A managerial economist can play a very important role by assisting the management in using the increasingly specialized skills and sophisticated techniques, required to solve the difficult problems of successful decision-making and forward planning. In business concerns, the importance of the managerial economist is therefore recognized a lot today. In advanced countries, large companies employ one or more economists. A managerial economist can contribute to decision-making in business in specific terms. Different roles of managerial economist in business as follows:
Environmental Studies of a Business Firm
An analysis and forecast of external factors constituting general business conditions, for example, prices, national income and output, volume of trade, etc., are of great significance since they affect every business firm. Certain important relevant factors to be considered in this connection are as follows:
- The outlook for the national economy, the most important local, regional or worldwide economic trends, the nature of phase of the business cycle that lies immediately ahead.
- Population shifts and the resultant ups and downs in regional purchasing power.
- The demand prospects in new as well as established markets. Impact of changes in social behavior and fashions, i.e., whether they will tend to expand or limit the sales of a company’s products, or possibly make the products obsolete?
- The areas in which the market and customer opportunities are likely to expand or contract most rapidly.
- Whether overseas markets expand or contract and the affect of new foreign government legislation’s on the operation of the overseas plants?
- Whether the availability and cost of credit tend to increase or decrease buying, and whether money or credit conditions ahead are likely to easy or tight?
- The prices of raw materials and finished products.
- Whether the competition will increase or decrease.
- The main components of the five-year plan, the areas where outlays have been increased and the segments, which have suffered a cut in their outlays.
- The outlook to government’s economic policies and regulations and changes in defense expenditure, tax rates tariffs and import restrictions.
- Whether the Reserve Bank’s decisions will stimulate or depress industrial production and consumer spending and how will these decisions affect the company’s cost, credit, sales and profits.
Reasonably accurate data regarding these factors can enable the management to chalk out the scope and direction of their own business plans effectively. It will also help them to determine the timing of their specific actions. And it is these factors, which present some of the areas where a managerial economist can make effective contribution. The managerial economist has not only to study the economic trends at the micro-level but also must interpret their relevance to the particular industry or firm where he works. He has to digest the ever-growing economic literature and advise top management by means of short, business-like practical notes. In mixed economy like that of India, the managerial economist pragmatically interprets the intentions of controls and evaluates their impact. He acts as a bridge between the government and the industry, translating the government’s intentions and transmitting the reactions of the industry. In fact, the government policies emerge out of the performance of industry, the expectations of the people and political expediency.
A managerial economist can also be helpful to the management in making decisions relating to the internal operations of a firm in respect of such problems as price, rate of operations, investment, expansion or contraction. Certain relevant questions in this context would be as follows:
- What will be a reasonable sales and profit budget for the next year?
- What will be the most appropriate production schedules and inventory policies for the next six months?
- What changes in wage and price policies should be made now?
- How much cash will be available next month and how should it be invested?
The managerial economists can play a further role, which can cover the following specific functions as revealed by a survey pertaining to Britain conducted by K.J.W. Alexander and Alexander G. Kemp:
- Sales forecasting.
- Industrial market research.
- Economic analysis of competing companies.
- Pricing problems of industry.
- Capital projects.
- Production programmes.
- Security / Investment analysis and forecasts.
- Advice on trade and public relations.
- Advice on primary commodities.
- Advice on foreign exchange.
- Economic analysis of agriculture.
- Analysis of underdeveloped economics.
- Environmental forecasting.
The managerial economist has to gather economic data, analyze all relevant information about the business environment and prepare position papers on issues facing the firm and the industry. In the case of industries prone to rapid theological advances, the manager may have to make continuous assessment of tl1e impact of changing technology. The manager’ may need to evaluate the capital budget in the light of short and long-range financial, profit and market potentialities. Very often, he also needs to prepare speeches for the corporate executives. It is thus clear that in practice, managerial economists perform many and various functions. However, of all these, the marketing functions, i.e., sales force listing an industrial market research, are the most important.
For this purpose, the managers may collect statistical records of the sales performance of their own business and those rehiring to their rivals, carry out analysis of these records and report on trends in demand, their market shares, and the relative efficiency of their retail outlets. Thus, while carrying out heir functions, the managers may have to undertake detailed statistical analysis. There are, of course, differences in the relative importance of· the various functions performed from firm to firm and in the degree of sophistication of the methods used in performing these functions. But there is no doubt that the job of a managerial economist requires alertness and the ability to work under pressure.
Besides these functions involving sophisticated analysis, managerial economist may also provide general intelligence service. Thus the economist may supply the management with economic information of general interest such as competitors prices and products, tax rates, tariff rates, etc.
Participating in Public Debates
Many well-known business economists participate in public debates. The government and society alike are seeking their advice and views. Their practical experience in business and industry adds prestige to their views. Their public recognition enhances their prestige in the firm itself.
Credit: Managerial Economics-MGU