Foundations of International Strategy
Economic Approaches to Organizations
1. Markets and Organizations
1.1 The Economic Problem
Economic problem: a situation in which needs would not be met as a result of scarcity of resources
- Resources could be all factors that may contribute towards the satisfaction of human needs
An economic problem has not necessarily something to do with money!
Because of scarcity, the economic problem should be formulated as a problem of how to make the
best use of the available resources.
- What is the optimal allocation of the scarce resources over the alternative uses?
o Optimally allocated resources are said to be used with efficiency
- A problem has an economic aspect when part of it deals with the (optimal) allocation of scarce
resources.
1.2 The Division of Labour
Adam Smith (An Inquiry into the Nature and Causes of The Wealth of Nations (1776))
- Accords great importance to the division of labour: splitting of composite tasks into their
component parts and having these performed separately
o Example ‘pin factory’: splitting work up into distinct tasks and having each worker
1.3 Specialization
Due to specialization, the same amount of output van be produced with less effort
- More efficient:
o Devoting all attention to improving performances of that specific task, learning from
more experience, using experience to further improve execution of the task
1.4 Coordination
Specialization People not economically self-reliant Exchange of goods and services
- Exchange: right to use goods/services is transferred
1. Involved goods need not be only marketable goods
a. Fe. Favours or information
2. The transfer of rights need not be mutual
a. One offers time Time is a scarce resource = Example of exchange (whether or
not you accept it)
Whenever exchange takes place, we speak of an (economic) transaction
Specialization Need for specialized goods and services of others Need for coordination
- 2 types of coordination: transactions across markets or within organizations
1.5 Markets and Organizations
In some cases it is not necessary for buyers and sellers to
have any personal contact, because the price system is the
coordinating device that takes care of allocation.
- Price contains all information you need to base your
transaction on: it is a sufficient statistic
1
Economic Approaches to Organizations
1. Markets and Organizations
1.1 The Economic Problem
Economic problem: a situation in which needs would not be met as a result of scarcity of resources
- Resources could be all factors that may contribute towards the satisfaction of human needs
An economic problem has not necessarily something to do with money!
Because of scarcity, the economic problem should be formulated as a problem of how to make the
best use of the available resources.
- What is the optimal allocation of the scarce resources over the alternative uses?
o Optimally allocated resources are said to be used with efficiency
- A problem has an economic aspect when part of it deals with the (optimal) allocation of scarce
resources.
1.2 The Division of Labour
Adam Smith (An Inquiry into the Nature and Causes of The Wealth of Nations (1776))
- Accords great importance to the division of labour: splitting of composite tasks into their
component parts and having these performed separately
o Example ‘pin factory’: splitting work up into distinct tasks and having each worker
1.3 Specialization
Due to specialization, the same amount of output van be produced with less effort
- More efficient:
o Devoting all attention to improving performances of that specific task, learning from
more experience, using experience to further improve execution of the task
1.4 Coordination
Specialization People not economically self-reliant Exchange of goods and services
- Exchange: right to use goods/services is transferred
1. Involved goods need not be only marketable goods
a. Fe. Favours or information
2. The transfer of rights need not be mutual
a. One offers time Time is a scarce resource = Example of exchange (whether or
not you accept it)
Whenever exchange takes place, we speak of an (economic) transaction
Specialization Need for specialized goods and services of others Need for coordination
- 2 types of coordination: transactions across markets or within organizations
1.5 Markets and Organizations
In some cases it is not necessary for buyers and sellers to
have any personal contact, because the price system is the
coordinating device that takes care of allocation.
- Price contains all information you need to base your
transaction on: it is a sufficient statistic
1
