International Business Macro- Environment
2
The individual assignment is worth 30% of your final grade.
Each student will be expected to submit an individual assignment of 2,000 words in their Week 8 tutorials
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 23rd June and 11th August 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 points within your essay:
What are the implications for international firms doing business within an emerging/developing market?
Do you consider the legal, political, cultural and economic differences between home and host countries
to be important considerations for international firms?
In your opinion, what is the most relevant macro-environment factor 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.
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
International Business Environment
Introduction
The core purpose of any business entity is to make profit. When an organization is young this
remains the most important objective that needs to be met by the organization’s management and
employees. With time the organization gets subjected to a myriad of business-environmental
International Business Macro- Environment
3
forces that compel it to grow. The product life cycle for instance dictates that at some point in the
organization’s future following a protracted period of growth a slum will follow and this will
soon be followed by the death of the organization or at the very least an acute decline in
operations. While this is the final fate predicted for all conventional business organizations, the
management and owners of these business entities can avoid this unpopular fate through
different strategies. One of the more popular strategies that big firms are adopting is the
identification and exploitation of emerging markets all over the globe (Carroll and Buchholtz,
2014).
Emerging markets are those which fall in areas that have not traditionally been served by a given
business entity. The term emerging market in the context of this discussion will exclusively
apply to those markets found in countries other than the home countries of the different
organizations. These emerging markets will be analyzed with special attention to the way
international business entities manage to cope with the different environmental forces that exist
in these markets. The External or macro environment is what will be considered. To further
highlight the relevance of the issues being discussed, two newspaper articles that have featured
relevant scenarios will be highlighted and summarized followed by a critical analysis of the key
macro environmental factors that these organizations get subjected to.
According to Kozlinskis and Guseva (2006), the macro environment of a business entity features
several elements whose impact has a direct as well as indirect impact on the operation and
performance of the said business. From the SWOT analysis these factors will broadly fall into
either Opportunities or Threats. The specific factors that determine the manifestation of
opportunities or threats are the Political Issues, Economic factors, Socio-cultural issues,
Technological Environment, Legal issues and finally environmental (natural) factors. In the
International Business Macro- Environment
4
analysis of emerging markets these have to be diligently considered because they have a
profound impact on the operation and performance of a business entity that is serving an
emerging market.
The two articles to be analyzed are sourced from the Economist and Wall Street Journal
respectively. The article from the Wall Street Journal is titled “Geopolitics Fuel Flight to Safety”
while the article from the Economist is titled “Emerging Markets: The Quantitative Quintlet.”
Summary of Geopolitics Fuel Flight to Safety: Published on August 8, 2014
The article analyzes the performance of the different major global currencies in the wake of
different geopolitical tensions in the Middle East, the Arab World and the Ukraine-Russia
region. The major currencies mentioned are the US Dollar USD, the Japanese Yen JPY, The
Euro EUR, the Canadian Dollar, CAD and the Great British Pound Sterling GBP. The behavior
of these different currencies is being compared in almost real time since the article highlights the
most recent developments in the mentioned region.
For the Russia-Ukraine issue, the article discusses the immediate and potential future impacts of
sanctions that have been slapped on Russia following its perceived interference with the
sovereignty of Ukraine. The sanctions that have been slapped by the Western countries are
analyzed with respect to the impact they will have on investors keen on exploiting the emerging
markets in the region. As for the Gaza conflict at the Israeli-Palestine border, the impact of the
temporary ceasefires is analyzed and speculated upon. The other major conflict in the middle-
east is that being fuelled by the continuous movement of the international terror group Islamic
State of Iraq and the Levant, ISIL. With respect to this geopolitical issue, the article’s author was
focused on the potential impact of America’s surgical airstrikes on ISIL positions. The key
International Business Macro- Environment
5
dynamic that is considered with respect to these conflicts is the degree of investor uncertainty
brought about by these conflicts and the growth or decline in value for these international
currencies. From the analysis it emerged that the Japanese currency the JPY (Yuan) is the best
performer during periods of uncertainty and also the fact that such periods lead to sharp declines
in the number of investor in emerging markets.
Emerging Markets: The Quantitative Quintlet, Published on June 23 rd 2014 on the Economist
This article discusses the pace of credit growth in an economy and the potential results that could
arise when the credit growth is happening too fast. The article was authored against a backdrop
of several grave financial crises dotting the history of international markets globally. One
example that is repetitively brought up is the financial crisis that hit Thailand in the 1990s
(Laplamwanit, 1999).
The country’s internal debts were growing at a rate that was unsustainable and by the time this
was realized it was too late and the country’s banks and companies including the external ones
were all in the deep. The author of this article argues that credit in itself is very important for the
growth of any economy and more specifically that economy that forms an emerging market for a
business entity that is taking its operations global. This is because the credit facilities available
enable various business entities to gain access to financial resources crucial for their operation
and expansion. The more the number of investors in an emerging market the higher the demand
for loans and the assumption of potentially high returns further encourages the banks to go on
somewhat of a ‘loaning spree’(Eichengreen and Hausmann, 2010) . In the case of Thailand the
banking sector got caught up in the excitement so much to the point that they exhausted their
reserves and it was at this point that the market crashed. The article also states that the reaction
International Business Macro- Environment
6
by the country’s government was a little too late as is often the case for countries or regions
affected by such a crisis.
