various sectors that it interacts with in its production and distribution activities. In the production process the operation of the firm will need intermediate inputs or raw materials to be processed by factor or transforming inputs. Thus, the actions and decisions of the business firm will have effects on its suppliers of raw materials. In the factor markets, a business company will have an impression on the demand for labor, land, funds, and in sourcing its managers. On its distribution process, the outputs of a firm or an industry are sold to other firms as intermediate inputs, and as final products to consumers, investors, government, and the rest of the world. Because of these linkages, a firm will have various influences on these sectors mentioned about. The effects are not only economic and commercial but can be social, cultural, and environmental as the operation of a business firm has spill- over effects on the environment where it operates. FRAMEWORK FOR SOCIOECONOMIC IMPACT ANALYSIS
Since the intent of an impact analysis of a
business organization is to identify and assess the effects of its operations on various sectors, we propose a framework of analysis anchored on the flow of its productive and distributive activities. These activities involve commercial transactions between the firms and its suppliers and buyers. Thus, when a firm purchases inputs from its sellers there are benefits as well as costs absorbed by the sellers. Similarly, when a firm sells its products to its customers there are also positive as well as negative consequences that buyers have to realize. The firm organizes its production activities by sourcing raw materials or intermediate inputs that factor inputs add value in the transformation process. The purchase of intermediate inputs is made from commercial enterprises within and outside the industry and outside the country. On the other hand, the factor inputs are purchased from various factor markets including the labor market for labor services, capital market for funds to finance the acquisition of capital, and the real estate market for land and office space. These intermediate inputs are processed by various factor inputs through the technology available to the firm to produce the firm's output. After producing these goods and services, the business firm disposes these to two main categories of buyers based on the degree of product transformation. A component of the outputs of the firm that are still in semi processed stage is sold to other firms that, will use it as intermediate goods for their own production. The other component of the firm's output is finished products that are sold to final buyers including consumers, investors, government agencies, and the rest of the world as exports. In all of these transactions, whether as a buyer of inputs or seller of its outputs, the firm creates an impact on its sellers and buyers. But these impacts are directly felt by the suppliers of inputs and owners of factor inputs because of the commercial transactions made by the firm with them. Thus, benefits or costs are realized and internalized by buyers and sellers because they are directly involved in these transactions. However, there are spillover effects of these transactions that may accrue to third parties that are not part of these commercial transactions. These spillover effects are also called externalities. Externalities are benefits reaped and costs incurred by parties outside the transactions between the firms and its suppliers, on the one hand, and the firms and its customers or buyers, on the other hand. These spillover effects are recognized in economic analysis and should be considered in evaluating the impact of a firm or the industry on the economy and society at large.
The effects can affect the community where
the firm operates. For example, the firm can hire labor services from the pool of human resources within a community. The firm may also encourage other firms to establish their presence in the community resulting from the higher income and purchasing power of the employed workers. Other examples of spillover effects a firm's operations are the impacts on the environment including pollution, overfishing, and forest degradation. TRACING THE IMPACTS THROUGH THE SOURCING OF INPUTS OF A BUSINESS FIRM As mentioned earlier, a firm will need two main categories of inputs in its production process intermediate inputs and factor inputs. Intermediate inputs or raw materials can be unprocessed primary products or semi processed materials that need further processing or transformation by the firm. Factor inputs on the other hand are the processing inputs. The major transforming inputs include labor, management, capital, land, and technology. INTERMEDIATE INPUTS
The impact of the production operation of the
