2.1 ECONOMIC FORCES:
Economic factors have a direct impact on the potential attractiveness of various strategies; they secure and keep competitive advantage for our business. The following are Key economic variables to be monitored and represent either opportunities or threats for Refreshing Breeze Express Spa.
2.1.2 Availability of credit:
The availability of credit is the amount of credit someone can access to or borrow for a specific moment.
This variable is important as our website is an online booking massage express agency and it requires to pay through the website. In Colombia people can ask for loans without having a financial history, even if the customers have had a life without a credit, they can qualify for a loan at a bank, this is stated in the Decreto 2554. The availability of credit is relevant in our market industry as our target market are Colombians and right now the Colombian economy has a wide and high availability of credit and resources, and hence a broad liquidity.
2.1.3 Level of disposable income:
As definition the DPI is the personal income minus the personal income taxes payments. The level of disposable income in Colombia is relevant for our market. Considering that the DPI is the amount of money available for spending or saving from the income without the taxes that is accounted for. In Colombia the personal minimum income is 644.350 pesos when the government taxes payments are taken away the money that is left can be used either for spending or saving, this is relevant as our business is to offer an express massage service, which is not within the usual daily needs of a customer. This is important as the disposable income shows the availability of money that the Colombians have in able to spend in services as in our market.
2.1.4 Propensity of people to spend:
The level of disposable income is one economic variable, which is relevant in our market industry. Currently more than the 80% of the Colombians spend an average amount of what they earn or even more. This shows that our target market is willing to spend or pay for the services we will be offering. This information was a result from a study done in 2011 by the Carga Financiera y Educación de los Hogares (Iefic), which main intent was to analyze the financial capacity of the Colombians. From this variable we can determine how we can be attractive to our customers as they are willing to pay for the service if its attractive enough for them.
2.1.5 Interest rates:
The interest rates are the amount of money charged to a borrower for the use of certain assets. This is relevant to our market as when borrowing money from a financial entity the customers are going to be charged with these interest rates that depend on the percentage established by the lender.
2.1.6 Inflation rates:
The inflation rate that shows how a currency loses it’s value is the percentage level of prices of certain goods or services which as main intent tries to keep the excessive growth of prices to its minimum. The market determines it. The inflation rate is defined as a process that involves the following situations: the first one is the rise in prices in a countries most general products and the second important aspect is the loss of the currency purchase in such products or services.
The inflation rate in Colombia for the service market in 2014 was 2,81%. The inflation rates are certainly relevant to our business. This rate must be taken into consideration when evaluating the prices of our services.
2.1.7 Money market rates:
Money Market brings together a debt to less than one year terms and is issued by: the government, the (certificates of deposit, commercial paper and Treasury bills) financial assets traders supply traded to transform your wealth in titles or securities and have a high degree of liquidity. In the money market is used as a medium of exchange the ticket, paper, or lawful currency) (Escobar, 2006)
The types of financial markets are divided into three, the credit market is an interbank market, the bond market is divided into primary and (organization unspecified) secondary and (stock exchange), and finally the public debt market recorded. Participation in the money market is interesting because it is safe, and has high liquidity and flexibility, plus money market can be direct or specialized assets according to how you choose the person buying assets ratio intervention. (definicion.de)
For the industry is not necessary function in the financial market, the industry is not very useful since barely at the stage of birth and requires no investment in the money market.
2.1.8 Federal government budget deficits:
The federal budget deficit is the misuse of resources and the money used in transactions is greater than income. The fiscal deficit exists when an amount is compared and this is lower than others, that is, when the state spends more than it receives (Rodríguez, 1995) . According to the International Monetary Fund (IMF), Colombia is a country with a framework of sound fiscal policy, but it is recommended that the country generates a new tax reform; and thereby increase tax revenue, and thus meet the government's target of Colombia to reduce the structural deficit. Therefore, by 2015 it is estimated that the projection of government and "Calculations have given us, will occur with lower oil prices, the deficit will be between two and three million pesos ($ 870 million to US $ $ 1.3 million) more than expected, "said Andres Pardo, chief economist at Corficolombiana, (Elespectador.com, 2014).
