Industrial economicsELECTIVE COURSE

DESH D. YADAV

ECE, SMVDU

Industrial Economics Mean

Industrial economics is a distinctive branch of economics which deals with the economic problems of firms and industries, and their relationship with society.

it deals with the information about the competitors, natural resources and factors of production and government rules and regulations related to the concerned industry

elements of industrial economics

1. descriptive – descriptive element, is concerned with the information content of

the subject. It aims at providing the industrialist or businessman with a survey of the industrial and commercial organizations of his own country and of the other countries with which he might come in contact. It would give him full information regarding the natural resources, industrial climate in the country, situation of the infrastructure including lines of traffic, supplies of factors of production, trade and commercial policies of the governments and the degree of competition in the business in which he operates.

…..elements of industrial economics

2. ANALYTICAL ECONOMICS

This is the analytical part dealing with topics such as market analysis, pricing, choice of techniques, location of plant, investment planning, hiring and firing of labour, financial decisions, product diversification and so on.

It is a vital part of the subject and much of the received theory of industrial economics is concerned with this

Cottage Industry

 An industry whose labour force consists of family units or individuals working at home with their own equipment.

a small and often informally organized industry.

examples of COTTAGE INDUSTRY-weaving, pottery, etc.

CAPITAL INTENSIVE TECHNIQUE

A business process or an industry that requires large amounts of money and other financial resources to produce a good or service. A business is considered capital intensive based on the ratio of the capital required to the amount of labor that is required.

Companies in capital-intensive industries are thus often marked by high levels of depreciation and fixed assets on the balance sheet.

Industrial Productivity

Productivity is an average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input.

Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable.

Intellectual property rights

 Intellectual property rights refers to the general term for the assignment of property rights through patents, copyrights and trademarks. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period.

IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create. By striking the right balance between the interests of innovators and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.

FOREIGN DIRECT INVESTMENT

FDI is the purchase or construction of tangible assets (land, factories, machines, buildings and enterprises) in one country by firms from another country. This does not include investment in stock markets. Increased access to FDI is seen as one of the key benefits of globalization because it is thought to lead to capital formation, technology and knowledge transfer, higher wages and greater job opportunities.

 FDI, along with international financial stability, are vital components to national and international development efforts. Many other international policy documents stress the value of FDI but critics are concerned that its benefits are very unequally distributed, both globally and within societies.

…..Foreign Direct Investment

FDI is an important source of private capital for some developing countries. The booming economies of Asia have become the largest recipients of FDI, with their share of total FDI rising from 28% in the 1980s to 60% in the 1990s; from 1985 to 1991, 55% of all FDI went to just six countries. The top 500 multinational corporations, 90% of which are based in the United States, Europe, and Japan, are responsible for 90% of FDI investment.

…. the factors which encourage investment FDI

Proponents of FDI argue that it generates a virtuous cycle (good economic performance leading to more investment), further reinforcing economic growth. However, others argue that the factors which encourage investment - particularly low wages and a lax regulatory environment - may be detrimental to development. For example, women make up 90% of those working in export processing zones (set up to encourage FDI). Many suffer poor working conditions and health risks, as well as low pay. In some countries, FDI investment employs only relatively skilled workers and thus benefits are unlikely to flow to the most vulnerable groups.

…Factor’s Responsible for More FDI

FDI is more likely to go to countries with the right “pull-factors”.

Cheaper costs - including wages, materials, and land.

A deregulated environment

A sizeable domestic market and its growth - particularly important are privatization, service sector and import substitution activities

Economic and political stability - in particular, absence of hyperinflation, existence of security for personnel

Infrastructure - both transport and information

Good macroeconomic management, education systems, legal frameworks, cooperation with trade unions

Perceived security of foreign investment property rights.

Both FDI and FII is related to investment in a foreign country. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation.

In FII, the companies only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation.

FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes nations to choose FDI’s more than then FIIs.

Difference Between FDI and FII(Foreign Direct/Institutional Investment)

Causes of Industrialization

1- Natural Resources2- Growing Population3- Improved Transportation4- High Immigration5- New Inventions6- Investment Capital

Natural Resources

Abundance of Forests: Cheap resource for building material.

Large Supplies of Water: Vital source for human life, source for power for businesses, shipping industry.

Coal, Iron, Copper, Silver: Fuel source, tools, electricity, money

Growing Population

Population growth will cause an increase of demand.  More people = needed goods = growth of industry

Improved Transportation Railroad business booms as a result . Increases demand = increased supply = increase of shipping needs

High Immigration

As people immigrated, some immigrants were skilled in trades that would help industry grow. 

Unskilled workers provided cheap labor. 

More people = more workers

New Inventions

New inventions helped produce goods more efficiently.

Patents became common

Economy Thriving = Increase of Business Profits

Investment Capital

Forecasting

The use of historic data to determine the direction of future trends. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them.

Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company.

Forecasting also provides an important benchmark for firms which have a long-term perspective of operations. 

Risk Management

The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyses and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance. Inadequate risk management can result in severe consequences for companies as well as individuals. For example, the recession that began in 2008 was largely caused by the loose credit risk management of financial firms.

risk management is a two-step process - determining what risks exist in an investment and then handling those risks in a way best-suited to your investment objectives. 

Sick Industry

An industrial unit (a) which could not reach the stage of normal production with normal profit or (b) has incurred loss or remained at the unprofitable level for consecutive three to six years from the first year of commercial production or (c) could not produce above the break-even point for reasons beyond the control of the entrepreneurs.

The government first defined a sick industry through Sick Industries Rehabilitation Cell in 1991.

Inclusive Growth

Inclusive growth means economic growth that creates employment opportunities and helps in reducing poverty.

It means having access to essential services in health and education by the poor.

It includes providing equality of opportunity, empowering people through education and skill development.

It also encompasses a growth process that is environment friendly growth, aims for good governance and a helps in creation of a gender sensitive society.

Disinvestment

In business, disinvestment means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line.

 The action of an organization or government selling or liquidating an asset or subsidiary.

A company or government organization will divest an asset or subsidiary as a strategic move for the company, planning to put the proceeds from the divestiture to better use that garners a higher return on investment. 

Disinvestment is sometimes described as the opposite of capital expenditures

Fixed and Variable Cost

fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales.

Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. 

Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output.

Surplus Budget

A situation in which income exceeds expenditures. The term "budget surplus" is most commonly used to refer to the financial situations of governments; individuals speak of "savings" rather than a "budget surplus.

A surplus is considered a sign that government is being run efficiently. A budget surplus might be used to pay off debt, save for the future, or to make a desired purchase that has been delayed.

A city government that had a surplus might use the money to make improvements to a run-down park, for example.

Deficit Budget

A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.

The opposite of a budget deficit is a budget surplus, and when inflows equal outflows, the budget is said to be balanced.

Budget deficits as a percentage of GDP may decrease in times of economic prosperity, as increased tax revenue, lower unemployment and economic growth reduce the need for government programs such as unemployment insurance. 

Countries can counter budget deficits by promoting economic growth, reducing government spending and increasing taxes.

Microfinance and Benefits of Microfinance

A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services.

the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

The World Bank estimates that there are more than 500 million people who have directly or indirectly benefited from microfinance-related operations. 

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