Heineken is a Dutch multinational and Sony is a Japanese multinational. I am going to take a look at how different economic environment affect the two selected organizations. This report is focused on the economics, demands, supplies, changes in demands en supplies and the global interaction. Economic * Importance of stability: Stability exist when business people can make forecast for the short and medium term about likely demand for their products in the near future. Stability involves being able to make deals secure in the knowledge that people you supply to on credit will pay you back at the price agreed.
When you borrow money, you expect the repayments to be for the agreed amounts. Heineken: Heineken is a PLC (NV), which means that it is active on the stock market. In the Netherlands the stocks had a positive performance. The Netherlands Stock Market (AEX), produced 2 points or 0. 58 percent during the last 30 days. This has a really good effect for Heineken’s business, because Heineken’s stocks will perform very good on the stock Dutch market. The economy of Holland is known for its traditional emphasis on the rule of law and an efficient legal framework.
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Strong protection for property rights are provided by the judicial system, independent and free of corruption. Sony: Sony is a Plc too, which makes them active on the stock market. In Japan the stocks had a positive performance during the last month. The Japan Stock Market (NIKKEI 225), produced 559 points or 6. 32 percent during the last 30 days. This has a really good effect for Sony’s business, because Sony’s stocks will perform very good on the stock Japanese market. The economy in Japan benefits from relatively good levels of economic freedom in all areas.
The economic freedom are solidly in place a very low level of inflation, supported by an effective judicial framework and the almost complete absence of corruption. * Impact on the business of changes in the economic environment: Growth occurs when more goods are being produced and consumed, and incomes are rising. Recession occurs when people involved in the business become more cautious and customers cut back on spending, and start to save more. Manufactures and sellers cut back on their orders, produce fewer goods and start to cut back costs in general, including by laying off workers.
The ripple effects is that customers are going to spend less, producers and sellers cut back in their stocks, production, costs including employment and as more people lose work incomes fall it leads to further cutbacks in customer spending. Heineken: The Gross Domestic Product (GDP) in Netherlands contracted 1. 60 percent in the first quarter of 2012 over the same quarter of the previous year. GDP Annual Growth Rate in Netherlands is reported by the Dutch Statistics Office. Historically, from 1989 until 2012, Netherlands GDP Annual Growth Rate averaged 2. Percent reaching an all time high of 5. 8 Percent in December of 1999 and a record low of -4. 8 Percent in June of 2009. In Netherlands, the annual growth rate in GDP measures the change in the value of the goods and services produced by the country economy during the period of a year. This page includes a chart with historical data for Netherlands GDP Annual Growth Rate. The statistics show that there is no growth. The growth is actually being minimized within the year. This can harm Heineken with recession and the ripple effect. Sony: The Gross Domestic Product (GDP) in Japan expanded 0. 0 percent in the third quarter of 2012 over the same quarter of the previous year. GDP Annual Growth Rate in Japan is reported by the the Cabinet Office. Historically, from 1981 until 2012, Japan GDP Annual Growth Rate averaged 2. 1 Percent reaching an all time high of 9. 4 Percent in March of 1988 and a record low of -9. 4 Percent in March of 2009. In Japan, the annual growth rate in GDP measures the change in the value of the goods and services produced by the country economy during the period of a year. This page includes a chart with historical data for Japan GDP Annual Growth Rate.