The mitigation initiative in itself also poses a bigger dilemma since one option, the devaluation
of the currency has the potential to harm companies listed in markets abroad. The other
alternative of increasing interest rates poses a very real risk to the local economy. As a
suggestion for investors interested in international emerging markets the article suggests that
investors compare the rate of credit growth against the rate of inflation against the accounting
deficit so as to get a possible indication of the fate of the specific market under scrutiny
(Eichengreen and Hausmann, 2010).
Implication for international firms highlighted in the two articles above
Political factors
The issue of politics highly features in the first article from the Wall Street Journal. The specific
aspect of politics highlighted in this article is the manner in which political temperatures have a
direct impact on the levels of certainty or uncertainty exhibited by investors in the world’s
emerging markets. Through direct reference to three regions across the world where political
turmoil has swept across the land with varying degrees, the article helps to bring out the concept
of risk. While investors or entrepreneurs are typically risk takers, they tend to make informed
decisions prior to their decision to take different business-related risks. It is often mentioned that
the higher the risk the greater the likelihood of a high profit. These scenarios help to demonstrate
what happens when the threshold for risk is exceeded. High levels of uncertainty directly imply
that the risk is too great to be taken. The recent bombardment of ISIL positions in sections of
Iraq was believed to be the first step in restoring normalcy to this region that has over the past
International Business Macro- Environment
7
few months witnessed increasing levels of violence against civilians. The worry of many
investors was clearly the continued advancement of the terrorists. The American bombing raids
clearly convinced these investors that the progress made by this group can be reversed and this
increased their confidence, a very strong indicator that they believe this action by the Obama
administration will reduce the risk levels by lowering the political temperatures which were too
high. These investors must also be keenly following the events in Gaza and Ukraine since they
too have a direct implication on the perceived risk levels in emerging markets (IMF Staff, 1998).
Economic factors featured in the articles
The issue of economic factors features in both of the articles. In the second article that discusses
the issue of credit in emerging markets has a heavier emphasis on these factors. The aspect of
emerging markets that is considered here are not the static elements but more of the active ones.
The behavior of the economy with respect to credit growth rate and deficit need to be monitored
on a regular basis. The article emphasizes that presence of credit facilities and services within an
economy can be used to determine its performance in the international stage. This is because
credit is a good indicator of industrial growth within an economy. At times however the key
decision makers within an economy can get carried away inadvertently placing the borrowers
and their investments at risk. The article does not just focus on theory but uses a real world
example to highlight how important the economic macro- environment is for many business
entities getting into emerging markets. In the event that the credit growth rate is deemed to be too
fast, investors are advised to think twice about the market because of increased likelihood of a
credit crash and its potentially harmful solutions implemented by governments keen on rescuing
the economy. Such markets are dangerous because both the best and worst case scenarios stand a
strong chance to undo the gains that have been made by the business in an emerging market.
International Business Macro- Environment
8
Based on this logic, the most ideal business environments for the establishment of an emerging
market are those that have a relatively low credit growth rate as this will facilitate better planning
due to higher levels of market stability in the long run (Khanna and Palepu, 2013).
Another economic factor that needs to be considered is the currency that is the most ideal in a
given economy. The article analyzes the recorded behaviors of different global currencies against
increased levels of uncertainty occasioned by sharp increases in political temperatures. Investors
need to find a way of understanding or predicting the interaction between these currencies and
the local currencies of the emerging markets. This will help them to cushion themselves against
risks that come up in these markets due to international events (Wall Street Journal, 2014).
Legal Issues
The legal business environment mostly refers to the regulatory framework that has been put in
place by the relevant authority to keep business practices of investors and financial institutions in
check. Some emerging markets’ regulatory frameworks have many grey areas which
international firms tend to exploit as a result of decreased or a complete lack of government
scrutiny into components of their operations. This may be perceived as a good thing that needs to
be exploited while the chance is there. There is however a flipside to such under- regulated
business environments. The structure of the economy of many emerging markets is one that is
accustomed to relatively low volumes of transactions due to lack of economic development. For
many emerging markets the growth usually begins gradually followed by a sudden surge that at
times upsets the balance of credit and available resources. Thailand’s financial crisis in the 1990s
is a good example of what happens when the market is poorly regulated (IMF Staff, 1998).
International Business Macro- Environment
9
Investors should therefore carefully analyze the legal framework governing business so as to
confirm if steps have been taken to avert avoidable financial crises.
The key difference between home markets and emerging markets for international firms is the
fact that the home markets are usually highly structured with clear definitions of the different
market parameters. In the emerging markets the economy is usually still in its development
phase and many ambiguities exist thus higher levels of uncertainty (Khanna and Palepu, 2013).
In my opinion the most important macro- environmental factor to consider is the economy
because this is the component of the business environment that provides a platform for the
transactions that will take place. According to Palley (2010) the Minsky cycle is a concept that
elaborates on the manner in which unethical players manipulate market information to profit at
the expense of the rest of the players in the market (Carroll and Buchholtz, 2014). Having a good
understanding of the market will enable the organization’s decision makers to be alert for such
scenarios and others (Buttonwood, 2014).
International Business Macro- Environment
10
References
Buttonwood (2014) The Quantitative Quintet- How fast should credit grow in an economy? The
Economist Online.
