In your opinion, what is the most relevant macro-environment factor (legal, political,
cultural and economic) for an international business when choosing to internationalize into
an emerging/developing market?
Each student will be expected to submit an individual assignment of 1500 words by
Week 8 Tuesday 4pm 7th October and via Turnitin. The required format for the
assignment is an ESSAY. The topic is as follows:
Choose and collect two newspaper or periodical articles that have relevance
for international firms from developed markets doing business in
emerging/developing markets.
Your chosen articles must be published between 1
st June and 30th September
2014 in one of the following newspapers or periodicals:
The Sydney Morning Herald, The Australian, The Australian Financial Review,
The Wall Street Journal (US edition), Business Review Weekly, The Economist
Based on your articles you should address the following point within your
essay:
- In your opinion, what is the most relevant macro-environment factor
(legal, political, cultural and economic differences) for an international
business when choosing to internationalise into an
emerging/developing market? Discuss any international business
concepts or theories that could be used to help justify your answer.
MOST RELEVANT MACRO-ENVIRONMENT FACTOR FOR INTERNATIONAL
BUSINESS 2
Include copies of both articles (either the original �cut-outs� or a print out of the article
from the newspaper�s website) as appendices to your assignment.
Your essay should incorporate at least 12 different references. These can be sourced from the
following:
? Academic articles
? Relevant textbooks
? Periodicals
? Newspapers
? Relevant online sources
The 12 references should be evenly balanced between these five resource options.
Students are expected to maintain an appropriate standard in presenting their essay
Remember to acknowledge your sources throughout the paper using the Harvard referencing
system. The report is to be typed and 1.5 spaced (a standard 12 point font should be used). It
should be checked for spelling, consistency and clarity of expression.
Basically, emerging markets are found in countries that are undergoing a rapid process of
industrialization and economic growth. These emerging markets are progressively becoming
major players on the world business stage; they constitute up to 82 per cent of the global
population and contribute over 36 per cent of the global economic output, yet their growth is still
very fast. Based on an IMF estimate in 2012, the emerging market growth rate is expected to be
double or tipple fold compared to the already developed markets, (Hawkins, 2014; p. 17).
Established investors from developed countries attach a certain appeal to investing in these
emerging markets for a manifold of reasons, the one which is frequently mentioned being rapid
MOST RELEVANT MACRO-ENVIRONMENT FACTOR FOR INTERNATIONAL
BUSINESS 3
growth economically. It is luring to indulge in an emerging market because of the vast economic
benefits, which are associated with high returns on stock. There is a variety of reasons for long-
term, diversified investors to preserve their exposure to developing countries with emerging
markets. Significantly, social, political and economic trends progressively support investment
opportunities and growth of the economy in the said markets, (Hofstede and Michael, 2008; p.
12). In my opinion based on two articles that will be analyzed on the body of this essay,
economic differences is the most relevant macro-environment factor for an international
business when choosing to internationalize into an emerging/developing market.
Analysis of most relevant macro-environment factor based on articles
The first article is published by The Australian Financial Review on October 2, 2014 and
is titled “Oil Prices Help Push emerging Markets to Six-Month Low”. This article explains how
the stock of emerging markets fell to a remarkable low of six months following a progressive
extension from a higher level in September 2014 to about 10%, as Russia was impacted by the
low oil prices most. The article mentions how large international corporations in the oil and gas
business like OAO Gazprom (who are the largest natural gas producers in the world) were in the
forefront following a Micex index analysis with a 7-week low while also Brent Crude registered
the lowest close (since 2012 June). In a further analysis, the article mentions that The Jakarper
centa Composite Index decreased by 2.7 percent, as PT Astra International also registering a 5.7
percent slide. In Argentina, a similar of the oil crisis reportedly led to plummeting of Merval
stock index after the head of the Central Bank resigned.
Long-term investors in the emerging market oil industry in the United States were also
impacted by the decline, after a 0.4 MSCI Emerging Markets Index decrease to 992.53 was
registered in New York, after a fall of as much as 989.13 making the index enter a low following
a high that was reached three years ago on 3, September. The article additionally maintains that
the index of The Standard & Poor did not change a lot in the aftermath of the slide that took
three days, following Federal Reserve actions to uphold its decision to end the program of
buying bonds. In Europe, it documented that there was a share tumble following concerns that
the stimulus of the central bank will not lead to an economic revival. A strategist on emerging
markets from The Hague had this to say: “For now the negative drivers remain in place, so EM
MOST RELEVANT MACRO-ENVIRONMENT FACTOR FOR INTERNATIONAL
BUSINESS 4
should continue to be under pressure,” before adding that the weakness in oil was the major
reason why equities in Russia dropped.
To summarize this great oil rubble, the relevance of economic demographics in
international investments by established companies into emerging markets has been underlined
in this article. It has been shown that the advantage of relative economic differences increases the
chances of the relative degree of stability, which has been historically linked with more mature
and developed economies, (Hawkins, 2014).
The second article was published by the Wall Street Journal on July 8, 2014, under the
title “Emerging Market’s Chocolate Lovers Boost Cocoa Prices”. The authors Alexandra Wexler
and Biman Mukherji explore the historic realms of chocolate making before delving into how
giant Cocoa dealers are reaping from the economic demography between their established
markets and the emerging market. The article which specifically follows the story of one
Anupama Amarnath, a dealer in chocolate candy, and how she triumphed into her current fete
establishing a mega chocolate factory in India, under the brand – Chocolate junction. The articles
argues that the increased chocolate consumption trends in emerging markets beside India like in
China and Saudi Arabia has increased the spark regarding the price of Cocoa the major chocolate
ingredient. It is mentioned that in the recent days, the futures of cocoa, as supported by the
increased consumption in emerging markets, have achieved almost three-year highs. As
illustrated by Euro monitor volume sales of chocolate in Switzerland are expected to face a 1.5
percent annual increase in 2014.
