Automobile Industry China Essay

? China became the world’s largest automobile producer and market in 2009 with annual sales of nearly 14 million vehicles. The market continues to expand in 2010. In the first nine months of 2010, automobile production reached 13. 08 million units, a 36. 1 percent increase from a year ago. The China Association of Automobile Manufacturers (CAAM) raised its forecast for annual sales to reach a record 17 million this year, matching the highest annual total ever reached in the United States. Industry growth has been primarily driven by rising domestic demand stemming from rising incomes, a growing middle class, and by supportive industry policies from the Chinese government. The Chinese automotive industry remains very fragmented. In addition, Chinese central government officials fear that unchecked expansion of China’s auto industry encouraged by local authorities could harm the wider economy, and that excess capacity must be stopped. Hence, the central government continues to push for mergers and acquisitions (M&A) in the automotive industry which will support the emergence of a few leading national companies. China’s weak R&D, domestic innovation and design capabilities are key challenges to its international competitiveness. With the government’s encouragement, domestic firms have opted for strategic partnerships with foreign players, aiming to facilitate technology transfer and improve domestic design and engineering capabilities. The Chinese government has implemented a number of tax adjustments and subsidies for automobile purchases to encourage hybrid electric vehicles, pure electric vehicles and traditional vehicles of small engine displacement. Beijing has gradually introduced higher automobile emission standards for new vehicles. Plans to develop hybrid electric and pure electric vehicle production capabilities are part of a broader, environmentally friendly strategy to develop the auto industry. Market opportunities exist especially in the following areas: o Developing domestic innovation capabilities (e.g. vehicle design and engineering, hybrid electric and pure electric engines, electric motors and electric controls) o Productivity and quality upgrade (e. g. engines, transmissions, electronic control systems and safety systems) o Mergers and acquisitions (both in China and in Israel) o Clean transportation technologies 3 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) ? ? ? ? ? ? o Advanced manufacturing technologies o Supply of essential automotive components/systems to OEMs (e. g.electronic control systems and safety systems) ? The following automotive segments in China are considered to be highly competitive and it will likely be difficult for Israeli firms to penetrate the market unless they have an extreme competitive advantage: Fabric for seats/interiors, seat covers, floor mats, curtains, aluminum die casting, rubber bumpers, electronic harness cables, antennae, speakers, electric starters, vehicle cleaning products, window films, A/C compressors, fuel and oil and air filters. 1. MARKET OVERVIEW ? ? China’s automotive market has the most growth potential in the world; per capita car ownership is still remarkably low at 4. 78% and is expected to grow significantly. Domestic whole-vehicle manufacturers and automotive suppliers are still extremely fragmented (government-supported consolidation is imminent in the near future); challenges remain for domestic R&D and design. With government subsidies and tax incentives, China is aiming to establish an early footing in the production of low-emission and environmentally friendly automobiles. Component imports surged by 130% in the first half of 2010; 60% of imported components were drivetrains, engines or automotive body components. ? ? 1. 1 GENERAL OVERVIEW Market Growth Primarily fueled by domestic and partly by foreign demand, China’s rapidly expanding automotive industry has outpaced the nation’s already impressive GDP growth rates in recent years. Domestically, rising incomes and encouragement from the Chinese government for the urban population to obtain drivers licenses have spurred the demand for passenger vehicles. The booming passenger vehicle market has led to a soaring demand for automotive components. Internationally, automotive manufacturers faced with decreasing margins and profitability have sought out more affordable supply chain solutions, looking to China as a potential source for lower cost automotive components. Unlike developed markets for passenger vehicles, where growth in demand has been largely stagnant, China’s domestic demand for new automobiles has skyrocketed in the past years. Strong car sales in China in 2009 pushed the auto market to the largest in the world, and 2010 is set follow the positive trend. 4 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009). Source: China Association of Automotive Manufacturers (CAAM) In the first nine months of 2010, automobile sales reached 13. 08 million units, up 36. 1% from a year ago. Over 9 million of the total sales were passenger cars and 3. 24 million were commercial vehicles. CAAM predicted that the 2010 annual sales will reach a record of 17 million units. It is widely believed that China’s automotive market currently has the most growth potential in the world. China’s 2009 per capita private car ownership was 4. 78%, far less than the 40% average of developed countries, and even less than other emerging markets such as Russia, Brazil and India. This is a strong indication that China’s domestic market is far from being overly saturated. According to CAAM predictions, growth in the auto industry will remain strong until 2020 with annual growth expected to consistently range from 13 to 15 percent. The total number of vehicles will jump from 67 to 150 million. Sales in larger tierone and tier-two cities as well as rural areas should keep growing at a rapid pace over the next few years and high growth areas will move from eastern China to the central and western regions. Market Players There are currently more than 100 whole-vehicle manufacturers and nearly 8,000 automotive parts manufacturers in China, located primarily in Southern, Eastern, and Northeastern and central China (see the map on the right). Together, the top ten passenger vehicle manufacturers (seven of which are joint ventures (JVs) make up almost 90% of China’s market share (see the table below). Nearly every major global vehicle manufacturer has established JV operations in China. 5 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009). Top 10 Passenger Vehicle Manufacturers in China (2009) Rank 1 2 3 4 5 6 7 8 9 10 Source: CAAM Company SAIC1 FAW2 Dongfeng Chana (incl. Hafei) Beijing Auto Guangzhou Auto Chery BYD Brilliance Geely Others HQ Shanghai Changchun Wuhan Chongqing Beijing Guangzhou Hefei Shenzhen Shenyang Taizhou JV Partner GM, VW VW, Toyota, Mazda PSA, Nissan, Honda Ford, Mazda, Suzuki Hyundai Daimler Honda, Toyota, Isuzu, Fiat N/A N/A BMW, Toyota N/A Sales (Unit) 2,705. 5K 1,944. 6K 1,897. 7K 1,869. 8K 1,243. 0K 606. 6K 500. 3K 448. 4K 348. 3K 329. 1K 1,750K Market Share 19. 83% 14. 25% 13. 91% 13. 70% 9. 11% 4. 45% 3. 67% 3. 29% 2. 55% 2. 41% 12. 84% Import Positive demand growth for automobiles and components has not only caused domestic industry development, but has led to increased attention from leading foreign automotive manufacturers eager to expand into the rapidly growing market. Foreign automotive manufacturers have also been encouraged by lower import tariffs, which have been lowered for whole vehicles from 70-80% to 25% since China joined the World Trade Organization (WTO). Import tariffs on Semi-Knocked-Downs (SKDs) and Complete-Knocked-Downs (CKDs) have dropped from 50% to 25%, while import tariffs on vehicle components have dropped from 15% to 10%. 1 2 Shanghai Automotive Industry Corporation First Auto Works 6 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) China’s automotive import growth was slowed due to weaker demand caused by the global economic crisis of 2009. Annual total import were USD 33. 1 billion in 2009, representing a year-onyear increase of only 5. 34%. Assisted by government incentive programs and China’s economic recovery, China’s auto import total bounced back from a sluggish 2009, surging by 130% to USD 27. 22 billion in the first half of 2010. Imported European luxury cars had a remarkable 237. 2% increase in 2010 compared to the same period the previous year. China’s automotive component imports grew to USD 12. 7 billion in the first half of 2010, a 90% increase over the same period of 2009. Drivetrain, engine and automotive body components accounted for over 60% of the total component imports (see chart). More than 80% of the imported components came from Japan, German, Korea, and the United States. The main groups of imported automotive components to China can be divided into three categories: ? Japanese and Korean OEMs and Tier I suppliers: Generally these companies tend to only use suppliers from their country of origin. For example, Toyota typically sources components from Japanese JVs or Wholly Owned Foreign Enterprises (WFOEs) on the mainland, or directly imports from Japan. Such practice tends to result from strict quality requirements, cultural compatibility and logistical concerns. German OEMs and Tier I suppliers: These companies typically import components in the areas where Chinese suppliers are weak (e. g. safety systems for high-end passenger cars). The US and French OEMs operating in China have not increased their automotive component imports as much as their peers for different reasons. US OEMs have steadily increased their sourcing from local Chinese suppliers for vehicles manufactured in China to stay competitive, and French OEMs are facing a shrinking market share in China. ? ? Chinese OEMs are emerging buyers of imported automotive components, especially in the segments of hybrid and electric vehicles and Chinese-brand luxury vehicles. 7 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Export The impact of the economic crisis in 2008-2009 forced many multinational companies to reduce their sourcing of automotive vehicles and components from China. According to CAAM, China exported a total of 369,600 units in 2009 worth USD 5. 19 billion, which was down by 46% from 2008. China’s auto exports rebounded as the global market recovered in 2010, with 250,100 vehicles exported in the first six months (up 55. 93% year-on-year). Passenger vehicle exports surged 115. 93% to 116,500 units, while commercial vehicle exports increased 25. 50% to 133,900 units. Algeria, Vietnam and Egypt were the major whole-vehicle export destinations in the first half of 2010. The auto component’s export growth has witnessed even more impressive growth than whole-vehicles. Exports increased 54. 11% to reach USD 18 billion in the first half year of 2010, with drive system components exceeding 50% of the total by value. More than 50% of the components were exported to the USA, Japan, South Korea, Germany and the United Kingdom. 1. 2 MARKET STRUCTURE Supplier Landscape The automotive supplier landscape in China is extremely fragmented. According to CAAM, there are approximately 8,000 automotive enterprises scattered across various segments including full vehicle manufacturing, vehicle refitting, motorcycle production, engine production and automotive parts manufacturing. Most of these companies specialize in lower-end parts and lack the capital needed to invest in production of higher quality products. Seven of China’s ten largest components manufacturers are foreign companies, and about 70% of the country’s USD 160 billion auto supply market is occupied by foreign companies or joint ventures. There are approximately 120 OEMs in total, 40% of which produce passenger vehicles. One of the key contributors to the fragmentation of the automotive market as a whole is that Chinese suppliers serve a large amount of separate OEMs. The world’s leading automotive companies are all well-established in China. OEMs are represented by Ford, General Motors (GM), Volkswagen (VW), Daimler, BMW, PSA, Mazda, Nissan, Honda, Toyota, Hyundai, and tier-one international companies including Bosch, Delphi, Denso, Johnson Controls, Lear, Magna, Visteon, Yazaki, ZF, Arvin Meritor and TRW. 8 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Most of the international automaker and component manufactures have invested heavily in China in attempts to gain a competitive edge. For example, GM, Ford and Jaguar Land Rover have established their Asia Pacific headquarters in China. GM, VW and Honda have also opened China R&D centers and have begun to design car models specifically for the Chinese consumer. International automotive components companies have also expanded their presence in China. For instance, BorgWarner recently opened a China Technical Center. ZF announced the establishment of its Asia Pacific headquarters in Shanghai as well as a new Shanghai R&D center. Eaton’s Asia Pacific headquarters is in Shanghai. Rapid expansion from international firms has let to foreign-invested automotive components suppliers holding 70% of the Chinese market share. Most of the top Chinese automotive parts manufacturers are wholly owned domestic companies such as ASIMCO, Wanxiang, Hongteo, Fuyao, Dicastal, Wanfeng and others. These companies could be potential competitors or partners for Israeli companies. In response to the soaring domestic demand, Chinese automotive component manufacturers have ramped up their production capacities significantly, but this has also led to an increase in quality complaints. Key Challenges for the Domestic Industry Chinese suppliers are now looking beyond the domestic market and improving their production process to emerge as true global competitors. However, further investment in R&D is still required before Chinese manufacturers can truly compete globally, as the industry still lacks technological capability and suffers from quality issues. China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Chery Automotive (Chery) ? Founded in 1997 and now has an annual production capacity of 650,000 vehicles, 400,000 engines, and 400,000 sets of gearboxes. ? Continues to expand into the overseas market and has established plants in 16 countries becoming the biggest Chinese vehicle exporter for seven consecutive years. ? Chery Automobile Test & Technology Center opened in July 2010, which became the largest auto lab in Asia. The company will invest RMB 2. 4 billion in 2010 to accelerate its new model development. ? Chery now owns a full set of manufacturing and R&D facilities, including four car plants, two engine plants, a gearbox plant, an automobile engineering research institute, an automobile planning and design institute and an automobile test & technology center. ? Have extensive technological and business relationships with overseas auto companies. Chery signed an agreement with Chrysler to produce Chery made cars under the Chrysler brand to be sold in the United States and Mexico. ? Chery Quantum Auto. Ltd is a joint venture between Chery and Quantum LLC under an Israeli Group. They aimed to invest USD 334 million in 2010 to develop high-end cars and SUVs for the overseas market. 9 R&D capability Chinese automotive component manufacturers are able to manufacture products when they are provided with designs and specifications, however most of them lack design, engineering and R&D capabilities. Owing to weak R&D and engineering capabilities, many local suppliers have opted to enter into technical collaborations or JVs with leading international suppliers with the goal of facilitating the transfer of technology and improve basic product engineering capabilities. A growing number of Chinese auto parts suppliers have begun to invest in and acquire western firms. Domestic R&D capabilities of Chinese automotive part manufacturers have historically been limited due to the small-scale of most operations and a shortage of investment in laboratory facilities in comparison to international firms. Taking steps to remedy the situation, the Chinese government has continued to encourage investment in R&D for core systems, such as engines, transmission systems, steering systems, brake systems and driving control systems. Safety and reputational issues Incidents and product recalls have raised questions about the quality and safety standards of Chinese manufactured automotive components. According to the 2009 China Automotive Product Quality & After Service Quality report, among the 9359 complaints documented about Chinese made cars, 19. 