the price is lower
than if the price is higher, other things held
constant. This behavior would enhance his welfare
since he can buy more of the good at the same
level of income.
Personal Consumption (Slide 3)
However, there are goods and services that are in
demand even if they are very expensive. In this
case, the satisfaction of the consumer is no longer
based primarily on the price but on the quality of the
good and service. In addition, there are goods and
services whose high prices create snob effect on
the buyers.
Personal Consumption (Slide 4)
For example, leather bags made by Louis Vuitton
are very expensive but rich women would prefer
them than inexpensive nonbranded bags. Owning
one of these bags puts these women in a separate
elite category of bag owners. Because of the
importance of quality on the tastes of consumers,
producers are always on the lookout on how to
differentiate their products, and services to cater to
the discriminating preferences of their customers.
Personal Consumption (Slide 5)
Aside from quality, producers can target the specific
wants of its customers. The firms will need, the
socioeconomic and demographic background of its
clientele. Sometimes firms have to mix affordability,
quality, and convenience to put a product or service in the
market. For example, some expensive and branded
shampoos are now available, even to the low income
households because of an innovation in retailing these
goods by packaging these into sachets and selling these
at affordable prices. Aside from toiletries, even mobile
phone loads for unlimited texts and calls for a day or two
can now be purchased at a low price.
Personal Consumption (Slide 6)
In the light of limited information on the part of the
consumers, responsible producers should disclose the
information on the contents and quality of products and
services they are selling. The labeling on the shelf life,
expiry date, and nutritional value of bread is meant to
address asymmetric information and protect the interest
of consumers.
Personal Consumption (Slide 7)
Even if sellers are reluctant to make an adverse image of
their product and service, they are mandated by
government to do so. For example, cigarette
manufacturers are required by law to put warnings on the
cigarette package on the harmful effects of smoking. In
the same manner, manufacturers of food supplements
and herbal teas are required by government to put a level
that these products have no approved therapeutic effects.
Personal Consumption (Slide 8)
Sometimes the manner of marketing their products by
large business companies can alter the consumption
behavior of the population. For example, the heavy
bombardments of advertising on fast food restaurants,
pastries, instant, and processed food have altered the
consumption habits of our youth with heavy intakes of
sugar, salt, and oil. Beyond the provision of information,
business firms should be more responsible in advertising
particularly if their products and services have some of
the spillover effects on the community, environment, and
the health of the consumers in the future.
Investment (Slide 1)
There are firms that produce capital goods like
equipment, agricultural implements, and
industrial tools that are sold to other firms not
as intermediate inputs but as factor inputs. The
impacts of this type of output disposition are
similar to the effects created by a firm selling its
output as intermediate inputs.
Investment (Slide 2)
A firm producing quality equipment, implements,
and tools can contribute in the improvement of the
productivity of the purchasing firm of these capital
goods. Aside from productivity enhancement, this
linkage can strengthen the integration of economic
sectors and promote faster growth for the economy.
Moreover, domestic purchase of capital goods the
country can also save on the use of foreign
exchange.
Government Consumption (Slide 1)
In an earlier section we have discussed the impact
of the firm in its payment of taxes to the
government. With the tax revenues, the government
can provide a variety of public services. In this
section, government consumption refers to the
product disposition as a combination of household
consumption and purchase of capital goods by
firms. Although the government produces public
service, it will need consumer goods, consumer
durables, as well as capital goods in providing these
services.
Government Consumption (Slide 2)
For example, in the provision of educational
services, the government will purchase pencils,
papers, chalks, and other instructional materials
from various business firms. It will also buy books,
laboratory equipment, computers, and desks,
among others which can considered as capital
goods.
Government Consumption (Slide 3)
Thus, firms producing these consumer and capital
goods are assisting the government in the provision
of public education. If prices of these goods are
competitive and the commodities are of good
quality, the limited budget allocation for public
education can go a long way with the purchase of
more goods and services. Thus, public service is
enhanced with the purchase of government of
quality and inexpensive goods and services from
business firms.
Exports (Slide 1)
Not all the outputs of firms or industries are
disposed in the domestic markets. There are firms
that sell a portion of its output to the rest of the
world as exports. In fact, many firms located in
special economic zones are producing goods
entirely for exports. In terms of services, many BPO
companies are servicing the needs of their foreign
clientele.
Exports (Slide 2)
The export receipts, whether earned through the
exports of electronics or the exports of services like
business process outsourcing can increase the
foreign exchange reserves of the country. This, in
turn, contributes to the stability of the economy. In
addition, because of the strict requirements of
exporting, many of our firms are exposed to
international standards that make them globally
competitive.
Exports (Slide 3)
Our car manufacturers that are participants in global
production networks produce and export car
components that are acceptable by leading car
manufacturers in the region. Thus, business
enterprises that are engaged in exports signal that
they can produce goods and services of quality.
Exports (Slide 4)
Aside from an indicator of quality, a major exporter of
a commodity in the global market can influence the
price of the commodity. In the 19708 the tripling of
the price of crude oil was made possible by the
market power exercised by the Middle Eastern
countries that are members of The Organization of
Petroleum Exporting Countries (OPEC). In the 2015
the drastic reduction of the price of oil was due to the
increase in the production of oil in the US made
possible through rapid exploration of oil shale
deposits in the United States.