The Importance Of An Economic Environment

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First I will outline what exactly is meant by economic environment. An economic environment is made up of many different factors, firstly there are cultural factors to be considered for example when investing in a country such as Saudi Arabia an investor should be aware of the strict religious customs there and the effects this may have on the way they can conduct business or the product they sell. A second factor that makes up an economic environment is the political and economic environment facing business, for example a country can have varying degrees of individual freedom in political, economic and cultural spheres. This is something investors should be very aware of as investing in a country where economic freedom is limited may be …show more content…
Indulgence within developed countries is usually higher than that of developing countries as shown by Geert-hofstede.com (2014), where the USA received 68 in comparison with China’s 24. On a business level it could be beneficial to invest in a developed country (this factor considered) due to the fact that there is strong consumption culture within those countries. However on the macro level the argument changes completely as developing economies are likely to be far more stable with consumers saving for if things go bad whereas in developed countries there is culture of buying things on credit, which can prove disastrous if there is an economic crisis, as was shown in 2007 (the Guardian, 2012) China has also “just overtaken Japan to become the world’s second-biggest consumer economy” (The Economist, 2014) so if the investment was in China then the investment would be win-win with long term macro stability combined with a strong consumer …show more content…
However this standpoint is entirely conditional on the long term adaptability of these developing countries. If these countries can adopt the developed economies individualism and reduce the power distance (which the Chinese government is increasingly coming under pressure to do) (Rowen, 2014), whilst maintaining the low levels of indulgence and high levels of pragmatism. From a historical perspective this will be a hard thing to achieve, however if successful it would make the developing economies by far a greater business

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