5% were related to engine problems; 10. 5% to steering systems; 10. 7% to braking systems; 18. 5% to automobile accessories and electronics; and the remaining 40. 8% related to the gearbox, clutch, front and rear axles, suspension systems and air conditioning systems. As a result of complaints and recalls, as well as other non-automotive related manufacturing scandals in China including melamine milk, contaminated pet food, and anti-freeze laced toothpaste, Chinese manufactures are facing serious issues about their reputation. This is a problem local manufacturers will have to overcome if they want to increase their competitiveness on the global stage. The drivers are in place for Chinese domestic manufacturers to move to the forefront of the global automotive industry, but substantial domestic investment in R&D and improvements on quality and reputation are a necessary prerequisite. 1. 3 EMERGING INDUSTRY TRENDS Industry Drivers The rapid expansion of the Chinese automotive industry has been largely attributed to the growth in domestic demand for passenger vehicles and international demand for affordable automotive components. The Chinese government also continues to play an important role in encouraging the growth of the industry. 10 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Tier II and Tier III cities emerge as market growth engines In 2010, most multinational automakers have included a focus on Central and Western China markets into their strategies in order to capture future growth opportunities. For example, Volkswagen is ramping up capacity of its Chengdu plant more than doubling its production of Sagitars and Jettas from 150,000 to 350,000. GAIC Toyota (a JV between Guangzhou Automobile Industry Corporation and Toyota) is considering building a small and price-competitive car to target the lower end of the market. The JV also announced plans to expand its dealership network across central and Western China. Central and western China have emerged as the main growth engine of the automotive market. According to CAAM, automobile sales in second and third-tier cities in the first nine months of 2009 surged 41 percent and 51 percent respectively, while sales in the firsttier cities increased by 34 percent. Domestic demand has been fueled by rising incomes and a growing middle class creating a larger consumer culture. The purchase of an automobile is increasingly becoming a symbol of financial success. In the past, the focus has been on coastal cities. Since 2009, tier II and tier III cities have emerged as the strongest market growth engines (see more details on your left) Even though large cities in China are facing serious traffic congestion issues, Chinese have not been deterred about making new automobile purchases. China overtook the U. S. as the world’s number one automotive market in January 2009. The positive developments in the passenger vehicle industry have benefitted both domestic auto manufacturers (which are emerging from their infancy stages and developing competitive capabilities) and major international automotive giants (which have increased investment into China to expand their presence). However, with per capita car ownership was still only 4. 78% in 2009, still far below the 40% average in developed countries. This is a strong sign that domestic demand for passenger vehicles will remain high in years to come. The domestic aftermarket for automotive components is increasingly becoming an important driver of the industry. More than thirteen million cars are sold annually in China which is leading to a growing market for automobile repairs and further stimulating domestic demand for automotive components. International demand for automotive components has also increased as international automotive firms face pressures to reduce costs and take advantage of more economical alternatives abroad. China’s inexpensive labor force presents an attractive option for producing lower-cost automotive components, which were initially primarily for the international aftermarket but are increasingly being used by international OEMs. The majority of leading international automobile OEMs have established global sourcing offices, R&D centers as well as regional headquarters in China. 11 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Finally, the Chinese government continues to play an important role in driving the industry. Post-WTO accession concessions have resulted in lower import tariffs, giving international automotive firms more access to the domestic market. Beijing has actively encouraged the establishment of JV R&D centers with preferential tax policies designed to facilitate the transfer of knowledge and technology. The government has pledged substantial funds towards automotive technology innovation, upgrades, and the R&D of alternative-fuel automobiles and components. They are also setting restrictions and quotas requiring all vehicles that are used for government use to be produced domestically. Industry Consolidation China is determined to restructure its automotive industry, with the hopes of changing the market from many fragmented manufactures to two or three dominant domestic firms. According to the State Council’s regulations released in early September 2010 which called for greater industrial consolidation, the automobile industry was at the top of the list of targeted sectors. The State Council set the goal of reducing the number of major automakers who are responsible for 90% of domestic sales output, from 14 to 10. Under the plan two or three companies would dominate the industry, responsible for producing more than three million vehicles annually, while four others would have annual output capacity of 1. 5 million units. The State Council named the following four groups as potential industry heavyweights, urging them to take advantage of consolidation opportunities: FAW; Dongfeng; China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Shanghai Automotive (Group) Corp (SAIC) Industry ? Headquartered in Shanghai, it is one of the top three auto groups in China. ? Mainly engaged in the manufacturing, sales and R&D for passenger cars, commercial vehicles and auto components. ? The company is ranked 223 of the Fortune 500 companies with consolidated revenue of US$33. 6 billion in 2009. ? Sold over 2. 7 million vehicles in 2009, making up almost 20% of China’s market. ? SAIC invested over 10 billion RMB on new model development in the past 3 years, and will launch hybrid and electric vehicles in 2010 and 2012. ? Acquired Nanjing Automotive (Group) Corp (NAC) in 2007 and became the largest manufacturer in China with a consolidated annual production of 2 million units. ? SAIC has opened branches in the USA, Europe, Hong Kong, Japan and Korea. It has established a long-term cooperation with GM and Volkswagen. SAIC and GM formed Shanghai GM and the Pan Asia Technical Automotive Center (PATAC) in 1997 and launched 8 additional China joint ventures, including SAIC-GM-Wuling, GMAC-SAIC Automotive Finance Company, and General Motors SAIC Investment Limited. ? Shanghai Volkswagen (a joint venture between SAIC and Volkswagen AG) recently announced it will build a fifth assembly plant in Jiangsu. The plant will have an annual production capacity of 300,000 vehicles and start operation by the end of 2012. 12 SAIC and Chang’an. Additionally, it named four regional leaders that it encouraged to consider regional consolidation: Beijing Automobile; Guangzhou Automobile; Cherry and Sinotruck. All of these companies are passenger vehicle manufacturers with the exception of Sinotruck which manufactures heavy-duty trucks (sales of over 125,000 units in 2009). Industry analysts predict that the coming wave of M&As within the automotive sector could see a deal that breaks the USD 1 billion mark, more than doubling the largest deal to date which was the USD 450 million purchase of General Motors’. Nexteer steering components unit by a joint venture established by Beijing’s Tempo Group and the Beijing government. Global Expansion As the leading automotive market, China automakers are accelerating global transformation to increase their presence in the overseas market. Zhejiang Geely Holding Group (one of China’s largest independent carmakers) recently completed its acquisition of Ford Motor’s Volvo brand for USD 1. 5 billion. This is an indication that Chinese automakers have begun to recognize the power of strong brand reputation. Geely’s Volvo bid is the largest takeover in Chinese auto industry and will provide a pattern for Chinese carmakers to expand aboard and acquire companies with a strong reputation. Beiqi Foton, China’s leading commercial automaker followed Geely’s step and announced its global expansion plan. This includes setting up a production base in Russia by 2012 with an annual capacity of 100, 000 vehicles and building five other plants in Brazil, India, Russia, Mexico and Thailand before 2015. New Energy Vehicle: Focus of Future Development High oil prices, air pollution, and China’s commitment to reduce carbon emissions have led the automotive industry to explore alternative energies. The Chinese government has launched policies and incentives to stimulate the development of new energy vehicles, including electric (hybrid, plug-in and battery), fuel cell, and hydrogen-powered. China has identified new energy vehicle as one of the seven emerging strategic industries. Many estimate China will become the world’s largest new energy vehicle market by 2020. The Energy Saving and New Energy Vehicle Development Plan (2011-2020) and the Automotive Industry 12th Five-year Plan (2011-2015), two of the key policies expected to guide the development of new energy vehicle industry, are expected to come out by the end of 2010. The Ministry of Industry and Information Technology (MIIT) is the principal drafter of these plans which are later submitted to the State Council for approval. The plans set the following key targets for the new energy vehicle industry by the end of 2020: ? In the following five years China will aggressively support the development of key components of energy efficient and new energy automobiles. For electric motors and 13 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) ? ? batteries manufacturers, China hopes that three to five â€Å"backbone† enterprises will emerge with their combined market share exceeding 60%. China will produce 5 million new energy vehicles and become the number one producer of new energy vehicles in the world by 2020; Average fuel economy of passenger vehicles will be 4. 5 L/100 kilometers by 2020, the same as European standards. The plans will become the backbone policy for the entire new energy vehicle industry, as it provides direction for public funding, sector focus and industry structuring. Most important to pay attention to is that Chinese companies are likely to reap the most benefits from these structured strategies. To support indigenous innovation, the Chinese government has stated that the two or three key new energy vehicle component manufacturers will most likely be domestic companies, either state-owned or private. 2 REGULATORY OVERVIEW ? Government tariffs on automotive imports are in compliance with WTO rules, but minimum capital barriers still exist for foreign investors. The government has created some incentives to spur R&D partnership, and regulations for foreign distributers have been eased somewhat. The government has plans to implement higher auto emissions standards for new cars in China. So far four regions have implemented â€Å"China IV† emission standards (Beijing, Shanghai, Nanjing and Guangdong Province). The Chinese government views the development of the new energy vehicle industry in China as a top priority and has introduced a wide range of subsidies and policies in its favor. ? ? China’s automotive industry supply chain is very broad with many components such as import and export, manufacturing, environmental protection, technology upgrades and quality control. As such, the industry is regulated by a range of government organs, both at the national and sub-national level. The below chart illustrates the key central level regulators of the automotive industry, and their relevant responsibilities. 14 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) The automotive industry is subject to a number of laws and regulations. The key regulations that are relevant to Israeli companies are addressed below. 2. 1 FOREIGN ACCESS TO THE CHINESE AUTOMOTIVE MARKET Trade The Chinese auto sector is competitive and has a well-developed supply chain. Imports of foreign-made auto parts will likely decrease as OEMs continue to increase their local capacities. At the same time, higher quality Chinese auto parts are increasingly being integrated into the global supply chain. Currently the import tariff for whole vehicles is 25% and for automotive components is 10%. 15 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Investment Foreign businesses must meet a number of requirements in order to access China’s automotive market. The Chinese government has set requirements for minimum registered capital when a firm wants to establish an automotive facility which is RMB 500 million (USD 75 million3) for automobile financing, RMB 500 million (USD 75 million) for engine production and RMB 10 million (USD 1. 5 million) for an R&D center. All projects are subject to government approval. Foreign firms looking to produce passenger vehicles cannot set up WOFEs, but must partner with a local Chinese firm in the form of a JV, with the foreign partner’s stake limited to 50%. On the other hand, China offers fiscal and financial incentives to attract foreign investment in R&D strategies as part of the central government’s strategy to speed up the transfer of international technology. China currently provides tax incentives for enterprises engaged in research and development activities, allowing R&D enterprises to deduct 50% of R&D expenses. Suppliers are most often required to localize or invest in China and Israeli companies interested in tapping into the vast Chinese market will need to consider establishing a local presence. IPR Issues in China While the protection of intellectual property rights (IPR) remains a contentious issue for companies in China, the country’s laws and regulations have progressed considerably in recent years, with the large majority now compliant with requirements of the WTO’s TRIPS agreement. The main challenge surrounding IPR protection in China is the lack of effective enforcement of the existing regulations. Enforcement issues arise from a range of root causes, including the relatively recent introduction of IPR legislation and concept of intellectual property in general, the absence of a fully independent judicial system, and provincial officials’ often protective attitude towards local job creating counterfeiting industries. While most foreign companies considering business operations in China may have to accept an unavoidable degree of IPR infringement, there are nevertheless a number of actions that a company can take in order to limit their IPR-related risk: ? ? ? Ensure to register your patents, copyrights, or trademarks with the relevant bureaus Ensure that your trade or other.

