Describe the shifts in the world economy over the past 30 years. What are the implications of these shifts for international businesses based in UK.

University Degree Business and Administrative studies

Question 1

The world economy consists of many different factors. One of the most important ones is the GDP (Gross Domestic Product) of all countries. This factor is influenced by each countries performance in respect to the level of trade, investment and government spending. It is hard to identify an exact definition of the World Economy, since it consists of a vast amount of variables. “It is inseparable from the , and is therefore somewhat of a misnomer, since, while definitions and representations of the "world economy" vary widely, they must at a minimum exclude any consideration of resources or value based outside of the Earth.” (wikipidia)

An analysis of some of the major factors affecting the Worlds Economy will be examined. These will differ between human decisions, such as wars and conflicts between nations and natural disasters. Furthermore a summary of the fluctuation of the world economy will be produced. In this sections a few examples will be given of major nations influencing the economy, aiming to gain a vaster understand of the shifts in the World Economy. Additionally, to observe the implications of these shifts for international businesses based in the United Kingdom, an example of a Multinational Enterprise globally expanded, such as Tesco Ltd, will be used.

Over the last five years many natural disasters have affected world population and the world’s economy. Probably the two most astonishing, disruptive and destructive events were the 2004 Tsunami, on the Indonesian island, where a two meter wall of water hit the coast killing over 200,000 people and the 2005 Hurricane Katrina, one of the deadliest hurricanes in the history of the United States.

Both these events have produced long terms implications. When looking at Hurricane Katrina, social issues, such as new housing, transport and the restorations of roads are a few examples. Although these are very serious factors, the most direct affect to the worlds economy is the astonishing increase of oil and gas, which has risen dramatically not only in the United States, but also Canada, Europe and Africa.

Previous to Hurricane Katrina the oil prices were increasing as China and India both had a high demand, due to concerns about supply. The damage caused to the oil-ring in the ...

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Previous to Hurricane Katrina the oil prices were increasing as China and India both had a high demand, due to concerns about supply. The damage caused to the oil-ring in the Gulf of Mexico, which accounts to 25 per cent of US oil supplies and around 10 per cent of the world’s supply of oil, was so great that oil per barrel increased by more than $20.

Natural disasters are not the only factors that affect the world economy. Human intervention, conflicts between nations and terrorist attacks can play a major role in the disruption of the world’s economy. A good example is September 11 terrorist attacks in the United States. The World Bank stated “another 10 million people in developing countries could be pushed below the poverty line, as a result of the economic impact of the terrorist attacks,” furthermore, “ 10 million more people are likely to be living on less than $1 dollar a day in developing nations, especially in Africa” ( World Bank). Such terrorist attacks have affected the mentality of many individuals; holidays planned by families have been cancelled due to the fear of further attacks.

Over the last 30 years, there has been a huge transformation in China’s export rate. Its production of goods has had a great impact on the world’s economy. The manufacturing of goods have increased from an average of 50 per cent to an astonishing 90 per cent, becoming the manufacturing centre of the world. Technological gadgets, such as digital cameras, mobile phones and computers are some of the products produced by China. Most of this production is exported, increasing to $400 billion dollars since 1990 the exporting ratio.

In the last 20 years, there has been a transformation in the composition of China’s export trade. The share of manufactured goods has risen from 50 percent to more than 90 percent, with primary goods contracting to a share of just 9 percent.

As China is increasingly becoming the manufacturing centre of the world, there Is another nation becoming the centre of information technology and services, India. Between 2000 and 2004, India increased dramatically their software exports, being about $6 billion in the year 2000, reaching an astonishing $16 billion in 2004. The accounting firm Deloitte stated that, “within the next five years the world’s biggest financial firms will have shifted $356 billion and 2 million jobs offshore, mostly to India. One estimate predicts that India’s IT services industry will have revenues of $57 billion and employ 4.4 million people, and constitute 7 percent of GDP by the year 2008.”

An example of a Multinational Enterprise based in the United Kingdom but constantly expanding globally is Tesco. This Multinational is United Kingdoms leading retailer and the world’s third largest retailer, with over 2300 stores across 13 countries and employs 353,000 people. It has four key business units – the core UK Business (Stores), Non-food, Retailing Services and International Business. Originally specializing in food, it has moved into areas such as clothes, consumer electronics, consumer financial services, selling and renting DVDS, compact and music downloads and internet services.

Throughout the 1990’s, Tesco continued its international expansion. In response to a growing Eastern European market, Tesco opened stores in Poland, Hungary, Slovakia and the Czech Republic. During the same period, Tesco also ventured into Taiwan, Thailand and South Korea. Tesco has a sourcing base in India. 90 per cent of India sourcing is accounted for by apparel. Currently South Indian apparel hubs Bangalore and Tirupur account for a large proportion of the sourcing. Over four million vests and T-shirts sold in Tesco stores each year are made in Tirupur, and Tirupur’s knitwear alone accounts for 40 per cent of Tesco’s Indian imports. The company also imports shorts from Bangalore (about a million pieces a year).

Such a Multinational Enterprise, and many more international businesses based in the United Kingdom, will be affected by the oil shifts in world economy. As the price of oil increases dramatically due to terrorist attacks and the long and expensive war in Iraq, businesses have been restricted in expansion and exportation as oil consumption is a key factor to aiding development. Furthermore, as the rising oil prices continue there is less consumption because the basic necessities of heating, food and travelling to work will overrun general consumer consumption and this will have a negative effect on the Multinational Enterprises, such as Tesco. Consequently, consumer products will not be wanted causing a reduction in production.

There have been added global pressures on the economy, effecting directly Tesco’s, on top of the oil prices spiking. The July attacks on London by Al-Queda terrorists have created further instability and fear. Due to this factor potential customers fearing another attack avoided going out, reducing incredibly purchases.

In conclusion, its understandable that the shifts in the world economy, have a substantial impact on international businesses. Furthermore, due to natural disasters terrorist attacks and on going conflicts between nations, the world economy will be under constant fluctuation, which will greatly affect international businesses both domestically and internationally.

Ultimately, at present time business growth in the world is evolving; within the European Union growth is solid with China and India continuing to be engines of growth.