The Role of Economics in International Business Strategies Analysis

This essay critically examines the integral role of economics in shaping international business strategies. It highlights how economic conditions, including GDP, exchange rates, and inflation, directly influence a firm's decision-making processes, resource allocation, and market entry strategies. The essay explores key economic principles like the resource-based theory, supply and demand, and the principles of anticipation, balance, and substitution, demonstrating their application in international business contexts. It analyzes how globalization and interconnected economies necessitate strategic adaptations, such as managing cash flows, navigating economic volatility, and making cost-benefit analyses. Furthermore, it discusses the impact of factors like labor costs, innovation, and externalities on international business success, concluding that a comprehensive understanding of economics is vital for firms aiming to thrive in the global marketplace. The essay also addresses the importance of innovation, strategic positioning, and human resource management in international operations, emphasizing the need for firms to adapt their strategies to the changing economic landscape and competitive dynamics.

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

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enhance the in some period of time then there is a higher chance that expansion is done by the
company (De Jong, 2013). The strategies such as positioning are also done according to this
principle only. Similarly the principle of balance also provides the same effect on the
international business strategies. If a company finds a market suitable for maintaining the
principle of balance then they find it suitable for making expansion. Since the value of
property depends on the balance of land and labour hence companies need to make strategies
related to international human resource management appropriately so that employees can add
maximum value to the operations of the firm and the products and services it delivers
(Schumpeter, 2017). However in the time when the market fluctuation and the economic
changes in different parts of the world are fast hence principles of anticipation and balance is
not easier to manage. Company will also have to make international inventory and
collaboration with other companies in an appropriate manner.
The principle of substitution also needs to be taken care while the company is making its
product strategy for the international market. For instance company aims to expand in any
market they need to check that whether there is any substitute product available in the market
or not. The number of substitute product in the market has an impact on the process of
expansion. However it is also the fact that in the time of innovation substitute that are equally
valuable can be easily found or some other company can also imitate immediately hence
while making international business strategies, companies will have to innovate their
products on the regular basis (Soderbaum, 2012). This will reduce their chances of getting
substitute in the international market by the competitors. However it depends on the
international market environment and the innovation strategies made by the competitors. It
has been seen that companies that were not able to innovate their products have failed in the
international markets. Innovation strategies need to be designed in such a manner that it
improves the overall usability of product and it gets largely differentiated from other products
from the competitors (Rodrik, 2018). It improves the chances of the company to make their
expansion in the market at a much faster rate.
Principle of externalities is also an essential aspect in the development of international
business strategies. A company needs to ensure that they actually have long term profit
generation opportunities in that market or not (Scholes, et al 2014). If the company do not
chose the best market at the right time there is higher chance that they can fail hence in order
to gain desired benefits a firm needs to make strategies that are competent in the
contemporary international business. For a wide range of products company can chose

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different timings for entering into the market based on the economic condition of that country
(Rugman and Verbeke, 2017).
It is also the principle of economics that all the decisions involve cost and opportunity cost is
the most desirable alternative a company does not choose. Hence a better cost benefit
analysis needs to be done by the organisations when they enter into the external markets or
they are planning any kind of external expansion. There must be proper planning about the
way in which costs are utilised and the way in which delays can be restricted so that
maximum benefits from the opportunities can be gained (Wisner, Tan and Leong, 2014).
The application of economics in the areas such as employment also has impact on the
international business strategies. For instance in the countries where the employees powers
are higher or say there is lesser scarcity of jobs, the firm need to make human resource
management strategies that is more employee oriented. Companies are demanding for skilled
employees that too at lower salaries for reducing the overall cost of operations (Stead and
Stead, 2014). However it is seen that company’s main focus is towards reducing the numbers
of employees within the firm and paying higher to the employees but they want efficient
performance from them (Roh, Hong and Min, 2014). Due to this company hire foreign talents
especially from the countries that are lower income. For example all the IT companies from
United States are hiring talents from Asian region as they are highly talented and have lower
salary demands then the talents in their own nation. In conclusion it can be said that both
internal and external economic aspects have greater impact on the international business
strategies. Since the main aim of the companies is to reduce the internal spending of the
company hence they are making strategies that reduce their investment.

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