Insigh Paper “Story of Earth” Essay

The Earth is said to be â€Å"the only home to life in the universe† but five billion years ago there was no signal of the planet that we can call it home. Instead there was only a new star and a cloud of dust in our solar system. Over billions of years, a series of violent changes led to the formation of our world and, eventually, the creation of life. As stated in the movie 4500 million years ago the earth looks like hell than home. Also, we can definitely see it as a â€Å"boiling ball of liquid rock or an endless ocean of lava† because the sun was only 22,000 kilometers away from our planet. As time goes by, Meteorite starts showering the planet and brings water 3, 900 million years ago. Then, 3,800 million years ago the molten rocks burst in the earth’s crust and rises up which forms a volcanic islands which may eventually became the first continent. Might as in this year, it begins to make the earth a planet that we can live but the atmosphere was toxic and meteorite dissolves and transport carbon, proteins, amino acids from space to the ocean. Microscopic organisms are also found and the first sign of life is called the single cell bacteria which is the chemicals under water. Furthermore, 3,500 million years ago Astrometalites was also found it is also called as â€Å"the most important element† because it helps in the photosynthesis process. Afterwards, 1,500 million years ago the earth is no longer a living planet. There were no complex life, plant, dinosaur and even humans. At this time, the earth was also called as the blue ball that has scattered volcanic islands. Then, the oldest known supercontinent was introduced it was called Rodinia. It was formed about 1100 million years ago and broke apart 750 million years ago. Also, in this year, the day was counted only 18 hours. 750 million years ago, the heat in the earth’s crust was said the reason why the supercontinent split into pieces. About 650 million years ago, it was the longest and coldest period of ice age ever to grief the earth and about 3 kilometers of ice was suppressing the earth so that the scientists call the earth as a â€Å"snow ball†. As the time passed by, the ice is also melted. And 540 million years ago, the primitive bacteria evolve into plants and something else. Trilobites are distance relatives of insects and even scorpions. Nomolicarius(sir I’m not so sure of the spelling) was also found in that era. It was 60 meters long and has a large eyes, sharp teeth and grasping limbs. Picaia(sir I’m not so sure of the spelling) a organism that has a 5 centimeters long and may also be evolving into spine. As conclusion, the earth created by dust and rocks at the universe. Also it was surpass different cycle. As the time passed by, a boiling ball of rock with an endless ocean of lava. Then it became a blue ball and finally an earth surrounded by ice.

Chariots of Fire Essay

Answer: In the film Chariots of Fire, Directed by Hugh Hudson, two major film techniques which have been used are slow motion and close up shots. These Production techniques reinforce the character and feelings of Eric Liddell and Harold Abrahams as they prepare and run in the 1924 Paris Olympic Games. The Close Up shots give us an insight into Eric’s Character and reactions, specifically when he makes the decision not to run on the Sabbath. Slow motion tells us of the nervousness and loneliness of Harold as he waits for the races to start, and communicates the feeling of tension to the viewers . The film techniques in Chariots of Fire enhance the characters personalities and form a link with the theme and major events in the story line. Close up shots are used in Chariots of Fire to portray the honesty and integrity of Eric Liddell, â€Å"the Flying Scotsman†, and his personality and approach to the Olympic Games. When Eric arrived in Paris he was confronted with the problem of running his 100m heats on the Sabbath. Eric decides that he won’t run on the Sabbath because, â€Å"the Sabbath is Gods and I for one intend to keep it that way†, â€Å"I won’t run and that’s final†. The close up shots showed us Eric’s reactions and emotions which exposed how Eric was a transparent character whose life was governed by faith, honesty and loyalty to God. Hugh Hudson has used slow motion during the Olympic races to portray the honesty and integrity of Harold Abraham and Eric Liddell. The slow motion technique is also used to portray the loneliness and solitary feeling before races. At the start of Harold’s race it shows his determination to win, â€Å"If I can’t win, I won’t run†. Harold was a Jew and was determined to prove that he could run, it was his weapon against the rising of Anti-Semitism before World War Two. The slow motion in Eric’s race shows the viewers the different style of running he has and how each movement counts towards the final victory. Eric said â€Å"God made me fast, and when I run I feel his pleasure†; the slow motion shows how he loves running, but reminds us of his firm faith and trust in God which will never be severed. Slow motion shots showed me the feelings of the runners during their races and deepened the sense of nervousness, but determination to run the race to victory in both of the main characters. The two production techniques close up shots and slow motion, enhance the link between the characters and the theme of faith and endurance, the understanding of character feelings and determination made the film worthwhile because you can sense the tenseness of the character and their yearning for victory as the both had â€Å"something personal to prove†. The production techniques helped me to understand the characters faith and the strength of their faith which governed their lives, never to decrease but continually increase and inspire others to run a straight race morally, have ambition and determination, this theme is especially prominent as we are shown how Eric’s faith in God was his strength when running and pathway to victory. Two major production techniques in Chariots of Fire, used by Hugh Hudson were close up and slow motion, these two techniques enhanced my understanding of the main characters, Eric Liddell and Harold Abrahams. The techniques portrayed character feelings, formation and the result of crucial decision making. This film is worthwhile to watch because not only because of the way the director has used techniques to make it easier to understand the lives of the two Olympic heroes and inspire future generations, but to get an insight of how these two runners achieved their goal and their personal reasons for pursuing victory.

