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In modern era, managing global environment has become a diverse and complex task for managers. At present, every company strives to operate internationally in order to achieve growth and profitability. While operating in other countries, it is very important for companies to analyse the macro environment of country in order to carry out its operations smoothly. Further, proper analysis helps global managers to develop the plans and strategies in more effective way. The political, economical, technological and legal environment differs from country to country. Companies can make effective decisions regarding investment in other nations by analysing the economic stability, support from government, tax rates and subsidies, technological advancement of country etc. So, it can be stated that for an organization and its manager, it is essential to analyse the environment of country in which they are planning to expand. This report aims at highlighting the macro environmental factors which global managers needs to take into consideration while expanding operations to other countries. It also provides the importance of these factors and their impact on businesses. There are certain political, economical, technological and legal factors which organization needs to determine and analyse before entering a new market. Two counties China and Japan have been selected in this report and there different environment has been highlighted.
Political environment is the extent to which government intervention in business and economy of the country. Further in includes aspects such as tax policy, subsidies, government regulations, and bureaucracy and corruption level of the country. Economic environment defines the economic growth and stability of the country. It covers aspects such as inflation rate, exchange rate, interest rate, employment/ unemployment rate and other economic growth indicators. Legal environment consist of all the legal rules, regulations, restrictions and norms which exist in a country. Product regulations, ccompetitive regulations, health and safety regulations, ddiscrimination laws, labour laws, consumer protection act are some factors which highlights the legal factor of a country. Technological factors determine the extent of potential technologies available in a particular country. It helps organization to work in a cost effective and productive manner. Thus it can be stated that all the above factors are very important and plays very significant role in the success of organization. It order to penetrate the new international market effectively it is very important for global managers to analyse the above stated factors.
Analysis of political, economical, technological and legal environment is a very useful tool for organizations in order to define the potential impact of country’s macro environment factors on business. Further, it allows organizations to identify the possible key changes in outside world in a well structured manner (Ball and McCulloch Jr, 2012). The external environment of country is broad and complex, so it is essential for firms to understand and analyse the same in order to operate effectively.
Political environment of a nation can be termed as the degree of government intervention in economy. Politics plays very crucial role in defining the success of business. Further, the balance between systems of control and free markets in a country defines the success and failure of organization. As changes in global economy also effects the domestic economies, companies must consider various essential factors before expanding into new regions (Marschan-Piekkari, and Welch, 2011). The political environment consists of factors like stability of government, tax policy and regulations that are related to trade and entry mode of businesses. List of some factors which affects the performance of business are mentioned below as:
It can be stated that the political condition of a company directly affects its economy and the economic environment affects the business performance. In a country like China, the government has imposed some formal and informal rules and restrictions which every organization needs to follow (Tietze, 2013). The tariffs are high but are on decreasing slope which is beneficial for businesses that are operating in the country. It can be stated that the nation has politically stable environment. On the other hand Japan ranks 18th among the worlds least corrupt nations. Japan is a constitutional monarchy. The power of the Emperor in the country is restricted and is limited mainly to ceremonial duties. Ministry of Japan has established low rates which promotes businesses and industrial expansion. Whereas the ministry of transport land and infrastructure is responsible for the companies land acquisition and environmental protection. All the health related issues and services are taken care by the ministry of health, labour and welfare in the country. Link between businesses and government are maintained by three national organization which are Japan association of corporate executives, Japan's federal employee association and federal of economic organization (Yuksel, 2012). Government and politics in the country is very supportive and can help global managers to carry on their operations smoothly. The political environment is also important for strategic alliance. It can be defined as the agreement between two organizations which have decided to share resource in order to achieve some common goals and objectives (International Business Management in Today’s Economy, 2015). It is less involved and permanent than a joint venture. Benefit of global and cross border alliance is that the both the organization have economic advantage. The costs and risks are reduced as it is distributed across the members of alliance. Further it also increases the productivity and efficiency of organizations as resources of two organizations are integrated (Cheng, 2007). There are some key elements which global managers need to consider in order to make the alliance successful. Then elements are compatibility, complementary sharing and temporary.
