The global economic environment has become more interlinked in the 21st century than ever before because more business enterprises have realized the importance of having trade relations within and outside their countries.
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Several prevailing factors that have a direct impact on the global economy influence greatly how the world business environment is likely to be at any given time (Harrison, 2010). This paper will examine the influence of factors on world economy. It will also examine how these factors shape global economic environment.
Transnational Business and its Role in Contemporary Society
Multinational business enterprises have had a big impact on the global economy over the years because of their operations in many countries.
This has meant that these businesses have had a major influence on investment patterns and economic activities globally because of their wide branches of networks that defy geographical and political boundaries (Meteer, 2004). The multinationals have been forced to improve their business processes within the locations they operate in collaboration with their employees at designated locations.
Meteer (2004), argues that such organizations have been forced to allocate resources for improvement of processes through effective structures in which employees and management teams can collaborate to facilitate improvement of procedures.
These initiatives help Multinational Corporations to evaluate their participation in formulation of policies across their branches globally. The multinationals can afterwards assess the impacts of structural improvements on business through regular meetings with staff t.
Business Environment PESTEL
Business environment has a key influence on the way business activities are to be carried out and it is necessary for a business to have a comprehensive assessment of all factors that can have a bearing on how business is conducted within a particular location.
Evans and Richardson (2007), contend that globalized economic environment is complex and changes from time to time and this places a heavy responsibility on multinationals and other business enterprises. They are forced to adapt in order to deal with these factors for the benefit of their organizations.
A company cannot ignore political issues when assessing the business environment in which it operates because it affects government policies such as licensing, regulation and taxation, which have a direct consequence on the activities of a business enterprise (Evans, & Richardson, 2007).
The economic and social factors play a crucial role in determining monetary climate that the business operates in and the nature of consumption habits that prevail within that particular area concerning lifestyles. These social aspects help a business organization to evaluate potential changes brought about by their products in the market.
Evans and Richardson (2007), insist that an enterprise must factor in technological solutions that it can introduce within the market it seeks to establish itself and research initiatives it can introduce to help improve its operations. The environmental factors should be assessed to establish potential impacts of the activities carried out by the organization in the environment.
It is important for any enterprise to be familiar to all legal requirements relating to health and safety, environment, labor issues and ownership structure. The organization should ensure that it complies with all the set regulations adequately (Evans, & Richardson, 2007).
Trade and exchange rates
Trade and exchange rates play a crucial role in ensuring that a delicate economic balance within and outside a country is maintained. Grube and Samanta (2003), argue that currency exchange rates within an economy can inspire or shatter investor’s confidence. Due to this, it is important to have a favorable exchange rate that can have a positive effect on business activities within a country.
Business climate is heavily dependent on the prevailing exchange rates because they determine the direction that foreign trade is likely to take within an economy (Grube, & Samanta, 2003). A volatile exchange rate climate makes it difficult to evaluate the rates of inflation within an economy hence an enterprise cannot evaluate its growth prospects easily both in the short term and in the long term.
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Grube and Samanta (2003), further add that an economy, which is heavily reliant on imports, is likely to experience high inflation because of the weakened value of its currency while that one with a stronger currency is likely to find it difficult to sell its exports internationally because of the increase in the prices of products it exports.
A volatile exchange rate regime has a negative consequence since it makes interest rates within an economy to be unstable, which pushes up the cost of lending and borrowing.
High interest rates discourage investors from borrowing and may result to a low level of investment within an economy. This makes it difficult for the economy to grow and there is a possibility of creating limited opportunities within such an economy (Grube, & Samanta, 2003).
Globalization: Emerging Economies and BRICs
Globalization has a big influence on the economic environment that is being witnessed in the 21st century. Groups of emerging economies, which dominate the world stage, have created a shift in the world economic agenda and surpassing the previous economic giants of the 20th century such as Britain, France and Italy (Khan, & Roy, 2011).