Advice on Enrolling at the Florida State College at Jacsonville Essay

Advice on Enrolling at the Florida State College at Jacsonville - Essay Example Many students choose FSCJ over other schools because of the personal approach that FSCJ has, its friendly environment, and the affordable payment schemes (â€Å"Florida State College at Jacsonville Reviews,† 20110). FSCJ accommodates students under the Federal Student Aid or those who intend to seek assistance from the government to finance their college studies. To apply, students need to secure their Free Application for Federal Student Aid (FAFSA), which is available in the FAFSA Web sites. The easiest way to apply for federal student aid is to apply online. Paper applications are also accepted but they take more time to process than online applications. The first thing to do is to register and secure a pin number. To be eligible, applicants should demonstrate financial incapability to support their study, be U.S. citizens, enroll in an eligible program, and finished high school. Additionally, male applicants 18–25 years old should register for a selected service. Wi th regard to the requirements, applicants should secure documents such as high school diploma, tax certificate, and so on. Upon completion of the requirements, applicants may then fill out the application form. Next, they should review the Student Aid Report in order to know other matters pertinent to their application, including how to follow up their application. Having decided on the course to take at FSCJ, the applicant should file their application for admission with the FSCJ while still waiting for their federal student aid application results. Similar to FAFSA, the FSCJ Web site offers online applications but the school likewise accepts hand-carried or mailed applications. Applicants are required to take placement tests such as the ACT, FCAT, CPT, PERT, and SAT on a case by case basis. These placement tests determine the applicants’ capabilities in the subject areas to help them decide what courses to take. and in what professions they are likely excel in. Applicants w ho successfully meet the initial requirements may then complete the school orientation, which basically serves as the guide for new students. This program is designed to inform students of the rules, physical structure, and policies of the school. After completion of the orientation program, students will undergo first-term advising. These include understanding the placement results, knowing what classes to take, and familiarizing oneself with the registration process. Through this program, FSCJ ensures all new students are aware of the school policies and that they feel free to ask for assistance from the advisor if the needs arise. FSCJ takes advising and counseling as a serious commitment. Curriculum advising is done to assist students in achieving their academic goals, whereas counseling works to guide students in their personal concerns such as dealing with traumas or crises, coping with stress and problems, and surviving difficulties brought about by unplanned pregnancy, famil y conflict, and so on. Students may avail of advising and counseling support by calling in the Counseling/Advising office and securing an appointment. To ensure taking the right steps in their studies, students should are assigned to an academic advisor who will advise them what classes to take especially for the first term. Students should know their advisor’s name and schedule, and should visit their advisors not only during enrollment. A strong rapport is encouraged between advisors and advisees especially for those who are working, because they need to inform their advisor of their own work schedules. In addition, when talking with the advisor, students

The Libyan Civil War Essay Example | Topics and Well Written Essays - 2000 words

The Libyan Civil War - Essay Example Libya became an independent state with the enactment of its constitution in 1949 and the crowning of Muhammad Idris as Libya’s first king two years later. The regime of Idris dissolved in 1969 when Col. Muammar Qaddafi suddenly appropriated power-abolishing monarchy by changing the constitution with the establishment of Libyan Arab Republic (Joy, 2011, p.1). A Muslim Nasserite, Qaddafi held strong feelings against the western countries and started various anti west policies such as expelling the western military personnel and Libya being a prime resource of oil Qaddafi cut loose dealings and imposed several restrictions with the western world regarding the dealings in oil industry (Ogunbadejo, 1983). Qaddafi participated in the civil wars in Chad and there was an attempted assassination on him by the US troops. Al Qaida also believed that Qaddafi followed anti Islamic law and tensions aroused in Libya followed by civil wars. The Libyan uprising that started in February 2011 ap pears to be the most serious challenge faced by Qaddafi in his 42-year-old rule. Thus, it is an intrastate conflict which was internationalized owing to the issues concerned and later peace making attempts (Anderson, 1984; Thackrah, 2008) Social, political, economic and socio-cultural context The main centre of conflict culminated in the city of Benghazi located in the eastern Cyrenaican region of Libya following anti-establishment movements. In the past, also there have been conflicts in eastern Libya, which was also the center of rebellions against Ottoman and Italian rule many times. From Benghazi, the revolt spread like fire while Qaddafi ordered his troops to suppress the rebellion and he announced the intention to â€Å"fight to the last drop of blood† and also further added that the rebels were â€Å"nothing more than Al Qaeda extremists, addled by hallucinogens slipped into their milk and Nescafà ©Ã¢â‚¬ e† (Joy, April, 2011 p.2). Ruler Qaddafi followed an anti American policy, but he contributed greatly for the development of the people of Libya. For instance, he built a magnificent irrigation system in this arid desert land of Libya with an estimated budget of around $40 billion dollars, which provided ample water supply in this arid land. He was also successful in alleviating poverty and helped people attain sustainable standards of living in contrast with the subhuman conditions prevailing in its sub Saharan counterparts like Nigeria, Angola, Gabon, Equatorial Guinea. However, the main agenda behind the culmination of the conflict was that the people of Libya wanted change and were rigorously desperate for achieving fundamental freedom rather than economic or social freedom. Qaddafi himself overthrew the monarchy rule of King Idris in 1969 and established democracy that he failed to apply in his 42-year rule in the country, which he executed like his private business, and this became the centre point for the civil war in Libya (The Libyan conflict in perspective, March 7, 2011). Causes of conflict: Structural causes of conflict and Qaddafis’ domination The root cause of the conflict in Libya can be attributed to the negligence of the civil rights and

The Case Against Evolution Essay Example | Topics and Well Written Essays - 500 words

The Case Against Evolution - Essay Example In order to understand the dangers of teaching evolution, it is first necessary to define the term. Evolution refers to the attempt to establish the origins of life on Earth. This approach is based upon the scientific and naturalistic theories of narrow-minded scientists. The approach is most often espoused by astrophysicists, geologists and biologists (Creation-Evolution Controversy). The scientific method is the sole method of analysis. Morals and the supernatural are irrelevant. Evolutionists argue that the universe was created instantaneously from nothing, that life forms developed slowly, and that life as we know it today is the result of mutations and adaptation to our environment. It is an extraordinarily insular analysis that excludes many other possibilities. It is an exclusionary philosophy. That is dangerous. As an initial matter, it is well-established that evolution is an imperfect science. Although it can be established, through fossils, that mutations have occurred, it cannot be established with any certainty that we originated from a Big Bang. Nor can it be established with any certainty that the Big Bang actually occurred or that there was nothing of substantial existence prior to the Big Bang. These theories are, at best, speculative.

Price Strategy Assignment Example | Topics and Well Written Essays - 500 words

Price Strategy - Assignment Example For success in "pricing strategy," the marketing manager must understand how to heighten the concept by understanding the customers need the clarity on the market and understand the willingness to pay by the customers (Tanner Jr. & Raymond). Before a business determines the pricing strategy, it should first establish its objectives towards pricing and analyze the factors that may influence the optimum price placed on the product. Once the manager establishes the objectives and the factors, then the pricing strategy will focus on achieving the objectives (Tanner Jr. & Raymond). In many cases, the life cycle, or the sage as to which the business is currently at determined how the strategy will be, this is because products often have different stages when it comes to how it will hit the markets. The "Mexican Taco Restaurant "needs to determine the break-even point as per its pricing strategy, for this to be achieved the break-even analysis must be computed. The restaurants average order size of its customers is 7$ which is also the average order amount, the variable cost per order is 3$ while the fixed costs are 2000$ building lease, 500$ electricity and 3100$ for labor. For the "Mexican taco restaurant to reach" the break-even point the manager should adapt to new strategies. The first strategy is determining the price sensitivity, how sensitive is the price set for the product, is it high, or is its low. In determining the price sensitivity the marketing manager must understand that the higher the price the lower the volume, this strategy depend on how sensitive customers are in cases of price fluctuations, in cases where the customers are sensitive to higher prices then the marketing manager should lower the price so as to maintain the customers and also target new customers, this in turn ensures that the company meets its breakeven

Concrete Construction Assignment Example | Topics and Well Written Essays - 500 words

Concrete Construction - Assignment Example The joint if any, shall be carefully handled as the poor joining in the concrete process would result in weak spots which would become the locations of future problems in the channel. In order to ensure the flow of water with very low energy loss it is necessary to maintain the channel geometry in the construction. The machinery choice is also a very important component in the construction process. With a proper attachment for levelling and material lining activities the channel construction could be undertaken on a continuous mode (US patent,, 1984). This would help to maintain the required slope and the roughness condition the important criteria that influences the velocity of flow. The concrete mix design shall be prepared as per the design specification and if the construction need to be carried out in adverse condition addition of admixtures is necessary to facilitate the retention of properties of prepared concrete . Finally, proper curing of the concrete works is also required to have the better durability of the construction process. The foot bridge construction requires more care as it is indented to carry moving loads with supports given only at the locations as specified in the design document. The major components of the foot bridge , constructed over the diversion channel , are support piers at the ends and the bridge slab.

Macro and micro economics Essay Example | Topics and Well Written Essays - 1500 words

Macro and micro economics - Essay Example Though, this is just a rough estimation. The utility comparison has never been accurately summarized, each writer puts down their own views. All the views are somehow correct because they are an improved notion of the first theory. So it is correct to say, Ann’s utility function is lower than peter’s. 2. Central banks have started raising interest rates as many economies picked up in 2010, to combat inflation. Explain the (opposite) effects of higher interest rates and lower inflation on the budget set and welfare of house owners with a mortgage, and assess the overall effect on them. Interest rate is the amount which is charged to the borrower by the lender and it is usually expressed as a percentage. The rate changes due to inflation. On the other hand, inflation is the general rise in the prices level of services and goods over duration of time. By increasing the interest rates, the central banks make it harder for the commercial banks to borrow money. By so doing th e money in circulating reduces hence reducing the inflation. The inverse of this is the central bank reducing its lending rates and making it possible for more banks to borrow money. This will translate to people borrow more money thus increased purchasing power. To people with mortgages it will be easier for them pay to the bank. The overall effect is that the living standards of people will improve since there enough money and its value will be okay. 3- Economics Comprehension 1 Insurance is big business in the UK. So is internet gambling? How might we explain this paradox? (Can it be explained without giving up the assumption that people’s preferences obey the von Neumann-Morgenstern axioms?) Insurance is a contract where premium is paid to the insurer to cover the occurrence a specific risk. Internet gambling includes any kind of activities that are transacted through the internet which involve placing of bets or a wager. The Von- Neumann-Morgenstern’s theory of ut ility has many assumption is one of them being continuity. This is shown by a decision maker who prefers an outcome A to other outcomes B, C. in the interval of unit a number p makes the decision maker indifferent between getting outcome B and yielding A which has a probability P, probability 1-p for C in a lottery. In the UK, insurance being a big business attracts a lot of people. 4. In modern societies, not just simple goods but also uncertain prospects (such as insurance policies) are traded, sold and bought. Show how this phenomenon can be explained by differences in risk attitude between economic agents and show how Pareto-improvements can thereby be achieved. In the modern world, different methods have been established due to high rise of risks. Insurance also involves risks making its agents involve a fee charging the users of the service involving on the risks insured. An agreement between the inured and the insurer known as the policy holder determines the claims which the insurer is legally required to pay. Risk management is important in insurance since insurance companies take over risks from customers. Risk attitude affects projects. This is because of differences in people’s attitude to risk cause conflict, and delay. This can lead to poor management of risks. Loss in insurance is depending on two variables: the number of losses that will occur in a specified period and the amount of losses given that a loss has occurred. The risk attitude depends on its