There are certain economic factors which affects the performance of organization. Factors such as inflation rate, exchange rate, interest rate, employment/ unemployment rate and other economic growth indicators are some major economic factors of country which affects the business operations. High interest rates affect the cost, profitability of firms and the cost of capital which is available to businesses (Beamish, 2013). On the other hand, inflation rates affect the demand and supply of goods and services. Exchange rates affect the business by affecting the cost of imported and exported products. The economic factors in country play a significant role in the growth and expansion of business. So, it is very important for global managers to analyse the economic environment of country in organization at the time when it is planning to expand. In a strong economy, nearly all firms enjoy adequate growth and prosperity. Disposable income is high and the level of unemployment is very low in a strong economy. In a country like China, the economy is growing at a very fast pace (Dunning, 2014). At present, it is one of the most powerful economies of the world. Businesses are promoted at every level and the cost of labour and raw material is also very low. It helps organization to produce goods and services at low cost and to enjoy higher profitability (Chinese economy, 2015). On the other hand, economy of Japan is the third largest economy of world. The unemployment rate is decreasing year after year and the GDP is growing at a very good pace. Economic factors have great impact on the global managers. When the economy of country is strong, it helps managers to make the decision regarding investment and expansion (Howes, 2013). Further, it also supports in growth and development of company. On the other hand, in country with slow economy, global managers may face many challenges. The expenditure of consumers is very low and it directly affects the profitability of business. Further, businesses also suffer with financial crisis as the interest rates are very high in slow economy. The growing economy of Japan and China will help the global managers to easily invest in respective countries and in achieving the success in future (Japan, 2015).
Certain strategies can be used by global managers such as global, transactional, international and multi-domestic strategies. Global strategies acts as a strategic guide for businesses that operates in global environment. Further it helps manager to determine the competitive strategies that can help them to penetrate the global market more effective manner. Whereas international strategy's objective relate primarily to the domestic market (Hamilton and Webster, 2015). Multinational strategies are used by businesses which are involved in a number of markets beyond its home country. While operating in different market organization needs different strategies for different market as the macro-environmental factors of countries differs from each other. Some of the companies uses transaction strategies which focus more on increasing sales rather than on maintaining long-term customer relationships. Thus it can be stated that by analysing the factors of market global managers can frame strategies accordingly.
The legal environment consists of all the laws and regulations which prevail in the country. It is essential for companies to consider the legal environment of nation in which it is planning to expand as it helps them to avoid unnecessary legal cost and fines (Glasson, Therivel and Chadwick, 2013). Sometimes, the legal environment is also linked with the political environment of country. Some factors which form the legal environment of country are mentioned below:
Antitrust laws are some rules and laws which are farmed by government in order to protect consumer from unfair business practices by ensuring that fair competition exists in an open-market economy (Yuksel, 2012). Organization should ensure that they strictly follow the Antitrust laws as it encourages them to compete on fair grounds and also helps in protecting exploitation of consumers.
Employment regulations are the body that governs the employer and employee relation in a country. Further it also highlights their legal duties and responsibilities (Ozawa, 2014). Global manager needs to ensure that the employment laws and regulations of the respective countries are strictly followed by them.
Patent infringement can be defined as a civil wrong causing commercial harm. Patent infringement includes the unauthorized making, using, offering for sale or selling any patented invention within or outside the country (Tietze, 2013). In many counties heavy fines and penalties are imposed on the organization which perform such kind of activities.
Health and safety regulations are certain set of rules and policies regarding health and safety which organizations needs to follow (Ball and McCulloch Jr, 2012). Further they also needs to make sure that the same is being followed by their workers. These regulation differ from country to country and every organization should respect and follow them in order to operate smoothly in a particular country.
Discrimination refers to the treatment or consideration of individual, or making a distinction in favor of or against, a person or thing based on the group, class (Griffin and Pustay, 2005). Discrimination can be on the basis of race, age, sex, nationality, religion, and disability. It is one of the major problem which employees and employer faces while operating at global level (Beamish, 2013). Many countries have now formed discrimination laws which protect employees against their exploitation at workplace on the basis of age, race, religion, nationality and sex. While operating at global level businesses needs to ensure that they are following the discrimination laws framed by the government of country.
There are some products which are subject to patents and copyrights. In order to carry out operations smoothly global managers needs to analyze the products which are subjected to copyrights in a particular country (Higashi and Lauter, 2013).
Consumer protection laws are certain rules and regulation which are framed by government of the country in order to protect the exploitation of consumers. Further it consist of some rights which every customer in the country is eligible to enjoy.