For that reason, the government plans to take restrictive policies to raise taxes and the effect of this policy on the economy is reflected especially in the trend of rising prices of all products and services (inflationary pressures), and this hurts individuals and businesses. In our project will not be taken yet into account, since the budget deficit of the federal government, which is not very relevant, although this affects us all, the industry will not be affected directly or not at a very high level, the industry will continue to work normally and can continue in the Colombian market.
2.1.9 Gross domestic product trend:
It is understood as gross domestic product (GDP) as the total value of goods and services or goods and services produced in a country (in this case, the country is Colombia) in a given period of time. Gross domestic product is an indicator of the representative economy, which aims to help measure the growth or decline of the economy of a country. (Universidad nacional de Colombia, sede Manizales)
GDP is a magnitude that the International Monetary Fund (IMF) takes into account in the annual rankings. The gross domestic product of Colombia for 2013 was: (El Banco Mundial, 2014)
GDP (US $ at current prices)
$ 378.4 billion
Total population
48.32 million
Therefore, because economic growth is a cyclical chain, for example if you increase the GDP of Colombia, likewise increased revenues industries since this indicates competitiveness and creation of new companies in the country, which will generate more income for the country's economy.
In the case of industry in which our company operates, to create the company generate more revenue to the country because the economy is based on calculating the monetary value of all goods and services produced in the national economy.
2.1.10 Consumption patterns:
Consumption patterns are consumer trends, for example preferences are changing and emerging needs of the consumer, then consumption patterns are those preferences that the consumer demands or requires, these are constantly changing due to taste buyers (Ministerio de Ambiente, Vivienda y desarrollo Territorial, 2011) . Consumption patterns in Colombia increased production is evident, this is because it increases the GDP, and this is a vital factor in the economy due to the increase in gross domestic product is related to the productivity of a country, hence productivity and increases the consumption activities .
As consumption is driven by consumption patterns (consumer preferences) in Colombia vary somewhat, customers constantly change their ideals and consume different products or services based on many factors, one example is that Colombian families have reduced consumption meat also increased their spending on health and others (Araoz-Fraser, 2012) ; therefore, could benefit the industry because the service offered is part of the health sector and others.
2.1.11 Unemployment trends:
Unemployment trends are calculated by the National Administrative Department of Statistics (DANE), which is responsible for assessing the evolution over time of the proportion of people still of working age, are occupied and the proportion of people who have the disposition to work but are unemployed. The unemployment rate in Colombia has improved in the last 14 years has reduced their numbers gradually to the point that by 2014 the number or percentage of lowest unemployment in the last 14 years of the history of Colombia was recorded, the number Unemployment for last year was 9.1% indicating that it has achieved the goal of significantly reducing the unemployment rate.
This is a factor that benefits our company, because in Colombia there are more employees receiving their salaries, to say that there are more people who could consume our service due to the purchasing power they have thanks to the income they have and before did not have. Given that the capital of Bogotá, Colombia is one of the cities with the lowest unemployment rate at 7.7%, after Monteria and Barranquilla. This is a good indicator and indicates that the industry could benefit significantly because people will buy our service as economically and opens a wider field of work.
2.1.12 - Worker productivity levels: The profit a worker generates annually at a company.
According to the working productivity indicator 2014 from the “conference board total economy”, Colombian employees have one of the lowest averages with US$25000 per worker a year. This off course means that organizations are getting lower productivity levels from their workers in our country, affecting their profit levels and efficiency.
But it doesn’t stop there, according to “Fedesarrollo” 4.5 colombians are needed to develop an activity that only one north American person could do.
For Luis Fernando Ramírez, dean of the Faculty of Economics and Social Sciences of the University of La Salle, this big issue is due to the lack of automation on industries and the poor training that enterprises do with their employees, however, Luis Ernesto Gómez director of public services at eEmpleo says that the root of the problem are the low wages that organizations pay to their employees who most of the time are professional and expect to get a good income compared to what they spent during college time.
This news off course is very relevant to the industry, because it tells what to expect from the future employees and how their behavior is going to be which allows thinking in possible solutions to this hassle that is affecting Colombian pymes mostly.
2.1.13 - Value of the dollar in world markets: The price paid to buy a dollar in every currency.