firm on the suppliers of its intermediate inputs will depend on the sources of raw materials, types of suppliers, stage of product transformation market power of the firm. Internal vs. External Sources Sourcing raw materials from internal suppliers can create income and employment opportunities to producers of these raw materials. Because these domestic firms have also linkages with other local industries, the initial demand of the firm on raw materials can have ripple effects on the other sectors. Because of these multiplier effects, the impact on sourcing raw materials from domestic suppliers may have greater positive effects on the local economy than sourcing it externally. Sourcing intermediate inputs from foreign suppliers will have direct effect on a foreign economy and may involve the use of foreign exchange for these external transactions. Independent Suppliers vs Subsidiary of Conglomerate Sourcing intermediate inputs from independent suppliers domestically may have greater ripple effects than sourcing it from a subsidiary of a conglomerate. Although it may be more convenient and probably cheaper to source raw materials from a conglomerate but the contributions of the purchasing firm on inclusive growth may be limited. Usually, independent suppliers are small and medium-scale companies that employ numerous laborers. Thus, sourcing intermediate inputs from a subsidiary of a highly integrated conglomerate may displace traditional independent domestic suppliers. This impact is similar to the dislocations of a number of community-based groceries and variety stores with the establishments of large scale shopping malls in major urban areas in the country. Raw vs. Semi processed Inputs Sourcing intermediate inputs that are still very raw in product transformation will have limited multiplier effects unlike sourcing them under semi processed state especially if these intermediate inputs were sourced domestically. Semi processed intermediate inputs imply that they have undergone several stages of processing and have contributed several layers of value added. The value added in each stage of transformation means that they have employed several factor inputs and have created income to owners of these factor inputs. Market Power of the Firm
If the purchasing firm has market power in the
industry it can exercise its market power over its suppliers by extracting surplus from them. As a sole buyer of raw materials the firm can bid the lowest price to maximize its profit. Similarly, as one of the major purchasers of raw materials the firm can demand huge discounts for the enormous volume it buys from the suppliers. On the other hand, if the purchasing firm is small and has limited market power, it cannot ask for special discounts more than what is normally given to ordinary customers. FACTOR INPUTS SOURCING FOR LABOR SERVICES The impact of the firm on the factor markets and the owners of factor inputs will depend on the type of factor inputs that company is using intensively in its production process. For labor services, the source of labor services, nature of engagement, basis of compensation, degree of unionization of laborers, presence of human resource development plan, and working conditions will shape the impact on the labor market of a firm's purchase of manpower services. Within the Community vs. Outside the Community It is beneficial to the laborers, firm and the community if labor services are drawn from the community where the firm is located. For the laborers, it can lower their transportation cost going to the office and returning home. To the firm, this may improve the productivity of workers since they are not harassed by long hours of commuting. To the community, it provides employment opportunities to its people and brings accompanying social benefits. Direct Employment vs. Subcontracting Although direct hiring may be expensive for the business it has a number of positive effects on the laborers. It can give them security of tenure, higher compensation, and a number of monetary and nonmonetary benefits. On the other hand, sourcing labor services through subcontractors creates greater income for manpower services companies. The direct impact on the laborers is limited given the rapid turnover under subcontracting scheme and the accompanying insecurity of tenure. 'Minimum Wage vs. Market Rate We know that laborers and semiskilled personnel are usually paid the minimum wage as required by law. However, companies also hire professionals and technical staff whose services are also in demand within the industry and other industries. In this case the compensation package for professional staff is determined by the prevailing market rate and not mandated 'by the government regulation. 'Minimum Wage vs. Market Rate With an attractive market-determined compensation package the impact on highly skilled personnel is stronger than the impact of minimum wage on semiskilled workers. Oftentimes the minimum wage is not enough for a married worker to provide a decent living for a family of six. On the other hand, some firms give professional personnel a number of additional benefits including car plans, housing plans, and education of children and medical insurance coverage of members of the family. Organized vs. Non-organized In large companies, laborers are highly organized and have strong unions. Their demands for higher compensation, favorable working conditions, and other benefits are usually coursed through regular collective bargaining agreements between management and the labor union. Meanwhile non-organized laborers do not mean that they have lower compensation. However, their compensation package is usually dependent