Resource based theory allows an organisation

BUSINESS MANAGEMENT

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Application of Economics and its principles is essential to understanding international
business strategy
International business in today’s time has become highly complex and the nature of the
complexity depends on different types of factors. Understanding of economics seems to be
one of the most critical factors (Doz, 2011). Economics plays a critical role in the success of
the firm and understanding of the international business especially helps in making of the
strategies. This has a critical role in the success of the organisation and also guides
organisations to make sure that the strategies that they are making is according to the
demands in the market and the economic condition existing both inside and outside of the
firm (Cantwell, Dunning and Lundan, 2010). Since in the age of globalisation all the
companies are dependent on each other for their success and are interconnected economically
hence they need to make strategies that underline the different aspects of the international
business. In this essay there will be critical discussion over linkage of application of
economics and international business strategies.
International business depends on the economic condition of the companies as well as
economic health of the organisations in different parts of the world. For instance, if the
economic health of the country or the region is good then business gets support from the
external stakeholders. However if it is bad then the growth of the organisation cannot be
ensured. Resource based theory allows an organisation to make sure that they have a plan for
the management of the finances and resources. Since every company has limited amount of
economic resources hence it is critical that firms makes strategies that supports their future
plans and does effective utilisation of the economic resources. The better the effective
utilisation of resources the better is the chance that they can expand in the foreign markets in
a better manner (Murray, Skene and Haynes, 2017). Strategies such as pricing are also made
citing the inflation existing in the market. This is done for increasing the chances of gaining
the market share (Schaltegger, Lüdeke-Freund and Hansen, 2012). For example lower price
would attract people in the markets where the inflation is also on the higher side.
Exchange rate seems to one of the critical factor that is having impact on the international
business strategies. This can be understood in terms of the fact that exchange rate decides that
when a company goes from one nation to another what amount of money they will have to
invest. With the increase in the exchange value there is lesser chance that company can gain
desired profits (Teece, 2014). For instance a company from India going to United States in

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the process of expansion will have to invest more but if the company will be going from
United States to India they will have to invest lesser amount of their economic resources.
This is because USD has higher value when compared with Indian rupee. This will have
impact on the strategies related to investment. With the increase in the imbalance in the
economic environment all across the globe this factor will have to be taken into account
appropriately (Verbeke, 2013). Economic volatility is on the higher side hence an
organisation will have to make sure that they are dealing with the economic strategies in an
appropriate manner especially in the management of cash flows and internal and external
spending at the time of international business operations. However profits generated by the
companies while they are going from one economy to another economy depends on the fact
that how they are moving to another economy and the chance they have in the other market.
It is also the fact that in today’s time countries are demanding that any company invests more
and more in that nation only. Due to this the strategy of own country first is acting as a
restricting force in the foreign investment strategies of the firm (Foss and Loasby, 2013).
In the time when the globalisation has an interconnected all the economies in different parts
of the world the change in the economic environment in one part of the world gets reflected
back in another part of the world. Previously companies are able to manage the economic
damage they have received in one part of the world in another part of the world but now it is
difficult (Smit, 2010). The growth rate and the GDP of the nation will have impact on the
way an organisation make strategies related to the expansion. For example if the GDP of the
nation is good and they are showing good financial growth then there is a greater chance that
company can avail many investors from the market. This will help in their international
strategy making (Bartlett, Doz and Hedlund, 2013). Good economic condition in the market
builds good economic health which supports higher purchasing power from the people. This
will have impact on another principle of economics that is principle of supply and demand. In
order to manage the demands within the supply strategies have to be made in an appropriate
manner. International SCM strategies have to be build according to the demand in that
specific country. The type of supply chain that a company will have to build depends on the
demand in the market.
Principe of anticipation also plays a critical role in the development of the international
business strategies. This is because companies will have to ensure that the strategies that they
are making improve the overall value of their investment i.e. if the company has invested a
particular amount of money on international expansion and if there is a chance that it will