E-COMMERCE

 

E-commerce is short for electronic commerce. It is similar to traditional commerce system which involves the activities of selling and buying, but it perform these operations using any electronic medium like, TV, fax, radio or internet. Today internet has captured all the e-trade demand with its comparatively greater features, so here we will consider only internet as an e-commerce source.

 

Categories of E-commerce

 

There are two basic categories of e-commerce:

 

• Business-to-Business (B2B)
  
• Business-to-Consumer (B2C)
  

 

Business-to-Business (B2B)

E-commerce plays an important role in enhancing and transforming relationships between and among businesses.

 

Some B2B applications are:

 

Supplier Management: Electronic applications in this area aid in expediting business partnerships through the reduction of purchase order (PO) processing costs and cycle times, and by maximizing the number of POs processed with fewer people.

 

Inventory Management: Electronic applications make the order-ship bill cycle shorter. For instance, if most of a business's partners are linked electronically, any information sent by mail can be transmitted instantly. Businesses can easily keep track of their documents to make sure that they were received. Such a system improves auditing capabilities, and helps reduce inventory levels, improve inventory turns, and eliminate out-of-stock occurrences.

 

Distribution Management: Electronic-based applications make the transmission of shipping documents a lot easier and faster. Shipping documents include bills of lading, purchase orders, advance ship notices, and manifest claims. E-commerce also enables more efficient resource management by certifying that documents contain more accurate data.

 

Channel Management: E-commerce allows for speedier dissemination of information regarding changes in operational conditions to trading partners. Technical, product and pricing information can be posted with much ease on electronic bulletin boards.

 

Payment Management: An electronic payment system allows for a more efficient payment management system by minimizing clerical errors, increasing the speed of computing invoices, and reducing transaction fees and costs.

 

Business-to-Consumer (B2C)

Business-to-Consumer e-commerce involves customers gathering information, purchasing, and receiving products over an electronic network.

The consumer uses electronic commerce in the following economic transactions:

 

Purchasing products and information: Electronic applications make it possible for consumers to look up online information about existing and new products/services.

Personal finance management: In this field, electronic applications aid the consumers in managing investments and personal finances through the use of online banking tools. Chow.net is a good example of B2C electronic commerce application, particularly of purchasing products online.

 

E-commerce benefits

 

Benefits to Organization

• Expends the marketplace to national and international markets.
  
• Decrease the cost of creating, processing, distributing, storing and retrieving paper-based information.
  
• Allows reduced inventories and overhead by facilitating "pull" type supply chain management.
  
• The pull type processing allows for customization of products and services which provides competitive advantages to its implementers.
  
• Reduce the time between the outlay of capital and the receipt of products and services.
  
• Support Business Processes Reengineering (BPR) efforts.
  
• Lowers telecommunication cost – the internet is much cheaper than Value Added Networks (VANs).
  

 

Benefits to Society

• Enables more individual to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution.
  
• Allows some merchandise to be sold at lower prices benefiting the poor ones.
  
• Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them.
  
• Facilities delivery of public services at reduced cost, increases effectiveness, and/or improves quality.
  

 

Benefits to Consumer

• Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location.
  
• Provides customers with more choices.
  
• Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons.
  
• Allows quick delivery of products and services in some cases, especially with digitized products.
  
• Customers can receive relevant and detailed information in seconds; rather than in days or weeks.
  
• Makes it possible to participate in virtual auctions.
  
• Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences.
  
• Electronic commerce facilitates competition, which results in substantial discounts.
  

 

Limitations of E-commerce

 

Technical Limitations

• Lack of sufficient system's security, reliability, standards, and communication protocols.
  
• Insufficient telecommunication bandwidth.
  
• The software development tools are still evolving and changing rapidly.
  
• Difficulties in integrating the Internet and electronic commerce software with some existing applications and databases.
  
• The need for special Web servers and other infrastructures, in addition to the network servers (additional cost).
  
• Possible problems of interoperability, meaning that some E-commerce software does not fit with some hardware, or is incompatible with some operating systems or other components.
  

 

Non-Technical Limitations

• Cost and justification (35% of the respondents)
  

The cost of developing an EC in house can be very high, and mistakes due to lack of experience, may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify.

• Security and Privacy (17% of the respondents)
  

These issues are especially important in the B2C area, and security concerns are not truly so serious from a technical standpoint. Privacy measures are constantly improving too. Yet, the customers perceive these issues as very important and therefore the E-commerce industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure.

• Lack of trust and user resistance (4%)
  

Customers do not trust an unknown faceless seller, paperless transactions, and electronic money. So switching from a physical to a virtual store may be difficult.

 

• Other limiting factors
  
  • Lack of touch and feel online.
    
  • Many unresolved legal issues.
    
  • Rapidly evolving and changing E-commerce.
    
  • Lack of support services.
    
  • Insufficiently large enough number of sellers and buyers.
    
  • Breakdown of human relationships.
    
  • Expensive and/or inconvenient accessibility to the Internet.
    

