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 4
2.02 Political uncertainty and conflicts
5 2.03 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
10 2.08 Ethics
11 2.09
Unemployment 12
2.10 Demographic Change (Population
growth rates,
Education, Culture)
12 2.11 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the actions today become outdated the moment they are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.

Page 2

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.
Page 3

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.
 Page 4

2. Global Factors Influencing the Business

Organizations
Global 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.
Page 5

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.

Page 6

2.03 Trade Blocks

Only, 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.

Page 7

2.04 Exchange Rates Fluctuations

The 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.
 Page 8

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.
 Page 9

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.
 Page 10

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.
 Page 11

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.

Page 12

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.

Page 13

2.11 Technological Revolution

Technology 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.

Page 14

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.

Page 15

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.

Page 16

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.

Page 16
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.

Page 16
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.