Economic growth can be described as a measure through which the output of an entire economy grows or increases. Since this growth may be national, regional, or global, economic growth does not necessarily refer to growth in sales of any single industry or business. Economic growth is usually determined through various factors such as the Gross Domestic Product or Gross National Product. These measures of determining economic growth are considered on the basis of an economy's income or output. In addition to these, there are other important factors that play a crucial role in economic growth, which is governed by principle. They include the government, competition, and internal and external factors whose role is crucial in economic growth and development.
Principle of Economic Growth:
Business growth and economic cycle are processes that are primarily driven by similar microeconomic variables from a theoretical perspective. Generally, these processes are driven by the relations between economic fluctuations. A business cycle is usually a by-product of fluctuations that an economy experiences within a period of time due to changes in economic growth ("The Business Cycle," n.d.). Consequently, understanding business cycle is essential in macroeconomics since it helps economists to identify and prepare for future economic events.
A business cycle primarily describes changes in the demand-size of the economy, which is usually measured by Gross Domestic Product. As economic growth occurs, business cycles occur since the Gross Domestic Product does not remain the same and changes because of economic and non-economic reasons. The economic reasons include changes in governmental policies like interest rates and taxes whereas non-economic factors include natural and man-made disasters. Some of the most common stages in a business cycle that occur based on changes in economic growth include peak or boom, recession, slump or trough, and expansion or recovery ("The Economy and Business," 2011, p.8).
One of the most important elements in economic growth is economic variables, which are economic measures that can differ over a series of values. Some of the major economic variables include the unemployment rate, the inflation rate, interest rates, and changes in exchange rates. Changes in interest rates can basically be described as the costs of borrowing money. While banks generate interest from returns for lending money, consumers' interest rates are usually reflected in the return on savings. Some of the economic changes that occur due to changes in interest rates include increased demand, reduction in price of exported products, decreased business costs, and increased business profits. Increases in demand occur because of demand for consumer goods and capital goods whereas reduced prices occur in exported products.
The changes in exchange rates are the prices of a country's currency as expressed in relation to another. These changes contribute to economic changes based on their effect on businesses with regards to how a company exports its products, sells these products against imported ones, and use of imported materials for its production processes. As a result, economic changes occur when a country decides to lessen the price of exported goods or increases the price of imported goods. When there are changes in the employment rate, businesses are affected and economic changes occur. For instance, increases in unemployment rate contribute to a reduction in overall demand, which is bad for businesses and the economy. When a country is experiencing inflation, economic changes occur as businesses find goods and services more costly to provide. This is accompanied with increased wages and increases in other costs, which affect the overall economy.
Role of Government in Economic Growth and Development:
Government plays an important role in economic growth and development through policies and establishment of an economic framework. Generally, the government influences various economic factors through controlling the taxation level and government spending. Governmental influence occurs through the public sector, which is made of organizations that are influenced and managed by the government. In contrast, the private sector consists of organizations that are privately owned without the involvement of the government. Therefore, public sector businesses are owned and operated by the government while private sector businesses are privately owned. Some of the economic advantages of public sector businesses include the fact that they encourage industrial growth in under-developed areas and conduct businesses for societal well-being. The disadvantages include their vulnerability to management problems that may affect the entire economy. The significance of the private sector in the economy is that they have no restriction in the number of shareholders and investors whereas their disadvantage is the likelihood of exploitation (Kumari, 2013).
Technical Development Related to Economic Growth in Business:
While technological development has traditionally been considered as rapid advancement of computers, the term refers to the use of scientific knowledge for practical reasons in an industry. The business world has been characterized with numerous technological changes in the past three decades i.e. changes in ability to develop and meet new consumer needs and expectations, changes in business management of operations, and changes in collaboration between businesses. These three trends are the basis with which technical development is linked to economic growth in business.
As technical development has brought generated new opportunities for businesses, it has also contributed to the emergence of intellectual property rights associated technical advancement in business. The emergence of such concern is attributed to the fact that recovering huge costs of investment is a crucial aspect in the manner with which intellectual property rights are handled. In light of technical advancement in business, protecting intellectual rights is very important because businesses compete in domestic and international markets (Beckerman-Rodau, 1991). Generally, the copyright law has largely remained significantly unchanged because of the need to safeguard original ideas, inventions, creative means of expression, and trade secrets. Technical advancement in business has increased interactions between businesses and generated huge concerns about intellectual property rights. The various stakeholders in business have constantly advocated for modification of intellectual property and copyright laws in order to deal with the challenges originating from increased business interactions because of technical advancement.
Role of Competition in Economic Growth:
As interactions and competition increases in the business world, businesses can strengthen their market position through internal or external growth. In addition to using internal and external growth strategies, integration strategies within competition are also utilized to promote business growth. The most commonly used integration strategies are vertical integration and horizontal integration. Vertical integration is where companies in varying phases of similar production chain come together since many firms in the same industry function at different stages. This integration is divided into forward vertical integration where a manufacturer comes together with a retailer to manage marketing and product sale to consumers and backward vertical integration where the retailer takes over the manufacturer to control price and quality of goods. In contrast, horizontal integration is where companies in similar production stage and same market come together.
The other aspect of the role of competition in the economic growth is change management strategies associated with competition and growth. The main change management strategies related to competition and growth include effective communication, complete and active support from top management, employee involvement, organizational planning, and widespread understanding of the need to change. These strategies seem to follow some steps in Kotter's change model for managing organizational change. The strategies have primarily focused on the introduction and management of the change through all stages and departments of the firm. However, they do not incorporate strategies on how the effectiveness of the change will be determined once implemented. Therefore, the strategies are relatively limited to implementing change rather than the entire process of making the change effective. The benefit of this evaluation is that it highlights some of the important things to consider in implementing change. However, the evaluation mainly focuses on examining the drawbacks of the proposed strategies instead of how effective these strategies would…