Theories of Learning Essay Example for Free

Theories of Learning Essay Piaget`s Cognitive Theory of Learning Piaget`s cognitive theory of learning has remained popular among educators and has greatly influenced curriculum development.  Ã‚   This is for the reason that traditional schooling gives utmost importance to the development of the learner’s cognitive faculties.   This theory was the culmination of his systemic longitudinal research on children (some of whom were his own).   Piaget`s theory describes what may be expected of children at different stages of intellectual development. According to Piaget, all persons go through a sequence of four distinct stages of intellectual development from birth to maturity.    Although every normal child passes through those stages, the ages at which some children attain each stage may vary.   The four stages are (1) the sensorimotor stage, (2) the preoperational stage, (3) concrete operations stage, and (4) the formal operations stage (Piaget, 1977).   Each stage is characterized by the ability to perform particular major cognitive tasks. Piaget`s approach to learning is a readiness approach.   Readiness approaches in developmental psychology emphasize that children cannot learn something until maturation gives them certain prerequisites.   The ability to learn any cognitive content is always related to their state of intellectual development and ways of thinking as a result of this integration. The cognitive theories of learning allege that individuals differ in their intellectual abilities because of the developmental stage they are in and their interaction with the environment.   These theories further assert that cognitive growth and development are characterized by steady progression (i.e., from the simplest to the most complex). Piaget`s theory of cognitive development has guided the sequencing of learning content (knowledge, skills, processes) from the concrete to the abstract, and the selection of evaluation tools.   It has also facilitated the realistic setting of educational objectives and intended learning outcomes. Skinner`s Behavioral Theory of Learning   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Skinner (1953) developed the method of conditioning through what has been termed operant or instrumental conditioning. Operant conditioning involves voluntary behavior emitted by the learner which may be reinforced by its consequence.   In operant conditioning, whether a response occurs in the future depends upon the nature of the contingency.   If a response makes life better for the individual, it will likely occur in the future.   If it makes life worse, it will likely not occur again in the future.   Thus, operant conditioning makes use of reinforcements.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Anything that increases the likelihood that a behavior will be repeated is referred to by the behaviorists as reinforcement.   It is very important to note that the definition says nothing about whether the student â€Å"likes† or â€Å"dislikes† the reinforcement; whether it is deliberately given or not, or whether the behavior in question is the one desired. In operant conditioning, when a student responds with a behavior that is close to what is expected by the teacher, the latter delivers a positive reinforcer.   Positive reinforcers motivate the learner to repeat the behavior with increased frequency, duration, and intensity.   A reinforcer can be anything that the learner may perceive as reinforcing (e.g. grades, oral/written commendation).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Negative reinforcement on the other hand, is the process by which a response that leads to the removal of an aversive event increases that response.  Ã‚   Further, behavior modification is a process of shaping a person’s behavior through the acquisition of new operants through a series of reinforcement and sequencing of desired responses.   It involves changing behavior in a deliberate and predetermined way by reinforcing those responses that are in the desired directions. A well-known behaviorist, B.F. Skinner, argues from an operant conditioning perspective that students must actively respond if they are to learn.   Cognitivists share that view with Skinner; however, they emphasize mental activity rather than physical activity.   According to the Cognitivists, if students control their own cognitive process, it is ultimately the students themselves who decide what information will be learned and how. A central component of Piaget`s developmental theory of learning and thinking is that both involve the participation of the learner.   Knowledge is not merely transmitted verbally but must be constructed and reconstructed by the learner.   Piaget believes that for a child to know and construct knowledge of the world, s/he must act on objects. Learners must be active; they are not vessels to be filled with facts.   Hence, a Piagetian curriculum emphasizes a child-centered educational philosophy and active discovery learning environments. Cognitive and behavioral theories of learning also serve as a psychological foundation of the curriculum.   Following are some ways each theory can influence the curriculum development process: Cognitive theory Learning experiences will be most effective if they are adapted to the normal growth of the learners; needs, capacities, and interests of the learner. Learning experiences must be â€Å"designed to match assessment of age levels on which certain processes of thought can occur†(Taba in Ornstein Hunkins, 1988).   Learning    experiences for different students should be adapted to their stage of cognitive development. Behavioral theory A motivated learner learns more readily than one who is not. Thee is no substitute for repetitive practice in the learning of skills. Information about the nature of good performance and knowledge of mistakes and success   Ã‚  Ã‚  Ã‚   aid learning. Meaningful tasks and materials are more readily learned than nonsense materials and those not understood by the learner. Active participation is preferable for passive reception. Learning has application and can be transferred to other situations. Since Piagetian curriculum emphasizes a child-centered educational philosophy and active discovery learning environments, instruction must be individualized as much as possible and children are given opportunities to communicate with one another, to argue and debate issues.  Ã‚  Ã‚  Ã‚  Ã‚   Further, the following are the four general principles of how the cognitive learning theory might influence the instructional design process: If learning depends on how information is mentally processed, then students` cognitive process should be a major concern of educators.   Students` learning difficulties can often be attributed to ineffective or inappropriate cognitive processes.   For example, disabled children process information less effectively than nondisabled children.   Teachers must become aware, not only of what students learn but also how they attempt to learn it. Educators must consider students` level of cognitive development when planning topics and methods of instruction.   For example, explanations based on concrete operational logic are unlikely to be effective ways of presenting ideas to pre-operational kindergarten.   Concrete operational elementary school children have difficulty understanding abstract ideas that do not tie up with their own experiences.   These students will learn more effectively if the same information is presented through concrete experiences prior to presenting abstract material. Students organize the information they learn. So teachers can help students learn by presenting organized information and by helping students see how one thing relates to   another. New information is most easily acquired when people can associate it with things they have learned.   Therefore, teachers should help students learn by showing them how new ideas relate to old ones.   When students are unable to relate new information to anything familiar, learning is likely to be slow and ineffective. Theories of learning, such as the cognitive and behavioral theories serve as a psychological basis f the curriculum. Hence, this great mass of theoretical and empirical information available to curriculum decision makers regarding the nature of the learner and how learning takes place.   Answers to questions like:   â€Å"What are the characteristics, capabilities, needs, and interests of children and the youth in the different stages of their development?†Ã‚   provide the psychological foundation of a curriculum, and serve to guide selection of curriculum objectives, content, learning experiences, evaluation scheme, and even the length of class sessions. For example, calculus has to wait until college (and only for those who are so interested in mathematics that they pursue specialized training in the discipline).   Preparatory school mathematics is limited to the basic notions of counting and the relationships of numerals (bigger/smaller0 and some very basic operations with the use of concrete objects, such as beads, blocks, and sticks. Essay tests are not given to preschool pupils, and so are test items that measure complex thought processes and require long attention span.   The length of class sessions per subject or course range from a few minutes on the nursery level to a couple of hours in the graduate school.   Long lectures will simply not work with the very young learners; neither will jumping, hopping, and running appeal to graduate students who might already be suffering from rheumatism, arthritis, or heart problems. The learning theories, principles, and assumptions have influenced curriculum development, most especially in the choice of curriculum content and learning experiences.   Just like the different educational philosophies, the different theories of learning have their respective strengths and limitations.   Curriculum developers have to make their own decisions as to which views of learning they will consider in planning the curriculum. References Piaget, J. (1977).   The development of thought:   Equilibrium of cognitive structures.   New York:   Viking. Skinner, B.F. (1953).   Science and human behaviour.   New York: Free Press. Taba, H. (1988). Curriculum development theory and practice.   New York:   Harcourts Brace World.

Socio Cultural Environment Line With Its Sustainability Drive Marketing Essay

Socio Cultural Environment Line With Its Sustainability Drive Marketing Essay Abstract This is a case study on Unilever business strategy. It would seek to analyze the strategic position of the group with the help of SWOT, PEST and BCG Matrix models. The paper would critically assess the competitive situation of the company in relation to other major product based companies in the market and companys financial performance and key issues. In the end it would submit few recommendations. The case study is my first effort towards analyzing the business strategy of Unilever and its success in the market. Since Unilever is so famous and its products so widely used all over the world, it is of great interest for me to carry out a case study on its business strategy. The paper would greatly help me and the readers to understand some key issues concerning Unilever in todays business world. Introduction 2.1. About Unilever Unilever is a multi-national corporation, formed of Anglo-Dutch parentage that owns many of the worlds consumer product brands in foods, beverages, cleaning agents and personal care products. Unilever employs nearly 180,000 people and had worldwide revenue of almost à ¢Ã¢â‚¬Å¡Ã‚ ¬40 billion in 2005. Unilever is a dual-listed company consisting of Unilever NV in Rotterdam, Netherlands and Unilever PLC in London, England. This arrangement is similar to that of Reed Elsevier and that of Royal Dutch Shell prior to their unified structure. Both Unilever companies have the same directors and effectively operate as a single business. The current non-executive Chairman of Unilever N.V. and PLC is Michael Treschow while P Mr Paul Polman is the Group Chief Executive. The company is widely listed on the worlds stock exchanges (About Unilever: 2008). 2.2. History Unilever was founded in 1930 through merger by the British, Lever Brother; and the Dutch, Margarine Unie; now Unilever PLC in London, U.K and Unilever N.V in Rotterdam, Netherlands respectively. In 1872 before the merger, Jurgens and Van den Bergh, the Dutch, built factory in Netherlands for the production of Margarine made from milk and fact. In 1927, they formed Margarine Unie (margarine Union) together with two European Businesses, Centre and Schicht. Lever Co on the other hand was founded in 1884 by British William Hesketh Lever and his brother, James, and was producing soap Sunlight soap for people in England especially for women. William Lever wrote: to make cleanliness commonplace; to lessen work for women; to foster health and contribute to personal attractiveness, that life may be more enjoyable and rewarding for the people who use our products. In 1890, Lever Co become limited company known as Lever Brothers (Uhomhoabhi, Fredrick Albert: 2008) Unilever, Unilever N.V and Unilever PLC comprise Unilever group. Both companies have the same directors. Its annual turnover in 2005 was à ¢Ã¢â‚¬Å¡Ã‚ ¬39.672 billion and employs206, 000 employees around the world.1 Unilever brands consist of Food, Beverage, and Home and Personal Care. Some of these products are Knorr, Breyers and Magnum, Lipton, Omo (detergent) etc. Knorr has the biggest sales of à ¢Ã¢â‚¬Å¡Ã‚ ¬2.3 billon in 2005.In May 2007 it became the first tea company to commit to sourcing all its tea in a sustainable manner, asking the Rainforest Alliance, an international environmental NGO, to start certifying its tea estates in East Africa. It declared its aim to have all Lipton Yellow Label and PG Tips tea bags sold in Western Europe certified by 2010, followed by all Lipton tea bags globally by 2015. Covalence, an ethical reputation ranking agency, placed Unilever at the top of its ranking based on positive versus negative news coverage for 2007. In 2008 Unilever was honor ed at the 59th Annual Technology Engineering Emmy Awards for Outstanding Achievement in Advanced Media Technology for Creation and Distribution of Interactive Commercial Advertising Delivered through Digital Set Top Boxes for its program Axe. Strategic position of the company The strategic position of the company shall be analyzed through following techniques: 3.1. S.W.O.T Analysis The overall evaluation of a companys strengths, weaknesses, opportunities, and threats is called SWOT analysis. In general, a business unit has to monitor key macro environment forces (demographic-economic, technological, political-legal, and social-cultural) and significant microenvironment actors (customers, competitors, distributors, suppliers) that affect its ability to earn profits. The business unit should set up a marketing intelligence system to track tends and important developments. For each trend or development, management needs to identify the associated opportunities and threats. Strengths Recognized as a global company. Strong brand portfolio. Strong relationship with retailers Economies of scale. Corporate social behavior Variety of products Weaknesses Dual leadership Limited costumer connection Inefficient management of brands Inability to maximize acquisitions Lack of control in the market Reduced spending on RD Opportunities Changing consumer preferences Increasing need for healthy products Low income consumers Rapid increase in population Threats Decrease in revenue Strong competition(PG) Tougher business climate Exchange rates Economic crisis Increase in production and labor cost 3.2. BCG Matrix Stars(High market growth share) Lux Sunsilk Walls ice cream Fair lovely Rafhan Energile AXE Vasline PG tips Dogs(Low market growth share) Wheel detergent Supreme tea Lifebuoy shampoo Cash cows(Low growth High share) Surf excel Ponds Lipton Close up Blue band Dove soap Rexona Knorr Question marks(High growth low share) Clear shampoo Rin Comfort Ben Jerrys Persil 3.3. PESTEL Analysis 3.3.1. Political/Legal environment Unilever, as a matter of policy, set a standard as to the way of tackling political issues. Unilever has its tactical way of handling political issues. First, in the 1960s, many countries began to nationalize foreign firms which also affected Unilever. This was a call for local equity participation in foreign firms. Thus, so many companies were subject to local control on prices, imports, employment of expatriates and so on. As a result of the adverse effect of nationalization policy, in the 1970, many US companies e.g. IBM and coca cola left India. There was fear by foreign companies uncertain issues such as knowledge leakage, loss of trademark etc. this was also hazardous for Unilever as its control over operation in the market was reduced. For example UAC, a subsidiary of Unilever, whose operation was in many African countries (Cameroon, Ghana, Ivory Coast, Nigeria, etc.), was focused on as its profit margin and rate of easy remittance of profit to its Anglo-Dutch parent was enorm ous. Nationalizing UA Chambered Unilevers control over the market where UAC operates. However, Unilever uses its experience and goodwill to make contacts in many countries to bargain with government so as to modify their regulations. In central and south America, Unilever only engaged in lobbying rather than active politicking. In other words, Unilever never get involved in sponsoring political parties. Today, Unilever has gained political ground using its tactical strategy and experience. Unilever is a member of many organizations all over the world. The aim is to create favorable business environment, and also facilitate corporate reputation management. 3.3.2. Economic environment Unilever market environment is becoming highly competitive especially in the Western Europe. Procter Gamble (PG) is one of the major competitors in the European market. More so, there are so many discounters in the European market resulting from EU free trade policy. This has had adverse effect on Unilevers profit potentials. Retailers are pressurizing FMCG producers to reduce prices of their products. Consumers on the other hand would not want to buy expensive product or brands due to current economic tide. Competition in EU has grown so strong that Unilever is facing difficulties in places like France, Netherlands. In the developing countries and the emerging economies (Asia and Africa), where there are political instability, Unilever has adopted its company strategy to ensure that its profitability drive is sustained. Some Products are packaged in small size for low or regular income earner, for affordability. In some developing countries, Nigeria to be precise, there was uncertainty about duties to be paid by companies due to inflation and fluctuation of currency. The effect on Unilever was a decrease in profit in 2005 compared to 2004, though there was increase in turnover. 3.3.3. Socio-cultural environment Unilever has continued to maintain momentum in its socio-cultural environment in line with its sustainability drive. The company is working relentlessly to bring improve hygiene and better nutrition to people in Asia, Africa and Latin America, especially the poor and obesity. Over 30% of Africa population lives on less than $1 per day. By this, Unilever strengthens it goodwill. However, the low literacy of consumers affects marketing vehicles such as advertisement in print media. This therefore requires employment of more resources, for instance to enhance face-to-face communication. Besides, Unilever employs about 100 nationalities. It ensures that diversity works for everybody both employees and consumer alike. In order to achieve and ensure that diversity works amongst employees, Unilever employed the strategy of so as to manage and leverage diversity. Unilever is focused on building an exclusive culture and embracing difference, which resulted in high demand of its products in th e developing and emerging markets. 3.3.4. Technological environment Right in the 1930s, Unilever continue to diversify. Business continue to boom in the1950s with new technology being invented to boast production and enhance quality products for consumer, competitors improving their products using new inventions. Unilever did not give up its effort in RD. Since 2000, Unilever has been spending on IT to improve its business especially in the area of e-business so as to improve brands communication and market through internet, making transaction simple along chain. Today, Unilever is trying to minimize cost through IT efficiencies at global level. In addition, Unilever Technology Venture works in collaboration with Unilever RD group to help Unilever meet consumers needs. Area of concern is genomics, advanced bioscience, advanced materials science and nanotechnology. In 2003, Unilever installed and commissioned pallet live storage system from Bitto Storage System Ltd. This was meant to store its frozen products. The facilities include: pallet live storage systems, carton live storage systems, pallet racking, boltless shelving, plastic bins and containers, wide span and heavy load shelving, cantilever racking, and multi-tier shelving systems. 3.3.5. Environment In recognition of local legislation and to keep its corporate responsibilities, Unilever designed management system. Unilever has respect for consumer health and safety. This policy is to ensure all Unilever operators establish a formal environmental management system. Training programs are being arranged in various regions/business groups to ensure compliance with the company Standard for Occupational Health and Safety Environmental Care (SHE). This framework is based on the ISO 14001 management standard. Unilever had also worked in conjunction with government of countries of its operation as regards waste management. For instance in Ghana, 2004, over 21 tones of wastes were supplied to small and medium size recycling businesses in Accra, Ghana, by Unilever to reduce the amount of plastic waste sent to landfill. Financial performance Underlying sales growth of 7.4% was partly offset by movements in exchange rates (4.8%) and the net impact of disposals and acquisitions (1.4%). Including these effects, turnover was à ¢Ã¢â‚¬Å¡Ã‚ ¬40,523 million for the full year, increasing by 0.8%. Operating profit increased by à ¢Ã¢â‚¬Å¡Ã‚ ¬1,922 million to à ¢Ã¢â‚¬Å¡Ã‚ ¬7,167 million, including a higher level of profits on business disposals. These generated a pre-tax profit of à ¢Ã¢â‚¬Å¡Ã‚ ¬2,190 million in 2008, compared with à ¢Ã¢â‚¬Å¡Ã‚ ¬297 million in 2007. Net profit was 28% higher than last year, boosted by the profits on disposals. Earnings per share were à ¢Ã¢â‚¬Å¡Ã‚ ¬1.79, including a net gain of à ¢Ã¢â‚¬Å¡Ã‚ ¬0.36 from RDIs. This compared with à ¢Ã¢â‚¬Å¡Ã‚ ¬1.35 last year, which included a net loss of à ¢Ã¢â‚¬Å¡Ã‚ ¬0.07 from RDIs.Net cash flow from operations at à ¢Ã¢â‚¬Å¡Ã‚ ¬3.9 billion was in line with last year. Total cash returns to shareholders in the year wereà ¢Ã¢â‚¬Å¡Ã‚ ¬3.6 billion, made up of à ¢Ã¢â‚¬Å¡Ã‚ ¬2.1 billion of dividends and à ¢Ã¢â‚¬Å¡Ã‚ ¬1.5 billion of share buy-backs. 4.1. Consolidated income statement (Highlights for the year ended 31 December) à ¢Ã¢â‚¬Å¡Ã‚ ¬ Million 2008 2007 Turnover 40 523 40 187 Operating profit 7 167 5 245 Profit before taxation 7 129 5 184 Taxation (1 844) (1 128) Net profit from continuing operations 5 285 4 056 Net profit 5 285 4 136 Combined earnings per share from total operations à ¢Ã¢â‚¬Å¡Ã‚ ¬1.79 à ¢Ã¢â‚¬Å¡Ã‚ ¬1.35 4.2. Consolidated balance sheet (As at 31 December) à ¢Ã¢â‚¬Å¡Ã‚ ¬ Million 2008 2007 Non-current assets 24 967 27 374 Current assets 11 175 9 928 Current liabilities (13 800) (13 559) Total assets less current liabilities 22 342 23 743 Non-current liabilities 11 970 10 924 Shareholders equity 9 948 12 387 Minority interests 424 432 Total capital employed 22 342 23 743 4.3. Consolidated cash flow statement (For the year ended 31 December) à ¢Ã¢â‚¬Å¡Ã‚ ¬ Million 2008 2007 Net cash flow from operating activities 3 871 3 876 Net cash flow from/ (used in) investing activities 1 415 (623) Net cash flow from/ (used in) financing activities (3 130) (3 009) Net increase/ (decrease) in cash and cash equivalents 2 156 244 Cash and cash equivalents at 1 January 901 710 Effect of foreign exchange rate changes (697) (53) Cash and cash equivalents at 31 December 2 360 901 4.4. Financial Objectives Unilevers ambition is to top Third Total Shareholder Return, over a 3 year rolling period out of peer group of 20 other companies. Its outlook for year 2010 is: à ¢Ã¢â€š ¬Ã‚ ¢ Un-geared free cash flow in the period 2005-2010 to be à ¢Ã¢â‚¬Å¡Ã‚ ¬25-30bn. à ¢Ã¢â€š ¬Ã‚ ¢ Improvement in Return on Invested Capital. à ¢Ã¢â€š ¬Ã‚ ¢ Underlying sales growth of 3-5% p.a. à ¢Ã¢â€š ¬Ã‚ ¢ Operating margin of over 15% by 2010 after normal restructuring. à ¢Ã¢â€š ¬Ã‚ ¢ Improved capital and tax efficiency. Market share and competition 5.1. Top Unilever Competitors Company Location Proctor Gamble Cincinnati,OH Kraft Foods Northfield, IL Nestle Vevey, Switzerland 5.2. Competitor Comparison Unilever P G Kraft Nestle Top Segment C/G Foods Consumer Care Food Food Top Brand Dove Tide Mac Cheese KitKat CEO A.Burgmans A.G.Lefley R.Deromedi P.Letmathe Stock per share $66.03 $53.76 $30.70 $66.90 Growth 15.55% 9.25% 8.2% 11.23% Revenues $42.942m $28.2BL $31,010m $69.BL Revenue Growth -11.93% 19% 4.3% -1.93% International 100+ 42 150+ 86 Business Segments 3 5 5 6 Employees 234000 110000 10600 253000 (Source: Hoovers business Intelligence guide) 5.3. Category position in the market Strategic Issues Following are some of the key strategic issues which Unilever faces today: 6.1. Leadership Unilever maintains two business entities i.e. Unilever PLC and Unilever N.V. Due to dual chairperson approach; it faces following problems in their business strategy: List stock separately Shared board of directors Typical management; wear two, three hats Conflict in Board and Business responsibilities Company remains fragmented Reduced effectiveness Slow decision making process( Bureaucracy) Unilever believer (believe in Unilever) Unilever should create a sense of belief amongst its consumers. It should try and focus on program that focuses on brand initiative to the consumers. Use advertising that connects with consumer needs: Consumers demand high quality products that are both convenient and delicious Consumers look for new ways to use the product Large population of single parent house hold More females are working full-time jobs Increase consumer focus on health and nutrition Strategy Justification 7.1. Recommendation 1 Make an initiative to create an overall umbrella brand across all Unilevers brands that will eventually consolidate various businesses under one name. Unilever Plc Unilever NV One Unilever Provides a greater clarity of leadership, responsibility, and accountability Allows Unilever to focus on the needs of their customers and consumers thus reigniting growth and increasing sales potential Provides the ability to leverage scale of operations Create a strategic platform for brand management Recommendation 2 It should implement Unilever Believer product and brand extensions. The related example in this case is of Lipton tea. It should try and create an extension to this famous brand by focusing on energy drinks. Justifications are: Energy drinks jumped 56% in sales last year Market has exceed $100 million in the recent years Main Competitor: Red Bull Positioning Statement: A Healthier Alternative to Energy Drinks Unilever should cash in this opportunity by: Target Market: Young adults 18-32 Uses: stay up all night and/or start a night out Main Ingredients: Caffeine, Vitamin B, Guarana Advertisements: Highlight healthier ingredients of the product while showcasing its ability to give energy and revitalize body

