Kids Style
Key Economic Variables
Economic factors and changes in the economic environment affect the way managers approach strategies and the way an strategy works. When economic changes happen, this affects peoples income, profits, interest rates, costurmer spending, performance of bussiness, atractiveness of goods and services, etc
Shift to a service economy in Colombia
Enter the service sector in Colombia is good for the investor and for the country, is good for the investor because It is a sector which in recent years has evolved and a productive transformation program was create that seeks to generate employment and investment in services for large profits and also seeks to strengthen human capital. It is also good for the country because the investment that the individual makes gives new jobs and reduce poverty index.
Another important thing to analyze is that Colombia according to the IMD (2013) has the best skilled labor in Latin America so for the investor that is a good fact in the sense that when a person is going to invest in the service sector he can find good human capital.
Colombia characterized in recent years by a strong economy in the services sector, the level of exports increase and according to Bancolombia public and private investment will be motivated by the 4g infrastructure.
Availability of credit
According to the statistics of "El Portafolio” investors and entrepreneurs from Colombia will have a wide availability of credit because the country in this momento has high liquidity and also according to the expectations of “Banco de la República” the 82,7% of local entrepreneurs considered that is going to be a high resource availability so that means something positive for the stability of companies and for the companies who are emerging.
For this reason we can say that entrepreneurs can invest in various sectors of the country and have availability of credit to constitute their business.
Level of disponsable income
The income in the Colombian population has increased so they have more availability to spend in the differents things and it also means that the economic has improved.
As incomes have risen, priorities purchases Colombians have changed because now they choose to spend more on other things like lesure and that means that people is going to spend on the services sector.
The level of income in Colombia according to the statistics of “World Bank” data, Colombia has a upper middle income.
Propensity of people to spend
It can be said that the trend of Colombians over time to spend has increased because according to the figures of "Raddar" purchases by average households in Colombia between $ 1'780.000 a month and go up to $ 3'800.000, for companies this is good because Colombian people spend lots of money in the different sectors and one of these is the services sector.
According to the statistics of “El Portafolio” The middle class in Colombia is one that spends more on leisure particularly clothing represented by 4,7% of their income and in the case of entertainment represent 3,49 of their expenses per month.
Interest rates
According to studies by the newspaper "El Periodico" interest rates in 2015 will continue stable therefore the availability of credit will be good for companies requiring credit or emerging businesses which means that banks during 2015 will have sufficient liquidity to the demands that arise.
“Consumer loans in Colombia grow at a real rate of 9.22 percent; the housing, 14.5 percent; microcredit, 7.25 and business, to 10.3 percent, according to the Superintendence.”
http://www.eltiempo.com/economia/indicadores/tasas-de-interes-en-el-2015/15146597
Those facts represents a positive thing for the industry in general.
Monetary policies
Monetary policies affect our industry because “El Banco de la Republica” implement this for the economical stability of the inflation rates, when this changes either for good or bad it affects the quality of live, social indicators, investment in the service industry, and the number of employment.
Fiscal policies
Fiscal policies affect the service industry because this policy is the one which controls the amount of money people invest and the taxes that the government should ask. In Colombia this fiscal policy is not well implemented according to the World Bank (Elibrary, 2012) and “Macroeconomic effects of structural fiscal policy changes in Colombia” by Hernando Vargas, Andrés González and Ignacio Lozano say that Colombia have an disorganize and not well planned fiscal policies.
Tax rates
Tax rates affect service industry because all countries, including Colombia, have laws that make every company to pay taxes for the business that they are developing and for the amount of money that they receive, for example IVA, patrimony tax…In the other hand, if some business want to import or export some product, for example, hair shampoo, this product will pass for different filters of each country and they have to pay taxes.
European Economic Community (EEC) policies
The EEC can affect the service industry in a way that whatever economic phases they pass affect economy all around the world example in this article written by “Radio Guatapuri” (Radio Guatapuri, 2012), explains how the European crisis that began at 2008 affected Colombian economy, affecting dollar price, petroleum, and other economic facts as stock value, so all this factors can affect the service industry.
Organization of petroleum exporting countries (OPEC) policies
OPEC policies does not affect the service industry, but their actions and the impact that they cause in the economy affect really hard to all economy in Colombia affecting the inflation and in conclusion all economy, according to Blooming Business the oil industry is extending and the Peso is getting weaker, so this affect the economy and the service industry.
Coalitions of Lesser Developed countries (LDC) policies
This Variable does not affect the service industry because even if they are trying to export and try to grow in the agriculture sector does not have a big impact in Colombian economy. “Least Developed Countries (LDCs) adopted this neo-liberal model, making it easier to trade goods, reducing tariffs and unifying aids and commercial restrictions in subsidies. The illusion of these new paradigms was mainly to increase the share of LDCs in agricultural trade” (Integrated Assessment of the Impact of Trade Liberalization, UNEP)
Import/Export factors
As shown in the tables with the information of the imports and exports of Colombia we can tell that in the industry of services there are not many factors, but never the less its important to have in account the other industries that have a lot of impact in the service sector, like it is the industrial sector that will affect in many ways. also the industrial sector is the biggest in imports in Colombia with 95.7% of participation and one of the biggest in exportations with 35%.
