Global Business Environment: Risks for Social Media Firms and Impact of President Trump's Policies

In this document we will discuss about Global Business Environment and below are the summary points of this document:- Social media firms face risks from government policies, including potential bans and increased taxes. The profitability of social media firms can be influenced by government regulations on digital ads. President Trump's economic policy has impacted foreign economies, discouraging imports and affecting infrastructure investments.

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GLOBAL BUSINESS ENVIRONMENT
BM413
CW2: GLOBAL BUSINESS ENVIRONMENT PORTFOLIO
PAPERS 2, 3 & 4.

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Contents
Topic a........................................................................................................................................3
Topic b.......................................................................................................................................4
Topic d.......................................................................................................................................5
Reference....................................................................................................................................7

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Topic a
The risk of global social media firms face from the policies of the government and the
impact on the operation of the firm.
Social media nowadays has become an integral part of human life. Almost all the users of the
smartphone in the world have a profile in social media. Social media has become so
important in a different aspect of the life that the current government policies concentrate
specifically on social media (Song and Lee, 2016). Government policies are one of the
external factors that influence the operation of social media companies. Thus, the policies of
the government pose a great risk for social media companies.
First and the most important risk that the firms face is the abrupt termination of the usage.
The users of social media are the one who makes it a grand and successful business. Social
media companies run on the advertisement revenue (Falco, Kleinhans and Pereira, 2018). It is
a huge platform for the companies to put across their message to customers of the market.
Therefore, if the government bans the use of social media like Facebook and Twitter in the
country, the firm will lose all the businesses from the advertising companies and the firm will
go out of business. For example, the government of China decided to ban Facebook in the
year 2009 and the company wrapped up its business from the Chinese market (Meijer and
Torenvlied, 2016).
Apart from that, government and its tax rate influence the profit margin of the social media
firms as well. Like all the companies operating in the economy, social media firms are also
required to pay the taxes. If the tax rate is increased by the government the overall net margin
of the social media firm would go down. Lastly, government policies can regulate the rules
and the regulations of digital ads that may not be favourable for the social media firm. For
example, after the scam of Cambridge Analytica last year most of the European countries
including the UK made a stricter data privacy act for social media companies (Porumbescu,
2016). This affected the operation and the profitability of the company. Social media firms
such as Facebook take the advantage of loopholes in digital laws and regulations and hence
their operation is very much vulnerable to the amendments in the laws and the regulations of
the government. Their business operation becomes risky each time the government come up
with a robust set of digital policies.

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Topic b
The impacts of president Trumps economic policy on foreign economies
The president of the USA has come up with a stringent trade policy for the country that
discourages the importer to import important goods and raw materials from foreign
economies such as China, UK, and EU. For example, the economy of China relied a lot on
the infrastructure investment for the growth of the economy. According to the data of the year
2017, the investment in the infrastructure was around 40% of the nominal GDP of the
economy (Grundke and Moser, 2019). However, due to the restriction in the trade, foreign
investment has reduced compared to the figure before the imposition of the tariff. This impact
on the investment has further increased the national debt of the economy as well. The
government of China has shifted its focus from the investment generated growth to a loan
generated growth. VanGrasstek (2019) stated that, in order to maintain a healthy budget
deficit and current account balance, the government increased debt which has now amounted
to 12.65 trillion Yuan. These have also affected the debt- GDP ratio of the economy as well.
Apart from that, the rising debt has made the economy vulnerable to the changes in the
exchange rate as well.
The trade policies of president Trump have also impacted the economies of Europe including
the UK as well. While other economies of Europe such as Germany have experienced a steep
reduction in export volume, the economy of UK has hardly been affected by the policies of
the USA. Germany is an export-oriented economy whose one of the largest market was the
USA (Schenoni and Mainwaring, 2019). After the imposition of the steep tariffs on major
products, producers of Germany have faced inadequate demand. On the other hand, the
economy of UK is different from Germany and hence the policies of the US government have
not been able to affect the operation by much. However, the steel and the aluminium industry
of both these economies have experienced shock due to the tariffs. The impacts of tariff have
also been experienced by other European economies as well. For example, Luxembourg and
the Czech Republic had a reasonably sized manufacturing sector that exported products to the
USA (Leshoele, 2019). The tariff reduced the export demand and hence the prices for the
products in the domestic market fell sharply impacting the profitability of the companies in
these countries.

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Topic d
How the government uses financial and monetary policies to stimulate economic
growth through the trickledown effect
Fiscal and monetary policies are the two most important tool of the government to regulate
and control the economy. While fiscal policies allow the government to shape the tax rate and
the expenditure structure of the government, the monetary policies let the government
regulate the money available in the economy. Fiscal policies are mainly two types, general
legislation and the targeted legislation (Blanchard and Johnson, 2017). In the first case, the
government changes the tax rate and the spending in order to influence the aggregate demand
in the economy. For example, a reduction in tax increases the disposable income of the
consumers and hence their consumption spending increases. Now, consumption is a major
component of the aggregate demand which increases due to the increase in spending. Again,
the government also uses the targeted legislation in order to grow the economy through
trickledown effect as well. Targeted legislation includes government spending in a specific
sector of the economy that further influences the related businesses through forward and
backward linkages (Johnson, 2017). For, example, if the government increases spending in
the generation of solar power, not only the core sector of solar power industry would boom, it
will also help expand the market for the solar-powered cycle as well.
Monetary policies of the government are related to the supply of money in the economy. In
this case, the government uses a number of tools such as interest rate, Seigniorage, an open
market operation to regulate the money supply in the market. There are two strategies that the
government use to increase the growth of the economy, expansionary and contractionary.
Under the expansionary monetary policy the government buys the securities back from the
holders and hence the supply of money increases (Uribe and Schmitt-Grohé, 2017). This
increased supply of money increases the demand for the goods and services in the market and
hence the price and output in the economy increases. However, this strategy of the
government also increases the inflation in the economy which is further curbed using
contractionary monetary policy in order to have a balance in the economy so that, it can grow
smoothly, through the business cycle (Stock and Watson, 2016). Under the contractionary
policy, the government reduces money supply that trickles down to all the sectors of the
economy and demand reduces that further reduces the inflation in the economy. This reduced
inflation attracts foreign investors and higher investment that helps in boosting economic
activity and growth.

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Reference
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Falco, E., Kleinhans, R. and Pereira, G.V., 2018, May. Challenges to government use of
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Leshoele, M., 2019. Regional Integration Prospects, Challenges, and Opportunities in Africa:
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Schenoni, L.L., and Mainwaring, S., 2019. US hegemony and regime change in Latin
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Stock, J.H. and Watson, M.W., 2016. Dynamic factor models, factor-augmented vector
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VanGrasstek, C., 2019. Trade and American Leadership: The Paradoxes of Power and
Wealth from Alexander Hamilton to Donald Trump. Cambridge University Press.