Economics Research Project: Macroeconomic Factors at Digitech

This economics research project analyzes Digitech Software Pvt Ltd, a B2B software solutions provider, examining the impact of macroeconomic factors on its operations. The project delves into the challenges posed by recession, globalization, and government monetary policies, detailing how these factors influence the company's performance. The analysis includes the effects of recession on aggregate demand and the impact of globalization on market competition. Furthermore, it explores how government monetary policies indirectly affect Digitech's business through the quantity theory of money. The project provides detailed recommendations for the company to mitigate these challenges, including cost-cutting measures, improved customer service, product differentiation, and contingency plans to ensure stable profitability. The research aims to offer practical solutions for the company to navigate economic uncertainties and maintain its competitive edge.

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ECONOMICS RESEARCH PROJECT

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Contents
1.0 Introduction..........................................................................................................................3
2.0 Analysis................................................................................................................................3
2.1 About the company and its work.........................................................................................3
2.2 Economic factors and their impact on the organisation.......................................................3
2.2.1 Recession and its impacts..................................................................................................3
2.2.2 Globalisation.....................................................................................................................4
2.2.3 Monetary policies of the government...............................................................................6
3.0 Recommendations................................................................................................................6
4.0 Conclusion............................................................................................................................7
Reference....................................................................................................................................9

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1.0 Introduction
The economic system is more complex than it sounds and each action of entities create
repercussions in the economy as a whole. The source of the actions can be government,
customers, buyers, investors or any other economic entity (Abdoh et al. 2016). However,
irrespective of the source of the problem, it influences operations and activities of the
economy and its units. This paper sheds light on the macroeconomic problem faced by
Digitech software Pvt Ltd which provides B2B software solutions. The operation of the
company is dependent on the external economic factors such as Recession, Inflation, fiscal
policies and monetary policies of the government and many more. The study encapsulated in
this paper would discuss the external factors that influence the operation of the company.
Apart from that, the paper also furnishes the developments to deal with the problems.
2.0 Analysis
2.1 About the company and its work
Digitech software Pvt Ltd is a company that provides software solutions and software
customisation services to client businesses. In addition to that, other products of the company
also include software solutions for the end customers of the market. However, most of the
revenue and sales of the company comes from the B2B operation of the company and hence
the performance of the other companies and the economy as a whole is a major determinant
of the performance of Digitech Software Pvt Ltd. There is more than one problem pertaining
to the external economy is being faced by the company.
2.2 Economic factors and their impact on the organisation
2.2.1 Recession and its impacts
The recession is one of the major problems faced by Digitech Software Pvt Ltd at the
moment. The recession is defined as the economic period where economic activity reduces
owing to different factors (Ramasamy & Abar, 2015). In case of recession, the aggregate
demand for goods and services reduces and hence the price of goods and services drops. This
reduced price level further reduces the revenue of the companies of the economy that further
reduces the income of the customers of the market. Other factors such as likeliness of

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investment also decrease during the recession that further reduces the growth and expansion
of the businesses.
As discussed above recession reduces the aggregate demand for goods and services which in
turn reduces the operation of the companies of the economy (Nielsen, Lander & Lauritsen,
2015). The demand for the products and the services of client businesses has also reduced
leading to lower demand for the software services. In terms of aggregate demand and supply
theory, the aggregate demand curve has shifted to the left side due to the recession. Therefore
not only the price level has gone down, but it has also brought down the level of output as
well. This decreased level of output is increasing the per unit average cost of Digitech
Software Pvt Ltd.
Figure 1: The AD-AS model
(Source: Grum & Govekar, 2016)
2.2.2 Globalisation
Another important issue which is being faced by Digitech Software Pvt Ltd is the
globalisation and hence the emergence of foreign companies in the market. Globalisation
refers to the process under which organisations and companies throughout the world get the
opportunity to use the international scale for their operation (Ulubeyli, Kazaz & Sahin, 2018).
There are a number of merits and demerits of globalisation from the perspective of domestic

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companies. While globalisation allows foreign companies to enter into the market whereby
the know-how increases, it also increases the competition making it tougher for the small
companies to operate in the market (Skenderi & Dreshaj, 2018).
In the case of Digitech Software Pvt Ltd the globalisation has increased the competition in
the market (Olaniran, Oladipo & Yusuff, 2018). The profitability and the success of the
company lie in the unique service and reasonable average cost which allows it to earn good
profit. However, globalisation has allowed foreign firms with a higher operating scale to
enter into the market eating up a huge market share.
Figure 2: The economies of scale and cost theory of the firm
(Source: Fritsch, Kritikos & Pijnenburg, 2015)
According to the long term cost theory of firms, economies of scale allow a firm to have a
lower average cost of production compared to the others. That means if the scale of the
production is high, the procurement of the raw material and other cost decreases leading to a
reduction in the average cost of production (Safiullin, Elshin & Prygunova, 2015). The
foreign companies with higher operating scale are setting lower prices for the software
services and hence posing a great threat for the operation of Digitech Software Pvt Ltd. As
the figure above points out the economies of scale reduces the average cost and increases the