 

TRADITIONAL COMMERCE VS E-COMMERCE

 

Some major comparisons between the traditional commerce methods and modern E-Commerce are listed below:

	Traditional Commerce	E-Commerce
Cost	Cost is greater due to taxes, advertisement and employees.	Average cost is much lower than traditional type.
Market	Product market is limited because of geo-graphical constraints.	Product market is across the world because of non-physical aspects.
Advertisement	It requires product advertisement on various mediums.	Developers of the websites also makes adds on domains.
Time	It requires more time to go outside, to choose, compare and evaluate product.	It takes less time to choose and make comparison between several products.
Accessibility	Less accessible due to time or geo-graphical constraints.	Products can be accessed at any time and from almost anywhere.
Reliability	People trust it more because of physical transactions.	Due to lake of awareness this is less popular among people.
Support	Customers support centers support their customers.	No physical support centers available.
Feedback	Feedback from customers takes a lot of time.	Feedback is immediate by certain website features.
Interactivity	Fewer customers can be interacting with at a time because of less physical limitations.	Websites are especially designed for multi-users.

 

ECONOMIC SYSTEMS

Macroeconomics

 

TWO BIG ECONOMIC SYSTEMS

Capitalism and Communism

In the world there are many economic systems exists among the countries such as:

1. Socialism
   
2. Communism
   
3. Capitalism
   
4. Islamic Economic System
   
5. Mixed Economy Systems
   

 

There are also many other economic systems developed by human society like Stalinism, Maoism and Feudalism but 'Capitalism' and 'Communism' are the most important from all of them. Both have exactly opposite economical, social and political chrematistics.

COMMUNISM

Communism is an economic system that stands for total public ownership and rejects private property and personal profit. Its main idea of communism had been taken from socialism, thus these has many common characteristics. It enforces the equality of common people in their wealth and power. It can be said as:

"A system of government in which the state plans and controls the economy and a single, often authoritarian party holds power, claiming to make progress toward a higher social order in which all goods are equally shared by the people."

 

About

Karl Marx became the prophet and teacher of socialism whose writings transformed socialist thinking all over the world. Marx was a philosopher and an idealist who studied history and was greatly influenced by the writings of Georg Hegel, the famous German philosopher. In 1848 Karl Marx published, with the help of his long-time friend and collaborator Friedrich Engels, "Manifest der Kommunistischen Partei," more commonly known as "The Communist Manifesto". The Communist Manifesto was a summary of his entire social and political philosophy. The publication of this book occurred at a most propitious time. The book appeared on the eve of the 1848 revolution in France and less than one year before an attempted revolution in Germany. After the failure of the 1848 revolution in Germany he was expelled from his country of origin and moved to London. He later published "das Kapital" or Capital, an analysis of the economics of capitalism. Marxism, a doctrine developed by Marx and to a lesser extent by Engels, consists fundamentally of two interrelated ideas: a philosophical view of man and a theory of history.

 

Countries

Following countries are the leading as communist countries:

• China
  
• Cuba
  
• Laos
  
• North Korea
  
• Russia
  
• Vietnam
  

 

CAPITALISM

Capitalism is a political system in which all the property and factors of productions are owned privately in order to create profit for the owner. Prices of goods and services fluctuate depending on the desire of the desire of consumer and availability of goods and services. There will be significant difference of wealth and power between those who have capital and those who don't have it. Hence its definition can be:

"An economic system in which all or most of the means of production are privately owned and operated, and where investment and the production, distribution and prices of goods and services are determined privately by producers, rather than by the state. The means of production are usually operated in pursuit of profit".

About

No one can say when capitalism first began. Clearly the development of capitalism was not revolutionary like that of communism. Instead it emerged gradually without anyone making a plan of what it should become.

In 1776 Adam Smith, a Scottish university professor, produced a book which described the workings of a capitalist society. He believed that a country's wealth depends on all people pursuing their own interests. If a person promotes his own interest he or she is unintentionally promoting his country's interest. Smith thought that governments should promote free trade and not interfere by protecting certain industries from competition. The only duty of governments, Smith wrote, was to provide services that couldn't be profitable like the building of roads, schools and churches.

Countries

These countries are the capitalist in all terms:

• United Kingdom
  
• Finland
  
• Canada
  
• Norway
  
• United States of America
  

 

CAPITALISM VS COMMUNISM

Gross Domestic Production (GDP)

For the Year 2005 (in billions $US)
Communist Countries		Capitalist Countries
Country Name	GDP	Country Name	GDP
China	1843.12	United Kingdom	2295.04
Cuba	125.71	Finland	204.38
Laos	2.66	Canada	1098.45
North Korea	720.77	Norway	285.60
Russia	755.44	United States	12438.87
Vietnam	47.11

Reference: IMF World Economic Outlook (WEO)

 

The above chart shows that overall capitalist countries are creating high GDP rates.

 

Characteristics

The following are the comparative characteristics of these systems based on criticism and favors on them:

Capitalism

• Only private sector operates all business.
  
• People can have their own properties and factors of productions.
  

