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International Business: Marketing Add in library

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Question:

A skillful global manager cannot develop a suitable strategi plan or consider an investment abroad wothitu first assessing the environment- political,economic, legal and technological- in which country operate. using country specific examples, discuss the above quote.

 

Answer:

“The global managers are required to conduct a Political, Legal, Economic and Technological analysis of the environment for developing strategies and investment plan for international business”.

Political, Legal, Economic and Technological analysis is an effective tool used by managers to evaluate the external environment as the business operates at the global level. By combining the results of Political, Legal, Economic and Technological analysis with the SWOT analysis, a manager is well equipped with the required information to develop effective strategies for the benefit of the organization (Ariño, 2011). Generally, analysis of these factors by the global manager is required when the company is planning to enter into new foreign markets or launching a new product or service. These external factors are evaluated because it either directly or indirectly will have an impact on the functioning of the company. Since these factors cannot be controlled by the organization, it is important for the managers to asses these factors to identify any risk that might be present and devise strategy to mitigate the risk (Aslam & Azhar, 2013). This Political, Legal, Economic and Technological analysis helps the firm to prepare for any uncertainty. Now each of the factors will be explained with the help of examples below.

  • Political Environment: A manager must be updated with any kind of change in any policy which can affect the normal functioning of the business even in a stable environment. There might be any change or updates in the consumer protection law, employment laws, environmental and taxation rules and regulations, any changes in the health and safety requirements or any trade reforms in the foreign land or in the domestic business environment (Cuervo-Cazurra, 2011).

For exampleThus, when a company plans to invest in any of the emerging economies, it is perceived that these investment is highly welcomed by the local government of the emerging markets, but the bureaucratic governance system in these economies might not allow the foreign business to reach its optimum level of profitability. Another major legal factor that must be of concern of the global manager is the attitude of the country towards the foreign investment. This can be understood with the help of an example of the Korean government (Czinkota & Ronkainen, 2011). This has opened opportunities for MNCs to take location advantage and reduce its operational costs. This campaign will benefit both.

Legal Environment: Legal environment is one factor that will have a direct impact on the functioning of a global business. The rules and regulation of the host country will shape the policies of the organization (Czinkota & Ronkainen, 2013).  For example, the safety standards, consumer laws and other regulation for environment protection will force the multinational company to change and incorporate these standards of the host country into its policy to comply with them. In Russia, the legal requirements to conduct business is very difficult and tricky, therefore, multinationals are required to hire Russian lawyers in order to ensure that they comply with all the regulations. It has both positive and negative impact. Another risky factor of investing in emerging economies is that these economies is characterized by lack of transparent system and weaker intellectual property protection and high level of corruption at all level of governance. The problem of counterfeiting is very high in India and China and the IPR laws are weak. This discourages the MNCs to invest in such countries.

 

The extent to which (Ghosal, 2013).

  • Economic Environment: Economic factors addresses a number of concerns such as tax rates, interest rates, rate of inflation, trading regulations, fluctuating exchange rates, excise duties etc. To increase the operational efficiency of the global business a manager must take into account the level of unemployment, skill level of the employees, working patterns and availability of the expertise in the host country to be able to comply with these regulations (Husted, 2013). For example, when the inflation rate in India rise then the effect was reflected by the decline in demand for luxury products and foreign goods. Also whenever the inflation rate of any country rises then the purchasing power of the general public reduces which also results in the reduced demand thereby affecting the sales of the global brand.

Another example can be of fluctuating exchange rates. When there is instability in the political environment there is huge fluctuation in the exchange rates. Therefore, when the exchange rate make a slight negative move the multinational company may make huge losses when it is converted in the home country currency and vice versa. Thus, if there is risk then there is gain too. Variation in the exchange rate also influences the costs and supply of exported goods and pricing of the imported goods in the country (Kono & Antonucci, 2006). The economic stability will also determine whether the government of the host country will have a positive or negative attitude towards the foreign direct investment.