The statistics show that the growth of the economy in Japan comes out very good, but it is a bit downsizing. This means that recession and the ripple effect isn’t there, but it can become a subject. * Levels of inflation: Inflation occurs when there is a general rise in the price of goods in the whole economy. Not every price will be rising but average prices will. Inflation damages business because it creates uncertainty. Rising costs east into profit. Businesses then have a choice to keep prices constant and see profits fall of raise prices and perhaps lose out to competitors. Heineken:
The inflation rate in Netherlands was recorded at 2. 90 percent in October of 2012. Inflation Rate in Netherlands is reported by the Statistics Netherlands. This is a very high inflation and that influences Heineken because their prices will get higher and consumers might buy less. Sony: The inflation rate in Japan was recorded at -0. 40 percent in October of 2012. Inflation Rate in Japan is reported by the Ministry of Internal Affairs & Communications. This is a low inflation and that influences Sony because their prices will fall and consumers might buy more of their products. * Availability and cost of credit:
The cost of credit is the rate of interest, it expressed as a percentage (%). When interest rates rise, this will harm business profits (because it is an additional cost). If a business is already operating close to break-even point, this additional cost can be crucial. Heineken: The basis for the rates on the money market and the marginal lending rate and the deposit rate is the (minimum bid) rate on the main refinancing operations. Monthly, the Board of Directors of the European Central Bank (ECB) on official interest rates in these euro area. At this time the following rates apply: Marginal lending rate by 11 July 2012: 1. 0% Fixed rate for main refinancing operations by 11 July 2012: 0. 75% Deposit interest by July 11, 2012: 0. 00% A credit for businesses like Heineken is available. For Heineken this is cheap at the moment to lend money because the interest in low and how lower the interest, the less they have to pay back. Sony: The benchmark interest rate in Japan was last recorded at 0 percent. Interest Rate in Japan is reported by the Bank of Japan. This is very cheap for Sony. They don’t have to pay interest over the money they borrow. * Labour: Businesses need to employ labour with the skills required for the job at an affordable wage rate.
In the period of growth, it is more difficult to recruit enough labour with the right type of skills. Heineken: Unemployment Rate in Netherlands increased to 6. 80 percent in October of 2012 from 6. 60 percent in September of 2012. Unemployment Rate in Netherlands is reported by the Dutch Statistics Office. This is a high percentage of unemployment. It is even rising. It isn’t hard to find employment because a lot is unemployed, but it is a bit harder to find good educated employment, but in Holland the education is very good, so that’s a positive side in finding good employment.
Sony: Unemployment Rate in Japan remained unchanged at 4. 20 percent in October of 2012 from 4. 20 percent in September of 2012. Unemployment Rate in Japan is reported by the Ministry of Internal Affairs & Communications. This is high for Japan because they have a bigger populations that the Netherlands. The chart shows that this unemployment is reducing so that is a positive side for Sony. It means that people get well educated to find a job and these well educated people might find a job at Sony’s. 1 Euro = 106,72 JPY * Changes in government policy:
The government has a major responsibility for managing the economy of a country. Good management should ensure that there is stability and growth, inflation is low, there is available credit and low interest rates and businesses have access to suitable supplies of labour. The main tools that the government uses to manage the economy are taxation and spending. Through monetary policy the government can also change the quantity of money available. Increasing the quantity of money in the economy reflects to quantitative easing. The government provided more money to the banks to encourage them to lend to businesses.
Fiscal policy involves the government altering it taxes and spending in light of what is happening in the economy. The government can also spend more time of recession and influences business through the laws that it passes. Heineken: A few examples of changes made by the government are increasing taxes on products and increasing income taxes. The taxes for products rose from 19% to 21%. This influences Heineken’s business because the price of their product changes. When a consumers income is lower because of more taxes, they will spend less. This influence Heineken very hard.
Sony: Sony had a big change in their government. The country got a new government. This ‘party’ that sets themselves as a new government want to bring more freedom for the people and work for the people. This will have a huge impact on the country and for Sony. Demand Demand is the quantity of a good or service that consumers will buy at a particular price. * Influenced by affordability: At lower prices good are more affordable. As customers we are aware of what we can afford to buy. We demand those products that we can afford but not those that are too expensive. Heineken:
Businesses like Heineken need to find out about levels of demand for their products at different prices. Their prices are still affordable for the average consumer. Their beer has never been that expansive. Sony: Finding out about the levels of demand for their products is something Sony need find out too. By making products affordable for their target audience, Sony and Heineken will be best placed to make sales. Sony sells affordable products. Their products are sold on an average price which are able to buy for a average consumer. * Competition and availability of substitutes:
Sellers of goods compete for our purchases. Many different competition firms providing the same products affects the demand of a particular type of business selling that product. Potential buyers will compare its price with those of alternatives. When there is a lot of choice, demand for individual products will be lower unless they really stand out. Products that compete with each other are called substitutes. Heineken: In the Netherlands Heineken doesn’t suffer from competitors. Heineken almost as a monopoly on beer in the Netherlands. They have a few competitors, like Palm, but they don’t influence Heineken.
