Module Title |
International Business |
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Module Credit Value |
20 |
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Module Level |
5 |
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Module Code |
LSME504 |
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Academic Year |
2020-2021/ Term 2 Group 3- Sept 2019 |
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Lecturer |
Dr Mabel Zvobgo |
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Learning Outcomes |
On successful completion of this module students will be able to:
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Issue Date |
15/01/2021 |
Submission Deadline |
Assignment 1: Essay 06-02.2021 4:00 PM |
Signature of Assessor |
Mabel Zvobgo |
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Table of Contents
Introduction
The purpose of this essay is to elaborate the factors affecting global economies will be discussed. The four main characteristics of the global economies are globalisation, international trade, international finance and global investment. Further, in this report how the factors affect the growth of international trade will be discussed. The global business environment provides many companies with the opportunity to grow their business. Such an environment in the business sector also boosts the global economy. A business should operate globally as it increases their chances to generate more profits by addressing a larger market share. Compared to the market share in a single country global business environment increases the market share by four times for countries as large as the United States.
Identify factors affecting the global economy and explain how they influence the growth in international trade using specific examples. Then analyse how the global business environment influences the growth and development of international business.
Global economy refers to the interconnection of the economic activities between various countries. These can have either a negative or a positive effect of the countries that are involved in the economic activity. The global economy consists of various characteristics such as globalisation, international trade, international finance and global investment. These factors affect the global economies are infrastructure, natural resources, labour, population and technology (Whittaker and Shield, 2017).
Globalisation refers to how regional communities and cultures have interconnected with many other communities and countries through communication and trade. The covid-19 pandemic has a huge impact on the international trade. Due to the covid-19 pandemic, many countries had to shut down their borders. This affected the international trade in many ways. Since, the international trade was affected many economies also began to fall (Unctad.org. 2020).
A healthy infrastructure can help a country to take part in international trade. Many companies around the world try to expand their business in different countries. However, it is only possible for a company to effectively do its business only if the infrastructure of a country is well built. Infrastructure may include transportation facility, power facility, trade facility, and so on. Many international companies depend on the infrastructure of a country for the success of the business (Leamer and Stern, 2017). Tesla Motors is an electric car manufacturing company. In order to expand their business, the company has to find countries that have a well-built infrastructure and can setup electric power stations all over the country so that customers can charge their vehicles conveniently. In case a country does not have the infrastructure, the company would not be able to set up a manufacturing centre in the country. Tesla is successfully able to make substantial amounts of profits by selling their cars in Norway. Norway is a developed country and has a proper provision for charging Tesla vehicles across the country (Holter, 2019).
Natural resources are another factor that affects the global economy and international trade between countries. Countries that are rich in natural resources are very lucky and boost the country's economy just by selling it to another country. Natural resources account for 20% of trace across the world every year (Annual Reviews, 2012). A country can trade natural resources such as petrol, diesel, uranium, oil, wood, food, and so on, which is why companies can also consider setting up manufacturing centres in countries that are rich in natural resources. Natural resources that a country can trade such as petrol, diesel, uranium, oil, wood, food, and so on. Companies also consider setting up manufacturing centres in countries that are rich in natural resources. It helps the company to get the natural resource at a cheaper price and can generate profits by developing it into a product or service. The United Aran Emirates is rich in producing oil and petroleum. Therefore, most of the car manufacturing companies try to sell their products in this country (Arezki et al., 2017). Since the cost of fuel is cheaper in this country the residents of this country can buy costly cars even with less mileage.
Technology is also a major factor that affects international trade. Countries that are very rich in technological advancement usually see a rise in their economy. Every manufacturing company around the world needs technological equipment to develop these products. It is not possible to for people to make products by hands in several thousand. Technologically advanced countries can also generate income by selling machinery that can be used by companies that are located in a country, which is not able to develop such products. Technology can be useful for manufacturing as well as the service industry. For example, Apple is a mobile manufacturing company (Burstein and Vogel, 2017). The company chose China to set up a manufacturing and assembly warehouse. It chose China because the country can develop advanced technologies and many electronics company were able to make the small parts required to build an Apple product. It would be very difficult for the company to distribute its products all over the world from its manufacturing centre in California, USA. In order to make the operations even more profitable, it set up a centre in China. The company was therefore able to sell its products in the Asian markets.