A good example would be, many (Koza, Tallman & Ataay, 2011). Before investing in other country a global manager is require to collect ample amount of information about the clear economic indicators such as the Gross National Product and Gross Domestic Product of such economies which are easily available these days given the technological advancements. This analysis will help the global manager to devise entry strategy into new markets.

  • Technological Environment: It is highly crucial for the organizations to keep updated with all the latest technology as it may affect the growth of the business. For example, the entertainment industry has shifted online completely. Now consumers don’t buy CDs or DVDs to watch their favorite movie or series, instead all the content is streamed online across the globe. Thus, this shift in technology has completely changed the face of the entertainment industry (Loots, 2002). Thus the global manager must be aware of the latest technological development and analyze how these developments will affect the functioning of the business.

Advancements in technology can affect two basic area of operation of the company, namely, infrastructure and manufacturing. The global manager needs to utilize these opportunity to gain competitive advantage in the host as well as in the home country. With the help of technological advancements, the manager can automate the manufacturing process and can also deploy effective communication model to enhance the flow of information both within and outside the organization. (Qiu & Fan, 2013). The global manager can also decide to outsource the operation to the third party if he assess that the cost of acquiring the new technology in the host country will be highly expensive.

For example one the market leader in the mobile industry, This example clearly reflects how advancements in technologies can change the demand and needs of the consumers and how crucial it is for the companies to adapt to such changes quickly in order to thrive in the international markets (Westney, 2011). If the company lags behind in adapting to such technological changes they might face huge loss. Thus it is vital for the global manager to continuously monitor the environment and look for any updates that are available and devise a strategy to capitalize on such opportunities.

Thus it can be said, that a global manager needs to analyze the technological, political, legal and economic factors properly to be able to devise an effective strategy to capitalize on the opportunities and mitigate the potential risk in the environment to be able to successfully thrive in international business in the long run.

 

Reference List

Ariño, A. (2011). Building the global enterprise: Strategic assembly. Global Strategy Journal1(1-2), 47-49. doi:10.1002/gsj.10

Aslam, M., & Azhar, S. (2013). Globalisation and development: challenges for developing countries.IJEPEE6(2), 158. doi:10.1504/ijepee.2013.055795

Cuervo-Cazurra, A. (2011). Global strategy and global business environment: the direct and indirect influences of the home country on a firm's global strategy. Global Strategy Journal1(3-4), 382-386. doi:10.1002/gsj.35

Czinkota, M., & Ronkainen, I. (2011). Global business. New York: Routledge.

Czinkota, M., & Ronkainen, I. (2013). International marketing. Mason, OH: South-Western Cengage Learning.

Ghosal, V. (2013). Business Strategy and Firm Reorganization: Role of Changing Environmental Standards, Sustainable Business Initiatives and Global Market Conditions. Bus. Strat. Env.24(2), 123-144. doi:10.1002/bse.1815

Husted, B. (2013). Global Environmental and Social Strategy. Global Strategy Journal3(2), 195-197. doi:10.1111/j.2042-5805.2013.01057.x

Kono, K., & Antonucci, D. (2006). Sustainability of Cross-Functional Teams for Marketing Strategy Development and Implementation. The Health Care Manager25(3), 267-276. doi:10.1097/00126450-200607000-00012

Koza, M., Tallman, S., & Ataay, A. (2011). The strategic assembly of global firms: A microstructural analysis of local learning and global adaptation. Global Strategy Journal1(1-2), 27-46. doi:10.1002/gsj.4

Loots, E. (2002). Globalisation: A ranking of South Africa and other emerging market economies.South African Journal Of International Affairs9(1), 45-55. doi:10.1080/10220460209545376

Qiu, Y., & Fan, Y. (2013). Rethinking Global Innovation Strategy: Emerging Market Perspectives.BMR2(3). doi:10.5430/bmr.v2n3p33

Westney, D. (2011). Global strategy and global business environment: changing models of the global business environment. Global Strategy Journal1(3-4), 377-381. doi:10.1002/gsj.34

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