4.3: Economic, Political and Legal Factors Systems which Impact Global Business Operations

Question 1

Identify the 4 economic factors impacting business operations in the global market

Answer 1

• economic activity
• discretionary spending
• interest rates
• currency fluctuations

Question 2

Explain economic activity as an economic factor impacting business operations in the global market

Answer 2

( how ) - A business must be aware of the economic conditions of the country they are based within, and as a result make appropriate business-related decisions. Examples of factors that a business should analyse are unemployment rates, inflation and economic growth.
( why ) - The strength of economic activity can significantly affect a business’ growth and profits. If an overseas country is experiencing an economic expansion, a business
would experience stronger sales, as consumers would be more confident to spend on its products. Similarly, if a country is experiencing lower economic activity, consumer confidence levels would be low, and a business might not experience strong sales of its products.

Question 3

Explain discretionary spending as an economic factor impacting business operations in the global market

Answer 3

( how ) - A business needs to do accurate and timely market research to determine discretionary spending habits and patterns of current and developing global markets. The business would need to determine consumer confidence levels and whether consumers have sufficient disposable income to purchase their products if brought to the market.
( why ) - By analysing the discretionary spending trends of a market, a business can determine whether it is feasible to enter it or not. If consumer confidence and disposable income levels are high, a business would be more inclined to move into it. Whereas, if these factors are low a business would be less inclined to move into it.

Question 4

Explain interest rates as an economic factor impacting business operations in the global market

Answer 4

( how ) - Interest rates are defined as the cost of borrowing money. These have an impact on spending patterns in global markets and may impact global expansion. A business must be cautious of interest rates in order to appropriately manage its financial operations and global expansion.
( why ) - When businesses have access to finance with lower interest rates in other countries, they are able to more easily manage their repayments and reduce their costs. Whereas for countries with higher interest rates, the cost of funding increases, decreasing consumption, sales and profitability as a whole as people are encouraged to spend less and save more.

Question 5

Explain currency fluctuations as an economic factor impacting business operations in the global market

Answer 5

( how ) - Refers to the change that occurs in the dollar value of one country’s currency relative to another country’s currency. The value of these currencies are typically determined by the strengths or weaknesses of the underlying countries’ economies and as such cause changes (fluctuation) in these rates, causing risk.
( why ) - If the Australian dollar rises against a foreign currency, a business may find it less costly to operate in the country of that currency. On the other hand, if the Australian dollar falls against a foreign currency, that business may find it more costly to operate in that country.

Question 6

Identify the 2 political factors impacting business operations in global markets

Answer 6

• the stability of foreign governments
• the relationship of foreign governments with the Australian Government

Question 7

Explain the stability of foreign governments as a political factor which impacts business operations in global markets

Answer 7

( how ) - A lack of political stability in a particular country will affect business operations. Australian businesses should assess how stable a foreign government is, for example know what type of government the country has, how the business may be impacted by changes in the government and also the legal environment within that country.
( why ) - Political instability may lead to higher interest rates, lower consumer confidence and/or increased trade barriers which will create increased risk for businesses and their operations. Whereas countries with more stable governments will have less risk and will therefore be more attractive for Australian businesses.

Question 8

Explain the relationship of foreign governments with the Australian Government as a political factor which impacts business operations in global markets

Answer 8

( how ) - The diplomatic and economic relationship Australia has with a particular country will impact a business’s operations. This may impact businesses in a positive or negative manner, depending on the relationship.
( why ) - If the relationship is positive, for example, with New Zealand, as there is a free trade agreement, this provides excellent business opportunities and makes it easier for businesses to conduct operations. If the relationship is strained with a country, this would provide difficulty in business operations. For example, in recent years the relationship between Australia and China has been strained, causing changes in regulations and issues with import and exports in trade, creating issues for Australian businesses operating in China.

Question 9

Identify the 2 legal factors impacting business operations in global markets

Answer 9

• patent registrations
• product liability

Question 10

Explain competition regulation regarding patent registrations impacting business operations in global markets

Answer 10

( how ) - A patent is legally enforceable and gives a business owner exclusive rights to manufacture and sell any of its products which are new and inventive. The protection of intellectual property is an important strategy to achieve a boosted competitive advantage. A business must also be aware of the global regulation of patents through organisations such as WIPO, to ensure their products are protected internationally.
( why ) - If a business’s intellectual property is protected, competitors will not take its sales and market share from the business and they will not be able to compete directly with a business’s products or services.

Question 11

Explain competition regulation regarding product liability impacting business operations in global markets

Answer 11

( how ) - Product liability refers to an area of business law that allows consumers injured by a purchased product to sue its manufacturer, retailer and distributor for liability. A business can be held liable for negligence, breach of warranty or harm/injury to user.
( why ) - Businesses need to be aware of differences in product liability laws in different countries to: avoid fines, loss of sales and market share, penalties, negative public image, product recalls and litigation costs, etc.