Conf.univ.dr.

Ana-Maria IUGA

COMUNICARE N AFACERI
LIMBA ENGLEZ
NOTE DE CURS Pentru uz intern

Editura ALMA MATER Sibiu, 2010

CUPRINS
SEMESTRUL I
Nr.crt. Tema 1 1.Introducere / Introduction: Process 2 3 1.2.Registru, funcii, structuri / Register, functions, 17 structures 2.Comunicarea communication: 2.1. Stiluri i modaliti de comunicare / Ways and 40 styles of communication 4 2.2.Abordri contact, silence...) 5 6 7 8 3.Individ / Naionalitate (Stereotipuri) / Individual 59 Nationality (Stereotypes) 4.Stat i Guvern / State and Government 5.Uniunea European / The European Union 6.Economie / Economics Business Relations 9 6.2.Criteriul de eficien economic / The Criterion 111 of Economic Efficiency 65 78 86 culturale (timp, contact 43 vizual,tcere...) / Cultural approaches (time, visual interpersonal / Interpersonal 31 Pag. 5

1.1.Procesul de comunicare / The Communication 8

6.1.Relaii economice internaionale / International 94

10 11 12 13 14

7.Industrie, bunuri, servicii / Industry, Goods and 116 Services 8.Mrfuri i Producie / Goods and Production 9.Cumprtori i Vnztori / Buyers and Sellers Consumer Sovereignity 11.Comportamentul consumatorilor / Consumer 161 Behavior 131 138

10.Criteriul de suveranitate a consumatorului / 148

SEMESTRUL II
1 2 3 4 5 6 7 8 9 10 11 12.Organizare economic / Economic Organization 12.1.Intreprinderea (Firma) / The Firm 12.2.Antreprenor, profit, agent principal Entrepreneur, Profit, Principal-Agent 13.Decizii economice / Economic Decisions Exchange, Speculations 14.Sectorul Financiar / The Financial Sector 15.Campanii de marketing / Marketing Campaigns Business Document 16.1.Planul de afaceri / The Business Plan 17.Contractul / The Contract 17.1.Tipuri/ Types 17.2.Coninut, clauze / Content and Stipulations 18. Negocierea / Negotiation 257 268 268 276 284 217 236 202 13.1.Portofoliu, schimb, speculaii / Portfolio, 208 177 177 / 195

16.Stil n documentele de afaceri / Style in 249

SEMESTRUL I
1. Introduction

Everyone communicates. Some communicate better than others. Understanding communication the at communication home, at process work can and help with improve friends.

Communication seems so natural and one generally assumes that there is no need of working on it. It is so untrue. Most fights or arguments with spouses, children or friends are the result of bad communication. How much of an argument is caused by ineffective communication? How much of what is said is taken in the wrong context? How much of the meaning was changed or lost? How much was totally misunderstood or came out wrong? All of those are examples of broken communication. Communication is a complex, ongoing process that brings us into contact with the people in our world. Often communication is viewed as a straightforward exchange of messages between a speaker and a listener, but this is a nave view. Communication is a symbolic process of sharing meanings. A key to interpreting communication is to find the meanings of messages, and those meanings are found in people, not in words. Your friends meaning of trust or happiness may be quite different than yours. Even a presumably simple, concrete word can cause misunderstandings. You may think of vacation as personal time spent away from the workplace with no thought of your job. Your boss
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may think vacation implies that employees will be away from the office but continuously available to discuss work-related problems via cell phone or e-mail. The closer both meanings are, the easier it is for you to communicate effectively. Communication is a continuous process that begins with a first encounter between people and does not end until the last encounter in their lives. These encounters may involve functional messages that serve practical purposes, or, in cases of close ties, the encounters may also involve nurturing messages that convey a sense of caring and personal connection. Over time, members of a relationship develop increasingly predictable communication patterns and, if they become close, create a relational culture or similar worldview. Whenever we ask workshop participants how they would define communication, we hear responses such as transmitting ideas, talking and listening, or sending messages using words and movements. Each person has some notion of what it means to communicate with another and knows how it feels when communication attempts are successful or unsuccessful, yet they have not thought deeply about the communication process itself. People seem to assume that communication works or it does not work, more as a matter of fate than as a process that can be changed or improved. Effective communicators are those who are able to select the most appropriate symbols or messages for specific other persons and who are able to interpret the intended message symbols of other speakers. As a child you learned to encode one type of message to ask your father for money and another to request a loan from your best friend. You learned to interpret your brothers gestures indicating if he is feeling sad,

worried, or exhausted. You have learned who will be enraged if you roll your eyes at them, and who will decode your nonverbal cue as humorous. For effective communication to occur, the speaker and listener must share the same meanings for the symbolic messages they exchange. It is difficult to come to an understanding unless one has a grasp of the full complexity of language, and hence of language learning. Language is multifaceted to the extent that human activity is various. Business English serves the role of a medium for a corporate communication; it is used and influenced by different cultures. Therefore, by raising cultural awareness we help improve both the language and the working relationships. Communication can best be summarized as the transmission of a message from a sender to a receiver in an understandable manner. The importance of effective communication is immeasurable in the world of business and in personal life. From a business perspective, effective communication is an absolute must, because it commonly accounts for the difference between success and failure or profit and loss. It has become clear that effective business communication is critical to the successful operation of modern enterprise. Every business person needs to understand the fundamentals of effective communication. Currently, companies in the United States and abroad are working toward the realization of total quality management. Effective communication is the most critical component of total quality management. The manner in which individuals perceive and talk to each other at work about different issues is a major determinant of the

business success. It has proven been proven that poor communication reduces quality, weakens productivity, and eventually leads to anger and a lack of trust among individuals within the organization. What Is Communication? - Communication is defined as a process by which we assign and convey meaning in an attempt to create shared understanding. This process requires a vast repertoire of skills in intrapersonal and interpersonal processing, listening, observing, speaking, questioning, analyzing, and evaluating. Use of these processes is developmental and transfers to all areas of life: home, school, community, work, and beyond. It is through communication that collaboration and cooperation occur. 1.1. The communication process The communication process is the guide toward realizing effective communication. It is through the communication process that the sharing of a common meaning between the sender and the receiver takes place. Individuals that follow the communication process will have the opportunity to become more productive in every aspect of their profession. Effective communication leads to understanding. To communicate effectively you need to be familiar with the process and the variables involved. The basic communication process includes a source, a message, a channel and a receiver. The source is you, including your communication skills, your attitudes and your purpose, as well as your knowledge of the subject, your audience, and the context in which you are communicating.

The message includes the code or language you are using as well as the messages treatment, that is, what content is selected and how it is organized. You can think of the channel as both the senses and the medium of communication used. For instance, seeing and hearing, are the senses variously involved in reading the printed page, listening to a tape, or speaker, watching TV, video. Generally, the more channels we use, that is, the more senses we stimulate, the more effective the communication. Keep Marshall McLuhans aphorism "the medium is the message" in mind. McLuhan overstates his point but, by affecting different senses and thus our perception of reality, the media or technology used can itself influence the message we receive and how we respond to it. Recall that radio and print reports of the Ethiopian drought and famine a few years ago were largely ignored. We really did not receive the message until it was conveyed through photos and TV video footage. Receivers are the final link in the communication process. They must accurately receive and decipher your message. How well your audience understands the message you intend will depend on not only the previous factors, but also their own knowledge, attitudes and context. The process of communication is on going and dynamic, is irreversible, requires perception of meaning, and occurs in a situational context. There are many barriers to effective, accurate communication. These can be mechanical, involve differing perceptions or values (not having the same understandings), or be a matter of semantics, that is, the use of words, images, or examples that are beyond the receivers intellectual or cultural ability to understand.

Non-communication is not possible. Every word, every gesture communicates something to the receivers, to your audience. In addition, once communicated, they cannot be retracted. You want to communicate your intended message and enhance your professional reputation. You do not want to be remembered for a lackluster presentation and a garbled message. First impressions are difficult to overcome! Communicating well benefits you, your audience, and society as a whole. Thinking about communication as a process is useful because it helps explain why we must establish the purpose and goals of our message, why we need to know our audience, what media we select, what meaning is perceived, and more. There is an enormous variety of walks of life/occupations/lifestyles, each of which has its own language and cultural setting. We may divide the walks of life/occupations/lifestyles into two categories: those that are common to everybody and those that are concerned with specialized topics familiar only to a few. Obviously, those walks of life/occupations/lifestyles that are common to many people are concerned with everyday existence. Examples of these universal topics are socializing, shopping, traveling, eating out, telephoning friends, greetings and introductions, and reading newspapers. So, when one learns a language, one must be exposed to linguistic items relating to these universal topics. Yet in addition to such topics, there is an enormous range of specialized topics that are of significant importance only to sections of the population. Examples of these are as follows: sports, hobbies and interests, business, banking and finance, medicine, academics, literary

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criticism, travel and tourism, biology, chemistry, physics, agriculture and law or military matters. The list is endless. The extent to which an individual will need language pertaining to any of these specific topics depends upon how important the topic is to him in his everyday life. If the topic is not at all important for him, there is no need for him to know any of the linguistic items pertaining to it. At the other end of the scale, when we reach the stage at which any topic constitutes an individual's profession, it becomes crucial that he have a mastery of the specialized language pertaining to it. Each topic will contain certain tasks, specific to it, which an individual will need to accomplish and which require him to use language. Here are some examples taken from different fields:

- University Professor: - Giving lectures, participating in

seminars, reading and writing papers for publication, reading and writing books, discussing academic topics with students and conducting examinations, oral and written.

- Businessman/businessperson/executive: -Giving presentations,

negotiating, participating in meetings, writing reports, press releases, letters, faxes and memos, telephoning, note taking, socializing and entertaining.

- Research Scientist: - Writing the results of experiments, writing

reports on the significance of the results, giving presentations, participating in seminars, reading recent research.

- Army Professional: Training soldiers, discussing strategies and

tactics, giving instructions, writing reports, giving interviews to the press

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These lists are quite general in scope. It is possible, and desirable, to define the fields of expertise more specifically so that the accompanying tasks can be defined precisely. In addition, each defined task should be divided into its various subtasks, so that the linguistic items to be learned may be identified more easily. In general, we may state the situation as follows. Human life, and hence human language, is concerned with many and various topics. Each topic requires certain communicative tasks to be performed, and these tasks require mastery of certain task-based skills. Such skills are: reading and writing texts of various styles, register and lengths, listening in various styles, accents and registers, speaking appropriately in a variety of contexts including socializing, negotiating, interviewing, presenting information and pronouncing material in a clear and culturally acceptable way. People who are engaged in different activities need to master different skills. The communication process is the perfect guide toward achieving effective communication. When followed properly, the process can usually assure that the sender's message will be understood by the receiver. Although the communication process seems simple, it in essence is not. Certain barriers present themselves throughout the process. Those barriers are factors that have a negative impact on the communication process. Some common barriers include the use of an inappropriate medium (channel), incorrect grammar, inflammatory words, words that conflict with body language, and technical jargon. Noise is also another common barrier. Noise can occur during any stage of the process. Noise essentially is anything that distorts a message by interfering with the communication process. Noise can take many forms,

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including a radio playing in the background, another person trying to enter your conversation, and any other distractions that prevent the receiver from paying attention. Successful and effective communication within an organization stems from the implementation of the communication process. All members within an organization will improve their communication skills if they follow the communication process, and stay away from the different barriers. It has been proven that individuals that understand the communication process will blossom into more effective communicators, and effective communicators have a greater opportunity for becoming a success. The communication process can be much more difficult than a person thinks. Unfortunately, many times a presenter does not realize that their message is being lost until it is too late and they have gone through an entire meeting/lecture talking away about something that their colleagues/audience thinks is absolutely meaningless. Here are some helpful questions to ask yourself before attempting to relay a message to a large audience. Communication barriers may be categorized as follows: Assumptions about yourself -- Do I really have something to offer? Is it safe for me to offer suggestions? Do I really want to share the information? Will others really understand? How will the communication affect my self-esteem? Attitudes about the message itself -- Is the information valuable? Do I see the information correctly or understand it well enough to describe it to others? Is it organized? Am I comfortable with what I am saying? Can I maintain eye contact?

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Sensing the receiver's reaction -- Do I become aware of whether or not the receiver actually understands? Or, in other words, can I "sense" from certain cues or reactions by the receiver, whether or not we are communicating? Am I aware of the receiver's needs? interests? Communication can easily be simplified. All you have to do is know the major causes of communication failures and detect them as they occur. Typically, people involved in communication breakdowns are either (a) utterly unaware that the communication has failed and that misunderstanding has resulted; or (b) painfully aware of a communication blockage -- or complete breakdown -- and frustrated by not knowing the reasons why. In either case, people are powerless to handle or remedy the problem. Remember, the expert communicator not only learns to detect communication barriers but also to anticipate them and use an appropriate remedy to overcome them. Written communication involves any type of interaction that makes use of the written word. It is one of the two main types of communication, along with oral/spoken communication. Written communication is very common in business situations, so it is important for small business owners and managers to develop effective written communication skills. Some of the various forms of written communication that are used internally for business operations include memos, reports, bulletins, job descriptions, employee manuals, and electronic mail. Examples of written communication avenues typically pursued with clients, vendors, and other members of the business community, meanwhile, include electronic mail, Internet Web sites,

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letters, proposals, telegrams, faxes, postcards, contracts, advertisements, brochures, and news releases. Ironically, the importance of good writing skills in the business world has become more evident even as companies rely increasingly on computers and other new technologies to meet their obligations. Indeed, business experts warn that any business's positive qualitiesfrom dedication to customer service to high-tech expertisewill be blunted to some degree if they are unable to transfer that dedication and knowledge to the printed page. "Whether you are pitching a business case or justifying a budget, the quality of your writing can determine success or failure," wrote Paula Jacobs in InfoWorld. "Writing ability is especially important in customer communication. Business proposals, status reports, customer documentation, technical support, or even e-mail replies all depend on clear written communication." In their book Management: Function and Strategy, Thomas S. Bateman and Carl P. Zeithaml described several advantages and disadvantages of using written forms of communication. One advantage is that written messages do not have to be delivered on the spur of the moment; instead, they can be edited and revised several times before they are sent so that the content can be shaped to maximum effect. Another advantage is that written communication provides a permanent record of the messages that have been sent and can be saved for later study. Since they are permanent, written forms of communication also enable recipients to take more time in reviewing the message and providing appropriate feedback. For these reasons, written forms of communication are often considered more appropriate for complex

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business messages that include important facts and figures. Other benefits commonly associated with good writing skills include increased customer/client satisfaction; improved inter-organizational efficiency; and enhanced image in the community and industry. There are also several potential pitfalls associated with written communication, however. For instance, unlike oral communication, wherein impressions and reactions are exchanged instantaneously, the sender of written communication does not generally receive immediate feedback to his or her message. This can be a source of frustration and uncertainty in business situations in which a swift response is desired. In addition, written messages often take more time to compose, both because of their information-packed nature and the difficulty that many individuals have in composing such correspondence. Many companies, however, have taken a proactive stance in addressing the latter issue. Mindful of the large number of workers who struggle with their writing abilities, some firms have begun to offer on-site writing courses or enrolled employees in business writing workshops offered by professional training organizations, colleges, and community education programs. Electronic mail has emerged as a highly popular business communication tool in recent years. Indeed, its capacity to convey important corporate communications swiftly and easily has transformed it into a communications workhorse for business enterprises of all sizes and orientations. But many users of e-mail technology pay little attention to basic rules of grammar and format when composing their letters, even when they are penning business correspondence addressed to clients,

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customers, vendors, business partners, or internal colleagues. This sloppy correspondence reflects an "astonishing" lack of professionalism, wrote Sana Reynolds in Communication World: "We seem to have been seduced by the ease and informality of the medium to produce messages that ignore the rules and conventions usually in place when producing hard copy. We send out messages with grammar, usage or spelling errors. In the name of speed, we throw caution to the winds and forget sentence patterning, paragraphing, and other conventions that make messages intelligible, creating unattractive and impenetrable data dumps." Given this unfortunate trend, many business experts counsel companies to install firm guidelines on tone, content, and shape of email correspondence. These guidelines should make it clear that all employees are expected to adhere to the same standards of professionalism that (presumably) remain in place for traditional postal correspondence. Proper spelling and grammar and the ability to frame correspondence in suitably diplomatic language should be hallmarks of electronic mail as well as regular mail, especially if the communication is directed at a person or persons outside the company. 1.2. Register, functions, structures Participating effectively in a Business English environment not only requires a solid grasp of English grammar, but also an understanding of key communication factors. This feature focuses on key points to take into consideration each time you are using English.

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Function: What is the main purpose of the conversation? Domain: What is my position in this conversation? What is my role? Register Use: Who am I speaking with? Urgency: How important is what I have to say? Function Function refers to the purpose of the conversation. Is the conversation about making a serious decision? Is the conversation entertaining? Take the following statement for example: You've got to be joking! In a serious conversation this statement would mean that the person does not take you, or what you have to say, seriously. This is obviously a bad sign and calls for you to explain your position in more detail. However, if this comment was made during a lunch while you were telling a funny story, the statement means that the person finds what you have to say amusing. You may want to even continue telling more of the story. Obviously, this is a simple example. However, taking into consideration the language function being employed helps you decide which forms and expressions to use. Generally, language functions which include negotiations, interviews, presentations, etc. call for more formal language structures. Informal occasions call for more informal language; in fact, informal occasions allow you the possibility to show off your knowledge of idiomatic language. It's best to not use colloquial or idiomatic language when using formal language functions.

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In order to acquire the desired skills, a range of linguistic items specific to each skill must be mastered.

- Specialized vocabulary: Each field will have vocabulary, which

is special to it. Some of the words may have meanings specific to the field, different from their meanings in everyday life.

- Register: Basically, register is concerned with the levels of

politeness and formality to be found in language and the attitudes or values conveyed by certain words and phrases. Within each field, there will be specific registers to be learned. Speaking and writing in different social and cultural contexts require language with different levels of formality and politeness. Register is very complex and highly developed in English and includes not only certain forms of grammatical structure, but specific kinds of vocabulary. Using even a single word inappropriately can have disastrous consequences.

- Functions: Each field will have different linguistic functions,

which need to be performed, such as apologizing, complaining, introducing, requesting, refusing requests and making suggestions. Each function may be performed in different registers.

- Structures: Certain tasks require certain structures much more

than others. For example, a mastery of the various forms of conditional sentence is essential for writing philosophy, but is hardly needed at all for writing personal letters. Different human activities require different communication skills, which in turn require mastery of specific linguistic items. Within this broad definition, we may identify two central areas: content and methodology.

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So, for instance, a course in English for Business Purposes will be concerned with developing all of the linguistic skills, which are required in order to function at a professional level in the world of international business. For some people, even a course entitled "English for Business Purposes" will prove to have too broad a scope and for them, a course designed for their specialization within the field of business will be appropriate, for instance in Advertising, Accounting, Marketing or Human Resources. In general, we may say that learning should take place in contexts that are as authentic as possible and content-based. The requirement of authenticity means that learning materials should use actual texts produced by people working in the field under consideration. For instance, a class on how to write business reports should use good examples of reports produced by actual businessmen/businesspersons/executives. A class devoted to the oral skills needed to function in the currency exchange market should use, as listening materials, recordings of conversations carried out on the telephone by actual dealers. The requirement that the learning materials be content-based means that they should focus on specific problems that people are likely to encounter in their everyday working lives. For instance, to develop fluency in a course on negotiating, a case study, which presents a real negotiating situation-, faced by actual companies or in specific military, police or community departments- could be used. Research in business settings has revealed that more employees are now required to perform a larger share of correspondence themselves using the fax and the email (Louhiala-Salminen, 1996; Gains, 1999;

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Gimenez, 2000). It is therefore evident that knowledge and application of the relevant conventions of text processing and production in the context of the given business reality be given greater attention. In this context, studies on written genres in professional and academic settings as initiated by Swales (1990) are of practical importance. Based on his seminal work on genre analysis of moves in authentic research article introductions, we are informed that genre analysis serves to highlight the purpose of using specific linguistic structures, specify their conditions of use and explain the rationale for use in the given context, and not merely to describe them. A genre-based approach can therefore offer us a way of looking at how a written product is used to accomplish its purpose in a social context the business community. A genre is chiefly identified by the communicative purpose for which it is created in a particular social context (Swales, 1990). In the case of a written text or written discourse, various factors impinge upon its production and processing. These include the relationships and roles of the writer and the reader, the degree of formality and even the ideological principles held by both participants in the community. It is to be noted that most writing tasks in the field of business are conventionalized regularities in the organization of various communicative events (Bhatia, 1993:10). A business letter has to show certain conventions in writing opening or closing remarks to be accepted by the business community as such. Certain form-function correlations exist within the text too and learners need to be made aware of their usage if effective business purposes are to be achieved through it. Therefore, an informed study of the text according to genre analysis is

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useful, subsequently preparing learners for writing tasks at future professional workplace situations. There seems to be a widely held belief that English, in common with the British who speak it, is a very formal language. In my experience, English does not seem any more or less formal than other languages. All cultures seem to have concepts of formality, what can be confusing is that these concepts differ from culture to culture. What is appropriacy and how is it shown in English? Why is appropriacy important? What problems do learners have with appropriacy? How appropriacy? What is appropriacy and how is it shown in English? Perhaps the first thing to clarify is that I prefer the word appropriacy to register. This is because the term register is used to describe lexis that is exclusive to a particular area of use, often professional, such as medicine. I will, therefore, to avoid confusion, refer to whether language is appropriate. I also prefer this term since so much depends upon context and whether language is appropriate to that context. So what makes language appropriate for a context? Basically appropriacy depends upon what you say and how you say it. In other words upon your choice of words and the way you then produce those words, which in spoken language is largely dependent on pronunciation and paralinguistics (body language). can we help learners develop sensitivity to

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What you say and how you say it will in turn be governed by the situation and who you are talking to. Bygate (1987) used the term 'reciprocity conditions' to describe how these features affect language production. An example might be the use of the exclamation "Shut up!". Most of us might tell a friend to "Shut up!" in a friendly informal way when chatting in a pub. We could mean "I don't believe you." and would probably be laughing and use high pitched falling intonation. If we were not smiling and used rising intonation the message would be very different and inappropriate. We would be less likely to use the same words in a friendly way to the same person at a formal dinner because the other people present might misinterpret our meaning and think we were being rude. We would not tell a stranger or someone we are not on very familiar terms with to "Shut up!" under any normal circumstances (we would of course if we positively wanted to be rude or perhaps if we thought their talking was rude). This consideration for the listener is reflected in the three maxims Robin Lakoff (1973) put forward: Don't impose Give options Make your receiver feel good Why is appropriacy important? Brown and Yule (1983) suggested that much language use aims at 'interaction', by which they mean using language to create, preserve and develop social relationships. If the speaker is not appropriate this aim will not be achieved. Rudeness, deliberate or not, causes social relationships to break down.

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What

problems

do

learners

have

with

appropriacy?

What makes this so difficult for a learner of English is that so much of the necessary sensitivity to appropriacy is culturally specific and acquired in childhood. It is also always changing - some examples of what is considered appropriate language now (for example the use of "Shut up!" explored above) would have been thought completely inappropriate as little as 40 years ago, perhaps even more recently. In addition, due to the subconscious manner in which this awareness of appropriacy is acquired, native speakers may not make allowances for its absence when non-native speakers speak or write. A good example is the case of intonation where a speaker may be misinterpreted as being rude or bored completely unfairly because their intonation is too flat. Another cause of problems here can be employing what is acceptable in your L1 when speaking another language. In Spain it is uncommon to say "por favor" (please) when ordering a drink in a bar; so long as you smile, it is unnecessary. This is not the casein the UK. Similarly in Czech I could ask "Nemate chleb?" in a shop but if I directly translated this into "Don't you have bread?" in Britain, I could be in trouble. Finally to make things more complex there is the difference between appropriacy in spoken and written language. This distinction exists in most languages as far as I am aware but nevertheless adds further complications. The arrival of texting and email has blurred this distinction to some extent but at the same time has increased the amount of awareness necessary.

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Most of the distinctions between what is and isn't appropriate can be most easily demonstrated through teaching functional 'social' language (e.g. making requests). When teaching functions be sure to focus on the context in which you would use particular functions and with whom you would use them. Most learners will be safe and able to function if they can use neutral language appropriately, so I teach this first. For example, "Can you tell me the time, please?" is more generally applicable than "Would you mind telling me the time, please?" or "What's the time? Practise transforming language from formal to neutral to informal etc. My students find this fun and interesting and it is a good way of raising awareness of different possibilities within the same context. I often ask students to listen and decide "What is the relationship between the speakers?" or "Where are they speaking?" etc. as a first listening task as it makes them aware of the importance of these considerations. Pronunciation is central to appropriacy and so I try to drill good models with differing intonation and stress. Very little language is context specific (we don't only use the 2nd conditional to talk about winning the lottery - when we use it at all) so I give my learners practice using structures / functions / lexis in lots of different situations. For a variety of reasons I often ask students to write spoken language. One task I use is to ask groups to write the same dialogue (e.g. asking for directions) but assign a different degree of appropriacy to

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each group. The groups then perform their dialogues for the class and the listeners have to guess how appropriate they are being. Being appropriate, of which politeness is an important but not the only aspect, is central to use of any language. Gaining an understanding of this feature of language use, both as a receiver of and producer of language, is fundamental to success. However, as I have tried to show, acquiring this understanding is demanding because this aspect of language is extremely complex, partly because it is so culture and context specific. As teachers the best we can do is to expose learners to a wide variety of language and contexts within which that language can be used. Domain includes knowing your rights and responsibilities in any discussion in which you may be participating. Is the discussion of a personal nature? Are you being interviewed for a job? In each of these instances personal questions need to be answered in different manners. If the conversation is of a personal nature you can feel free to answer any question you want. On the other hand, if you are interviewing for a job, personal questions concerning your family, personal preferences, etc. might well be out of place. The same is also true for the workplace. Certain questions may be asked and answered depending on the relationship between the speakers. Register use refers to the type of language you should use depending on the relationship between you and the speaker.

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Is the person you are speaking with a subordinate, or is he / she your boss? Do you have a friendly relationship with this person? Is joking allowed? In general, the more informal the situation the more informal the language can be. Generally, colleagues in the US go by a first name basis and also use more colloquial language with each other. If, on the other hand, you are speaking with a supervisor you will probably use more formal language for example: Ms. Smith Urgency concerns the importance of your message. This urgency will also be reflected in the language you choose to use. If the message is extremely important, and you are speaking with a subordinate (register use) the imperative form (i.e. Call Mr Jackson!) might be appropriate. On the other hand, if your message is not so important and you are speaking with a supervisor, you would use more formal forms to get that person's attention (i.e. Excuse the interruption Mr. Brown, but would you mind taking a look at this report when you have the time?). Once again, the tendency in the American workplace is for more important (urgent) messages to be expressed in simple direct language. The less important message is often softened with more formal language. Useful Meeting Phrases Interrupting May I have a word? If I may, I think...

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Excuse me for interrupting. May I come in here? Giving Opinions I (really) feel that... In my opinion ... The way I see things... If you ask me ... I tend to think that... Asking for Opinions Do you (really) think that ... (name of participant) can we get your input? How do you feel about...? Commenting on Other Opinions I never thought about it that way before. Good point! I get your point. I see what you mean. Agreeing with Other Opinions Exactly! That's (exactly) the way I feel. I have to agree with (name of participant). Disagreeing with Other Opinions Up to a point I agree with you, but... (I'm afraid) I can't agree Advising and Suggesting We should... Why don't you....

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How/What about ... I suggest/recommend that... Clarifying Have I made that clear? Do you see what I'm getting at? Let me put this another way... I'd just like to repeat that... Requesting Information I'd like you to... Would you mind ... I wonder if you could... Asking for Repetition I didn't catch that. Could you repeat that, please? I missed that. Could you say it again, please? Could you run that by me one more time? Asking for Clarification I'm afraid I don't quite understand what your are getting at. Could you explain to me how that is going to work? I don't see what you mean. Could we have some more details, please? Asking for Verification Do you mean that...? Is it true that...? Asking for Spelling Would you mind spelling that for me, please? Asking for Contributions for Other Participants What do you think about this proposal? Would you like to add anything, (name of participant)?

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Has anyone else got anything to contribute? Are there any more comments? Correcting Information Sorry, that's not quite right. I'm afraid you don't understand what I'm saying. That's not quite what I had in mind. That's not what I meant. Keeping the Meeting on Time Well, that seems to be all the time we have today. Please be brief. I'm afraid we've run out of time. I'm afraid that's outside the scope of this meeting. Let's get back on track, why don't we? That's not really why we're here today. Why don't we return to the main focus of today's meeting? We'll have to leave that to another time. We're beginning to lose sight of the main point. Keep to the point, please. I think we'd better leave that for another meeting. Are we ready to make a decision?

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2. Interpersonal communication

What

do

we

mean

when

we

talk

about

interpersonal

communication? One way of defining interpersonal communication is to compare it to other forms of communication. In so doing, we would examine how many people are involved, how physically close they are to one another, how many sensory channels are used, and the feedback provided. Interpersonal communication differs from other forms of communication in that there are few participants involved; the interactants are in close physical proximity to each other. We have many different relationships with people. Some researchers say that our definition of interpersonal communication must account for these differences. These researchers say that interacting with a sales clerk in a store is different than the relationship we have with our friends and family members. Thus, some researchers have proposed an alternative way of defining interpersonal communication. This is called the developmental view. From this view, interpersonal communication is defined as communication that occurs between people who have known each other for some time. Interpersonal communication is important because of the functions it achieves. Whenever we engage in communication with another person, we seek to gain information about them. We also give off information through a wide variety of verbal and nonverbal cues.

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One reason we engage in interpersonal communication is so that we can gain knowledge about another individual. Social Penetration Theory says that we attempt to gain information about others so that we can interact with them more effectively. We can better predict how they will think, feel, and act if we know who they are. We gain this information passively, by observing them; actively, by having others engage them; or interactively, by engaging them ourselves. We also engage in interpersonal communication to help us better understand what someone says in a given context. The words we say can mean very different things depending on how they are said or in what context. Content Messages refer to the surface level meaning of a message. Relationship Messages refer to how a message is said. The two are sent simultaneously, but each affects the meaning assigned to the communication. Interpersonal communication helps us understand each other better. Another reason we engage in interpersonal communication is to establish an identity. The roles we play in our relationships help us establish identity. So too does the face, the public self-image we present to others. Both roles and face are constructed based on how we interact with others. Finally, we engage in interpersonal communication because we need to express and receive interpersonal needs. As relationships progresses, patterns of interactions take shape that we may not recognize. There are two basic types of behaviors in relationships: dominance and submissiveness. Dominance is often referred to as one-up, while

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submissiveness, one-down. In some relationships, the two are complementary--one individual is one-up, the other one-down--and the relationship is rewarding. Other relationships are symmetrical, where both parties are one-up or both are one-down. Problems can result when individuals feel trapped by their role as the dominant or submissive member of the relationship. Flexibility can help both partners enjoy the relationship. Whenever we communicate with someone else, we open ourselves up for rejection. Impervious: Failing to acknowledge the other person. Interrupting: Cutting the other's message short. Irrelevant: Giving a response that is unrelated to what the other has said. Tangential: Briefly responding to the other's message. Impersonal: language. Incoherent: Responding with a rambling, difficult to understand message. Incongruous: Giving contradictory verbal and nonverbal messages. A final type of relational pattern is dependencies and counter dependencies. In a dependency relationship, one individual sees himself or herself relying on another person for something. Soon, he or she agrees with whatever the other says or does. In a counter dependency, one individual sees himself or herself as not being dependent on the other. Thus, he or she disagrees with the other quite frequently. Responding by using formal, jargon-laden

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Conflict is a part of most every interpersonal relationship. Managing conflict, then, is important if the relationship is to be longlasting and rewarding. The climate in which conflict is managed is important. One should avoid a defensive climate, which is characterized by these qualities: Evaluation: judging and criticizing other group members. Control: imposing the will of one group member on the others. Strategy: using hidden agendas. Neutrality: commitment. Superiority: expressing dominance. Certainty: being rigid in one's willingness to listen to others. Instead, individuals should foster a supportive climate, marked by these traits: Description: presenting ideas or opinions. Problem orientation: focusing attention on the task. Spontaneity: communicating openly and honestly. Empathy: understanding another person's thoughts. Equality: asking for opinions. Provisionalism: expressing a willingness to listen other the demonstrating indifference and lack of

ideas of others. Additional Tips Conflict Can Be Constructive. Recognize that conflict can strengthen your relationships.
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Be Prepared. Plan how you will communicate about conflict in

order to create a supportive climate. Be Involved. Do not withdraw from the conflict or avoid conflict situations. Withhold Quick Retorts. Be careful about what you say and how you say it. Review. Summarize what you have discussed and make plans to continue the discussion if time permits immediate resolution. Interpersonal communication is inescapable. The very attempt not to communicate communicates something. Through not only words, but through tone of voice and through gesture, posture, facial expression, etc., we constantly communicate to those around us. Through these channels, we constantly receive communication from others. Even when you sleep, you communicate. Remember a basic principle of communication in general: people are not mind readers. Another way to put this is: people judge you by your behavior, not your intent. Interpersonal communication is irreversible You can't really take back something once it has been said. The effect must inevitably remain. Despite the instructions from a judge to a jury to "disregard that last statement the witness made," the lawyer knows that it can't help but make an impression on the jury. A Russian proverb says, "Once a word goes out of your mouth, you can never swallow it again."

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Interpersonal communication is complicated No form of communication is simple. Because of the number of variables involved, even simple requests are extremely complex. Theorists note that whenever we communicate there are really at least six "people" involved: 1) who you think you are; 2) who you think the other person is; 30 who you think the other person thinks you are; 4) who the other person thinks /she is; 5) who the other person thinks you are; and 6) who the other person thinks you think s/he is. We don't actually swap ideas; we swap symbols that stand for ideas. This also complicates communication. Words (symbols) do not have inherent meaning; we simply use them in certain ways, and no two people use the same word exactly alike. Osmo Wiio gives us some communication maxims similar to Murphy's law (Osmo Wiio, Wiio's Laws--and Some Others (Espoo, Finland: Welin-Goos, 1978) : If communication can fail, it will. If a message can be understood in different ways, it will be understood in just that way which does the most harm. There is always somebody who knows better than you what you meant by your message. The more communication there is, the more difficult it is for communication to succeed. Interpersonal communication is contextual In other words, communication does not happen in isolation. There is:

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Psychological context, which is who you are and what you

bring to the interaction. Your needs, desires, values, personality, etc., all form the psychological context. ("You" here refers to both participants in the interaction.) Relational context, which concerns your reactions to the other Situational context deals with the psycho-social "where" you person--the "mix." are communicating. An interaction that takes place in a classroom will be very different from one that takes place in a bar. Environmental context deals with the physical "where" you are communicating. Furniture, location, noise level, temperature, season, time of day, all are examples of factors in the environmental context. Cultural context includes all the learned behaviors and rules that affect the interaction. If you come from a culture (foreign or within your own country) where it is considered rude to make long, direct eye contact, you will out of politeness avoid eye contact. If the other person comes from a culture where long, direct eye contact signals trustworthiness, then we have in the cultural context a basis for misunderstanding. The extent of the authenticity of the learning materials will vary depending upon two related factors: the language level of the trainees and the degree of linguistic complexity of the skills presented and practiced. If the language level is low, then perforce the degree of authenticity will be compromised. As the language level increases, the degree of authenticity becomes greater.

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Informal communication is vital for achieving certain types of work-related tasks. Research on scientific collaboration has shown that physical distance is the strongest predictor of collaboration between researchers. Physical proximity promotes frequent, impromptu face-toface communications, which are crucial for the planning and negotiation phases of projects. Work on software development also has demonstrated that the degree to which project workers engage in interpersonal communication strongly predicts project success. Furthermore, other work has shown negative impacts on teamwork when opportunities for ad hoc communication are reduced, as in remote collaboration. Work becomes more difficult to coordinate and advance despite the use of longer and more task-focused meetings in remote settings. Sociological studies of organizational life stress the primary role of mundane office conversations in helping workers learn, understand, adapt, and apply formal procedures and processes.[] Despite research from various disciplines showing the value of informal interactions, evidence indicates that people in the workplace do not recognize its value. Kraut & Streeter (1995) found impromptu communication is under-utilized compared with its value, whereas formal communication techniques are overused relative to their value. Our own preliminary evidence supports this result. In a series of interviews with a dozen employees in a Fortune 500 U.S. corporation, we found that although people reported gaining most of their workrelated news and information from informal interactions, those same people said they used almost exclusively formal approaches to convey information to other parts of the company. Most commonly, they

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reported their information to a high-level management group and asked that they pass the information down the hierarchy in their staff meetings. In many cases, they wrote a document to convey information and either gave it to managers to give to their employees, or made it available to employees directly (in email, mailings to the home, or by publishing it on the company's internal World Wide Web pages). Some also gave formal presentations to supplement the document. When we asked information disseminators if they had considered spreading their information through word of mouth, they either had not thought of it or did not trust it. They were concerned that information passed informally would be distorted and misinterpreted and might not become available to all the intended recipients. Say whether the statements below it are true (T) or false (F). Read the part that has helped you choose your answer: The farther they are from each other, the more effectively scientists can cooperate. Sometimes interpersonal communication makes it difficult for the team to concentrate on their specific tasks. Corporate workers should be discouraged from engaging in routine conversation during office hours. Unfortunately, only sociologists recognize the value of interpersonal communication. Researchers interviewed dozens of employees in 500 U.S. corporations.

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 The employees used to find out about the latest projects and developments within the firm most of the time by talking to their colleagues. 2.1. Ways and styles of communication Romanian people have a very specific way of discussing things. If you are brought up with it, you see no problem. However, in terms of strategies for communication in Business English, the Romanian way may be ineffective. It is over direct and often could be received as an abusive one. Therefore, I decided to investigate the case and find some solution. Unfortunately, there was absolutely no data and no descriptive evaluation of Romanian strategies for communication. Searching libraries, I came across Intercultural Communication a Discourse Approach by Scollon and Scollon. It focuses on professional communication in a cross-cultural context and emphasises the importance of proper meaning interpretation. Briefly, Scollon and Scollon suggest that in most cases, a sudden breach of any kind of professional communication could be owed to the misinterpretation of signals, verbal messages and gestures particular to a given culture. Therefore, they believe that to eliminate or lower the risk of a breach, professional students should be informed about potential problems and sensitized to peculiarities of an alien code of practice. Nevertheless, it is virtually impossible to predict every professional problem, one might say. To solve this problem, the authors suggest a skeleton for situationcontext analysis Grammar of Context.

