3.

Economic and Global Environment

Basically the business organisations cannot operate or carry out the business in isolation nor
can't they exist without any kind of environment. In order to operate or carry out the business
these organisations or entities has to operate in such an environment which gives them an
opportunity to invest and get back the returns on the investment made by them. One such
environment is economic environment.
The economic environment refers to all the economic factors that affect commercial and
consumer behaviour. The economic environment consists of all the external factors in the
immediate marketplace and the broader economy. The economic environment consists of
different things for different people. For example, for a farmer, the weather and price of
fertilizers are important factors.
Meaning:
The Business Development Bank of Canada has the following definition
“The term economic environment refers to all the external economic factors that influence
buying habits of consumers and businesses and therefore affect the performance of a
company."
"These factors are often beyond a company's control, and may be either large-scale (macro)
or small- scale (micro)."

Nature of Economic Environment –

• Made up of external factors
• Dynamic
• Interconnected
• Complex
• Unpredictable
• Multidimensional – local MNcs
• Influential
• Regulatory
• Resource dependent
• Global in scope
• Market oriented
Components of Economic environment
• Economic conditions – The current state of the economy, including periods of growth
(boom) or decline (recession). Economic conditions affect consumer spending,
business investment, and government revenues.
• Economic Policies – Monetary Policy, fiscal policy, trade policy
• Economic system – The structure of an economy (e.g., capitalist, socialist, or mixed)
determines how resources are allocated, how businesses operate, and the level of
government intervention in the economy.
• Technological environment
• Socio economic Environment
• Global Environment – Exchange trends, global economic trends, international trade
policies.