on the generosity of their employers determined upon employment. Human Resource Development Some big firms provide training programs for the human resource development of their workers. Some training programs are specific and some are general. General training given to personnel enhances their skills that can be used in other companies and industries. On the other hand, skills acquired in specific training can only be used specific to the tasks workers are assigned in the company. Human Resource Development A company that has a human resource development program can provide employees a professional development track. When they enter the company as a management trainee, they can see the direction of their potential professional career in the company. It is not unusual in some companies for an individual to start as an accounting clerk and retire as company president because of the benefits of a human resource development program. Temporal and Spatial Working Conditions
Temporal working conditions refer to the shifts in
duration of work. In services industries like health and BPO, they operate 24 hours a day and 7 days a week. Workers that are assigned at night or graveyard shift may have to bear the health, social, and personal impacts of this time assignment compared with those who work from 8 a.m. to 5 p.m. Temporal and Spatial Working Conditions
Spatial working conditions refer to situations
where the workers are assigned in fields and places other than the normal business office. Construction workers, telecommunications repairmen, miners, electrical engineers, teachers, and even soldiers are given a special hazard pay for special spatial assignments. SOURCING FUNDS FOR CAPITAL FORMATION
Funds are needed by a company to start its
operation, purchase equipment, and expand its physical plant. The impact of a firm's acquisition of funds on the financial market and the owners of capital will depend on where the funds are raised, manner on how the foreign funds are raised, and the rate of return. Own Savings vs. Capital Market (Slide 1)
There are several options in raising funds to
finance the capital expenditure of firms. They can source it from their own savings or retained earnings. Another possibility is to raise these funds from the capital market including banks, bond, and equities market. Own Savings vs. Capital Market (Slide 2)
Many small companies and business ventures
source their funds from their own resources including savings and retained earnings. For example, many retirees utilize a portion of their retirement benefits to finance business ventures. Similarly, returning OFWs who have saved sufficient funds can use part or all of their savings to start commercial ventures. Own Savings vs. Capital Market (Slide 3)
Although this option can make entrepreneurs
escape the excessive interest rates charged by informal lenders including loan sharks this alternative can carry heavy risks on entrepreneurs: If the business enterprise is not properly planned, business failure may drain the savings if not the wealth of these OFWs and retirees. Own Savings vs. Capital Market (Slide 4)
Large companies have the option of raising funds
by borrowing from commercial banks. Even larger business firms can expand their funds through the issuance of bonds and selling of initial public offerings (IPO) or share of stocks of the company's equity in the capital market domestically. Own Savings vs. Capital Market (Slide 5)
As companies increasingly source their funds from
the financial sector this option creates income opportunities in the banking system, and the capital markets. In addition, because of due diligence, proper guidance, and credit rating evaluation provided by banks and other financial institutions there is a degree of assurance that their clients can pay their financial obligations. Own Savings vs. Capital Market (Slide 6)
For example, if the borrowing firm is faced with
too many risks, the credit rating agency can give low credit worthiness. In turn, this information is used by banks by charging higher interest rates on the loans of the borrowing company. Foreign Borrowing vs Foreign Direct Investment (Slide 1)
There are number of large domestic firms that
source their funds from abroad. They can do this by borrowing or by inviting foreign partners through foreign direct investment (FDI). Foreign Borrowing vs Foreign Direct Investment (Slide 2)
In the case of foreign borrowing, the return to the
funding institution is measured by the rate of interest charged to the loan of a business firm. On the other hand, there are greater benefits to the foreign partners if funding is sourced through foreign direct investments. First, foreign partners can have substantial shares in the equities of the business company. Foreign Borrowing vs Foreign Direct Investment (Slide 3)
Second, this substantial equity can give foreign
investors policy and managerial influence in the operations of the firm. Third, aside from the return on the money that they have infused, they are also paid management fees as well as royalties for patents and technologies that they have provided the domestic partner firm. Market Determined vs. Regulated Rates of Return (Slide 1)
Business ventures are undertaken to make profits.