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The main purpose of Grammar of Context is to analyze and describe the environment in which a communicative situation occurs. It takes into consideration the following factors: 1. Scene - participants expectations in terms of location and communication content ( what information should be used and how) 2. Key - participants expectations of the communication tone (formal / informal) 3. Participants - their status; relationship with each other 4. Message Form - whether it is speaking, writing, or other media 5. Manifestation - deals with the way members of a particular group find out about a code of practice; whether it is explicit a companys statute // regulation, or tacit common knowledge, traditional behavior. It is important to understand how your communication style is interpreted by others to avoid miscommunication and misunderstandings. The goal is communicate with assertion and avoid an aggressive, passive-aggressive or passive style of communication. Different Styles of Communication Assertive Communication The assertive style is believed to be the most effective and healthiest style of communication. It is the way humans express themselves naturally, when their self-esteem gives them the confidence to communicate without using manipulation and games. When we use an assertive style of communication, our objective is to work out mutually

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satisfying solutions and as such, we communicate our needs clearly and in a forthright manner. In this case, we know our limits and reject any attempts to be pushed beyond, just because others want something else from us. However, it is surprising to note that assertive style is the least used style of communication. Aggressive Communication The aggressive style of communication always involves to manipulation techniques. Aggressive communication intends

manipulate people into making them do what we want, by using tactics such as, inducing guilt (hurt), intimidation and controlling the other person (by showing anger). This style of communication may be covert or overt, though the intention is always to get our needs met. There are a few arenas where aggressive behavior is demanded, including sports and war. However, aggressive communication doesnt work in a relationship for a long time. Interestingly enough, aggressive sports also rely heavily on team coordination and rational coaching strategies. Passive Communication The passive style of communication is based on compliance and is aimed to avoid confrontation at any cost. In the passive communication mode, the communicator talks very less, questions even less and actually does very little. Passive communicators just dont want to rock the boat for the fear of having to sail through rough waters. They believe that it is rather safe not to react and better to disappear from the scene than to

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stand up and get noticed. They hate being involved in a war of words or a heated argument. Passive-Aggressive Communication The passive-aggressive communication style involves a lot of strategizing and intends to avoid direct confrontation. Passive-aggressive communicators believe in getting their way through manipulation (aggressive). This style is rather sneaky and devious, where the intention is to make the other person suffer without any direct attack. It includes politics and rumor-mongering. Passive-aggressive communicators are self enhancing, though they are not very straight forward about it. Though such people may appear honest, the underlying comments are sure to confuse the people around. This style is definitely not considered one of the best ways to communicate. 2.2. Cultural approaches A training session for Business English Teachers led by Marie Delaney offered a cross-cultural awareness questionnaire, which is presented below: What is your cultural approach to the following aspects? Answer the following questions: 1. Time Do you tolerate being late - If yes, how much? 2. Eye contact Is it important for a communicative event? Do you need to maintain it? If yes, for how long?

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3. Small Talk Do you use it? Do you think it is important? What is your personal attitude to it? 4. Silence How do you understand silence? Is it meaningful? 5. Teams Is it natural for you to work in teams? 6. Difficult people & situations - What is your way of dealing with interruptions and difficult people? When we discuss communication and culture, we should be aware of the total spectrum of communication including language, non-verbal communication, customs, perceived values, and concepts of time and space. Do all tourists identify with Canadian traditions and values? Likely not. But the more interesting question is: Why not? The answer lies in the simple fact that most tourists come from different cultures: some vastly different like those from Japan and China, others less different, such as tourists from Eastern Canada or the United States. Even if tourists share the same language, they may have much different customs and values. What happens when people from different cultures interact face-toface? One way to appreciate the impact of cultural differences is to look in the mirror. When Americans and Canadians travel to other countries, they look for Cokes, steaks and hamburgers and the same amenities in hotels and other accommodations that they are used to at home. While the host country may offer an authentically different culture, which is one of the reasons people travel, North Americans tourists are notorious for wanting the comforts of home wherever they may be. In many third

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world countries, North Americans seek out joint venture hotels to enjoy North American food and lodging and to be served by people who speak English. Strangely, what we expect for ourselves in travel is not deemed to be reasonable when we're the hosts dealing with tourists from other countries. THE GERMANS: Germany is not a melting pot society and Germans are not mobile. Many stay in their geographic region and even the same house for generations. The scale of everything is smaller in Germany than in the Western countries. They love the outdoors, open spaces and treasure forests. Hiking is a popular sport (Hall: 1990:38). To the German space is sacred. Homes are protected by a variety of barriers, fences, walls, hedges solid doors, shutters and screening to prevent visual or auditory intrusion (Hall: 1990:38). Germans seldom invite anyone who is not a close friend to their home. To be invited is considered an honor. When you arrive bring a small bouquet for the hostess (not red roses which convey romantic attachment). Flowers should be unwrapped before being presented (Hall: 1990:39). Positions in things are also important - for example, the right side represents a place of respect (Hall: 1990:42). So, in seating arrangements or just walking from one place to another, the senior person or the group leader should be placed on the right. The German sense of privacy is very strong. Learn what is considered personal and do not ask questions that may be offensive. Americans feel that Germans do not interact with neighbors and

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perceive German behavior as unfriendly. German friends of many years continue to address each other by their last names: "Herr Schmidt" not "Walter". Germans are careful not to touch accidentally or to encourage signs of intimacy. On the other hand, they do maintain direct eye contact in conversations to show they are paying attention. However, the German who speaks most softly and to whom others defer is the one to pay attention to, not the one who makes the most noise. Order is a dominant theme in German culture. There is order in all things, including space--they are very sensitive to spatial intrusions. One exception to orderliness is behavior in lines for service, in stores, at ticket counters, or in boarding planes, especially where there is no seat assignment. Germans do not form queues but instead crowd and push and can be very rough. They do not yield when someone says "Excuse me". Their determination to be served overrides their usual need to avoid physical contact. However, these are exceptions. Generally, Germans expect organization and order in all things-- everything should be carefully planned, researched thoroughly and carried out in an orderly manner (Hall: 1990:39-42). They have a strong drive for conformity and object strenuously when people fail to obey signs and directions. Westerners feel that things are meant to be used; and if they serve no useful purpose, we dispose of them. The German attitude is that things have great intrinsic value. We feel remiss if we buy books and don't read them. But a German will feel that it is important to own a book even if one can't read it immediately. Sales of hard-cover books exceed sales of paperback books in Germany (Hall: 1990:46).

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Associated with their demand for high-quality, long-lasting goods are the German abhorrence of waste. Waste is a sin, such as heating, cooling and lighting buildings when it is not necessary (Hall: 1990:46). Germans are value- conscious and always insist on getting their money's worth. Don't ever try to sell them goods that are less than high quality. They appreciate, in fact demand, fine workmanship, and design and high-quality material. A television ad that is effective in the U.S. will have to be translated into print media to reach Germans. Germans are printoriented, which explains in part why there is so little advertising on German TV (Hall: 1990:30). Also, Germans are always looking for what is "true" and to them numbers are ways of signaling that a product is exactly as it has been represented. Germans demand facts, facts and more facts. THE FRENCH: It is not uncommon for Americans to experience difficulty getting the French - even those whom they know and have done business withto reply to inquiries, even urgent ones. This can be exasperating. The reasons are many, but most have to do with the importance of immediate human contacts to the French. A solution that succeeds when other methods fail is to use a surrogate to relay messages, rather than relying on a letter or a phone call. Why? Because letters and phone calls are not personal enough. If you send a properly placed emissary, one whom the individual you are trying to reach likes and trusts and considers

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important, you add the necessary personal touch to your message and will thereby release the right response. The French also stress the importance of observing the many rituals of form. If you don't use the right form, the message conveyed is that you are ignorant or ill-mannered or don't care. In any event, the response that is provoked is almost certain to be negative. Remember that the French deplore casualness and informality. Paying attention to the details and being correct in everything you do is the only tactic that releases the right response from the French (Hall: 1990:30). CONTEXT: Another important aspect of communication is the level of context in which the message is passed. Linguists and anthropologists use the terms 'high' and 'low' context to indicate how much information is required for successful communication. High-context communication is one in which most of the information is either in the physical context or internalized in the person, while very little of the message is actually in words (Hall: 1976:79). Couples often can communicate with a look or a nod of the head at most. Low-context communication is just the opposite: most of the information is verbalized. Twins who have grown up together can and do communicate more economically (high context) than can opposing lawyers in a courtroom during a trial (low-context) (Hall: 1976:79). In the Far East, high-context communication is much more common than in North America. This can lead to serious misunderstanding. A businessman was invited to lunch with a Japanese

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friend atop one of Tokyo's new skyscrapers with the entire city spread out below them. The Japanese host chose the occasion to give an overview of some of the sticky points in US- Japanese relations. In his own way, indirect but very clear, he said there were certain things that the Americans had missed in Japanese culture (Hall: 1976:141). For the Japanese to show anger is tantamount to admitting loss of control (and face), unless, of course, things have gone too far. No warning signs are given and Westerners as well as Europeans will unconsciously push and push - looking for structure, pattern, and limits. Because they are unfamiliar with the system, they will go too far. With the Japanese culture, one must make haste slowly and engage the most skilful, subtle interpreter of the culture you can find (Hall: 1976:142). The greater the cultural distance is, the more difficult the interface. An example of easy-to-interface communication would be Germany and Switzerland. The cultural distance in this case is not great since both cultures are low context as well as monochronic, a concept discussed in the following section (Hall: 1990:27). A difficult-to-interface communication would be France and the United States. If you're communicating with a German, remember they are low-context and will need lots of information and details. If you're communicating with someone from France, they are high-context and won't require as much information (Hall: 1990:28). Context is the information that surrounds an event; it is inextricably bound up with the meaning of that event. The elements that

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combine to produce a given meaning -- events and context -- are in different proportions depending on the culture. The cultures of the worlds can be compared on a scale from high to low context (Hall: 1990:27). Japanese, Arabs and Mediterranean peoples, who have extensive information networks among family, friends, colleagues and clients and who are involved in close personal relations are high-context. As a result, for most normal transactions in family life they do not require, nor do they expect, much in- depth background information. This is because they keep themselves informed about everything having to do with the people who are important in their lives. Low-context people include Americans, Germans, Swiss,

Scandinavians and other northern Europeans. They compartmentalize their personal relationships, their work, and many aspects of day-to-day life. Consequently, each time they interact with others they need detailed background information. The French are much higher on the context scale than either the Germans or the Americans. This difference can affect virtually every situation and every relationship in which the members of these two opposite traditions find themselves. "Contexting" performs multiple functions. For example, any shift in the level of context is a communication. The shift can be up the scale, indicating a warming of the relationship, or down the scale

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communicating coolness or displeasure--signaling something has gone wrong with a relationship. High context people are apt to become impatient and irritated when low- context people insist on giving them information they don't need (Hall: 1990:10). Conversely, low-context people are at a loss when high- context people do not provide enough information. One of the great communication challenges in life is to find the appropriate level of contexting needed in each situation. Too much information leads people to feel they are being talked down to; too little information can mystify them or make them feel left out. Ordinarily, people make these adjustments automatically in their own country, but in other countries their messages frequently miss the target (Hall:1990:9). Americans, to some extent, and Germans, to a greater extent, rely heavily on auditory screening, particularly when they want to concentrate. High-context people reject auditory screening and thrive on being open to interruptions and in tune with what goes on around them. French and Italian cities periodically bombard you with noise. DIFFERENT CONCEPTS OF TIME: Another important factor in cross-cultural communication is the concept of time. For example, in Germany if you arrive late by even a few minutes, no one will be impressed by your sales presentation, no matter how good it is. Indeed, they may not even wait around to hear it (Hall: 1990:28).

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We can divide people into two rough categories with respect to time: monochronic and polychronic people. Monochronic people tend to do one thing at a time, concentrate on the job at hand, take time commitments seriously and are concerned not to disturb others. They also tend to be rule followers, show great respect for private property, seldom borrow or lend and emphasize promptness. In addition, they are low-context in terms of the category discussed earlier. Polychronic people are almost opposites in all of the above. They are high-context types, who do many things at once, are highly distractible and subject to interruptions. While they consider time commitments objectives to be met if possible, they are more concerned with relationships, especially family and friends (Hall: 1990:15). As mentioned above, promptness is taken for granted in Germany. In fact, it's almost an obsession. If there is a chance you'll be late for an appointment, phone ahead. The Germans want to know where people are at all times; not knowing violates their sense of order (Hall: 1990:36). It is always important to know which segment of the time frame is emphasized. Eastern peoples tend to be past-oriented. Others, such as those in the urban United States, are oriented to the present and shortterm future. Still others, such as Latin Americans, are both past and present oriented. In Germany, where historical background is very important, every talk, book, or article begins with background information giving an historical perspective. This irritates many foreigners who keep wondering "why don't they get on with it? After all, I am educated. Don't the Germans know that?"

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The Japanese and the French are also steeped in history, but because they are high-context cultures, historical facts are alluded to obliquely. At present, there is no satisfactory explanation for why and how differences of this sort came about (Hall: 1990:17). The key to understanding Japanese time is to know that the Japanese have two modes: a monochronic mode for foreigners and technology and a polychronic mode for virtually everything else. The Japanese switch from an open system for those in their inner circle to a more closed and tightly scheduled system for outsiders. To an outsider everything in Japan is rigidly scheduled. They organize a visitor's time and present him with a full schedule upon arrival. However, as one comes to know the Japanese, one discovers another aspect of their time system-- flexibility (Hall: 1990:114). Historical past is important to Japanese and they take it for granted that the visitor will be familiar with the main points of Japanese history. When dealing with the Japanese one must keep in mind that many important things are frequently left unsaid. When the Japanese meet with foreigners, the most important thing on their agenda is to get to know them. They are quite expert at determining what tactics are effective with foreigners and will try various strategies to see what works. They also ask many probing questions, testing your knowledge and your sincerity and conviction. Japanese admire people who are serious about their work, well informed, sincere and honest. They want to have some understanding of and feeling for the people involved. Do not be impatient. If you deny the Japanese this opportunity to become

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acquainted, you will not succeed in matters. Do not mistake hospitality for friendship (Hall: 1987:114). SPACE: In humans, territoriality is highly developed and strongly influenced by culture. It is particularly well developed in the Germans and the Americans. Americans tend to establish places that they label "mine" - a cook's feeling about a kitchen or a child's view of her or her bedroom. In Germany, this same feeling of territoriality is commonly extended to all possessions, including the automobile. If a German's car is touched, it is as though the individuals himself has been touched. Space also communicates power. In German and Americans the top floor is more important than others, while for the French middle floors are more important (Hall: 1990:11). Personal Space: This is another form of territory. Each person has around him an invisible bubble of space which expands and contracts depending on a number of things: the relationship to the people nearby, the person's emotional state, cultural background, and the activity being performed. Few people are allowed to penetrate this bit of mobile territory and then only for short periods of time. Changes in the bubble brought about by cramped quarters or crowding cause people to feel uncomfortable or aggressive. In northern Europe, the bubbles are quite large and people keep their distance. In southern France, Italy, Greece, and Spain, the bubbles get smaller and smaller so that the distance that is perceived as intimate in the north overlaps normal conversational distance in the south. This means that Mediterranean Europeans "get too

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close" to the Germans, the Scandinavians, the English and those Americans of Northern European ancestry. In northern Europe, one does not touch others. Even the brushing of the overcoat sleeve used to elicit an apology (Hall: 1990:11). MEMORY: In addition to the talents that people are born with, culture has always exerted a dominant influence on memory and thinking. In Iran, for example, schools emphasize verbal memory. Iranian educators do not care how students store and retrieve information just as long as they remember. In earning their living in later life, they must continue to be able to recall blocks of material even at relatively low organizational levels in government. The verbal memory system, like many cultural systems, is integrated into the rest of the culture and is felt in all areas of life (Hall: 1976:160). CONCLUSION: Insensitivity to customs of "guests" in Western countries will not only result in misinformed decisions, but may also precipitate resentment. When we experience a form of cultural shock (something outside our normal experience), we have to remember a simple maxim: "What they are doing makes sense to them." It's no secret that today's workplace is rapidly becoming vast, as the business environment expands to include various geographic

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locations and span numerous cultures. What can be difficult, however, is understanding how to communicate effectively with individuals who speak another language or who rely on different means to reach a common goal.. The term culture refers to the complex collection of knowledge, folklore, language, rules, rituals, habits, lifestyles, attitudes, beliefs, and customs that link and give a common identity to a particular group of people at a specific point in time. All social units develop a culture. Even in two-person relationships, a culture develops over time. In friendship and romantic relationships, for example, partners develop their own history, shared experiences, language patterns, rituals, habits, and customs that give that relationship a special charactera character that differentiates it in various ways from other relationships. Examples might include special dates, places, songs, or events that come to have a unique and important symbolic meaning for two individuals. Groups also develop cultures, composed of the collection of rules, rituals, customs, and other characteristics that give an identity to the social unit. Where a group traditionally meets, whether meetings begin on time or not, what topics are discussed, how decisions are made, and how the group socializes are all elements of what, over time, become defining and differentiating elements of its culture. Organizations also have cultures, often apparent in particular patterns of dress, layout of workspaces, meeting styles and functions, ways of thinking about and talking about the nature and directions of the organization, leadership styles, and so on.

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The most rich and complex cultures are those that are associated with a society or a nation, and the term culture is most commonly used to refer to these characteristics, including language and language-usage patterns, rituals, rules, and customs. A societal or national culture also includes such elements as significant historical events and characters, philosophies of government, social customs, family practices, religion, economic philosophies and practices, belief and value systems, and concepts and systems of law. Any social unit (whether a relationship, a group, an organization, or society) develops a culture over time. While the defining characteristicsor combination of characteristicsof each culture are unique, all cultures share certain common functions. Three such functions that are particularly important from a communication perspective are (1) linking individuals to one another, (2) providing the basis for a common identity, and (3) creating a context for interaction and negotiation among members. The relationship between communication and culture is a very complex and intimate one. First, cultures are created through communication; that is, communication is the means of human interaction through which cultural characteristics whether customs, roles, rules, rituals, laws, or other patternsare created and shared. It is not so much that individuals set out to create a culture when they interact in relationships, groups, organizations, or societies, but rather that cultures are a natural by-product of social interaction. In a sense, cultures are the residue of social communication. Without

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communication and communication media, it would be impossible to preserve and pass along cultural characteristics from one place and time to another. One can say, therefore, that culture is created, shaped, transmitted, and learned through communication. The reverse is also the case; that is, communication practices are largely created, shaped, and transmitted by culture.

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3. Individual / Nationality (Stereotypes)

He would like to believe there is enough pity in the air for black people and their lot, enough of a desire to deal honorably with them, to make up for the cruelty of the laws. However, he knows it is not so. Between black and white there is a gulf fixed. Deeper than pity, deeper than honorable feelings, deeper even than goodwill, lies an awareness on both sides that people like Paul and himself, with their pianos and violins, are here on this earth, the earth of South Africa, on the shakiest of pretexts. This very milkman must know it. A year ago, he must have been just a boy herding cattle in the deepest Transkei. In fact, from Africans - in general from Color people - he feels a curious, amused tenderness emanating. A sense that he must be a simpleton in need of protection if he imagines he can get by on the basis of straight looks and honorable dealings when the ground beneath his feet is soaked with blood and the vast backward depth of history rings with shouts of anger. Why else would this young man, with the first stirrings of the days wind fingering his horses mane, smile so gently as he watches the two of them drink the milk he has given them? Downstairs he has tea with her and her employer, an Englishwoman whose cool eyes takes his measure and finds him wanting. This is a European house - her eyes say, we do not need a graceless colonial here, and a Boer to boot.

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It is not a good time to be a South African in England. With great show of self-righteousness, South Africa has declared itself a republic and promptly been expelled from the British Commonwealth. The message contained in that expulsion has been unmistakable. The British have had enough of the Boers and of the Boer-led South Africa, a colony that has always been more trouble than it has been worth. They would be content if South Africa would quietly vanish over the horizon. They certainly do not want forlorn South African whites cluttering their doorstep like orphans in search of parents. He has no doubt that Astrid will be obliquely informed by this suave Englishwoman that he is not a desirable. (From J.M. Coetzee, Youth, Secker&Warburg, London, 2002, p.17, 86-87) Is there any harm in national stereotypes? Key Points: Stereotypes can be defined in a number of ways: A simplified and fixed image of all members of a culture or group; the group is typically based on race, religion, ethnicity, age, gender or national origins. Generalizations about people that are based on limited, sometimes inaccurate, but often easily available information, and are characterized by no or minimal contact with members of the stereotyped group and on second-hand information rather than first-hand experience. A single statement or attitude about a group of people that does not recognize the complex, multi-dimensional nature of individual

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human beings irrespective of race, religion, ethnicity, age, gender or nationality. Stereotypes can be positive, negative or mixed, but they are usually unfair and misleading. In general, stereotypes reduce individuals to a rigid, inflexible image. Stereotypes do not account for the fact that human beings are individually complex, each person possessing a unique constellation of personal attributes. Instead, stereotypes suggest that everyone within a group is the same. An especially worrying aspect of stereotypes in a geopolitical context is that they tend to dehumanize people, placing all members of a group into one homogeneous category. The basis for stereotyping lies in the nature of human cognition. When we stereotype people, we pre-judge them; we assume that all people in a group have the same traits. The use of stereotypes leads to false assumptions about people and can lead to misunderstandings, hostile and abusive behaviors, conflicts, discrimination, and prejudice. Stereotypes may have their roots in experiences we have had ourselves, read about in books and magazines, seen in films or television, or have had related to us by friends and family. In some cases, stereotypes may be reasonably accurate.

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 In virtually every case where we stereotype, we are resorting to prejudice by inferring characteristics of an individual person based on a group characteristic, without knowledge of all the facts. Stereotypes are sometimes hard to recognize because they are fixed beliefs. When stereotypical judgments are reduced, it is easier to acknowledge and appreciate individual differences and cultural diversity. Discussion points: How many nationalities are there in your country - what languages do they speak? What is the difference between nation, nationality and nationalism? People of the same nationality should all live in the same country. Do you agree with this statement - Why (not)? What does a term such as the European nation refer to? In what context do you think it may be used? One cannot choose ones parents, ones race, ones mother tongue or ones nationality. How far do you agree? What could be, in your opinion, the global language of the future?

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 Are stereotypes simply examples of prejudice or the embodiment of identifiable social trends and cultural traditions? Are they subjective, objective or somewhere in-between? - Overly generalized, nationally specific or both? Do you think Brits are reserved, inhibited or distant? Do you consider that a negative trait? I know many Brits who are proud of just such a trait. However, perhaps Brazilians would consider such a trait negative. Are the French the most romantic? Are men really better drivers than women are? Are women really more sensitive than men, or are women simply sociologically programmed to display more emotion than men? - Why do we continue using stereotypes? There must be a reason other than primitive instinct. - Is nationality now becoming a branded good? - Do governments actually support stereotypes, seeking to associate certain positive values with their industries, companies and goods? Of course they do. Cultural propaganda is the name of the game. There will not be physical conflicts in the future, only the struggle of cultures. (Viewing the Viewer: Stereotypical Stereotypes by Adam Dalton)

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Discussion Points: Have you ever been the subject for stereotypes? What kind (related to age, sex, race, religion, vocation)? How did you react? Do you use stereotypes yourselves - Under what circumstances? Let us look at some concrete examples. Many countries make jokes about a particular group or nationality being stupid. The Brits make jokes about the Irish. The Poles make jokes about the police. The French make jokes about the Belgians and so it goes on. In addition, other core character traits are identified in the humor of prejudice and stereotype. The Irish make jokes about the Scots being tight-fisted. I am sure you know other examples that I do not need to repeat here. (Adapted from the Internet page of the British Council Warsaw, 2001) Stereotypes are often associated with clichs. The word clich comes from French and both terms were originally used in the print industry, to designate a solid printing mould which, once cast, was difficult to change.

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4. State and governmet

(Adapted from: Principles of Democracy; published online by the U.S. Department of State's Bureau of International Information Programs.) What do we understand by Democracy today? What are the fundamentals of Democracy? Democracy comes from the Greek word, "demos," meaning people. In democracies, the people hold sovereign power over legislator and government. Although nuances apply to the world's various democracies, certain principles and practices distinguish democratic government from other forms of government. Democracy is government in which power and civic responsibility are exercised by all citizens, directly or through their freely elected representatives. Democracy is a set of principles and practices that protect human freedom; it is the institutionalization of freedom. Democracy rests upon the principles of majority rule, coupled with individual and minority rights. All democracies, while respecting the will of the majority, zealously protect the fundamental rights of individuals and minority groups. Democracies guard against all-powerful central governments and decentralize government to regional and local levels, understanding

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that local government must be as accessible and responsive to the people as possible. Democracies understand that one of their prime functions is to protect such basic human rights as freedom of speech and religion; the right to equal protection under law; and the opportunity to organize and participate fully in the political, economic, and cultural life of society. Democracies conduct regular free and fair elections open to all citizens. Elections in a democracy cannot be facades that dictators or a single party hide behind, but authentic competitions for the support of the people. Democracy subjects governments to the rule of law and ensures that all citizens receive equal protection under the law and that their rights are protected by the legal system. Democracies are diverse, reflecting each nation's unique political, social, and cultural life. Democracies rest upon fundamental principles, not uniform practices. Citizens in a democracy not only have rights, they have the responsibility to participate in the political system that, in turn, protects their rights and freedoms. Democratic societies are committed to the values of tolerance, cooperation, and compromise. Democracies recognize that reaching consensus requires compromise and that it may not always be attainable. In the words of Mahatma Gandhi, "intolerance is itself a form of violence and an obstacle to the growth of a true democratic spirit."

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On the surface, the principles of majority rule and the protection of individual and minority rights would seem contradictory. In fact, however, these principles are twin pillars holding up the very foundation of what we mean by democratic government. Majority rule is a means for organizing government and deciding public issues; it is not another road to oppression. Just as no selfappointed group has the right to oppress others, so no majority, even in a democracy, should take away the basic rights and freedoms of a minority group or individual. Minorities - whether because of ethnic background, religious belief, geographic location, and income level, or simply as the losers in elections or political debate - enjoy guaranteed basic human rights that no government, and no majority, elected or not, should remove. Minorities need to trust that the government will protect their rights and self-identity. Once this is accomplished, such groups can participate in, and contribute to their country's democratic institutions. Among the basic human rights that any democratic government must protect are freedom of speech and expression; freedom of religion and belief; due process and equal protection under the law; and freedom to organize, speak out, dissent, and participate fully in the public life of their society. Democracies understand that protecting the rights of minorities to uphold cultural identity, social practices, individual consciences, and religious activities is one of their primary tasks. Acceptance of ethnic and cultural groups that seem strange if not alien to the majority can represent one of the greatest challenges that any

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democratic government can face. Nevertheless, democracies recognize that diversity can be an enormous asset. They treat these differences in identity, culture, and values as a challenge that can strengthen and enrich them, not as a threat. There can be no single answer to how minority-group differences in views and values are resolved - only the sure knowledge that only through the democratic process of tolerance, debate, and willingness to compromise can free societies reach agreements that embrace the twin pillars of majority rule and minority rights. Constitutionalism and Independent Judiciary1 A written constitution contains the most important laws by which a nation's citizens agree to live, and it outlines the basic structure of their government. Thus, democratic constitutionalism - based on ideals of individual freedom, community rights, and limited government power creates the framework for governing a democracy. Constitutionalism recognizes that democratic and accountable government must be coupled with constitutional limits on the power of government. A constitution defines the basic purposes and aspirations of a society, including the common welfare of the people. All laws must be written in accordance with the constitution. In a democracy, an independent judiciary allows citizens to challenge laws they believe to be illegal or unconstitutional and to seek court-ordered remedies for illegal actions by the government or its officials.
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by

David

L.

Heiserman

A constitution provides the framework for government power -- its scope of authority, mechanisms for exercising that authority, and the procedures for passage of future laws. A constitution defines citizenship and establishes the basis for deciding who shall have the right to vote. A constitution establishes the political, administrative, and judicial foundations of the state including the structure of the legislature and courts, requirements for holding elected office, and terms of office for elected officials. A constitution lays out responsibilities of government ministries and grants authority to collect taxes and create a national defence force. In a federal system, the constitution divides power among the various levels of government. Since a constitution is written at a certain point in time, it must be amendable so that it may adapt to the changing needs of the people in the future. Since the flexibility to meet unpredictable and unforeseeable challenges in the future is important, constitutions are usually written to specify general principles of government. Constitutions generally contain two different types of rights negative and affirmative rights. o Negative rights tell the government what it cannot do. These rights limit government and prevent it from affecting certain behaviors of its citizens. For example, the government must refrain from limiting free speech and the ability of citizens to peacefully assemble, and from illegal imprisonment.

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o Affirmative rights tell the government what it must do and citizens what they are entitled to. Such "entitlements" may include social, economic, and cultural rights in the form of government guarantees of various social indicators. There may be guarantees of primary and secondary education for all boys and girls, "well being" after retirement, or jobs and health care for all citizens. Independent and professional judges are the foundation of a fair, impartial, and constitutionally guaranteed system of courts of law known as the judiciary. This independence does not imply judges can make decisions based on personal preferences but rather that they are free to make lawful decisions -- even if those decisions contradict the government or powerful parties involved in a case. In democracies, independence from political pressures of elected officials and legislatures guarantees the impartiality of judges. Judicial rulings should be impartial, based on the facts of a case, individual merits and legal arguments, and relevant laws, without any restrictions or improper influence by interested parties. These principles ensure equal legal protection for all. The power of judges to review public laws and declare them in violation of the nation's constitution serves as a fundamental check on potential government abuse of power - even if a popular majority elects the government. This power, however, requires that the courts be seen as independent and able to rest their decisions upon the law, not political considerations.

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 Whether elected or appointed, judges must have job security or tenure, guaranteed by law, in order that they can make decisions without concern for pressure or attack by those in positions of authority. A civil society recognizes the importance of professional judges by providing them with adequate training and remuneration. Trust in the court system's impartiality -- in its being seen as the "non-political" branch of government -- is a principal source of its strength and legitimacy. A nation's courts, however, are no more immune from public commentary, scrutiny, and criticism than other institutions. Freedom of speech belongs to all: judges and their critics alike. To ensure their impartiality, judicial ethics require judges to step aside (or "recluse" themselves) from deciding cases in which they have a conflict of interest. Judges in a democracy cannot be removed for minor complaints, or in response to political criticism. Instead, they can be removed only for serious crimes or infractions through the lengthy and difficult procedure of impeachment (bringing charges) and trial -- either in the legislature or before a separate court panel. An independent judiciary assures people that court decisions will be based on the nation's laws and constitution, not on shifting political power or the pressures of a temporary majority. Endowed with this independence, the judicial system in a democracy serves as a safeguard of the people's rights and freedoms.

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The Rule of Law and the Legislative Power For much of human history, rulers and law were synonymous - law was simply the will of the ruler. A first step away from such tyranny was the notion of rule by law, including the notion that even a ruler is under the law and should rule by virtue of legal means. Democracies went further by establishing the rule of law. Although no society or government system is problem-free, rule of law protects fundamental political, social, and economic rights and reminds us that tyranny and lawlessness are not the only alternatives. Rule of law means that no individual, president or private citizen, stands above law. Democratic governments exercise authority by way of law and are themselves subject to law's constraints. Laws should express the will of the people, not the whims of kings, dictators, military officials, religious leaders, or self-appointed political parties. Citizens in democracies are willing to obey the laws of their society, then, because they are submitting to their own rules and regulations. Justice is best achieved when the very people who must obey them establish the laws. Under the rule of law, a system of strong, independent courts should have the power and authority, resources, and the prestige to hold government officials, even top leaders, accountable to the nation's laws and regulations. For this reason, judges should be well trained, professional, independent, and impartial. To serve their necessary role in the legal and

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political system, judges must be committed to the principles of democracy. The laws of a democracy may have many sources: written constitutions; statutes and regulations; religious and ethical teachings; and cultural traditions and practices. Regardless of origin the law should enshrine certain provisions to protect the rights and freedoms of citizens: A. Under the requirement of equal protection under the law, the law may not be uniquely applicable to any single individual or group. B. Citizens must be secure from arbitrary arrest and unreasonable search of their homes or the seizure of their personal property. C. Citizens charged with crimes are entitled to a speedy and public trial, along with the opportunity to confront and question their accusers. If convicted, they may not be subjected to cruel or unusual punishment. D. Citizens cannot be forced to testify against themselves. This principle protects citizens from coercion, abuse, or torture and greatly reduces the temptation of police to employ such measures. 2 Elected representatives in a democracy; whether members of a parliament, assembly, or congress; are there to serve the people. They perform a number of roles essential to the functioning of a healthy democracy. Elected legislatures are the principal forum for deliberating, debating, and passing laws in a representative democracy. They are not
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so-called rubber stamp parliaments merely approving the decisions of an authoritarian leader. Oversight and investigation powers allow legislators to publicly question government officials about their actions and decisions, and otherwise serve as a check on the power of various government ministries -- especially in the presidential system of governing where the legislature is separate from the executive. Legislators may approve national budgets, conduct hearings on pressing issues, and confirm executive appointees to courts and ministries. In some democracies, legislative committees provide lawmakers a forum for these public examinations of national issues. Legislators may support the government in power or they may serve as a loyal political opposition that offers alternative policies and programs. Legislators have a responsibility to articulate their views as effectively as possible. However, they must work within the democratic ethic of tolerance, respect, and compromise to reach agreements that will benefit the general welfare of all the people -- not just their political supporters. Each legislator must alone decide on how to balance the general welfare with the needs of a local constituency. Legislators often provide constituents with a sympathetic hearing for their individual complaints and problems -- along with help in getting assistance from large government bureaucracies. To do this, they often maintain a staff of trained aides. National legislators are usually elected in one of two ways. In plurality elections, sometimes called "first past the post," the candidate

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with the most votes wins. In the proportional system, often used in parliamentary elections, voters usually cast ballots for parties, not individuals, and representatives are chosen based on their party's percentage of the vote. A proportional system tends to encourage multiple, tightly organized smaller parties. Plurality elections encourage a looser, twoparty system. Under either system, representatives engage in the debate, negotiation, coalition building, and compromise that are the hallmarks of democratic legislatures. Legislatures are often bicameral, with two chambers, and new laws generally require passage by both the upper and lower chambers. Education and Democracy Education is a universal human right. It also is a means of achieving other human rights and it is an empowering social and economic tool. Through the Universal Declaration of Human Rights, the world's nations have agreed that everyone has the right to education. Every society transmits its habits of mind, social norms, culture, and ideals from one generation to the next. There is a direct connection between education and democratic values: in democratic societies, educational content and practice support habits of democratic governance. This educational transmission process is vital in a democracy because effective democracies are dynamic, evolving forms of government that demand independent thinking by the citizenry. The opportunity for positive social and political change rests in citizens'

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hands. Governments should not view the education system as a means to control information and to indoctrinate students. Governments should value and devote resources to education just as they strive to defend their citizens. Literacy enables people to stay informed through newspapers and books. Informed citizens are in a better position to improve their democracy. Education systems in democracies do not preclude study of other political doctrines or systems of government. Democracies encourage students to develop reasonable arguments based on careful research and a clear understanding of history. Private and religious groups should be free to create schools or parents may choose to teach their children at home. Government-run schooling must be equally accessible to all citizens regardless of their ethnic or religious backgrounds, gender, or physical disabilities. Democratic norms and practices should be taught in order for people to understand and appreciate their opportunities and responsibilities as free citizens. Education for democratic citizenship includes knowledge of national and world history and of basic democratic principles. School curricula in democracies include history, geography, economics, literature, philosophy, law, the arts, social studies, mathematics, and science courses available to all students - girls and boys.

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 Students should also be free to organize clubs and activities where democratic norms can be put into practice. For example: o Student government gives pupils experience in the democratic process. o Mock elections teach students about citizen participation and encourage in them lifelong voting habits. o School newspapers educate students about the role of a free media and responsible journalism. o Civic clubs promote a connection to the larger community

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5. The european union

A worldwide economic recession in the early 1980s brought with it a wave of 'euro-pessimism'. Nevertheless, hope sprang anew in 1985 when the European Commission, under its President Jacques Delors, published a 'white paper' setting out a timetable for completing the European single market by 1 January 1993. The Communities adopted this ambitious goal and enshrined it in the Single European Act, which was signed in February 1986 and came into force on 1 July 1987. The political shape of Europe was dramatically changed by the fall of the Berlin wall in 1989. This led to the reunification of Germany on 3 October 1990 and the coming of democracy to the countries of central and Eastern Europe as they broke away from Soviet control. The Soviet Union itself ceased to exist in December 1991. Meanwhile, the European Communities were changing too. The member states were negotiating a new treaty that was adopted by the European Council (i.e. their presidents and/or prime ministers) at Maastricht in December 1991. This 'Treaty on European Union' came into force on 1 November 1993. The EEC was renamed simply 'the European Community' (EC). Moreover, by adding areas of intergovernmental cooperation to the existing Community system, the Treaty created the European Union (EU). It also set new ambitious goals for the member states: monetary union by 1999, European citizenship,

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new common policies - including a common foreign and security policy (CFSP) - and arrangements for internal security. The new European dynamism and the continent's changing geopolitics led three more countries - Austria, Finland and Sweden - to join the EU on 1 January 1995. The Union now had 15 member states and prepared for its most spectacular achievement - replacing its national currencies with a single European currency, the euro. On 1 January 2002, euro notes and coins came into circulation in 12 EU countries (the 'euro area'). The euro is now a major world currency, having a similar status to the US dollar. As the world moves forward into the 21st century, Europeans must together face the challenges of globalization. Revolutionary new technologies and the Internet explosion are transforming the world economy. However, these profound economic changes bring with them social disruption and culture shock. Meeting in Lisbon in March 2000, the European Council adopted a comprehensive strategy for modernizing the EU economy and enabling it to compete on the world market with other major players such as the United States and the newly industrialized countries. The 'Lisbon strategy' includes opening up all sectors of the economy to competition, encouraging innovation and business investment, and modernizing Europe's education systems to meet the needs of the information society. At the same time, unemployment and the rising cost of pensions are both putting pressure on the member states' economies, and this makes reform all the more necessary. Voters are increasingly calling on their governments to find practical solutions to these issues.

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Scarcely had the European Union grown to encompass 15 member states when another 12 began knocking at its door. In the mid 1990s, it received membership applications from the former Soviet bloc countries (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia), the three Baltic states that had once been part of the Soviet Union (Estonia, Latvia and Lithuania), one of the republics of the former Yugoslavia (Slovenia) and two Mediterranean countries (Cyprus and Malta). The EU welcomed this opportunity to help stabilize the European continent and to extend the benefits of European unification to these young democracies. Accession negotiations with the candidate countries were launched in Luxembourg in December 1997 and in Helsinki in December 1999. The Union was on the way to its biggest enlargement ever. For ten of the candidate countries, negotiations were completed on 13 December 2002 in Copenhagen. The European Union had 25 member states in 2004, and continued growing as more countries joined in the years ahead. More than half a century of integration has had an enormous impact on the history of Europe and on the mentality of Europeans. The member state governments, whatever their political color, know that the age of absolute national sovereignty is over and that only by joining forces and pursuing "a destiny henceforward shared" (to quote the ECSC Treaty) can their ancient nations continue to make economic and social progress and maintain their influence in the world. Integration has succeeded in overcoming age-old enmity between European countries. Attitudes of superiority and the use of force to

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resolve international differences have been replaced by the 'Community method' of working together. This method, which balances national interests with the common interest and respects national diversity while creating a Union identity, is as valuable today as ever. Throughout the Cold War period, it enabled Europe's democratic and freedom-loving countries to stick together. The end of east-west antagonism and the political and economic reunification of the continent are a victory for the spirit of Europe - a spirit that European peoples need more than ever today. The European Union offers a response to the huge challenge of globalization - a response that expresses the values Europeans believe in. The EU offers, above all, the best possible 'insurance policy' for a free and peaceful future. Internally, the EU has abolished trade barriers, adopted a common currency, and is striving toward convergence of living standards. Internationally, the EU aims to bolster Europe's trade position and its political and economic power. Because of the great differences in per capita income among member states (from $7,000 to $78,000) and historic national animosities, the EU faces difficulties in devising and enforcing common policies. In the wake of the global economic crisis, the European Commission projected that the EU's economy will shrink by 4% in 2009. In September 2009, the Commission reported that the EU was recovering from the crisis faster than it had projected, however, significant risks to sustainable growth remain, including, deteriorating fiscal positions, rising unemployment, tight bank lending, and a strong

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euro. Even prior to the global economic crisis Germany and France flouted the member states' treaty obligation to prevent their national budgets from running more than a 3% deficit, and now many more member states are running substantial deficits. Between 2004 and 2007, the EU admitted 12 countries that are, in general, less advanced economically than the other 15. Eleven established EU member states introduced the euro as their common currency on 1 January 1999 (Greece did so two years later), but the UK, Sweden, and Denmark chose not to participate. Of the 12 most recent member states, only Slovenia (1 January 2007), Cyprus and Malta (1 January 2008), and Slovakia (1 January 2009) have adopted the euro; the remaining eight are legally required to adopt the currency upon meeting EU's fiscal and monetary convergence criteria. From the 1990s, citizenship has become one of the key issues of the political debate. The notion of citizenship is changing at a great pace because of the great economic, social and political changes occurred while the 20th century moved into the 21st. The classical concept of Citizenship We can define citizenship as a legal and political status which allows the citizen to acquire some rights (civil, political, social...) as an individual and some duties (taxes, military service, loyalty...) in relation to a political community, as well as the ability of intervening in the collective life of a state. The latter right arises from the democratic principle of sovereignty of people.

