How does the macro-economic environment impact on the firm’s international business performance?
How does the macro-economic environment impact on the firm’s international business performance? In your answer, you should focus on one macro-economic factor – eg. Economic, legal, political, or cultural. Examine the causal relationship between this factor and firm performance indicators.
Macro Economics is the study of an economy as a whole and not just a single part of it. It deals with the functioning of the entire economy. The difference between macro and micro is that micro deals with individual economic units and individual economic variable while macro takes into account the whole economy. To further explain, macro economics shows us why sometimes there is full employment in the market and why at other times there is under employment. It also explains the booms and fluctuations in the economy and why sometimes there is a higher or lower rate of economic growth. Thus, to conclude the introduction, macro economics deals with the ‘major’ issues in the economy, such as full employment or unemployment, inflation or deflation. In short, macro economics is the theory of aggregate consumption, saving and economic growth.
International business’ and domestic business’ are different from one another, and so is their organizational structure. International business’ have very complex managerial requirements as opposed to that of a domestic one. A manager of an international business comes across varied difficult situations that a domestic manager never encounters. It is the duty of the international business to decide where it will carry out its production so as to minimize cost and maximize its profits. It is also responsible for making the right choice regarding which markets it should enter and how. International trading and investment systems need to be embedded in the company as one entering into the global market would encounter cross- border transactions. Restrictions on international trade must also be looked into by the manager. Exchange rates also come into play when dealing with an international business as currency needs to be changed from the firm’s territorial currency to that of the country in which it has expanded into and vice versa. Overall international business is very different and far more complex than a domestic one.
There are a number of reasons such as; the international issues dealt with it are of higher complexity, exchange of currencies are involved, the foreign business must abide by the rules n limitations of the country and also because it has to deal with a number of macro-economic factors that include, along with others, economic, legal, political, and cultural and so on. In this essay we will focus on culture as our main macro-economic factor.
Culture has been defined in innumerable ways. One of these is ‘Culture is a mental map which guides us in our relations to our surroundings and to other people’ (Downs 1971). Another common definition of culture is ‘It is everything that people have, think and do as members of their society’. Have, think and do – these three verbs emphasize three major components of the cultural structure. Thus, forming groups of individuals, from the same society, benefit international business managers. Culture plays a major role in the function of an international business. Failing to understand the culture of the local area, where in a company decides to open a market, can lead to big problems. Irrespective of the size of the company, it cannot ignore the cultural aspect of the business. It is necessary for international managers to be well informed with respect to the culture which in turn will enable them to carry on their business successfully. Managers also need to be in sync with the cultural factors and have great knowledge about them and use them for the welfare of the organization. Cultural understanding of the different variables that sum up the country’s culture can be of much use to the managers. This helps managers to form policies and make decisions that are followed by planning and organizing. Adapting a firm’s culture is a key to the success of the firm. In addition, it must also be noted that ‘despite the differences between the cultures, they not only face a number of common issues, but also share a number of common characteristics’. This is known as culture universal.
Culture has a number of elements that would help in a better understanding of word itself. Communication and Language is one such element. The language one speaks the verbal and non- verbal, separates one group from another. For an international business, it is an advantage to acquire a work force that consists of people that have knowledge of a couple of languages, especially that of the location of the international business. Company’s that have taken an environment with a number of languages into account have found it difficult to penetrate into the market. The firms that did not pay much attention to it need not be mentioned. There are a large number of examples regarding U.S firms and the problems they faced with their ad campaigns due to improper translation such as computer “underwear” instead of software (International Business-A global Prospective, 2007). The above mentioned example maybe amusing to some, but it cost the U.S firms millions and also lead them to losses.
Time and Time Consciousness is another cultural element. Some cultures produce punctual people while some others produce people that are more at ease and less punctual. Germans tend to be very punctual where as Latins are more at ease. Being punctual varies directly with respect to Americans and Germans and the opposite is considered disrespectful. To them time is of the essence and is also extremely valuable. However in some parts of the world, punctuality is based upon one’s status. To explain further, executives are usually the ones that arrive last but the people that work under them are always present at a meeting on time. Managers need to take these cultural drawbacks into consideration and come up with diplomatic ways to deal with such situations.
Relationships and Gender are two other, rather important cultural elements that have a great impact on the working of an international organization. Companies must treat their employees more like members of a family rather than just employees. International firms must develop a relationship with their employees, which are followed by loyalty. Carrying on, talking about gender, in the past many cultures considered men to be superior than women and this belief still prevails in many cultures. To support this argument, in Japan women and men are not considered equal. Men hold the jobs of high responsibility while women are secured in jobs as an office clerk. Managers in today’s global market need to be open minded towards these cultural differences and may even have to let go of their own cultural setbacks for the betterment of the firm’s international progress.
Reference List
Marios Katsioloudes, Spyros Hadjidakis, International Business- A Global Prospective, Butterworth-Heinemann, 2007 [online]. Available at:
http://books.google.ae/books?id=n0YTsS-3T-4C&pg=PT129&lpg=PT129&dq=demand+and+supply+%2B+international+business&source=bl&ots=q8na00XJld&sig=r9HxD0eySPIyoL8F-wbgfGu2_cc&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPT55,M1
This entry was posted on Thursday, June 17th, 2010 at 10:50 am and is filed under Essays and Reports. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
iBummed Wall RSS Feed