International Heineken is the competitor. They want to grow globally and they influence other companies that sell beer in other countries than the Netherlands. Sony: Sony does suffer from competition. The competition for electronics is very high and Sony needs to keep up with the new stuff other producers bring on the market. Recently they almost broke down because of this competition. For Sony there are a lot of substitutes because there is a wide range of electronics available and Sony needs to compete with this. They have a harder time on this than Heineken does. * Level of Gross Domestic Products:
A persons income is a major in determinant of demand. The higher a person’s income, the more they are likely to spend on consumer goods. The same principle applies to levels of income in a country. The total amount of income is called the Gross Domestic Product (GDP) or national income (Gross Domestic Income). Countries with a higher GDP will spend more than those where GDP is lower. Heineken: The Gross Domestic Product (GDP) in Netherlands was worth 836. 26 billion US dollars in 2011, according to a report published by the World Bank. The GDP value of Netherlands is roughly equivalent to 1. 35 percent of the world economy.
Disposable Personal Income in Netherlands increased to 263927 EUR Million in June of 2011 from 258126 EUR Million in June of 2010. Consumer Spending in Netherlands decreased to 61400 EUR Million in the third quarter of 2012 from 61763 EUR Million in the second quarter of 2012. The Netherlands is a high GDP country. Incomes in Holland are higher than average. This influences Heineken in a good way because the consumer have more money to spend on their products. Sony: The Gross Domestic Product (GDP) in Japan was worth 5867. 15 billion US dollars in 2011, according to a report published by the World Bank.
The GDP value of Japan is roughly equivalent to 9. 46 percent of the world economy. GDP in Japan is reported by the World Bank Group. Consumer Spending in Japan decreased to 306060. 10 JPY Billion in the third quarter of 2012 from 307488. 90 JPY Billion in the second quarter of 2012. Japan is a high GDP country. Incomes in Japan are higher than average. This influences Sony in a good way because the consumer have more money to spend on their products. * Needs and aspirations of consumers: Consumers buy some goods because they need them. We all need to eat, drink and have somewhere to live.
We all need some level of education and a minimum standard of health care. However, on top of this there is a demand for many aspirational goods. People may aspire to have a better car than their neighbours, dress and have their hair styled like celebrities, and go on holiday to exotic destinations. Heineken: Heineken’s beer is a need. Sony: The products that they produce are produced by the needs of their customers. In this time more people are in need of electronic and social media devices. So no, we can’t live without the electronics. Supply Supply is the quantity that a supplier is willing to provide at different prices. Influenced by availability of raw materials: When raw materials and labour are freely available then it is quite easy to increase supply. Supply could increase quite quickly. However, when extra raw materials and labour are scare, during a boom of period in building then it may be quite difficult to increase supply. Heineken: Raw materials needed to produce the beer of Heineken is grains and hop. This will always be available because Heineken grows it themselves. The evolution of their prices shows that they won’t go out of this raw material because the prices of Heineken manly stays the same. Sony:
Raw materials needed to produce the electronics of Sony are mainly plastic, iron and carbon. These raw materials are easily to get and won’t go out. The only problem with raw materials for electronics is the chips they need for the electronics. There are only like 2 producers in the whole world of this. When these producers raise their prices it will have a huge influence of their business. The evolution of prices for Sony doesn’t show their use of raw materials, but mainly what the competition does to their company. * Logistics: The ability of a business to get good to customers depends on the quality of its supply chain.