 

• Each business has been operated to have personal profits.
  
• Those who have capital, they have more wealth and power than others who doesn't have.
  
• There is great competition among private businesses.
  
• Investors take risks in investments as the self-organization.
  
• The existence of markets (including the labor market.
  

 

 

 

Communism

• Communist party holds as Government to operate all kinds of businesses.
  
• There is no concept of private property and all the means of productions are owned by Government.
  
• People work for common welfare and grades not for personal profit.
  
• All the peoples are same in power and wealth.
  

 

• No competition exists. Only Government is the monopolist in all businesses.
  
• No entrepreneurship exists.
  

 

• There are no markets.

 

WHAT I SHOULD SAY

As being a Muslim I must say that Islamic Economic System is the best from all of these economic systems. It enforces a total interest free economy, but it has not been applied successfully in any country across the globe. In Pakistan we are facing a mixed economy system. All the major businesses are owned by Government or had been owned by Government and it didn't have any competitor in these businesses. Pakistan Tele Vision (PTV), Pakistan Railways, Pakistan Tele Communications Ltd. (PTCL), Pakistan International Airlines (PIA), WAPDA, Water and Sewerage Authority (WASA), Sui Northern Gas Pvt. Ltd. and State Bank of Pakistan are the kind of business those had been monopolist under the Government authorization. Now a day only some of them have been privatized or have been facing competitors and other of them are still monopolist and these are still owned by Government.

 

Communism, as it exists in the world today, and capitalism are the same things. True communism doesn't, and can't, exist. True communism depends on human nature being basically altruistic. For communism to work, the members of the society either need to be altruistic enough to want to work for the benefit of their neighbors, or they need to be forward thinking enough to see that what benefits the whole benefits themselves. They must be very far-sighted indeed, because large-scale social benefits tend to be more abstract in nature, and more difficult to recognize. Communism was a major cause in break down of Russia.

 

Capitalism encourages non-contributing, support structure industry. Many organizations make fortunes simply by shifting money back and forth, from one place to another. While this is all very integral to our economy, it only exists as a side effect -- it doesn't actually produce anything.

Capitalism allows people to starve. However, unlike communism, capitalism also allows people to better themselves and their situation. Capitalism also allows people to ensure a better future for their offspring, should they have any, and to contribute surplus resources to organizations that they believe in. To quote the old hack, it may not be a perfect system, but it is the best one we have.

SETTING THE PRICE

When develops a new product or introduces regular product into new distribution channel or geographical area. It is a six step procedure.

STEP 1: Selecting the Pricing Objective

Each firm operates with some objectives and sets its products price which aligns with its objectives.

Survival.

When intense competition exists, or consumer wants changes. Price only covers variable cost and some fixed cost and company stays in business. It is a short-run objective.

Maximum Current Profit.

Tries to produce maximum current profit or cash in-flows by estimating the demand and cost. Difficult in the long-run because of marketing-mix variables, competitors, and legal constraints.

Maximum Market Share. Market-penetration pricing. Mass production involves. Higher sales volume leads to lower unit cost and higher long-run profit. Benefits can be achieved:

(1) When the market is highly price sensitive and low price stimulates market growth.

(2) With mass production cost of production and distribution will decrease.

(3) Competitive advantage. Low price discourage actual and potential competition.

Maximum Market Skimming. Market-skimming-pricing. Monopoly. Higher price in the start and then low. In 1990 Sony introduced High Definition Television (HDTV) at $43,000. In 1993, 28" was of $6,000 and in 2004; 42" was in $1,200. Condition must exist:

1. High current demand.
   
2. Low unit cost at small volume.
   
3. High initial price will discourage competition.
   
4. Superior product image.
   

Product-Quality Leadership. Making the brand high quality and affordable by creating value and setting just high enough prices.

Other Objectives. Nonprofit or public organizations have different objectives, like nonprofit hospital aim to full cost recovery, or social agencies set a price according to client income.

STEP 2: Determining Demand

Price and demand has an inverse relationship. If price is high demand level will be fall and if the price is low demand will be ultimately high.

Price Sensitivity.
People have different price sensitivities. Customers are more prices sensitive to products that cost a lot or are bought frequently and less sensitive to low-cost items or items that buy infrequently. Companies prefer less price sensitive customers.

Estimating Demand Curves.

• Statistical analysis by statistical techniques gathering data from past prices, sale volumes.
  
• Price experiments by charging different prices for a product to see how sales affects.
  
• Surveys can explore what price consumer will accept.
  

Price Elasticity of Demand. Need to know the change in price brings how much change in demand.

 

 

 

 

 

 

STEP 3: Estimating Costs

Amount incurred on producing, distributing and selling the product

Types of Cost and Level of Production.

Management should know how costs vary with the different levels of production.

• Fixed cost that does not vary with production.
  
• Variable cost varies with the level of output.
  
• Total Cost = sum of fixed and variable costs for given level of production.
  
• Average cost = Total Cost / No. of Units Produced.
  

Accumulated Production.

