The economic environment refers to those economic factors which largely influence the functioning of a global business organization in any country. These factors consist of production processes and the wealth distribution system prevalent in countries. The economic environment also affects the marketing activities of the organization. In addition to this, the market size and consumers’ willingness to spend also plays a vital role in determining the economic environment of a particular nation.
Thus, some of the other economic factors are interest rates, inflation, disposable income, savings of the society, etc. All these factors prevalent in the environment influence the purchasing power of the consumers in that particular country. Moreover, economic development leads to changes in the tastes and preferences of customers.
Understanding the economic environment of other nations and their markets will prove beneficial for the management, to anticipate the impact of the latest trends and happenings on the future performance of the organization. The fact that a country will prove good as a host for global business projects depends upon its size, rate of economic growth, and its per capita income. Countries having lower per capita income are not profitable for the heavy machinery market but are better for agricultural equipment. Such countries cannot bear the price of technical machines. Countries with good growth rates are prospective markets for the latest industry items and consumer goods/services.
However, few industrially backward nations are developing at a faster pace. For example, the USA will face competition from China and India in the near future. Even though the per capita income of the USA is seven times and twelve times than China and India respectively, these two countries are rich in human resources as their population is very high.
Infrastructure and marketing practices like public services, banking, utilities, communication, and transportation facilities are also considered while making plans to enter an international market. Inadequacy on account of infrastructure can hinder the plan related to manufacturing, promoting, and distributing products and services in certain countries.
Determinants of Economic Development
The economic development of a country is mainly affected by two main factors which are as below:
1) Economic Factors in Economic Development:
The various factors which can be analyzed for determining their role in economic development are as below:
i) Capital Formation:
Conventionally, the strategic role of capital has been identified in economics to increase the production level. In the entire world, it has been identified that a country that is looking to increase the economic development has the only option of saving a high ratio of its income so that it can increase the investment level. Over-dependence on foreign aids is not safe and thus it is advisable to avoid them.
ii) Natural Resources:
Natural resources are the main factors that affect the development of any country. This consists of the quality of the soil, forest wealth, good river system, minerals and oil-resources, good and bracing climate, land area, and so on. In order to have economic development, it is quite important to have natural resources in greater quantities. The country which has limited natural resource can struggle in order to acquire higher development.
iii) Marketable Surplus of Agriculture:
From the viewpoint of national development, it is important to have an increase in the agricultural yield along with increased productivity. But the most important thing is to have an increased marketable surplus of agriculture. The term ‘marketable surplus’ can be defined as the additional output in the agricultural sector, more than the required quantity by the rural population to survive. The main significance of the marketable surplus in the developing economy is mainly related to the fact that the survival of the urban industrial population depends upon it.
iv) Conditions in Foreign Trade:
Economists used the classical theory of trade quite commonly for a fairly long time in order to discuss that there are some advantages to the countries by trading with each other. From the current perspective, this theory advises lesser countries to focus on having the specialisation in the production of primary goods due to comparative cost advantage in the production of these goods. The countries which are able to develop the industries in a shorter time period can be benefited from the foreign trade. For their industrial products, these countries will be able to find out the international market somehow.
v) Economic System:
The economic development prospect is also greatly affected by the economic system and the historical setting of the nation. In the recent past, a country could have a fair economy and yet having economic development. But at present, the situation is completely changed; it will be very difficult for a country to have economic development by following the path of England’s development.
2) Non-Economic Factors in Economic Development:
It is quite evident from the historical evidence that for the development both the economic as well as non-economic factors are important. Now we will try to explain how these factors affect the economic development process:
i) Human Resources:
One of the most important factors for economic development is the hum.. resource. For the production, the labor-power is facilitated by the man, if the labor of a country is efficient and skilled labor, it will have a higher contribution towards the development of the court.,• There will be low productivity for illiterate, unskilled, disease-ridden, and superstitious people and thus the chances of economic development are quite rare in any country.
ii) Technical Know-How and General Education:
There was a lot of doubt about the direct influence of technical know-how on developmental growth. With the advent of scientific and technological knowledge, more sophisticated technologies were discovered by the human being which ultimately resulted in the continuous increase in productivity levels. The current level of technology is quite sophisticated, yet there is a requirement to give a lot of significance to the Research and Development activities in order to boost development. ,
iii) Political Freedom:
If we observe the present modem history, it will be found that the activities of development and under-development are inter-connected and treating them in isolation is not the correct approach. It is a common fact that the development of England was inter-connected with the under-development of many countries such as India, Pakistan, Bangladesh, Sri Lanka, Malaysia, Kenya, etc., which were the British colonies. These countries were exploited by England uncontrollably and utilized the major part of these countries’ economic surplus.
iv) Social Organisation:
In order to have a fast growth process, it is important to have the mass participation in the development programs. When the individuals feel that the outcomes of the development will be distributed fairly then only the common persons take part in the development activities. With the help of the insight gained from the experiences of various nations, it is found that when the major benefits of the growth are being utilized by the elite groups of the society due to defective social organization, then the common public will not show any interest towards the development programs of the State. In these cases, it is not useful to consider the active participation of common people in the development projects which are run by the State.
The developing nations experience uncontrolled corruption in different levels and it proves to be the negative factor for the development process. Unless the phenomenon of corruption is eradicated from the administrative set-up, it will be quite common to obverse the exploitation of natural resources by the capitalists, traders, and other powerful economic classes for their own benefits. Even the misuse of the regulatory systems is also seen and merit does not become the prime factor to issue the license.
vi) Desire to Develop:
The development process is not mechanical in nature. The desire of the common citizens of a country to have the development decides the economic growth pace in any country. If a country has a low level of consciousness and poverty is accepted as fate by the common public, then the chances of development are quite bleak.