Unemployment as an Indicator of Macroeconomic Performance

Unemployment as an Indicator of Macroeconomic Performance The rate of unemployment is one of the most important indicators of macroeconomic performance. Unemployment arises due to the distortions in the supply of labor cause by the non-competitive wage differential. During the period from 1945 until at least 1968, unemployment rates in the major European economies were extremely low by todays standards. For instance in the United Kingdom, the average rate of unemployment for the entire period was about 1.8% of the labor force and in worst years it did not even exceed 2.5%. The main driving force was autonomous rather than policy related. These forces include waves of new products and processes, spread of trade and development around the world. However the cause of unemployment problem in Europe in comparison to the United States was their labor market institutions while the United States is far more superior due to the flexibility of their labor market. In this paper, determinants of unemployment in US are the concerns with economic growth as the main concern. Economic growth of a nation is the increase in a nations real output that occurs over time. In general, growth and unemployment are closely related as unemployment affects the growth rate through the scale of operation of an economy. Besides that, FDI inflow and inflation are taken into account altogether to identify the relationship towards the unemployment rate. 1.1 Background As unemployment is one of the most important economic indicators, the unemployment rate provides useful information such as how the labor market works as well as the percentage of human capital that is not used in the production process, which is especially crucial towards policy makers. Consequently, it is important to analyze the factors that impact the unemployment rate regardless short or long term perspective. The United States of America is a developed country which has one of the largest population and production in the world (Encyclopedia, 2010). As unemployment are explained by structural factors mainly by inflexible labor market. One may wonder the about the impact which economic growth, inflation and FDI have on the unemployment rate of the United States of America as the clutches of unemployment are hard to escape even for a develop country, especially for US which possesses by far the most flexible labor market. As a case study, the United States of America has been chosen as the research country. United States of America is reckoned to be particularly appropriate as United States of America labor market has proven by all accounts to be more dynamic in the sense of a higher level of job turnover, resulting in high vacancy levels at any point in time. Recently, unemployment rate in the United States of America has been found to be as high as 9.6% as of August 2010 compared to the 4. 1% ten years ago (Bureau of Labor Statistics, 2010). In the mean time the real GDP growth in 2000 was at 4.14% when the unemployment rate was 4.1% while the real GDP growth in 2003 was at 2.49% when the unemployment rate was 5.8% (Bureau of Labor Statistics, 2010). From here, it can be seen that unemployment rate moves in the opposite direction of economic growth, yet there were different versions of results concluded by different previous researchers. 1.2 Problem Statement Unemployment has been a famous macroeconomic variable that researchers tend to use to study on but even with so many researches carried out, some of the results obtained are not consistent with one and another. For instance, the debates among Monetarist and Keynesian views of unemployment as well as the new contributions of Lucass approach and new Keynesian Economics shows that there was no reason to account for growth in the unemployment model. However, a significant innovation occurred with Pissarides'(1990) formulation of an unemployment theory in equilibrium. In many previous attempts, he formalize a unique framework to study the labor market dynamic perspective, providing useful tools to analyze both long and short run unemployment. Pissarides also introduced a first link between long run unemployment and growth which matches the neoclassical framework of economic growth. ( Pissarides, 1990 Ch. II) In the case of US, its economy began its current economic recovery in December 2001. However, rather than experiencing employment growth, not only did the unemployment rate increase but the number of new jobs created in the economy actually declined significantly during the first year of the recovery (Seyfried). Thus this paper is conducted so as to affirm the relationship of economic growth has on the unemployment rate of the country. As some results obtained by past researchers showed that economic growth impacts unemployment whereas the others came to a conclusion that unemployment causes economic growth whereby the existence of Granger Causality relationship is quite possible. In this study, economic growth, inflation and FDI serves as explanatory variable to determine the relationship towards unemployment rate in the United States of America. 1.3 Objectives This study aims to investigate the determinants of unemployment rate in the United States of America with economic growth as the main concern in addition with inflation and FDI (foreign direct investment) to further assure that it is coherent with the results obtained from previous studies. 1.3.1 Specific objectives This paper aims to examine the relationship between economic growth, inflation and FDI towards the unemployment rate. On the other hand, this paper serves to probe further into the relationship between economic growth, FDI, and inflation towards unemployment to sustain the existence of granger causality relationship. 1.4 Significance of study The contribution of carrying out this study is to allow policy makers to have an insight of unemployment so as to allow them to decide on suitable policy that will help bring down the unemployment rate while sustaining appropriate inflation level and attract sufficient FDI inflow. The results generated will help provide insight to the nature of the relationship between economic growth, inflation, and FDI towards unemployment. It would be useful to policy makers to know the rate and relationship of economic growth as it is necessary to reduce the unemployment rate, or at least keeping it from rising. Moreover, in previous studies, FDI is found to have impacted the unemployment rate indirectly through spillover effects from economic growth. In this study, however, FDI is incorporated directly to affect unemployment growth; therefore the effectiveness of the implemented policy will be taken into account more effectively. CHAPTER 2: Literature Review 2.1 Conceptual Model According to Alexopolous (2003), in the case where there is technological growth in the economy, families will increase their investment in capital, which in turn increase the amount of family purchased consumption workers receive over time. As a result, firms optimally increase the wage rate proportionately in order to prevent workers from shirking on the job. Therefore, the rate of unemployment along the balanced growth path will not change over time, since the marginal product of labour and the marginal cost of labour grow at the same rate. Based on De Groot, in general, growth and unemployment are intimately related for two reasons. Unemployment affects the scale of operation of the economy and thereby the growth rate. Growth affects inter-temporal decisions of workers about where to allocate on the labor market once they are laid off, and thereby it affects equilibrium unemployment. According to Brecher (2007), rapid economic growth and FDI, accompanied by higher per capita income, usually increase output growth. Thus, domestic firms and foreign multinational corporations will demand more labour force with skills to create products. Hence, economic growth can promote future employment growth for labour force based on new Keynesian theory of the output-inflation tradeoff. Some studies found that overseas investment replaced domestic employment in developing countries; however, the same result did not happen in developed countries. Tremblay (2007) pointed out that based on classical economic theory, the Phillips Curve illustrated long-run tradeoff between unemployment and inflation. There is an inverse relationship between inflation and unemployment, that is saying inflation will rise when unemployment decrease and vice-versa. Futhermore, Luciano Fanti and Piero Manfredi (2003) mention that the neoclassical Solow model, which still provides excellent econometric fits and shows a globally stable positive growth equilibrium, but also shows two restrictive features as regards the scope of this paper: (1) it does not take into account the stylized fact of the existence of unemployment, which is generally not only positive but also strongly fluctuating; (2) in such a model fluctuations have never been endogenously determined Meanwhile, Martin Zagler (2006) noticed that the cost associated with economic growth is structural unemployment, as structural change destroys jobs in one firm and creates jobs in another. The source of unemployment is the rate of intra-sector structural change associated with faster economic growth. Besides, Bonatti (2007) says that an increase of the workers influence on the political process may raise the fraction of GDP allocated to finance the welfare state, thus leading to a higher unemployment rate and to a lower growth rate. The research work done by Chang (2007) noticed that when the degree of trade openness of Taiwan is larger, the unemployment rate of Taiwan will increase, this is because the young men and young women in Taiwan desire to extend their education in working age. According to Phillips (1998), the negative relationship between inflation and unemployment can be explained through governments expansionary policy to increase the consumption level of the citizens. As labor market tightens, unemployment rate will fall as money wages tended to rise more rapidly. Unemployment will then increase as government tries to control the inflation rate. This is because the increment in wages is closely related with the increase in price. Therefore, the trade-off between these two variables can be seen. 2.2 Methodology Effects panel regression methods were used by Zagler (2006) on the relationship between economic growth and unemployment. Moreover, Zagler (2006) checked his estimated model with the unit-root test to test the stationary of the model. In order to obtain information about the relationship between inflation and unemployment, the procedure of den Hann was employed by Bae (2006), which has the advantage as no assumptions about the order of integration in the variables of interest is required. The procedure estimates a vector regressions (VAR) model and analyzes the correlations of VAR forecast errors of inflation and unemployment at long horizons. Chang (2007) used vector autoregression method of variance decomposition and impulse response function analysis are applied to analyze various relationships among foreign direct investment (FDI), economic growth, unemployment and degree of openness in Taiwan. Besides that, he also uses the unit root test of augmented Dickey-Fuller (ADF and KPSS) test to examine the stationary properties of the economic time series. The appropriate lag-length in the ADF regression is selected by minimizing the Akaikes information criterion (AIC). He also uses co-integration test to determine whether there exists a long-run equilibrium relationship among variables and weak exogeneity, and multivariate Granger-causality test to determine their causal direction in the short-run between all variables. Besides, he also has applied the VAR technique of variance decomposition and impulse response function analysis to analyze various inter-relationships between FDI, unemployment rate and GDP variables in the case of Taiwan from the period of 1981 to 2003. Meanwhile, Eric Heyer, FrÃÆ' ©dÃÆ' ©ric ReynÃÆ' ¨s, Henri Sterdyniak (2006) present the results of the DF-GLS unit root test to test the growth rate of consumer price and also unemployment rate. 2.3 Empirical Result Zagler (2006) has carried out a research which empirically investigated the link between economic growth and unemployment, using micro econometric evidence for the United Kingdom. The results generated showed a significant and negative relationship between unemployment and economic growth. According to the result generated by Muscatelli and Tirelli (2001), it is proven that there is a negative relationship between economic growth and unemployment as Japan, Germany, Italy, France and Canada. This result is generally in favour of those theories which predict a negative linkage between unemployment on economioc growth Besides, Pehkonen (2000) stated that a fall in GDP has significant relationship with unemployment as a drop in the GDP in Finland leads to an increase in the unemployment since demand for labor have shrunk. Therefore, Pehkonen (2000) concluded that unemployment would increase as a result of a decrease in economic growth. Meanwhile, Mitra and Sato (2007) found that the major links between external scale economies and growth are perceived in terms of technical efficiency, and higher growth is taken to reduce the unemployment rate. Futhermore, Scahaik and Groot (1998) found that the unemployment and economic growth relationship in imperfect competition economy and different periods, where structural changes occur, has a negative correlation and effect of different degrees through testing the structural stability. Chang (2007) proved that economic growth as well as FDI have negative effects on unemployment as FDI are expected to generate economic growth by encouraging the expansion of trade and foreign investment. In addition, according to Solows growth theory, employment for labour force with skill can further promote economic growth and this can be verified by Taiwans economy model. Okuns law stating that reducing unemployment for labour force can promote further economic growth is then verified. Furthermore, unemployment is very sensitive to changes in GDP and vice versa, which does lend support that rising economic growth can obviously affect unemployment for labour force. shock of unemployment rate has negative effect on economic growth . He also mentions that the shocks in economic growth and FDI inflow decrease the unemployment rate. This means that rapid economic growth and FDI inflow, accompanied by higher per capita income can promote future employment growth for labour force. In the research study of Meckl (2001), correlation between growth and unemployment is shown to be positive if the research sector is of the high-wage sector in the economy, and negative if the research sector is the low-wage sector. Arico (2003) has already observed that the rate of growth is negatively related with the rate of unemployment. If the growth rate increases, it will decrease the net rate at which the stream of profits is discounted. For each firm the entry will result less costly. More vacancies will be created, reducing the unemployment rate. (Capitalization effect).On the other hands, It will reduce the life-time of each firm, by increasing the price for human capital. Each innovation will generate fewer vacancies than before. That will be reflected in an increase of the rate of unemployment. (Indirect creative destruction effect). Besides, Fanti and Manfredi (2003) has shown a negative relation between unemployment and growth , though we should also mention the positive relation between unemployment and growth obtained in the particular creative disruption context according to Schumpeters idea. Fanti and Manfredi alsomshows a surprising relation between unemployment and growth (via effects on population which is an endogenous engine of growth): this relation can be either positive or negative depending on the relative levels of cost of childrearing of workers and unemployed persons and the level of unemployment benefits. Meanwhile, Bonatti (2007) noticed that reduction of government transfers in favor of the workers allows decreasing the ratio of total tax revenues to GDP, thus monotonically increasing the growth rate and leading to a lower unemployment rate. CHAPTER 3: RESEARCH METHOD 3.1 Data Analysis 3.1.1 Unemployment Rate In this study, unemployment rate is the main study which was examine by using some explanatory variables. According to BLS, Bureau of Labor Statistics, (2009) those people who are with jobs can be considered as employed. On the other hand, a person will be classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Dixon Shepherd (2002) stated that the unemployment rate can be considered as one of the most important indicators of macroeconomic performance in a country. The data of unemployment rate is obtained from the Bureau of Labor Statistics (BLS) which if measured in percentage from those people who are 16 years old and above from year 1970 to 2007. The method which BLS used to calculate the unemployment rate in United States is: X 100% 3.1.2 Real Gross Domestic Product Real gross domestic product (Real GDP) in a country can be measured by the total output value of goods and services which produced from the domestic labor in the country in a given year, expressed in base-year prices. In this study, it is expected that there is a negative relationship between the Real GDP and unemployment rate in United States. The source of the United States Real GDP data is from the World Bank World Development Indicators and International Financial Statistics of the IMF. On the other hand, the data obtained was converted to a 2005 base year. The formula to calculate the data of United States Real GDP is as below: 3.1.3 Foreign Direct Investment Foreign direct investment (FDI) is a kind of investment which is made to serve the business interest of the investor in a company which is in a different nation distinct from the investors country of origin. An example of FDI is a foreign company comes into a country to build or buy a factory and run a business there. Many economists believe that FDI is good for an economy, because it provides domestic job opportunities and increase domestic capital. In this study, net inflows of foreign direct investment in the measurement of current US Dollar are used. A net inflow of foreign direct investment is the total amount or value of the investment flow into United States from foreign investors to operate their business in United States and negative relationship between foreign direct investment and unemployment rate is expected in United States. 3.1.4 Consumer Price Index Consumer price index (CPI) is measured that examines the weighted average of prices of a basket of consumer goods and services in a country, such as transportation, food, rental fees and utilities fees. CPI is one of the measurements of inflation rate. According to Bureau of Labor Statistics (BLS), the prices for the goods and services used to calculate the CPI are collected in 87 urban areas in United States from about 23,000 retail and services establishments. The CPI data used in this study included all consumer items in United States from year 1970 to 2007. 3.2 Research Framework 3.2.1 Unemployment rate and Real Gross Domestic Product Based on the study, unemployment and real gross domestic product is expected to be negatively related. Edward (2007) stated there is a negative relationship between real gross domestic product and unemployment because of the theory of Okuns law. According to Okuns law, 1% increase in the unemployment rate will decrease GDP by 3%. However, Christopher (2010) said that, Okun coefficients can change over time because the relationship of unemployment to output growth depends on laws, technology, preferences, social customs, and demographics. 3.2.2 Unemployment and Consumer Price Index Consumer price index is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation. Therefore, we expect that there is an inverse relationship between the rate of unemployment and rate of inflation. According to the Phillips Curve theory, if the unemployment is high, inflation tends to be low. The diagram below shows the Phillips curve. Inflation Phillips curve Unemployment However, the result shows a positive relationship in our regression model. This problem will occur because of the multicolinearity problem in our regression model. But when one independent variable by one independent variable with the unemployment is tested, negative sign for consumer price index and unemployment are obtained. Bae (2006) stated that there is a positive long run relationship between unemployment and inflation. 