Factors Driving Global Business Development
Business Management and Enterprise (Year 12) - Environments (U3)
Kanwal Singh
Factors Driving Global Business Development
Global business development refers to the process undertaken by business to increase their global outreach and venture into international markets.
There are many factors that drive global business development.
Financial Growth Opportunities and Loss Minimisation
The first factor is financial growth opportunities and loss minimisation. They can be split into two subsections.
Financial Growth Opportunities
Increased customer base
A larger market size leads to a rise in the turnover. For example, the Chinese market is one of the largest, encouraging businesses to move there.
Cheaper production costs
Firms benefits from these lower costs in product. Countries, like Australia, have high minimum wages and by moving to a country, where the corresponding legislation is less strict, businesses can save money.
Loss Minimisation
Cheaper production costs
Firms benefits from these lower costs in product. Countries, like Australia, have high minimum wages and by moving to a country, where the corresponding legislation is less strict, businesses can save money.
Economies of scale
Multinational corporations (MNCs) can take advantage of economics of scale, which refer to cost reductions due to the large scale of a business. As production rises, firms move overseas to places where they can use a country’s infrastructure and have lower costs.
Avoiding protectionist policies
Such policies, like tariffs and quotas, look to hinder trade and in some cases, increase costs for a business. These can be avoided by moving to countries, with free trade.
Consumer Purchasing and Spending Patterns
The second driver is consumer purchasing and spending patterns. It refers to the way consumers purchase and factors that influence their choices. Businesses thrive if they are able to adapt to the changes in these patterns. It involves analysing the way consumers spend their disposable income.
There are many different aspects to this:
Economic performance, which is measured through macroeconomic objectives: The main objectives are economic growth, unemployment and inflation. During periods of economic boom, growth is high, unemployment is low and inflation tends to be on the higher side. Consumers spend more as they have more confidence, which is better for businesses looking to expand globally.
Disposable income: Consumers around the world have generally seen rises in their disposable income. As a result, this increases their ability to spend on products.
Multiculturalism: Society, overall, has become more multicultural and accepting of other cultures. For example, consumers in one country want to learn about products from other countries. They have become more accepting overall. As a result, this will lead to increased sales for the business.
Technological advancements: The ease and availability of technology assists in the purchase of goods and services. Online payment systems have become abundant and increasingly secure. Connectivity, through mobile devices, has increased, allowing purchases to happen from all corners of the world. This change in purchasing patterns has assisted businesses with global business development.
World Trade Organisation (WTO)
The next factor is the World Trade Organisation (WTO) and their regulations and sanctions.
The WTO is an intergovernmental organisation, tasked with the regulation of global trade amongst nations. Using a rules-based system, they settle disputes and contribute to the overall management of international trade. Members can access many of the WTO’s experts, which entail economists, lawyers, statisticians and communication experts. They act as arbitrators and can help facilitate trade agreements.
It drives global business development, as countries know that if disputes arise, the WTO can assist. Another key role is the prevent MNCs from exploiting developing countries, especially in terms of the natural environment and labour. They also ensure transparency between trading partners, as well as reduce trading barriers.
Deregulation of the Financial Market
The deregulation of the financial market refers to the elimination and reduction of government intervention in a particular market. The rationale behind doing so is that this will allow the most adaptable firms to shine and will effectively allocate finance and resources.
A key example in Australian history is Paul Keating’s decision to float the Australian dollar (AUD) in 1983. Initially, the government/reserve bank would fix the exchange rate. However, Keating’s decision allows the market forces of demand and supply to determine the exchange rate, which is perceived as economically beneficial.