The type of labours in a country also affects international trade. A country’s education system is responsible for developing skilled labours. Countries that do not have a good education system fail to produce skilled labour. Every multinational company across the world searches for skilled labours for its operations. Skilled labours help a company to manufacture effective products with the least amount of energy. This is a very profitable factor for a company. China has highly skilled labour because of which most of the companies prefer China for setting up their company stores and warehouses. America is the hub of companies and the companies in America train their work so that they can use them for their business. Countries having skilled labours can attract more companies to set up a business.
The population of a country also affects international trade. A country with a large population has a large market base, which can also attract companies to start a business in the country. India has a large market base because of which many companies prefer setting up their business in the country. It is easier for companies to target customer in such a large market base. Even if the company sets low prices on their products and services, it can generate lots of revenue by increasing their supply. In such countries larger the demand and supply, greater is the profit. Tesla is a company that needs an infrastructure to sell its products in a country has issued to sell their cars in India, even though India has very few electric power stations (Business Today, 2021). The company was able to take this decision because of the large market bases of the country.
A global business environment can help many companies to increase their business operation and profitability by expanding into different countries. Not all the countries around the world have a large market base like India, China and the USA. In earlier days the British people use to export food and water from Hong Kong to the United Kingdom. Since the country was at war it was not able to produce food and water as it was under a constant threat of attack from the Germans. Without exporting food and water from Hong Kong, the British could not have survived. The country benefited from globalisation rather than business environment.
Countries having that are small and do not have a large market base face the same problem. However, a global business environment gives companies in such countries and the opportunity to sell their products and services in other countries and therefore increasing their market base. Without the global business environment, most of the countries would not be able to survive themselves. Nestle is one of the most renowned chocolate treats manufacturing company. However, the country in which the company was originated (Switzerland) did not have enough resources (Shageeva et al., 2017). This forced the company to depend on international trade to get resources so that it would be able to create products for their customers. The country also benefited from the business environment as it was able to sell its products in other countries.
Even though developing countries have marketing and economic problems, they have huge potential. Asia is one of the largest markets due to its population. Many companies are missing huge profits that have not yet set up Facilities in the Asian market. Businesses that have been ignoring the potential of the Asian markets are now repenting on their actions. Amway is an American privately owned company that is specialised in making cosmetics and home products. Even though the company has originated in the United States of America, most of its customers are in Japan across the pacific (Hamilton and Webster, 2018).
Foreign markets consist of a larger market share of the total business for any multinational company. Companies can generate more sales and profits by selling their products and services overseas. Even though if a company has to ship a product to a country where it does not have a store or manufacturing centre, the delivery charges have to be paid by the customer. Customers who require a product would pay huge shipping charges. The companies do not have to set up a manufacturing or operations centre in every country they want to sell their service or product (Bedianashvili, 2016). Instead, a company can take advantage of a single country and benefit more by selling in the same as well as the neighbouring countries. Companies such as IBM and Compaq sell most of their computer in the foreign market compared to the market in the parent country. According to the U.S market of commerce, due to the global markets, the income of American firms increased by 10% on an annual basis between the years 1982 and 1981. Marvel production is a company that was able to increase its income due to rise in international trade. The company was able to sell its entertainment content to other countries and was able to make substantial amount of profits (Sec.gov, 1981).
The rise in the market share for a company also pushes a company to venture into many businesses. Companies can take advantage of the global business environment to set up their main business in a country and sell different products (RAO, 2020). For example Nike is a sports apparel and accessories company. The company usually sold the products that were mandatory for playing sports such as shoes, track pants, sports bras etc. The company however expanded its business by developing casual wear clothing and shoes. The company also sponsored one of the most successful athletes of all time "Michael Jordan" and created a brand out of it. Nike developed the brand so that it could generate revenue of 3 million dollars, however now the company has generated billions out of it.
The advantages of transport are easily self-evident, as they signify reserve capacity for the national economy, imports may also be extremely beneficial to a country. Excluding imports, domestic companies have little reason to moderate their costs. The absence of substitutes to processed goods causes customers to spend extra, leading to inflation and unsustainable income for local companies. Typically, this progress serves as a precursor to the push for higher salaries by employees, further intensifying the inflation problem. There is an increase in prices of US cars by $400 and Japanese imports of $1000, as the import laws of America helped the Japanese automobile manufacturers to enter the market and save 46000 American jobs but at the cost of $160,000 (Barac et al., 2016).
Conclusion
International trade can be beneficial for the economies of countries as well as companies. Countries having large natural reserves can maintain their economy simply by selling natural resources. A global business environment has largely increased the potential of a business are trying to expand, therefore business these days try to expand their operations in different countries. The company can increase its profitability as well as it can diversify its products and services by taking reviews from customers.
Reference list
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