3.2.3 Unemployment and Foreign Direct Investment In this study, inflow of foreign direct investment were expected to affect the unemployment rate significantly and expected that foreign direct investment has a negative long run relationship with unemployment. Foreign direct investment will increase job opportunities so, unemployment rate will decrease. Shu (2007) stated that FDI have negative effects on unemployment as FDI are expected to generate economic growth by encouraging the expansion of trade and foreign investment. 3.3 Econometric Methodology 3.3.1 Introduction This chapter consist the used of the method to examining the relationship between the unemployment and economic condition in United State by using the time series data ranging from the year 1970 to 2007. First, the result testing will start with the test of stationary by using Augmented Dickey-Fuller unit root test and proceed with the cointegration test. Secondly, the Multiple Regression Analysis and several ways to detect the assumption of the Classical Linear Regression Model (CLRM). The multicollinearity is used to test the correlation analysis. Breusch-Godfrey Serial Correlation LM Test is used to test the existence of serial autocorrelation, Autoregression Conditional Heteroscedasticity Test is used for testing the heteroscedasticity variance of error of the model and Ramsey RESET Test is used to detect the linearity regression and misspecification error. Unemployment = f (RGDP, FDI, CPI) RGDP = Real Gross Domestic Product FDI = Foreign Direct Investment CPI = Consumer Price Index The change in unemployment is our main study that we want to examine with using a few of variables which are RGDP (Real Gross Domestic Product), FDI (Foreign Direct Investment) and CPI (Consumer Price Index). y = ÃŽÂ ²0 + ÃŽÂ ²1Ln (RGDP) + ÃŽÂ ²2 (CPI) + ÃŽÂ ²3 (FDI) + Econometric Model with Expected Sign: = ÃŽÂ ²0 + ÃŽÂ ²1L (RGDP) + ÃŽÂ ²2 (CPI) + ÃŽÂ ²3(FDI) (-ve) (-ve) (-ve) Where +ve indicates that there is a postive relationship between the explanatory variable and dependent variable. On the other hand, -ve indicates that there is a negative relationship between the explanatory variable and dependent variable 3.3.2 Unit root A unit root test is used to examine whether a time series variable is stationary. In the model, T-statistic, F-statistic and R-squared are used to determine to ensure the validity of the test statistics is stationary. The result will become spurious regression problem if the non-stationary series in the ordinary least square (OLS) regression is used. Spurious regression result in high significant T-statistic and highly value for the coefficient of determination R-squared, and the R-square is larger than Durbin Watson. Therefore, if the stationary does not hold, estimate is not consistent and result will be misleading. To avoid the spurious regression problem, the Augmented Dickey-Fuller test (ADF) is used to examine the stationary of the variable. An Augmented Dickey-Fuller test (ADF) is used to test for a unit root in a time series sample. The Augmented Dickey-Fuller (ADF) statistic used in the test is a negative number. Therefore, the more negative value is, more power the rejection of the hypothesis that there is a unit root at some level of confidence. The equation for Augmented Dickey-Fuller (ADF) test Where ÃŽÂ ± is a constant, ÃŽÂ ² is the coefficient on a time trend and p is the lag order of the autoregressive process. ÃŽÂ ± = 0 and ÃŽÂ ² = 0 corresponds to modeling a random walk and ÃŽÂ ² = 0 corresponds to modeling a random walk drift. By including lags of the order p, the ADF formulation allows for higher-order autoregressive processes. This means that the lag length p needs to be determined when applying in the test. One possible approach is to test from high orders and examine the t-value on coefficients. The criterion such as the Akaike information criterion (AIC), Schwarz-Bayesian information criterion (SBIC) or the Hannan-Quinn information criterion (HQIC) test is used to examine the lag length. 3.3.3 Granger Causality The Granger Causality test indicates that a time series Y is said to be Granger caused by X if X helps the prediction of Y or equivalently if the coefficients on the lagged X are statistically significant. Granger Causality shows two-way causation in the case. X Granger causes Y and Y Granger causes X. It usually through a series of t-tests and F-tests on lagged values of X and lagged values of Y. 3.3.4 Multiple Regressions The ordinary least squares (OLS) or linear least squares are a method to examine the unknown parameters in a linear regression model. It is used to assume the distribance, ui. According to Gujarati (2003), ui stands for the normal distribution representing zero mean and constant variance, à Ã†â€™2 in the multiple regression models. With the normality assumption, OLS estimators 1, and 2 are linear functions of ui. Therefore, if ui are normally distributed, so 1,and 2 will make hypothesis testing more straightforward. OLS estimators of the partial regression coefficients are identical with the maximum likelihood (ML) estimators. There are the best linear unbiased estimators (BLUE). Besides, the least-square estimators are best unbiased estimators (BUE); it means that they have minimum variance in the entire class of unbiased estimators. 3.3.5 Multicollinearity Multicollinearity shows the two or more independent variables in a multiple regression model are highly linearly related. The multicollinearity test is perfect if the correlation between two independent variables is equal to 1 or -1. Multicollinearity will occur when there is a strong linear relationship among two or more independent variables. The equation below is refer the variables is perfectly multicollinear if there exist one or more exact linear relationships among some of the variables. Estimates for the parameters of the multiple regression equation is The ordinary least squares estimates include inverting the matrix XTX where, It indicate that if the linear relationship (perfect multicollinearity) is exactly with the independent variables, the rank of X is less than k+1 and the matrix XTX will not invertible. One of the detection of multicollinearity is used detection-tolerance or the variance inflation factor (VIF) for multicollinearity where R2j is the coefficient of determination of a regression of explanatory j on all the other explanators. Tolerances of less than 0.20 or 0.10 or a VIF of 5 or 10 and above reveal a multicollinearity problem. 3.3.6 Breusch-Godfrey Serial Correlation LM Test Breusch-Godfrey Serial Correlation LM test is a test of autocorrelation that is basically allows for nonstochastic regressors such as the lagged values of the regressand; higher-order autoregressive schemes such as AR (1), AR (2), etc and higher-order moving averages of white noise error terms such as t. Two variable regression models to illustrate the test, regressors can be added to the model and also lagged values of the regressand can be added to the model. Yt =ÃŽÂ ²1 +ÃŽÂ ²2Xt +ut The error term ut assume that the pth-order autoregressive, AR (p), Ut = ptut-1 + ptut-2 + à ¢Ã¢â€š ¬Ã‚ ¦+pput-p + t. where t.is a white noise error term. The null hypothesis H0 can be show as Ho: p1 = p2 = à ¢Ã¢â€š ¬Ã‚ ¦ = pp = 0 (no autocorrelation) At 5% significant level, if the computed p value of Chi-square is less than Chi-square tests, do not reject the null hypothesis, meaning that there is no autocorrelation problem. If computed p value of Chi-square is more than Chi-square tests, reject the null hypothesis, meaning that there is autocorrelation problem. 3.3.7 Autoregressive Conditional Heteroscedasticity Test In econometrics, Autoregressive Conditional Heteroskedasticity (ARCH) model assume that the variance of the current error term is related to the previos one. Autoregressive Conditional Heteroskedasticity model is used to model the time series with time-varying volatility such as stock price. 3.3.8 Specification error Ramsey Regression Equation Specification Error Test (Ramsey RESET test) is used to examine the specification error. The specification test for the linear regression model. More specifically, it is used to test the specification error in the equation. As the result, if the non-linear combinations of the independent variables have any power in explaining the dependent variable, means that the model is mis-specified. Consider the model Ã…Â · = E {y | à Ã¢â‚¬ ¡ } = ÃŽÂ ²Ãƒ Ã¢â‚¬ ¡ The Ramsey test is used to test whether the (ÃŽÂ ²1à Ã¢â‚¬ ¡)2, (ÃŽÂ ²2à Ã¢â‚¬ ¡)3à ¢Ã¢â€š ¬Ã‚ ¦,(ÃŽÂ ²k-1à Ã¢â‚¬ ¡)k has any power in explaining y. The Ramsey test is executed by calculate the following linear regression Ã…Â · = ÃŽÂ ²Ãƒ Ã¢â‚¬ ¡ + ÃŽÂ ²1Ã…Â ·2 +à ¢Ã¢â€š ¬Ã‚ ¦+ ÃŽÂ ²k-1Ã…Â ·k + ÃŽÂ µ After examine the test, the means of the F-test is to determine whether ÃŽÂ ²1 through ÃŽÂ ²k-1 are zero. If the null hypothesis reveals that all regression coefficients are zero, means that the null hypothesis cannot be reject, the Ramsey test is unable to detect any misspecification. If the null hypothesis is rejected, means that the model is misspecification. 3.3.9 Jarque-Bera Test of Normality Jarque-Bera test of normality is used to test the normally distributed. It is large-sample or an asymptotic test and based on the OLS. The test first calculates the skewness and kurtosis measures of the OLS residuals. JB = n Where the n = sample size, S = skewness coefficient, and K = kurtosis coefficient. The normally distributed variable, S is zero and K is three. Hence, the Jarque-Bera test of normality is a test of the joint hypothesis that S and K are zero and three, respectively. Therefore, the value of the Jaque-Bera statistic is expected to be zero. For the null hypothesis the residual is normally distributed, asymptotically (i.e., in large samples) the Jarque-Bera statistic gives the chi-square distribution with two degree of freedom showed by Jarque and Bera (Gujarati 2003) For the alternative hypothesis the residual is not normally distributed. At 5 significant levels, computed p value is less than Jarque-Bera statistic, we can reject the null hypothesis that the residual is not normally distributed whereas computed p value is more than Jarque-Bera statistic, we do not reject the null hypothesis that the residual is normally distributed. CHAPTER 4: RESEARCH RESULTS AND INTERPRETATION 4.1 Introduction This chapter consists of the results and interpretation of the relationship between Unemployment as an Indicator of Macroeconomic Performance Unemployment as an Indicator of Macroeconomic Performance The rate of unemployment is one of the most important indicators of macroeconomic performance. Unemployment arises due to the distortions in the supply of labor cause by the non-competitive wage differential. During the period from 1945 until at least 1968, unemployment rates in the major European economies were extremely low by todays standards. For instance in the United Kingdom, the average rate of unemployment for the entire period was about 1.8% of the labor force and in worst years it did not even exceed 2.5%. The main driving force was autonomous rather than policy related. These forces include waves of new products and processes, spread of trade and development around the world. However the cause of unemployment problem in Europe in comparison to the United States was their labor market institutions while the United States is far more superior due to the flexibility of their labor market. In this paper, determinants of unemployment in US are the concerns with economic growth as the main concern. Economic growth of a nation is the increase in a nations real output that occurs over time. In general, growth and unemployment are closely related as unemployment affects the growth rate through the scale of operation of an economy. Besides that, FDI inflow and inflation are taken into account altogether to identify the relationship towards the unemployment rate. 1.1 Background As unemployment is one of the most important economic indicators, the unemployment rate provides useful information such as how the labor market works as well as the percentage of human capital that is not used in the production process, which is especially crucial towards policy makers. Consequently, it is important to analyze the factors that impact the unemployment rate regardless short or long term perspective. The United States of America is a developed country which has one of the largest population and production in the world (Encyclopedia, 2010). As unemployment are explained by structural factors mainly by inflexible labor market. One may wonder the about the impact which economic growth, inflation and FDI have on the unemployment rate of the United States of America as the clutches of unemployment are hard to escape even for a develop country, especially for US which possesses by far the most flexible labor market. As a case study, the United States of America has been chosen as the research country. United States of America is reckoned to be particularly appropriate as United States of America labor market has proven by all accounts to be more dynamic in the sense of a higher level of job turnover, resulting in high vacancy levels at any point in time. Recently, unemployment rate in the United States of America has been found to be as high as 9.6% as of August 2010 compared to the 4. 1% ten years ago (Bureau of Labor Statistics, 2010). In the mean time the real GDP growth in 2000 was at 4.14% when the unemployment rate was 4.1% while the real GDP growth in 2003 was at 2.49% when the unemployment rate was 5.8% (Bureau of Labor Statistics, 2010). From here, it can be seen that unemployment rate moves in the opposite direction of economic growth, yet there were different versions of results concluded by different previous researchers. 1.2 Problem Statement Unemployment has been a famous macroeconomic variable that researchers tend to use to study on but even with so many researches carried out, some of the results obtained are not consistent with one and another. For instance, the debates among Monetarist and Keynesian views of unemployment as well as the new contributions of Lucass approach and new Keynesian Economics shows that there was no reason to account for growth in the unemployment model. However, a significant innovation occurred with Pissarides'(1990) formulation of an unemployment theory in equilibrium. In many previous attempts, he formalize a unique framework to study the labor market dynamic perspective, providing useful tools to analyze both long and short run unemployment. Pissarides also introduced a first link between long run unemployment and growth which matches the neoclassical framework of economic growth. ( Pissarides, 1990 Ch. II) In the case of US, its economy began its current economic recovery in December 2001. However, rather than experiencing employment growth, not only did the unemployment rate increase but the number of new jobs created in the economy actually declined significantly during the first year of the recovery (Seyfried). Thus this paper is conducted so as to affirm the relationship of economic growth has on the unemployment rate of the country. As some results obtained by past researchers showed that economic growth impacts unemployment whereas the others came to a conclusion that unemployment causes economic growth whereby the existence of Granger Causality relationship is quite possible. In this study, economic growth, inflation and FDI serves as explanatory variable to determine the relationship towards unemployment rate in the United States of America. 1.3 Objectives This study aims to investigate the determinants of unemployment rate in the United States of America with economic growth as the main concern in addition with inflation and FDI (foreign direct investment) to further assure that it is coherent with the results obtained from previous studies. 1.3.1 Specific objectives This paper aims to examine the relationship between economic growth, inflation and FDI towards the unemployment rate. On the other hand, this paper serves to probe further into the relationship between economic growth, FDI, and inflation towards unemployment to sustain the existence of granger causality relationship. 1.4 Significance of study The contribution of carrying out this study is to allow policy makers to have an insight of unemployment so as to allow them to decide on suitable policy that will help bring down the unemployment rate while sustaining appropriate inflation level and attract sufficient FDI inflow. The results generated will help provide insight to the nature of the relationship between economic growth, inflation, and FDI towards unemployment. It would be useful to policy makers to know the rate and relationship of economic growth as it is necessary to reduce the unemployment rate, or at least keeping it from rising. Moreover, in previous studies, FDI is found to have impacted the unemployment rate indirectly through spillover effects from economic growth. In this study, however, FDI is incorporated directly to affect unemployment growth; therefore the effectiveness of the implemented policy will be taken into account more effectively. CHAPTER 2: Literature Review 2.1 Conceptual Model According to Alexopolous (2003), in the case where there is technological growth in the economy, families will increase their investment in capital, which in turn increase the amount of family purchased consumption workers receive over time. As a result, firms optimally increase the wage rate proportionately in order to prevent workers from shirking on the job. Therefore, the rate of unemployment along the balanced growth path will not change over time, since the marginal product of labour and the marginal cost of labour grow at the same rate. Based on De Groot, in general, growth and unemployment are intimately related for two reasons. Unemployment affects the scale of operation of the economy and thereby the growth rate. Growth affects inter-temporal decisions of workers about where to allocate on the labor market once they are laid off, and thereby it affects equilibrium unemployment. According to Brecher (2007), rapid economic growth and FDI, accompanied by higher per capita income, usually increase output growth. Thus, domestic firms and foreign multinational corporations will demand more labour force with skills to create products. Hence, economic growth can promote future employment growth for labour force based on new Keynesian theory of the output-inflation tradeoff. Some studies found that overseas investment replaced domestic employment in developing countries; however, the same result did not happen in developed countries. Tremblay (2007) pointed out that based on classical economic theory, the Phillips Curve illustrated long-run tradeoff between unemployment and inflation. There is an inverse relationship between inflation and unemployment, that is saying inflation will rise when unemployment decrease and vice-versa. Futhermore, Luciano Fanti and Piero Manfredi (2003) mention that the neoclassical Solow model, which still provides excellent econometric fits and shows a globally stable positive growth equilibrium, but also shows two restrictive features as regards the scope of this paper: (1) it does not take into account the stylized fact of the existence of unemployment, which is generally not only positive but also strongly fluctuating; (2) in such a model fluctuations have never been endogenously determined Meanwhile, Martin Zagler (2006) noticed that the cost associated with economic growth is structural unemployment, as structural change destroys jobs in one firm and creates jobs in another. The source of unemployment is the rate of intra-sector structural change associated with faster economic growth. Besides, Bonatti (2007) says that an increase of the workers influence on the political process may raise the fraction of GDP allocated to finance the welfare state, thus leading to a higher unemployment rate and to a lower growth rate. The research work done by Chang (2007) noticed that when the degree of trade openness of Taiwan is larger, the unemployment rate of Taiwan will increase, this is because the young men and young women in Taiwan desire to extend their education in working age. According to Phillips (1998), the negative relationship between inflation and unemployment can be explained through governments expansionary policy to increase the consumption level of the citizens. As labor market tightens, unemployment rate will fall as money wages tended to rise more rapidly. Unemployment will then increase as government tries to control the inflation rate. This is because the increment in wages is closely related with the increase in price. Therefore, the trade-off between these two variables can be seen. 2.2 Methodology Effects panel regression methods were