GUILDHALL COLLEGE

Course Subject: Business Environment

Module Number & Title: MSc 111

Course/Degree

Top-up To Masters in International Business Management

Student ID: 971032609

Assignment # 1

Assignment Topic:Evaluate and assess the impact of Global Factors and the International business environment on organizational performance.

Word Count: 2644

Due Date: 1st September, 2009

Submitted On: 28thAugust, 2009

Presented By: Syed Ahmed Warsi

Table of Contents

1 Introduction 1

2 Global Factors Influencing the Business Organizations 4

2.01 Political Changes and Government term 42.02 Political uncertainty and conflicts 52.03 Trade Blocks 6 2.04 Exchange Rates Fluctuations 7 2.05 Interest Rates 8 2.06 Tax Systems 9 2.07 Environment, Health and Safety 102.08 Ethics 11 2.09 Unemployment 122.10 Demographic Change (Population growth rates,

Education, Culture) 122.11 Technological Revolution 13

3 Conclusion 14

References

Page 1

1. Introduction

No matter how well reputed and renowned the business organizations are, they have to respond to this globalized business environment effectively and efficiently, to be in business, to compete, to exist, to be a magnetic force for consumers, and to be a brand of repute.

In today's innovate and globalised business world the global factors are continuing to dominate the business organizations. No matter how smart, forward-looking the decisions and actions taken in business the future is always different. Business always tends to behave in terms of economic boom or depression. The decisions and the actions today become outdated the moment they are made.

On one hand the Global factors keep on changing the business strategies and have an immense and enormous impact on the organizational performance. On the other hand the international Business Environment has a far reaching impact on the organizational performances which are Trade blocks, International markets, export markets, international competitiveness etc.

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Assessment and analysis of external global factors on a continuous basis is crucial, in view of the rapid changes in business organizations brought about by globalization, technological developments and a prototype change in political, economical, social and technological issues. Today those organizations are successful which have the ability to judge for reasonable and predict the expected changes in the business environment and to trace its strategies in line with the global factors and International business environment.

Business philosophy is in a consistent state of change. In the business world ideas change things and ideas are always themselves being changed. It could be a different economy, a different technology, a different society; it must be different from the norms of today. One has to accept it and modify otherwise if not it will leave them behind. It is for the organization to reinvent itself to remain competitive in this globalized competitive world i.e. if it has to be successful it has to innovate and improvise continuously and at the same time ready to revise its strategies and plans when the need arises. This object can be put on track, if organizations always use innovative ideas.

Different dimensions within the business environment are that every company has distinct approach and for success they need an appropriate strategy with timely decisions and actions in terms of the organization for the present that directly affects the future. Overall the issue which requires attention is that an organization must be extra vigilant for making changes in their strategies. The changes which are happening contain several global factors, which are dominating the international business environment.

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Therefore those organizations, which are able to identify these interconnected global factors and take appropriate and timely steps, are the ones which will remain competitive. Business organization needs constant re-evaluation and redirection with its resources allocation to products and services, to markets, to customers, to end-uses, to distributive channels. Only the overall competitiveness of the entire organization can be attained through its success and survival.

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2. Global Factors Influencing the Business OrganizationsGlobal factors are normally beyond the organizations control. These factors bring and create huge opportunities and positive approach. They also present threat to the organizations success. They measure the growth and decline of business organizations in terms of market behavior, business potential and suitability of access. These factors always tend to produce an impact on the way the business organizations exist.

2.01 Political Changes and Government term:The political change in the country through coup and violence and change in government through democratic election can influence future business strategy.

The opportunities brought by the democratically elected government is the competition in free business environment which brings heavy investments that directly increases the employment, new technology, trade benefits education prospects and standard of living.

An unexpected change, resignation, currency collapse, untimely elections may completely transform the economic landscape. There is less time to react by the time the news is received. Grant and Stanlake (2000, p590) describe Government tend to introduce harsh measures just after an election and more popular ones near an election.

For international businesses there is a risk that the currency cannot be transferred out of the country due to change in law. There is also danger of damage to business facilities, properties and interruption to business operations because of political violence.

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2.02 Political uncertainty and conflicts:

The Political uncertainty and conflicts can lead to a reduction in funding by businesses and influence decisions on growth and business ventures.

Governments are claimed to be democratic, but in practice they can be attached to undemocratic or even bossy regimes. Therefore some companies are better or worse than others in the number of political activity. For example: The opportunities to business organizations are now available in a considerable amount in Europe and Russia after the fall of the communism. They are now the most rapidly growing markets for the economic fronts.

On the other hand countries like Zimbabwe where political instability and conflicts have brought the economy on its knees. The health issues, critical shortage of electricity due to the failure to pay off debts, and increased blocks to commercial links has sabotaged the trade. The inflation in Zimbabwe is several millions, departure of domestic markets; therefore running a business in Zimbabwe is not an easy job.