With time experiences the production techniques become better, the methods improve and average cost falls with this accumulated production experiences. It is called the experience curve or learning curve. Some chains have different learning curves so profits. Activity-based cost (ABC) accounting should be used to estimate the real profitability.

Target Costing.

Set a target cost to be achieved through production scale, experience, and efforts by designers, engineers, and purchasing agents by reducing the current cost. Cost elements---design, engineering, manufacturing, sales---must be examined to bring down cost in target cost range.

Management process

PLANNING

Planning involves defining the organization's goals, establishing an overall strategy for achieving those goals, and developing a comprehensive set of plans to integrate and coordinate organizational work. Planning can be either formal or informal.

 

In informal planning, nothing is written down, and there is little or no sharing of goals with others in the organization. This type of planning often is down in many small businesses and also exists in some large organizations as well.

 

When we use the term planning, we mean formal planning. In formal planning; specific goals covering a period of years are defined. Those goals are written down and shared with organizational members. Finally, specific action programs exist for the achievement of these goals.

PURPOSES OF PLANNING

1. Direction to managers.

   Planning establishes coordinated effort. It gives direction to managers and non-managers alike. When employees know where the organization or work unit is going and what they must contribute to reach goals, they can coordinate their activities, cooperate with each other, and do what it takes to accomplish those goals.

2. Reduce un-certainty.

   Planning also reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses.

3. Reduce overlapping.

   Planning reduces overlapping and wasteful activities. When work activities are coordinated around established plans, wasted time and resources and redundancy can be minimized.

4. Improve efficiency.

   When means and ends are made clear through planning, inefficiencies become obvious and can be corrected or eliminated.

5. Minimum wastage of sources.
6. Standardizes the controlling process.

   Planning establishes goals or standards that are used in controlling. If we're unsure of what we're trying to accomplish, how can we determine whether we have actually achieved it?

 

Planning depends upon two elements:

I – Goals: Goals are desired outcomes for individuals, groups, or entire organization. There are two types of goals:

Stated Goals: Official statements of what an organization says, and what it wants its various stakeholders to believe, its goals are.

Real Goals: Goals that an organization actually pursues, as defined by the actions of its members.

Ii – Plans: Documents that outline how goals are going to be met including resource allocations, schedules, and other necessary actions to accomplish the goals.

 

APPROACHES TO ESTABLISHING GOALS

TRADITIONAL GOAL SETTING

An approach to setting goals in which goals are set at the top level of the organization and then broken down into sub goals for each level of the organization.

    

Means-Ends Chain

An integrated network of goals in which the accomplishment of goals at one level serves as the means for achieving the goals, or ends, at the next level.

MANAGEMENT BY OBJECTIVIES (MBO)

A management system in which specific performance goals are jointly determined by employees and their managers, progress toward accomplishing those goals is periodically reviewed, and rewards are allocated on the basis of this progress.

TYPES OF ORGANIZATIONAL STRATEGIES

Organizational strategies include strategies at the corporate level, business level, and functional level. Managers at the top level of the organization typically are responsible for corporate-level strategies. Managers at the middle level typically are the responsible for business-level strategies. And managers at the lower levels of the organization typically are responsible for the functional-level strategies.

 

1. CORPORATE-LEVEL STRATEGY

A corporate-level-strategy seeks to determine what business a company should be in or want to be in. It refers to make strategies for multiple (more than one) products under an organization.

 

2. BUSINESS-LEVEL STRATEGY

A business level strategy seeks to determine how an organization should compete in each of its business. When you as a manager makes strategies for your own product-line from multiple products in which your organization deals.

 

1. STRATEGIC BUSINESS UNIT

When an organization is in several different businesses, these single businesses that are independent and that formulate their own strategies are often called strategic business units.

1. COMPETITIVE ADVANTAGES

Competitive advantage is what sets an organization apart, that is, its distinct edge. You can check the resource of your business that competes to other companies and you can facilitate your customers to compete them. In any industry, five competitive forces dictate the rule of competition. Managers access an industry's attractiveness using the following five factors.

1. Threat of new entrants. Factors such as economies of scale, brand loyalty, and capital requirements determine how easy or hard it is for new competitors to enter an industry.

2. Threats of substitutes. Factors such as switching costs and buyer loyalty determine the degree to which customers are likely to buy a substitute product.

3. Bargaining power of buyer. Factors such as number of customers in the market, customer information, and the availability of substitutes determine the amount of influence that buyer have in an industry.

4. Bargaining power of suppliers. Factors such as the degree of supplier concentration and availability of substitute inputs determine the amount of power that suppliers have over firms in the industry.

5. Existing rivalry. Factors such as industry growth rate, increasing or failing demand, and product differences determine how intense the competitive rivalry will be among existing forms in the industry.

 

3) COST LEADERSHIP STRATEGY

A business level strategy in which the organization is the lowest-cost produces in its industry.

4) DIFFERENTATION STRATEGY

The company that seeks to offer unique products that are widely valued by customers is following a differentiation strategy.

