MBA Research

Trend #27: How the Global Economy Affects Domestic Businesses

Business Trend

It is a small world . . . after all. This smallness is reinforced when economic ripples are felt throughout the world. This month's trend focuses on how the global economy affects domestic businesses.

Workplace Implications

A global economy presents opportunities and challenges to business. It provides opportunities for new, untapped markets, thereby increasing the level of production and consumption. It can lower the cost of production and the prices consumers pay. Since businesses can focus on maintaining and selling specific inventories vs. a wide variety of inventories, they can take advantage of economies of scale, making specialization profitable.  A global economy also provides access to labor with needed skillsets, regardless of where the skillsets are located.

While China’s economy was growing at unprecedented rates, its businesses were buying up commodities that would be used in production. This drove up commodity prices, making it more costly for U.S. businesses to obtain needed resources. As China’s growth rate slowed and it shifted to a service focus, the resources’ prices decreased.
 
When the value of one country’s currency increases relative to those of other countries, challenges crop up. This situation is currently playing out with the devaluation of the euro and the Chinese yuan. When compared to the value of the U.S. dollar, it’s less costly to buy from businesses in those countries—even with the addition of shipping costs. In turn, U.S. exports decrease.  This negatively affects businesses’ bottom line and eventually employment rates.

Business leaders need to apply a global frame of reference when forecasting, strategizing, and making business decisions. Without that focus, businesses can be blindsided by economic challenges and miss out on economic opportunities.

Classroom Implications

Students often have a very narrow view of the world—if “it” isn’t happening locally, “it” doesn’t matter. Teachers can broaden students’ world view by having weekly discussions about world events to have students reflect on and discuss how the events can potentially affect local businesses. Teachers should also share U.S. events and have students discuss the events’ potential impact on business and society in other countries. Current issues for consideration:

  • With the presidential elections coming up, have students debate candidates’ stands on international issues, examining the economic pros and cons associated with the various views.
  • Millions of people are fleeing the Middle East. Ask students why European countries are closing their borders to them.
  • Millions of undocumented aliens currently live in the U.S. Ask students to discuss or debate the best economic solution to this issue.