Business Environment

Macro Environment – Global Environment

Since the last few decades, the economies of all nations are slowly integrating more and more. And now we have a global market and a global economy. Even in India after 1991 the rate of globalization is ever increasing. Let us see how these changes affect the global environment of a business.

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Global Environment

No country can now run their economy in complete isolation. Every national economy is integrated with the global economy in some way. Internal trade relations, imports, exports, trade agreements between nations, etc. are all examples. Let us see an example.

Imagine an FMCG company that makes food products. They operate on a huge scale, so they must import some of their raw materials like cocoa, honey, etc.

Their ability to import such materials, produce their goods and sell their product in local and international markets will depend on the global environment.

Global environment basically consists of international interactions of a firm over which it has no control. So, now in this global market with such a high level of competitiveness, all companies must be mindful of the global environment. Let us look at a few such factors of the global environment.

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Different Political Systems

Every business still has to operate within the rules of the law. And every country has a different political system which affects and dictates how the business will run in there. Some countries have a political system more suitable for flourishing and advancement of businesses.

Trade treaties and trade agreements between various countries can make this process simpler. But there can also be many barriers like import quotas, tariffs, excessive duties, etc. Hostilities between countries can also lead to a complete cut-off in trade relations and even embargoes.

Different Economic Systems

Various countries will also have their own economic structure and economic systems. For a product or service to truly succeed the best market system is the free market system.

Here the market forces decide all factors and there is no interference by any authorities. But rarely will we find such circumstances, especially for import and export goods.

Take for example a company operating in both the USA and China. Operating in the USA would be much easier since they follow the norms of capitalism and the free market system. On the other hand, China has a lot of government surveillance and oversight even in business.

global environment

Emerging Global Market

In recent times, we have seen some major changes in the global markets and economy. Take for example the emergence of Asian countries as a source of manufacturing. The labour is cheap and the cost of production is very low when compared to the cost of production in say America or Europe.

The laws of these countries also favour the companies in terms of taxation and ease of setting up a business. Considering these factors, most of the major manufacturers have shifted in recent years to countries like China, Vietnam, Philipines, Bangladesh, etc.

This will also eventually lead to the lowering of product costs and emergence and widening of markets for these products. So identification of these changes in the global economy will allow the companies to exploit these opportunities. Take the example of smartphones. Over the last five years, their manufacturing has got cheaper and the costs have fallen. This has opened up a whole new market!

Solved Question on Global Environment

Q: Engaging in a global environment can be quite risky for the company. True or False?

Ans: This statement is True. The changes that occur in the global environment are completely out of control of the company. But they will heavily influence a company’s international business. They can pose both threats and opportunities. So navigating the global environment can be quite tricky and risky for a company.

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