The legal system of China is based on People's Republic of China Constitution which consists of a hierarchy of written laws, regulations and administrative directives. In the labour law, government makes some changes in current structure of jobs in country and becomes less strict. Further, this situation creates unemployment opportunities (Tsuru, 2013). The government of China is very strict regarding the labour laws and the employment level is also very high. On the other hand, the consumers of China are well aware of their rights and duties. The improved consumer protection can assist global managers to work in more effective manner (Dipboye and Colella, 2013). There are some common legal rules and regulation which needs to be consider by global managers. Child or forced labour, sufficient wages to meet workers needs, safe working environment, length of working weeks, respects of workers rights are some of the rules and regulations (Hakansson, 2014). While operating at global level businesses are entitled to follow these rules. Further they needs to ensure that child and forced labour are not encouraged by them. They also needs to provide safe and hygienic working conditions to their employees. The working hours and length of work should be fixed (Wang, 2015). In addition to this the salary and wages provided by organization should be adequate so that the workers can meet their needs and requirement.
Technological factors determine the degree of potential technologies which are available in a particular country. Technological advancements helps organization to produce products and services in a very cost effective manner and thus contributes significant to its success. In modern era, the role of technology in businesses has increased to great extent. Innovations and up-gradation in technology has now become one of the crucial aspects of every business (Cheng, 2007). Managers while planning to expand in other countries needs to ensure the technological factors available in the country. Some of the key elements of these factors are mentioned below as:
The numbers of internet user are very high in China which states that the country is very technologically very advance. Use of latest and upgraded technology has contributed a lot to the success of the country. At present China is counted as among one of the largest growing economy of the world (Fidrmuc, Korhonen and Bátorova, 2013). The upgraded machines and methods which are used in country are very effective and are also popular around the globe. On the other hand technology in country like Japan mainly focuses on communication. It is Asia's technological giant and world second largest telecommunication market (Dipboye and Colella, 2013). The research and development department in the country invest large amount of time and efforts in order to develop new technology and bring innovations in the country. Further innovations also support businesses in communication as it helps businesses to developing effective coordination and manage cross cultural communication (Li, Ma and Zhang, 2015). Use of technology such as emails, virtual teams, video conferences can help organization to communicate message and information in more effective manner. Sometimes businesses faces some culture issues such as time, attitude, language, roles etc. so technology can also help global managers to to eliminates the barrier caused in cross cultural communication. Thus, it can be stated that global managers needs to consider the technological environment of the country in which the organization is planing to operate (Ball and McCulloch Jr, 2012). By selecting the countries which support technological up-gradation and innovations businesses will be able to carry out their operation in more cost effective manner.
It can be recommended that global managers needs to consider the macro economic factors while developing expansion plans. With the increase in globalization now every company seeks for global expansion in order to achieve growth and profitability. Operations and activities of organizations are restricted while working at domestic level. Whereas international market providers new platform and opportunities for organizations. Due to this reason now many small and large scale companies are putting efforts to expand their operations in global market. Selection of the market depends completely on the nature, need and requirement of organizations. Whereas there are some factors which needs to be taken into consideration while selecting a particular country. Political condition, economic stability, legal obligations and technological advancement are some of the major factors which should be considered. Further it can be also recommended that hofstede model can be used in order to determine the cultural of different counties. For global managers China and Japan are two most growing and potential market. Both the markets are economically stable and the political systems in the country are also very supportive for organizations. What businesses needs to ensure is that they strictly follow the rules and norms that are formed by the government of respective countries. China is one of the largest growing economies of the world and Japan is the third largest economy of the world. So both the markets have huge potential for businesses and organizations. In terms of innovations also both countries are supportive and leading in the world in terms of technological advancements. It can be recommended that global managers by analyzing macro-environment factors will be in situation to develop effective plans and strategies that will help them to penetrate the market in more effective way.
It can be concluded by this report that global manager cannot develop effective strategies for international market without analysing the political, economical, legal and technological factors. These factors represent the macro environment conditions of the country and their influences on organization. Managers at global level invest huge time and efforts in country which they plan to expand their operations. The inflation rate, exchange rate, interest rate, employment/ unemployment rate determines the level of economic stability in country and support which businesses get from government. Technological advancement in country helps organization to carry out its operation in cost effective manner. While performing globally technologically assist team to communication in more effective manner. Better internet connectivity in country assist in using modern tools such as emails, group waves, video conferencing which makes the communication process of team working in different countries effective. On the other hand it can be concluded that time, attitude, language, roles are some of the barrier which can be faced by businesses while operating in international markets, so global managers needs to take some essentials measures in order to overcome these barriers.
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