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2.03 Trade BlocksOnly, the Member countries have the benefit of getting the wider range of goods and services not previously available normally, this is the result of direct impact of getting business benefits and acquiring goods and services at much lower cost. These trade barriers in-between the members countries has seen the increase in sales due to lowered tariffs or removal of tariffs, the money generated by spending on cheaper goods and services and through incentives, can be used to get more products and services.

This, on the other hand, increases the trade barriers for non-member countries. Trade is also diverted from the non-member country to a member country even inefficiency in cost. No open competition therefore less competitive and variety of products in the market.

Anderton (2008, p619) describes Quality and innovation is encouraged because consumers will tend to buy goods which are better quality or are more innovative at any given time.

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2.04 Exchange Rates FluctuationsThe entire economy of the world depends upon the exchange rates. The exchange rate acts like a thermometer and determine the strength of the global economy.

The exchange rate eliminates the barriers to competition and increases the cross-border transactions. The business organizations with assets in foreign currency acquire local businesses when the domestic currency devaluate. This also boosts firms with the cheaper imports and where the business relies on imported raw materials it will lower their cost and increase profits. Ashwin (2007, p134) State Exchange rate can affect their international competitiveness in serious ways and can, in some cases, put firms out of business

With lower-exchange rate the exporters lose price competitiveness and market share. This will result in increase unemployment and lower profits. The exports will also fall with negative impact on economic growth.

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2.05 Interest Rates

Interest rates are not only beneficial for the economy but as well as for business organizations. The Federal Reserve monitors the economy and has the ability to raise or reduce interest rates.

Lower-interest rate come as a blessing and give rise to competitiveness. The organization can position itself in a distinctive position by having lower cost, higher productivity and more innovative than its competitors. Businesses have a greater profit due to lower interest rates and higher sales volumes. Begg (2006, p233) describes as the interest rate falls, more and more projects are profitable to undertake.

Lower interest rates also help business organizations to further strengthen and establish their strong market position.

Whereas increasing interest rates are problematic for firms and organizations. The cost of production also increases. Finances available to the businesses will be costly. If businesses fail to pass on this increase to their consumers the sales volume decreases which will reduce the profits.

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2.06 Tax Systems

In a number of ways the tax system can bring benefits to the business organizations and this could reduce their tax bills. The number of tax allowances, credits and tax relief which business organizations get can be used on their research and development projects. The more comprehensive the tax system is the less distortion it will cause to the business. There is a greater acceptance and fairness towards a single, comprehensive tax system rather than the number of overlapping systems.

If the tax system becomes complicated the bigger and multinational organizations tend to shift their businesses in places where they can have a number of tax incentives, fair and the single-tax system. This will also result in more redundancies, job cuts, less-job opportunities and lower investment.

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2.07 Environment, Health and Safety Environment issues can have both short and long term affects on businesses. Friendly, clean environment increases efficiency and workers feel healthy, safe and valued which will in turn improve the organization to obtain an excellent reputation. Business organizations using renewable sources of energy gain over from those organizations which are Threat to global warming; this is also changing many business organizations strategies in which they operate. Numerous countries have pledged to reduce Co2 emissions, but this could damage the organizations profitability and the economy as a whole. Jackson and Sorensen (2007, p258) state Environmental problems can also put pressures on states to engage in greater international cooperation. Businesses polluting environment may face hefty fines and a limited, public image. Pollution in the air will see increased air fares and can also harm people's health. Business organizations may face higher insurance because of more floods, storms due to increased earth's temperature and ocean levels that intend to continue.

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2.08 Ethics:Ethics cover every aspect of the business concern that is, how it treats its employees, how it acts towards its competitors, its effect on the environment, its impact on the local community. Business Organizations engaged in general and open competition which value corporate practices and social values have higher productivity and less-employee turnover. Internationally, regulatory bodies also provide legal and financial incentives to the firms that demonstrate ethical standards and provide employees with sound moral values and training.

Being ethical may mean being less profitable. For example, if a business behaves against friendly groups like Green peace, Friends of the Earth, WWE the media may turn against the company which may lead to heavy losses, boycotts by consumers and bad reputation. Surridge et al. (2004, p45) describes increasingly, businesses are being challenged by employees, pressure groups and other stakeholders to demonstrate greater social responsibility and to set higher ethical standard.

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2.09 Unemployment:Unemployment occurs when there are lesser jobs and more people are available to work. This can be the result of economic downturn or the inefficient labour markets.On one hand high unemployment can help businesses as it gives them wider choice of workers and makes the existing employees more cooperative to changes in working places as they will be worried about losing their jobs. At the same time the businesses receive higher amount of applications for new jobs therefore they can offer low wages.On the other hand due to unemployment people will be unwilling to spend as they will be worried about losing their jobs therefore business organizations will lose profits as demand of sales decreases and results in reduction of profits. Pratten (1985, p281) comment it is an international malaise of the advanced western economies.

