This section introduction to economics includes government influences on economic, environmental, legal and ethical issues and how they impact different business functions.
Business managers need to focus on different external influences on business activity when making business decisions. They need to carefully analyze how these governmental, social, environmental and international factors impact on a single business organization shaping the business and its decision-making.
With the development of the international business environment, it also presents a strong influence on daily business activity and commercial success of many companies.
1. Economic Objectives and Policies
The government of a country is responsible for control over the economy and how it affects business activity. The government is responsible for organizing funds for fulfilling the common needs of the people in the basic areas such as education, health and safety.
Every government sets out economic objectives and aims to achieve them by setting relevant economic policies. One of the government economic objectives is increasing Gross Domestic Product (GDP).
The trade cycles affect businesses too and it is a manager’s job to make proper decisions that accurately respond to those cycles. The main stages of The Business Cycle include Growth, Boom, Recession, Recovery and Slump.
Changes in the fiscal policies (TAXation and government spending), changes in monetary policy (interest rates) as well as policies impacting exchange rates can help to meet the country’s economic aims. But, at the same time have a major impact on a single business organization.
When it comes to exchange rates specifically, depreciation and appreciation of an exchange rate need to be laid out. And then the important question how exchange rate changes can affect businesses as importers and exporters of products should be answered. All this in the business context of pricing strategies, international competitiveness and achieving overall profitability.
With intensified influence from external environment in recent years, pressure groups and government initiatives aimed at overseeing business activity has become more significant. Therefore, managers need to pay attention how businesses might respond to these changes to remain socially responsible businesses.
2. Business and International Economy
This section discusses both positive and negative impacts of businesses on the natural environment and society. The reasons for globalization will be discussed in details.
As the international economy developed thanks to globalization, its effects on both local and multi-national businesses and governments needs to be analyzed.
With the growth of globalization and international trade, the global recognition of brands follows. Although there are many advantages of globalization to local communities and businesses, many people have started arguing that the costs and threats are troublesome including environmental degradation, one country’s gain at another country’s loss, new conflicts, etc. Therefore, to protect the local economies, some governments have introduced import tariffs and quotas.
As the result of globalization, the growth of multinational companies became more present in our daily lives.
There will not only be many benefits to a business of becoming a multinational company, but also there will be many potential benefits to a host country where a multinational company decided to locate its business operations, e.g. job creation, higher exports, increased choices of products for customers, new investments, etc.
Therefore, detailed analysis of the reasons for the importance and growth of multinational companies should be conducted.