The success story progresses on and on, mentioning that multinational candy corporations
have consequently increased their business scope. For instant Hersey Co. who are large-scale
dealers in chocolate entered a deal to purchase Shanghai Golden Monkey Food Joint Stock Co.
in order to strengthen its business position, and has stated that besides US India is meant to be
the second largest chocolate consumer. This is not the only multinational company involved with
others being – Nestle India and Cargill Inc., among others.
The economic discrepancies between the Chocolate dealing companies in the established
market zones in the US and Switzerland for instance are the major reasons why there is a boost
MOST RELEVANT MACRO-ENVIRONMENT FACTOR FOR INTERNATIONAL
BUSINESS 5
in Cocoa market as a result of the increased market demand in the developing/emerging markets
in India, China. Saudi Arabia among other. The revelation in this article underpins the earlier
statement that economic differences is the most relevant macro-environment factor for an
international business when choosing to internationalize into an emerging/developing market,
(Caves, 2011; p. 20).
International business concepts or theories that could be used to help justify
economic differences
Of course, the relevance of other non-economic macro-environmental factors are also
relevant in the international business arena when choosing to internationalize into an
emerging/developing market. These factors including: government policies, political systems,
cultural values, legal framework, demographic factors, social system, natural environment and
technological advancement, however play a less relevant role that economic differences,
(Hennart, 2012).
The relevance of economic differences in this scenario can be explained using economic
theories of international business. While international trade is a concept that has pretty much
been present since time immemorial, economic significance especially has been on the increase
in the few centuries past, (Hawkins, 2014; p. 15).
The theory of absolute advantage as coined by Adam Smith maintains that the capacity of
a country to produce much of a good with a similar output amount than another one would
mostly imply that excess exports will be used to finance importation of goods that could
efficiently be produced in other regions, a process that would result into financial gain for both
countries, (Guisinger, 2005). It is clear in case number two that the Multinational corporations
from developed countries in the United States and Switzerland are reaping from the merging
chocolate market basically because they are more suited for production, not because these
emerging markets do not produce Cocoa themselves. As well in the oil rubble case, these
multinational oil companies have invested into the emerging oil market not because these
countries cannot produce oil themselves but since such a trade benefits both the emerging market
countries and the established corporative, (Grosse, 2005; p. 60).
MOST RELEVANT MACRO-ENVIRONMENT FACTOR FOR INTERNATIONAL
BUSINESS 6
According to the competitive advantage theory, a company occupies a competitive
advantage position through a sustained differentiation, cost leadership, and focus, as argued by
Michael Porter Gladwin, (Thomas & Ingo, 2010). Cost advantage is when a firm makes the same
delivery to the other firms but with less costs. On the other hand, differentiation is when the
quality of products by one firm exceeds competitor quality. In both case scenarios presented by
the articles, this theory is borrowed entirely from the economic difference macro-environmental
factor. The firms investing in both the emerging markets of oil and chocolate respectively
definitely have both positional advantages in comparison to the companies in those emerging
economies, (Ghoshal, 2007; p 250).
In conclusion, this essay has used two articles: “Oil Prices Help Push emerging Markets
to Six-Month Low” and Emerging Market’s Chocolate Lovers Boost Cocoa Prices which are
published by The Australian Financial Review and Wall Street Journal respectively, to argue that
economic differences is the most relevant macro-environment factor for an international business
when choosing to internationalize into an emerging/developing market. This essay however
recognizes that other macro-environmental factors like government policies, political systems,
cultural values, legal framework, demographic factors, social system, natural environment and
technological advancement, are also relevant but at a lower degree, (Caves, 2011; p. 20).
Additionally, the theory of absolute advantage and competitive advantage theory or Porter’s
Diamond are international business theories that justify that economic differences is the most
relevant macro-environment factor for an international business when choosing to
internationalize into an emerging/developing market, (Dunning, 2007; p. 245).
References
Dunning, John 2007. Trade, location of economic activity, and the multinational enterprise. In
The International Allocation of Economic Activity, Ohlin et al., eds. London: Macmillan
Caves, Richard 2011. International corporations: the industrial economics of foreign investment.
Economica Multinational Enterprise and Economic Growth. Cambridge Surveys of
Economic Literature Series. Cambridge: Cambridge University Press
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BUSINESS 7
Ghoshal, Sumantra 2007. Global strategy: an organizing framework. Strategic Management
Journal, 8, pp. 425-440.
Gladwin, Thomas and Ingo Walter 2010. Multinationals UnderFire. Wiley.
Grosse, Robert 2005. An imperfect competition theory of the MNE. Journal of International
Business Studies (June), pp. 57-80.
Guisinger, Stephen, ed. 2005. Investment Incentives and Performance Requirements. New York:
Praeger Publishers.
Hawkins, Robert 2014. International business in academia: the state of the field. Journal of
International Business Studies (Winter), pp. 13-18.
Hennart, Jean-Franrois 2012. A Theory of Multinational Enterprise. Ann Arbor, Michigan:
University of Michigan Press.
Hofstede, Geert and Michael Harris Bond 2008. The Confucius connection: from cultural roots
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