Brazil, Russia, India and China are the new key drivers of the global economic agenda because of the level of economic growth and prosperity that their economies have experienced over the last decade.
The increase in volumes of exports from these countries has helped them to be more prosperous in the world stage. Furthermore, the living standards of their citizens have improved due to increased incomes (Khan, & Roy, 2011).
Market segmentation, Targeting and Positioning
Market segmentation, targeting and positioning helps a business enterprise to formulate its short-term and long-term strategies regarding the way it seeks to operate within a given market. Bishop and Barber (2012), contend that this helps the enterprise in finding out details about consumer behavior and consumption patterns within a specific market.
It also helps a firm to establish ways in which it can outline its market share for its products and services. Enterprises must therefore take their time to invest in their brands, which can capture the customers’ attention. Through this, customers appreciate the products’ qualities and in the end, they become loyal to that product.
The enterprise can therefore anticipate the likely reactions of customers in the market by segmenting target demographic groups. This would ensure that their products are designed to meet their expectations (Bishop, & Barber, 2012).
Demographic groups can be based on age, socio-economic status, race, gender and geographical locations. All these segments of the market will have different perceptions and attitudes regarding customer’s lifestyles. As such, they would seek products, which appeal to their attitudes and feelings.
Therefore, these consumers are likely to go for products that enhance their self-esteem. Such products are likely to enhance feelings of self worth within these consumers, especially concerning how other people regard them (Bishop, & Barber, 2012).
The Macro-Economic Environment
The macro-economic environment has a big impact on economic environment within any given economy. This is related to the nature of legal framework and other fundamentals that exist within an economy. On the other hand, these rules have a direct effect on the economic activities carried out in an economy (Tawadros, 2009).
Government policies and regulations are some of the key factors that should be taken into account when formulating strategies that an enterprise could adopt in executing its services.
Tawadros (2009), insists that these policies contribute directly to macro-economic environment that an enterprise may have to contend with while carrying out its operations within a given location. This may actually determine whether a company’s operations are successful or not.
Business enterprises must be aware of the prevailing fiscal and monetary policies within the economies they operate. This might help them understand the impacts of such policies on their operations. Taxation and other government regulations should be adhered to since they have determine the relations between the state and the firm. This would further have direct bearing on the way businesses conduct their operations.
Tawadros (2009), argues that these punitive taxes and laws that the state imposes on business enterprises can create difficult conditions for investment hence discouraging potential investors from investing in such an economy.
Consequently, the cost of telecommunications, transport, electricity and other important infrastructure in an economy is vital since they encourage business activities. Investors would be reluctant to invest in remote areas. The existence of key infrastructural facilities reduces the overall cost of doing business within an economy. This would stimulate business activities within an economy.
Other social issues such as security and political stability are important in ensuring that more investment activities are carried out within a particular economy. Investors are reluctant to invest in war torn area since they can easily lose their stocks (Tawadros, 2009).
Porter’s Five Model Forces
Porter (1980), reveals that in any market, there are competitive forces that exist. Such forces create conditions that place constrain business organizations operating in an area. Furthermore, some forces do not allow companies to compete effectively. New firms intending to enter into a particular market are usually faced with several barriers, which make it difficult for them to gain a foothold in the market.
Alternatively, such companies are forced to invest in other industries or sectors. Porter (1980), further adds that policies such a large capital requirements makes it difficult for some companies to access distribution channels for the finished products.
Other competitive forces that exist within a market such as capturing market share from strong brands with a large market share and aggressive bargaining power can create unfavorable conditions for investors operating within an economy (Porter, 1980).
The European Environment
The European environment emphasizes on business practices that encourage environmental sustainability within locations in which business enterprises set up their operations. Hogevold and Svensson (2012), argue that this is meant to encourage more business enterprise managers and owners to uphold principles, which will make their operations to be in line with natural environmental conservation laws.
This aims at protecting delicate ecosystems. This has made more businesses to be aware of global pollution issue and climate change. Businesses are able to identify how these problems are worsened by uncontrolled environmental degradation.