As all of us know, the dollar price in the world it’s been rising constantly affecting global economy and Colombian economy is not the exception, on the contrary, Colombian economy has suffered big changes starting with the great devaluation of the Colombian peso which has lowered 17,53% and keeps going down thanks to the strengthening of the dollar and the low prices of the Colombian petroleum which as stated by José Davíd López economic analyst of consulting and investment, is the principal strength of Colombian economy, even though Colombia is not an oil country.
Some of the consequences that this event brings to the country as proposed by BBC mundo are: (take into account that what is going to be mentioned are the facts that affect the industry in which “Refreshing Breeze” operates).
· The good:
1) Rise of tourists in the country: This could mean the rise of customers since foreigners could be interested in taking the services the industry has available.
2) Good interest rates paid by US banks: In case of deciding to save part of the income in US banks, organizations in the industry would get a nice return of money in interests.
· The bad:
1) Rising price of foreign products: In case organizations have to buy foreign products for various circumstances, that would represent a major expend.
2) Could lead to inflation: Since the rise of the dollar is making Colombian peso to devaluate so greatly, the inflation in Colombia could rise meaning more expenses.
3) Could cause new government politics to emerge, such as new taxes to be paid because of the weakening of the Colombian peso.
2.1.14 - Stock market trends: The trend of investors to invest on different industries.
As discussed earlier, the rising value of the dollar and the continuous devaluation of the Colombian peso and petroleum, has greatly affected Colombian economy including among the problems the stock market trends, as reported by Portafolio.co, national and international investors are finding Colombia as an inadequate country to invest their capital because most of them fear to get a very low return on investment or even receive nothing in return which would mean a total loss of resources for the investors. Other factor that explain why investment in Colombia is going down are the statistics shown daily by the BVC in which it’s clear that the stock prices in different economic sectors and organizations are going down most of the time.
This for the industry in which the organization operates could be harmful because the industry is not going to have enough investors that help the growing and strengthening of the different pymes and enterprises that make the industry move, making it harder for the organizations to reach a proper development and strength.
2.1.15 - Foreign countries economic conditions: the economic and development condition of neighboring countries.
In Latin America, many countries have been growing economically, however, as stated by coyunturaeconomica.com the countries with the best growing economy and the most attractive for international investors and foreigners trying to go somewhere good for working or living are Panamá, Chile, Peru, Brazil and Argentina. Colombia on the other hand, is not among the best but is not among the worst; Colombia has been growing but slower than many other neighboring countries, meaning that tourists, workers, investors and people looking for good countries to live, prefer other options rather than Colombia which according to cesla.com its having a hard start for the year 2015 because of the strong peso devaluation.
Nevertheless, is important to take into account that there are several other countries behind the Colombian economy, in which people often see Colombia as a good place for living or visiting; that is the case of Ecuador and Venezuela.
This for the industry is something that affect it but not greatly, because despite of the fact that in Colombia there is enough people to serve, not all of them are willing to take the services the industry offer; so since foreigners prefer to go to countries like Chile or Argentina, companies could be losing customers from other countries such as tourists or foreign workers that could be interested on its services, on the other hand, countries like Venezuela have many people that leave that country to live in Colombia specially in its capital Bogotá, and more people in the city means more possible customers.
2.1.16 - Import/export factors: The amount of products the country export and import and the consequences it generates on Colombian economy and industries.
As stated by ElTiempo.com, and Banco de la República, the country is experiencing a very risky change on its import/export rates, meaning this that the import rates are growing greatly while the export rates are going down which according to the BanRep could affect in a very bad way all the Colombian industries because having more foreign products in the country means more competition and less support to the Colombian industry.
Another factor pointed by the Banrep, was the fact that the strongest Colombian exportations are the petroleum and the coal, unfortunately the price of this resources is very low nowadays meaning a very weak export economy and rising import rates.
This situation for the industry in which the organization operates, is not so bad taking into account that the imports made by the country are mainly formed of products and not services, meaning this that the service industry in Colombia will remain way stronger than the production industry, although that situation weakens the country’s economy, almost every single company within the industry operates in the same situations meaning fair competition.
