ASSESSING THE BUSINESS ENVIRONMENT

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ASSESSING THE BUSINESS ENVIRONMENT
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Two Perspectives

• Current and Likely Future Competitive Conditions
  for
• Your Firms Economic Environment
• Macroeconomic Perspective/Strategic Questions
  Expand into new market because of favorable
  income trend? Stop producing because of
  unfavorable demographic trend?
• Your Firms Industry (Product/Market)
• Microeconomic Perspective/Tactical Questions
  Who are my competitors? Value and price
  characteristics of comparable products? Are there
  Under-served/Unserved Market Segments?

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USEFUL QUESTIONS

• Competitive Markets Require Good Decisions
• Bad Decisions dont go Unpunished
• Obtain and Use Relevant and Reliable Information
• Getting the Best Answers and Information starts
  with Asking the Right Questions
• What do you need to know?
• How it is being measured?
• What does it mean?

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Macroeconomic issues

• FOUR MEASURES TO FOLLOW
• Gross Domestic Product (GDP) National,
  Regional and Local
• Unemployment/Employment Rate Job Growth, Wage
  Levels and Labor Supply
• Inflation Consumer Price Indexes
• Interest Rates Leading Indicator that is
  Principal Tool of Monetary Policy

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Notes and Comments

• GROSS DOMESTIC PRODUCT
• Does Not Include International Output
• Difficulty of Measurement raises Reliability
  Concerns
• Coarse-grained Measure National Income Trends
  may not reflect State or Local Conditions

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Notes and Comments

• UNEMPLOYMENT RATE
• Is Trend caused by Job Growth (Numerator) or
  Changing Labor Supply (Denominator)?
• High Unemployment Rate may be Politically
  Undesirable but Favor Economic Development
• What was Oregons Unemployment Rate when Intel
  announced it would build its first plant?

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Notes and Comments

• INFLATION RATE
• What are the Products or Services in the
  Basket?
• Whats the Geographic Area covered by the
  Survey?
• Many Types and Forms of Consumer Price Indices

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Theory and applications

• INTEREST RATES
• Leading Indicator for Future Economic Conditions
  and Business Capital and Operating Costs
• Market-derived Rent for Use of Capital
• Budgeting must include Two Components of Debt
  (1) Interest at Rate for Borrowing Term and (2)
  Repayment of Principal (Amount Borrowed)

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Theory and applications

• INTEREST RATES
• Interest Rate reflects Risks of Waiting to be
  Repaid
• Business Risk Likelihood Borrower will Repay
  in Full and on Time
• Bird in the Hand Effects of Inflation during
  Loan Term
• Opportunity Cost What happens if Better Deal
  comes along?

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Theory and applications

• INTEREST RATES
• Lag between Actions Taken and Economic
  Impacts about 9 Months
• Independence of Federal Reserve Conflicting
  Actions Raising Rates may stem Inflation but
  dampen Business Borrowing
• Greenspans Chairmanship ending January 31 after
  nearly 18 years Princeton Economics Professor
  (Ben Bernanke) succeeding Greenspan

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Yield curve Market dynamics

• Black Line June 2, 2004
• Normal Relationships Longer-term Rates higher
  than Short-term Rates Higher Reward demanded
  for Risk of Longer Term
• Red Line Jan. 13, 2006
• Inverted Curve Result of Fed Policies
  raising Short-term rates and Surplus Global
  Liquidity invested in US Economy

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Information Sources

• The Wall Street Journal
• Portland Business Journal
• The Economist
• Harvard Business Review
• Oregon Labor Trends
• www.bloomberg.com