3. FUNCTIONAL-LEVEL STRATEGY

A functional-level strategy seeks to determine how to support the business-level strategy. It means all sub departments of your organization should have such kind of strategies that are supporting your business-level strategies. These strategies facilitate you to achieve both corporate level strategies and business level strategies.

CONTROL

Control is the process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. Three different approaches to designing control system have been identified.

1. MARKET CONTROL

Market control is an approach to control that emphasizes the use of external market mechanisms, such as price competition and relative market share, to establish the standards used in the control system.

1. BUEARUCRATIC CONTROL

Bureaucratic control is an approach to control that emphasizes organizational authority and relies on administrative rules, regulations, procedures, and policies.

1. CLEAN CONTROL

Under clean control, employee behaviors are regulated by the shared values, norms, traditions, rituals, beliefs, and other aspects of the organization's culture.

 

WHY IS CONTROL IMPORTANT?

• To maintain quality.
• To achieve goals.
• To reduce cost.
• To keep standard output.

 

CONTOL PROCESS

The control process is a three-step process including measuring actual performance, comparing actual performance against a standard, and talking managerial action to correct deviations or inadequate standards.

 

STEP1: MEASURING

To determine what actual performance is, a manager must acquire information about it.

How We Measure Four common sources of information frequently used by managers to measure actual performance are personal observation, statistical reports, oral reports and written reports. Management by walking around (MBWA) is a phase used to describe when a manager is out in the work area, interacting directly with employees, and exchanging information about what's going on.

What We Measure What we measure is probably more critical to the control process than how we measure. Why? The selection of the wrong criteria can result in serious dysfunctional consequences.

STEP2: COMPARING

The comparing step determines the degree of variation between actual performance and the standard. Some variation in performance can be expected in all activities. It's critical, therefore, to determine the acceptable range of variation. The range of variation is the acceptable parameters of variance between actual performance and the standards.

STEP3: TAKING MANAGERIAL ACTION

The third and final step in the control process is taking managerial action. Managers can choose among three possible courses of action.

1. Do Nothing

Managers can leave the deviations. "Do nothing" is fairly self-explanatory.

1. Correct Actual Performance

If the source of the performance variation is unsatisfactory work, the manager will want to take corrective action such as changing strategy, structure, compensation practice, or training programs; redesigning jobs; or firing employees.

Immediate Corrective Action. Corrective action that corrects problems at once to get performance back on track.

Basic Corrective Action. Corrective action that looks at how and why performance deviated and then proceeds to correct the source of deviation.

1. Revise the Standard

It's possible that the variance was a result of an unrealistic standard; that is, the goal may have been too high or too low. In such cases, it's the standard that needs corrective attention, not the performance.

DECISION-MAKING

A decision is a choice from two or more alternatives. Making good decisions is something that every manager should have. Decisions have a major influence in organizational success or failure. Top-level managers make decisions about their organization's goals, middle and lower-level managers make decisions about setting production schedules, handling problems and employee hiring and firing.

DECISION-MAKING PROCESS

Decision making process is a set of eight steps that are following:

STEP 1: IDENTIFYING A PROBLEM

The decision-making process begins with the existence of a problem. A problem is a discrepancy between an existing and a desired state of affairs.

 

STEP 2: IDENTIFYING DECISION CRITERIA

Once a manager has identified a problem that needs attention, the decision criteria important to resolving the problem must be identified. That is, managers must determine what's relevant in making a decision.

 

STEP 3: ALLOCATING WEIGHTS TO THE CRITERIA

The decision maker must weight the items in order to give them the correct priority in the decision. A simple approach of allocating weights is to give the most important criterion a weight of 10 and then assign weights to the rest against that standard.

 

STEP 4: DEVELOPING ALTERNATIVES

Then the decision maker should list the variable alternatives that could resolve the problem. In this step the manager doesn't has to evaluate the alternatives. He only has to list out them.

 

STEP 5: ANALYZING ALTERNATIVES

Once the alternatives have been identified, the decision maker must critically analyze each one. Each alternative is evaluated by appraising it against the criteria established. From his comparison, the strengths and weaknesses of each alternative become evident.

 

STEP 6: SELECTING AN ALTERNATIVE

The sixth step is the important act of choosing the best alternative from among those considered. We have determined all the pertinent criteria in the decision, weighted them, and identified and analyzed viable alternatives. Now we merely have to choose the alternatives that generated the highest score in previous step.

 

STEP 7: IMPLEMENTING THE ALTERNATIVE

Although the choice process is completed in the previous step, the decision may still fall if it isn't implemented properly. Implementation involves conveying the decision to those affected by it and getting their commitment to it.

 

STEP 8: EVALUATING DECISION EFFECTIVENESS

The last step in decision-making process involves appraising the outcome of the decision see if the problem has been resolved. Did the alternative chosen and implemented accomplish the desired results?

If the problem still exists then the manager would need to carefully assess what went wrong. Was the problem incorrectly defined? Were errors made in the evaluation of the various alternatives? Was the right alternative selected but poorly implemented. It might even require starting the whole decision process over.