Economic environment - factors

The economic environment consists of microeconomic and macroeconomic factors
1.Microeconomic factors
1.Competitors.
2.Demand.
3.Market size.
4.Suppliers.
5.Supply.
2.Macroeconomic factors
The macroeconomic environment, on the other hand, refers to things that affect the entire
economy. Macroeconomics is concerned with general or large-scale economic factors, such
as:
1.Unemployment
2.Inflation.
3Interest rates.
4.GDP growth. GDP stands for Gross Domestic Product.
5.Taxes.
6.Exchange rates, i.e., how much currencies are worth in relation to one another.
7.Levels of consumer confidence.
8.Savings rates.
Market Economy
A market economy is defined as a system where the production of goods and services are set
according to the changing desires and abilities of the market players. It allows the market
operate freely in accordance with the law of supply and demand, set by individuals and
corporations, as opposed to governments.
Structure of economy
Economic structure comprises a broad array of economic characteristics that may support
(and also result from) innovation. These include the prosperity of the local economy, its
employment structure, and the competitiveness of area businesses.
Factors Affecting the Economic Environment
There are various factors which affect an economic environment. These factors can be
divided into two categories.
1.Microeconomic environment Microeconomic environment factors are those factors which
affect and individual organization and do not affect the whole industry. The examples of
microeconomic factors are demand, competitors, market size, distribution chain, suppliers,
supply, etc.
2.Macroeconomic environment Macroeconomic environment factors are those which impacts
at a larger level and does not only impacts one company but impact the whole economy. The
examples of microeconomic factors are inflation, unemployment, interest rates, taxes, tariff,
the trust of customers, etc.
(1) Demand : Increased demand for product results in more profits whereas a decrease in
demand for your product cause loss. Therefore, companies use various strategy to increase
the demand for their product in the market.
(2) Market size : The profit margin of the organization will be low if it has a small market
size. Meaning of market size is the total number of potential buyers in a market.
(3) Suppliers : The production of a company will halt if its suppliers suddenly stop to
provide supplies of raw material to produce a product.
(4) Income: Income is the total earning of an individual or an entire family. Income affects
the buying habits of the consumers and thus impacts the commercial businesses.
5) Inflation rate : The inflation rate can be defined as the rate at which the process of goods
and services increases. With increased prices, the buying ability of people gets affected.
(6) Increasing Interest Rates : Increasing interest rates also impact the businesses, especially
those businesses where people require to take a loan to buy goods.
(7) Unemployment level : Another factor which impacts the economic environment is the
unemployment level.
(8) Taxes : High taxes in the country impacts the economic environment badly. People will
have low disposable income. Taxes not only affect the consumers, but it also affects
businesses as high taxes results in the high cost of production.
(9) Tariffs : Tariffs are a type of taxes which is imposed on imported goods.
(10) Cost of Labour: Cost of labour also impacts the economic environment of the business.
High labour cost means the high cost of production and high cost of production forces
businesses to increase the price of the products.
(11) Population : The population has both positive and negative impact on the economic
environment.
12) Population : The population has both positive and negative impact on the economic
environment. For example high population means there are chances of finding skilled
employees. High population results in tough competition and people get ready to even at low
wages which is good for the business as they can hire more people to increase their
production.
However, high population causes many other issues in the country. For example
unemployment, poverty, lower per capita income. The income and lifestyle people reduce
and thus, there buying capacity, which impacts the economic environment. On the other
hand, under population is also not good.
13) Innovation : Innovation has both positive and negative impact of the economic
environment. Innovation pose risk for already established businesses. As Entrepreneurs
come with innovative ideas of business and they give competition to the already established
businesses, which impacts the sales of their products.
14) International Conditions : The international market condition also impacts the economic
environment. For example, there are many businesses which import and export goods from
international companies. The tension between two countries or the increased tariff rates
increases the import cost as a result of which the cost of production also increases. Increased
production cost means increases in the prices of products.
15) Economic Laws : There are various economic laws such as labour laws, competition
laws, factory act, commercial act; industrial laws impact the economic environment.
Companies are required to setup their business by being bound by the law and violation of
any law can result in a penalty or the cancellation of business license.
16) Social Cultural environment : Social and cultural environment put a great impact on the
economic environment of business. The buying habits and choices of people are highly
influenced by the culture they are born in or the society that they are part of.
17) Government Policies : Government policies also put an impact on the economic
environment. Companies might be required to change the production process of a product
according to the change in government policies.
18) Technological environment : Technological environment put a huge impact on the
economic environment. Technology changes rapidly and organisations are required to change
their technology or update their technology to keep up with the changing technological
environment.
19) Natural Resources : Natural resources play an important role in the business environment.
Many business activities are reliable on natural resources. For example, fuel water, mineral
resources, soil, rainfall.
Global Environment
As technology and transportation have advanced, business has become increasingly global. In
addition to new challenges and international tensions, purposeful expansion has brought new
jobs, customer audiences, and economic opportunity.
GLOBALIZATION
Globalization is the increase in the flow of goods, services, capital, people, and ideas across
international boundaries, according to the online course Global Business. "We live in an age
of globalization," says Harvard Business School Professor Forest Reinhardt, who teaches
Global Business. "That is, national economies are ever more connected with one another than
ever before."
Definitions
Globalization means the speedup of movements and exchanges (of human beings, goods, and
services, capital, technologies or cultural practices) all over the planet. One of the effects of
globalization is that it promotes and increases interactions between different region
populations around the globe.
Features of Globalization
1. Opening and planning to expand business throughout the world.
2. Erasing the differences between domestic market and foreign.
3. Buying and selling goods and services from/to any country in the world.
4. Global orientation in strategies, organization structure, organization culture and
managerial expertise.
5. Setting the mind and attitude to view the entire globe as a single market.
6. Sourcing factors of production and inputs like raw materials, machinery, finance,
technology, human resource, and management skills from the entire globe.
7. Production planning and development are based on market consideration of the entire
world.

Dimensions of Globalization/ Approaches to Globalisation

1. Economic
Economic globalization is the intensification and stretching of economic interrelations
around the globe. lt encompasses such things as the emergence of a new global economic
order, the internationalization of trade and finance, the changing power of transnational
corporations, and the enhanced role of international economic institutions. Economic
globalism involves long- distance flows of goods, services and capital and the
information and perceptions that accompany market exchange.