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Citizens -of Spain, United Kingdom, France, Portugal, United States...- have a series of rights, granted by their constitutions, but also have obligations, with regard to their national community. In a democratic state, the citizen must fulfill those obligations since they were passed by the representatives they have voted in, using one of the main citizen's political rights, the suffrage. Citizenship is restricted to people who have that condition. People that live in a territory but lack the status of citizen are deprived of the rights and duties that citizenship involves. Every state has laws to regulate the way an individual can acquire its nationality, that is to say, the citizenship. This concept of citizenship dates back to a historical period initiated with the great liberal revolutions in the late 18th century. It is a notion characterized by the pre-eminence of the state-nation as the political community that comprises the individuals. Citizenship is tantamount to nationality. The European Union is a group of countries whose governments work together. It's a bit like a club. To join you have to agree to follow the rules and in return you get certain benefits. Each country has to pay money to be a member. They mostly do this through taxes. The EU uses the money to change the way people live and do business in Europe.

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 Countries join because they think that they will benefit from the changes the EU makes. What does the EU do? A lot of what the EU does is about bringing people in Europe closer together. It tries to make it easier for Europeans to buy and sell things to each other. This is done by changing the rules that control trade. It is also getting rid of controls that stop people from EU countries moving around freely inside the Union. The changes have not always been popular in the UK. The EU backs things like exchange visits that help ordinary Europeans to understand what they all have in common. These are the five big things the EU has set out to do. 1. Promote economic and social progress. Help people earn enough money and get treated fairly. 2. Speak for the European Union on the international scene. By working as a group the EU hopes that Europe will be listened to more by other countries. 3. Introduce European citizenship. Anyone from a member state is a citizen of the EU and gets four special rights. 4. Develop Europe as an area of freedom, security and justice. Help Europeans to live in safety, without the threat of war. 5. Maintain and build on established EU law. Make laws that protect peoples rights in the member countries.

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Your EU rights Anyone from a member state is a citizen of the EU and gets these special rights. Freedom to move between countries of the EU and to live in any nation in the Union The right to vote and stand in local government and European Parliament elections in the country you live in If you are traveling outside the EU, and your own country does not have an embassy, you can go to the embassy of any other EU country The right to put your side of the story to the European Ombudsman if you think the EU has not acted fairly The European Union considers conflict resolution as a cardinal objective of its foreign policy. It makes use of a number of policy instruments to promote conflict transformation through constructive engagement, which covers a range of sectors affecting conditions and incentives at the micro level. The EU has recognized the importance of engaging with civil society in situations of violent conflict, but needs to engage more with local civil society to make its policies more effective.

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6. Economics3- overview

Economics has been recognized as a special area of study for over a century. Economics and economists are words that almost everyone has heard of and uses. But what exactly is economics? In recent years, the subject matter that economists have studied has expanded, making its boundaries less defined. A good definition must explain what it is that makes economics a distinct subject, different from physics or psychology. Many good definitions are possible, and each will focus on some important aspect of the subject. Philosopher Karl Popper's widely accepted definition of science says that a statement is scientific only if it is open to the logical possibility of being found false. This definition means that we evaluate scientific statements by testing them, by comparing them to the world about us. A statement is non-scientific if it takes no risk of being found false; that is, if there can be no way to test the statement against observable facts or events. Popper called this distinction the "line of demarcation." Most economists see their discipline as scientific in Popper's sense of the word. Economic theory makes statements about how facts fit together, and there are constantly new sets of facts arising that allow one to test the theory to see whether the facts are as theory predicts.
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However, this process is more difficult for economists than it is for physical scientists. There is a minority of economists, however, who do not see economics as scientific in Popper's sense. A group of economists called the Austrian school, for example, has argued that economics starts with assumptions and that economic theory is the logically deduced results of those assumptions. If the theory does not fit the facts, one cannot conclude that the theory is wrong, but only that it is inappropriate to apply the theory in that particular situation because the initial conditions do not agree with the assumptions of the theory. Economists make a distinction between positive and normative that closely parallels Popper's line of demarcation, but which is far older. David Hume explained it well in 1739, and Machiavelli used it two centuries earlier, in 1515. A positive statement is a statement about what is and that contains no indication of approval or disapproval. Notice that a positive statement can be wrong. "The moon is made of green cheese" is incorrect, but it is a positive statement because it is a statement about what exists. A normative statement expresses a judgment about whether a situation is desirable or undesirable. "The world would be a better place if the moon were made of green cheese" is a normative statement because it expresses a judgment about what ought to be. Notice that there is no way of disproving this statement. If you disagree with it, you have no sure way of convincing someone who believes the statement that he is wrong.

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Economists have found the positive-normative distinction useful because it helps people with very different views about what is desirable to communicate with each other. Libertarians and socialists, Christians and atheists may have very different ideas about what is desirable. When they disagree, they can try to learn whether their disagreement stems from different normative views or from different positive views. If their disagreement is on normative grounds, they know that their disagreement lies outside the realm of economics, so economic theory and evidence will not bring them together. However, if their disagreement is on positive grounds, then further discussion, study, and testing may bring them closer together. If economists limit themselves to evaluating whether or not proposed actions will achieve intended results, they confine themselves to positive analysis. However, most economists prefer a wider role in policy analysis, and include normative judgments as well. Most statements are not easily categorized as purely positive or purely normative. Suppose, for example, someone says, "The minimum wage is a bad law." Behind that simple statement are assumptions about how to judge whether a law is good or bad (or normative statements) and beliefs about what the actual effects of the minimum wage law are (or positive statements). In a market economy, the ability of people to obtain goods and services depends, with some exceptions, on the marginal productivity of the resources they hold. The most important resource is a person's ability to work (human capital) but others are ownership of natural resources and capital. Those who hold resources that are highly valued will earn

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large incomes, whereas those who hold no valuable resources earn little or no income. This unequal distribution of income that a market system produces raises questions of whether or not a market system is fair. Fairness is a normative issue. It involves judgments about what is good and what is bad. As a result, economists cannot claim special expertise on this issue. They often rely on arguments from philosophers when they discuss fairness, and they hold widely diverse beliefs. There are, however, some insights from economics that can be useful when one discusses issues of fairness. Because people have different goals, unequal incomes do not necessarily mean that the mechanism for producing those incomes is unfair. Some people have goals that can be met only if they earn high incomes, whereas others have goals that require less income but more leisure. A fundamental trade-off that people face is a leisure-income trade-off. If Mike Fleming wants more income, he must work more, which means he sacrifices leisure. People who value their leisure time highly will earn less income than people who put little value on leisure, all things being equal. In a world in which everyone had equal abilities but different goals, people will earn unequal incomes. Of course, we do not live in a world of equal abilities. Some people are smarter, more athletic, more social, or in some other way more talented than others. Some people--whether through bad genes, bad nutrition, or bad cultural environment--cannot cope by themselves in a complex world. Hence, even if everyone had the same goals, people would earn unequal incomes.

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If you look at a situation and decide that it is unfair because one person has too much and another has too little, you probably are making a judgment that compares goals. The judgment says that the person with too much is satisfying goals that are less worthy than those of the person with too little are. We commonly make this sort of normative judgment; our decision to give money to one charity rather than another indicates that we find some goals more deserving than others do. Our decision to give at all suggests that we decide that the goals of someone else are more worthy than our own "selfish" goals. Economic analysis suggests that people earn different amounts of income both because they have different goals and different abilities (or resource endowments, to use a more comprehensive but also more abstract term). From this starting point, we can examine a few common judgments on fairness. One view is that fairness means everyone should have an equal opportunity to succeed. In this view, process matters--not results. This position sees economic life as a race. In any race, some people are faster than others are. As long as all contestants face the same rules, the race is fair even though some win and others lose. In the economic game, some people fail and have low incomes because they made mistakes or were unlucky or did not have enough ability. Yet their failure does not mean that the system is unfair, if no one erected obstacles in their path. This view is sympathetic to a market system A completely different view is the egalitarian position, which judges: results--not process. It argues that more equality of income is always better than less, and that the best of all possible worlds is one of

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complete equality. John Rawls has developed an influential justification of egalitarian positions using the notion of the social contract, an idea that Thomas Hobbes and John Locke made famous in the 17th century. Rawls asks what rules we would agree on if we were designing a society that we then had to join, assuming that we had no knowledge of how successful we would be in that society. He argues that most of us would want to join a society that ensures a great deal of income equality because we are afraid of risk. The egalitarian view tends to be unsympathetic to market systems because they generate very unequal incomes. Both these views have internal inconsistencies. Obtaining equal results requires the use of government power, and only some will be able to wield this power. Those who have the jobs of equalizing incomes will have more power than those who do not; equal income results in unequal political power. Obtaining a system of completely equal opportunity is impossible because the results that one generation obtains help determine the starting points of their offspring. People who do well in the economic game will try to help their children succeed by giving them a good childhood environment, a good education, and inherited wealth. A third viewpoint suggests that income should be determined based on need. Though this view is often associated with socialism, it has a very long tradition in Christian thought, which is where the socialists, a product of the 19th century, found it. A position that equal work deserves equal pay, which is a position consistent with the opportunity approach, is inconsistent with the need approach.

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To implement the need approach there must be some way of measuring need. This measurement is most practical in small-group situations, that is, within groups where members know each other well and where members have the same goals. It is hard to implement in large groups of strangers who do not know each other well and who may disagree radically about which goals are worth attaining. One escape from this problem has been to assume that everyone's needs are identical, which collapses this point of view into egalitarianism. An economy consists of the specific economic system of a country or other area, the labor, capital and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services of that area. A given economy is the end result of a process that involves its technological evolution, history and social organization, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. Today the range of fields of study exploring, registering and describing the economy or a part of it, include social sciences such as economics, as well as branches of history (economic history) or geography (economic geography). Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole, range from engineering to management and business administration to applied science to finance. All kind of professions, occupations, economic agents or

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economic activities, contribute to the economy. Consumption, saving and investment are core variable components in the economy and determine market equilibrium. There are three main sectors of economic activity: primary, secondary and tertiary. Economics is the study of how individuals and societies choose to employ those resources: what goods and services will be produced, how they will be produced, and how they will be distributed among the members of society. and Economics is customarily Of major divided concern into to microeconomics macroeconomics.

macroeconomists are the rate of economic growth, the inflation rate, and the rate of unemployment. Specialized areas of economic investigation attempt to answer questions on a variety of economic activity; they include agricultural economics, economic development, economic history, environmental economics, industrial organization, international trade, labor economics, money supply and banking, public finance, urban economics, and welfare economics. Specialists in mathematical economics and econometrics provide tools used by all economists. The areas of investigation in economics overlap with many other disciplines, notably history, mathematics, political science, and sociology. Classic economics concentrates on how the forces of supply and demand allocate scarce product and service resources. Macroeconomics studies a nation or the world's economy as a whole, using data about inflation, unemployment and industrial production to understand the past and predict the future. Microeconomics studies the behavior of specific sectors of the economy, such as companies, industries, or households.

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Over the years, various schools of economic thought have gained prominence, including Keynesian Economics, Monetarism and SupplySide Economics. Economics is often described as a body of knowledge or study that discusses how a society tries to solve the human problems of unlimited wants and scarce resources. Because economics is associated with human behavior, the study of economics is classified as a social science. Because economics deals with human problems, it cannot be an exact science and one can easily find differing views and descriptions of economics. In this discussion, the focus is an overview of the elements that constitute the study of economics, that is, wants, needs, scarcity, resources, goods and services, economic choice, and the laws of supply and demand. Every person is involved with making economic decisions every day of his or her life. This occurs when one decides whether to cook a meal at home or go to a restaurant to eat, or when one decides between purchasing a new luxury car or a low-priced pickup truck. People make economic decisions when they decide whether to rent or purchase housing or where they should attend college. 6.1. International business relations Modern societies have taken aspects of all three viewpoints and established them as public policy. Income taxes are progressive; that is, they take greater percentages of income from those with big incomes than from those with small incomes. This policy can be justified from an equal results point of view. Employment laws require equal pay for

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equal work. The employer is prohibited from taking factors such as personal need of an employee into account in establishing pay. These laws make sense from an equal opportunity point of view. Finally, tax laws and some transfer payments favor families with more children and higher medical bills. The need viewpoint can justify this aspect of taxes. In addition to income distribution, social mobility and status may shape views on fairness. For example, would you rather live in a society with a great deal of inequality but with a lot of social mobility, or in one with less inequality but also less mobility? As for status, would you rather have an income of $30,000 and live in a society in which this income put you at the top of the social pyramid, or would you prefer another society in which you would be in the middle and earn $45,000? Economics cannot tell you what view of fairness are correct; you must make up your own mind about how important various characteristics are. Facts in economics need to be organized in some way before they can tell one anything. By themselves, they are meaningless. Thus, the study of economics involves more than a memorization of facts. Economics tries to organize facts with its theory. Good theory tells us which facts are important and which are not, and what is cause and what is effect. The study of economics involves learning how to organize facts the way economists do. People who do not understand economics still try to make sense of the world around them by trying to see pattern in the facts they observe. Sometimes they use a simplistic "good-versus-bad" model. In a goodversus-bad model, two conflicting groups are classified as good people

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and bad people. These groups are usually involved in a zero-sum game: one person's gain is another's loss. Further, evil motives, possessed by the bad people, lead to bad results unless these people are in some way controlled. Good motives lead to good results. An economic model suggests that, in cases of shortages, one should search for government regulation of prices. The good-versus-bad model does not suggest that such regulation is something one should look for. In fact, there were price restrictions in place at the time, and such restrictions can lead to shortages. The good-versus-bad view of the world is attractive because we are able to understand the model at a very young age and because we see the model used so often: in fairy tales, in comic books, in movies, and in television shows, among other places. Because we know how to use this model, and because our culture discourages use of alternative explanations such as fate or mystery, it is easy to fall back to this model if we do not have a more sophisticated model to explain our world. Economic issues affect us all and most people have opinions about them. These opinions may be based on a good-versus-bad view, some other non-economic framework, or simply slogans that are often repeated. Often the hardest problem students have in learning about how economists interpret the world is to unlearn their old, non-economic views. Economic education involves learning to see reality from new perspectives. Sometimes these new perspectives may surprise you. They may even shock you. However, if you take the time to look at the reasoning behind these economic ways of looking at things, you will

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find that they consist of carefully-thought-out-and-applied common sense. A central question in economics is the relationship between an individual's interests and the interests of the group. An examination requires the analytical tools of microeconomics. Once one understands the economic theory of consumer behavior and the theory of the firm, one can come back to the invisible-hand question--the question of whether individual action serves the good of the group--using the concept of economic efficiency. A prime purpose of microeconomics is to ask what sort of economic system, if any, brings harmony rather than conflict between the individual and the group. For economists, the concept of economic efficiency is a key to discussing this question. Working with individuals and ideas from cultures different from our own is complex, and filled with opportunities to misunderstand and offend everyone involved. It requires time to develop trust and understanding for all the players involved. Take the time to learn how and why business is done in the country. Dont judge the results based upon your culture and your countrys standards. There is nothing more damaging to an international relationship than criticism based upon a lack of understanding. You must learn before you attempt to teach new ideas, strategies and procedures. When doing business in Mexico remember that no matter what you feel or believe about your companys products or procedures, Mexicans know their market and people better than you do. They know the correct

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business etiquette and the invisible cultural nuances that are required in order to do business in Mexico. If you enter into business in Mexico with the idea that you are going to teach the Mexicans how business is really done I am confident you will suffer some serious problems. Pushing procedures and business strategies into Mexico will surely cause divisions; it can turn into an us versus them situation for employees and customers. I recommend that your focus be on learning and understanding how business in currently done in Mexico, and why. Once you have this knowledge, teach and explore your cultures and organizations solutions and strategies with your Mexican collaborators. Ill bet the ideas will get modified if necessary, implemented and embraced quickly. The creation of hybrid strategies, using elements from both cultures, will guarantee unification and understanding for everyone involved. With international, multinational, and regional business continuing to expand, one of the most important elements of successful business outcomes is respect and appreciation for cultural diversity. Today, international business etiquette, good manners, and intercultural communication are considered critical elements required for global business managers, employees, and executives and are believed to contribute essentially to success of your business. As multinational and global business shows significant signs of growth, bringing people closer, business colleagues, and clients visiting another country should be treated with an awareness of their culture.

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There exists no standard set of rules applying to all international visitors, so that you have to do some research for each country represented by your business colleagues. Always keeping in mind that there exist as many ways of doing business as a number of countries to do business with, will contribute to your business' prosperity. Listed below are some useful tips concerning international business etiquette essential for developing good business relations. One of the major considerations before you start business with overseas partners is building relationships. In fact, there aren't many people eager to get down to business at once, which means you should take time to get to know better your international clients before rushing to business. Business relations should be built on respect and trust, especially with people from Latin America and Asia. Another important element of the international business etiquette is business attire. While Americans like to dress for comfort and fashion, business people from other parts of the world are regarded as more conservative. Choosing your business clothes, you should always keep in mind that it shows your respect for other business-persons and organizations. It is generally advisable to leave trendy clothes for some other occasions. Observing the hierarchy is another vital aspect in business relations, which, however, may bring about many problems. Sometimes it is quite difficult to know who the highest-ranking business-person is, when you are dealing with a group. For example, Japanese business etiquette implies making decisions by consensus, while starting with the

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youngest member of the group. Latin business people have a hierarchy, which defers to age. Using correct forms of address and titles is part of international business etiquette as well, and can cause misunderstanding if ignored. Thus, you should use last names and titles until you are invited to use the first name of a business-person. In some cultures, use of the first names is strictly reserved for family members and close friends. Any business relations imply exchanging business cards, which is one more aspect of international business etiquette. The key to exchanging business cards in any culture is to demonstrate respect for each other. You should present your business card in such a way that your business partner does not have to turn it over to read information. Both hands should be used while presenting your card to visitors from China, Japan, Hong Kong, and Singapore. When you are presented with your partner's business card, always acknowledge it. Before giving someone your business card, wait until you have been introduced. While planning your business meeting, stick to the rules of punctuality, yet show understanding in case your business partner from another country is unconcerned. Germany is a major trading partner for many countries throughout the world, not to mention the most important single market in the European Union. Almost everyone wants to be active in this market, and for the most part, almost everyone already is. For this reason, stiff competition exists among many almost identical products and services. This fact not only leads to increased pressure to differentiate product quality and characteristics, but it also increases the importance

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of how a business presents itself to the German market. Of course, a company's products play a large roll in its performance, but, more subtly, so do its employees. Most of us know just how important social behavior are when doing business in our own cultures, and this holds true when working abroad as well. Whether one is taking part in trade fairs, carrying out price negotiations with partners or colleagues, talking with endcustomers, or applying for a job abroad, appropriate business conduct helps create mutual trust and understanding and is, therefore, often the key to business cooperation and success. But what behavior are expected in Germany, a country where the people are known for their guttural language, their obsession with "Ordnung", their square-jawed seriousness, and other habits and sensitivities? You can help ensure the achievement of business success with the Germans when you are informed about the cultural differences and expectations in Germany and the situations in which they are important. It is then possible to act appropriately when the time comes and improve your chances of closing that "big deal" or establishing respectful working relationships thus setting yourself and your organization ahead of the competition. The globetrotting executive can expect to deal with numerous problems and difficulties. Unfamiliar languages, customs, food, and behavior combine to make travel challenging and enervating. But which of the annoyances bother international travelers the most?

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As mentioned previously in this column, we recently conducted a survey of business travelers in American Way, the airline magazine of American Airlines. Those participants who did business outside their native country were asked if they experienced any awkward or embarrassing moments in 10 different areas. The area's were ranked from 1-10, most frequent to least frequent: Translation blunders or difficulties (or working with translators). Hygiene. Titles, name order, and informal terms of address (for example, using first names instead of last names, or using the informal pronoun "t" instead of the formal "usted" in Spanish). Introductions and first impressions Clothing and dress. Gestures. Proxemics (the distance people stand apart). Written communications. Giving or receiving gifts (for example, presenting the wrong gift). Eye contact (for example, being made uncomfortable by stares). We have dealt with some of these issues in previous classes. However, we have not discussed hygiene, which is obviously high on the list of travelers' concerns. The most common problem mentioned had to do with encounters with people who, simply put, smelled bad. Because this was a survey of passengers on American Airlines, it was not surprising that most of the anecdotes were about countries
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serviced by that carrier. Europe was mentioned most frequently. Here is a sampling of the comments, as well as the gender and country of origin of each commentator: "I was interviewing a fellow for the position of managing director of our subsidiary in France, and the candidate arrived smelling of body odor and bad breath." -- Male, Canada "I have experienced physical discomfort (stinging eyes!) in the presence of some Europeans (Belgian and French) due to body odor!" -Male, USA "Don't go clothes shopping in Germany on Saturday morning. Saturday night is bath night!" -- Male, USA "When traveling on a train in Italy overnight, people took off their shoes, and our cabin became unbearable with the foot odor. I tried to open the window but the other passengers would close it claiming they would catch cold. I gave up and slept holding a bottle of Guerlain cologne to my nose all night!" -- Female, USA However, complaints also were directed toward citizens of the U.S., such as this note from Central America: "Americans are not as clean as they think!" -- Female, Honduras Is there a lesson in all of this? There's not much you can do about the hygiene of others, except to recognize that different cultures have different attitudes toward odors. In the U.S. we have been taught that the natural smell of our bodies is unpleasant. Our advertising industry has relentlessly hammered us with this message to sell us soap, deodorant, perfume, air fresheners, and other hygiene products. This, quite simply, isn't the case in all countries.

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Unfortunately, it can be very difficult to change our attitudes toward odors when we go abroad. The olfactory centers of our brain are older and more primitive (in evolutionary terms) than, for example, the areas that control our vision. When we look at something, we tend to interpret the data intellectually. But smell is more likely to evoke a primitive, emotional response. Nevertheless, the polite businessperson would never comment on the scent of another executive or anyone else in a public setting. Perhaps it would be easier to tolerate the odor of others if you realize you, too, might be offending noses. Obviously you should tend to your own personal cleanliness as best you can. But realize that as soon as you step out of the shower, your body begins to emit odors. These odors depend upon several factors not exclusive to how often you wash or change your socks. For instance, diet can affect odor. The average U.S. executive may be perfectly groomed, but smell "differently" abroad because Americans consume so much red meat. Many Asians, who traditionally eat little red meat, have commented on the smell of North Americans. Also, using cologne or strong-smelling grooming products (popular in the U.S.) can make you stand out. Be careful not to use too much scent; it can be objectionable to others (including people with multiple chemical sensitivities). Perhaps we should remember while traveling that others don't necessarily share our visceral revulsion toward specific odors. After all... Si fueris Romae, Romano vivito more Si fueris alibi, vivito sicut ibi.

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When you are at Rome live in the Roman style; When you are elsewhere live as they live elsewhere. - St. Ambrose (c. 340-397) Even the smallest of US businesses competes in a shrinking global village, where understanding subtle cultural contexts can make or break sales and marketing efforts. This excerpt from the book Kiss, Bow, or Shake Hands: How to Do Business in Sixty Countries, offers insight into doing business in Japan. Language Japanese is the official language of Japan. It is a complex and subtle language, and is spoken nowhere else in the world as a primary tongue. Most sentences in Japanese can be expressed in at least four different levels of politeness. Appointments Be punctual at all times. During three weeks of the year (New Year's holidays, December 28 to January 3; Golden Week, April 29 to May 5; and Obon, in mid-August), many people visit the graves of their ancestors. Conducting business and traveling are difficult during these periods. Negotiating A Japanese response "I'll consider it" may actually mean "no." Negatively phrased questions will get a "yes" if the Japanese speaker

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agrees. Negotiations are begun at the executive level and continued at the middle level (working level). Business Entertaining Business entertaining usually occurs after business hours, and very rarely in the home. Allow your host to order for you (this will be easier, too, since the menus are in Japanese). Be enthusiastic while eating, and show great thanks afterwards. Protocol The Japanese are very aware of Western habits, and will often greet you with a handshake. The bow is their traditional greeting. If someone bows to greet you, observe carefully. Bow to the same depth as you have been bowed to, because the depth of the bow indicates the status relationship between you. As you bow, lower your eyes. Keep your palms flat against your thighs. The business card is extremely important for establishing credentials. Present your card with the Japanese side facing your colleague, in such a manner that it can be read immediately. Do not put the cards in your pocket or in your wallet if you plan to put it in your back pocket. Never write on a person's business card. Gestures Japan is a high-context culture; even the smallest gesture carries great meaning. Therefore, avoid expansive arm and hand movements, unusual facial expressions, or dramatic gestures of any kind. Nose

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blowing in public is not acceptable. When you must blow your nose, use a disposable tissue and then throw it out. Gifts Gift giving is very common in Japan. Business gifts absolutely must be given at midyear (July 15) and at year end (January 1). They are often given at first business meetings. Good gifts are imported scotch, cognac, or frozen steaks; electronic toys for children of associates; or items made by well-known manufacturers, preferably foreign name brands. Dress Men should wear conservative suits, and never appear casual. Slipon shoes are best, as you will remove them frequently. Women should dress conservatively, keeping jewelry, perfume, and makeup to a minimum. Pants are not appropriate. High heels are to be avoided if you risk towering over your Japanese counterparts. If you wear a kimono, wrap it left over right! Only corpses wear them wrapped right over left. This excerpt from the book Kiss, Bow, or Shake Hands: How to Do Business in Sixty Countries, offers insight into doing business in France. Language French is the official language. If you do not speak French, the international language of diplomacy for centuries, it is advisable to apologize. Most in business speak English.

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Appointments Be as punctual as you would be in the United States, although in the south, the French are more relaxed about time. Most French get four or five weeks of summer vacation, and take it in July and August. Indeed, except for the tourist industry, France virtually shuts down in August. Negotiating France has a civil-law system, rather than the common-law system of the United States. Commercial agreements are short because they refer to the legal code. Many business people have studied law and can draw up their own contracts. Parties to an international contract may choose which country's laws will govern it. Eye contact among the French is frequent and intense, so much so that North Americans may be intimidated. Hierarchies are strict. Try to cultivate high-level personal contacts. The top executive is known as the PDG (pronounced pay-day-ahjay), or president-directeur-general. Business Entertaining Business can be conducted during any meal, but lunch is best. Whoever initiates the meal or drink is expected to pay. When eating, keep both hands on the table at all times. When finished, place your fork and knife parallel across your plate. Cheese is served at the end of the meal; do not put it directly on your bread, and do not serve yourself twice. Don't drink hard liquor before meals or smoke between courses.

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The French believe this deadens the taste buds. Wine is customary with meals. If you do not want any, turn your glass upside down before the meal. Protocol Always shake hands when being introduced or when meeting someone, as well as when leaving. In general, the woman offers her hand first. French handshakes are not as firm as in the United States. Gestures The "thumbs up" sign means "O.K."; the US "O.K." sign (forming a circle with thumb and forefinger) means "zero" in France. Slapping the open palm over a closed fist is vulgar. Gifts Good gifts include books or music, as they show interest in the intellect. Bring American bestsellers, especially biographies. The thicker and more complex the book, the better; simplicity is not a virtue in France. Bring flowers (not roses or chrysanthemums) or fine chocolates or liqueur to the host, and present them before, not after, the party. Do not bring wine, as it has probably already been carefully selected for the occasion by the host.

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Dress The French are very aware of dress. Be conservative and invest in well-made clothes. In the north and in the winter, men should wear dark suits. In a global economy, it is crucial for business people to be sensitive to cultural differences. And although the best reason for doing so may be ethical, it's great for business as well! This is an invaluable book for "doing well while doing good" in your intercultural relations, covering the protocols of appointments, business entertaining, greetings, forms of address, gestures, dress, and gifts in 60 of the nations you're most likely to be doing business. Some interesting excerpts: Australia: The "thumbs-up" sign, which in the U.S. indicates "O.K., is considered rude. Brazil: The colors of the Brazilian flag are green and yellow, so avoid wearing this combination in any fashion. China: Avoid making exaggerated gestures or using dramatic facial expressions. The Chinese do not generally use their hands when speaking, and become distracted by a speaker who does. Indonesia: Since it is impolite to disagree with someone, Indonesians rarely say "no"...a clear way to indicate "no" is to suck in air through the teeth. For many manufacturers, success in the international marketplace depends largely on how well they manage their relationships with retailers, distributors, and agents in foreign cultures.

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Today's competitive global business environment demands that all companies, large and small, new and old, give consideration to the strategic option of expanding their markets to other nations. This option can hold the potential for increased competitiveness and step-change increases in revenue and therefore cannot be ignored. Those companies that have a well-established international presence are able to use their in-house resources, developed from many years of experience, to generate revenue from international markets. However, other, often smaller and more recently formed companies may lack this history and experience. As important, they may also lack resources such as international branch offices, ex-patriot personnel or inhouse experts with an understanding of markets and business practices in specific countries. 6.2. The criterion of economic efficiency Efficiency is a relative term. It is vital that this point be understood. Efficiency is never absolute; it is always relative to some criterion. This can be seen when one asks if farms are more efficient in the United States or China. The farming techniques in China are more efficient than those in the United States when measured in terms of output per unit of land, output per unit of fossil fuel, or output per unit of machinery. The farms in the United States are far more efficient in terms of output per man-hour/person-hour. The criterion for economic efficiency is value. A change that increases value is an efficient change and any change that decreases

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value is an inefficient change. A situation, which is economically efficient, may be inefficient when judged on different criteria. Value is subjective. A thing has value only if someone wants it. How then can we know if value is maximized? If there is some change that makes someone feel better off, but making this change does not make anyone feel worse off, then the original situation was not one of highest value. Improvement was possible. When the highest value is reached, then any possible change that helps anyone must harm someone else. This way of defining economic efficiency, Pareto optimality, is named after Vilfredo Pareto, an early mathematical economist. Economists are interested in economic efficiency for two reasons, one positive and the other normative. The positive reason is based on the observation that people search for value. Given enough money, any occupation, no matter how immoral or risky, will attract people. The normative reason stems from a desire to make policy recommendations. It is possible to discuss some aspects of policy without normative assumptions. An economist can predict, for example, whether a policy will or will not achieve the goals set for it. However, economists often want to do more. They often want to compare two policies or two situations and decide which is better. To decide which is better requires some sort of basis for ranking situations. Thus, if they want to ask whether government regulation of utility prices, a tariff on steel, or a program to train unskilled workers helps society, economists need a criterion on which to base their answer. Economists generally use the criterion of economic efficiency to evaluate situations, though they often

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supplement it with other considerations because economic efficiency is not the only way to judge the relative merits of two situations. The value maximized in the notion of economic efficiency reflects the goals people have. Not all goals are equal in determining value. The goals of some are given more emphasis than the goals of others. In a market economy, the goals of the rich are given more weight than the goals of the poor. Economic efficiency is a term typically used in microeconomics when discussing product. Production of a unit of good is considered to be economically efficient when that unit of good is produced at the lowest possible cost. Economics by Parkin and Bade give a useful introduction to the difference between economic efficiency and technological efficiency: There are two concepts of efficiency: Technological efficiency occurs when it is not possible to increase output without increasing inputs. Economic efficiency occurs when the cost of producing a given output is as low as possible. Technological efficiency is an engineering matter. Given what is technologically feasible, something can or cannot be done. Economic efficiency depends on the prices of the factors of production. Something that is technologically efficient may not be economically efficient. But something that is economically efficient is always technologically efficient. A key point to understand is the idea that economic efficiency occurs "when the cost of producing a given output is as low as possible". There's a hidden assumption here, and that is the assumption that all else

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being equal. A change that lowers the quality of the good while at the same time lowers the cost of production does not increase economic efficiency. The concept of economic efficiency is only relevant when the quality of goods being produced is unchanged. The concept of economic efficiency is only relevant when the quality of goods being produced is unchanged. Economic efficiency means that the "correct people" (those who can afford it) will get the "correct goods and services" (whatever they want). Economic efficiency allocates resources to people who are the most successful at gaining social power. In the economist's ideal world, the rich get richer and the poor get poorer. It is a broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one person would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production.

Some terms that encompass phases of economic efficiency include allocation efficiency, production efficiency and Pareto efficiency. A state of economic efficiency is essentially just a theoretical one; a limit that can be approached but never reached. Instead, economists look at the amount of waste (or loss) between pure efficiency and reality to see how efficiently an economy is functioning.

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Measuring economic efficiency is often subjective, relying on assumptions about the social good created and how well that serves consumers. Basic market forces like the level of prices, employment rates and interest rates can be analyzed to determine the relative improvements made toward economic efficiency from one point in time to another. A state of economic efficiency is utilizing resources in a manner that results in the greatest value of output. A system is characterized by economic efficiency if goods, services, and resources flow to those who will pay the highest prices. Taxes, subsidies, quotas, and regulations result in reduced economic efficiency. In absolute terms, a system can be called economically efficient if: No one can be made better off without making someone else worse off. More output cannot be obtained without increasing the amount of inputs. Production proceeds at the lowest possible per-unit cost. These definitions of absolute efficiency are not equivalent, but they are all encompassed by the idea that nothing more can be achieved given the resources available.

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7. Industry, goods & services

An exchange is a voluntary agreement between two people, in which each gives something to the other and gets in return something that he considers of greater value. Economics focuses almost exclusively on interactions based on exchange. People engage in exchange to attain goals. Exchange is not just taking; in order to get, one must give. People must do things that they do not want to do in order to get things that they desire. The unpleasant part of this process is work and production, and the pleasant part is consumption. Work and production are not pursued for their own sakes, but only because without them we cannot consume. Thus, the economy is divided into two sectors: one concerned with producing goods and services, and the other with consuming them. Resources are converted into goods and services by business, and in this transformed state travel back to consumers. Money flows in the opposite direction. These flows involve two markets in which exchange takes place: the resource or factor market in which business buys resources, and the goods and services market in which business sells goods. The word "firm" takes on two meanings in economics. Sometimes, the word refers to an agent that produces something. Other times, it refers to a business organization. The second meaning of the word is more restrictive than the first. A self-employed farmer is not a firm in the second meaning because he is not an organization, nor is a non-profit

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organization because it is not a business. Yet both are firms in the first meaning. The word "industry" cannot be used interchangeably with "firm." An industry is defined as all firms producing similar products. It can contain one firm or millions of firms. In practice, there are two complications with this definition. First, there is no clear rule for deciding how similar products must be before they belong in the same industry. For example, what other products belong in the industry that Coca Cola is in? Does Pepsi Cola, or Seven Up, or orange juice, or milk, or beer belong in the same industry? There is no clearly correct answer. Second, the number of firms in an industry depends on the price of the product. Firms enter as price rises and exit as price falls. A firm must obtain inputs. Inputs include raw materials, energy, machinery, office space, workers, and anything else needed to produce output. Output may either be a tangible good such as a pair of shoes or an automobile, or a service such as a haircut or a medical check-up. The firm must sell its output to someone else. The economic theory of the firm is an analysis of the way the firm must perform to make a profit. What determines the amount of a good or service that people are willing and ready to sell during some period of time? Sellers intend to make a profit from their sales, and economists assume that they want their profits to be as large as possible. Because profit is the difference between benefits in the form of revenues and costs, anything that influences revenues or costs can influence the amounts sellers want to sell. Revenue is found by multiplying the price of the product by the amount sold.

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Because a higher price leads to higher profit, and a higher profit leads to a larger amount that sellers will want to sell, one expects that a greater quantity should be supplied when the price is higher. Thus, the relationship between quantity that sellers will sell and price should be direct or positive. Though the positive relationship is usually the case, there are a few exceptions. An example is labor - as wages go up, people may decide to enjoy their higher wages and work less. Industry refers to the production of an economic good (either material or a service) within an economy. There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction, and manufacturing; the tertiary sector, which deals with services (such as law and medicine) and distribution of manufactured goods; the quaternary sector, a relatively new type of knowledge industry focusing on technological research, design and development such as computer programming, and biochemistry. A fifth sector has been proposed encompassing nonprofit activities. The economy is also broadly separated into public sector and private sector, with industry generally categorized as private. Industries are also any business or manufacturing.