The supply chain consists of the various stages of moving raw materials to where they will be made into goods, then on to storage and finally distribution to the end customer. Logistics is concerned with organizing this supply chain. Heineken: Heineken posses a well organized supply chain which supports their activities and their position on the market. Heineken produces the beer in the Netherlands. When this production is completed it will export it international. This is a very good and easy way of a supply chain because they only produce it in one country and export it from one country to all the countries they sell it in.
Sony: Sony has a more difficult supply chain. Sony needs to get all the raw materials and half fabricates from all over the world, produce it into one product in Japan and eventually export it international. Their logistics is more specified, but still their know how to manage it. * Ability to produce profitably: Businesses supply in response to demand when they can make a profit from doing so. Consumers often consume large quantities of goods when they are free. Businesses will only supply if demand is at high enough prices for a profit to be made. Heineken:
Heineken’s annual report shows that they made a profit of €510,354 million in 2009 and a profit of €720,111 million in 2010. This shows that they produce profitable. Sony: Sony’s annual report shows that they made a profit of? 28. 9 billion in 2009, ? 31. 8 billion in 2010 and ? 24. 6 billion in 2011. This show that they have the ability to produce profitable but they broke down the last 2 years. * Competition for raw materials: Businesses and countries compete with each other for supplies of raw materials. This affects prices at which these materials can be obtained.
From a business point of view, the aim is to secure steady supplies at as low a cost as possible. A feature of the first decade of the 21st century is that there is increased competition in global markets for raw materials. Heineken: Competition for raw materials isn’t a big deal for Heineken. This is because Heineken produces the raw materials themselves on their own farms they posse, so all of it is owned and used by Heineken for the products of Heineken. Sony: For Sony, competition for raw materials is kind of a big deal. Almost every producers of electronics are in use of the raw materials Sony also uses.
This is because there are not much producers of these materials, so the competition is high. Sony does manage to not make a big deal out of this because Sony has a long and good relationship with the producers. When there is a lot of competition for raw materials the price for the raw materials will fall, but they still need to manage to sell their products which is harder with competition. * Government support: many products and industries receive government subsidies. The greater the level of subsidy, the more of the products will be supplied. A subsidy has the same effect as lowering the cost of production.
Heineken and Sony: These two businesses don’t receive any subsidies. Heineken and Sony make enough profit every day, which means that they don’t need any subsidies and the government would know that they don’t need it. Changes in supply and demand * Changes in supply and demand curves: Supply and demand curves can change position regularly. The demand curve can shift to the right when more of the good is demanded at a given price. The supply curve can shift to the right too by increasing supply at each price and it can go to the left by decreasing supply at each price. Heineken:
When Heineken beer becomes the one and only beer to drink for the customers, the demand curve will shift to the right. This has a very good impact on the profit of the company. This also counts when the consumers income rise so that they have more money to spend on the beer. The factors of Heineken leading to increases in supply includes, for example, good weather leading to better harvest of hop. This better harvest increases the supply which will shift the supply curve to the right. Sony: When Sony products becomes the one and only products to use for the customers, the demand curve will shift to the right.
This has a very good impact on the profit of the company. This also counts when the consumers income rise so that they have more money to spend on the products. The factors of Sony leading to increases in supply includes, for example, improvement of technology. When using computers to design and make products leads to much lower levels of waste materials. This improvement in technology has a tremendous impact on supply which will shift the supply curve to the right. * Elasticity of demand: Elasticity of demand is a measure of how much the quantity demanded of a of a product responds to a change in price.
If quantity demanded is very responsive to price changes, then a small change in price will lead to a relatively large change in quantity demanded. In this case we would say that demand is elastic. Where quantity demanded is relatively unresponsive to price change, demand is inelastic. Elasticity of demand can me shown by the following formula: % change in quantity demanded % change in price -2 -1 +1 +2 ELASTIC| INELASTIC| ELASTIC|
Heineken and Sony: When standard beer or cheap technology will rise their prices, customers will easily switch to other brands, like Heineken and Sony. This means that the demand is elastic for the standard brands. When prices will rise for the products of Heineken and Sony but the response of the customers is that they stay with Heineken and Sony because they feel confident by using their products, the demand of Heineken and Sony won’t be elastic. * Price sensitivity: Price elasticity tells a business person how sensitive demand is to change in price. Pricing is one of the most important decisions a business makes.