2. Political
 Political globalization is the intensification and expansion of political interrelations
around the globe. Aspects of political globalization include the modern-nation state
system and its changing place in today's world, the role of global governance, and the
direction of our Global political systems. Another important aspect of globalization is
politics.
3. Cultural
Cultural globalization is the intensification and expansion of cultural flows across the
globe. Culture is a very broad concept and has many facets, but in the discussion on
globalization, Steger means it to refer to "the symbolic construction, articulation, and
dissemination of meaning."
4. Ecological
Topics of ecological globalization include population growth, access to food, worldwide
reduction in biodiversity, the gap between rich and poor as well as between the global
North global South, human induced climate change, and global environmental
degradation. Activists have pointed out that globalization has led to an increase in the
consumption of products, which has impacted the ecological cycle
Market entry strategies for international markets
Here are the market entry strategies you can use to sell your product internationally:
1. Exporting. Exporting involves marketing the products you produce in the countries in
which you intend to sell them. Some companies use direct exporting, in which they sell the
product they manufacture in international markets without third-party involvement.
2. Piggybacking. If your company has contacts who work for organizations that current
strategy involves asking other businesses whether you can add your product to their sell
products overseas, you may want to consider piggybacking.
3. Countertrade. Countertrade is a common form of indirect international marketing,
Countertrading functions as a barter system in which companies trade each other’s goods
instead of offering their products for purchase
4. Licensing. Licensing occurs when one company transfers the right to use or sell a product
to another company.
5. Joint ventures. Some companies attempt to minimize the risk of entering an international
market by creating joint ventures with other companies that plan to selling the global
marketplace.
6. Company ownership. If your company plans to sell a product internationally without
managing the shipment and distribution of the goods you produce, you might consider
purchasing an existing company in the country in which you want to do business.
7. Franchising, A franchise is a chain retail company in which an individual or group buyer
pays for the right to manage company branches on the company's behalf.
8. Outsourcing. Outsourcing involves hiring another company to manage certain aspect of
business operations for your company.
9 Greenfield investments. Greenfield investments are complex market entry strategies that
some companies choose to use.
10. Turnkey projects. Turnkey projects apply specifically to companies that plan, develop
and construct new buildings for their clients.
11. Wholly owned subsidiary. A wholly owned subsidiary (WOS) is somewhat similar to
foreign direct investment in that money goes into a foreign company but instead of money
being invested into another company, with a WOS the foreign business is bought outright.
12. Foreign direct investment. Foreign direct investment (FDI) is when you directly invest in
facilities in a foreign market.

Advantages of Globalization
1. Transfer of Technology. Transfer of technology throughout the globe is good for us. Any
country can borrow the technology through the agreement and can implement it in their
country for their overall development.
2. Better Services. Globalization always provides us better services. Through the
technological advancement our services like water supply, mobile networking ,Internet,
electricity supply and any other services have been easier and better than before.
3. Standardization of Living. The integration of economies as the key process of globalization
enables countries to fight against poverty and improve the standard of living of the people.
4. Development of Infrastructure. Due to the technological advancement and its transfer
throughout the globe helps to improve country's infrastructure. Countries are mor e enabling
to deliver their services to the people. Development of infrastructure means overall
development of respective countries
5. Foreign Exchange Reserves. Through globalization countries can build foreign exchange
reserves owing to international financial flows.
6. Economic Growth. Globalization entails to optimum utilization of resources wherein
deficit resources are procured and surplus resources are exported to other countries. This
ensure overall economic growth.
7. Affordable Products. With the access to the latest technology, the countries can provide
products to its countrymen at affordable prices.
8.Contribution to World GDP Growth Rate. Globalization ensures contribution of every
country to the world GDP growth.
9 Extensions of Market. Above all, Globalization promotes extension of market provides an
opportunity to the domestic companies in going global.

Disadvantages of Globalization
1. Growing Inequality
 Globalization can increase inequality throughout the world by increasing specialization
and trade. Although specialization and trade boost the per-capita income it may cause
relative poverty.
2. Increasing of the Unemployment rate Globalization can increase unemployment rate.
Where people are getting jobs, how is it possible? Here is the explanation. Globalization
demands for higher-skilled work with cheaper price. But countries where Institutions are
relatively weak are not capable of producing highly skilled workers. As a result, the
unemployment rate is increasing in those countries.
3. Trade Imbalance The balance of trade refers to the balance of values between a
country's export and import's goods and services. As the result of globalization, any
country can trade to any part of the globe. So, trade imbalance refers to the imbalance of
values between a country's import and export's goods and services. It is also called trade
deficits.
4. Environmental Loots The pace of industrialization is increasing as the result of
globalization. Industrialization boosts the economic growth but it harms environment as
well. Globalization loots from the nature and it harm us very badly.