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DECISION-MAKING STYLES

Four decision making styles are evident: directive, analytical, conceptual and behavioral.

• Directive style. People using the directive style have tolerance for ambiguity and are rational in their way of thinking. They're efficient and logical. Directive types make fast decision and focus on the short run. Their efficiency and speed in making decisions often results in their making decisions with minimal information and assessing few alternatives.
• Analytical style. Decision makers with an analytical style have much greater tolerance for ambiguity than do directive types. They want more information before making a decision and consider more alternatives than a directive-style decision maker does. Analytical decision makers are best characterized careful decision makers with the ability to adopt or cope with unique situations.
• Conceptual style. Individuals with conceptual style tend to be very broad in their outlook and will look at many alternatives. They focus on the long run and are very good at finding creative solutions to problems.
• Behavioral style. Decision makers with behavioral style work well with others. They're concerned about the achievements of subordinates and are receptive to suggestions from others. They often use meetings to communicate, although they try to avoid conflicts

THEORY OF DEMAND AND SUPPLY

DEMAND

    By demand we mean, then quantity of any commodity which a consumer wants to buy and has purchasing power.

Law of Demand

It is stated that "other things remaining same, the price of a commodity increases, demand of that commodity decreases, and when the price of a commodity decreases the demand of that commodity increases".

The functional relationship between quantity demanded and the price of the commodity is inverse and it can be expressed as:

        Q_d = f(P)

Where Q_d = quantity demanded

P = Price of the commodity

Assumption

1. There is no change in the taste, habits and preferences of the consumer.
   
2. The income of the consumer remains constant.
   
3. There is no change in the prices of the substitutes.
   
4. No change in the circumstances.
   

 

Explanation

The slope of the demand function is negative. With the increase of demand the demand curve will move to the right\up; with the decrease of demand it will move to the left\down. Price is independent and demand is dependent variable.

    The demand function is explained with the help of following example:

Price (P)	Quantity demanded (Qd)
0	10
1	8
2	6
3	4
4	2
5	0

 

By assuming different values of P, we can calculate the different values of Q_d.

 

As we assume different values of 'P' i.e. 0 to 5, then the calculated values of Q_d decrease from 10 to zero.

SUPPLY

    By demand we mean, then quantity of any commodity which a seller offers to purchase at a specific price and time.

Law of Supply

It is stated that "other things remaining same, when price of a commodity increases, supply also increases and when price of a commodity decreases, supply of that commodity also decrease".    

The functional relationship between supply and price of a commodity is direct and can be expressed as:

Q_s = f(P)

where Q_s = Supply of a commodity

P = Price of the commodity

Assumption

1. There is no change in the taste, habits and preferences of the consumer.
   
2. No change in Government taxation and other policies about business.
   
3. There is no change in the prices of the substitutes.
   
4. No change in the circumstances.
   

 

Explanation

The slope of the supply function is positive. With the increase in supply of a commodity the supply curve for that commodity will move to the right\up; with the decrease of supply it will move to the left\down.

    The supply function is explained with the help of following example:

 

Price (P)	Supply(Qs)
0	0
5	10
10	20
15	30
20	40
25	50

 

By assuming different values of P, we can calculate the different values of Q_s.

 

As we assume different values of 'P' i.e. 0 to 25, then the calculated values of Q_s also increase from zero to 50.

 

INFLATION

Inflation means sharp upward movement in the price level. Inflation is generally associated with the abnormal increase in the quantity of money resulting in the abnormal rise in the prices.

Causes of Inflation

Two types of inflation

• Demand Pull Inflation
  
  • High monetary expansion
    
  • Increase in population
    
  • Deficit financing
    
  • Hoarding
    
  • Natural Clamities
    
• Cost Push Inflation
  
  • Increase in price of raw material
    
  • Increase in wages
    
  • Increase in indirect taxes
    

 

Preface

At the request of the Government of Pakistan, a mission led by the Asian Development Bank (ADB) and the World Bank conducted a preliminary damage and needs assessment. This assessment estimates the damage and reconstruction costs of the October 8, 2005 earthquake that struck areas of the North West Frontier Province (NWFP) and Azad Jammu and Kashmir (AJK) in Pakistan.

Effects on Inflation

Hence, there will be a need for a monetary policy geared towards containing inflation, in the absence of which average inflation in FY06 could reach double digits, hurting the poor excessively.

 

Earthquake Effects on different sectors

• Social Infrastructure
  
  • Housing
    
  • Health
    
• Physical Infrastructure
  
  • Transport
    
  • Energy, power and fuel
    
• Economic Sectors
  
  • Agriculture and livestock
    
  • Industry and Services
    

Pakistan earthquake:

Housing. Damage – Rs. 61.2 billion (US$1.03 billion). Across AJK and NWFP, the earthquake destroyed 203,579 housing units, while 196,573 were damaged to various degrees. These include 116,572 destroyed and 88,368 damaged in AJK, and 87,007 destroyed and 108,205 damaged in NWFP. Losses to the housing sector represent 84 percent of the total housing stock in the affected Districts of AJK, and 36 percent of housing stock in the five affected Districts of NWFP. The affected houses are predominantly rural, with urban units accounting for only 10 percent of the total.