These profits are not only income to the owners of capital but also serve as signals for the attractiveness of the business venture. It is the responsibility of the managers of the company to give the owners of capital a fair rate of return on their investments. Otherwise, these investors may be discouraged to pursue this business. Market Determined vs. Regulated Rates of Return (Slide 2)
The return on investment can be determined by
market forces or it can be regulated. If rate of return is market determined this will depend on how the company manages its business operations. Usually, this is done by enhancing demand and revenues, on the one hand, and in minimizing its costs, on the other hand. Market Determined vs. Regulated Rates of Return (Slide 3)
This has been extensively discussed in the
previous chapters on how firms maximize their profits. High rates of return are usually observed in industries where a firm or few firms exercise market power. Firms with limited market power, on the other hand, will have to manage the various competitive forces (identified by Porter) confronting the firm in enhancing its rate of return. Market Determined vs. Regulated Rates of Return (Slide 4)
On the other hand, the rate of return can be regulated by the
government. There are cases when the government gives a franchise or a monopoly to firms in the operations of utilities including the provision of gas, water, and electricity. As natural monopolies, they will need huge amount of capital, equipment, and physical plant to operate these large scale utilities. As a result, the government makes sure that these firms earn a reasonable rate of return. If they are not assured of this reasonable rate of return, the provision of these basic utilities is compromised. Market Determined vs. Regulated Rates of Return (Slide 5)
If the regulated rates of return in these utilities are
substantially higher than the prevailing interest rates and the normal range of rates of return on business, they become very attractive business enterprises that give higher returns and income to the investors even if the industry is regulated. However, even if these utility companies are assured of high rates of return, they are subject to regular review of government regulators, critical public scrutiny, and the huge capital requirements. SOURCING FOR LAND INPUTS (Slide 1)
A business company will need an office space to
conduct its commercial operations. Beyond an office space, there are commercial operations that will require vast tracts of land. For example, the plantations of pineapples, bananas, and sugar are usually land-intensive compared with the manufacture of electronics and business process outsourcing. SOURCING FOR LAND INPUTS (Slide 2)
The impact of a firm's purchase of land and the
rental of office spaces provided by buildings in commercial and business districts in major cities on the market for land and owners of real estates and buildings will depend on the land intensity of production, location of the land, and opportunity costs. Land Intensity of Business (Slide 1) It is not only agricultural plantations that use extensive land resources in their production. Mining as well as logging companies will also require concessions from the government to exploit enormous mining sites' and forest lands. Thus, large plantations allot a huge amount of money for the purchase or lease of these tracts of land. For those with concessions with the government to exploit natural resources, they pay royalties or rents based on the amount of minerals extracted and trees harvested from the natural resources. More than the purchase price paid to the owners of land and the regular rent and royalty remitted to the government, these huge plantations and mining companies have to build roads, production facilities, sociocultural amenities, and other infrastructure. These investments on their lands have positive spillover effects on the community. Land Intensity of Business (Slide 2) On the other hand, because these companies are intensive in the utilization of land and natural resource, their impacts on the environment can also be substantial. In clearing the land, they may cut trees and may result in deforestation. The sourcing of water underground may lead to soil deterioration. If water is sourced from the rivers it may compete with other users of water for industrial, commercial, and residential use. Extracting minerals can lead to noise and water pollution as well as soil erosion. The disposal of wastes of these huge extractive operations can' threaten ecological balance as chemicals mixed with 'water at warmer temperatures are dislodged in rivers, bays, and seas. Location of Business and Opportunity Cost of Land Use (Slide 1) In urban areas where industrial and services industries are situated the payment for the use of land is usually determined by the opportunity costs of land. Because Manila has become congested and the price of land has increased substantially over the years many manufacturing companies have relocated their physical plants in nearby provinces in CALABARZON. In these areas there are enough spaces to build their factories with the price of land still relatively cheaper. Location of Business and Opportunity Cost of Land Use (Slide 1) Because the price of land in commercial and business districts in Makati, Taguig, and Pasig has soared, owners of land have constructed high rise buildings and condominiums for sale and rent. They charge high rental rates to cover the acquisition price of land, construction cost, real estate tax, and the maintenance of the building. Since services industries like BPOs, banks, accounting