Stages in Globalization
1. Domestic Company
2. International Company
3. Multinational Company
4. Global company

1. Domestic Company
Market potential is limited to the home country. Production and marketing facilities are
located at home only. Surplus may or may not be exported. There are no over efforts to
develop foreign markets. It may add new product lines, serve new local markets but
whole planning is limited to national markets only.
Features:
i) Their focus remains with domestic market.
(ii) Their productions facilities remain based in home country. Their analysis is focused
on the national market.
(iii) They do not think globally and avoid taking risk in going global.
(iv) Their top management may have traditional kind of business management
competency and less global expertise.
(v) They perceive that there is risk in expanding into global market and thus they try to
play safe and satisfied with whatever gains they are getting in domestic market.
2. International Company
Some ambitious efficient domestic companies after going beyond their domestic
marketing capacities start thinking of expanding their operations in International Markets.
The main strategies for entering international market is:
(a) Off-shoring/global outsourcing (seeking cheaper source of raw material or labour)
(b) Exporting
(c) Licensing
(d) Franchising
(e) Joint Ventures/Acquisitions
(f) Direct Investments
Even though they think of international markets, still they are of ethnocentric or domestic
oriented. These companies adopt the strategy of locating the branches of their companies
in other countries and practice the same domestic operations in foreign markets, including
the same promotion, price, product etc. policies.
Features:
1. Focus on going beyond, domestic
2.Their management remains ethnocentric with a vision to expand internationally. They
extend their domestic products, domestic prices and other business practices to foreign
countries.
3. They keep their marketing mix constant and extend their operations to new countries.
4. Their management style remains centralized for their home nation and extended top
down to the overseas market country.

3. Multinational Company
After sometime, international companies realize that the domestic model and practices
adopted through extension policies do not serve the purpose. The foreign customers may
prefer the products that are sold in domestic market. Hence, these companies respond to
the needs of different customers in different countries and produce such goods and
services that will satisfy them.
Features:
1. Companies when they spread their wings to more nations become multinational
companies.
2. Sooner or later they realize that they have to change their marketing mix according to
the foreign market.
3. This can also be termed as multi domestic, in which different strategies are adoptedr
different market.
4.The management of such companies' remains decentralized and even production may
be in the host country.
5. Performance evaluation is done at different host countries.
4. Global company
The global company adopts global strategy for marketing its products. It may produce
either. in the home country or in any other single country and market its products
throughout the world. It may also produce the products globally and market them
domestically.
Features:
1.Such companies have a global marketing strategy.
2.They either produce in home country or in a single country and focus marketing
globally.
3. They adapt to the market conditions according to the foreign market.
4. Their performance evaluation is done worldwide.

IMPACTS OF GLOBALISATION IN INDIA

Economic Impact:
1. Greater Number of Jobs: The advent of foreign companies and growth in economy
has led to job creation. However, these jobs are concentrated more in the services and this
has led to rapid growth of service sector creating problems for individual with low level
of education.
2. More choice to consumers: Globalisation has led to a boon in consumer production
market.
3. Higher Disposable Incomes: People in cities working in high paying jobs have greater
income to spend on lifestyle goods. There has been an increase in the demand of products
like meat, egg, pulses, organic food as a result. It has also led to protein inflation.
Socio-Cultural Impact on Indian Society
Nuclear families are emerging. Divorce rates are rising day by day. Men and women are
gaining equal right to education, to earn, and to speak. Hi, Hello' is used to greet people in
spite of Namaskar and Namaste. American festivals like Valentines' day, Friendship day
etc. are spreading across India.
Access to education: On one hand globalisation has aided in the explosion of information
on the web that has helped in greater awareness among people. It has also Jed to greater
need for specialisation and promotion of higher education in the country.
Growth of cities: It has been estimated that by 2050 more than 50% of India's population
will live in cities. The boom of services sector and city centric job creation has led to
increasing rural to urban migration.
Indian cuisine: is one of the most popular cuisines across the globe. Historically, Indian
spices and herbs were one of the most sought after trade commodities. Pizzas, burgers,
Chinese foods and other Western foods have become quite popular.
Clothing: Traditional Indian clothes for women are the saris, suits, etc. and for men,
traditional clothes are the dhoti, kurta. Hindu married women also adorned the red bindi
and sindhur, but now, it is no more a compulsion.

Difference between MNC and TNC

MNC TNC

It has home country No clear single home base.

Centralised control with local Decentralised with local

branches autonomy

Global integration Local responsiveness

Coco-cola, Tayota Nestle, Unilever

Research and development is R and D spread across various

centralised locations