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profitability of the company (Kulish et al. 2019). In this case, the foreign companies in the
domestic market are taking advantage of the globalisation and through economies of scale.
This, in turn, is putting pressure on the operation of Digitech Software Pvt Ltd.
2.2.3 Monetary policies of the government
Another external factor outside the control of the management of Digitech Software Pvt Ltd
that influences the operation is the monetary policies of the government. Monetary policies
are one of the popular tools used by the governments of countries in order to regulate and
balance different macroeconomic indicators (Gay, 2016). There are two types of monetary
policies that the government uses, expansion and contraction. The expansion is when the
money supply is increased in the economy and the contraction is when the money supply
reduces.
This monetary policy of the government destabilises the operation of Digitech Software Pvt
Ltd. For example, when the government reduces the money supply in the economy,
customers of the market have lesser money to spend and hence the demand for the goods and
the services reduces (Chan & Gray, 2017). The income of the customers of the economy goes
down leading to a reduction in the economic activity. Now, this economic activity is crucial
for Digitech Software Pvt Ltd as the demand for software solutions depends on the revenue
and the performance of the client businesses (Rao, 2016). Better is the economic
performances of the client businesses, more will be the likeliness of up gradation and
maintenance and hence higher the demand for the products of Digitech Software Pvt Ltd.
Thus, the monetary policies of the government indirectly create a problem for Digitech
Software Pvt Ltd.
In terms of theory, monetary policies of the government take the channel of the quantity
theory of money in order to have an impact on the operation of Digitech Software Pvt Ltd.
The quantity theory of money establishes a relationship between the money supply in the
market and the output of the economy (Keller, 2018).
3.0 Recommendations
Recommendations for recession
While the problem discussed in the paper is out of the hand of the company it can modify the
technologies and procedures of the business in order to deal with the problems in a better

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way. First and the foremost recommendation to deal with the recessionary problem is the
establishment of the cost-cutting mechanism. The management needs to be ready to cut the
cost in the wake of the recessions and for that one of the best measures would be to have
outsourced inputs to the production process. Another recommendation for the company to
deal with the problem is to improve customer service. The improved customer service can
influence the buying decisions of the customers of the market even in the period of recession
thereby having less influence on the recession on the output of the company. In addition to
that, it is also recommended to the company to have a separate team for cash flow
management as well. This can provide the company an opportunity to streamline some of the
cost in the period of recession that further will help the company to remain profitable.
Recommendations for globalisation
One of the major recommendations to combat the competition due to the globalisation is to
differentiate the products. Differentiating the products will allow the company to assign USP
thereby having the power to fight the foreign rival companies. In addition to that, it is also
recommended to the use of heavy marketing for the products as well. Although, it will
increase the product price in the short run, in the long run, it will help in building a brand
reputation that will further help the company to deal with the globalisation. Furthermore, in
the field of software development, there is a huge scope for innovation and modification.
Using this company can reduce the gap between the customers’ expectations and products.
Therefore the acceptability of the company would rise in the future.
Recommendations for monetary policies
Monetary policies of the government are one of the external factors that cannot be controlled
by the management of Digitech Software Pvt Ltd. However, it is recommended to the
company to have a contingency plan in order to have stable profitability for the company. In
this case, also the management needs to look at reducing the variable cost of production. This
will allow them to reduce the price in the case of contraction. Apart from that, customer
loyalty programmes can also be used by the company in this phase to have a continuous
demand for the goods and the service of the company. In addition to that, the management of
the company also needs to understand the elasticity of the product and the service of the
company as well. Using the elasticity of the product it can further increase or decrease the
price level during the times of contraction and expansion so that total revenue does not
reduce.

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4.0 Conclusion
Therefore, the operation of a company like Digitech Software Pvt Ltd depends a lot on
external factors such as the economic indicators. While there is no control of the management
over the external factors there are some of the technological development and modifications
that the management can undertake in order to lessen the effects of the changes in the
external environment. The study has found out that recession is one of the major factors that
influence the operation. This can be tackled by the management by streamlining the cost of
the operation. Along with that globalisation has also created a problem for the company as
foreign competitors with a greater scale of operation have been able to reduce the cost of
operation and hence the product price in the recent times as well. The paper has
recommended spending more on the marketing of the goods and the services of the company
in order to have a stable demand for the products of the company.

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Reference
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Reference list