Overcharge or undercharge, and you will lose valuable revenue. Some goods have more sensitive prices than others. These include goods that have lots of substitutes, are regarded to be optional extras or luxuries rather than necessities or have been around a long time and are being replaced by more up-to-date products. Heineken: Heineken beer is not really included at those three kinds of sensitive goods. Heineken has competitors, but it is still a leading company in beer so that doesn’t harm them that much. Heineken is a luxury beer but it can be drank by everyone.
It has been around for a long time but it can’t and won’t be replaced by more up-to-date products, because Heineken keeps themselves up-to-date. Sony: Sony is included to having sensitive goods. Sony has a lot of competitors in the technology market. The positive side is that there is a lot of trust in Sony’s products so that won’t affect them really bad, but it can. Sony has been there for a long time but can be replaced by other up-to-date products because technology is updating by the day and Sony needs to keep up with that. * Influence of branding on price sensitivity:
One of the main purposes of branding products is to create a relatively inelastic demand for the product. The more the consumers consider the brand to have unique qualities, the less sensitive demand will be to price changes. Heineken and Sony: Heineken and Sony have been working hard, like every multinational does, to keep their product inelastic. As a result, Heineken and Sony still sales at premium prices. Aspects that make the brand special includes: Heineken:| Sony:| – The unique and remembered name. | – The unique and remembered name. | – The other multiple businesses they invested in. – The unique features it produces, like the Playstation. | – The billions of euro’s they have spent on advertising and promoting the product. | – The billions of euro’s they have spent on advertising and promoting the product. | Global interaction * Levels and types of interdependence: Interdependence takes place at a number of levels. Interdependence takes place at local levels where an organization gets many of its supplies from local growers, national levels where much of the supplies will be provided by suppliers within the nation and international level where increasingly supplies come from all around the world.
Large businesses today rely on global supply chain and a multinational company owns at least one overseas business. The overseas business that is part owned or fully owned is then called a subsidiary. Creating a foreign subsidiary can take place through ‘Greenfield investment’ of setting up a new plant or acquisition of an existing firm. Another popular form of ownership for multinationals is the creation of a joint venture. This is when companies based in two countries will create and share ownership of a new company.
Businesses need capital to build factories and retail units, and to invest in research and new technology. In today’s world, capital flows freely between countries. International investors are on the lookout for good investments in business. Heineken: Heineken is placed at a local level because they have local growers in Holland for fresh hop for the beer, national level because the fresh beers are provided by suppliers within the nation and international level because the supplies are accessed all over the world. Heineken relies on the global supply chain. All the hop and beer is mostly produced in Holland.
Heineken relies on this supply chain. The multinational created foreign subsidiaries by acquisition of an existing firm. Heineken has done this at even more than 250 companies. This is how they raise capital by the day. Heineken invested into these company with the purpose of securing a long lasting interest in that company. Sony: Sony is placed at a local level because they have local engineers of their technology in Japan, national level because the technology is provided by suppliers within the nation and international level because the supplies are accessed all over the world.
Sony relies on the global supply chain. All the Technology they use is mostly produced in Japan and China. Sony relies on this supply chain. The multinational created foreign subsidiaries by acquisition of an existing firm. Sony has done this by at least 20 companies. This is how they raise capital by the day. Sony invested into these company with the purpose of securing a long lasting interest in that company. Conclusion In this report I discussed a lot of topics that influence businesses like Heineken and Sony.
The report shows that Heineken has it more easy than Sony does. Heineken knows how to react on all the things that influence them and easily make their profits and raise them every year. Sony has some difficulties with running their business. The main reason for this is the competition it has with other companies. Both companies have a good environment they produce their product in, but next to that Sony still has problems. Heineken doesn’t. Resources BTEC, Level 3 National Business www. heinekeninternational. com www. sony. net