Economic Environment

Business fortunes and strategies are

influenced by economic characteristics
and economic policy dimensions such as
the structure and nature of the economy
Economic conditions
Economic policies
And global linkages.
 Structure and nature of economy

1. Level of development of the economy

2. Sectoral composition of output
3. Intersectoral linkages
Economic conditions
•Income levels
•Distribution of incomes
•GDP trends
•Sectoral growth trends
•Demand and supply trends
•Price trends
•Trade and bop trends
•Foreign exchange reserves
•Global economic trends
 Economic Policies
• Industrial policy
• Trade policy
• Monetary policy
• Fiscal policy
• Foreign exchange policy
• Foreign investment and technology policy
 Level of income and its
distribution
• Low income country-----US$875 OR LESS
• Middle income country---US$876 –10725
• High income country-----US$10726 0r
above
 Inflation
If the rate of inflation is higher in home
country----better to start business in host
&vice versa
 Consumption behaviour
It depends upon
1. Preference for price/quality of the
product
2. Propensity to save
3. Quality of population
4. Experience of social security scheme
 Availability of human and
physical resources
A multinational firm looks at the availability
of technical and managerial ability whenever
it analyses the economic environment in the
host country
 Network of Infrastructure
In India an important reason for the
gap between the approval of foreign
direct investment and its actual
inflow is lack of the supportive
infrastructure
 Fiscal, monetary and industrial
policies
Corporate income, tax, excise duties and tariff
on import in the host country do influence
international trade and environment.
 If the monetary policy keeps
inflation with in manageable
limits keeps the interest rate low
and strengthens credit
availability all this have a
operational cost of a
multinational firm
 Global linkages
• Magnitude and nature of cross border
• Trade flows
• Financial flows
• Membership of different international
organizations