Political and economic concerns in global expansion of the firm Essay

Political and economic concerns in global expansion of the firm - Essay Example For example, these domestic forces are extremely powerful in advance / developed nations unlike in developing nations where enterprises are blatantly involved in employing child labor, use of unethical practices and irresponsible production methods to maximize their wealth and rate of return. The first major factor that have to be taken into account by strategic planners and top executives of a business entity when going global is accurate analysis of international business environment. Indeed, economic recession and turmoil followed by credit crunch also hampers growth and expansion of host nation’s economy. For instance, the host nation is also dependent on other developing and advance world economies for foreign trade; however, lower aggregate consumption and output reduces trade and commerce activities in such nations that later adversely impacts chosen host country’s markets. In simple words, the recession results in unemployment, poverty and low purchasing power that aggravates business scenario in chosen markets. (Daft, 2009) The second major factor is exchange rate fluctuations of host nation’s currency. Indeed, the frequent undervaluation or overvaluation of currency due to lack of appropriate foreign reserves from foreign trade may lead to exchange losses at the time of conversion. For example, if currency of Japan is undervalued against home country’s (USA) currency at the time of investment ($1 = 90 Yen), it is beneficial for a foreign nation to invest in an economy because more monetary units are received from exchange. Nevertheless, after the formation of business subsidiary if currency undervalues further ($1 = 95 Yen), it would lead to exchange losses when subsidiary firm will opt to transfer profits back to USA. In contrast, if Japanese Yen appreciates and become stronger ($1 = 80 Yen) then US firm will be advantaged