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Industry in the sense of manufacturing became a key sector of production and labor in European and North American countries during the Industrial Revolution, which upset previous mercantile and feudal economies through many successive rapid advances in technology, such as the steel and coal production. It is aided by technological advances, and has continued to develop into new types and sectors to this day. Industrial countries then assumed a capitalist economic policy. Railroads and steam-powered ships began speedily establishing links with previously unreachable world markets, enabling private companies to develop to then-unheard of size and wealth. Following the Industrial Revolution, perhaps a third of the world's economic output is derived from manufacturing industriesmore than agriculture's share. Many developed countries (for example the UK, the U.S., and Canada) and many developing/semi-developed countries (People's Republic of China, India etc.) depend significantly on industry. Industries, the countries they reside in, and the economies of those countries are interlinked in a complex web of interdependence. Early industries involved manufacturing goods for trade. In medieval Europe, industry became dominated by the guilds in cities and towns, who offered mutual support for the member's interests, and maintained standards industry workmanship and ethical conduct. The industrial revolution led to the development of factories for large-scale production, with consequent changes in society. Originally the factories were steam-powered, but later transitioned to electricity once an electrical grid was developed. The mechanized

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assembly line was introduced to assemble parts in a repeatable fashion, with individual workers performing specific steps during the process. This led to significant increases in efficiency, lowering the cost of the end process. Later automation was increasingly used to replace human operators. This process has accelerated with the development of the computer and the robot. Historically certain manufacturing industries have gone into a decline due to various economic factors, including the development of replacement technology or the loss of competitive advantage. An example of the former is the decline in carriage manufacturing when the automobile was mass-produced. A recent trend has been the migration of prosperous, industrialized nations toward a post-industrial society. This is manifested by an increase in the service sector at the expense of manufacturing, and the development of an information-based economy, the so-called informational revolution. In a post-industrial society, manufacturing is relocated to more economically-favorable locations through a process of off-shoring. There are several branches of technology and engineering specialized for industrial application. This includes mathematical models, patented inventions and craft skills. See automation, industrial architecture, industrial design, industrial process, industrial arts and industrial applicability. An industrial society can be defined in many ways. Today, industry is an important part of most societies and nations. A

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government must have some kind of industrial policy, regulating industrial placement, industrial pollution, financing and industrial labor. Industry classification systems used by the government commonly divide industry into three sectors: agriculture, manufacturing, and services. The primary sector of industry is agriculture, mining and raw material extraction. The secondary sector of industry is manufacturing. The tertiary sector of industry is service production. Sometimes, one talks about a quaternary sector of industry, consisting of intellectual services such as research and development (R&D). Market-based classification systems such as the Global Industry Classification Standard and the Industry Classification Benchmark are used in finance and market research. These classification systems commonly divide industries according to similar functions and markets and identify businesses producing related products. Industries can also be identified by product: chemical industry, petroleum industry, automotive industry, meatpacking industry, hospitality industry, food industry, fish industry, software industry, paper industry, entertainment industry, semiconductor industry, cultural industry, poverty industry labor-intensive industry - capital-intensive industry light industry - heavy industry Firm or The Firm may refer to: Any business entity such as a corporation, partnership, sole proprietorship, or "private equity" "investment (firm) organization"

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 Economic entities which substantially lack internal markets. Their structure and behavior are described by the theory of the firm. British slang phrase for a criminal gang or football hooligans. Organizations called The Firm: The Firm, a criminal gang active in the East End of London, once run by the Kray twins The Firm, a Scottish magazine for law students, trainees and practitioners The British Royal Family, allegedly referred to as "the Firm" by family members Secret Intelligence Service (SIS or MI6), one of the United Kingdom intelligence agencies McKinsey & Company, a large multinational management consulting firm Firmaet, an anti-communist private intelligence agency in Denmark run by former Danish resistance movement leader Arne Sejr Goldman Sachs investment bank called "the Firm" by employees. A business firm - the members of a business organization that owns or operates one or more establishments; "he worked for a brokerage house" firm, house corp., corporation - a business firm whose articles of incorporation have been approved in some state
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 business, business concern, business organization, business organization, concern - a commercial or industrial enterprise and the people who constitute it; "he bought his brother's business"; "a small mom-and-pop business"; "a racially integrated business concern" accounting firm - a firm of accountants who provide accounting and auditing services for a fee consulting company, consulting firm - a firm of experts providing professional advice to an organization for a fee publisher, publishing company, publishing firm, publishing house - a firm in the publishing business dealer - a firm engaged in trading law firm - a firm of lawyers auction house - a firm that conducts auctions "The theory of the firm" is the name given to the contentious set of questions about why business firms exist in the first place, what their boundaries are, and why they tend to be structured as they are. Most people don't give the question much thought, but stop and think for a minute about why companies exist, and why so many of them exist in roughly the form they do. From the point of view of ideal market theory, the fact that firms exist at all needs explaining: they're lumps, aggregations of people working together within what would otherwise be a homogenous field of buyers and sellers of goods and services. During the last two decades, economic theories of the firm have become increasingly influential in a number of disciplines in business

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administration, notably in strategic management, organization theory, corporate governance, and marketing. In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility. It is often used when referring to a Goods and Services Tax. We satisfy our needs and wants by buying goods and services. Goods are items you can see and touch, such as a book, a pen, salt, shoes, hats, a folder etc. Services are provided for you by other people, such as; doctor, a lawn mower worker, a dentist, haircut and eating in restaurants. The dichotomy between physical goods and intangible services should not be given too much credence; these are not discrete categories. Most business theorists see a continuum with pure service on one terminal point and pure commodity good on the other terminal point. Most products fall between these two extremes. For example, a restaurant provides a physical good (prepared food), but also provides services in the form of ambiance, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods & services; like water utilities which actually deliver water utilities are usually treated as services. In business, people sometimes talk about the marketing of products and services. This is clear - services are products. Marketers must draw on the same set of principles and skills to market all products,

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whether they are apples, oranges or haircuts. Like economists, marketers too view goods and services as two ends of a continuum. Economics is concerned with the production and distribution of goods and services. Goods would be defined as anything that anyone wants or needs. Services would be the performance of any duties or work for another; helpful or professional activity. The distribution of goods and services is referred to as marketing. The marketing of goods and services can add almost as much to the cost as the actual manufacturing of the goods. Marketing a product refers to the advertising, and other efforts to promote a products sale. There are many different kinds of goods. Consumer goods are those such as food and clothing, which satisfy human wants or needs. Producer goods are those such as raw materials and tools, used to make consumer goods. Capital goods are such machinery, used in the production of commodities or producer goods. There are untold numbers of services. A short list would include educational, health, communication, transportation, social services. One of the most basic ideas in economics is goods and services. More than anything else, money is spent on goods and services. It helps to know the difference between two. A good is something that you can use or consume, like food or CDs or books or a car or clothes. You buy a good with the idea that you will use it, either just once or over and over again. A service is something that someone does for you, like give you a haircut or fix you dinner or even teach you social studies. You don't

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really get something solid, like a book or a CD, but you do get something that you need. Goods and services are the outputs offered by businesses to satisfy the demands of consumer and industrial markets. They are differentiated on the basis of four characteristics: Tangibility: Goods are tangible products such as cars, clothing, and machinery. They have shape and can be seen and touched. Services are intangible. Hair styling, pest control, and equipment repair, for example, do not have a physical presence. Perishability: All goods have some degree of durability beyond the time of purchase. Services do not; they perish as they are delivered. Separability: Goods can be stored for later use. Thus, production and consumption are typically separate. Because the production and consumption of services are simultaneous, services and the service provider cannot be separated. Standardization: The quality of goods can be controlled through standardization and grading in the production process. The quality of services, however, is different each time they are delivered. For the purpose of developing marketing strategies, particularly product planning and promotion, goods and services are categorized in

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two ways. One is to designate their position on a goods and services continuum. The second is to place them into a classification system. The goods and services continuum enables marketers to see the relative goods/services composition of total products. A product's position on the continuum, in turn, enables marketers to spot opportunities. At the pure goods end of the continuum, goods that have no related services are positioned. At the pure services end are services that are not associated with physical products. Products that are a combination of goods and services fall between the two ends. For example, goods such as furnaces, which require accompanying services such as delivery and installation, are situated toward the pure goods end. Products that involve the sale of both goods and services, such as auto repair, are near the center. Products that are primarily services but rely on physical equipment such as taxis are located toward the pure services end. The second approach to categorizing products is to classify them on the basis of their uses. This organization facilitates the identification of prospective users and the design of strategies to reach them. The major distinction in this system is between consumer and industrial products. Consumer goods and services are those that are purchased for personal, family, or household use. Industrial goods and services are products that companies buy to make the products they sell. Two major changes have affected the marketing and production of goods and services since about 1950. The first was a shift in marketing philosophy from the belief that consumers could be convinced to buy whatever was produced to the marketing concept, in which consumer

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expectations became the driving force in deter mining what was to be produced and marketed. This change in orientation has resulted in increases in both lines of products and choices within the lines. The second change was an increased demand for services. The growth in demand for ser vicesand resulting productioncontinues to increase at a faster rate than the demand for manufactured goods. Goods and services are tangible and intangible goods that are produced and purchased in order to fulfill the needs and desires of consumers. Most countries base their economy on the production and consumption of both physical goods and intangible services that people at home and abroad are willing to purchase. In many cases, both the services and the goods are offered simultaneously. Goods are simply any physical or tangible products that can be seen and touched. Some goods are quickly consumed and must be replaced by like or similar products on a regular basis. Food is one example of goods that are quickly consumed and must be acquired repeatedly. Other forms of goods are more long-term in nature, and may last for years or even decades. Furniture, cutlery, and houses are examples of durable goods that are intended to satisfy consumers for extended periods of time. Services are intangible support that is provided to the consumer in some manner. A physician provides healthcare support or services. Telephone companies provide communications services such as local calling ability, long distance calling, and other features that enhance the electronic communication process. Banks provide a range of financial

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services to customers, ranging from basic and checking accounts to investment opportunities. Often, goods and services are presented as a unified package, providing a well-rounded and attractive option for the consumer. For example, a restaurant offers food, which is easily identified as goods. At the same time, the food is prepared for the consumer, and brought to the table by a server; thus, the goods are complemented with service. Communication companies may offer some type of equipment at no extra charge, provided the customer commits to using their services for a certain period of time, clearly another marriage of goods and services. Most countries around the world depend on the production of goods and services to stimulate the economy. It is not unusual for nations to impose some type of goods and service tax on these products, which helps to create a steady stream of revenue for the operation of the central government. While the specifics of a goods and services act will vary somewhat from one country to another, most will address the production and consumption of goods and services that are meant for export as well as those that are consumed domestically. In addition to federal taxation on products that are manufactured within the country, there is often some type of tax structure applied to any goods and services that are brought into the nation from other sources. Goods are tangible objects used by consumers and producers. They may be used for a specific task or simply used as a decoration. By comparison, services are tasks performed by producers in the tertiary sector for other producers and consumers, with money value but no real

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physical value. Both goods and services are called commodities and exchanged for money in the commodities market. Commodities can be classed in several ways. Common classifications of commodities include: Needs essential to survive and live at a basic standard, basic wants to have a reasonable quality of life and luxuries which are not needed. Free goods of which there is an abundance of and economic goods and services that are scarce enough that consumers are willing to pay for them. Capital goods used to produce other goods and services and consumer goods or final goods ready to be used by consumers for themselves. Durable goods that last a long time and can be reused and nondurable goods that can only be used once and are perishable. Merit goods and positive goods that are considered beneficial to society and demerit goods and negative goods that have a negative social impact.

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8.

Goods and production

Economics is concerned with the production and distribution of goods and services. Goods would be defined as anything that anyone wants or needs. Services would be the performance of any duties or work for another; helpful or professional activity. The distribution of goods and services is referred to as marketing. The marketing of goods and services can add almost as much to the cost as the actual manufacturing of the goods. Marketing a product refers to the advertising, and other efforts to promote a products sale. There are many different kinds of goods. Consumer goods are those such as food and clothing that satisfy human wants or needs. Producer goods are those such as raw materials and tools, used to make consumer goods. Capital goods are such machinery, used in the production of commodities or producer goods. There are untold numbers of services. A short list would include educational, health, communication, transportation, social services. Goods and services are the outputs offered by businesses to satisfy the demands of consumer and industrial markets. They are differentiated on the basis of four characteristics: 1. Tangibility: Goods are tangible products such as cars, clothing, and machinery. They have shape and can be seen and touched. Services are intangible. Hair styling, pest control, and equipment repair, for example, do not have a physical presence.

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2. Perishability: All goods have some degree of durability beyond the time of purchase. Services do not; they perish as they are delivered. 3. Separability: Goods can be stored for later use. Thus, production and consumption are typically separate. Because the production and consumption of services are simultaneous, services and the service provider cannot be separated. 4. Standardization: The quality of goods can be controlled through standardization and grading in the production process. The quality of services, however, is different each time they are delivered. For the purpose of developing marketing strategies, particularly product planning and promotion, goods and services are categorized in two ways. One is to designate their position on a goods and services continuum. The second is to place them into a classification system. The goods and services continuum enables marketers to see the relative goods/services composition of total products. A product's position on the continuum, in turn, enables marketers to spot opportunities. At the pure goods end of the continuum, goods that have no related services are positioned. At the pure services end are services that are not associated with physical products. Products that are a combination of goods and services fall between the two ends. For example, goods such as furnaces, which require accompanying services such as delivery and installation, are situated toward the pure goods end. Products that involve the sale of both goods and services, such as auto repair, are near the center. Products that are primarily services but rely on physical equipment such as taxis are located toward the pure services end.

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The second approach to categorizing products is to classify them on the basis of their uses. This organization facilitates the identification of prospective users and the design of strategies to reach them. The major distinction in this system is between consumer and industrial products. Consumer goods and services are those that are purchased for personal, family, or household use. Industrial goods and services are products that companies buy to make the products they sell. Two major changes have affected the marketing and production of goods and services since about 1950. The first was a shift in marketing philosophy from the belief that consumers could be convinced to buy whatever was produced to the marketing concept, in which consumer expectations became the driving force in determining what was to be produced and marketed. This change in orientation has resulted in increases in both lines of products and choices within the lines. The second change was an increased demand for services. The growth in demand for ser vicesand resulting productioncontinues to increase at a faster rate than the demand for manufactured goods. The cost of something is what must be given up in order to get it. When costs are only monetary, they are easy to see. Production costs are determined not only by the prices of inputs, but also by technology. Technology represents the knowledge of how inputs (such as labor, raw materials, energy, and machinery) can be combined to produce the product. Costs may be non-monetary as well as monetary. For example, a farmer takes the expected price of soybeans into account in deciding

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how much corn to plant. If soybeans are expected to sell for a high price, then the farmer may find that shifting some of his land from corn production to soybean production will increase profit. The decision to plant corn means that the farmer gives up the opportunity to plant soybeans (as well as giving up the money for seed, fuel, equipment, and labor). Because we have defined cost as what must be given up to get something, the prices of other goods that sellers could otherwise produce and sell must be part of the calculation of the cost of production. There are other factors that can influence the amount of a product that sellers will sell, such as the number of sellers, expectations about the future, and whether or not there are by-products in production that are valuable. Production is converting raw materials to finished products. It involves a number of factors to be able to produce the goods and services that cater to our needs. Production means the development and creation of goods and services using resources to stimulate exchange. It is the physical output of a manufacturing or service company. Production involves three processes raw materials, work in process and finished goods. Means of production refer to the concept which combines the means of labor and the subject of labor. Means of labor simply means all the things which require labor to transform it. Subject of labor means the material to work on. Production, therefore, is the combined resources and equipment needed to come up with goods or services.

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Resources of Production First, it is important to delve on the resources of production. Agrarian industries require soil and shovel to produce, while industrial companies require factories. The resources of production pertain to the things used to create commodities. Therefore, it talks about the different factors of production used to be able to come up with the finished goods which include labor, land and capital as the basic. Additionally, technology and entrepreneurship are also playing essential roles in production. These five factors are needed to come up with products or services. Labor pertains to the human resources of the business. The people are the companys greatest resource because they look after the other components of production. Human labor could either be technical or marketing expertise. Land pertains to the natural resources used in production such as water, soil for farming, minerals, air, flora and fauna. Shell craft industries make use of shells to create wonderful accessories. Meat shops sell pork, chicken and beef. These industries make use of the natural resources around them. Capital refers to human-made goods that are to be used in production. Machinery, building, shares of stocks, equipment and others all fall under this category. Originally, capital only pertains to money or gold.

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Entrepreneurship is a fourth factor in production because of their coordinating function. They are the ones who look after the other factors of production: land, labor, capital and technology in such a way that it can generate profit. Entrepreneurs invest the other factors in order to come up with products and services that would entice customers to buy. Technology or information technology forms part of intellectual capital. It is fast becoming a huge factor for all kinds of businesses are they manufacturing, retail, agricultural or service industries. The advances in our technology enable the production of goods and services faster and easier. Computers are doing the jobs that people needed to do before. The intangible economy defines 21st century businesses. Production factors in the intangible economy consist of knowledge, collaboration, process engagement and time quality. Since the four modern-day production factors are all abstract, thats how the term intangible economy came about. All of these factors are needed to come up with the goods and services offered by the business. Product is the focal point of marketing because without a product there will be nothing to market. It is the focal point around which all marketing activities revolve. Products or services have to cater to the customers needs. These things should satisfy the customer or serve as aids to attain a fulfilling end.

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In economics, a public good is a good that is non-rivalrous and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability that no one can be effectively excluded from using the good.] In the real world, there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful. For example, if one individual visits a doctor there is one less doctor's visit for everyone else, and it is possible to exclude others from visiting the doctor. This makes doctor visits a rivaled and excludable private good. Conversely, breathing air does not significantly reduce the amount of air available to others, and people cannot be effectively excluded from using the air. This makes air a public good, albeit one that is economically trivial, since air is a free good. A less straight-forward example is the exchange of MP3 music files on the internet: the use of these files by any one person does not restrict the use by anyone else and there is little effective control over the exchange of these music files and photo files. A capital good, or simply capital, is saved up wealth that enables enterprise by allowing start-up companies to enjoy an initial period where they consume more than they produce. For start-ups to be able to do this, others (savers) must either currently be saving or must have saved in the past. It is simply not possible to have some people consuming more than they produce without having others who are either currently producing more than they consume or who did so in the past.

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9. Buyers and sellers

A market exists when buyers and sellers interact to exchange products. What determines the amount of a product that people are willing and ready to buy during some period of time? For example, what determines the amount of hamburger purchased in Chicago during a week? Economists answer such questions by examining the costs and benefits of buying the product. When any of the costs or benefits changes, the amount of the product, which people will buy, should also change. The benefits a person gets from a product depend on his goals. These goals are referred to in many ways. The words "tastes," "wants," "needs," "preferences," and "usefulness" all refer to goals. When people's goals change, the amount of benefit they get from the good changes, and this will cause them to change the amount of the good they want to buy. Goals (or preferences or tastes) depend on many factors, such as the age of people and the amount of education they have. Social custom is an important determinant of preferences and can account for many differences in demand among groups. There is too much diversity in the ways buyers and sellers interact to explain everything.

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The ordinary consumer when he goes to the store, he can buy one or twenty gallons of milk with no effect on price. In the list of factors that affected buyers and sellers, the only common factor is price. Few people who buy hamburger know or care about the price of cattle feed or the details of cattle breeding. Cattle raisers do not care what the income of the buyers is or what the prices of related goods are unless they affect the price of cattle. If information is not good, the same product may sell for a variety of prices. Often, however, what seems to be the same product at different prices can be considered a variety of products. A pound of hamburger for which one has to wait 15 minutes in a checkout line can be considered a different product from identical meat that one can buy without waiting. A task of the firm is to obtain resources needed to produce a product. For each resource, the firm faces limitations based on the preferences of sellers and on the actions of other firms that use the resource. In the world we live in, greater amounts of income must be purchased with more work - which means less leisure. Higher wages have two effects on the leisure-work decision, and these two effects pull in opposite directions. A higher wage rate increases the benefits of working, causing people to substitute work for leisure. Higher wages also increase income, and people want more leisure with a higher income. If a firm hires two clerks who do exactly the same work, and pays one $4.00 per hour and the other $6.00 per hour, the lower-paid one will

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be unhappy and may refuse to work for the lower pay. On the other hand, many firms do not publicly disclose what they pay various people, and discourage employees from discussing salaries. To the extent that people are unaware of what others are earning, the firm may be able to pay different prices for the same resource, or in economists' jargon, to price discriminate. Buyers demand goods and services; sellers supply goods and services. Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates goods and services. The price is what people pay when they buy a good or service, and what they receive when they sell a good or service. In market economies there is no central planning agency that decides how many different kinds of sandwiches are provided for lunch everyday at restaurants and stores, how many loaves of bread are baked, how many toys are produced before the holidays, or what the prices will be for the sandwiches, bread, and toys. Businesses want to sell the goods and services consumers will buy. A market exists when buyers and sellers exchange goods and services. Peoples choices about what goods and services to buy ultimately determine what producers produce. Every company is at some time both a buyer and seller of goods and services. Negotiating and signing clear and balanced purchase contracts is the most effective way to protect your company's reputation, revenues, markets and customer relationships. The market is the most

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effective teacher of "best practices", and if you learn from the mistakes of others, you will be wiser and wealthier. Preparing a good purchase contract should embody that old saying of "an ounce of prevention is worth a pound of cure." Investing time and expertise in a good purchase contract is one of the most important revenue-generating tools to avoid liabilities, future trade disputes, uncollected accounts receivables, reputation-damaging publicity, and claims of breach of contract and poor quality control. These can be easily avoided with a small dose of preventive attention in advance. Whether acting as a buyer or a seller, the same basic common sense rules apply to protect your business. They boil down to a few basic principles: Ensure that the purchase/sale contract is clear about ALL the major terms and conditions without any room for different interpretations Ensure that the purchase/sale contract is clear about the responsibilities and obligations of ALL the parties without any room for different interpretations Ensure that the purchase/sale contract reflects the realities as understood by ALL parties without any room for different interpretations Ensure that ALL payment, legal title and delivery terms are reasonable and stated clearly Ensure that the purchase/sale contract is enforceable against ALL the real parties in interest and provides for dispute resolution mechanisms that practically work

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Build in practical communication and resolution mechanisms to solve problems before costly litigation/arbitration Below we share some of the "best practices" that should be included in the basic form agreements for every company, even before specific "tailoring" to special needs. These should be useful to help navigate an increasingly complicated and competitive trade, investment and business environment. 1. Sign a Non-Disclosure Agreement (NDA) Before Discussions Sign an NDA at the beginning of discussions to prevent unlawful use of trade secrets and/or confidential information (e.g. sales, design, or customer information) by other parties 2. Sign with the Legal Representative. Request that the purchase agreement be signed by the person listed as the legal representative in the company's incorporation documents. If the person signing the agreement is not the legal representative, the other party may claim to not to be bound by the agreement and refuse to abide by some or all of its terms. 3. Discuss Demand Forecasts Demand forecasts will often be mentioned in the agreement but are not binding unless stated explicitly. Ensure that forecasts are binding only for a short-term and retain explicit rights to modify the forecasts to allow future flexibility.

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4. Determine Whether Orders Can be Cancelled, Rescheduled, or Modified By default, orders are binding and cannot be modified or cancelled without liability unless explicitly stated. To allow flexibility and fairness to both parties, set specific bounds (dates and volumes) for when orders can be cancelled, re-scheduled, or modified. 5. State Explicit Payment Terms and Penalties for Delayed Payment The agreement must clearly state the payment terms. For example, it is better to ask for payment "10 days after shipment," instead of "on receipt of products." The agreement should clearly define a lump sum, a daily/weekly/monthly penalty, and/or an interest charge in the event of delayed payment. As with other penalties, a fixed figure must be agreed on in advance. 6. Determine When to Transfer Title of the Goods As a buyer, make sure that title to the goods is transferred upon shipment. If the seller transfers goods to you, but files for bankruptcy before you pay for them, the goods will be considered part of the seller's assets and liquidated. As a seller, title to goods should be transferred upon payment. If you transfer title to the goods before payment and the buyer then files for bankruptcy protection, the goods will be considered part of the buyer's assets, and will consequently be liquidated. 7. Payment after Acceptance The agreement should ask for payment to be made within a reasonable period of time after the products have passed acceptance

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tests. This ensures that defective products are not bought and safeguards against later refund disputes. 8. Have the Right to Audit As a buyer, incorporate a clause that permits audits of the seller's financial data and visits to the seller's factory (with prior notice) to guarantee that the seller is not unlawfully manufacturing the same products for other uses. 9. Most Favorable Price A most favorable price term should be incorporated into the agreement to ensure that other buyers will not be able to make an equivalent purchase for the same goods for a lower price in the future. 10. Define Clear Quality Control Mechanisms and Specifications Ensure the agreement provides clear, detailed, and previously agreed upon quality specifications, as well as a description of the inspection process (i.e. who will inspect the product, when, and how). The seller should provide sample products for reference and records. Make sure an independent and local third party conducts quality control inspections during production or before shipping the goods to the buyer. State that the results of these inspections are binding. It is common practice for the buyer to select and pay for this service provider. 11. Clearly State Warranties The objective of spending time and energy drafting a purchase agreement is to minimize your liability in all transactions. Reasonably state everything you need in the warranty clause, and do not simply rely on your insurance policies.

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12. Sufficient Indemnifications Claim sufficient indemnifications in order to cover your potential losses in any future disputes, including the attorney fees you may be required to spend. 13. Define Clear Mechanisms to Handle Returns Specify deadlines to report product defects and returns (e.g. 10 days after shipping). Make sure the term "defect" is clearly defined and understood by both parties. Document customer complaints and require products to be inspected by you or a mutually agreed upon third party to be deemed defective. Have clear deadlines and procedures to reduce misunderstandings and pass liability to the other party if they fail to adhere to the established system. 14. Right to Offset As a buyer, make sure you have the right to offset any amount owed by the seller against the product payments. This must be clearly stated as the right is not usually granted. 15. No Right to Outsource As a buyer, make sure the seller is forbidden from outsourcing the function of manufacturing and/or supplying to a third party to ensure the quality of the products unless prior written consent is given. 16. State Termination Rights State very clearly the circumstances under which the agreement can be terminated. These usually include mutual consent and breach of specific clauses by one of the parties.

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17. Select the Governing Law That Better Protects Your Rights Remember that any jurisdiction can be used as long as both parties agree. Even though your first impulse may be to use the jurisdiction where your company is located, you should check with your lawyer to explore other options on a case-by-case basis. In some cases, choosing the other party's jurisdiction may better facilitate seizure of assets in case of a dispute. 18. Prepare a Standard Agreement in Advance As Louis Pasteur once said, "Chance favors the prepared mind." The best way to ensure your interests are protected in every transaction is to develop your own template agreement with the assistance of an experienced commercial lawyer and use it as a baseline during negotiations. 19. Sign with a Real Party of Interest, Not a Paper Company Ensure the other party has assets for future enforcement if a dispute arises. Remember that purchase agreements are only binding for the entities that sign it, regardless of who actually receives the product. If the agreement is signed with a "paper company" that holds no assets, you are left with little or no legal recourse in case of a dispute. Always request that the agreement be signed by the global or regional headquarters, and be very suspicious if one party suggests using an offshore entity. Whenever possible, conduct a background check to make sure the signing entity has a previous track record of successful sales and assets (real estate, production facilities, bank accounts, etc.) that can be seized in case of dispute.

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In the case of a representative office, obtain an authorization letter from the real party of interest, naming the office as its representative. The authorization letter should state that the real party of interest is responsible for payment of orders placed in their name by the representative office. 20. State Explicitly Any Geographic Limitations for Distribution If product distribution is to be limited to a specific geographic area, this should be negotiated beforehand and stated clearly in the agreement. Any penalties for breaching this restriction must also be stated as a fixed amount, which should also be negotiated in advance. 21. State Explicitly When Prices Can Be Negotiated This is particularly important in industries where prices for key components or commodities increase/fluctuate seasonally, or depend on global/local supplies.

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10. Consumer sovereignity

For economic agents to act means that prices are important in deciding what goods are produced, or, in the jargon of economists, they help allocate resources. Consumer preferences, the relative availability of resources, and technology determine how much of each good and service will be produced in a market system. Citizens, as consumers, vote in the marketplace. The marketplace offers consumers a variety of products, and each producer tries to convince consumers that his product is best. Consumers vote for products by spending their money. Products receiving many votes will be profitable and will continue being produced. Products that do not receive enough votes will die. Voting provides feedback to producers. It tells them whether their performance is acceptable or not. Voting implies that consumers, not producers, ultimately decide what will be produced in a market economy. This power of consumers is often called "consumer sovereignty." There are times in which a society may not want the consumer to be sovereign. It may decide that there is some social goal more important than individual goals. When nations are at war, for example, they usually want to lessen consumer sovereignty. As a result, most nations reduce the importance of market decisions and increase the importance of allocation by government direction and regulation in times of war.

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Consumer sovereignty is a term which is used in economics to refer to the rule or sovereignty of consumers in markets as to production of goods. It is the power of consumers to decide what gets produced. People use the this term to describe the consumer as the "king," or ruler, of the market, the one who determines what products will be produced.
[1]

Also, this term denotes the way in which a consumer ideologically

chooses to buy a good or service. Furthermore, the term can be used as either a norm (as to what consumers should be permitted) or a description (as to what consumers are permitted). In unrestricted markets, those with income or wealth are able to use their purchasing power to motivate producers as what to produce (and how much). Customers do not necessarily have to buy and, if dissatisfied, can take their business elsewhere, while the profit-seeking sellers find that they can make the greatest profit by trying to provide the best possible products for the price (or the lowest possible price for a given product). In the language of clich, "The one with the gold makes the rules." To most neoclassical economists, complete consumer sovereignty is an ideal rather than a reality because of the existence -- or even the ubiquity -- of market failure. Some economists of the Chicago school and the Austrian school see consumer sovereignty as a reality in a free market economy without interference from government or other nonmarket institutions, or anti-market institutions such as monopolies or cartels. That is, alleged market failures are seen as being a result of nonmarket forces.

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The term "consumer sovereignty" was coined by William Hutt who firstly used it in his 1936 book "Economists and the Public". Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individuals life and the unrestricted supremacy of the government in its capacity as central board of production management. ~Ludwig von Mises, Bureaucracy, page 10 Capitalism is essentially a system of mass production for the satisfaction of the needs of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small elite. ~Ludwig von Mises, The Anti-Capitalistic Mentality, page 49 The notion that consumers ultimately determine what goods and services are produced and how the economy's limited resources are used based on the purchases they make. Consumers thus reign over the economy as sovereign rulers. Like most notions this one captures an essential dimension of economic behavior, but it also has a notable qualification. Consumers are King Consumer sovereignty means that buyers ultimately determine which goods and services remain in production. While businesses can

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produce and attempt to sell whatever goods they choose, if the goods fail to satisfy the wants and needs, consumers decide not to buy. If the consumers do not buy, the businesses do not sell and the goods are not produced. Suppose, for example, that Manny Mustard's House of Sandwich introduces a new menu item--a sandwich made with fried squash, sweet pickle relish, blue cheese dressing, sliced cabbage, and pumpernickel bread. Manny, the proprietor of this establishment, thoroughly enjoys this sandwich and thinks his patrons will as well. If they do, then business increases, profits are higher, overdue business loans can be paid off, and he can finally send his unruly step-son away to military school. Manny's business success, however, depends on his patrons. Will they like his new fried squash, sweet pickle relish, blue cheese dressing, sliced cabbage, pumpernickel bread sandwich? If they do not, then his step-son will continue his unruly behavior. The consumers are king! They ultimately decide Manny's business fate. What we call "consumer choice" is really just a choice among available market based alternatives, and it is not even true that corporations respond to what consumers want by developing new products accordingly. Instead, all of the evidence seems to indicate that corporations spend minimal amounts on research and development, and most of their money on "market research," which means finding the best way to convince customers to buy what's available, and marketing, which puts the market research into practice. That people still continue to buy things they don't need and probably would be happier without is

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more of an indication that people are susceptible to advertising than that people are necessarily happy with what's on the market. Significance The theory of consumer sovereignty says that, while businesses and companies can produce anything they choose, if consumers do not want or need a product, it will not sell. If a product is not sold, it will not continue to be produced. Therefore, buyers ultimately decide what is produced. History Adam Smith discussed the concept in "The Wealth of Nations," but the term "consumer sovereignty" was not coined until 1940, when William Hutt defined it in an article for Economic Journal. The theory was further explored by the Australian economist Ludwig von Mises. Benefits A major argument for consumer sovereignty is thus: When consumers have access to goods and services that benefit them, they will continue to purchase and stimulate the economy. In this way, active consumption and responsible, beneficial production go hand in hand. Considerations Consumers can be misled by marketing, fads and other influences. This can affect their consumption, causing production of consumables that have no direct benefit to buyers.

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Expert Insight In 1990, scholar Bettina Biean Greaves wrote that the lack of soap available to citizens of the USSR was due to a failure in the model of consumer sovereignty. Consumer sovereignty is an important concept for classical economics. This assumes that consumers have the freedom and ability to choose between different suppliers and firms. In theory, consumers will use their discretion to choose the cheapest and / or best quality goods. In theory this consumer sovereignty ensures the effective functioning of free markets. It rewards efficient firms and encourages firms to provide goods consumers want. Thus consumer sovereignty forms an important aspect of free market economics, it is a function developed by the economist Ludwig Van Mises. There is a concept that the Customer is always King, is this still relevant in today's demanding trading environment?4 Consider that customers are no longer the unthinking pawns who are easily manipulated by a marketer. Far from it. Generally consumers are more educated and sophisticated, they look for options and alternatives to best serve their needs. Consider globalization, the consumer's world and buying options are getting so much bigger, with more choices than ever before. In fact,
4

This information is taken from The Institute of Bankers in South Africa's Consumer Behaviour module. This module forms part of various professional qualifications, such as the Diploma in Marketing. 153

the consumer's main problem is that there are possibly too many choices! This means that marketers had better know what they are doing in order to capture the consumer's attention and of course their loyalty. Another principle is that consumer behavior and motivation for buying can be understood through research. Consumer behavior is a process and the actual purchase of the good or service is only one stage of the process. The essential point is that understanding and adapting to consumer motivations and behavior is not an option of the marketer it is a matter of survival in an increasingly tough and competitive world. Consumer behavior can be influenced by the third principle. Even though consumer sovereignty (the customer is king) presents a formidable challenge, skilful marketing can affect both motivation and behavior if the product or service offered is designed to meet consumer needs. A successful sale occurs because demand for the product or service either exists already or is latent and awaiting activation by the right marketing offering. For instance, a consumer needs a microwave oven; however, on seeing the benefits of the oven, the consumer suddenly wants one, a specific brand or make and model. Humans have existed without Gladwrap for millions of years, however, what would households across the globe do today without it? One never needed post-it pads at the office, but aren't they handy? The fourth and last principle is that consumer influence is socially acceptable. Consumers' needs are real and there is undeniable benefit

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from products and services that offer genuine utility. The consumer benefits, while at the same time the economy is energized and modernized. Advertising is a constant reminder to consumer benefits, while at the same time the economy is energized and modernized. Advertising is a constant reminder to consumers of material goods and services not yet possessed! The effect at the level of individual motivation is felt as a constant impetus toward more consumption, toward acquisition, toward upward mobility. At the level, it is the economic drive to produce and to innovate, which fuels our economic system. Consumer resources generally have two restraints a money budget and a time budget. Income is a crucial variable and one has to understand consumer behavior fully to examine how consumers spend their money and how much they have to spend and the time in which they have to do it. The answer is an affirmative yes! The customer is king! Why treat a customer as a king? Gaining the consumer's attention represents one of the most formidable challenges a marketer must face. Consumers are bombarded continually with many stimuli that compete for limited capacity. Gaining attention at a point of purchase is also important. Cognitive capacity is a major type of consumer resource. Because this capacity is limited, people must be selective in what they pay attention to and how much attention is allocated during

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information processing. Then, of course, the focus shifts to retention, gaining customer loyalty and cross-sell. Consumers in both market and command economies make many of the same kinds of decisions: they buy food, clothing, housing, transportation, and entertainment up to the limits of their budgets, and wish they could afford to buy more. But consumers play a much more important role in the overall working of a market economy than they do in a command economy. In fact, market economies are sometimes described as systems of consumer sovereignty, because the day-to-day spending decisions by consumers determine, to a very large extent, what goods and services are produced in the economy. How does that happen? Buying Oranges and Computer Chips Suppose a family -- Robert, Maria, and their two children -- go shopping to buy food for a family dinner. They may originally be planning to buy a chicken, tomatoes, and oranges; but their plans will be strongly influenced by the market prices of those goods. They may discover, for example, that the price of oranges has increased. There are several things that might cause those higher prices, such as freezing weather in areas where oranges are grown, which destroys a large part of the crop. The effect of the freeze is to leave the same number of consumers trying to buy a smaller number of oranges. At the old -- lower -- price, therefore, sellers would soon run out of oranges until the next harvest. Instead, by raising the price, all

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consumers are encouraged to cut back on the number of oranges they buy, and producers are encouraged to grow more oranges as fast as they can. There is another possibility: suppliers could choose to import a larger number of oranges from other countries. International trade, when it is permitted to operate with relatively few barriers or import taxes (called tariffs), can give consumers wider choice and allow producers to offer more competitive prices for a wide range of products, from oranges to automobiles. On the other hand, the orange crop might be spared freezing weather, but instead consumers decide to start buying more oranges and fewer apples. In other words, instead of the orange supply shrinking, demand increases. This, too, will drive up the price of oranges for a time, at least until growers have time to bring more oranges to market. Whatever the reason for the higher price, Robert and Maria will probably respond in a predictable way once they discover that the price is higher than they anticipated. They may well decide to buy fewer oranges than they had planned, or to buy apples or some other fruit instead. Because many other consumers make the same choices, oranges won't disappear from store shelves entirely. But they will be more expensive, so only the people who are willing and able to pay more for them will continue to buy them. Shortly, as more people start buying apples and other fruits as substitutes for oranges, the prices of those fruits will rise as well. But the response of consumers is only one side, the demand side, of the equation that determines the price of oranges. What happens on

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the other side, the supply side? A price increase for oranges sends out a signal to all fruit growers -- people are paying more for fruit -- which tells the growers it will pay to use more resources to grow fruit now than they did in the past. It will also pay the fruit growers to look for new locations for orchards where fruit isn't as likely to be damaged by bad weather. They may also pay biologists to look for new varieties of fruit that are more resistant to cold weather, insects, and various plant diseases. Over time, all of these actions will increase the production of fruit and bring prices back down. But this whole process depends first and foremost on the basic decision by consumers to spend some part of their income on oranges and other fruits. If consumers stop buying, or if they decide to spend less on a product -- for whatever reason -- prices will drop. If they buy more, increasing demand, the price will rise. Keep in mind that this interaction of supply, demand, and price takes place at every level of the economy, not just with consumer goods sold to the public. Consumption refers to intermediate goods as well -- to the inputs that companies must purchase to provide their goods and services. The cost of these intermediate, or investment, goods will ripple throughout a market economy, changing the supply-and-demand equations at every level. Let's take the example of the semiconductor chip that is at the heart of the modern computer revolution. As the case with oranges, higher prices will tend to reduce the demand for computer chips and, consequently, for computers themselves. Over time, however, the higher price will signal manufacturers of computer chips that it may be

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profitable to increase their production, or for new suppliers of chips to consider entering the market. As chip prices come down, so eventually will the cost of computers (assuming that the cost of other inputs remains unchanged), and demand for computers will grow. That demand for computers will do more than simply spur suppliers to increase their output. It will also encourage innovation, which will result in computer chips, and computers that are more powerful and efficient than earlier models -- a competition of progress and price that occurs in virtually all genuinely free markets. Prices and Consumer Incomes The other economic factor that consumers must consider carefully in making their purchases of goods and services is their own level of income. Most people earn their income from the work they perform, whether as physicians, carpenters, teachers, plumbers, assembly line workers, or clerks in retail stores. Some people also receive income by renting or selling land and other natural resources they own, as profit from a business or entrepreneurial venture, or from interest paid on their savings accounts or other investments. We later describe how the prices for those kinds of payments are determined; but the important points here are that: 1) in a market economy the basic resources used to make the goods and services that satisfy consumer demands are owned by private consumers and households; and 2) the payments, or incomes, that households receive for these productive resources rise and fall -- and that fluctuation has a direct influence on the amount consumers are willing to spend for the

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goods and services they want and, in turn, on the output levels of the firms that sell those products. Consider, for example, a worker who has just retired, and as a result earns only about 60 percent of what she did while she was working. She will cut back on her purchases of many goods and services, especially those that were related to her job, such as transportation to and from work, and work clothes -- but may increase spending on a few other kinds of products, such as books and recreational goods that require more leisure time to use, perhaps including travel to see new places and old friends. If, as in many countries today, there are rapidly growing numbers of people reaching retirement age, those changing spending patterns will affect the overall market prices and output levels for these products and for many others that retirees tend to use more than most people, such as health care services. In response, some businesses will decide to make more products and services geared toward the particular interests and concerns of retirees -- as long as it is profitable for firms to produce them. To summarize: whether consumers are young or old, male or female, rich, poor, or middle class, every dollar, peso, pound, franc, rupee, mark, or yen they spend is a signal -- a kind of economic vote telling producers what goods and services they want to see produced. Consumer spending represents the basic source of demand for products sold in the marketplace, which is half of what determines the market prices for goods and services. The other half is based on decisions businesses make about what to produce and how to produce it.