2.10 Demographic (Population growth rates, Education, culture)A strong work force ingrained in mixed cultural values makes business organizations far more productive with extremely effective and efficient. This makes the companies operating in the area to gain new business as they have the ability to get job done. The more stable population growth makes less pressure on the cost of commercial properties and makes the overall productivity, cost effective.Educational facilities assist business organizations in getting well educated and trained staff.

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2.11 Technological RevolutionTechnology has brought the world closer together by bringing the economy into a single, interdependent system. The globalization is the effect of a better world wide communication. By means of this, information shared directly, effectively and efficiently. It has increased Organizations productivity which ultimately has given rise to profits.

Though it may have made global communication quicker, easier and more convenient but has brought privacy issues as business organization invest in latest technology to fight against theft of public data, email hacking, intercepting phone calls. People are now worried about their personal information becoming public knowledge.

Alpin et al. (2004, p40) state Technological development have resulted in the growth of some businesses and the decline of others.

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Conclusion

It is necessary to have an international business plan which determines the organizations current status and its commitment. The practical aspects of international business can make or break. In preparing to go boldly where never have gone before, business organization must plan accordingly.

As more business organizations are investing and trading abroad they must realize that the protection against government-inspired risk is available. Obtaining political risk insurance is necessary to make a profitable business rather than making a costly mistake.

The most important step in political uncertainty is the process of dramatic modifications; Business organizations can play a vital role in pressurizing all political factors this as a result will bring them as rapidly as possible to the negotiating table. Flexibility in working times, shift arrangements, aid to victims such schemes from the organizations operating in affected areas may reduce the disturbance and diminish its long term effects on business.

Interest rates are highly valuable to business organizations as they provide time value for money. Businesses must follow the effective rates on business loans or the true return on an investment as it determines the actual value of money. By observing this business organizations ensure that the project will result in increased profits.

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Business competitiveness must be assessed in terms of the tax system. Lower-tax rates and tax incentives are the most influential factor. Business organizations should accomplish social goals such as being environmental friendly.

The obligation of a business to its employees, to its customer is its services, its customer care, and its method of dealing with customers. This will create long, lasting impression on the customers which will create long-lasting trust.

Environmental issues of Global warming and Pollution can be dealt by business organizations; By using recycling facilities, Cut down power consumption by turning off lights, Using greener and more efficient fuels such as LPG and electricity to reduce exhaust emissions, Disposing waste properly, By planting more trees. This in turn, will make the organization more productive, more competitive and above all the good reputation of the organization.

The key to preserve long-term growth is the ability of the business organization is to innovate. Unemployed people should be allowed to grow professionally into distinct units capable of taking up mega projects like road buildings, bridges, hydropower and recycling projects and other construction projects. In this way, the governments and business organizations together play a vital role and can reduce the downturn, accelerate recovery and locate the basis for healthy and sustainable development.

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Ethics is essential for business organizations, firms and even for individuals as they are being accountable for their actions. Now a broader responsibility lies on the shoulders of an organization for greater-corporate standards and social values not only towards people but to the whole environment as well. When entering a different culture, the business organization has to adapt to it and concede to it.

Every organization wants to be differentiated from its rivals. Therefore, technology is a valuable way to achieve this. It can offer customers what they want, stylish, modern but effective, yet at the same time there should be a measure of security.

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References

Alpin, S., Cooper, J., O’Hara, G., Petrucke, F. (2004), GCSE Business Studies for Edexcel, p40. London, Hodder and Stoughton.

Anderton, A. (2008), Economics (5th edn.), p619. Gate Harlow Essex, Pearson Education Edinburgh.

Ashwin, A., Marcouse, I. (ed.) (2007), Edexcel GCSE in business Unit 4 Introduction to Economic Understanding, p134. London, Hodder Arnold.

Begg, D. (2006), Foundations of Economics (3rd edn.), p233.Maidenhead Berkshire, Mc Graw Hill Education

Grant, S. and Stanlake, G. (2000), Stanlake’s Introductory Economics (7th edn.), p590. Edinburgh Gate Harlow Essex, Pearson Education Limited.

Jackson, R. and Sorensen, G. (2007), Introduction to International Relations Theories and approaches (3rd edn.), p258. New York, United States. Oxford University Press.

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Pratten, C. (1985) Applied Macro Economics, p281. Oxford, Oxford University Press.

Surridge, M., Champman, T., Merrills, S., Cornelius, D., and Frater, G., (2004), Applied Business, p45. London, William Collins.