Reconstruction needs and strategy – Rs. 92.2 billion (US$1.55 billion). The reconstruction strategy for the housing sector is underpinned by the following nine principles: (i) promote hazard-resistant construction standards and designs; (ii) rebuild in-situ; (iii) ensure rebuilding is owner-driven; (iv) rebuild with familiar methods and easily accessible materials; (v) relocate settlements only when necessary; (vi) ensure urban replanning is limited and strategic; (vii) offer uniform assistance that is not compensation-based; (viii) coordinate multiple reconstruction initiatives and standards for equity; and (ix) link housing to livelihoods and infrastructure rehabilitation.

Inflation Effect.
Inflation effected very badly to housing industry due to high price level of house construction items and material such as cement, steel, sand and machinery. If we take a look as a producer point of view the producers are taking much benefits after earthquake because of widely increasing demand of construction related material and instruments. Due to increase in the price level of all construction items, consumers are also affected.

 

Health. Damage – Rs. 7.1 billion (US$120 million). The immediate need is to treat the more than 70,000 people with injuries. The earthquake's impact on the health sector also includes severe damage to health infrastructure and health systems. About 574 health facilities have been partially damaged or destroyed. Moreover, health management was paralyzed at the central level in AJK, district, and at the facility level. These losses have resulted in a complete breakdown of the health system and a total disruption of both secondary and primary care service provision.

Recovery needs – Rs. 18 billion (US$303 million). The immediate focus needs to be on the revitalization of the primary health care system, the provision of services in tented villages and for the newly disabled and psychological care for survivors and health care workers. The estimated short term cost is Rs. 7.2 billion. In the medium term, all levels of health facilities, including secondary care hospitals, will need to be reconstructed and re-equipped. The health system management should be strengthened and the disabled should experience community-based rehabilitation. The estimated cost of the medium to longer term recovery plan is Rs. 10.8 billion.

Inflation Effect. Medical staff and medical instruments has been consumed heavily to injurious peoples, thus the shortage has occur. The production of medicines and surgical instruments and all related material is increasing but this ratio is not so sufficient. Thus the average price of these items is being increased gradually.

 

Transport. Damage – Rs. 20.2 billion (US$340 million). Damage to the mountainous roads in AJK and NWFP is largely due to landslides precipitated by the earthquake, but the intensity of the damage varies. In AJK, it is estimated that 2,366 km roads were damaged. Of this 203 km are major roads, 761 km are other paved roads, and 182 km are unpaved shingled roads for a total of 1,146 km representing 45 percent of all Public Works Department (PWD)-managed roads. These include the Neelam Valley road, and to a lesser extent the Jehlum Valley road, which are the primary transport arteries in AJK. Another 1,220 km of local unpaved roads are damaged, representing 44 percent of the total Local Government and Rural Development (LGRD) roads in the affected districts. Damage in AJK is estimated at Rs. 9.2 billion (US$155 million). In NWFP, 2,063 km of roads were damaged, representing 31 percent of the total road network in the affected Districts. Of this amount, 652 km comprise provincial highways managed by FHA, 1,016 km are paved provincial roads that were devolved to the Districts, 367 km are unpaved district roads, and 27 km are urban roads managed by municipal agencies. The estimated damage in NWFP is about Rs. 7.49 billion (US$124 million). The damaged length of the three national highways that provide main access to the northern areas of NWFP is about 194 km, representing 72 percent of the total length. The estimate of assessed damage to the national highways is Rs. 3.5 billion (US$59 million).

Recovery needs – Rs. 24.7 billion (US$416 million). Immediate needs include: (i) the removal of landslide debris and the reopening of roads to traffic; (ii) restoration of roads and bridges; (iii) stabilization of road embankments to withstand the oncoming snow; (iv) comprehensive condition surveys of all damaged roads to plan and prioritize the reconstruction and recovery works; and (v) reconstruction of unpaved local roads using labor-based appropriate technology methods employing communities and individuals to create livelihood opportunities. Short term activities include: (i) planning and engineering design; (ii) bidding of the priority damaged paved roads; and (iii) mobilizing for construction. A total of Rs. 5.1 billion, or US$86 million, will be needed for this phase. Medium to longer term recovery efforts include: (i) continuation of the bidding for the remaining damaged paved roads; (ii) supervision and monitoring of the ongoing reconstruction works; (iii) stabilization of the roadside slopes damaged by landslides and potential landslide areas; and (iv) review and improvement of design standards. A total of Rs.19.6 billion, or US$330 million, will be required for this phase.