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11. Consumer behavior

People are not rational calculating machines. The economists and psychologists studying consumer behavior have suggested that our mental abilities cannot process the economic information in our lives and in order to deal with it, we develop mental accounting systems. Sometimes, these systems are more than mental, as when families have separate savings accounts for various items. They will often borrow money rather than dip into one of these special accounts, though a calculating-machine mind would never do that. If we can be fooled by the way situations are framed, people selling things to us should be smart enough to take advantage of this computational defect. There are a number of situations in which this seems to happen. We are more pleased with many small gains than one big gain of equal magnitude--we would rather get our Christmas presents in lots of boxes rather than one big one. There are innumerable sales pitches that promise something free if and only if we buy a product. If we think about this, we realize that nothing is free--we are paying for the complete package. Yet, the popularity of this type of sales pitch suggests that it works. Alternatively, we are less affected by one big loss than a number of small ones of equal value. One of the appeals of credit cards is that they give us the bad news as one number. In addition, sellers know that when we make a large purchase, they have an opportunity to sell us even

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more. If we are paying $100,000 for a house, an extra $1000 does not seem to be much to add on some conveniences. However, if we see the extra $1000 as a completely separate transaction, we may react in a very different way. Though the free trial with money-back guarantee is a way to signal quality, it also takes advantage of our mental accounting. Once we have an item at home and in use, it becomes part of the status quo. Intelligent health consumers have the following characteristics: 1. They seek reliable sources of information. They are appropriately skeptical about advertising claims, statements made by talk-show guests, and "breakthroughs" reported in the news media. New information, even when accurate, may be difficult to place in perspective without expert guidance. 2. They maintain a healthy lifestyle. This reduces the odds of becoming seriously ill and lowers the cost of health care. Prudent consumers avoid tobacco products, eat a balanced diet, exercise appropriately, maintain a reasonable weight, use alcohol moderately or not at all, and take appropriate safety precautions (such as wearing a seat belt when driving). 3. They select practitioners with great care. It has been said that primary-care physicians typically know a little about a lot and specialists typically know a lot about a little. The majority of people would do best to begin with a generalist and consult a specialist if a problem needs more complex management.

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The new millennium is not just a new beginning; it is a continuation of trends in human behavior that have been following cyclical patterns throughout our country's history. Just because we have entered a new era does not mean we have to start from scratch when it comes to interpreting why certain consumers are loyal to certain brands, and what type of factors influence these allegiances. Brand Loyalty is the consumer's conscious or unconscious decision, expressed through intention or behavior, to repurchase a brand continually. It occurs because the consumer perceives that the brand offers the right product features, image, or level of quality at the right price. Consumer behavior is habitual because habits are safe and familiar. In order to create brand loyalty, advertisers must break consumer habits, help them acquire new habits, and reinforce those habits by reminding consumers of the value of their purchase and encourage them to continue purchasing those products in the future. The image surrounding a company's brand is the principal source of its competitive advantage and is therefore a valuable strategic asset. Unfortunately, many companies are not adept at disseminating a strong, clear message that not only distinguishes their brand from the competitors', but distinguishes it in a memorable and positive manner. The challenge for all brands is to avoid the pitfalls of portraying a muddled or negative image, and instead, create a broad brand vision or identity that recognizes a brand as something greater than a set of attributes that can be imitated or surpassed.

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In fact, a company should view its brand to be not just a product or service, but as an overall brand image that defines a companys philosophies. A brand needs more than identity; it needs a personality. Just like a person without attention-grabbing characteristics, a brand with no personality can easily be passed right over. A strong symbol or company logo can also help to generate brand loyalty by making it quickly identifiable. A consumer is the ultimate user of a product or service. The overall consumer market consists of all buyers of goods and services for personal or family use, more than 270 million people (including children) spending trillions of dollars in the United States as of the late 1990s. Consumer behavior essentially refers to how and why people make the purchase decisions they do. Marketers strive to understand this behavior so they can better formulate appropriate marketing stimuli that will result in increased sales and brand loyalty. There are a vast number of goods available for purchase, but consumers tend to attribute this volume to the industrial world's massive production capacity. Rather, the giant known as the marketing profession is responsible for the variety of goods on the market. The science of evaluating and influencing consumer behavior is foremost in determining which marketing efforts will be used and when. To understand consumer behavior, experts examine purchase decision processes, especially any particular triggers that compel consumers to buy a certain product. For example, one study revealed

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that the average shopper took less than 21 minutes to purchase groceries and covered only 23 percent of the store, giving marketers a very limited amount of time to influence consumers. And 59 percent of all supermarket purchases were unplanned. Marketers spend a great deal of time and money discovering what compels consumers to make such onthe-spot purchases. Market researchers obtain some of the best information through instore research, and will often launch new products only in select small venues where they expect a reasonable test of the product's success can be executed. In this manner, they can determine whether a product's success is likely before investing excessive company resources to introduce that product nationally or even internationally. CONSUMER NEEDS Consumers adjust purchasing behavior based on their individual needs and interpersonal factors. In order to understand these influences, researchers try to ascertain what happens inside consumers' minds and to identify physical and social exterior influences on purchase decisions. On some levels, consumer choice can appear to be quite random. However, each decision that is made has some meaning behind it, even if that choice does not always appear to be rational. Purchase decisions depend on personal emotions, social situations, goals, and values. People buy to satisfy all types of needs, not just for utilitarian purposes. These needs, as identified by Abraham Maslow in the early 1940s, may be physical or biological, for safety and security, for love and affiliation, to obtain prestige and esteem, or for self-fulfillment. For

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example, connecting products with love or belonging has been a success for several wildly popular campaigns such as "Reach Out and Touch Someone," "Fly the Friendly Skies," and "Gentlemen Prefer Hanes." This type of focus might link products either to the attainment of love and belonging, or by linking those products with people similar to those with whom people would like to associate. Prestige is another intangible need, and those concerned with status will pay for it. However, goods appealing to this type of need must be viewed as high-profile products that others will see in use. One benefit of targeting this type of market is that the demand curve for luxury products is typically the reverse of the standard; high-status products sell better with higher prices. Some equate the type of need to be met with certain classes of goods. For instance, a need for achievement might drive people to perform difficult tasks, to exercise skills and talents, and to invest in products such as tools, do-it-yourself materials, and self-improvement programs, among others. The need to nurture or for nurturing leads consumers to buy products associated with things such as parenthood, cooking, pets, houseplants, and charitable service appeals. Personality traits and characteristics are also important to establish how consumers meet their needs. Pragmatists will buy what is practical or useful, and they make purchases based more on quality and durability than on physical beauty. The aesthetically inclined consumer, on the other hand, is drawn to objects that project symmetry, harmony, and beauty. Intellectuals are more interested in obtaining knowledge and truth and tend to be more critical.

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They also like to compare and contrast similar products before making the decision to buy. Politically motivated people seek out products and services that will give them an "edge," enhancing power and social position. And people who are more social can best be motivated by appealing to their fondness for humanity with advertising that suggests empathy, kindness, and nurturing behavior. One successful way an insurance company targeted this market was through its "You're in good hands with Allstate" campaign. Consumers also vary in how they determine whose needs they want to satisfy when purchasing products and services. Are they more concerned with meeting their own needs and buying what they want to, for their own happiness? Or do they rely on the opinions of others to determine what products and services they should be using? This determines, for example, whether or not they will make a purchase just because it's the newest, most popular item available or because it is truly what they need and/or want. This also influences the way marketers will advertise products. For example, a wine distributor trying to appeal to people looking to satisfy their personal taste will emphasize its superior vintage and fine bouquet; that same distributor, marketing to those who want to please others, will emphasize how sharing the wine can improve gatherings with friends and family. Cultural and social values also play large roles in determining what products will be successful in a given market. If great value is placed on characteristics such as activity, hard work, and materialism, then companies who suggest their products represent those values are more

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likely to be successful. Social values are equally important. If a manufacturer suggests their product will make the consumer appear more romantic or competitive in a place where those values are highly regarded, it is more likely consumers will respond. PURCHASE PATTERNS While all of this information might be helpful to marketers, it is equally important to understand what compels the consumer to actually make a purchase, as opposed to just generating interest. For example, some consumers respond based on how they are feeling, or more emotionally, while some are focused on making the wisest economic decision. Knowing the different elements that stimulate consumer purchase activity can help marketers design appropriate sales techniques and responses. A study conducted by Susan Powell Mantel focused on analyzing the roles of "attribute-based processing" and "attitude-based processing" when analyzing consumer preference. According to the study, product attributes (qualities such as price, size, nutritional value, durability, etc.) are often compared disproportionately, i.e., one is the more focal subject of comparison, thus eliciting more consideration when the consumer decides which brand is the "best." The order of brand presentation in these cases is particularly important. Adding to the complexity of the issue is the fact that purchase decisions are not always made on the basis of an "attribute-by-attribute"

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comparison

(attribute-based

processing).

Consumers

also

make

decisions based on an overall evaluation of their impressions, intuition, and knowledge based on past experience, or attitude-based processing. Learned attitudes also influence these decisions. For example, parents who drank Kool-Aid as children often buy it for their kids, either because they associate it with fond memories or just because of brand familiarity or loyalty. There is time and effort associated with each of these strategies, though attribute-based processing requires significantly more effort on the consumer's part. To dedicate the time required for an attribute-byattribute comparison, consumers need the combination of motivation and the time or opportunity to use such a strategy. Other contributing factors were discussed in Mantel's study, such as personality differences and each individual's "need for cognition." Need for cognition reflects to what extent individuals "engage in and enjoy thinking." People with a high need for cognition tend to evaluate more and make more optimal in-store purchase decisions. This is in part because they do not react to displays and in-store promotions unless significant price reductions are offered. Low-need cognition people react easily when a product is put on promotion regardless of the discount offered. Consumers are also affected by their perceived roles, which are acquired through social processes. These roles create individuals' needs for things that will enable them to perform those roles, improve their performance in those roles, facilitate reaching their goals, or symbolize a

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role/relationship, much in the way a woman's engagement ring symbolizes her taking on the role of a wife. Other factors that influence purchase decisions include the importance attributed to the decision. People are not likely to take as much time doing brand comparisons of mouthwash as they are a new car. The importance of the purchase, as well as the risk involved, adds to how much time and effort will be spent evaluating the merits of each product or service under consideration. In cases of importance such as the purchase of a car or home appliance, consumers are more likely to use rational, attribute-based comparisons, in order to make the most informed decision possible. In some cases, consumers make very little effort to evaluate product choices. "Habitual evaluation" refers to a state in which the consumer disregards marketing materials placed in a store, whether because of brand loyalty, lack of time, or some other reason. Indeed, evaluating all relevant marketing information can become time consuming if it is done every time a person shops. On the opposite side of the coin, "extensive evaluation" is the state in which consumers consider the prices and promotions of all brands before making a choice. There are also in-between states of evaluation, depending again on the importance of the purchase and the time available to make a decision (some consumers, usually those who earn higher incomes, value their time more than the cost savings they would incur). Decisions on whether to compare various products at any given

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time may be a factor of the anticipated economic returns, search costs or time constraints, and individual household purchasing patterns. When it comes time to actually make purchases, however, one person in the family often acts as an "information filter" for the family, depending on what type of purchase is being made and that person's expertise and interest. The information filter passes along information he or she considers most relevant when making a purchase decision, filtering out what is considered unimportant and regulating the flow of information. For example, men are more often the family members who evaluate which tools to purchase, while children pass along what they consider to be seminal information about toys. At times, family members may take on additional roles such as an "influencer," contributing to the overall evaluation of goods being considered for purchase. Or one person may act as the "decider," or the final decision-maker. Ultimately, purchase decisions are not made until consumers feel they know enough about the product, they feel good about what they're buying, and they want it enough to act on the decision. INTERPRETING CONSUMER BEHAVIOR When market researchers begin evaluating the behavior of consumers, it is a mistake to rely on conventional wisdom, especially when it is possible to study the actual activity in which consumers are engaged when using a product or service. Where are they when they buy certain items? When do they use it? Who is with them when they make

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the purchase? Why do they buy under certain circumstances and not others? Researchers need to determine the major needs being satisfied by that good or service in order to effectively sell it. There are two principal ways to evaluate the motivation behind consumer purchases. These are by direction (what they want) and intensity (how much they want it). Direction refers to what the customer wants from a product. For example, if a customer is selecting pain reliever, they may like the idea is one pain reliever is cheaper than another, but what they really want is fast pain relief, and will probably pay more if they think the more expensive brand can do that more effectively. Marketers need to understand the principal motivation behind each type of product to correctly target potential customers. The other way to evaluate consumer behavior, intensity, refers to whether a customer's interest in a product is compelling enough that they will go out and make the purchase. Good marketing can create that kind of intensity. A successful example of such a campaign was Burger King's "Aren't You Hungry?" campaign, which aired on late-night television and was compelling enough for people to leave their homes late at night to go out and buy hamburgers. Understanding consumer motivation is the best way to learn how to increase buyer incentive, as well as a better alternative to the easy incentive-decreasing the price. While it is easy to speculate on all these elements of consumer motivation, it is much harder to actively research motivating factors for any given product. It is rare that a consumer's reasons for buying a

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product or service can be accurately determined through direct questioning. Researchers have had to develop other ways to get real responses. These include asking consumers "How do you think a friend of yours would react to this marketing material?" While consumers do not like to admit that marketing affects them at all, they are often willing to speculate on how it would affect someone else. And most often they answer with what would be their own responses. Another tactic that has proven successful is to ask consumers "What kind of person would use this type of product?" By asking this question, market researchers can determine what the consumer believes buying the product would say about them, as well as whether or not they would want to be seen as that type of person. INFLUENCING CONSUMER BEHAVIOR One of the best ways to influence consumer behavior is to give buyers an acceptable motive. This is somewhat related to the idea of asking what type of person would buy a certain product in evaluating consumer behavior. Consumers want to feel they're doing something good, being a good person, eating healthy, making contacts, keeping up appearances, or that they just deserve to be spoiled a little bit. If marketers can convince consumers that they need a product or service for some "legitimate" reason, customers will be more likely to make a purchase.

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In addition, sensory stimuli are important to marketing. When food packages are appealing or associated with other positive qualities, people often find that they "taste" better. For example, people often "taste" with their eyes, discerning differences in products where they do not see any difference during a blind taste test. One of the best examples of this was a test of loyal Coca-Cola customers who were totally unwilling to concede that any other soda was its equal. While able to see what they were drinking, they maintained this position. But during blind testing, some were unable to tell the difference between Coke and root beer. Finally, another alternative for influencing customer behavior is by offering specialized goods. While commonality was once popular, more and more people are seeking diversity in taste, personal preferences, and lifestyle. Some successful campaigns touting the way their products stand out from the crowd include Dodge's "The Rules Have Changed" and Arby's "This is different. Different is good." In fact, marketers are quite successful at targeting "rebels" and the "counterculture," as it is referred to in Commodify Your Dissent. As Thomas Frank writes, "Consumerism is no longer about 'conformity' but about difference. It counsels not rigid adherence to the taste of the herd but vigilant and constantly updated individualism. We consume not to fit in, but to prove, on the surface at least, that we are rock 'n' roll rebels, each one of use as rule-breaking and hierarchy-defying as our heroes of the 60s, who now pitch cars, shoes, and beer. This imperative of endless difference is today the genius at the

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heart of American capitalism, an eternal fleeing from 'sameness' that satiates our thirst for the New with such achievements of civilization as the infinite brands of identical cola, the myriad colors and irrepressible variety of the cigarette rack at 7-Eleven."

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SEMESTRUL II
12. Economic organization 12.1. The Business Firm The business firm is the productive unit in an exchange economy. In order to survive, a firm must deal with three constraints: the demand for its product, the production function, and the supply of its inputs. When the firm successfully deals with these constraints, it makes a profit. When most people think of a firm, they think first of production. Economists describe this task with the production function, an abstract way of discussing how the firm gets output from its inputs. There is one rule that seems to hold for all production functions, and because it always seems to hold, it is called a law. The law of diminishing returns says that adding more of one input while holding other inputs constant results eventually in smaller and smaller increases in added output. What the law of diminishing returns says is that as one continues to add workers; eventually one will reach a point where increasing returns stop and decreasing returns set in. The law of diminishing returns is not caused because the first worker has more ability than the second worker, and the second is more able than the third. By assumption, all workers are the same. It is not ability that changes, but rather the environment into which workers (or any other variable input) are placed. As additional workers are added to
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a firm with a fixed amount of equipment, the equipment must be stretched over more and more workers. Eventually, the environment becomes less and less favorable to the additional worker. People's productivity depends not only on their skills and on abilities, but also on the work environment they are in. If one increases all inputs in equal proportions, there is no law to predict what will happen to output in this case and leads to returns to scale. It is important for determining how many firms will populate an industry. When increasing returns to scale exist, one large firm will produce more cheaply than two small firms will. Small firms will thus have a tendency to merge to increase profits, and those that do not merge will eventually fail. On the other hand, if an industry has decreasing returns to scale, a merger of two small firms to create a large firm will cut output, raise average costs, and lower profits. In such industries, many small firms exist rather than a few large firms. Products require various types of labor and capital, energy of various sorts, and raw materials. One of the key inputs, especially in larger firms, is managerial ability. Inputs do not combine by themselves to produce output. Someone must have knowledge of how to combine inputs and to coordinate the production process. If business decision-makers lack information or are incompetent, the firm will not make the best use of available resources. Alternatively, if morale is bad in a firm, people may work poorly and produce less than they could.

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Creativity in the form of new technology or new management techniques may loosen the boundary that the production functions represents and may make possible greater profit. For a firm to be economically efficient is that it be on its production-possibilities frontier. If it is not on the productionpossibilities frontier, more could be produced with the given resources and technology. Because greater production would increase value, any position below the production-possibilities frontier is inefficient. To be on the production-possibilities frontier, all resources must be used. Unemployed resources indicate that more goods and services could be produced. In addition, resources must be used properly. If society randomly assigns people to jobs or if it assigns jobs on the basis of political reliability, it will not produce as much as it could. Economists conventionally assume that firms attempt to maximize profit. This assumption has been a source of controversy, in part simply because the word profit is a bit nebulous. One might think that it is well defined because each year thousands of firms announce to the public exactly what their profits are. Profit emerges as a residual; something left over after costs have been paid. The grocery or restaurant may seem to have a profit when costs are subtracted from revenues, but this may be only because the owners do not pay themselves a wage. When their time is valued at even low levels, the "profit" may disappear. On the other hand, the family farm may have a profit, but only because it neglects to take into account a return on the land. If this return is computed on the basis of what rent could be

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obtained on the land, and if an allowance is made for the value of the farmer's labor, there may be little or no profit. Much of corporate profit can reflect an implicit return on investment. If the corporation has a large investment in capital and this entire investment was financed by borrowing, then the return on capital is captured in the interest payments the firm makes. But if the investment is not financed by borrowing, then the return on it will be reported as profit in the income statement. The economic definition of profit is the difference between revenue and the opportunity cost of all resources used to produce the items sold. This definition includes implicit returns as costs. Because profit is a surplus in this definition, it should not exist in industries in which entry is easy. Whenever a surplus exists, new firms should flow into an industry, bidding up the price of resources and bidding down the price of output until profit in the economic definition is eliminated. Profit should not exist in long-run equilibrium. Ronald Schaffer in America in the Great War describes the system of economic organization devised to mobilize the economy during World War I. The need for this was evident as America faced an economic crisis. The government was using an antiquated supply system that would clearly hinder the necessary mobilization of millions of men for the war effort. Money was poured into the economy by the War Department, but the manufacturing sector could not keep up with the demand. Prices were rising, and no one could be sure what the costs might be in the future. What followed were strikes, inflation, and a

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snarled army procurement system. By the summer of 1917, it was evident that food shortages would soon result. Schaffer notes that the administration had to solve a number of problems. It had to mobilize men for the war effort both in the armed forces and at home, keeping a work force on the job, preventing strikes to keep from disrupting production, and at the same time working to prevent inflationary wage increases. The way the various problems were addressed was through the creation of a number of organizations given responsibility for coping with these issues. Bureaus were created to handle labor issues. An employment service helped unskilled workers find jobs in war industries. The Selective Service System directed men into essential occupations by offering draft exemptions. The identification of distinctive and effective forms of economic organization in East Asia has emphasized the close connections between dominant social institutions and ways of coordinating economic activities as well as the interrelations between firm and market characteristics in separate business systems. Differences in major institutions thus generate significant variations in how firms and markets are structured and operate. These variations suggest that an important element in the analysis of market economies is the comparison of firmmarket relations across institutional contexts. This requires their key characteristics to be identified. These can be summarized under three main headings which constitute the components of business systems: the nature of firms as economic actors, the nature of inter-firm relations in

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markets and the nature of authoritative co ordination and control systems within firms. Thirteen major characteristics form the basic dimensions of business systems, which vary as the result of differences in state structures, financial systems, cultural conventions and other key institutional features. Interdependences between these characteristics restrict the variety of business systems that become established in market economies and suggest that five major kinds can be identified on the basis of institutionalized patterns of risk-sharing and firm selfsufficiency: centrifugal, partitioned, collaborative, coordinated and statedependent. These types of business system highlight the different patterns of economic organization, and some of their institutional connections, which have developed in Europe and other industrialized societies. As far as I know no research has dealt with the implications of multi-culturality within a given territory for economic organization. Perhaps this is because the notion is a relatively recent one; one that perhaps primarily belongs to the realm of politically correct discourse, and because we dont have really convincing economicsbased conceptualizations of culture, not to mention what it means to have multiple cultures inside a given geographical territorium. Nevertheless, this is a potentially rich research subject. It may also become a pressing one, as the US and the Europe (and other regions in the World) become increasingly multi-cultural. Here is some extremely prelim speculation.

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Cultures may be thought of, in a very crude characterization, in terms of focal points that pick out solutions to underlying games, some more like coordination games and some more like PD games. Although we know very little about how players reason when they are placed in new games, there are some indications that they rely on precedents and analogies. To put it crudely, immigrants may play games in their new country the way they used to play them in the old country. Some of this may be dys-functional as when players from low-trust cultures play defect strategies in high-trust cultures. Players from high-trust cultures may become suckers in low-trust cultures. Also, cultural mix may increase information and communication costs for obvious reasons. A likely result is that market transaction costs increase. (In turn this may give rise to increased intra-culture trade and decreased interculture trade). What will happen to internal transaction costs? To the extent that people self-select into firms based on culture, internal transaction costs may not increase. The net effect is that firms would expand their boundaries. A business (also called a company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers.[1] Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial returns in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-

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owned enterprises. Businesses can also be formed not-for-profit or be state-owned. The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope the singular usage (above) to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the music business" and compound forms such as agribusiness, or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings Basic forms of ownership Although forms of business ownership vary by jurisdiction, there are several common forms: Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has personal liability of the debts incurred by the business. Partnership: A partnership is a form of business in which two or more people operate for the common goal which is often making profit. In most forms of partnerships, each partner has personal liability of the debts incurred by the business. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

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Corporation: A corporation is either a limited or unlimited liability entity that has a separate legal personality from its members. A corporation can be organized for-profit or not-for-profit. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff. In addition to privately-owned corporate models, there are state-owned corporate models. Cooperative: Often referred to as a "co-op", a cooperative is a limited liability entity that can organize for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy. For a country-by-country listing of legally recognized business forms, see Types of business entity. Classifications There are many types of businesses, and because of this, businesses are classified in many ways. One of the most common focuses on the primary profit-generating activities of a business: Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals. Financial businesses include banks and other companies that generate profit through investment and management of capital.

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 Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies. Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers. Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings. Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumeroriented stores and catalogue companies are distributors or retailers. See also: Franchising Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses. Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs Utilities produce public services, such as heat, electricity, or sewage treatment, and are usually government chartered. There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.

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Management The efficient and effective operation of a business, and study of this subject, is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, service management, information technology management, and business intelligence. Reforming State Enterprises In recent decades, assets and enterprises that were run by various states have been modeled after business enterprises. In 2003, the People's Republic of China reformed 80% of its state-owned enterprises and modeled them on a company-type management system. Many state institutions and enterprises in China and Russia have been transformed into joint-stock companies, with part of their shares being listed on public stock markets. Organizing The major factors affecting how a business is organized are usually: The size and scope of the business, and its anticipated management and ownership Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly)

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corporations. In addition a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so. The sector and country Private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways. Limited liability Corporations, limited liability partnerships, and other specific types of business organizations protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected. Tax advantages Different structures are treated differently in tax law, and may have advantages for this reason. Disclosure and compliance requirements Different business structures may be required to make more or less information public (or reported to relevant authorities), and may be bound to comply with different rules and regulations.

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Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person." This means that unless there is misconduct, the owner's own possessions are strongly protected in law, if the business does not succeed. Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located. A single person who owns and runs a business is commonly known as a sole proprietor, whether he or she owns it directly or through a formally organized entity.

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A few relevant factors to consider in deciding how to operate a business include: General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business. Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed. In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment. To "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in generalyou must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example,

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REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public." Commercial law Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization. As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time. In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments. Professions that require special licenses range from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.

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Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways. Capital When businesses need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available. Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets have at least one. Businesses that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and

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enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC), in China. In Singapore, the regulation authority is Monetary Authority of Singapore (MAS), and in Hong Kong, it is Securities and Futures Commission (SFC). As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more. In Thailand, for example, it is necessary to register a particular amount of capital for each employee, and pay a fee to the government for the amount of capital registered. There is no legal requirement to prove that this capital actually exists, the only requirement is to pay the fee. Overall, processes like this are detrimental to the development and GDP of a country, but often exist in "feudal" developing countries.

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Intellectual property Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trade marking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trade marking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties. Exit plans Businesses can be bought and sold. Business owners often refer to their plan of disposing of the business as an "exit plan." Common exit plans include IPOs, MBOs and mergers with other businesses. Businesses are rarely liquidated, as it is often very unprofitable to do so. The modern business firm is an organization for making and implementing decisions within a market economy. In most major industries of well-developed economies, most firms are large, complex organizations. These organizations render a set of key decisions for the economy. They establish prices, determine outputs, make investments, and allocate resources. These decisions and the consequences ensuing

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from them are the focus for the economic study of the firm. The economic theory of the firm attempts (1) to specify the decisions that business firms will make (as a basis for more aggregate predictions of the economy) and (2) to prescribe appropriate decision rules for a rational firm operating in a market economy. 12.2. Entrepreneur, profit, principal agent Profit does exist in the real world, and there are several explanations that economists have for it. Some economists simply consider it as an indication that the economic system is in perpetual disequilibrium. Joseph Schumpeter, for example, saw profit as a return to a successful entrepreneur. The entrepreneur, who finds an opportunity where no one before him saw one, and takes advantage of this opportunity, will make a profit. However, this profit will be temporary because as time goes on, others will follow him and erode his profit. Others see profit as an indication that forces of competition may not be strong, and that in some industries barriers to entry exist. Still other economists have argued that profit is a special sort of implicit return, a return for bearing risk. Those who are willing to take more risk will, on the average, earn higher returns. After one includes implicit costs as part of costs, an accurate measurement of profit is impossible, which is a major reason why accountants do not try to measure the economic concept of profit. This obviously causes problems if one wants to test whether or not firms try to maximize profits. An alternative way to approach the measurement problem begins with the Schumpeterian notion of profit, which is that it

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comes from the discovery of opportunity. A discovery of an opportunity should increase the discoverers wealth. Thus, a way to measure profit is to try to measure unexpected changes in wealth - wealth increasing faster than a normal rate of return. If one sees people whose wealth is increasing more rapidly than it would if their assets were entirely in the form of high-grade, short-term bonds, one could conclude that they had found a profitable opportunity. There are measurement problems here as well, however. Much of people's assets is in the form of investment in them - human capital - and is not easily measured. Do firms try to maximize profits? For example, suppose a humanitarian opened a business with a goal of helping the poor. He might keep prices below a level at which accounting profits are maximized. Yet one can argue that if the humanitarian raises prices, his (opportunity) costs increase because he must partially forgo the goal of helping the poor. Most firms do not have a single decision-maker. Instead, they are made up of an assortment of individuals, each using the firm to attain his own goals. Managers pursue goals; stockholders pursue goals; blue and white-collar workers pursue goals; but the firm does not. The assumption that firms attempt to maximize profits is inconsistent with the underlying methodology of microeconomics, which assumes that all decision-makers are individuals. One attempt to ground the assumption of profit maximization on individual behavior appeals to the principal-agent problem. An agent acts on behalf of another person, called a principal. How can the principal be sure that the agent acts in the principal's interest? The

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principal must restrict the agent in some way so that it is in the agent's interest to act in the interest of the principal. The most common way to do this is to tie rewards with performance. Payment on a commission basis is an important way to solve the principal-agent problem. When one hires a lawyer to sue on a civil matter, an auctioneer to sell one's belongings, or a real-estate agent to sell one's house; or when a movie star hires an agent to seek employment, payment is done with commissions. When the agent does a good job, he or she is paid a lot. When the agent does a poor job, he or she is paid little or nothing. Sometimes, the principal can protect himself with a contract that specifies how the task is to be performed and what the price will be. The ability to use the courts to enforce the contract protects the principal. The principal-agent problem is one of control: how does the principal control those working on his behalf? Once one starts looking for cases of this problem, one finds them everywhere. How do shareholders control management, citizens control government, or management control employees? The principal-agent problem is everywhere because we live in a world of interdependence and specialization. The principal-agent problem occurs in several places in the firm, including in the relationship between legal owners and hired managers. Stockholders own shares because they believe that this ownership will increase their wealth. Managers work for the firm primarily because it provides them with income needed to buy goods and services, and because their positions provide them with prestige and authority. The threat of a takeover or hostile merger provides stockholders with their

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most effective constraint on managerial action. If managers perform poorly at making profits, shareholders will sell their shares because they will not achieve their goal of increasing wealth. The lower value of the company is an inducement for other management groups to buy out the company and replace management. If the new managers can improve performance, they can capture at least some of the increased value of the firm. Some economists have tried to construct a theory of the firm in which the firm decides prices by a mark-up over costs. Grocery stores, for example, mark up different products by different percentages, and they have a much smaller average mark-up than furniture stores have. If a firm marks up a product by 50% and finds that it does not make a profit at that price, it tries another percentage. When it finally finds a mark-up, which generates a profit, it will stick with it. Real businesses rely much more on trial and error than on sophisticated, mathematical analysis. In a competition for profit, those firms that do maximize, whether intentionally or by accident, stand the best chance of survival and growth. Setting up a goal such as "quality at a reasonable price" may be better for both employee morale and consumer reception than a more straightforward "profit-first" goal. Consider, for example, rent controls, a popular form of a price ceiling. If the demand curve and the short-run supply curves are inelastic, then a sizable drop in rents may result in a very small shortage. The benefits to consumers will, in the judgment of most, clearly outweigh the costs to the consumers. Further, the short-run supply of

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housing should be quite inelastic because apartment buildings take time to build and even longer to wear out. But apartment buildings do wear out, and they wear out much faster when they are not properly maintained. Effective rent controls discourage the construction of new buildings and encourage the retirement of old buildings. Though the long-run costs to consumers may outweigh the benefits, the program may remain politically popular because those who benefit by living in rent-controlled apartments can vote, whereas those harmed cannot vote since the shortage of housing forces them to live in other political jurisdictions. The most visible price floor in the United States is the minimum wage. The U.S. Congress passed a minimum wage law in 1938 and has raised its level and extended its coverage several times since then. The stated goal of the minimum wage is to help the poor. It will not directly affect most workers because they have wages that are above the minimum. Only those workers who are earning less than the minimum will be directly affected. Economists have done numerous studies to try to discover the effects of the minimum wage. Most studies suggest that the minimum wage does have some adverse employment results. They find that the minimum wage results in unemployment for some, especially those whose skills and abilities are very low and higher wages for others. Mainstream macroeconomists view recessions as a case of market failure. There are workers who would like to work but cannot because no one is willing to hire them. Their lack of income creates consumers who would like to spend but who cannot because they do not have the

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funds to do so. As a result, there are businesses that would like to produce and hire more workers, but cannot because there is not enough demand for final output. The circle is complete, and there is something not working properly. The traditional explanation for this situation was a failure of wages and prices to adjust quickly enough. A change in spending drives the economy away from equilibrium, but sticky wages and/or prices prevent rapid adjustment to a new equilibrium. Because wages and prices do not adjust, output does. If markets are always in equilibrium, then how do we explain the fluctuations in business activities that have been obvious for over two centuries? An important cause is fluctuation in the rate of technology change. When there is a technological shock raising real wage, people will work more causing output to surge, and when there is a technological shock lowering real wage, people will withdraw from work, causing output to fall. This pattern is what we observe as booms and recessions. The patterns we observe are possible and are a reminder of how little we know for certain in macroeconomics. There are three sets of principal/agent problems which are inherent in the structure of large companies: Those arising between management and the shareholders as a class; Between majority shareholders and minority shareholders;

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Between the controllers of the company (whether managers or majority shareholders) and non-shareholder stakeholders. Formation of Board of Directors is a mechanism to solve them, if they are well chosen and work effectively. Type of Board Compositions by popularity: Majority Outsiders and CEO as Chairman Majority Outsiders & Independent / Non-Executive Chairman Leads to Board Leadership Majority Insiders and CEO as Chairman Majority Insiders and Independent / Non-Executive Chairman Just formation of the Board is not enough; we have to align their interests with shareholders. Also, the management should also be aligned with shareholders interest. There are two methods to do it: Requiring officers and directors to own substantial blocks of the corporations stock; Increasing the extent to which officer and director compensation is contingent upon performance measures that reflect increased shareholder value.

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13. Economic decisions

If people act based on self-interest and there are no restrictions on their behavior, the results will not be in the interests of the group. Ownership encourages decision-makers to consider all the costs and benefits of their decision. A more direct way is to have a strong central authority that regulates people's behavior and punishes deviations. Hunting regulations, for example: Wild ducks are owned by no one. As a result, the problem of the commons should apply, and ducks should be hunted to extinction. They are not because governments set limits on when and where ducks may be hunted, and on how many ducks each hunter may kill. To the individual hunter, these restrictions may seem as irritating limitations on his freedom, but without them, hunters as a group would be much worse off. The use of central authority as a way of coordinating behavior is widespread. It is the method that allows large business firms to exist. The boss coordinates his subordinates, directing them to actions that are in the interest of the all those who make up the firm. This solution was used in an extreme form in the socialist economies of Eastern Europe and Asia. These economies were designed as if they were one giant firm. Government bureaucracies made the bulk of economic decisions, such as what to produce and how to produce it. Which method, the market or central direction, is better? Evidence suggests that sometimes the first is and sometimes the second is. There

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are costs to using either and, as a result, no country totally relies on either. Those who designed the Soviet economic system began with a belief that "the problem with capitalism is that it produces for profit instead of for people's needs". They set out to build a system that produced directly for people's needs and not at all for profit A system of central planning evolved; a system in which all decisions about what people needed were decided from the top. To see how this system worked, consider how the operator of a shoe factory in the United States would make decisions. His major concern would be whether he could sell at a profit the shoes he made. In the Soviet Union, however, profit was of no concern to the manager of the state-owned shoe factory. Neither did he worry about selling the shoes. His only concern was to produce what he was told to produce, and if he could do that, both he and the workers of the plant received sizable bonuses. The problem the Soviet Union had was that it is very difficult to specify in physical terms what a manager should do. (If you do not believe this, try to write down a set of instructions specifying what sort of shoes should be produced. Remember, instructions to produce "good shoes" or "attractive shoes" involve instructions that are not measurable.) The Soviet Union produced huge numbers of shoes that no one would buy because they were of such low quality. A reason that designing effectively is so difficult is that information and knowledge are scarce.

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Every day, individuals make decisions, big and little, that affect how our economy functions and grows. Important decisions are made by entrepreneurs who establish and run all kinds of businesses from a dog-walking service to a corner grocery store to a small manufacturing facility to a multi-plant corporation. Entrepreneurs make decisions about what service or product to produce; what method to use to produce the product or service; how to finance production; and how to market or sell the product or service. Over time, as a result of these decisions, we are able to produce more and better goods and services, and produce these goods and services more efficiently. Here are the profiles of three entrepreneurs who made just these kinds of decisions. According to Mankiw, the four principles of individual decisionmaking are: People Face Trade-offs, The Cost of Something Is What You Give Up to Get It, Rational People Think at the Margin, and People Respond to Incentives: People face trade-offs by having to give up something to get what they want or need. This is no surprise for most people who learn early in life that few things are free. As an example of a trade-off, many times college students give up spending time with their families in order to do homework and accomplish their long-term goal of earning a degree. p. 6). Next, rational people think at margin. A rational decision maker Because of trade-offs, making decisions requires comparing the costs and benefits of alternative courses of action (Mankiw, 2007,

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takes an action if and only if the marginal benefit of the action exceeds the marginal cost (Mankiw, 2007, p. 7). An example of a decision comparing the marginal benefit and the marginal cost associated with that decision occurred when I decided to purchase a marked-up, last minute airline ticket to pick-up my granddaughter. My other choices were to either drive my car or wait 7 days to pay a much lower airline fee. The marginal benefits of less travel time, decreased days off work, our comfort and having my granddaughter home immediately all outweighed the marginal cost of the increased airline fee. Therefore, I based my decision on these personal incentives. Of course, if the airline fee had been significantly higher than traveling by car, I had more vacation time at work and someone to assist me while traveling with my 4 month old granddaughter; I would have chosen to drive my car to reduce the cost. Finally, the principles of economics affect decision-making, interaction, and the workings of the economy as a whole because all people make decisions based on what they want and is best for them personally. Why do some women marry at a young age and others continue their education? Why are only 6 percent of tenured full professors of economics women? Why does 2 percent of venture capital go to women-owned firmswhen women own about 38 percent of U.S. businesses?