firms, consultancy services, and service industries are not land-intensive, they situate their offices in these commercial and business districts. They are willing to pay high rental rates in these areas just to be near to their clients and give legitimacy and prestige to their business. SOURCING FOR MANAGERS AND PROFESSIONALS (Slide 1) The decision on how to organize the intermediate inputs and how to supervise other factor inputs is done by the management team from the supervisors to the chief operating officer of the company. The impact of the firm on the hiring of its officers, managers, and supervisors will depend on the manner of recruitment and training of these highly skilled professionals. Insiders vs. Outsiders (Slide 1) In some small companies, the management team is homegrown sometimes drawn from the owners or relatives of family owned enterprises. They start as clerks, move on as supervisors, assigned as managers, and conclude their career as top officers of the company. These homegrown managers are known for their loyalty and are knowledgeable of the ins and outs of the organization. On the other hand, they may lack the dynamism and creativity of managers drawn from other firms and industries. Insiders vs. Outsiders (Slide 2) Because of this drawback, some companies especially the large corporations have resorted to recruiting professional managers from other companies. Because of this need for fresh ideas in management "headhunters" are always on the lookout for skilled talents within the industry resulting in fast turnover of skilled professionals in many companies. Nowadays, it is almost the norm for young technical professionals and managers to stay in the company not more than five years. In-house vs. Outsourced Training (Slide 1) In large corporations, supervisors, and managers undergo continuing training to upgrade their professional skills. The training can be done within the corporation or with universities and other training institutions. For in-house training, they can do this within the company or in the headquarters of big corporations within and outside the country as done by some accounting firms. Since in-house training can be quite expensive for smaller firms, their options are to give grants to their supervisors and managers to take up graduate courses in management or advanced technical degrees in some of the leading universities near 'the company. In-house vs. Outsourced Training (Slide 2) Recruiting talents for the management team can also be drawn from the pool of professionals abroad. Countries like Singapore are able to hire professional and technical staff from all over the world by paying them handsomely and providing with favorable working conditions. Singapore also looks at the global talent market because it has small pool of talents relative to its economic dynamism. For the Philippines, we cannot take this option because of our surplus of professional talents. In addition, our services sector is relatively close to global trade particularly on the supply mode of movement of natural persons. Although, with the liberalization of the tourism industry, we have agreed to allow a limited number of foreign professionals including managers and chefs to enter and work in the country's leading hotels. PAYMENT OF TAXES (Slide 1) Although taxes paid by business enterprises to the government is not a payment arising from the use of factor inputs like labor, capital, and land, it is still considered a component of production cost just like wages, interest, and rent. Taxes are paid at different levels of government from the barangay level to the national government for the conduct of business enterprise. Business permits, business taxes, municipal sales taxes, and real estate taxes are paid at the local government unit. However, value added-tax, import duties, export taxes, and income taxes including royalties are due to the national government. PAYMENT OF TAXES (Slide 2) Business-friendly local government units in highly urbanized cities all over the Philippines including Cebu City, Davao City, Quezon City, and San Fernando City are able to attract a number of business establishments in their areas which enable them to collect huge tax revenues. Meanwhile, Makati City, Taguig City, and Pasig City are able to provide above-norm public services to their citizens and business establishments because of the handsome tax revenues collected from many business companies and organizations that have established commercial presence in their highly developed business districts. PAYMENT OF TAXES (Slide 3) Meanwhile, the expanded value added taxes collected by business establishments all over the country and paid to the national government have been allocated for financing government programs including the provision of health insurance to the poor and senior citizens. Aside from collecting taxes the national government offers a number of fiscal incentives to companies in pioneering industries. Some of the incentives given to select business companies are income tax holidays, tax exemption in the payment of import duties, and the provision for rapid depreciation of capital equipment. These measures are given so that these select companies can recoup their initial investment at a faster rate and can use the funds for reinvested for expansion of the company. PAYMENT OF TAXES (Slide 4) There are however, micro business ventures that do not pay taxes since they operate in the informal sector. Since their business activities are not registered with government agencies they do not pay the fees for the issuance of business permits. There is no basis for computing the value-added tax due to the government because these micro enterprises do not issue receipts on their commercial transactions. In addition, many small scale entrepreneurs are exempted from paying income tax since their micro enterprises generate revenues not sufficient to give them the minimum income subject to income tax. 10 Micro and Small Business Ideas to Start in the Philippines 1. Sari-Sari Store. ... 