Heavy industrial production unites have been informed the dangers that green house emissions can have on the environment. As such, they have been encouraged to limit the amount of emissions they release into the environment (Hogevold, & Svensson, 2012).
Global Organizational Environment (Corporate Governance, Stakeholders, Ethical Stance, Business Ownership)
Shaw and Riach (2009), argue that global organizations emphasize on corporate governance as one of the key ways in which an organization can assess whether it is on the right track or not. Therefore, business organizations must ensure that the practices they carry out pass the integrity test in the eyes of their customers, suppliers and other stakeholders.
The management of an enterprise must ensure that it is transparent in all its dealings, both internally and externally regarding financial issues, customer affairs and overall accountability (Shaw, & Riach, 2009).
All stakeholders must have confidence as regards to practices carried out by an organization. This may come in terms of business dealings and transactions. This would show that the organization is accountable and responsive to customer needs.
There should be ethical concerns that a business enterprise must focus on. This would ensure that organizations respect a particular set of beliefs, attitudes and opinions that exist within a particular market. This should be especially so in the eyes of its consumers. Consumers should be able identify the operations of the firm. This means that the company should function normally (Shaw, & Riach, 2009).
The company must assess its environmental practices to establish whether they are ethical in the eyes of their clients and other stakeholders within that market. This may determine whether the customer will associate him or herself with a particular company.
An enterprise must also ensure that its internal labor policies respect the dignity of workers, as this will be reflected in the reputation and attitudes of the market, both in long-term and short-term basis (Shaw, & Riach, 2009).
The ownership of any business enterprise must satisfy all legal requirements that have been put in place to govern business ownerships within an economy. This would ensure that the business organization does not engage in other illegal activities, which deviate from their core market activities.
Shaw and Riach (2009), further add that individuals and companies who have an ownership stake in a business enterprise must be of good character. They should not have engaged in suspicious or illegal activity. This would ensure that the business enterprise is not associated with any unethical practices that might give it a negative image in the market it operates.
Scenarios and Scenario Building
Coca Cola is one of the largest multinationals that has been able to maintain its market share globally for many years. The company’s soft drinks products are accessible even in the most remote parts of the globe. This is an illustration of the success of its business model, which has made it to be one of the world’s strongest brands (Meteer, 2004).
The company is believed to have one of the most elaborate distribution networks in the world, which has ensured persistent supply of its products worldwide. The distribution channel defies geographical, political and socio- economic barriers.
The company’s products are easily identifiable by tens of millions worldwide, making the multinational’s brands appealing cross the world and to many demographics. This has earned it a good reputation (Meteer, 2004).
The company is the archetype of the modern successful multinational, which has over the years managed to stay relevant in a dynamic beverages and soft drinks market. The company is a real testimony of how globalization has influenced consumer habits and the means through which multinationals can gain a foothold in their foreign markets through well-planned market research and development.
The company has been able to withstand unfavorable trading conditions by employing political and economic techniques. In each state, the company has established a good relationship with the elites by fulfilling their demands and wishes. It is not surprising that the company has branches to remote parts of the world such as Libya and North Africa.
Global Organizational Environment: Conclusion
It can be concluded that all factors that might actually affect an organization are referred to as global organizational factors. There are two categories of global organizational factors. Direct interactive category involves factors that have direct and actual impact on an organization. In the global market for instance, it involves a new competitor that has just entered the market.
Direct forces may include owners of multinationals, clients, workers and employers. Indirectly interactive forces include forces such as socio-cultural, political and legal, scientific, and financial forces. Technological force is the most important because it affects scientific processes that are utilized by a company in production of goods and services.
A company can only succeed if it utilizes global technology to produce its goods and services. For instance, firms that have acquired management information systems have excelled in their places of operations. Technology is a global factor that affects all firms in the world. The current market depends on information. Technology helps a firm to manipulate information.
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