ECONOMIC FACTORS
INTERNATIONAL
BUSINESS
Presented by:-
INTRODUCTI
ON
Economic factors significantly impact the
operations, profitability, and strategies of
international businesses. Key variables
include inflation, exchange rates,
economic growth, interest rates, and
trade policies. Understanding these helps
firms navigate global market complexities.
This presentation offers an overview of
economic factors—their definitions, types,
and influence on international business—
supported by case studies from India and
Brazil.
ECONOMIC FACTORS
Economic factors refers to the conditions and variables
within an economy that influence the performance of
businesses, industries, and markets. These factors
determine the cost of operations, market demand, investment
decisions, and competitive dynamics. They can be broadly
categorized into macroeconomic factors (affecting the entire
economy) and microeconomic factors (affecting specific
industries or firms).
KEY CHARACTERISTICS
• Dynamic Nature
• Interconnectedness
• Global Impact
• Impact on Business Decisions
• Predictive Value
• Policy-Driven
IMPORTANCE IN
INTERNATIONAL BUSINESS
Economic factors shape the feasibility of
entering new markets, pricing
strategies, supply chain management,
and risk assessment. For instance, a
country with high inflation may increase
production costs, while favorable exchange
rates can enhance export competitiveness.
TYPES OF ECONOMIC FACTORS
INFLATION RATES
The rate at which the general price level of goods
and services increases over time.
Impact: High inflation erodes purchasing power,
increases costs, and affects pricing strategies. Low
inflation may signal economic stability, encouraging
investment.
Example: Hyperinflation in Venezuela has deterred
foreign investment due to unpredictable costs.
EXCHANGE RATES
The value of one currency in terms of
another.
Impact: Fluctuating exchange rates affect
the cost of imports/exports and profitability of
foreign operations. A strong domestic
currency makes exports expensive but
imports cheaper.
Example: A depreciating currency can boost
export-driven economies like Japan.
ECONOMIC GROWTH (GDP)
The rate of increase in a country’s economic output,
measured by Gross Domestic Product (GDP).
Impact: High GDP growth indicates strong
consumer demand and market opportunities, while
low growth may signal recessionary risks.
Example: China’s rapid GDP growth has attracted
multinational corporations seeking large consumer
markets.
INTEREST RATES
The cost of borrowing money, set by central banks or market
forces.
Impact: High interest rates increase borrowing costs, affecting
expansion plans, while low rates encourage investment.
Example: Low interest rates in the Eurozone have spurred
business investments.
TRADE POLICIES & TARIFFS
Government regulations on imports and exports, including tariffs,
quotas, and trade agreements.
Impact: Restrictive policies can limit market access, while liberal
policies promote trade and investment.
Example: The US-China trade war imposed tariffs, disrupting
global supply chains.
UNEMPLOYMENT RATES
The percentage of the labor force that is jobless and actively
seeking work.
Impact: High unemployment reduces consumer spending,
while low unemployment boosts demand but may increase
labor costs.
Example: High unemployment in Spain has reduced retail
sector growth.
IMPACT OF ECONOMIC FACTORS ON
INTERNATIONAL BUSINESS
• Market Entry Decisions
• Cost Management
• Revenue and Profitability
• Risk Assessment
• Supply Chain Dynamics
CASE STUDY: INDIA – IMPACT OF
EXCHANGE RATE VOLATILITY
India, a major center for IT and manufacturing, attracted
global firms like Apple and Microsoft. From 2020 to 2023,
the INR depreciated 10–15% against the USD due to
global uncertainties and capital outflows. This
depreciation increased import costs for manufacturers but
enhanced the global competitiveness of Indian exports such
as IT services and pharmaceuticals.
IMPACT ON INTERNATIONAL
BUSINESS
Apple Inc.: Apple increased iPhone Outcome: Apple’s iPhone
production in India via partners like exports from India rose by
Foxconn to benefit from lower labor 20% in 2022–2023, but rising
costs and export incentives. A weaker import costs impacted
INR boosted export competitiveness but profitability.
raised import costs, affecting margins.
Lesson: Exchange rate volatility
Challenges: Exchange rate fluctuations offers export gains but also
led companies to adopt hedging strategies raises cost challenges for
to manage currency risks. international businesses in India.
CASE STUDY: BRAZIL – IMPACT OF
INFLATION AND TRADE POLICIES
Brazil, a leading economy in Latin America, has faced persistent
inflation and shifting trade policies, affecting industries like
agriculture and automotive.
Brazil’s inflation rate reached 10.7% in 2022, driven by
rising energy and food prices, increasing production costs. Trade
policies under the Mercosur agreement and bilateral deals
influenced market access for Brazilian exports, but protectionist
measures in some sectors limited foreign competition.
IMPACT ON INTERNATIONAL
BUSINESS
Volkswagen Brazil: Rising inflation and import tariffs drove up
production costs, especially for steel and energy. In response, Volkswagen
increased local sourcing to cut import reliance and leveraged Mercosur
trade agreements (free trade zone between the European Union and the
Southern Common Market (Mercosur))to export vehicles, helping offset weaker
domestic demand.
Outcome: Volkswagen stayed profitable by adapting to Brazil’s economy,
though high inflation lowered vehicle demand in 2022–2023.
Lesson: Inflation and trade policies demand flexible supply chains and use
of trade agreements to stay competitive in Brazil.
CONCLUSION
Economic factors are crucial to international business
success, affecting market entry, costs, and
profitability. Key elements include inflation, exchange
rates, growth, interest rates, trade policies, and
unemployment. Case studies from India and Brazil show the
need for strategies like hedging, localization, and using
trade agreements.
To succeed globally, businesses must analyze economic
trends and stay agile to manage risks and seize
opportunities.
THANK YOU