2. Cellphone Load. ... 3. Rice Retailing. ... 4. Native Delicacies. ... 5. Internet Café ... 6. Photo Copy Center. ... 7. Iced or Frozen Delights. ... 8. Street Food. 9. Ukay-Ukay 10. Barber Shop or Beauty Parlor TRACING THE IMPACTS THROUGH THE DISTRIBUTION OF OUTPUTS OF A FIRM In the previous section, we focused on the impacts of the firm on the various sectors that contribute in its production process from the suppliers of raw materials to the suppliers of factors inputs and the government units that collects various forms of business taxes. In this section, we will channel our discussion on the disposition of the output produced by the business establishment. As presented in our framework, the output can be sold to other industries as intermediate inputs for further processing. Meanwhile, a portion of the output is sold domestically as final outputs to local consumers, investors, and government agencies. The other portion of the output, intermediate and final, is sold in the global market as exports. I. OUTPUT AS INTERMEDIATE INPUTS Aside what was already discussed in the sourcing of intermediate inputs, the contribution of a firm can be assessed in terms of its contributions on the integration of industries and in enhancing the productivity of the buying firms and industries by selling its output as intermediate inputs to other firms. Contributions on Industrial Integration (Slide 1)
If the output of the firm is used by other
industries as intermediate inputs, the selling firm is contributing to the integration of the economic sectors. This integration made possible through the forward and backward linkages of industries that create additional income and employment to various sectors of the economy. Contributions on Industrial Integration (Slide 2)
In turn, this integration leads to higher
economic growth. If the firm did not supply this intermediate input and the purchasing firm sourced its raw materials overseas, the additional income and employment are generated abroad and the linkages in the domestic economy are limited. Contributions to Productivity of Other Industries (Slide 1) A more important impact of a producing firm on the firm purchasing its products as intermediate inputs is the effect on the productivity of the buying firm. This is made possible if the selling firm produces quality intermediate inputs whose price are affordable and competitive. The use of quality and low priced inputs can lower the production cost of a firm, thus increasing its productivity. Contributions to Productivity of Other Industries (Slide 2) This in turn, intensifies the linkages created by the sales of intermediate inputs. Another factor that can contribute to the productivity of the purchasing firm is a reliable delivery of intermediate inputs. For example, the quality of services provided by various services industries including transportation, storage, and trading can enhance the competitiveness of the other economic sectors buying the services of these industries. II. OUTPUT AS FINAL DEMAND The other portion of the output of a firm can be disposed as final demand. This means that these products and services are consumed for their worth in enhancing consumers' welfare and not to be used for further processing or transformation in the production and distribution activities in the domestic market. The three major domestic buyers of final goods and services are consumers, investors, and government agencies. Personal Consumption (Slide 1) An output of a business enterprise can affect households as consumers of these goods and services. The quality of the output can affect the level of satisfaction and welfare of the consumers. The impact on the consumers can be shaped by the price of the commodity, the quality of the product, and in addressing the wants of its target consumers. Personal Consumption (Slide 2) Many consumers consider the affordability of the commodity as the primary consideration in their demand for the product. Based on our previous discussion on demand analysis, consumers would demand more of the commodity if the price is lower than if the price is higher, other things held constant. This behavior would enhance his welfare since he can buy more of the good at the same level of income. Personal Consumption (Slide 3) However, there are goods and services that are in demand even if they are very expensive. In this case, the satisfaction of the consumer is no longer based primarily on the price but on the quality of the good and service. In addition, there are goods and services whose high prices create snob effect on the buyers. Personal Consumption (Slide 4) For example, leather bags made by Louis Vuitton are very expensive but rich women would prefer them than inexpensive nonbranded bags. Owning one of these bags puts these women in a separate elite category of bag owners. Because of the importance of quality on the tastes of consumers, producers are always on the lookout on how to differentiate their products, and services to cater to the discriminating preferences of their customers. Personal Consumption (Slide 5) Aside from quality, producers can target the specific wants of its customers. The firms will need, the socioeconomic and demographic background of its