used by Zagler (2006) on the relationship between economic growth and unemployment. Moreover, Zagler (2006) checked his estimated model with the unit-root test to test the stationary of the model. In order to obtain information about the relationship between inflation and unemployment, the procedure of den Hann was employed by Bae (2006), which has the advantage as no assumptions about the order of integration in the variables of interest is required. The procedure estimates a vector regressions (VAR) model and analyzes the correlations of VAR forecast errors of inflation and unemployment at long horizons. Chang (2007) used vector autoregression method of variance decomposition and impulse response function analysis are applied to analyze various relationships among foreign direct investment (FDI), economic growth, unemployment and degree of openness in Taiwan. Besides that, he also uses the unit root test of augmented Dickey-Fuller (ADF and KPSS) test to examine the stationary properties of the economic time series. The appropriate lag-length in the ADF regression is selected by minimizing the Akaikes information criterion (AIC). He also uses co-integration test to determine whether there exists a long-run equilibrium relationship among variables and weak exogeneity, and multivariate Granger-causality test to determine their causal direction in the short-run between all variables. Besides, he also has applied the VAR technique of variance decomposition and impulse response function analysis to analyze various inter-relationships between FDI, unemployment rate and GDP variables in the case of Taiwan from the period of 1981 to 2003. Meanwhile, Eric Heyer, FrÃÆ' ©dÃÆ' ©ric ReynÃÆ' ¨s, Henri Sterdyniak (2006) present the results of the DF-GLS unit root test to test the growth rate of consumer price and also unemployment rate. 2.3 Empirical Result Zagler (2006) has carried out a research which empirically investigated the link between economic growth and unemployment, using micro econometric evidence for the United Kingdom. The results generated showed a significant and negative relationship between unemployment and economic growth. According to the result generated by Muscatelli and Tirelli (2001), it is proven that there is a negative relationship between economic growth and unemployment as Japan, Germany, Italy, France and Canada. This result is generally in favour of those theories which predict a negative linkage between unemployment on economioc growth Besides, Pehkonen (2000) stated that a fall in GDP has significant relationship with unemployment as a drop in the GDP in Finland leads to an increase in the unemployment since demand for labor have shrunk. Therefore, Pehkonen (2000) concluded that unemployment would increase as a result of a decrease in economic growth. Meanwhile, Mitra and Sato (2007) found that the major links between external scale economies and growth are perceived in terms of technical efficiency, and higher growth is taken to reduce the unemployment rate. Futhermore, Scahaik and Groot (1998) found that the unemployment and economic growth relationship in imperfect competition economy and different periods, where structural changes occur, has a negative correlation and effect of different degrees through testing the structural stability. Chang (2007) proved that economic growth as well as FDI have negative effects on unemployment as FDI are expected to generate economic growth by encouraging the expansion of trade and foreign investment. In addition, according to Solows growth theory, employment for labour force with skill can further promote economic growth and this can be verified by Taiwans economy model. Okuns law stating that reducing unemployment for labour force can promote further economic growth is then verified. Furthermore, unemployment is very sensitive to changes in GDP and vice versa, which does lend support that rising economic growth can obviously affect unemployment for labour force. shock of unemployment rate has negative effect on economic growth . He also mentions that the shocks in economic growth and FDI inflow decrease the unemployment rate. This means that rapid economic growth and FDI inflow, accompanied by higher per capita income can promote future employment growth for labour force. In the research study of Meckl (2001), correlation between growth and unemployment is shown to be positive if the research sector is of the high-wage sector in the economy, and negative if the research sector is the low-wage sector. Arico (2003) has already observed that the rate of growth is negatively related with the rate of unemployment. If the growth rate increases, it will decrease the net rate at which the stream of profits is discounted. For each firm the entry will result less costly. More vacancies will be created, reducing the unemployment rate. (Capitalization effect).On the other hands, It will reduce the life-time of each firm, by increasing the price for human capital. Each innovation will generate fewer vacancies than before. That will be reflected in an increase of the rate of unemployment. (Indirect creative destruction effect). Besides, Fanti and Manfredi (2003) has shown a negative relation between unemployment and growth , though we should also mention the positive relation between unemployment and growth obtained in the particular creative disruption context according to Schumpeters idea. Fanti and Manfredi alsomshows a surprising relation between unemployment and growth (via effects on population which is an endogenous engine of growth): this relation can be either positive or negative depending on the relative levels of cost of childrearing of workers and unemployed persons and the level of unemployment benefits. Meanwhile, Bonatti (2007) noticed that reduction of government transfers in favor of the workers allows decreasing the ratio of total tax revenues to GDP, thus monotonically increasing the growth rate and leading to a lower unemployment rate. CHAPTER 3: RESEARCH METHOD 3.1 Data Analysis 3.1.1 Unemployment Rate In this study, unemployment rate is the main study which was examine by using some explanatory variables. According to BLS, Bureau of Labor Statistics, (2009) those people who are with jobs can be considered as employed. On the other hand, a person will be classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Dixon Shepherd (2002) stated that the unemployment rate can be considered as one of the most important indicators of macroeconomic performance in a country. The data of unemployment rate is obtained from the Bureau of Labor Statistics (BLS) which if measured in percentage from those people who are 16 years old and above from year 1970 to 2007. The method which BLS used to calculate the unemployment rate in United States is: X 100% 3.1.2 Real Gross Domestic Product Real gross domestic product (Real GDP) in a country can be measured by the total output value of goods and services which produced from the domestic labor in the country in a given year, expressed in base-year prices. In this study, it is expected that there is a negative relationship between the Real GDP and unemployment rate in United States. The source of the United States Real GDP data is from the World Bank World Development Indicators and International Financial Statistics of the IMF. On the other hand, the data obtained was converted to a 2005 base year. The formula to calculate the data of United States Real GDP is as below: 3.1.3 Foreign Direct Investment Foreign direct investment (FDI) is a kind of investment which is made to serve the business interest of the investor in a company which is in a different nation distinct from the investors country of origin. An example of FDI is a foreign company comes into a country to build or buy a factory and run a business there. Many economists believe that FDI is good for an economy, because it provides domestic job opportunities and increase domestic capital. In this study, net inflows of foreign direct investment in the measurement of current US Dollar are used. A net inflow of foreign direct investment is the total amount or value of the investment flow into United States from foreign investors to operate their business in United States and negative relationship between foreign direct investment and unemployment rate is expected in United States. 3.1.4 Consumer Price Index Consumer price index (CPI) is measured that examines the weighted average of prices of a basket of consumer goods and services in a country, such as transportation, food, rental fees and utilities fees. CPI is one of the measurements of inflation rate. According to Bureau of Labor Statistics (BLS), the prices for the goods and services used to calculate the CPI are collected in 87 urban areas in United States from about 23,000 retail and services establishments. The CPI data used in this study included all consumer items in United States from year 1970 to 2007. 3.2 Research Framework 3.2.1 Unemployment rate and Real Gross Domestic Product Based on the study, unemployment and real gross domestic product is expected to be negatively related. Edward (2007) stated there is a negative relationship between real gross domestic product and unemployment because of the theory of Okuns law. According to Okuns law, 1% increase in the unemployment rate will decrease GDP by 3%. However, Christopher (2010) said that, Okun coefficients can change over time because the relationship of unemployment to output growth depends on laws, technology, preferences, social customs, and demographics. 3.2.2 Unemployment and Consumer Price Index Consumer price index is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation. Therefore, we expect that there is an inverse relationship between the rate of unemployment and rate of inflation. According to the Phillips Curve theory, if the unemployment is high, inflation tends to be low. The diagram below shows the Phillips curve. Inflation Phillips curve Unemployment However, the result shows a positive relationship in our regression model. This problem will occur because of the multicolinearity problem in our regression model. But when one independent variable by one independent variable with the unemployment is tested, negative sign for consumer price index and unemployment are obtained. Bae (2006) stated that there is a positive long run relationship between unemployment and inflation. 3.2.3 Unemployment and Foreign Direct Investment In this study, inflow of foreign direct investment were expected to affect the unemployment rate significantly and expected that foreign direct investment has a negative long run relationship with unemployment. Foreign direct investment will increase job opportunities so, unemployment rate will decrease. Shu (2007) stated that FDI have negative effects on unemployment as FDI are expected to generate economic growth by encouraging the expansion of trade and foreign investment. 3.3 Econometric Methodology 3.3.1 Introduction This chapter consist the used of the method to examining the relationship between the unemployment and economic condition in United State by using the time series data ranging from the year 1970 to 2007. First, the result testing will start with the test of stationary by using Augmented Dickey-Fuller unit root test and proceed with the cointegration test. Secondly, the Multiple Regression Analysis and several ways to detect the assumption of the Classical Linear Regression Model (CLRM). The multicollinearity is used to test the correlation analysis. Breusch-Godfrey Serial Correlation LM Test is used to test the existence of serial autocorrelation, Autoregression Conditional Heteroscedasticity Test is used for testing the heteroscedasticity variance of error of the model and Ramsey RESET Test is used to detect the linearity regression and misspecification error. Unemployment = f (RGDP, FDI, CPI) RGDP = Real Gross Domestic Product FDI = Foreign Direct Investment CPI = Consumer Price Index The change in unemployment is our main study that we want to examine with using a few of variables which are RGDP (Real Gross Domestic Product), FDI (Foreign Direct Investment) and CPI (Consumer Price Index). y = ÃŽÂ ²0 + ÃŽÂ ²1Ln (RGDP) + ÃŽÂ ²2 (CPI) + ÃŽÂ ²3 (FDI) + Econometric Model with Expected Sign: = ÃŽÂ ²0 + ÃŽÂ ²1L (RGDP) + ÃŽÂ ²2 (CPI) + ÃŽÂ ²3(FDI) (-ve) (-ve) (-ve) Where +ve indicates that there is a postive relationship between the explanatory variable and dependent variable. On the other hand, -ve indicates that there is a negative relationship between the explanatory variable and dependent variable 3.3.2 Unit root A unit root test is used to examine whether a time series variable is stationary. In the model, T-statistic, F-statistic and R-squared are used to determine to ensure the validity of the test statistics is stationary. The result will become spurious regression problem if the non-stationary series in the ordinary least square (OLS) regression is used. Spurious regression result in high significant T-statistic and highly value for the coefficient of determination R-squared, and the R-square is larger than Durbin Watson. Therefore, if the stationary does not hold, estimate is not consistent and result will be misleading. To avoid the spurious regression problem, the Augmented Dickey-Fuller test (ADF) is used to examine the stationary of the variable. An Augmented Dickey-Fuller test (ADF) is used to test for a unit root in a time series sample. The Augmented Dickey-Fuller (ADF) statistic used in the test is a negative number. Therefore, the more negative value is, more power the rejection of the hypothesis that there is a unit root at some level of confidence. The equation for Augmented Dickey-Fuller (ADF) test Where ÃŽÂ ± is a constant, ÃŽÂ ² is the coefficient on a time trend and p is the lag order of the autoregressive process. ÃŽÂ ± = 0 and ÃŽÂ ² = 0 corresponds to modeling a random walk and ÃŽÂ ² = 0 corresponds to modeling a random walk drift. By including lags of the order p, the ADF formulation allows for higher-order autoregressive processes. This means that the lag length p needs to be determined when applying in the test. One possible approach is to test from high orders and examine the t-value on coefficients. The criterion such as the Akaike information criterion (AIC), Schwarz-Bayesian information criterion (SBIC) or the Hannan-Quinn information criterion (HQIC) test is used to examine the lag length. 3.3.3 Granger Causality The Granger Causality test indicates that a time series Y is said to be Granger caused by X if X helps the prediction of Y or equivalently if the coefficients on the lagged X are statistically significant. Granger Causality shows two-way causation in the case. X Granger causes Y and Y Granger causes X. It usually through a series of t-tests and F-tests on lagged values of X and lagged values of Y. 3.3.4 Multiple Regressions The ordinary least squares (OLS) or linear least squares are a method to examine the unknown parameters in a linear regression model. It is used to assume the distribance, ui. According to Gujarati (2003), ui stands for the normal distribution representing zero mean and constant variance, à Ã†â€™2 in the multiple regression models. With the normality assumption, OLS estimators 1, and 2 are linear functions of ui. Therefore, if ui are normally distributed, so 1,and 2 will make hypothesis testing more straightforward. OLS estimators of the partial regression coefficients are identical with the maximum likelihood (ML) estimators. There are the best linear unbiased estimators (BLUE). Besides, the least-square estimators are best unbiased estimators (BUE); it means that they have minimum variance in the entire class of unbiased estimators. 3.3.5 Multicollinearity Multicollinearity shows the two or more independent variables in a multiple regression model are highly linearly related. The multicollinearity test is perfect if the correlation between two independent variables is equal to 1 or -1. Multicollinearity will occur when there is a strong linear relationship among two or more independent variables. The equation below is refer the variables is perfectly multicollinear if there exist one or more exact linear relationships among some of the variables. Estimates for the parameters of the multiple regression equation is The ordinary least squares estimates include inverting the matrix XTX where, It indicate that if the linear relationship (perfect multicollinearity) is exactly with the independent variables, the rank of X is less than k+1 and the matrix XTX will not invertible. One of the detection of multicollinearity is used detection-tolerance or the variance inflation factor (VIF) for multicollinearity where R2j is the coefficient of determination of a regression of explanatory j on all the other explanators. Tolerances of less than 0.20 or 0.10 or a VIF of 5 or 10 and above reveal a multicollinearity problem. 3.3.6 Breusch-Godfrey Serial Correlation LM Test Breusch-Godfrey Serial Correlation LM test is a test of autocorrelation that is basically allows for nonstochastic regressors such as the lagged values of the regressand; higher-order autoregressive schemes such as AR (1), AR (2), etc and higher-order moving averages of white noise error terms such as t. Two variable regression models to illustrate the test, regressors can be added to the model and also lagged values of the regressand can be added to the model. Yt =ÃŽÂ ²1 +ÃŽÂ ²2Xt +ut The error term ut assume that the pth-order autoregressive, AR (p), Ut = ptut-1 + ptut-2 + à ¢Ã¢â€š ¬Ã‚ ¦+pput-p + t. where t.is a white noise error term. The null hypothesis H0 can be show as Ho: p1 = p2 = à ¢Ã¢â€š ¬Ã‚ ¦ = pp = 0 (no autocorrelation) At 5% significant level, if the computed p value of Chi-square is less than Chi-square tests, do not reject the null hypothesis, meaning that there is no autocorrelation problem. If computed p value of Chi-square is more than Chi-square tests, reject the null hypothesis, meaning that there is autocorrelation problem. 3.3.7 Autoregressive Conditional Heteroscedasticity Test In econometrics, Autoregressive Conditional Heteroskedasticity (ARCH) model assume that the variance of the current error term is related to the previos one. Autoregressive Conditional Heteroskedasticity model is used to model the time series with time-varying volatility such as stock price. 3.3.8 Specification error Ramsey Regression Equation Specification Error Test (Ramsey RESET test) is used to examine the specification error. The specification test for the linear regression model. More specifically, it is used to test the specification error in the equation. As the result, if the non-linear combinations of the independent variables have any power in explaining the dependent variable, means that the model is mis-specified. Consider the model Ã…Â · = E {y | à Ã¢â‚¬ ¡ } = ÃŽÂ ²Ãƒ Ã¢â‚¬ ¡ The Ramsey test is used to test whether the (ÃŽÂ ²1à Ã¢â‚¬ ¡)2, (ÃŽÂ ²2à Ã¢â‚¬ ¡)3à ¢Ã¢â€š ¬Ã‚ ¦,(ÃŽÂ ²k-1à Ã¢â‚¬ ¡)k has any power in explaining y. The Ramsey test is executed by calculate the following linear regression Ã…Â · = ÃŽÂ ²Ãƒ Ã¢â‚¬ ¡ + ÃŽÂ ²1Ã…Â ·2 +à ¢Ã¢â€š ¬Ã‚ ¦+ ÃŽÂ ²k-1Ã…Â ·k + ÃŽÂ µ After examine the test, the means of the F-test is to determine whether ÃŽÂ ²1 through ÃŽÂ ²k-1 are zero. If the null hypothesis reveals that all regression coefficients are zero, means that the null hypothesis cannot be reject, the Ramsey test is unable to detect any misspecification. If the null hypothesis is rejected, means that the model is misspecification. 3.3.9 Jarque-Bera Test of Normality Jarque-Bera test of normality is used to test the normally distributed. It is large-sample or an asymptotic test and based on the OLS. The test first calculates the skewness and kurtosis measures of the OLS residuals. JB = n Where the n = sample size, S = skewness coefficient, and K = kurtosis coefficient. The normally distributed variable, S is zero and K is three. Hence, the Jarque-Bera test of normality is a test of the joint hypothesis that S and K are zero and three, respectively. Therefore, the value of the Jaque-Bera statistic is expected to be zero. For the null hypothesis the residual is normally distributed, asymptotically (i.e., in large samples) the Jarque-Bera statistic gives the chi-square distribution with two degree of freedom showed by Jarque and Bera (Gujarati 2003) For the alternative hypothesis the residual is not normally distributed. At 5 significant levels, computed p value is less than Jarque-Bera statistic, we can reject the null hypothesis that the residual is not normally distributed whereas computed p value is more than Jarque-Bera statistic, we do not reject the null hypothesis that the residual is normally distributed. CHAPTER 4: RESEARCH RESULTS AND INTERPRETATION 4.1 Introduction This chapter consists of the results and interpretation of the relationship between