2.1.17 Demand shifts for different categories of goods and services:
Demand is the desire to have a potential customer to satisfy a need of a good or service, this desire can change considering the time of year, special dates or even may be influenced by moods of people. In the industry, this service increases or further demand for dates such as Mother's Day, Women's Day, Valentine’s Day, Father's Day. Moreover, there are times where low market demand as classes start of colleges and universities, mid-year holidays, Easter and week recess, which should generate marketing strategies that help capture a larger amount customer.
2.1.18 Income differences by region and consumer groups:
This variable refers to income differences that arise in the socioeconomic pyramid of Colombia, in which the differences and the uses made appreciate each of these revenues to cover their basic needs. Given the socioeconomic pyramid of the country (Colombia). The industry is between the “wealthiest” to “potentates" equivalent to a population of 587,500 people with incomes greater than $3,157,500 per capita. Those who have the purchasing power to access the service, since this is not a service to meet a basic need, is defined as a luxury service.
2.1.19 Price fluctuations:
Economic fluctuations are simple acceleration and deceleration in economic growth rates in specific moments.
The cumulative CPI (Consumer Price Index) in Colombia for 2014 was 3.66%. It is an indicative of a low price volatility, thus keeping the market stable prices, this combined with low inflation determines that during the year the rates of products and stable services remain, however with wage increases and transportation beginning of each year should make adjustments in line with these increases in the industry.
2.1.20 Export of labor and capital from the United States:
The export of capital is its own form of capitalism which seeks to invest abroad to maximize profits, the American capital are commonly taken to emerging economies and good financial projections, where better profits by reversing at home are achieved. On the other hand, the United States exported mostly skilled labor positions mainly in research, engineering and general staff which have invested in their training.
2.1.21 Monetary Policy:
Economic policy is a set of measures by which it seeks to have balance between increased cost of living as defined by inflation and CPI (index of consumer prices) and wages paid to workers, so as to ensure improved quality of life for people. Monetary policy in Colombia is defined from the Bank of the Republic and is directly influenced by both the CPI and inflation. 2015 inflation is estimated to be within 2% to 4%.
The policy of wage increases for employees of the industry will be determined by the CPI for the previous year plus 1%, not go against the policies set by the government for workers earning the minimum wage. For the prices for services rendered in the industry will be the increase in inflation plus 3%, however it is verified before publishing prices to customers that the industry remains competitive in market prices.
2.1.22 Fiscal policies:
As fiscal policies guarantee the economic stability, eliminates economic inequality in the country, helps keep growing up the economy and helps with the spending decisions. So this affects us directly, because if this is effective, economic inequality is minimized, and the economy of the sector grows.
(Moller, 2012)
2.1.23 Tax rates:
Income tax: profits from ordinary operations rate- 25%
CREE tax (income for equality): applied on incomes that are susceptible to increase the assets of companies rate- 9% until 2015 , 8% starting in 2016
Value added tax (IVA): It is a national excise tax on service delivery rate – from 0% to 16%
Financial transactions tax: applied to each transaction intended to make withdrawals from current accounts, savings and cashier checks. Rate- 0,4% per operation
Industry and commerce tax: applied to industrial, commercial and service activities within the jurisdiction of a municipality or district for a taxpayer with or without commercial establishment rate- 0,2% to 1,4%.
(inviertaencolombia.com)
2.1.24 European economic community policies:
In relation to this varible, we are not affected by it because the end of this community is to integrate European communities for a balanced growth and with this could have standardized policies all over Europe in terms of economy.
(Eichengreen, 2002)
2.1.25 Organization of petroleum exporting countries policies (OPEC):
The OPEC does not affect us directly because only some top countries produce petroleum (until 2011 OPEC was composed by 12 countries), and their purpose is to manage the supply of petroleum and set its price in the world market, to avoid fluctuations that could affect the economies of their countries being that the OPEC members have more than the 80% of petroleum in the World. and Colombia is not included in the group.
(investopedia)
2.1.26 Coalitions of Lessers developed countries policies (LDC):
We are not directly affected by this variable because Colombia is not more a lesser countrie so is not in this group of countries in the WTO. however the end of the WTO is to help producers of goods and services to get ahead and make decisions against developed countries.
(organization, 2010)