1. a) Define international economic environment. Discuss the major economic indicators of international economic environment which influence the foreign market decisions with examples. b) Explain the impact of elements of culture on a firm's international business operations with examples.

 

TUTOR MARKED ASSIGNMENT

COURSE CODE : IBO-01 

COURSE TITLE : International Business Environment 

ASSIGNMENT CODE : IBO-01/TMA/2024-2025 

COVERAGE : ALL BLOCKS

1. a) Define international economic environment. Discuss the major economic indicators of international economic environment which influence the foreign market decisions with examples. 

b) Explain the impact of elements of culture on a firm's international business operations with examples.

Answer a)

The international economic environment is simply the global conditions in which businesses and countries trade goods and services. It's the weather for companies, only instead of getting wet or warm, it has something to do with money, trade policies, economic growth, and trends across the world. Now imagine these countries are running businesses in stores, whereby everything that influences how these businesses buy, sell, and grow can be regarded as the international economic environment. Economic conditions are what affect the way business is conducted across countries just like weather has an effect on whether or not people go out to shop.

If companies want to sell their products in other countries, that is, if they want to extend their business into foreign markets, they do not pay much attention to the number of customers. Other things tell them how healthy or risky a country's economy is. These things are known as economic indicators. Here are some of the major economic indicators that companies pay close attention when making decisions on investing in foreign markets.

1. **Gross Domestic Product (GDP)**

**What is it?**

GDP is the total value of everything produced in a country in a year. Imagine measuring how big and rich a country's economy is. If the GDP of a country is high or keeps growing, it means more people are working, buying, and producing. That is positive for businesses because that means there is an increased number of customers who can afford to buy things.

**Why is it important?**

For example, if a firm wants to sell some toys in a particular country, it will consider the GDP to ascertain if there exist ample economic capabilities that can be utilized. It generally favors a high or rising GDP country because more people are working and earning money.

**Example:**

The United States has one of the highest GDPs in the world. That is why many international companies enjoy doing business there-from car manufacturers to tech companies, as they know people have the money to buy their product.

2. **Inflation Rate**

 

**What is it?

Inflation is the increases in the prices of goods and services. It goes somewhat like this: today, candy bar costs one dollar; after one year, the same candy bar will cost two dollars simply because money has lost its value. That's inflation-anything that makes things costlier.

**Why is it important?

That is, if a country has very high inflation, businesses may face a problem as people cannot afford their products as prices keep on increasing. Furthermore, it's also difficult to guess how much money a business will have in the future, which is definitely bad about high inflation. Low and constant inflation is good as it provides predictability for prices.

**Example:**

In Venezuela, the inflation was so high that people could not afford to purchase the basic items there, and businesses refused to sell there. Comparing that with Japan, where the rate of inflation is extremely low, it is a much safer environment in which money could be invested for long-term investments.

3. What is an Exchange Rate?

It is referred to how much one country's currency buys in another country. In other words, it is the value of one Japanese yen in US dollars. Exchange rates keep changing all the time; hence, how much a product costs can also vary due to changes when selling in another country.

**Why is it important?

If the exchange rate depicts a company's home currency to be weaker as compared to the foreign country, then they would make their product cheaper and more competitive than other products in that market. If the exchange changes the other way, their product will be more expensive, and this might reduce the amount of sale.

**Example:**

A U.S. firm selling computers in Europe needs to pay attention to the exchange rate between the U.S. dollar and the euro. If the dollar is too strong relative to the euro, then computers may be too expensive for Europeans. Thus, sales might decrease.

4. **Unemployment Rate**

What is it?

It is the rate at which unemployment is measured; it's a ratio of people in a country who are out of work but actively look for jobs. A high unemployment rate means that lots of people do not have jobs, and this can really hurt a country's economy because unemployed people cannot spend much money.

**Why is it important?

Businesses don't like selling in countries, especially those with high unemployment, because hardly anyone will have the money to spend on their products. Conversely, with very low unemployment, most people do have jobs and thereby income, thus making it a better place for business to sell.

**Example:**

Germany also has one of the lowest unemployment rates in Europe. Thus, as more people become employable, their income increases and therefore tend to be apt enough to buy high-priced items.

 5. Interest Rates

What is it?

Interest rates cost the money borrowed. When interest rates increase, houses, cars or even the initiation of a new business venture cost money to buy through borrowing. The greater the percentage of interest, the dearer that money is.

When interest rates are low, borrowing is cheap.

If an organization intends to expand into a foreign country, it may possibly have to take a loan to construct factories or offices there. Any high interest rates could see the expansion very costly. Second, high interest rates may well lead to reduced levels of expenditure by the consumers of that country and lower sales.

**Example:**

In countries such as India, where interest rates have been lowered in order to boost spending, it becomes easy for businesses to expand since both companies and customers can borrow at cheaper rates.

6. **Trade Policies and Tariffs**  Trade Policies What are they? Trade policies are the rules a country would set for trading with other countries. Tariffs relate to any taxes placed on imported goods thus making them costlier.

Why is it important?

Due to ease in terms of fewer costs, companies want to sell out in low-tariff countries. Its selling will be a bit costlier if a country has a high tariff; hence, they may refrain from entering those markets.

**Example:**

For instance, China and the U.S. have engaged in trade wars, wherein both countries upped the tariffs of the respective other's products. This worked very costly on companies to sell products between these two, especially businesses like electronics and agriculture.