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The Minneapolis Fed, with its ongoing interest in economic literacy, was one of the sponsors of a May symposium that attempted to answeror at least explorethese questions and others related to economic decision making by, and on behalf of, women. Critical Junctures in Women's Economic Lives drew speakers from around the country versed in subjects that included financing women's business endeavors, women in poverty, financial planning and investment decisions, gender and racial discrimination, child care and family leaveand public policies that would effect change. The notion of making economic and financial matters relevant to women's daily lives isn't newsimilar topics were covered by participants at a women's caucus during the Minneapolis Fed's economic literacy seminar just two years earlier. However, a number of these issues remain under debate and reappeared at the May symposium. Heidi Hartmann, director and president of the Washington, D.C., Institute for Women's Policy Research and symposium keynote speaker, made the point that most women college graduates start at the same salary as their male counterparts, but studies done over time show that men's salaries peak at a far higher point on the scale than do women's. Women with low-wage earning jobs don't fare much better. Hartmann said that men in similar low-wage earning jobs tend to earn about $3 more per hour than women. "Women as Professional Economists: How Are We Doing?" was the topic of a presentation by Robin Bartlett, professor of economics at Denison University and past chair of the American Economic Association's Committee on the Status of Women in the Economics

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Profession (CSWEP). Her answer: Not very well. Despite assurances from the AEA in 1971 that "economics is not exclusively a man's field," Bartlett said, since the formation of CSWEP that same year, the data show that few women are tenured full professors of economics at the top 10 Ph.D.-granting universities. While the number of women in the profession continues to grow, they are not equally represented on faculty at these schools, Bartlett said. "The higher the prestige of the school, the fewer women you find [in tenured positions]." Partly in light of these data, Larry Singell, department of economics at the University of Oregon, tracked the careers of AEA members from 1960 to 1989 and found that women's opportunities in economics have improved over time. Women entering the job market were placed in lower-ranked schools than comparable males; however, this placement differential disappeared by the mid-1980s. Moreover, in the last 40 years, he said, "the proportion of female economists has increased from 3 percent to 25 percent. In 1999, women comprised 34 percent of new Ph. D economists." Regardless, as the Minneapolis Fed raised at its 1999 conference, relatively fewer women are entering graduate programs in economics than law and medicine. A study by Betsy Jensen and Ann Owen indicates that women might be better represented in the field if they went into their first college economics course with stronger math skills or had more confidence. The Hamilton College professors surveyed 1,776 students and 67 instructors in introductory economics courses at 34 coed liberal arts colleges, seeking an explanation of why women are under-represented in economics. Other factors that might deter women

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from continuing in economics include: different interests and career aspirations already in place; a lack of female role models; and teaching techniques and methods of evaluation that are less suited to women's learning styles. For example, women generally respond better to group problem-solving activities rather than the lecture style of teaching that is typical of an introductory economics course. At the end of the two days, the 80 or so attendees proposed ideas for further research and action, and they all dovetailed to the original question: (Discussion point) How can women make better economic decisions in their lives? 13.1. Portfolio, exchange, speculations People have a limited capacity to know. In small groups, people know a great deal about others simply from day-to-day interaction. But in large groups, knowledge about others requires expenditure of time and effort. For a modern, complex economy to function well, people must coordinate their actions with the actions of many people, but all of these people have very limited knowledge of how their actions fit into the big picture. Portfolio choice involves decisions about the way we want to hold our assets (or to structure our liabilities). It is a fancy term for something we do all the time. For example, a yard sale is an example of portfolio adjustment. People holding yard sales are attempting to convert assets in the form clothing and household items into cash. They are not changing

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the amount of assets they have, but rather the form in which they hold them. From a macroeconomic perspective, most important cases of portfolio adjustment involve financial assets. When we look at financial assets, there are three characteristics that most people want to have. First, they like assets with low risk. Second, they want assets that are liquid, that can be converted to money and spent easily. Third, they like assets that give them a high rate of return. Because no assets combine all three characteristics, people face tradeoffs. If they want a higher return, they usually have to accept more risk or less liquidity. For example, investment in stocks can be quite risky. With a system of central planning, the government decides what the priorities of the society will be and implements these priorities through a central planning agency. However, central planners cannot simply issue orders and expect them to be obeyed. They must first obtain information about what the factories, mines, and farms in the nation are capable of producing. The central planning agency could send out questionnaires, but there is no assurance that the answers that would come back would be truthful because, despite the socialist dream that men should act in total selflessness--for the good of the society as a whole--this does not seem to be the way that people actually act in the real world. It certainly has not been the way that men have acted in nations that adopted socialism. The central planning agency wants the factories, mines, and farms to produce as much as possible. It must reward those who produce up to their potential and penalize those who do not. Rewards and penalties

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introduce an incentive to lie when the central planning agency tries to determine potential. If the plant, mine, or farm manager underestimates potential and the central planners believe this estimate, the chances that the production unit will appear to be a good performer are enhanced. In a modern economy, there are a tremendous number of linkages and interdependencies. Thus, any change in production of one-product sets off a cascade of other changes needed to support the first change. Between 1920 and 1940, a number of economists debated about whether a centrally planned economy could match the performance of a decentralized market economy. One of the most insightful of these economists was Friedrich Hayek, who argued that information is widely scattered in society and cannot be effectively collected for use by a central authority making production decisions for the entire economy. Rather, the existence of market-determined prices communicates vital information that encourages individuals not only to use whatever information they have about production of goods, availability of resources, and how to satisfy consumers' desires, but also to actively search for more information. The market, said Hayek, was a way a society minimized the effort needed to discover and communicate information. Economists have little to say about small-group situations. The realm of the economist has been large-group situations, in which individuals interact with others who they do not know well or at all. In these situations, the assumption of self-interest seems to serve quite well

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even if it is not literally true. The area in which the analytical tools of economics have been most useful has been the area of exchange. In small groups, the role of exchange is replaced with gift giving. A member of a family who has no food will be given food by those who do. However, gift giving usually has strings attached. People who receive gifts are expected to reciprocate, to give back something in the future. This reciprocity helps bind small groups together. Exchange does not bind people together in the same way. Two people exchange only when both benefit. Neither incurs a social obligation as a result. In fact, where social obligations exist, exchange may not work well. Most people are uncomfortable negotiating a purchase from or sale to a close friend. Exchange allows for extremely complex interactions among strangers. When you use a pencil, for example, you benefit from efforts of hundreds of people who in some way contributed to getting that pencil to you. Wood had to be grown, cut, and shaped. Graphite had to be mined, transported, and processed. Iron had to be mined, refined, and molded. The paint and eraser each required their own processes. All of the many people involved are probably total strangers to you. Most of economics is devoted to discussing exchange, but economists also spend time examining other topics. Of those other topics, the one that has drawn the most research is the study of government. However, the economic theory of government is less advanced than the theory of exchange for at least three reasons. First, specific individuals are often very important in government, and

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economics does not deal well with specific individuals. In monarchies and dictatorships, for example, the decisions of one individual may outweigh the decisions of all others. Economics seeks regularities in social life, and those regularities are more likely to occur when no one individual has appreciable effects on the group. Economists usually assume that people are motivated by selfinterest, but for many years, they implicitly assumed that once the government employed a person, his motivations changed to unselfish and his knowledge became infinite. This assumption allowed economists to treat the government as a solution to problems. If, for example, the private market did not perform well, the government could remedy the problem. It was only in the 1960s and 1970s that economists fully realized that they had made what was for them a most unusual assumption about behavior. Some of the most interesting and informative research undertaken in the 1970s was that which asked what would one expect if one assumes that those who work for the government are in fact no different from the rest of us, and that they seek only their own self-interest. This research suggested that the government might often make a bad situation worse. Self-interest may not work as well in politics as in exchange. Politicians can and do make use of people's small-group responses. For example, many people feel loyalty to nation, party, or political personality. This loyalty can alter behavior from what it would be if based only on self-interest.

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The future always brings surprises. Sometimes, the surprises are nice, but often they are unpleasant. Many people want ways to protect themselves from the unpleasant surprises. They are willing to pay for protection against risk and uncertainty. Where some people consider risk a problem, others see it as an opportunity. A speculator is one who takes risks in the hope of making a profit, usually by trying to forecast future prices and betting his money that he is correct. If a speculator expects the price of gold to be higher in a year than it is now, he can buy gold and wait. If he is right, he will make a profit on his action, while if he is wrong, he will lose. The speculator is widely regarded as someone who contributes nothing positive to the economy because he produces nothing. However, by buying when prices are low and selling when they are high, the successful speculator transfers goods from low-valued uses to highvalued ones, which is a useful task. He also smoothes price fluctuations because his purchases increases prices when they are low, and his sales when prices are high helps keep prices from going even higher. The development of futures markets allows anyone who wants to be a speculator to become one. In a futures market, agreements to buy and sell at a future date are made, with the price set when the agreement is made. There are futures markets for most major agricultural commodities. Farmers use them to fix the price of their crop long before harvest and millers and owners of feedlots use them to lock in the price they will pay for grain in the coming year. In fixing these prices with a futures contract, farmers and buyers of grain reduce the risk they take by

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hedging. They are able to reduce their risk because speculators are willing to take risk. Without speculators, a futures market could not function properly. The benefits that speculators provide others are not part of their intentions. A person involved in speculation is not engaged in arbitrage, he is not a middleman/an intermediary, nor is he an entrepreneur. Arbitrage is buying in a market where prices are low and simultaneously selling in a market in which they are high. There is no risk involved in pure arbitrage. Arbitrage tends to equalize prices in various markets. A middleman is part of a distribution or marketing network. Though frequently disparaged, the fact that sellers are willing to use middlemen indicates that they do perform a useful service. Middlemen generally try to keep risk to a minimum. The entrepreneur deals in risk, but unlike the speculator who reduces the risk of those who do not want to bear it, the entrepreneur's risk is of his own making. The entrepreneur is the creative element in a market economy. His presence makes the system dynamic and ever changing. He creates new products, develops new managerial techniques, introduces new ways of producing products, and finds new resources. The entrepreneur is searching for unoccupied economic niches, opportunities to make a profit. The search is risky. Most large corporations are the results of entrepreneurial effort. Speculation refers to making financial decisions by assuming the risk of loss for the potential for increased returns. There is really a very thin line of difference between speculation and investment and between

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a speculator and an investor. While all investors must speculate (albeit at different degrees), all speculators must invest in order to make profits. The Difference between Investment and Speculation The difference between an investor and a speculator can be seen vis--vis the following parameters: Holding period: While an investor usually has a longer planning horizon and holds the investment for at least a year, a speculator holds the investment for a few days or months. Risk disposition: While an investor takes on moderate risks, a speculator assumes significantly higher risk. Expectation of returns: An investor expects moderate returns, while a speculator makes investments that promise high returns. Decision making: An investor would carefully evaluate the factors impacting the investment. A speculator would depend more on tips and market sentiments. How Speculation Yields Returns The degree of speculation tends to rise when the economy is bullish and the markets are buoyant. This is how bubbles are created. A bubble is a phenomenon during which the value of an investment (such as real estate, stock, foreign exchange and petroleum futures) rises substantially. Most of the investments are overpriced in such a scenario, yielding high returns.

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Speculation: Dangers A speculative buying spree, devoid of analytical calculation, aggravates the element of risk. Any downturn in prices can cause panic and excessive selling, resulting in a dramatic plummeting of prices and eventually a market crash. The stock market crisis of 2008 can be attributed to consecutive periods of speculative buying, followed by panic and speculative selling. How Speculation Helps the Market Speculation can be a blessing for the economy. This is because speculators inject capital in the market, thereby increasing liquidity. Speculative investments also minimize the risk for arbitrageurs and hedgers. Benjamin Graham (author of the classic books Security Analysis and The Intelligent Investor and mentor to Warren Buffett) urged people to ignore the market as a whole and focus on the true value represented by an investment.

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14. The financial sector

A well-functioning financial sector increases economic growth. If an economy does not allocate savings to the most productive uses, it will grow more slowly than it can grow. From a microeconomic point of view, the primary purpose of financial markets is to allocate available savings to the most productive use. Markets are interrelated, and a problem in one market can have its source in a different market. This finding is a starting point for macroeconomics. Macroeconomists ask two central questions: "Is this market a likely source of instability that shows up as inflation or recession," and "Will the adjustment process in this market cause problems for the overall adjustment of the economy." Changes in one part of the economy are rapidly transmitted to other parts through financial markets. Such transmission is not limited to questions of tariffs or to the market for foreign exchange; all financial markets transmit. When most people think of financial markets, they think of the stock market. A stock is a share in the ownership of a corporation, and through the stock market, one can buy and sell. The stock market has high visibility because it is open to anyone who can collect several hundred dollars together. However, the stock market is only a very small

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part of the total financial market and plays only a minor role in macroeconomic theory. Markets for debt are much larger than the stock market in terms of their daily transactions. These markets have less visibility because many require hundreds of thousands or even millions of dollars to enter directly. Some of these markets for debt do play an important role in macroeconomic theory. Whenever economists include an interest rate in their discussion, a market for debt is playing a role in their thinking. There are many kinds of transactions that take place in the market for debt. Some transactions are highly publicized: when a big corporation issues marketable bonds with the aid of a brokerage house, the brokerage house advertises the event to attract buyers. Transactions on the New York Bond Exchange are also very visible--they are reported in the financial section of major newspapers. Many more transactions involve financial intermediaries and less publicity. Eventually most people visit a bank (or a savings and loan association, which has become almost identical) to arrange a loan. Large corporations, small businesses, non-profit groups, and individuals all use banks to obtain funds. In addition to lending money to individuals and groups, banks are part of financial markets in other ways. Banks borrow and lend funds among themselves in the funds market. They buy and sell foreign exchange. They buy and sell government and commercial debt. Finally, one form of bank debt serves as money in modern economies, and banks create this debt because of their financial transactions. Prices in the debt market are interest rates, what one pays (or receives) for the use of funds for some period of time. Because they

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aggregate financial markets, economists often talk about "the interest rate." In fact, there are many interest rates. Rates differ depending on factors such as the risk of default, the liquidity and time to maturity of the debt, and the tax status of the interest payments. The press commonly reports several interest rates. The prime rate was once the interest rate that large commercial banks charged their most credit-worthy customers for short-term loans. In recent years, banks have usually given their best customers discounts from the prime, so this definition is no longer accurate. A good definition of the prime is hard to give other than - it is the rate that banks publicize. The funds rate is the rate that banks charge one another for funds they borrow on an overnight basis. The discount rate is the rate at which banks may be permitted to borrow from a Central/Federal Reserve bank. Finally, the interest rate on 13 and 26 week Treasury Bills is used by many banks to determine rates that they pay on some of their accounts. This interest rate is probably the one most economists have in mind when they talk about "the interest rate." In practice, all these rates tend to fluctuate together. Though many of us hold savings bonds, very little of the debt is financed with them. More of the debt is in the form of long-term debt (bonds), medium-term debt (notes), and short-term treasury bills, or Tbills for short. Financial intermediaries, large companies, and governmental units buy T-bills. Organizations find them a safe and profitable way to invest funds available for short periods of time. The attractiveness of T-bills is enhanced by the secondary market that has developed. A secondary

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market does not sell newly-issued securities, but previously issued - or "used" - securities. (The stock and bond exchanges are examples of secondary markets.) The existence of this secondary market has made Tbills very liquid, that is, T-bills can be converted into cash quickly and cheaply. However, because it does not deal in small transactions of $50000 or $100000, it is not visible. It is an over-the-counter market, which means transactions are done by computer or telephone. T-Bills are now sold as book-entry security, which means they are in the form of a paper certificate, but are only entries in the books of the Treasury. Most people do not enter financial markets directly but use intermediaries or middlemen. Commercial banks are the financial intermediary we meet most often in macroeconomics, but mutual funds, pension funds, credit unions, savings and loan associations, and to some extent insurance companies are important financial intermediaries. When people deposit money in a bank, the bank uses the funds to make loans to homebuyers for mortgages, to students so they can pay for their education, to business to finance inventories, and to anyone else who needs to borrow. A person who has extra money could, of course, seek out borrowers himself and bypass the intermediary. By eliminating the middleman (intermediary), the saver could get a higher return. Financial intermediaries provide two important advantages to savers. First, lending through an intermediary is usually less risky than lending directly. The major reason for reduced risk is that a financial intermediary can diversify. It makes a great many loans, and even though some of those loans will be mistakes, the losses will be largely

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offset by loans that are sound. In contrast, an average saver could directly make only a few loans, and any bad loans would substantially affect his wealth. Because an intermediary can put its "eggs" in many "baskets," it insures its depositors from substantial losses. A second advantage financial intermediaries give savers is liquidity. Liquidity is the ability to convert assets into an able form to spend money - quickly. A house is an illiquid asset; selling one can take a great deal of time. If an individual saver has lent money directly to another person, the loan can also be an illiquid asset. If the lender suddenly needs cash, he must either persuade the borrower to repay quickly, which may not be possible, or he must find someone else who will buy the loan from him, which may be very difficult. Though the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors. Only when a great many depositors want to withdraw deposits at the same time, which happens when there is a "run" on the institution, will the financial intermediary be unable to provide liquidity. Unless it can obtain help from the government or other institutions, it will be forced to suspend payments to depositors. Financial intermediaries help large numbers of people to use, though indirectly, financial markets. Although these intermediaries are important in the macroeconomic functioning of the economy, they are usually stable and change only slowly. With the exception of those intermediaries that issue deposits against which checks may be written, economists do not expect disturbances to arise in financial

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intermediaries. As a result, macroeconomic theory does not pay much attention to them. A financial market is an "efficient market" if its prices take into accounts all knowledge that people have about that market. If there is knowledge, which is not being used, unexploited profit opportunities exist, and in financial markets, these opportunities should be quickly taken. If one knows that a stock or bond is undervalued and that it will rise in value, one will make a large amount of money by buying until it does rise. Because profit opportunities are quickly exploited once they become known, one cannot "beat" an efficient market unless one has special information that is unavailable to others. The idea of efficient markets suggests that one should not place a great deal of faith in any forecasts about interest rates or stock prices, because if the person making the forecast really does know what will happen, he could keep quiet and get rich. The speculators play a useful role in an efficient market where prices adjust very quickly to new information. They are coolly rational individuals looking at the fundamental values of items, buying when prices are too low and helping lift these prices, and selling when prices are too high and helping to lower these prices. As a result, prices correctly transmit information about values, which people can then use to make decisions. An efficient market will not be the source of economic disturbances. However, it can transmit disturbances, and this alone would be enough to interest economists. An important reason people buy items in financial markets is in the hope of selling them at a profit. Thus trading in these markets involves

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not only an analysis of the fundamental value of an asset, but also an analysis of how other people will react. If people are confident that others will buy the item for more than they paid for it, then they will buy it even if it has little value to them. The idea described above has been called the "greater-fool" theory. It implies that although one may be a fool for buying an asset that is overpriced, one can profit if there are still greater fools who will pay even more for it. Markets based on the "greater-fool" theory always collapse. Eventually the greatest fool is found, and once he is found, the process cannot continue. It can affect the production of an economy if the speculations cause enough financial disruption. They will cause bankruptcies, reduce people's trust in others, and cause unemployment for the people who became speculators. A speculative crash in financial markets is not enough, by itself, to trigger a recession. The federal government not only regulates financial markets and intermediaries, it is also a major financial intermediary itself. Two agencies with important regulatory functions are the Securities Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC). The SEC regulates behavior in stock and bond markets, and also specifies which information a publicly-traded company must provide to shareholders. The FDIC insures deposits at commercial banks and, with the demise of the Federal Savings and Loan Insurance Corporation in the 1980s deposits at savings and loan associations.

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The U.S. government makes extensive loans for agriculture and housing. Because the government can borrow at a lower interest rate than most private borrowers can, and because it does not need to make a profit, it can lend at lower interest rates than private intermediaries can. The government also subsidizes borrowers by guaranteeing loans that private lenders make. However, the issues that these actions of the government raise are primarily microeconomic in nature. From a macroeconomic perspective, by far the most important government institution involved in financial markets is the Federal Reserve System. The Federal Reserve System (often referred to as the "Fed" by economists and bankers) is the central bank of the United States. A central bank functions as a banker's bank. Just as individuals and businesses have deposits at a regular bank and can write checks on these deposits, banks have deposits at a central bank and can write checks on these deposits. The Federal Reserve System is a rather strange "central" bank because it is composed of 12 separate banks. When you examine your paper currency, you will see the district number and letter of one of these 12 banks on the left side of the portrait. This strange structure exists because of the political realities that faced Congress when it established the system in 1913. In 1935, Congress reduced the independent authority of these 12 banks and centralized policy-making authority in a group called the Federal Open Market Committee (FOMC) which decides monetary policy. Though today the individual Reserve banks retain little independent power, the president of each can serve as a voting member of the FOMC.

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In the market for foreign exchange, people trade one country's money for another's. If, for example, you decide to travel to Thailand, you will need to buy some bahts, the currency of Thailand, either before you go or once you get there. In your transaction, you will supply dollars to the foreign exchange market and demand bahts. The foreign exchange market provides an excellent illustration of how financial markets can transmit disturbances. The market is usually considered to be an efficient market, not subject to runaway speculative binges. The heart of the market is the trading by a number of very large banks. A trade worth a million dollars is very small in this market, but it is the prices of these very large bank transactions that newspapers report when they publish exchange rates. When you deal in smaller amounts when you travel to Thailand, you will get less favorable prices. The market for foreign exchange can be analyzed in terms of supply and demand. Americans demand foreign money (and supply dollars) when they buy things abroad, such as vacations, goods, services, factories, and financial assets. Foreigners supply foreign currency (and demand dollars) when they buy things here, such as vacations, goods, services, factories, and financial assets. Though when you buy a Japanese camera, you do not deal in the foreign exchange market, someone did in the process of bringing the camera to you. It may have been the American importer, who would have sold dollars to buy yen, and then used the yen to buy the camera. On the other hand, it may have been the Japanese exporter, who sold cameras for dollars and then sold the dollars for yen. In either case, dollars were supplied to the foreign exchange market and yen were demanded.

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The exchange rate, or the price of foreign money, is an important price when we buy things made in other countries. Two things affect the price of the Japanese camera as seen from America. The first is the yen price of the camera, and the second is the dollar price of the yen. If either one increase: Japanese cameras will become more expensive and Americans will want fewer of them. The exchange rate also affects the price of American goods as seen in Japan. When foreign currency is cheap, foreign products are cheap in dollars, and Americans will want a lot of them. To buy these foreign products, Americans must buy a lot of foreign exchange. When the price of foreign exchange is expensive, so also are foreign products and Americans will not want many. Hence, they will not need as much foreign exchange. Let us consider what will happen if the United States increased its tariffs. Because tariffs are taxes on imports, foreign products will become more expensive for Americans. As a result, Americans will want to buy fewer imports, which is usually the desired result of tariffs. However, if the exchange rate is: a floating rate, that is, one that can take whatever value supply and demand dictate, the story has not ended. Because of the tariff and the resulting decrease in imports, foreign money becomes cheaper for Americans and American dollars become more expensive for foreigners. If dollars become more expensive, foreigners will find American goods more expensive. The end effect of a tariff with floating exchange rates, then, is to cut not just imports, but to cut exports as well.

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If a country treats the foreign exchange market as any other market, allowing the marketplace determine the price of foreign money, it has a system of floating exchange rates. This is what most of the Western world has had since the 1970s. However, governments have often fixed prices in this market. In doing so they simultaneously establish price floors and price ceilings--they will neither let the price rise nor fall (except within a small range). There are two ways a government can keep exchange rates fixed. One method, which has been common in less-developed nations, is called a fixed and unconvertible exchange rate because the exchange rate is fixed, but domestic currency cannot be freely converted into foreign money. Governments using it almost always set the price of foreign exchange below the market-clearing price (which means that they price their own currency too high), and thereby cause a shortage of foreign money. The government prevents the market-increasing price to eliminate this shortage by outlawing private transactions in foreign exchange and requiring citizens who obtain foreign exchange to sell it to the government. Because the government becomes the only legal source of foreign money, those who want to buy products from abroad must obtain those funds from the government, which rations these funds to those purposes it deems most worthy. Though this system is hard to justify on economic grounds, and is often evaded with extensive blackmarketing, the system gives rulers a powerful tool to reward friends and punish enemies. The second method is a fixed and convertible exchange rate. With this method a government does not abolish the private market for foreign

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exchange, but fixes exchange rates by standing ready to absorb any surpluses or to fill any shortages. If the price of foreign exchange is set above the market-clearing price, there will be a surplus of foreign exchange (and a shortage of the domestic currency). At this price, people will want to sell more foreign exchange than they want to buy. The government can prevent this surplus from lowering price by stepping into the market and buying the excess foreign exchange. On the other hand, if the price that the government sets is below the market-clearing price, there will be a shortage of foreign exchange called a balance of payments deficit. The government can prevent the shortage from raising price by selling foreign exchange into the market. The government can obtain this foreign exchange from reserves it stored up when there was a surplus, or by borrowing from other countries, or by selling assets such as gold. It should be obvious that a government can only fill a balance of payments shortage temporarily and that if it runs for too long; the country will run out of foreign exchange to provide to the market. Now most of the industrial world has floating exchange rates. A "commercial bank" is what is commonly referred to as simply a "bank". The term "commercial" is used to distinguish it from an "investment bank", a type of financial services entity which, instead of lending money directly to a business, helps businesses raise money from other firms in the form of bonds (debt) or stock (equity).

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Banking services The primary operations of banks include: Keeping money safe while also allowing withdrawals when needed Issuance of checkbooks so that bills can be paid and other kinds of payments can be delivered by post Provide personal loans, commercial loans, and mortgage loans (typically loans to purchase a home, property or business) Issuance of credit cards and processing of credit card transactions and billing Issuance of debit cards for use as a substitute for checks Allow financial transactions at branches or by using Automatic Teller Machines (ATMs) Provide wire transfers of funds and Electronic fund transfers between banks Facilitation of standing orders and direct debits, so payments for bills can be made automatically Provide overdraft agreements for the temporary advancement of the Bank's own money to meet monthly spending commitments of a customer in their current account. Provide Charge card advances of the Bank's own money for customers wishing to settle credit advances monthly. Provide a check guaranteed by the Bank itself and prepaid by the customer, such as a cashier's check or certified check. Notary service for financial and other documents

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Other types of bank services Private banking - Private banks provide banking services exclusively to high net worth individuals. Many financial services firms require a person or family to have a certain minimum net worth to qualify for private banking services. Private banks often provide more personal services, such as wealth management and tax planning, than normal retail banks. Capital market bank - bank that underwrite debt and equity, assist company deals (advisory services, underwriting and advisory fees), and restructure debt into structured finance products. Bank cards - include both credit cards and debit cards. Bank of America is the largest issuer of bank cards. Credit card machine services and networks - Companies which provide credit card machine and payment networks call themselves "merchant card providers". Foreign exchange services Foreign exchange services are provided by many banks around the world. Foreign exchange services include: Currency Exchange - where clients can purchase and sell foreign currency banknotes Wire transfer - where clients can send funds to international banks abroad Foreign Currency Banking - banking transactions are done in foreign currency

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Investment services Asset management - the term usually given to describe companies which run collective investment funds. Hedge fund management - Hedge funds often employ the services of "prime brokerage" divisions at major investment banks to execute their trades. Custody services - the safe-keeping and processing of the world's securities trades and servicing the associated portfolios. Assets under custody in the world are approximately $100 trillion. Insurance Insurance brokerage - Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Recently a number of websites have been created to give consumers basic price comparisons for services such as insurance, causing controversy within the industry. Insurance underwriting - Personal lines insurance underwriters actually underwrite insurance for individuals, a service still offered primarily through agents, insurance brokers, and stock brokers. Underwriters may also offer similar commercial lines of coverage for businesses. Activities include insurance and annuities, life insurance, retirement insurance, health insurance, and property & casualty insurance. Reinsurance - Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses.

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Other financial services Intermediation or advisory services - These services involve stock brokers (private client services) and discount brokers. Stock brokers assist investors in buying or selling shares. Primarily internet-based companies are often referred to as discount brokerages, although many now have branch offices to assist clients. These brokerages primarily target individual investors. Full service and private client firms primarily assist and execute trades for clients with large amounts of capital to invest, such as large companies, wealthy individuals, and investment management funds. Private equity - Private equity funds are typically closed-end funds, which usually take controlling equity stakes in businesses that are either private, or taken private once acquired. Private equity funds often use leveraged buyouts (LBOs) to acquire the firms in which they invest. The most successful private equity funds can generate returns significantly higher than provided by the equity markets Venture capital is a type of private equity capital typically provided by professional, outside investors to new, high-potentialgrowth companies in the interest of taking the company to an IPO or trade sale of the business. Angel investment - An angel investor or angel (known as a business angel or informal investor in Europe), is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

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Conglomerates - A financial services conglomerate is a financial services firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, wholesale banking, investment banking, etc. A key rationale for the existence of such businesses is the existence of diversification benefits that are present when different types of businesses are aggregated i.e. bad things don't always happen at the same time. As a consequence, economic capital for a conglomerate is usually substantially less than economic capital is for the sum of its parts. Financial crime Fraud within the financial industry costs the UK an estimated 14bn a year and it is believed a further 25bn is laundered by British institutions. Market share The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market cap. However it is not the largest category in terms of revenue or number of employees. It is also a slow growing and extremely fragmented industry, with the largest company (Citigroup), only having a 3 % US market share. In contrast, the largest home improvement store in the US, Home Depot, has a 30 % market share, and the largest coffee house Starbucks has a 32 % market share.

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The financial industry, or financial services industry, includes a wide range of companies and institutions involved with money, including businesses providing money management, lending, investing, insuring and securities issuance and trading services. The following institutions are a part of the financial industry: Banks Credit card issuers Insurance companies Investment bankers Securities traders Financial planners Security exchanges In the period following the introduction of the euro developments following the introduction of the euro do not imply that the euro area is set to become a financial fortress whose financial markets and institutions would be cut off from the rest of the world. In fact, market participants residing outside the euro area seem to be taking a keen interest in the financial markets of the euro area. "Core Europe", so to speak, has become more interesting to outsiders as the breadth and liquidity of its financial markets has increased. The second observation is that the euro can be expected to have a significant influence on the structure of the financial system by bringing about more securitization. A traditional feature of the financial system of continental Europe has been a marked dependency on the funds intermediated by banks. This feature contrasts with the financial system

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of the United States which is much more securitized. For instance, corporate bonds have not been very widely issued in the euro area, and stock market capitalization - relative to the size of the economy - is much lower in the euro area than in the United States. There are good reasons to believe that a process of securitization will gather pace in the euro area now that the single currency is in use. The Euro system contributes to developments in the financial sector by providing it with a stable and credible monetary policy. With a strong and credible commitment to its primary objective, price stability, the Euro system has created a situation in which the financial sector can concentrate on those issues that are of the greatest relevance to its activities. The Euro system does not play a direct role in structural developments in the financial sector. With its single monetary policy framework and TARGET in particular, the Euro system has created an infrastructure that has proved to be useful for the establishment of an integrated money market in the euro area. In addition, the Euro system carefully monitors structural developments in the financial sector to the extent that they might have an impact on the conduct of monetary policy. To make a final point, in observing developments in the financial sector, the Euro system constantly takes account of the fact that one of its tasks, laid down in the Treaty establishing the European Community, is to "contribute to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system"

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15. Marketing campaigns

The chapter is dedicated to a description (case studies) of three marketing companies: - Verity, Impact Ads and Transworld. CASE STUDY: I. This is a conversation between the managing director Andrew Hodge to Stephen Johnson, the assistant sales director who will choose who will manage his company's marketing campaign: Andrew Hodge: Well, have you decided which one it is going to be? Stephen Johnson: Well, its tough - but I think it is between Impact Ads and Verity. Andrew Hodge: What is wrong with Transworld? Stephen Johnson: Well, they are a little low on substance. They keep saying they are a 'top' company, but they do not say what they are top of! They say they have original designs, and ideas, but they do not give any examples. I would like to know more about their campaigns and their clients. The only thing they do say is that they are cheaper than the others - but do they give value for money? I could find more about them, but if a marketing company can't sell itself, can it sell for us? I like Verity's idea; of working closely with us at every stage of the process I think we need something like that. They seem to me to be a

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good company, and all the people who have worked with them tell me that they do exactly as they say - they work with you, and they don't mess you around. Andrew Hodge: And Impact? Stephen Johnson: That's the problem. They are good, very good. They are very expensive, but they do a fantastic job. If you look at their list of satisfied customers, it is as long as your arm. They are a young team, very professional, very innovative but they are a bit light on their management consultancy side - they know it too, so they have brought in an outside partner. They will do a very good campaign, but we will have to organize it a lot more for them - their service is less complete. Andrew Hodge: So they do less, but do it well? Stephen Johnson: Very well. And they are cheaper than they look. Andrew Hodge: So it's going to be Impact then? Stephen Johnson: Well, if we end up with Impact, it will be no bad thing. But I have been talking to George Halds at Verity - they have a new young employee, Sandra Sean. She's got some original ideas, and they want to give her a try on a big project. And she is almost as good as Impact in one way - they tried to poach her from Verity earlier this year! CASE STUDY: II Who we are: When John Weznik lost his job in 1935, he started an advertising company from his own kitchen at home. Verity advertising was born. Now Verity has 85 employees and offices in London, Paris and New York. Still today, we keep to our founder's principles of

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integrity, customer service, and dynamic advertising campaigns tailored in close consultation with our clients. What we do: Verity advertising makes you, the client, an active partner in our advertising campaigns, combining our knowledge of the advertising market with your knowledge of your product to make an unbeatable partnership. How we do it: Verity has an intimate knowledge of the markets, and our skilled analysts will work with your managers and designers, bringing marketing into every aspect of design, production and sales, optimizing them to meet what you are seeking. Market share, and all the rest are all very well, but what you really, really want, is customers buying your product in large amounts, and at good margins. That is what it is all about. And that's what Impact Ads will get you. You have seen our award-winning marketing campaigns; you know our clients are some of the top companies in the Fortune 500. We have come from nowhere to the top in 10 years, because we are good, we hire the best, we have one of the most creative and innovative teams in the business. We are not just a talented team. We work closely with Valerie Maxim management consultants guaranteeing that our campaigns do not just grab the attention of the public, but make good business sense too. We are not the cheapest in the business, but the ROI we generate speaks for itself!

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CASE STUDY: III Your campaign needs a company that is top for quality top for price and top for performance. You need Transworld - the advertising company with the ideas and results that are changing the industry. Contact us today, to find how we can turn your campaign into a dynamic, powerful monster that leaves your competition stopped dead in their tracks! For the past two decades, we have combined innovation, highquality concept designs and strategic vision, to make ourselves the first choice to help you meet the challenge of successfully reaching your target audience. From concept to completion, Transworld supplies the experience and the support that gives your message maximum impact. No other advertising agency supplies the value for money that Transworld can bring to your campaign. With our slim, flat management structure, helped by the latest in IT, we put more of your expenses back into your campaign than any other agency in the business. Questions concerning the three case studies: 1. Which company emphasizes that it costs less? 2. Which company stresses its relationship with clients? 3. Which company puts most weight on the quality of its product? 4. Which is the oldest company? 5. Which company has the least aggressive sales pitch? 6. Which company tells you least about itself? 7. Which company offers the least complete service?

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8. Which

company

stresses

it

will

generate

income?

Definition: A specific, defined series of activities used in marketing a new or changed product or service, or in using new marketing channels and methods Effective marketing is often what separates rapidly growing companies from slow-growing or stalled companies that started at the same time, serve the same market and offer similar merchandise. Companies such as Gillette, Frito-Lay and Coca-Cola have succeeded in highly competitive mass markets for consumer goods because, while they certainly produce competitive products, they out-market their rivals. If you expect your business to grow to any size, you'll have to become an effective marketer, advertiser and promoter of your business. In fact, you're likely to grow to the extent that you master marketing, and no more A marketing campaign isn't something that comes to you while you're taking a shower. Successful campaigns tend to be carefully researched, well thought-out and focused on details and execution, rather than resting on a single, grand idea. Planning a marketing campaign starts with understanding your position in the marketplace and ends with details such as the wording of an advertisement. Keep in mind that your plan for a marketing campaign is not supposed to be a prison. You have to leave room to make changes as you go along because no plan can perfectly capture reality. But you should also be able to commit fully to implementing your plan--or some future version of it--if you want to take a strong step toward growth.

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Here are some ways to launch your campaign: Speak at community events. Offering your expertise at public occasions is an easy way to get the word out about your business. You'll maximize your impact and lend credibility to your product or service. Ask customers for referrals. Generating referrals from current customers is one of the best ways to market your business. Don't forget to query your vendors (they're likely to have many contacts) and explain to your customers exactly what kinds of referrals you're looking for and how they can help. Spend two days in your customers' shoes. To find out what your customers really want, visit a wide range of businesses they're likely to frequent. Observe how customers are treated, as well as the kinds of services that appear important to them; then adapt your business accordingly. Offer free samples. If you can get someone to try your product or service, chances are they'll buy it later. Have employees pass out product samples in front of your business; if you provide a service, offer free services on a trial basis. Marketers are constantly searching for ways to increase customer value. They also continually strive to better position their product or service in the market place while creating a worthwhile experience for the customer. Successful brand building takes concerted effort and a keenly focused approach to achieve desired results. This is where direct marketing comes in to play. Unlike other methods of advertising and promotion, direct marketing is highly cost-effective. Instead of blasting emails or paying

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for airtime on commercial broadcasts efforts which have a greater chance of missing the intended audience and wasting dollars direct marketing is differentiated and targeted to specific individuals and populations. As such, it is an extremely precise element of integrated marketing communications. Direct marketing is more precise and more targeted than mass advertising. DM emphasizes customer experience and enhances customer value to achieve marketing success. How Direct Marketing Works Direct marketing, or DM, is best utilized as part of a complete, multi-faceted marketing program. It is best used to reinforce existing advertising efforts, but can be equally effective when used alone. Direct marketing efficiently targets customers by coming into contact with them in their mailbox and in their homes. Periodic communications and direct mailings maintain relationships with specific prospects who have expressed interest in a product or service. Within a fully integrated marketing campaign, direct marketing can strengthen and add value to vital business strategies by creating a foundation of hot leads for sales conversion. Such strategies include public relations, lead generation, and brand awareness. Direct marketing proves its value in three primary ways. DM is focused on the customer. DM is focused on relevance. DM is focused on a tested database.

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Customer- Centric Marketing Though customer acquisition is vital for the success of any business, the existing customer base makes a comparatively larger contribution in the long run. This is especially true of loyal, repeat customers. In most cases, it costs less to retain customers than it does to acquire new ones. When companies focus on the customer, lasting relationships are built. This enhances sales efforts and fosters customer loyalty. Customer needs are attended to and a steady stream of useful communication is maintained between the marketer and the market, helping companies retain customers. Industry wide experience suggests the smallest degree of customer retention can increase profits two-fold. But beware: Companies should be careful about which customers they seek to retain. Spending too much time or allocating too much of the advertising budget on retaining the wrong customers would be a mistake. The proper decision about which customers are worth the time and effort should be based on previous behaviors. Businesses should focus only on those customers who have demonstrated a propensity for the highest returns over time. Relevance is Key in Direct Marketing Direct marketing works because it is highly targeted and precise. A tailored, customized message with content that is relevant to the recipient has been proven to garner the best response rates. Direct marketing messages fail when the communication is irrelevant and generic. Companies that succeed with DM do so by researching their target market and creating effective and personalized mailings.

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Relevant and effective direct mail campaigns should include the following elements: Communications that reflect the individuality and uniqueness of the recipient Mailings that build and nurture a relationship with little immediate pressure to buy Messages that offer direct reward and valuable benefits through samples or physical evidence Mailings that contain stimulating creative and materials that maintain interest in the message Communications with call-to-action incentives and easy-to-use customer response mechanisms Testing Databases through Direct Mail A direct mailers database is essential for successful direct marketing. Within that database dwell the values, expectations, preferences and historical purchasing behavior of consumers and potential customers. These details are virtual gold for any business seeking to maximize opportunities. While it may begin with just names and addresses, a database can be an ever-expanding source of knowledge and customer insight. By building on bare data, adding income information, household breakdown and purchasing trends, marketers can create a functional, low-risk, and productive marketing program with which to test their program. Companies can test the strength of their database by issuing communications to small, niche segments. The degree to which these test markets respond provides marketers with invaluable intelligence.

