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Economic Environment

The economic environment relates to all the factors that contribute to a country’s attractiveness for foreign businesses. The economic environment can be very different from one nation to another. Countries are often divided into three main categories: the more developed or industrialized, the less developed or third world, & the newly industrializing or emerging economies.

Within each category, there are major variations, but overall the more developed countries are the rich countries, the less developed the poor ones, & the newly industrializing (those moving from poorer to richer). These distinctions are generally made on the basis of the gross domestic product per capita (GDP/capita). Better education, infrastructure, & technology, healthcare, & so on are also often associated with higher levels of economic development.

Clearly, the level of economic activity combined with education, infrastructure, & so on, as well as the degree of government control of the economy, affect virtually all facets of doing business, & a firm needs to recognize this environment if it is to operate successfully internationally. While analyzing the economic environment, the organization intending to enter a particular business sector may consider the following aspects:

  • An Economic system to enter the business sector.
  • Stage of economic growth & the pace of growth.
  • Level of national & per capita income.
  • Incidents of taxes, both direct & indirect tax.
  • Infrastructure facilities available & the difficulties thereof.
  • Availability of raw materials & components & the cost thereof.
  • Sources of financial resources & their costs.
  • Availability of manpower-managerial, technical & workers available & their salary & wage structures.