clientele. Sometimes firms have to mix affordability, quality, and convenience to put a product or service in the market. For example, some expensive and branded shampoos are now available, even to the low income households because of an innovation in retailing these goods by packaging these into sachets and selling these at affordable prices. Aside from toiletries, even mobile phone loads for unlimited texts and calls for a day or two can now be purchased at a low price. Personal Consumption (Slide 6) In the light of limited information on the part of the consumers, responsible producers should disclose the information on the contents and quality of products and services they are selling. The labeling on the shelf life, expiry date, and nutritional value of bread is meant to address asymmetric information and protect the interest of consumers. Personal Consumption (Slide 7) Even if sellers are reluctant to make an adverse image of their product and service, they are mandated by government to do so. For example, cigarette manufacturers are required by law to put warnings on the cigarette package on the harmful effects of smoking. In the same manner, manufacturers of food supplements and herbal teas are required by government to put a level that these products have no approved therapeutic effects. Personal Consumption (Slide 8) Sometimes the manner of marketing their products by large business companies can alter the consumption behavior of the population. For example, the heavy bombardments of advertising on fast food restaurants, pastries, instant, and processed food have altered the consumption habits of our youth with heavy intakes of sugar, salt, and oil. Beyond the provision of information, business firms should be more responsible in advertising particularly if their products and services have some of the spillover effects on the community, environment, and the health of the consumers in the future. Investment (Slide 1) There are firms that produce capital goods like equipment, agricultural implements, and industrial tools that are sold to other firms not as intermediate inputs but as factor inputs. The impacts of this type of output disposition are similar to the effects created by a firm selling its output as intermediate inputs. Investment (Slide 2) A firm producing quality equipment, implements, and tools can contribute in the improvement of the productivity of the purchasing firm of these capital goods. Aside from productivity enhancement, this linkage can strengthen the integration of economic sectors and promote faster growth for the economy. Moreover, domestic purchase of capital goods the country can also save on the use of foreign exchange. Government Consumption (Slide 1) In an earlier section we have discussed the impact of the firm in its payment of taxes to the government. With the tax revenues, the government can provide a variety of public services. In this section, government consumption refers to the product disposition as a combination of household consumption and purchase of capital goods by firms. Although the government produces public service, it will need consumer goods, consumer durables, as well as capital goods in providing these services. Government Consumption (Slide 2) For example, in the provision of educational services, the government will purchase pencils, papers, chalks, and other instructional materials from various business firms. It will also buy books, laboratory equipment, computers, and desks, among others which can considered as capital goods. Government Consumption (Slide 3) Thus, firms producing these consumer and capital goods are assisting the government in the provision of public education. If prices of these goods are competitive and the commodities are of good quality, the limited budget allocation for public education can go a long way with the purchase of more goods and services. Thus, public service is enhanced with the purchase of government of quality and inexpensive goods and services from business firms. Exports (Slide 1) Not all the outputs of firms or industries are disposed in the domestic markets. There are firms that sell a portion of its output to the rest of the world as exports. In fact, many firms located in special economic zones are producing goods entirely for exports. In terms of services, many BPO companies are servicing the needs of their foreign clientele. Exports (Slide 2) The export receipts, whether earned through the exports of electronics or the exports of services like business process outsourcing can increase the foreign exchange reserves of the country. This, in turn, contributes to the stability of the economy. In addition, because of the strict requirements of exporting, many of our firms are exposed to international standards that make them globally competitive. Exports (Slide 3) Our car manufacturers that are participants in global production networks produce and export car components that are acceptable by leading car manufacturers in the region. Thus, business enterprises that are engaged in exports signal that they can produce goods and services of quality. Exports (Slide 4) Aside from an indicator of quality, a major exporter of a commodity in the global market can influence the price of the commodity. In the 19708 the tripling of the price of crude oil was made possible by the market power exercised by the Middle Eastern countries that are members of The Organization of Petroleum Exporting Countries (OPEC). In the 2015 the drastic reduction of the price of oil was due to the increase in the production of oil in the US made possible through rapid exploration of oil shale deposits in the United States.