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Marketing communication programs that generate responses and sales leads are programs worth expanding. Marketing Communications through Direct Mail Direct mail is an effective and precise medium for communicating value propositions. Large segments of targeted consumers prefer to receive marketing communications through regular mail. Marketing is about perceptions. Direct marketing campaigns that integrate attention grabbing copy, quality layout and relevant product offerings will be viewed favorably by recipients. Keep the mailings interesting and personalized, and customers will keep coming back. Once the target market has been clearly identified and the direct marketing campaign has been carefully planned, companies can implement a well-thought out DM program with cost effective and lucrative results. This translates into higher returns on customer retention, new customer acquisition and improved response rates. In the end, a well-developed marketing campaign that includes direct marketing is likely to result in increased brand awareness and increased future revenue for any company. Developing a Marketing Campaign Most internet companies do not know this, but there is a difference between marketing and advertising. Marketing is a strategy. It is defining how your customers will perceive your company. An effective marketing campaign will shape your customers image of your company in a positive manner.

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In order to have a good marketing campaign, you must first define the image you want to portray. Some of the most successful companies have chosen this wisely. Your image is defined by color choices, font choices, and other factors. It is important that when you decide upon your final strategy, that it be implemented across the board in a consistent manner. Every promotional piece your produce should have the same color scheme, same font choice and convey the same message. As an example of this, lets look at a McDonalds, a very successful offline company. Wherever you go in the world, you will find the same look. Red and Yellow is their chosen color scheme. They have chosen to market their company as a fun place to eat. Their characters (Ronald McDonald et al.) are designed to speak to children. They have found that by speaking to children, they can reach parents. In designing your own marketing campaign, be sure to find a way to speak to your customers. Do your research well. A marketing campaign is not something that can be rushed. Find out what your customers want from your product or service. Use their hot buttons to trigger the response you want from them. It is important to know who your customers are and what makes them buy. Do your research and you will find that consumers will buy from you based on their perception of you. If your marketing materials are sloppy, they are likely to presume that you do poor quality work. Consider developing a company mission statement that guides you and tells your customers about your company. This statement should be no more than 2-3 sentences long. It should convey a positive message

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about your company. It should portray your company in the manner in which you want it portrayed. Be sure to test your image. Try three or four different strategies and pick the best one. When you finally decide on the marketing image you want to portray, go for it! Be consistent in your marketing approach and build your name. Before you launch a marketing campaign, answer the following questions about your business and your product or service. Have you analyzed the market for your product or service? Do you know which features of your product or service will appeal to different market segments? In forming your marketing message, have you described how your product or service will benefit your clients? Have you prepared a pricing schedule? What kinds of discounts do you offer, and to whom do you offer them? Have you prepared a sales forecast? What type of media will you use in your marketing campaign? Have you planned any sales promotions? Have you planned a publicity campaign? Do your marketing materials mention any optional accessories or added services that consumers might want to purchase? If you offer a product, have you prepared clear operating and assembly instructions? What kind of warranty do you provide? What type of customer service or support do you offer after the sale?

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Do you have product liability insurance? Is your style of packaging likely to appeal to your target market? If your product is one you can patent, have you done so? How will you distribute your product? Have you prepared job descriptions for all of the employees needed to carry out your marketing plans?

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16. Style in Business Correspondence5

First Impressions Oftentimes, the first impression an employer has of a prospective employee is in writing, in the form of a cover letter or letter of application and resume. Opinions are formed and conclusions are drawn from the appearance and content of any correspondence you send. It is important to make the best possible impression so that an interview will follow. When sending a resume, never send it without a cover letter. Usually, when the reader gets your cover letter and resume he/she will immediately flip the cover letter over and glance at the resume first. This is so that a few facts about you are easily obtained. (i.e. name, objective, education, extend of experience and skills). If the resume interests the reader, he/she will then flip back to the cover letter and read it in detail. In fact, the letter may get more attention than the resume because, although the resume is about you, it is assumed that you had help putting it together. But the cover letter is generally written by the individual and the reader can assess your writing style, communication style and how well you put your thoughts and ideas together. The intent of the cover letter is to introduce yourself to the potential employer, highlight the information given on the resume and
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From the internet: site maintained by Patrick Burne, a retired business communication consultant 249

convince the reader to grant you an interview. But an employer could receive hundreds of letters and resumes every day. It would be like receiving hundreds of pieces of junk mail. How much of it can you read and which ones do you even care to read? An employer may compare your correspondence with other candidates and determine which appears better. To increase your chances of being selected, your letter must spark the interest of the reader, create a favorable impression and look inviting to read. The myth about business correspondence is that it must be formal, standardized and often terse. The writer seems to transform him/herself from the personal to the institutional. Letters appear to be written from one institution to another rather than from person to person. This does nothing more than create ineffective communication. It is important to develop a good writing style that not only reflects good grammar and sentence structure, but also gives the reader some insight into the personality of the writer. It is just as important, however, to be able to express your self in clear, concise language so the reader knows exactly why you are writing. There are lots of examples of cover letters out there. Many use gimmicks and advertising lingo to attract the readers attention. While all letters of application should be personalized to be effective, the best letters follow certain basic principles. Many letters are disqualified or discarded because of minor details. Please note the following points: Type all letters on good quality business stationery, preferably matching your resume paper

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 Use either block style or modified block style; do not use a memo format Use black ink only Limit your letter to one page, usually three or four paragraphs Write in your own words, using your own style Do not rehash the entire resume; instead, elaborate on specific points of particular interest to the employer; refer the reader to your resume for additional information Make it easy to read; use spell check and grammar check Make the format and layout attractive; center the letter on the page; allow ample margins; make it appealing to look at and inviting to the reader Watch your sentence structure; proof read the letter several times to be sure you are saying what you want to say Do not send photocopies or generic letters; you can create a model letter which can be used many times with slight revisions Do not e-mail or fax any business correspondence (resumes, applications, letters, etc) unless you are specifically asked to do so. Even then, follow it up with a hard copy in the mail Be sure to sign the letter before you mail it The recommendation is for buying large envelopes (9x12) instead of matching business envelopes. That way you can mail your resume and cover letter without having to fold or crease them in any way. Be sure to add the extra postage for a large envelope.

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Writing business letters and memos differs in certain important ways from writing reports. Keep the following advice in mind when you write and especially when you revise your business letters or memos. State the main business, purpose, or subject matter right away. Let the reader know from the very first sentence what your letter is about. Remember that when business people open a letter, their first concern is to know what the letter is about, what its purpose is, and why they must spend their time reading it. Therefore, avoid roundabout beginnings. If you are writing to apply for a job, begin with something like this: "I am writing to apply for the position you currently have open...." If you have bad news for someone, you need not spill all of it in the first sentence. Here is an example of how to avoid negative phrasing: "I am writing in response to your letter of July 24, 1997 in which you discuss problems you have had with an electronic spreadsheet purchased from our company." If you are responding to a letter, identify that letter by its subject and date in the first paragraph or sentence. Busy recipients who write many letters themselves may not remember their letters to you. To avoid problems, identify the date and subject of the letter to which you respond: Keep the paragraphs of most business letters short. The paragraphs of business letters tend to be short, some only a sentence long. Business letters are not read the same way as articles, reports, or books. Usually, they are read rapidly. Big, thick, dense paragraphs over ten lines, which require much concentration, may not be read carefully - or read at all.

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To enable the recipient to read your letters more rapidly and to comprehend and remember the important facts or ideas, create relatively short paragraphs of between three and eight lines long. In business letters, paragraphs that are made up of only a single sentence are common and perfectly acceptable. "Compartmentalize" the contents of your letter. When you "compartmentalize" the contents of a business letter, you place each different segment of the discussion - each different topic of the letter - in its own paragraph. If you were writing a complaint letter concerning problems with the system unit of your personal computer, you might have these paragraphs: A description of the problems you've had with it The ineffective repair jobs you've had The compensation you think you deserve and why Study each paragraph of your letters for its purpose, content, or function. When you locate a paragraph that does more than one thing, consider splitting it into two paragraphs. If you discover two short separate paragraphs that do the same thing, consider joining them into one. Provide topic indicators at the beginning of paragraphs. In the first sentence of any body paragraph of a business letter, try to locate a word or phrase that indicates the topic of that paragraph. If a paragraph discusses your problems with a personal computer, work the word "problems" or the phrase "problems with my personal computer"

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into the first sentence. Doing this gives recipients a clear sense of the content and purpose of each paragraph. Place important information strategically in business letters. Information in the first and last lines of paragraphs tends to be read and remembered better. Information buried in the middle of long paragraphs is easily overlooked or forgotten. Therefore, place important information in high-visibility points. For example, in application letters that must convince potential employers that you are right for a job, locate information on appealing qualities at the beginning or end of paragraphs for greater emphasis. Place less positive or detrimental information in less highly visible points in your business letters. If you have some difficult things to say, a good (and honest) strategy is to deemphasize by placing them in areas of less emphasis. If a job requires three years of experience and you only have one, bury this fact in the middle or the lower half of a body paragraph of the application letter. The resulting letter will be honest and complete; it just will not emphasize however weak points unnecessarily. Find positive ways to express bad news in your business letters. Often, business letters must convey bad news: a broken computer keyboard cannot be replaced, or an individual cannot be hired. Such bad news can be conveyed in a tactful way. Doing so reduces the chances that business relations with the recipient of the bad news will end. To convey bad news positively, avoid such words as "cannot," "forbid," "fail," "impossible," "refuse," "prohibit," "restrict," and "deny" as much as possible.

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Focus on the recipient's needs, purposes, or interests instead of your own. Avoid a self-centered focusing on your own concerns rather than those of the recipient. Even if you must talk about yourself in a business letter a great deal, do so in a way that relates your concerns to those of the recipient. This recipient-oriented style is often called the "youattitude," which does not mean using more you but making the recipient the focus of the letter. Avoid pompous, inflated, legal-sounding phrasing. Watch out for puffed-up, important-sounding language. This kind of language may seem business-like at first; it is actually ridiculous. Of course, such phrasing is apparently necessary in legal documents; but why should we use it in other writing situations? When you write a business letter, picture yourself as a plain-talking, common sense, downto-earth person (but avoid slang). Give your business letter an "action ending" whenever appropriate. An "action-ending" makes clear what the writer of the letter expects the recipient to do and when. Ineffective conclusions to business letters often end with rather limp, noncommittal statements such as "Hope to hear from you soon" or "Let me know if I can be of any further assistance." Instead, or in addition, specify the action the recipient should take and the schedule for that action. If, for example, you are writing a query letter, ask the editor politely to let you know of his decision if possible in a month. If you are writing an application letter, try to set up a date and time for an interview.

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TYPES OF BUSINESS DOCUMENTS We will discuss some basic guidelines for writing style for some of the types of business documents including business letters. To begin with, we will briefly define different types of report: Organizational policies and procedures These are the operating documents for organizations; they contain rules and regulations on how the organization and its members are expected to perform. Policies and procedures are like instructions, but they go much further. Feasibility, evaluation, recommendation reports This group of similar reports does things like compare several options against a set of requirements and recommends one. It considers an idea (plan, project) in terms of its "feasibility," in terms of some combination of its technical, economical, social practicality or possibility. It passes judgment on the worth or value of a thing by comparing it to a set of requirements, or criteria. Technical background reports This type is the hardest one to define but the one that most people write. It focuses on a technical topic, provides a certain background on that topic for a specific set of readers who have specific needs for it. This report does not supply instructions, nor does it supply recommendations in any systematic way, nor does it report new and original data. Primary research reports This type presents findings and interpretation from laboratory or field research.

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 product.

Business plans Technical specifications

This type is a proposal to start a new business. This type presents descriptive and operational details on a new

16.1. Business plans and technical specifications6 A business plan is a document used to start a new business or get funding for a business that is changing in some significant way. Business plans are important documents for business partners who need to agree upon and document their plans, government officials who may need to approve aspects of the plan, and of course, potential investors such as banks or private individuals who may decide to fund the business or its expansion. A business plan is very much like a proposal, except for at least one big difference. The prospectus seeks to start a new business or significantly expand an existing business. A proposal, on the other hand, seeks approval to do a specific project. For example, a business plan might seek funding and other support to start a software company to create computer games. A proposal, on the other hand, might bid to do the development work for some specific computer game. Common sections in business plans: Many of the elements of the plans are only typical and not necessarily in any required order. For your plan, you will need to think
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about the best sequencing of the sections and about other sections that might also be necessary. Product or service to be offered - One of the most important sections of the business plan is the description of the actual product or service to be offered by your company. If it is a description of a product-a physical object - you need to use the techniques for description. If you are going to offer a service, explain it, and take readers on a step-bystep tour of how the service will be handled. Technical background on the product or service - If your product or service involves technologies or technical processes potentially unfamiliar to your readers, explain these. Remember that business plans often go to non-specialists who, despite their lack of technical expertise, have the investment funds or the legal understanding to get your business going. Market for the product or service - Critical also to any business plan is the exploration of the existing marketplace into which your product or service fits. What other companies offer the same thing you plan to offer? How much business do they do? How are they different from each other? How will your business differ from them? Process by which the product or service is produced - If applicable, explain how the product or service will be produced. Explain how the proposed business will operate on a day-to-day basis. Facilities and personnel needed for the operation - Plan to discuss the facilities (storefronts, warehouses, production facilities, vehicles) your business will require as well as the personnel that will be needed.

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 Projected revenues from the operation - Of obvious importance in any business plan is the discussion of the revenues you project for your business. If you know the estimate of total revenues for the market area in which you plan to operate, what percentage do you explain to win? Obviously, in your first few years, you may operate at a loss - at what point in time do you project to break even? Funding necessary for start up and operation - The plan should also discuss the funding you'll need to get the business started as well as the operating costs - the funding needed to run the business on a daily basis. Legal issues related to the proposed business - Your business plan may also need to discuss your business, its products, or its services in relation to government regulations - for example, environmental restrictions. Qualifications and background of the personnel - Important too is the section that presents your qualifications to start and operate the business you are proposing. Of course, "you" can mean a number of people with whom you are working to start the business. This section can be very much like a collection of resumes, although you want to write an introduction in which you describe your group's qualifications as a whole. Discussion of feasibility and investment potential - You will want to include in your plan a discussion of the likelihood of the success of your business. Obviously, you believe that it will be a success, but you must find a way to support this belief with facts and conclusions in

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order to convince your readers. In addition, you must discuss what sort of return on investment readers can expect. Investment offering - And finally, you may need to present what kinds of investment apparatus you are actually offering. In planning your business plan, remember that you try to provide whatever information the audience may need to consider your idea. Your goal is to convince them you have a good idea and to encourage them to invest in it (or to approve it in some way). It is okay to provide marginal information - information you are not quite sure that readers will want. After all, you section off the parts of a business plan with headings; readers can skip over sections they are not interested in. Format for business plans: Business plans, even those for small operations, can run well over 15 pages - in which case you will want to bind the plan. As you plan the format of your business plan, you will want to think about designing it so that readers can find and read essential information quickly. This means setting up an abstract, but calling it "Executive Summary" or "Prospectus Overview." Try to group similar sections. In the preceding section that lists the various kinds of information to include in a plan, some of the suggestions should be combined - for example, the sections on financial aspects of the proposed business. Finally, make use of appendixes for unwieldy, bulky information. Enable readers to quickly find the main sections of the plan, without having to wade through tables and charts that go on for pages and pages.

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Business planning is about results. You need to make the contents of your plan match your purpose. Dont accept a standard outline just because its there.7 What is a business plan? A business plan is any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business, whether or not the business needs new loans or new investments. Businesses need plans to optimize growth and development according to priorities. Whats a startup plan? A simple startup plan includes a summary, mission statement, keys to success, market analysis, and break-even analysis. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with. Is there a standard business plan? A normal business plan (one that follows the advice of business experts) includes a standard set of elements, as shown below. Plan formats and outlines vary, but generally a plan will include components

Read more: http://articles.bplans.com/writing-a-business-plan/what-is-a-businessplan/33#ixzz0jqRBRzx6 261

such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis. Your plan will depend on your specific situation. For example, description of the management team is very important for investors while financial history is most important for banks. However, if youre developing a plan for internal use only, you may not need to include all the background details that you already know. Make your plan match its purpose. What is most important in a plan? It depends on the case, but usually its the cash flow analysis and specific implementation details. Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood as profits, and they are different. Profits dont guarantee cash in the bank. Lots of profitable companies go under because of cash flow problems. It just isnt intuitive. Implementation details are what make things happen. Your brilliant strategies and beautifully formatted planning documents are just theory unless you assign responsibilities, with dates and budgets, follow up with those responsible, and track results. Business plans are really about getting results and improving your company.

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Can you suggest a standard outline? If you have the main components, the order doesnt matter that much, but heres the outline order we suggest in Business Plan Pro software: Executive Summary: Write this last. Its just a page or two of highlights. Company Description: Legal establishment, history, start-up plans, etc. Product or Service: Describe what youre selling. Focus on customer benefits. Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc. Strategy and Implementation: Be specific. Include management responsibilities with dates and budget. Management Team: Include backgrounds of key members of the team, personnel strategy, and details. Financial Plan: Include profit and loss, cash flow, balance sheet, break-even analysis, assumptions, business ratios, etc. View an expanded business plan outline We dont recommend developing the plan in the same order you present it as a finished document. For example, although the Executive Summary comes as the first section of a business plan, we recommend writing it after everything else is done.

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What can help me write a business plan? It can be helpful to view real sample business plans to get ideas for your own business plan. This free fill-in-the-blanks business plan template follows the format that is preferred by the SBA and lenders and can be a useful guide when writing your plan. As mentioned before, reviewing a standard business plan outline can also be a good starting point. Technical Specifications are descriptions of products or product requirements. More broadly, they can provide details for the design, manufacture, testing, installation, and use of a product. You typically see specifications in the documentation that comes in the package with certain kinds of products, for example, CD players or computers. These describe the key technical characteristics of the item. However, specifications are also written as a way of "specifying" the construction and operational characteristics of a thing. People who actually construct the thing or go out and attempt to purchase it then use them. When you write specifications, accuracy, precision of detail, and clarity are critical. Poorly written specifications can cause a range of problems and lead to lawsuits. Graphics, tables, and lists are heavily used, but some details can only be provided through sentences and paragraphs. For these reasons then, specifications have a particular style, format, and organization.

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Make every effort to find out what the specific requirements are for format, style, contents, and organization. If they are not documented, collect a big pile of specifications written by or for your company, and study them for characteristics like those described in the following. Use two-column lists or tables to lists specific details. If the purpose is to indicate details such as dimensions, materials, weight, tolerances, and frequencies, regular paragraph-style writing may be unnecessary. Make sure that each specification receives its own number-letter designation. In sentence-style specifications, make sure each specific requirement has its own separate sentence. Use the decimal numbering system for each individual specification. This facilitates cross-referencing. Graphics and tables used to present information in specifications: Use either the open (performance) style or the closed restrictive style, depending on the requirements of the job. In the open or performance style, you can specify what the product or component should do, that is, its performance capabilities. In the closed style, you specify exactly what it should be or consist of. Cross-reference existing specifications whenever possible. Various government agencies as well as trade and professional associations publish specifications standards. You can refer to these standards rather than include the actual specifications details. Use specific, concrete language that identifies as precisely as possible what the product or component should be or do. Avoid words

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that are ambiguous - words that can be interpreted in more than one way. Use technical jargon the way it is used in the trade or profession. Test your specifications by putting yourself in the role of a bumbling contractor--or even an unscrupulous one. What are the ways a careless or incompetent individual could misread your specifications? Could someone willfully misread your specifications in order to cut cost, time, and quality? Obviously, no set of specifications can ultimately be "foolproof" or "shark-proof," but you must try to make them as clear and unambiguous as possible. For specifications to be used in design, manufacturing, construction, or procurement, use "shall" to indicate requirements. In specifications writing, "shall" is understood as indicating a requirement. Provide numerical specifications in both words and symbols: for example, "the distance between the two components shall be three centimeters (3 cm)." Writing style in specifications can be very terse: incomplete sentences are acceptable as well as the omission of functions words such as articles and conjunctions that are understood. Exercise great caution with pronouns and relational or qualifying phrases. Make sure there is no doubt about words such as "it," "they," "which," and "that" refer to. Watch out for sentences containing a list of two or more items followed by some descriptive phrase - does the descriptive phrase refer to all the list items or just one? In cases like these, you may have to take a wordier approach for the sake of clarity.

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 Use words and phrasing that have become standard in similar specifications over the years. Past usage has proven them reliable. Avoid words and phrases that are known not to hold up in lawsuits. Make sure your specifications are complete - put yourself in the place of those who need your specifications; make sure you cover everything they will need.

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17. The contract

What is a Business Contract? A business contract is a legally binding agreement between two parties for an exchange of services that are of value. For a contract to be valid, an offer must be made and accepted. Using a contract in business dealings helps ensure an agreement is acted on, insofar as a broken contract could result in a lawsuit or out-of-court settlement and the payment of damages caused by the breach. The best way to avoid a dispute or potential litigation, however, is to craft a solid agreement in which youre confident youve negotiated the best terms for your business. 17.1. Types When to Use Business Contracts A business contract is often used for:

Hiring or being employed as an independent contractor Buying or providing services or goods Leases and real estate Selling your business Partnerships and joint ventures Franchising Confidentiality agreements

A contract often involves paying for services, but non-monetary contracts are just as valid.

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Oral Business Contracts An oral contract is a spoken agreement that is as valid as a written contract. For example, if you have a promise that a job will be complete for monetary or other compensation, you have created an oral contract. Oral contracts are legally enforceable, although they are frequently subject to misinterpretation and they can be difficult to prove in court because they often come down to one person's word against the other. Moreover, some types of contracts must be in writing, for example, contracts for the purchase or sale of any interest in real property. Written Business Contracts Written contracts are produced on paper or electronically. Legally, a written business contract is easier to uphold than an oral contract because there is a reference for the agreement. With a written contract, it's "easier to prove the terms between the parties and eliminate arguments over who said what," says Jack Cummins of Chicago-based Cummins & Associates, which represents small businesses. He adds that it's often easier for businesses to recognize potential points of contention in the language because the agreement is detailed in writing. Whether your small business is providing or offering services, you should consider using a written business contract and including specific details about the agreement. A contract execution period starts after contract terms are agreed and the contract is signed by signatories to the contract, and finishes at the specified point in time stated in the contract or as a result of various other termination conditions such as contract violation. Real-time

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monitoring of activities of the roles involved in business processes governed by contracts is a key aspect of enterprise contract management. The aim is to check whether these activities signify fulfillment policies agreed in the contract or their existing or possibly forthcoming violations. A special case of policy violation refers to situations in which a required activity of a role stated in a contract (directly or indirectly) has not been carried out. This means that the monitoring also needs to detect cases of the non-execution of activities emanating from contracts. One of the best ways to avoid business dispute is to draft a comprehensive and well-written commercial transaction that will define all the responsibilities and rights of the involved parties. While some states recognize oral contracts, a written version is better and easier to prove and enforce. Most jurisdictions also require people to have a written agreement if this will be used for at least a year. To become legally enforceable, a contract should have these following entries: Parties A contract has no purpose if it does not bind at least two people. Meanwhile, anyone can enter into a contract, except people who are mentally incapable, individuals with certain criminal records, illiterate, and minors. Consent of each party Involved parties should mutually consent to a contract to make this valid and legally enforceable. This means that if a transaction is signed

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under duress, or one party has pressured or threatened the other person, the agreement will be considered void. Exchange of anything with value The main purpose of a contract is to allow the involved parties to exchange anything with value that will give them both benefits. However, this object should be legal, definite, and possible. For example, a court will not enforce a contract that has provisions that are considered unlawful such as trade of illegal drugs, smuggling, and any fraudulent activity. Obligations and conditions A contract should state and define all the terms and conditions of an agreement which include obligations and duties of each party. Breach of contract This is probably one of the most important entries in most business contracts as it will allow one party to know what recourse he can do in case the other person does not fulfill his promise. For example, a seller promised that he will deliver the goods three days after the order has been made. However, the goods have not arrived within the deadline. With a provision that allows one party to back-out from an agreement if the other person did not fulfill his duties, the buyer can withdraw his order without having to worry that he will be sued with breach of contract.

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Contract vocabulary 1 agreement n.: an arrangement between two or more people, countries etc; contract 2 appendix n.: additional or supplementary material at end of contract, book etc 3 arbitration n.: settlement of a dispute by a person chosen by both parties - to arbitrate v. 4 article n.: a particular statement or stipulation in a contract etc; clause 5 clause n.: a particular statement or stipulation in a contract etc; article 6 condition n.: anything necessary before the performance of something else 7 force majeure n. : superior, power; unforeseeable event excusing one party from fulfilling contract 8 fulfill v: to satisfy a condition; to complete the required task; 9 herein adv: in here; in this (document etc) 10 hereinafter adv: in the following part (of this document etc) 11 hereto adv: to this (document etc) [eg: attached hereto] 12 heretofore adv: up until now; until the present; before this 13 in behalf of : in the interests of (person etc); for (person etc); on behalf of UK 14 null and void : invalid; without legal force; not binding 15 on the one hand : on one side - on the other hand on the other side

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16 agreement

party n.: the person or persons forming one side of an

17 stipulate v.: to specify as an essential condition - stipulation n. 18 terms n.: conditions or stipulations19warrantv. to give formal assurance; to guarantee 20 whereas conj: it being the case that; in view of the fact that [in introduction to contracts] How to Read a Business Contract By Jean Murray, About.com Guide to Business Law / Taxes: U.S. A former student told me a story of how he was taken advantage of by a doctor for whom he was working as an independent contractor. The problem was how his contractor income was determined, and it related to "overhead" and when it was calculated. I have read many contracts, both for myself over my long business life, and for students and clients. I always tell people I am not reading them as an attorney, but as a lay person who wants to have as complete an understanding of the contract as possible. Over the years, I have developed some guidelines for reading business contracts; to protect both parties and to avoid the difficulties that come with poorly worded contracts. First, Agree on Definitions In the case above, a lot of the difficulty came from an unclear definition of "overhead." What does it include? How is it calculated? If

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the parties had agreed on this definition from the start, they could have made some changes to make the payments more equitable, or given my friend a better picture of how his income would be calculated. Don't assume - Ask for Clarification Assumptions are really the most difficult part of any contract. You read a contract that includes a section on how the value of property is determined. Even if you think you know what has been written, ask for an example, or ask a question like, "Just to clarify, I think this means X. What do you think it means?" Don't worry about appearing dumb or difficult; better to clarify now than find out later you and the other party were thinking of two different meanings. Ask "What is Missing?" This part is tricky; it is difficult to know what should be in a contract but isn't. In employment contracts, I usually see a section about how the employer can terminate the contract and what notice must be given. But sometimes there is no language about how the employee can terminate the contract and what notice must be given. In one case, I was told, 'the employee can't terminate the contract." Really?!? I have also seen some contracts that had no effective date or which did not completely identify the parties. Take a look at my Employment Contract Terms article for an example of the sections in a typical contract. If you don't see something that should be in the contract, make sure it gets in.

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Read "Boilerplate" Carefully and Don't Be Afraid to Change It Boilerplate is standard language that is usually prepared by an attorney to protect a client and which is usually difficult to read. I have been told many times, "This is our standard language. It cannot be changed." Not true. In a contract, everything is negotiable, even "standard" language, whatever that means. Read those long boilerplate sections, even if your eyes cross and you start to nod off. Ask that the section be simplified or that it be shortened, if you feel it is possible. Don't hesitate to make changes that clarify or to your advantage. I have known some business owners to completely re-write boilerplate sections; it makes the lawyers crazy, but it clarifies, and that is more important. Finally, Get a Second Opinion If you are reading a contract prepared by the other party, don't rely on yourself or other non-attorneys to read the contract. Take it to an attorney who knows the law in your state. Don't let the attorney re-write it (they love to do that!), just to give you an opinion on what needs to be changed. Then take the list of changes back to the table and negotiate; let the other party pay for the changes. Reading contracts carefully is one of those things you may do a lot or seldom, but if you get into the habit of reading with these tips in mind, it may save you costly legal battles and sleepless nights.

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17.2. Content and stipulations Business Contract Items A business contract should be labeled "contract" or "agreement" at the top. These are some items it can include:

Date of contract Names of parties involved Details of services that your company will provide or receive Payment amounts Payment due dates. Note that payments do not need to be made

in a lump sum at the end of the project. You can make or receive incremental payments for specific services rendered once they are completed.

Interest on late payments Deadlines for services due. This is also called a "time is of the

essence" clause. You will probably want to use this phrase in your contract if you have a timeline for a project.

Expiration dates for the contract, such as a lease expiry Renewal terms, if applicable Damages for breach of contract. Also called "liquidated

damages," this clause can specify amounts to be paid if services are incomplete or deadlines are missed. A court can also award damages if a contract is breached, even if damages and amounts were not included in the agreement.

Termination conditions Signatures

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E-Contracts and Signatures Electronic contracts and signatures are valid under the Electronic Signatures in Global and International Commerce Act, which was signed into law in 2000. There is e-contract software that provides an "I agree" check box, or you can send and receive written contracts online and have the parties sign electronically. If you make an agreement over e-mail by simply writing "sounds good," there could be a question as to whether the agreement is legally binding, Cummins says. While e-contracts and e-signatures are valid, many businesses prefer to have written signatures on contracts because e-signatures can be subject to legal challenge, he adds. Business Contract Tips Here are some hints to make your contract as clear, concise and thorough as possible: Be Specific Contracts don't require legal jargon. The best contracts are clear, specific and focused, with wording that is simple and concise to avoid any confusion. For example, if you're planning an event and you need 150 tables delivered by a certain date, you may want to specify not only the date but the time of delivery. It's better to specify the hour rather than using a more general time frame, such as "in the morning." That way, all parties are clear on what is to be done and by when. "By forcing the parties to get more specific at the beginning of the relationship, it helps avoid arguments later on," Cummins says.

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Clarify Questions Never assume that the party you're doing business with knows your conditions. Always make your requirements clear. If you're not drafting the contract, outline your conditions for your business before you begin negotiating. Know the Laws State and local regulations as well as federal laws may be relevant to your contract. Be sure to check the codes and regulations that apply to your agreement to ensure that your contract complies with the law. For example, if you are leasing a property your city may have rental codes that you'll need to follow. Research laws online, check with your local chamber of commerce and consider consulting a lawyer. Read the Fine Print Review all contracts thoroughly so that you understand the agreement. "I assumed" or "I didn't know" arguments may not hold up in court, particularly if the points in question are clarified in a written agreement. Contents The identities of the parties. Is it a person or a legal entity? The duration of the agreement. The geographical territory of the sales representative or a distributor. The products to be sold. If any portion of you product line is to be excluded, it must be made clear.

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 Pricing. Prices should be quoted in a strong and stable currency. Give reasonable lead times for price changes by guaranteeing prices for a certain period of time. Payment terms should be clear. Resellers should be prohibited from carrying competing products. Amount of inventory and spare parts to be carried by the distributor Set minimum orders The reseller may request the right to return items that are not selling. STIPULATION An agreement between attorneys that concerns business before a court and is designed to simplify or shorten litigation and save costs. During the course of a civil lawsuit, criminal proceeding, or any other type of litigation, the opposing attorneys may come to an agreement about certain facts and issues. Such an agreement is called a stipulation. Courts look with favor on stipulations because they save time and simplify the matters that must be resolved. Stipulations are voluntary, however, and courts may not require litigants to stipulate with the other side. A valid stipulation is binding only on the parties who agree to it. Courts are usually bound by valid stipulations and are required to enforce them.

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Parties may stipulate to any matter concerning the rights or obligations of the parties. The litigants cannot, however, stipulate as to the validity or constitutionality of a statute or as to what the law is, because such issues must be determined by the court. Stipulations may cover a variety of matters. Parties are permitted to make stipulations to dismiss or discontinue an action, to prescribe the issues to be tried, or to admit, exclude, or withdraw evidence. During a court proceeding, attorneys often stipulate to allow copies of papers to be admitted into evidence in lieu of originals or to agree to the qualifications of a witness. The parties can also enter into agreements concerning the testimony an absent witness would give if he were present, and the stipulated facts can be used in evidence. Such evidentiary devices are used to simplify and expedite trials by dispensing with the need to prove uncontested factual issues. Generally, parties to an action can stipulate as to an agreed statement of facts on which to submit their case to the court. Stipulations of this nature are encouraged by the courts. A number of other stipulations have been held to be valid, including those that relate to attorneys' fees and costs. A stipulation does not need to be in a particular form, provided it is definite and certain. A number of statutes and court rules provide that stipulations reached out of court must be in writing to prevent fraudulent claims of oral stipulation, circumvent disputes concerning the terms of the stipulation, and relieve the court of the burden of resolving such

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disputes. Though an oral stipulation in open court is binding, a stipulation made in the judge's chamber must be in writing. Stipulation n. is an agreement, usually on a procedural matter, between the attorneys for the two sides in a legal action. Some stipulations are oral, but the courts often require that the stipulation be put in writing, signed, and filed with the court. Contents of the contract of employment Each contract of employment contains terms and conditions by which the parties regulate their relationship. Such terms may be oral or written, or a combination of the two. Often, letters of appointment, job descriptions, policy manuals, awards, collective agreements, workplace practices and legislation will be sources of further terms of the contract. The common law implies certain terms into every contract of employment, imposing obligations on employees and employers. Further, obligations in the relationship between employee and employer arise in tort, equity and from fiduciary duties. An example of a common law implied contractual term is the common law duty of fidelity and confidentiality, which prevents employees from using or disclosing their employer's trade secrets. Implied into every contract of employment is a general duty to obey the employer's lawful and reasonable directions. Further, all employees are obliged to exercise reasonable care and skill in the performance of their duties. Contracts of employment that do not include an express termination provision will contain an implied term that the employer

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will give the employee "reasonable notice" before terminating employment, unless the employer has summarily dismissed the employee for "serious misconduct". The common law also implies a term that the employer and employee will not, without reasonable cause, conduct themselves in a manner likely to destroy the relationship of trust and confidence existing between them. Contracts; Requirements and Contents 1. Every contract between a consumer and a credit services business shall be in writing, shall be dated, shall contain the street address of the credit services business and the consumer, and shall be signed by the consumer and credit services business. Each contract shall contain the following: (a) A complete and detailed statement of the services to be performed and the results to be achieved by the credit services business for or on behalf of the consumer, including a list of the adverse information appearing on the consumers credit report that will be modified, a description of the precise nature of each modification, and the estimated date by which each modification will occur. A copy of the consumers current credit report issued by a consumer credit reporting agency shall be annexed to the contract with the adverse entries proposed to be modified clearly marked. (b) A statement in at least ten point type as follows: Under New York law no fee may be collected in advance of performance of the services specified in this contract.

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3. The contract shall be accompanied by a completed form in duplicate, captioned Notice of Cancellation, which shall be attached to the contract and easily detachable, and which shall contain in at least ten point type the following: Notice of Cancellation You may cancel this contract, without any penalty or obligation, within three days from the date the contract is signed. To cancel this contract, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, to____________________ at (name of seller)

__________________________________________________________ ____________ (address of seller) (Place of business) not later than midnight____________________. transaction. ________________________________________________ (purchasers signature) (date) 3. A copy of the fully completed contract and all other documents shall be given to the buyer at the time the contract is signed. ________________________________________________ (date) I hereby cancel this

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18. Negotiation

Negotiate and Consult an Attorney Negotiating is a crucial skill for getting what you want out of a contract. Know the points you are willing to be flexible on in a contract before you begin negotiations. Cummins says that small businesses often make the mistake of consulting their lawyers only after they've signed the agreement and have problems with it. "Get your lawyer's advice before you sign contracts," he advises. "Over the course of the business, this practice will save you many headaches and significant legal fees." Knowing the key parts of a contract is the key to understanding the negotiation process. These parts can be classified as the who, what, when, for how long, for how much, and for what reason portions of the contract. Who: This section not only outlines who is entering into the contract, but also may delineate personnel involved in the activity. This is also an essential component of identifying responsibilities. For instance you may be asking the other party to build you a new product such as widgets, but you are responsible for approving all designs and marketing the product. This moves us to the next part. What: This component is essential in the contract. In fact, it is probably in the top two things you should have in a contract. The what outlines what is to be done. What is the deliverable or the thing for

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which you are in business? You will have the other person design and produce 500 widgets and you will approve the design and market the widgets after they are produced. The more specific you are on what is to be done as a result of the contract, the better the contract. This is one of the key areas you may find yourself negotiating around, trying to make sure that the what is as clear as possible. When: This component is also an essential part of the contract. The when elements to consider are when the product or service is to be completed. You may also want to put interim steps, called milestones, into the contract. Milestones in a contract might be the dates that the widgets are designed, that you will approve the designs and that the widgets will be produced. You may also want to include the date that payment will occur, if any. For How Long: How long is this contract in place? Will it be over once the widgets are all produced? Or will widgets continually be produced? Will you review terms of the contract each year or every five years? These are key questions to answer in a contract negotiation. For How Much: This is another key element in the contract negotiation process, and one that may take the most time. The negotiations may involve many detailed questions. Are you paying for personnel or merely for widgets? Are you going to pay per widget, per 500 widgets, or a set amount no matter what? Will the amount be able to be changed if you approve a more expensive widget design? Will you pay for each phase of the contract? Will there be payment after the designs are approved, and then another set of payments after the widgets are produced? Will you purchase the materials for manufacturing? What

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will you not pay for in this contract? The for how much should also explicitly lay out what you are purchasing in terms of the widgets that are being produced in other words what will you own at the end of the process. Can the other party sell widgets to anyone else or have you bought rights to those widgets? For What Reason: Beyond what is to be produced, why are you entering into the contract? What is the reason for the widgets? While this may seem to be irrelevant, you just need the widgets, knowing the why for a product or service can keep both parties focused on a bigger picture outside of the contract. Contract negotiations can seem scary, but if you spend a little time making sure you are familiar with the key elements of a contract, you will know what questions to ask to make sure you have the best agreement for both parties. Western business people are often in too much of a hurry, and rush into making a deal. In international partnerships, we should spend more time thinking about how 'haste makes waste' rather than succumbing to the belief that 'time is money'. We've all seen psycho-thrillers and what happens when two strangers jump into bed before getting to know each other. Usually, it doesn't end very well, and after watching the carnage unfold on the screen, you swear you'll never do that again. Any solid relationship should begin with a period of introduction, or courtship. It's the same when we enter into the initial stages of a global negotiation venture with a prospective foreign nation business partner. We need to know something about their culture, and the company's background, structure and goals. Likewise, they will want to

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know the same about us. If we don't have the expertise to investigate a prospective partner, it might be wise to spend a little cash to hire an experienced consultant or professional third party to carry out some snooping and to initiate introductions. The phrase 'look before you leap' has survived the test of time for a very good reason. The time and money spent before the negotiation courtship even begins is well spent. We need to prepare the groundwork to lessen the possibility of unnecessary expenses being incurred later on. Remember, when the fat hits the fire, you'll have to invest a lot more time and money in putting it out. 1) The negotiation never really ends Never stop conversing, even after the contract is signed. There are very few seers who can accurately predict the future while gazing into their crystal ball. Nothing remains static in this big wide-open world of ours, as everything is constantly in a state of change. Prices rise and fall, and governments with different ideologies come and go on an almost weekly basis, like a game of global dominoes. Let's not even try to guess what the weather is going to do tomorrow. If we're naive enough to think we can toss the contract into the filing cabinet, put our feet up and allow ourselves a nice little snooze, think again! Put the coffee back on and stay vigilant. Be prepared to renegotiate on a whole host of potential problems. Most of them will be small, annoying problems that will spring up here and there along the way throughout the life of the partnership. Don't ignore them. Deal with them immediately, or risk the dire consequences of putting the negotiated relationship on rocky footing.

