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Economic Environment of Business

Managing firms throughout the business cycle

Stages of business cycle - boom, recession & recovery

economy-wide fluctuations in production or economic activity over several months or years. involve shifts over time between periods of relatively rapid economic growth (boom), and periods of relative stagnation or decline (recession).
BOOM full order books for production. sales and profits are high. high levels of employment.

RECESSION-two quarters in a row the value ` of all the goods sold in an economy falls. a general slowdown in economic activity. Production, as measured by gross domestic product (GDP), falls. employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, bankruptcies and the unemployment rate rise. occur when there is a widespread drop in spending, often following an adverse supply shock.

RECOVERY-takes place after a recession when for two successive quarters demand starts to pick up again. there is more money in the economy. Companies and people have more disposable income. demand for goods and services grows more prospects of employment.

Davis minimized the negative impact of the recession

cutting back on products and services that are

not performing well1. workers overalls for industrial companies. manufacturing companies require fewer work clothes. 2. manage textile needs within the business, to consider outsourcing their requirements. 3. increase the proportions of goods supplied from such cheaper sources. Textiles like bed linen (for a hotel or hospital) are bought continuously throughout the year.

It continually re-allocates production between

its plants to make best use of resources. It also puts aside other plants or production lines when demand is less. it empowers managers in local operations to make decisions for themselves. At a central level financial experts at the company consider how best to deal with changes in interest rates and exchange rates. borrowing money from banks to finance some of its activities. needs to keep its shareholders happy.

Preparing for recovery-

1. Operating existing plant more efficiently 2. Investing in new plant where there are clear Opportunities. 3. Reducing costs to increase profits e.g. by sourcing of textiles from China.

McDonald's Seeks Way to Keep Sizzling

improving restaurant operations, adjusting

prices and keeping down costs pruning gas-guzzling cars from the company fleet, pressing media buyers to negotiate lower advertising rates putting the brakes on building new outlets on street corners where nearby development shows signs of weakness. putting more emphasis on creating and marketing lower-priced items, implementing computerized systems in more outlets that allow restaurants to adjust prices based on customer demand.

told workers to cut travel and instead hold meetings at

the company's Hamburger University in suburban Chicago. Employees who get company cars could no longer select gas-guzzling vehicles, and those that already had them must pay a higher personal-usage fee. no restaurants shrank the size of products in order to cut costs. stores will reduce staffing so much that they will end up being understaffed for peak periods. running more advertisements for its Little Tasters menu, which includes a small burger on a ciabatta bun. price items more in line with demand cut the price of certain combo meals at lunch by as much as one-third. an increased focus on examining reams of customer data measuring

Plans for recovery

overseeing big investments in the most promising

aspects of McDonald's business -- coffee drinks that compete with Starbucks and improved drivethrough windows that increase sales and efficiency. adding features that will increase sales. By placing a self-service kiosk where customers can place orders electronically.