Influences on Global Business

Influences on global business

I. Financial

Currency Fluctuations

Exchange rates impact where a business purchase and market its products, sources its raw materials or from where it organises financial capital.

Foreign exchange risk

Transaction Exposure occurs when currency fluctuations can affect the financial costs or revenues of a foreign business transaction. Translation Exposure occurs when currency fluctuations can affect the price of business assets, profits and liabilities. Economic Exposure is the impact of impulsive exchange rate changes on the value of business operations. It can affect long term sales and profitability.

Influence of currency fluctuations on business activities

Marketing Decisions affect the demand for the product in the domestic and global market. Production Decision involve exchange rate as well as labour cost that will influence where a transnational may locate their production facilities. Financial Decisions involve rates that influence sources of finance, costs of remitting profits and the amount of profit from international activities. In trying to authority businesses will be attracted to source with lower interest rates. Strong home currency makes it easier to repay foreign debt, also cut down amount of global earnings and also makes payments to shareholders foreign relatively inexpensive.

Interest Rates

Low rates mean cost of borrowing falls allowing business to expand. Higher rates will intrigue foreign investment and also will increase exchange rate as foreigners will need Australia dollar to purchase financial products.

Foreign Borrowing

Global bond market

It is a market for the sale of bonds issued by organisations outside their own countries. A bond is a form of debt that specifies the timing of principal and interest payments. Eurobond is a bond issued to other lenders form other countries but the in the borrower's own currency

Eurocurrencies

It is a currency that is banked outside its national country. Important source of debt available to business. Characteristics of eurocurrency markets are: quantitative rather than trade market is effectively unregulated and deposits are mainly short term.

Offshore financial centres

These are countries or cities that provide huge amounts of finance in currencies other than their own. Eg are Hong Kong, Singapore and Switzerland.

Political

Tensions between Protectionism and Free Trade

Protection is any form of support that helps to assure a country's produce from overseas competitors in domestic or foreign markets. There are tensions within countries as well as between countries in argumentation over protectionism and free trade.

Tariffs are a tax on imports. The effect of the tariff is to increase the fee of imported products, making the local produced products more attractive.

A quota is a restriction on the amount of imported appliances that can enter the country. The effect is to limit the amount of imported products available, which will lead to increases in the prices of these products.

Subsidies are normally financed by the government. They can be provided through tax advantages, export assistance or cash payments. The effect of a financial aid is to cut down the local producers' costs of production, making them more competitive.

The effect of the protection/free trade argumentation is crucial for business. The policies used by individual countries affect the size and profitability of global markets.

Global Organisations and Treaties

The General Agreement on Tariffs and Trade (GATT)

It was formed in 1948 to encourage free trade by cut down tariffs and other trade barriers. The vulnerability in the GATT to not cover agricultural policy was exploited by many countries such as Japan, Europe, and USA at the expense of Australia and New Zealand.

The World Trade Organisation (WTO)

The World Trade organisation (WTO) had the power to administrate global trade agreements. It's power to settle trade disputes sets it apart from GATT. The 3 main goals of WTO are to assist the free flow of trade and negotiate further opening of markets, settle disputes between its members.

Legal

Contracts

Rights & obligations of parties is different from country to country and managers must assure that they recognise Common law which is based on tradition, custom and previous court decisions. Civil law which is based on a very detailed set of laws governing the way of conducting business. Theocratic law which is based on religious rules, eg Islamic law.

Dispute Resolution

Questions to ask when working out a dispute are:

 Which country's law require

 In which country should the dispute be figure out

 How will the settlement be obligate

 The principle of concord is a legal provision that a country will honour and obligate decisions of overseas courts, as long as those decisions do not break their own laws

Intellectual Property

Refers to elusive assets of a business like patents, brands