Demand and shifts for different categories of goods and services
The sector of services, has had a big growth in Colombia in the last years, this is very relevant because it can tell us that the service sector is now a days one of the most importan sectors of the economy and that it can have a good financier opportunity but also with many competition.
Income differences by region and consumer groups
This table shows us that the general population of Colombia has and average income of 543,378 that it is available in the spend units, this data is very important for the industry to know how much has an average Colombian to spend in a product or in a service.
Price fluctuations
source:http://cubindices.dane.gov.co:8084/Dane/intermedio_dinamicos.jsp
In Colombia there is not a really stable price historically, it always changes and has different variations. as shown in the table the price fluctuations since the year 2000 to the year 2010, changes every year and its not very stable. Its very important to have this information for every sector because any business needs to know how the price fluctuates in the country they are working in.
Export of labor and capital from Colombia
The export of labor and Capital from Colombia has increased in the last years, this is a very good fact for every sector in Colombia because this makes that the investment in Colombia get bigger, this way the service sector will have more investment and more changes of growing in the international economy. In the year 2011 the exportation of labor and capital from Colombia had a record of 8.020 million dollars of direct investment in the exterior. this makes that the Colombian companies are always having an international strategy to make international investments and business.
Unemployment trends
Despite unemployment rate has significally disminished in contrast with past years, we can evidence that unemployment and uniformallity still are a problem for colombian people, According to Portafolio, there is a lot of labor demand but few supply demand for labor, which makes almost half of graduated proffesionals to get a job in a total different field for their first job, which represent an opportunity for the services sector, because it is very easy and accesible to employ people in areas with low skill requeriments
Worker productivity levels
Worker productivity levels are very low in Colombia. According to an study developed by Rosario Córdoba, resident of consejo Privado de Competitividad, an american worker does the same job for 4.5 Colombians. This is a very unfavorable number for the services industry in Colombia. Evidence has shown that there is a direct link between productivity and the level of education, in which the case of low-skill requeriment Jobs, productivity can be imporved by giving employees the right mecanisms such as a basic training for them to improve the levels of productivity.
Value of dollar in world markets
The US dollar is currently strong in the colombian market, as several magazines state. For the services sector, a high price of the dolar in Colombia represents an advantage for foreing investor because the minimun wage that would have to pay lowers in relation with other countries, this allows production and outsourcing to become cheaper. A strong dolar is not good for a colombian company in the service field that is looking for expansión to the United States, because it becomes more expensive for Colombians to invest. A strong dollar is not good for the tourism sector, because it is more expensive to travel to the United States for Colombian people.
Stock Market trends
Stock market prices have an impact in the spending of a costumer.According to experts If share prices falls, a person could evidence a fall in their weath which may cause costumers to spend less, this in the long term prices for shares.
Companies looking for finance trought the stock market are affected by the low prices of the market. Short-termism affects workers, because shareholders look for bigger revenues, which may lead companies to cut costs such as lowering wage prices.
Foreign country's economic conditions
Foreign countries economic conditions may affect the service industry in a possitive or in a negative way. By definition of several experts, If a company invest in a country with low prices for labor, the company may benefit trhou globalization of production and outsourcing, however if the economic situation of a certain country is contracting, this may represent a disadvantage for long time return of the investment. If the country has high barriers for trade and investment, or the countries policies are hostile towards foreing investment and trade, it may be difficult for inverstors to promote development and Jobs in the country, and the high prices themselves affect locals and the investor returns.
Inflation rates
In 2014 the last inflation rate recorded was 3,66%. This year, January has ended with an increase of 0.16%.
Now, the augmentation of the Inflation rates can affect the service industry by the way it makes prices of the production of a service to go higher, placing the consumers in an hard situation due to the fact that the either can choose between paying for the service but using it every time with a low frequency or they can replace the need with a supplementary good.
Image taken from: (Economies, 2015)
Federal Government budget deficit.
A budget deficit can be understood as a wrong way of managing resources by the government. The last Federal Government Budget Deficit recorded in 2014 was -2.41% (extent in GDP). Having this data in mind we can see, that these budget deficit can affect the industry because if the highway is disrepair for the bad use of the resources people will rather visit another beauty saloon than go away and have to bear the traffic jams and the disrepair of the highways.
Consumption patterns:
“It's been four years since the federal government took the first step and approved the National Policy for Sustainable Production and Consumption, however, little has actually been done on the issue of responsible consumption.” (Revista Dinero , 2014) The consumption pattern in Colombia needs to be change, this affect our industry due to the fact that us, as a part of the market may adapt to these policy for Sustainability and in this way teach our clients how to be a responsible consumer.
Gross domestic Product trend
As we can see in the graphic, our GDP had grown considerately between 2013 and 2014. Taking this into consideration and also the fact that a growing GDP means that the unemployment rates had decrease and that there was a rise in the production of products and services we can guarantee that this growing rate is benefiting the industry because this shows how our productivity is increasing and how from the point of the enterprises we are helping the advance of our country.
Image Taken from: Economies, T. (08 de 02 de 2015). Colombia GDP. Recuperado el 14 de 02 de 2015, de Trading Economies: http://www.tradingeconomics.com/colombia/gdp