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Because there is so much instability and uncertainty out there, it would be prudent to make certain that one of the key clauses in the contract specifically ensures that both parties revisit it periodically. By controlling the process in the early stages, we can prevent our arrangement from spinning wildly out of control later on. Keep the dialogue rolling and prevent needless problems from festering due to lack of attention. 2) What do we do when we still can't agree? As in many relationships, sometimes the only thing that people can agree on is the fact that they disagree. It's like being snookered or getting caught behind the eight ball. Neither position is particularly desirable, nor if not addressed early on, can both sides end up feeling dissatisfied. We may not necessarily be thinking objectively, and if both parties become ensnared in the mesh of their own self-serving interests, their problem-solving is not likely to be very productive. To guide us through what may otherwise be an unseen minefield of potential disasters, we might be well-advised to use the expertise of third parties to mediate our disputes. There are several possibilities to choose from. Our own senior management could negotiate the minor disputes at an operational level, or we could use the professional services of legal advisers, specialized consultants or a neutral third-party mediator to help resolve the issue. A detailed dispute mechanism must be visibly in place if we want our operations to run smoothly. If the operation shuts down because we didn't bother to put an effective dispute resolution in the contract, and

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the CEO roars, 'Heads will roll for this!', you can guess whose neck is going to be on the block. 3) Keep talking Before we sign on the dotted line, we need to give thought to what a successful and durable relationship really entails. It means that the lines of communication have to be kept open. No! - this does not just mean picking up the phone or sending an occasional email. A relationship means that we have to sit down in the same room and talk face-to-face, perhaps 'breaking bread' together. Communication at many different levels is the only way to keep the relationship both productive and vibrant. By agreeing to meet regularly to keep the lines of communication open, we can prevent many hurdles from tripping us up in the future. 4) Do it the right way Anyone who has participated in a joint relationship based on negotiation will tell you that we always need to go back to basics. Whether our agreement is in the domestic market or the international marketplace, we need to go beyond the simple scope of our limitations and understand the real motivating factors that support our positions. Remember, the main question we must try to answer is not 'What do they want' but 'Why do they want it?'. Now, you're probably asking why. The reason is simple but not necessarily obvious. We might be able to reach an agreement based on our relative positions, only to find out later that the other party's real goals and, as a consequence, our own are actually in direct conflict with each other.

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5) Who are they - really? Each company has its own unique structure and way of doing things. It's common for many small companies to be family owned, but many medium- and large-sized companies also exist. Each company has its own individual subculture, and depending on the business philosophy of the owners, this can present a wide range of possible business outlooks and differing organizational perspectives. One company can be very informal, whilst another might be very structured or even bureaucratic and formal in how it conducts business or interacts with its personnel. It would be very helpful to understand your prospective partner's approach to business and how they function internally. Similarly, it's equally sensible to let them know how your own company works. For example, a larger corporation may have to make a decision by going through several layers of management and departments, while their medium-sized overseas partner might simply have to refer the matter to the company president, who has the ability to make a decision on the spot. We can alleviate a lot of frustration and potential misunderstanding by knowing how our partner operates. 6) Understand how the deal will be put in place Every partnership will require numerous and demanding decisions to be made on both sides of the international equation on an ongoing basis, despite all the exhaustive efforts that initially went into drawing up the contract. Remember that the contract is only a part of the process, and our interaction goes far beyond the contractual bonds. A contract cannot foresee all eventualities and possibilities; so, if an issue that is not

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covered in the contract arises as the parties work out the minor technical clauses, both parties should agree on how they will deal with this. It all boils down to building a solid base to keep the communication lines open. Summary The explosion in international business ventures dramatically illustrates the challenges we face as a result of our many differences. It is imperative that we learn how to do things the right way, as our international partners are just as eager as we are to make our respective businesses grow. Language, however, is not the only barrier we need to overcome. We must also learn the many other facets that lie behind the complex social and cultural fibers of our prospective international business partners. Preparation is vital in laying a solid business foundation. We would not want a contractor to skimp on a house they are building for us, nor must we do so when constructing an international business agreement. Always be thinking further down the line. 1) Jeswald W. Salacuse, 'The Global Negotiator', Palgrave MacMillan (2003). The Negotiation Problem The Negotiation Training Experts offers negotiation resources on www.negotiations.com. You can find in-depth negotiation articles, negotiation Q&A's, business cartoons, negotiation book reviews, definitions and negotiation consulting.

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This case study shows how two parties can find a successful negotiation resolution by tackling the issues in a creative and mutually beneficial manner. One of the biggest stumbling blocks encountered by a negotiator is to clearly understand the real issues as the root cause and basis for the negotiation in the first place. All too many times, negotiators take insufficient time to clearly identify and frame the problem or issues to be resolved and negotiated. This is the crucial first step to any negotiation. If this first phase of the negotiation process is not addressed properly, than it is quite likely that the rest the whole negotiation process will unravel because the core issues were not properly understood at the outset. Lets look at an example case study which emphasizes the need to define and identify the problem. In this example, a substantial electronics firm faces considerable difficulties in one of their subassemblies. The root core of the problem revolved around certain types of fittings and pins that were becoming bent and distorted by the operation of the machinery. Units which were being produced were damaged and had to be rejected because of imperfections. These rejected components were put aside and then re-worked later on in the month. This duplication of effort resulted in increased costs as workers had to work overtime to meet their quotas. These extra costs for the extra work performed had not been considered in the manufacturing budget. The manager of this subassembly line did not want be charged with these overhead expenses because he felt it was not their responsibility. Likewise, the manager who was the overseer of the final

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assembly department also refused to accept the increased costs to his budget. He argued that the extra costs were a direct result of the poor work of the personnel in the subassembly department as this was where the problem originated. The subassembly department manager countered this argument by claiming that the parts were in good condition before they left his department and that the damage must have occurred in the final assembly managers department instead. Both parties had reached am impasse. Some time passed before a resolution to the matter was worked out that was agreeable to both parties. What both parties were really seeking was to find a long term solution to this dilemma. It was only when they truly understood the nature of the problem they were able to negotiate a reasonable solution that was acceptable to both of them. It was ascertained that the subassembly workers had some slack time available during every working month. The damaged parts were returned in small batches form the final assembly plant so that the subassembly personnel could work on them during these slack periods. Also, when they examined the problem in more minute detail, the managers learned that some of the personnel in the final assembly plant may not have been adequately trained and may have also been partially responsible for the damaged incurred. These personnel were identified and were sent to the subassembly plant to further their training and to learn more about what transpired in that department. The resulting solution addressed the increased cost concerns of both departments on the one hand. On the other hand, overtime was

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reduced by allocating the personnel where and when they most needed and finally, because of the enhanced training, the number of damaged parts was considerably reduced. The lesson to be drawn here is that the two managers were only able to address the problem when they were able to understand the real issues that lay beneath the problem as the cause for their cost overruns. - Foreign currency agreement When a negotiator embarks on an international agreement with a foreign partner, they have to give serious consideration to which currency is going to be used in their financial transactions. There is a certain amount of risk that a company might have to assume as the negotiators consider whether they are going to issue or receive payments in a foreign denomination. It occasionally happens that between the time when a contract is signed, and when payment begins to flow, the currency of the foreign partners company could either increase or decrease dramatically. Any company that handles foreign currency faces the hazard of paying more or receiving less than it projected. The risk increases proportionately in relation to the duration or longevity of the contract agreement. The value of any countrys currency typically depends on supply and demand. Any currency is affected by various factors. This includes the rate of inflation, economic growth, the internal political stability of the country, and interest rates, just to name a few. Many newer countries use their central banks to allow their currency to rise and fall within a narrow band, and may peg their currencys value to a leading international currency such as the Euro, or British Pound.

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Back in the 1980s a small U.S. company signed a long term agreement with a Japanese manufacturer to purchase a brand of adhesive that was much cheaper than could be obtained in the U.S. The Japanese negotiating team was adamant that they were to be paid in Japanese yen. The American company, eager to lock in this cheap supply of this particular adhesive, agreed. This meant that the U.S. company would now assume any risk in currency fluctuation for the Japanese yen. At the time the agreement was signed the value ratio between the yen and the U.S. greenback was 185 yen to $1.00 U.S. dollar. For awhile the U.S. company prospered even more as the exchange rate fell from 250 yen to $1.00 U.S. It was looking like a really good bargain. Unfortunately, the tide shifted the other way and by 1988, the yen was valued at 140 yen to $1.00 U.S., much to the dismay of the U.S. company. Needless to say, the U.S. company began to lose money and this jammed the company into being caught between the proverbial rock and the hard place. The U.S. company faced the additional burden in that they were facing such stiff competition from their competitors that they had no latitude to increase their prices. The agreement did not include any provisions to renegotiate the contract if faced with such a dramatic shift in the value of the rate of currency either, which was another serious drawback. A negotiator who conducts an international negotiation has 4 choices to make regarding foreign currency when concluding an international joint venture. 1) They can both share the risk. 2) The foreign partner assumes the risk. 3) Your side assumes the risk. 4) One

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or both parties stipulate in the contract that the currency denomination is an area open to renegotiation, allowing for a certain percentage of rate fluctuation to occur. Always remember that the longer the lifespan of the agreement the greater the risk. SAMPLE CONTRACT ATLANTIC CONTRACT This contract is entered into on the__________ of ________, _______, between Atlantic Bridge Publishing (hereinafter known as "Publisher") located at 6280 N. Crittenden Ave., Indianapolis, Indiana 46226 and____________________(hereinafter known as "Author")of _______________________________ concerning a work presently known as ___________________________ (hereinafter known as "Work"). The Contract is considered legal and binding in all countries. If there should be any legal dispute, the laws of the state of Indiana shall apply. I. The Author hereby represents and warrants to the Publisher that: A. The Work is free and clear of any counts of libel, plagiarism, breach of privacy or misrepresentation of facts. B. The Work does not infringe upon any copyright or proprietary right, common law or statutory law, and does not contain any material of libelous nature. BRIDGE PUBLISHING AUTHOR'S

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C. The Work is not in the public domain and the Author is the sole owner and copyright holder of the work with full power to enter into this contract. D. If the Work has been previously published in whole or part, the Author currently holds all copyrights to the Work and is legally permitted to enter this agreement. E. The Author releases Publisher from any responsibilities relating to any legal actions incurred by the contents of the Work or the Author. This representations contained herein are true on the date of the signing of this contract. F. The Publisher will obtain appropriate ISBNs for the Work under the name of Atlantic Bridge Publishing. II. Grantor of Rights: A. The Author, on behalf of himself/herself and his/her heirs, executors, administrators, successors and assignees, agrees to grant the Publisher exclusive rights to produce, publish and sell in electronic format (including email, download, disk, CD, or any other digital format known or to be invented),the Work. This contract does not infringe on print rights. (Optional clause can be inserted here if author desires POD (Print on Demand) as an option) III Term of Contract: A. Electronic rights will be exclusive for one year commencing on the date the Work becomes available for sale on the Publisher's site. After such time, the contract can continue if both parties agree. Contract may be terminated after one year by either the author or

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the publisher with a 90-day written, certified mail notice or other receipted delivery service, and all rights granted the publisher will revert to author at the time of such termination. Upon breach of contract, the Contract may be terminated by either party with a 30-day written notice. Notification of breach and intention to terminate the contract is to be delivered by certified mail or other receipted delivery service. If breaching party corrects breach within 30 days, the contract shall continue to remain in place until its natural expiration. Upon expiration of the contract term, all rights granted the Publisher will revert back to author. B. During the term of the contract, the Work will not be said to be out of print. IV. Manuscript Preparation: A. Author shall provide an acceptable, final revision of the manuscript in either Microsoft Word or RTF within the time agreed upon or this contract will be void. Publisher will not be held liable for lost manuscripts or defective disks. Author should always keep a back up copy. V. Royalties and Statements A. Publisher and Author will mutually set the retail price of the Work based on length and comparable works. Publisher agrees to pay to the Author, a royalty of 45% of the retail download price in United States dollars (USD) on all sales of the Work sold through the Publisher's website. If the Work is purchase on disk or CD, the royalty will also be 45%. If the POD option is taken, royalty is 30% of net proceeds.

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B. The Publisher has the right to contract with distributors, bookstores, vendors, organizations and or outlets of electronic books to sell the Work in association with the Publisher's name. For all sales through these outlets, the Author will be compensated 45% of the download price less any handling costs or discounts charged by the outlet. C. In order to stimulate sales, the Publisher reserves the right to lower the price of the Work after a reasonable amount of time if the price appears to be too high (no sooner than three months). D. Royalties shall be calculated and paid no later than forty-five (45) days following the end of each calendar quarter for sales during that quarter. Royalties shall be paid by check, unless previous arrangements are made with the author. Payment arrangements, mutually agreed upon by the Publisher and the Author, shall be made for payment of royalties to Author if he/she resides outside the USA. Royalties equaling less than $20 will be held until such a time as they accrue to $20 or above. Any withheld royalties shall be made immediately upon contract termination. E. No royalty shall be paid on paper or digital copies distributed for review, advertising, publicity, promotional purpose, samples, or other similar purposes, or on copies sold below or at cost. E. If Author has elected to grant Publisher the right to contract with various distributors and outlets, royalties will be paid to Author contingent on payment received from distributor. In most cases, distributors pay Publishers every sixty to ninety days for sales through their channels during those timeframes.

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F. The Author is responsible for paying his/her own taxes on all royalty payments received from Publisher and is advised to keep accurate records for tax purposes. A 1099misc form will be sent to the author if necessary. VI. Marketing and Promotion A. The Author shall provide the Publisher with biographical information, a photo (if author desires), and a suggested blurb for use on Publisher's website. Author agrees to give Publisher the right to use the Author's name, likeness, title of work and biographical material for publishing, advertising and promoting the Work. Publisher reserves the right to edit or rewrite the blurb submitted by Author. B. Cover art will be provided by Publisher. If the Author has his/her own cover art, the Author must warrant that the provided art is either owned by the Author or that it does not infringe on any copyright. C. Publisher reserves final approval of art in consultation with Author. D. Author agrees to self-promote the Work to the best of his/her ability. If Author has his/her own website, the Work must be linked to the Publisher's website. With any promotional material the Author generates, the Author will consult with Publisher to insure proper use of Publisher's name and/or other information. E. Author may use up to 3 chapters to post on his/her website or to give away as "teasers" to promote the work provided it includes a link to Atlantic Bridge Publishing. F. Publisher will send out the work for review to no less than three review sites. Author may request a review copy on CD for his/her

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promotional efforts. Author is encouraged to solicit reviews along with the Publisher. For added promotional purposes, Publisher and Author agree to notify each other as to what review sites submissions have been made. G. With enough advance notice, Publisher will provide Author any needed book copies for Author appearances or signings. These copies would be in the format of CD and can be purchased by the author at a discount set by the Publisher. VII Assignment A."Atlantic Bridge Publishing" may at any time sell itself, or the majority of itself, its holdings, or licenses. Current contracts would transfer to the new owner. B. Bankruptcy: If "Atlantic Bridge Publishing" is legally judged bankrupt or liquidates its business, this Contract shall be terminated effectively and all rights granted to "Atlantic Bridge Publishing" shall be terminated. C. Audit: The Author may, with reasonable notice, assign and designate a representative to examine the Publisher's records as they relate to the Work. Such examination shall be at the Author's expense unless errors are found in excess of 5% of royalties in the Author's favor; in which case, the Publisher shall then defray all usual, customary, and reasonable charges for such audit. The Publisher shall pay the Author any sums due within thirty (30) days. VIII Entire Agreement: This Contract hereby constitutes the entire agreement between Author and Publisher and supersedes all previous agreements regarding

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the Work, whether oral or in writing. Modification of this contract may only occur in writing, signed by both parties. Author's Real Name: _______________________________________ Pseudonym (if any): _______________________________________ Street Address: __________________________________________ City, State, Zip: _________________________________________ Phone Number: ____________________________________________ Email Address: ____________________________________________ Website URL: _____________________________________________ Title of Work: ____________________________________________ Social Security Number:____________________________________ Author's Signature: _______________________________________ Date: _____________________________________________________ Atlantic Bridge Publishing Signature: ________________________ Date: ________________________ Although all contracts may--in fact should--vary in order accurately to reflect the intent of the parties in particular circumstances, the following sales contract is a sample of what such contracts may look like. It is intended to be a starting point and a guide to help you and your attorney create a contract that includes all of the terms relevant to your business interactions.

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CONTRACT FOR THE SALE OF GOODS Paragraph 1. _______________________, hereinafter referred to as Seller, and _____________________, hereinafter referred to as Buyer, hereby agree on this ____ day of _______________, in the year ____________, to the following terms. A. Identities of the Parties Paragraph 2. Seller, whose business address is ____________________, in the city of _______________, state of _________________________, is in the business of ___________________________. Buyer, whose business address is ____________________, in the city of _________________, state of _________________________, is in the business of ____________________________. B. Description of the Goods Paragraph 3. Seller agrees to transfer and deliver to Buyer, on or before _____[date], the below-described goods: __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ C. Buyer's Rights and Obligations Paragraph 4. Buyer agrees to accept the goods and pay for them according to the terms further set out below. Paragraph 5. Buyer agrees to pay for the goods:

In full upon receipt In installments, as billed by Seller, and subject to the separate

installment sale contract of __________________[date] between

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Seller and Buyer.

Half upon receipt, with the remainder due within 30 days of

delivery. Paragraph 6. Goods are deemed received by Buyer upon delivery to Buyer's address as set forth above. Paragraph 7. Buyer has the right to examine the goods upon receipt and has ____ days in which to notify seller of any claim for damages based on the condition, grade, quality or quality of the goods. Such notice must specify in detail the particulars of the claim. Failure to provide such notice within the requisite time period constitutes irrevocable acceptance of the goods. D. Seller's Obligations Paragraph 8. Until received by Buyer, all risk of loss to the abovedescribed goods is borne by Seller. Paragraph 9. Seller warrants that the goods are free from any and all security interests, liens, and encumbrances. E. Attestation Paragraph 10. Agreed to this _____ day of _____, in the year ____________. By: ___________________________ Official Title: ____________________________ On behalf of ______________________________________, Seller I certify that I am authorized to act and sign on behalf of Seller and that Seller is bound by my actions. ______ [initial] By: ___________________________ Official Title: ____________________________

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On behalf of _____________________________________, Buyer I certify that I am authorized to act and sign on behalf of Buyer and that Buyer is bound by my actions. ______ [initial] [NOTARY STAMP HERE]

Purchase, Resale and Marketing Agreement This Purchase, Resale and Marketing Agreement ("Agreement") is executed this ___ day of _____________ 2000 by and between Genuity Solutions Inc. with principal offices at 3 Van de Graaff Drive, Burlington, MA 01083 ("Genuity") and Bell Atlantic Corporation with its principal office at 1320 North Courthouse Road, 5/th/ Floor, Arlington, WHEREAS, VA Genuity 22201 provides data ("Bell and IP Atlantic") services;

WHEREAS, the parties estimate that there is a multi-billion dollar market opportunity for such services during the next five years; WHEREAS, where permitted by applicable federal law, Bell Atlantic desires to market and resell Genuity's data and IP services to its customers; WHEREAS, Bell Atlantic estimates that it could achieve revenues in excess of two billion dollars ($2,000,000,000.00) through the sale of such services within the next five years;

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WHEREAS, Genuity desires to have Bell Atlantic market and resell, and Bell Atlantic desires to market and resell Genuity's IP and data services subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. SALE AND MARKETING OF GENUITY SERVICES 1.1 Appointment. Genuity hereby authorizes Bell Atlantic and those Bell----------- Atlantic affiliates who place orders hereunder ("Authorized Affiliate(s)") during the term of this Agreement to purchase either for their own use, to use in providing services to their customers, and/or to market and resell those Genuity services defined in the Service Schedules attached hereto (collectively, the "Genuity Services") to end users ("End Users") located in all geographic areas where Genuity offers the Genuity Services and where Bell Atlantic may lawfully offer the Genuity Services ("Territory"). The Genuity Services shall be provided by Genuity or a Genuity affiliate as identified in the applicable Service Schedule. An order for and the provision of a Genuity Service establishes a contract between the Bell Atlantic or the Authorized Affiliate and the Genuity-designated service provider for the Genuity Service under the terms and conditions of this Agreement and the relevant Service Schedule. Bell Atlantic and/or an Authorized Affiliate may designate another Bell Atlantic affiliate or third party to

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act as a sales agent for such Authorized Affiliate. Bell Atlantic shall be responsible for coordinating its program for such third party sales agents, including providing necessary support and training. Bell Atlantic shall indemnify Genuity for the actions of such third party agents as set forth in Section 10. Bell Atlantic's right to distribute and market Genuity Services shall be further defined in each Service Schedule. Such rights may include the right to resell the Genuity Service as a standalone service, as part of an integrated system or solution, or with value added services. (For the purpose of this agreement, the term "affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such person.) 1.2 Lead Referrals. Bell Atlantic may in its discretion refer to Genuity any-----offers to purchase or orders for (i) Genuity Services, or (ii) other services offered by Genuity. Genuity may in its discretion refer to Bell Atlantic any offers or prospective offers to purchase the Genuity Services. Any such referral shall be made in accordance with applicable federal law and Section 2.4 of this Agreement. If either party makes such a referral, the referring party shall not, without advance notice to the other, independently pursue sale of the referred opportunity with the potential customer unless the other fails to pursue such referral within a reasonable time. Genuity and Bell Atlantic shall develop, no later than sixty (60) days following the Effective Date (as defined in Section 6.1 of this Agreement) a mutually agreed upon lead referral program that includes a commission to be paid by the party that completes a sale pursuant to a referral.

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1.3 Non-Exclusivity. Genuity reserves the right to market, distribute and sell--------------Genuity Services, directly or indirectly, within and outside of the Territory, and nothing in this Agreement shall limit in any manner Genuity's marketing or distribution activities, or its right to sell directly or appoint other dealers, distributors, licensees or agents within or outside the Territory to sell the Genuity Services. Similarly, Bell Atlantic reserves the right to market, distribute and sell, directly or indirectly, within or outside of the Territory, services that compete with the Genuity Services. 1.4 Service Changes. Except as otherwise provided in a Service Schedule,--------------- Genuity reserves the right to modify, change or add to any of the Genuity Services at any time, upon forty-five (45) days' notice to Bell Atlantic, and to remove or discontinue any of the Genuity Services at any time, upon ninety (90) days' notice to Bell Atlantic, provided that any such change, modification, addition, removal or discontinuance shall be part of a general action by Genuity with respect to the affected service and its retail and wholesale customers, and shall not affect any Bell Atlantic End User contracts or valid Genuity quotes in existence at the time of the Genuity notice. Genuity specifically agrees to continue to provide any Genuity Service and all related product support affected by such change or discontinuance in accordance with the description of the service and other terms and conditions in any Bell Atlantic End User contract (provided that the End User contract is consistent with the Genuity Service Description and other terms and conditions applicable at the time the contract was

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signed) or valid Genuity quotes, for the duration of the term of such End User contract or contract that results from such quote. 1.5 Service Schedules. Each Service Schedule shall, at a minimum, include:----------------- (i) a description of the service, term, and pricing, (ii) the obligations and responsibilities of each party related to the Genuity Service offered under the Service Schedule; (iii) any required End User contract terms (i.e., mandatory flowdown terms) that apply when Bell Atlantic markets or resells the Genuity Service; and (iv) applicable service level agreements. 2. RELATIONSHIP OF THE PARTIES 2.1 Independent Contractors. The relationship of Genuity and Bell Atlantic is----------------------- that of independent contractors, and nothing contained in this Agreement shall be construed to: (i) give either party the power to direct and control the day- to-day activities of the other, (ii) constitute the parties as partners, joint ventures, co-owners, or otherwise as participants in a joint or common undertaking, (iii) create a relationship of principal and agent, or (iv) allow either party to create or assume any obligation on behalf of the other except for the obligations that may be specified in this Agreement. 2.2 No Authority to Bind. Each party acknowledges and agrees that it has-------------------- neither express nor implied authority to accept orders or enter into or modify contracts, whether oral or written, on behalf of the other party. Except for the Genuity Services or as may be specifically set forth in other agreements between the parties, Bell Atlantic shall not represent that any products and services marketed,

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offered, or sold by Bell Atlantic are approved or endorsed by Genuity in any way. 2.3 Actions by the Company, its Employees and Agents. Each party shall be------------------------------------------------ solely responsible for the acts and omissions of its employees, agents, and contractors, including, without limitation, all labor costs and expenses. 2.4 InterLATA Services. Bell Atlantic shall not provide or jointly market with------------------ Genuity a Genuity Service that is, or includes as a necessary, bundled component, an interLATA service in a state until Bell Atlantic has obtained any necessary authorizations or approvals to do so. 3. GENUITY RESPONSIBILITIES 3.1 Provision of Services. Genuity shall provide the Genuity Services to Bell--------------------- Atlantic and/or to End Users at the rates and in accordance with the Service Descriptions and other specifications set forth in this Agreement and the Service Schedules. Genuity shall also provide to Bell Atlantic training, marketing assistance, support, equipment and software and other ancillary services and products as may be set forth in the Service Schedules and this Agreement. 3.2 Operations.---------(a) Genuity shall provide Bell Atlantic with mechanized, electronic access and interfaces to those Genuity systems that support Bell Atlantic's marketing, provisioning and support of the Genuity Services to End Users. This access and interface capability shall apply to the

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following information and functionality: (i) pre-sales information; (ii) ordering and provisioning; (iii) new products literature; (iv) problem identification and isolation to assist Bell Atlantic in its provision of level one End User support; (v) repair/trouble ticketing; and (vi) billing feeds, as appropriate, to the Genuity Services. Such access and interfaces shall be provided in accordance with the implementation schedule set forth in this Section 3.2. Genuity shall be solely responsible for the all costs incurred for system development and implementation necessary to comply with this Section 3.2. Genuity may recover the cost of such development and implementation through the prices it charges all customers for the Genuity Services, but shall not otherwise charge Bell Atlantic any portion of such costs. (b) Promptly following the Effective Date, Genuity and Bell Atlantic shall each designate by written notice a senior operations point of contact (O-POC) for developing, implementing and maintaining business process interfaces throughout the areas of each party's business affected by this Agreement. The parties shall oversee the rollout of transaction processes for quotes, orders, provisioning, customer care and billing across all Genuity Services. The shared design principles shall be integration across all Genuity Services, customer responsive, web based, scalable, and minimization of manual intervention. A written process architecture shall be developed and maintained by both parties. The first copy of this architecture shall be finalized within one hundred twenty (120) days after the Effective Date. This shall be a dynamic document, available online to both parties, that shall be the basis for identifying improvement opportunities and for operations plans. The parties shall

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perform quarterly reviews of these plans, with the O-POCs jointly managing the agenda and attendees for such reviews. These reviews shall be alternately hosted by each party at its facility of choice. Genuity shall work with Bell Atlantic to develop and implement new support tools and process improvements with respect to Bell Atlantic's purchase and sale of the Genuity Services. Genuity shall retain all rights to tools and processes it develops, and, at its option, may implement these tools and processes for other customers and resellers. (c) Bell Atlantic shall be responsible for the End User relationship. Genuity shall provide access to documentation, training materials, and on-line support tools that facilitate Bell Atlantic in providing level one support services for its End Users. At Bell Atlantic's request and at Genuity's expense, Genuity shall provide one time "train the trainer" sessions for level one support for each product or service. These training sessions shall be held at Genuity facilities for class sizes not to exceed 12 people, at mutually agreed times. Bell Atlantic shall pay travel and living expenses for its attendees. At Bell Atlantic's request, Genuity shall provide to Bell Atlantic quotes for fees on a daily basis (plus travel and living expenses) for subsequent "train the trainer" sessions, which sessions shall be held at Bell Atlantic facilities. Genuity shall provide such subsequent sessions upon Bell Atlantic's acceptance of such quote(s). (d) Genuity shall provide at its expense level two and level three support for the Genuity Services. Bell Atlantic shall provide at its expense level one support for the Genuity Services it resells. For maintenance of Genuity-supplied customer premises equipment, Genuity

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shall act as service agent for Bell Atlantic on Level II and Level III support situations. This service and support shall be Bell Atlantic branded where practical. Genuity shall work cooperatively with Bell Atlantic and/or Bell Atlantic customers for identification/isolation of difficult end-to-end or otherwise elusive problems. Genuity shall assume all escalation and interface responsibilities for its suppliers. (e) The parties shall agree upon and publish written Bell Atlantic and Genuity escalation and communication paths for the Genuity Services. These documents shall be an addendum to the business process architecture discussed above. (f) Bell Atlantic and Genuity shall establish an operations review process to review the performance measurements under the service level agreements for each Genuity Service on a monthly basis, and establish action plans and "next steps" as appropriate. These monthly reviews may be conducted by telephone or in face- to-face meetings. 3.3 Business Practices. Genuity and Genuity's representatives and employees------------------ shall at all times give prompt, courteous and efficient service to End Users it has contact with pursuant to its obligations under this Agreement, or otherwise on behalf of Bell Atlantic. Both parties shall follow all End User interface procedures set forth in a Service Schedule and/or developed and agreed upon by the parties. 3.4 Training Support. Genuity shall specify the level of training required to---------------- sell and support the Genuity Services. Genuity shall make available, at its expense (other than travel and lodging expenses for Bell Atlantic employees) training support materials and

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training for the Genuity Services that is substantially equivalent to the training Genuity provides to its internal sales force (excluding Genuityproprietary content such as strategic planning, internal sales discussions, Genuity market focus, Genuity customer specific information, and similar content) and is sufficient to qualify Bell Atlantic employees to provide the necessary technical expertise to design where applicable (on a pre-sale basis), sell and support the volume and type of Genuity Services which Bell Atlantic has forecast. This training shall be made available initially for a reasonable number of Bell Atlantic sales personnel, as mutually determined by the parties. Genuity shall make subsequent training available for new Genuity Services and significant enhancements to the services, and periodically during the term of this Agreement (no more frequently than once each calendar year) for a reasonable number of new sales personnel. Additional training required by Bell Atlantic shall be provided by Genuity at Bell Atlantic's expense, at a price not to exceed Genuity's reasonable costs of providing the training. The parties shall develop a training support plan within ninety (90) days of the effective date of this Agreement. 3.5 Marketing Support. Genuity shall reasonably assist Bell Atlantic in Bell----------------- Atlantic's marketing and provision of the Genuity Services to End Users identified by Bell Atlantic. The parties shall develop procedures and guidelines for such marketing support within ninety (90) days following the Effective Date. Such assistance shall include making sales support and technical experts reasonably available for consultation with Bell Atlantic and the End User. At Bell Atlantic's request, Genuity shall provide qualified sales and/or technical

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support individual(s) to accompany Bell Atlantic on sales calls End Users. In such joint presentation to an End User, Bell Atlantic shall determine whether the proposed service shall be identified as a cobranded offering. Genuity's sales support and technical personnel who work on End User accounts associated with Bell Atlantic marketing activities shall not concurrently provide services pertaining to that End User to either Genuity's internal sales channels or any other reseller of Genuity. Any information about the End User, to include the identification of the sales opportunity, that is provided by Bell Atlantic, or that is developed by Genuity in its support of Bell Atlantic's sales efforts, shall be Bell Atlantic Confidential Information. In providing business and marketing support to Bell Atlantic pursuant to this Section 3.5, Genuity shall not sell or attempt to sell the products or services of any party other than Bell Atlantic, provided, however, that Genuity may, ----------------- while providing such support and in consultation with Bell Atlantic, make recommendations to End Users regarding other Genuity Services available from Bell Atlantic. 3.6 Availability of Services and Support.----------------------------(a) Genuity shall provide to Bell Atlantic the same type and quality of Genuity Services (including, without limitation, Service Descriptions, service level agreements and remedies, geographic availability, and support) as Genuity provides to other resellers and to its own internal sales channel and retail customers. Genuity shall modify the Genuity Services and add new Genuity Services as reasonably necessary to keep the portfolio of Genuity Services (including, without limitation, Service Descriptions, service level agreements and remedies, capacity

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availability in the Territory, and support) available under this Agreement competitive and current with comparable services available from other suppliers. Genuity shall not reduce the geographic coverage of a Genuity Service existing as of the date the parties executed this Agreement. Subject to the foregoing, Genuity shall be the sole determiner of its services portfolio and its market strategy, including the market segments upon which it shall focus and the levels of investment it shall make in particular services or market segments, or the geographic locations in which it will offer the Genuity Services. (b) Genuity shall keep Bell Atlantic informed about new service offerings and significant product enhancements, and shall offer any new services and service enhancements to Bell Atlantic so that Bell Atlantic may market such new services or enhancements to End Users on as timely a basis as Genuity's internal sales channel or Genuity's other resellers or sales agents. In the event that Bell Atlantic has information that one or more of the Genuity Services are not competitive in the market, Bell Atlantic shall provide evidence thereof to Genuity and Genuity shall review this information and meet with Bell Atlantic to provide Genuity's response to Bell Atlantic's information. (c) Within ninety (90) days of the Effective Date, the parties shall develop a benchmarking process to track prices and related terms for services comparable to the Genuity Services for the purpose of administering this Section 3.6. 3.7 Availability of Competitive Terms and Prices For Individual Customer-----------------------------------------------------------------Requests --------

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(a) Bell Atlantic may request that Genuity provide reduced prices or discounts, different terms, or changed Service Descriptions ("Custom Bids") for purposes of responding to individual End User requests for proposals or negotiation with the End User. When Bell Atlantic has quoted Genuity Services and the End User has requested a Custom Bid, Bell Atlantic shall as soon as possible consult with Genuity regarding such requests. Genuity agrees to give good faith consideration to such requests, to offer such changes as Genuity determines it is willing to make and to respond to Bell Atlantic within the timeframes of the individual transaction which has generated such request. Bell Atlantic may obtain offers of services comparable to, or as reasonable substitutes for, Genuity Services from third parties. Where prices and/or other terms for such services are both responsive to the particular customer request and more favorable to Bell Atlantic than the prices and/or terms for Genuity Services, Bell Atlantic may notify Genuity that it has received offers that include such favorable prices and terms and request Genuity to meet such prices and terms. Genuity shall respond within the timeframes of an individual sales transaction as requested by Bell Atlantic. The parties agree to establish procedures under which such requests shall be handled, no later than ninety (90) days after the Effective Date, and to add such procedures as a schedule to this Agreement. Genuity shall treat information concerning price reductions and other information requested as Confidential Information of Bell Atlantic. Bell Atlantic shall treat Genuity's response, including any information developed by Genuity and provided to Bell Atlantic regarding pricing and other competitive information, as Confidential

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Information of Genuity and shall not provide such information to any third party other than in connection with providing a bid to the End User or as otherwise permitted by this Agreement. (b) Genuity shall be obligated to provide Custom Bids to Bell Atlantic with respect to a Genuity Service where Genuity customarily provides such Genuity Service to other customers on a custom basis. In situations not covered by the preceding sentence, Genuity shall not be obligated to respond to Bell Atlantic requests for Custom Bids to the extent they exceed twenty percent (20%) of the quotes requested by Bell Atlantic for a particular Genuity Service in a calendar quarter. 3.8 Proposal Materials. Unless otherwise agreed by Bell Atlantic, all sales------------------ collateral, proposals, contracts and related proposal documents for Genuity Services covered by this Agreement and marketed by Bell Atlantic shall be prepared and presented by Bell Atlantic, using Bell Atlantic letterhead and other indicia. Genuity shall provide content that may be used without Genuity identification, as requested by Bell Atlantic. Bell Atlantic agrees to take all reasonable steps necessary to protect Genuity's intellectual property rights in such content, including reproducing all copyright notices, if any. Bell Atlantic further agrees that Genuity shall retain all rights in such content. If the End User indicates interest in Genuity services that are outside the scope of the Genuity Services, Genuity shall coordinate with Bell Atlantic before making a proposal for such services. Genuity may submit proposal materials and customer contracts for such other services using Genuity letterhead, forms and indicia.

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3.9 Return of Materials. Upon request from Bell Atlantic, Genuity shall return------------------- or destroy all materials provided by Bell Atlantic related to any proposal development or other marketing activity pertaining to an End User identified by Bell Atlantic. In such event, Bell Atlantic shall return to Genuity or destroy all proposal development or marketing material Genuity has provided to Bell Atlantic relating to such End User. 4. OBLIGATION OF BOTH PARTIES 4.1 No Disparaging Conduct. Neither party shall do anything that would tend to---------------------- discredit, dishonor, reflect adversely upon, or in any manner injure the reputation of the other party or any affiliate. This provision shall not, however, prevent either party from marketing competing services of either itself or other entities. 4.2 Identification with a Party. Representatives of a party shall not --------------------------- represent themselves as employees of the other party in contacts with End Users or others. 5. BELL ATLANTIC OBLIGATIONS 5.1 Sales. Bell Atlantic is authorized to sell the Genuity Services in the----- Territory. Bell Atlantic may not market or sell the Genuity Services to End Users located outside of the Territory without the prior written consent of Genuity. 5.2 Bell Atlantic End User Support. Unless otherwise addressed in a Service------------------------------ Schedule or in this Agreement, or

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separately agreed between Bell Atlantic and Genuity, Bell Atlantic shall provide pre- and post-sales support to End Users. 5.3 Representations. Bell Atlantic shall not make any representations or--------------- statements regarding Genuity Services other than those contained in the applicable Genuity Service Description or approved in writing by Genuity. 5.4 Quotations/End User Billing. Bell Atlantic shall be responsible for--------------------------- issuing quotations to End Users for Genuity Services at prices to be determined by Bell Atlantic. Bell Atlantic is solely responsible for credit checks, credit approvals, billing and collection of fees for Genuity Services provided to End Users. 5.5 End User Prices. Bell Atlantic shall be responsible for determining the--------------- prices at which it shall offer the Genuity Services to End Users, and for communicating pricing information, including quotations, to End Users. 5.6 Compensation. Bell Atlantic shall be responsible for compensating its------------ employees, contractors, agents and other representatives for sales of Genuity Services to End Users. 5.7 End-User Agreement(s). Bell Atlantic shall sell the Genuity Services by--------------------- means of written agreements by and between End User and Bell Atlantic. Such agreements shall contain terms and conditions that are at least as 5.8 Order Forecasts, Bell Atlantic shall provide Genuity with calendar--------------- quarterly forecasts no later than the first day of the calendar quarter. The forecast shall reflect anticipated demand for the Genuity Services for the next eighteen (18) months by volume for each

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Genuity Service and shall reflect, if the information is available, the anticipated geographic areas where the Genuity Services shall be sold. Genuity shall treat the forecasts as Bell Atlantic Confidential Information. Within sixty (60) days following the Effective Date of this Agreement, the parties shall develop mutually agreed upon detailed forecasting requirements for each Genuity Service that shall be set forth as supplements to the applicable Service Schedules. The parties agree to work together to make the forecasting process a mutually beneficial business arrangement that supports each party's planning. Bell Atlantic shall make reasonable efforts to provide Genuity with the most complete and accurate forecast information possible for Genuity to effectively plan service availability. Reasonable efforts shall be made by Genuity to make the Genuity Services available to meet Bell Atlantic's forecasts. 6. TERM AND TERMINATION 6.1 Term. This Agreement shall take effect on the date on which, pursuant to---- their Agreement and Plan of Merger, Bell Atlantic Corporation and GTE Corporation cause a Certificate of Merger to be executed, acknowledged, and filed with the Secretary of State of New York as provided in New York Corporation Law, Section 907 ("Effective Date"), and unless terminated earlier as provided herein, shall continue ...

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