 

Energy. Damage – Rs. 744 million (US$13 million). Damage to the four energy sub-sectors—power, petroleum and gas sectors, and subsistence fuels (wood and dried dung)—consists primarily of destroyed operational buildings, staff quarters, equipments in the power sector, and damage to retail stations and related inventory in the fuels sector (petroleum, liquefied petroleum gas (LPG), and natural gas). In addition, ten hydropower generation stations have been partially damaged and will require repairs to return to full operational status. The bulk of power and fuel supply was restored within days of the earthquake, and power is being supplied to all accessible urban and rural areas. For the most part, the initial repairs are temporary and will need to be revisited to establish permanent technical and building structures for continuous energy supply.

Recovery needs – Rs. 2.4 billion (US$40 million). For the recovery of the energy sector, two immediate priorities include the electrification of the tent villages and restoration of electricity supply to the customers whose services have not yet been restored. In the short-term, the repair and rehabilitation of existing damaged distribution lines, transformers, and service connections is needed. The sufficient provision of electricity must be an integral part of the planning and implementation process to ensure that new service connections are in place to supply power to newly constructed houses. The cost estimates have incorporated technological upgrading of the equipment to ensure improved efficiencies and quality of services, which will benefit the area through increased economic activity. A major additional cost related to the reconstruction of the energy sector is caused by the moratorium on electricity payments. In order to ensure financial sustainability, payment for power and fuels will have to be made to protect the distribution companies and fuel retailers.

 

Industry and Services. Damage – Rs. 8.6 billion (US$144 million). Due to the lack of any major industry or manufacturing in the affected areas, the damage to the private sector is largely restricted to trade activities. All eight affected districts have a substantial number of trade-related activities comprising retail, restaurants, and wholesale warehousing. Mansehra district in NWFP, which contains the tourist towns of Kaghan, Naran, and Balakot, also sustained significant damage to its tourism infrastructure. Similarly in Muzaffarabad district in AJK, the handicraft sector was substantially damaged. Direct damage to assets in the private sector comprises building façades of commercial enterprises, which are mainly restricted to retail shops. The capital damage indicates losses to the goods,.Pakistan: Preliminary Damage and Needs Assessment 18 inventories, and other working capital. These establishments also suffered indirect losses, which refer to output lost due to business interruption caused by the earthquake.

Recovery needs - Rs. 9.2 billion (US$155 million). The reconstruction needs for the trade sector are attributed to the reconstruction of the damaged and destroyed buildings and the replacement of lost capital assets. In the short term, the aim should be to restore the abilities of medium, small-scale and even unregistered businesses to restock basic supplies and to re-engage in commerce, which is central to the livelihoods of people living in affected areas. Restoring basic infrastructure and facilitating access to financial resources—from domestic and foreign remittances, microfinance institutions, and banks—is an essential first step. The Government will have a key role to play in helping entrepreneurs rebuild their businesses quickly and returning commerce to normalcy in the affected regions.

 

Agriculture, Livestock and Irrigation. Damage – Rs. 13.3 billion (US$223 million). Based on data from the UN FAO team and information from concerned government officials, the earthquake severely damaged crops, livestock and irrigation subsectors in both AJK and NWFP. Direct damage to crops includes loss of harvested and standing crops, disruption of terraces and soil conservation structures, spoilage of stored grains and animal feed, and structural damage and destruction to extension and research buildings amounting to Rs. 4.0 billion (Rs. 3.2 billion in AJK, Rs. 0.75 billion in NWFP). The indirect damage of Rs. 712 million (Rs. 529 million in AJK and Rs. 183 million in NWFP) represents value of wheat productivity losses in the coming rabi season and amortized value of fruit production. The direct damage to the livestock sub-sector equals about Rs. 9 billion, which is accounted for by the loss of large and small ruminants and poultry, animal sheds, and damage to extension and research buildings. The indirect losses to the livestock sector, mainly loss of milk productivity, are estimated at Rs. 6 billion (US$102 million). The main damage to the irrigation sub-sector has been to the water channels, diversion structures, water lifts, spillways, and water tanks, amounting to Rs. 324 million (Rs. 240 million in AJK and Rs. 84 million in NWFP).

Recovery needs – Rs. 18.5 billion (US$311 million). The immediate requirements in the next month are for winter crops, mainly wheat cultivation, construction of temporary animal sheds for protection from severe cold, and repair of water channels. If support for wheat cultivation is not extended in time, the affected persons will be unable to grow wheat, which is their main staple. Similarly, if shelter for animals is not provided immediately, there will be substantial loss of the remaining livestock inventory. These needs would require an immediate support of Rs. 3.3 billion (US$56.5 million). In the short term, Rs. 1.9 billion would be required for the restoration of the relevant line agencies' buildings and rehabilitation of irrigation facilities. In the medium term support would be needed for replanting fruit trees, rebuilding terraces, replenishment of livestock inventory, rehabilitation of productive infrastructure, and reconstruction of laboratories, offices of extension and research for agriculture, livestock, and irrigation departments. Over the longer term the focus should be on restoring livestock inventories and. Pakistan: Preliminary Damage and Needs Assessment 15 rehabilitation of terraces and soil conservation infrastructure that have been severely damaged. It is necessary to reestablish the agricultural sector in a sustainable manner through strengthening institutional capacities and providing support services.