Conclusion

The international economic environment is just a complex weather system that businesses need to sail through very cautiously. Understanding the key economic indicators about GDP, inflation, exchange rates, unemployment, interest rates, and trade policies will help companies make intelligent decisions on where to expand and how. These indicators provide clues about the prospects of whether people in that country will buy from them and whether it is economically safe to invest in that market. Just like weather forecasts, companies must monitor those signs constantly to ensure the success of business plans around the globe.

Answer b)

Culture plays a huge role in how companies should conduct themselves globally. Every country has its way of doing things, and with that comes its customs, values, traditions, and everything else. These differences affect how the companies interact with each other, in what ways they can make deals, and even how they can advertise their products. Knowing and understanding the culture is like learning the rules of a game; if one does not know the rules, he or she risks failure in that market. Let us break down some simple examples of how different cultural elements affect a firm's international operations.

1. Language and Communication

Perhaps one of the most visible cultural differences is language. The world of business is built on communication and, therefore, cannot function without a common language. Imagine having a company in the United States trying to sell in Japan without speaking one word of Japanese. If they translated the materials poorly, their message might have been misconstrued and led to poor sales or even offended the target market.

For example, when Pepsi introduced their brand to China, their slogan "Pepsi brings you back to life" was not interpreted correctly and it thus became something which reads, "Pepsi brings your ancestors back from the grave." This did not please the Chinese clients. The following is just one of those many reasons why the language variable of culture comes highly into play and companies need to tread with care.

Except for just speaking the same language, communication styles differ. There are cultures, such as in Germany or the U.S., in which people are talkative and say exactly what they mean. Other cultures, such as in Japan, tend to be more indirect, not saying "no" on a direct question if it might indicate a disagreement. A firm that is unaware of these differences could misread important signals and thus destroy business negotiations.

2. Values and Beliefs

Cultural values are guiding beliefs in a society that represent how the people of that society behave and what is right or wrong. To a business, these can influence everything from how it deals with its workers to what kind of products it offers.

For example, in the majority of Western societies like the United States, individual achievement is valued highly and success is measured by one's accomplishments as an individual. The societal values of Japan and South Korea are centered around achieving success in groups and through collective accomplishment. It could be argued that a company from the U.S. would not fare well attempting to use drastic sales pressure driven by this individualistic definition of success in a country like Japan, because for the most part, it seems its societal climate prefers competitiveness when found in group, versus individual, settings.

Religious beliefs are also important. In countries where Muslims are the majority, firms need to respect Islamic traditions. For example, McDonald's in the Middle East only sells halal food-that is, food allowed by Islamic law-so it can respect the Muslim culture. In India, where Hindus worship cows as a god, McDonald's does not sell beef burgers; it replaces them with veggie or chicken burgers. Whether others respect these or not, these attract public criticism and damage the reputation of the company.

3. Social Norms and Etiquettes

Every culture has its social norms, dictating the behavior of different individuals in a given circumstance. Lack of knowledge about the existing norms could make a firm appear rude or insensitive.

Gift giving is highly applicable in business networking in many Asian countries, like Japan and China. Giving a gift is considered showing respect and not rude or discourteous when meeting a new business associate. But, most importantly, the presentation of the gift differs a lot. In Japan, for example, gifts are supposed to be elegantly covered, and one is normally expected to give it with both hands. In other Western countries, giving gifts may be considered improper and even bribery. There is, therefore a lot that companies have to learn about social norms to avoid awkward situations.

This is also the case in Saudi Arabia. Here meetings begin often with a nice cup of tea or coffee and will likely include small talk. Forcing directly into business discussions might seem rude. In Germany, for example, or in the U.S. or other similar countries, one can get business relatively quickly with very little small talk. Where a company does this wrong could risk local business relationships with partners.

4. Business Practices and Leadership Styles

Culture also determines how enterprises operate and manage people. Styles of leadership differ from one nation to another, and the business should adapt in how it manages its affairs according to the expectations of that region's audience.

For instance, America and Western countries are more hierarchic in structures, and top management takes care of most decisions. However, in Japan, apparently, the country's decision-making may seem more towards a consensus-based model; thus, many employees and managers will interact with the people involved in order to be able to achieve a consensus on a decision. It may take more time, but everyone knows what the decision represents. A foreign company that does not know this might find itself frustrated by how long it is taking to finalize deals in Japan.

Many cultures stress respect toward authority. For example, in South Korea or China, one shows much respect to elder people or higher-grade individuals. Foreign business leaders must realize this and adjust their action when necessary, such as greeting senior attendees first to a business meeting, to not offend the local culture.

5. Consumer Preferences

The culture also determines what people like and how they wish to spend their money. The firms have to develop diversified product lines as well as strategies to meet the local taste.

For example, fast-food chains such as KFC and McDonald's adapt their menus to regional tastes. On the breakfast list at KFC stores in China would be congee - a rice porridge - that you would never see on a Western menu. Starbucks, known for its coffee, added more tea-based drinks in China and Japan, where tea is preferred over coffee.

Even advertising differs. In the U.S., an ad will focus on individual success or achievement. In a country such as Japan, it focuses on family, community, and fitting in. Business houses that cannot adjust their marketing techniques often are not able to connect with the local customers.

Conclusion

Cultural factors are the hidden powers that influence how people live and work. For any company looking to expand its operations globally, these elements—language, values, norms, leadership style, and consumers' preferences—are very crucial. A respectful adaptation of the local culture will likely lead to a company's success, and failure to do so may risk offending some of its customers and loss in business opportunities.

Learning and adapting from these cultural elements will enable firms to navigate through the complexities of international business and create stronger successful relationships across the world.