Discuss the purpose of international economic analyses and the challenges facing managers who are attempting to conduct such analyses.

Question

What will be an ideal response?

Answer 1

Answers may vary, but may include factors such as the following. The purpose of economic analyses is to assess the overall outlook for the economy and the impact of economic changes on the firm. When a firm enters overseas markets, economic analyses become more complex because now managers must operate in two new environments: foreign and international. Policies designed for economic conditions in one market may be unsuitable for conditions in another. For example, headquarters may require that its subsidiaries maintain the lowest inventories possible, and the chief financial officer may authorize only foreign currency-denominated loans, based on their favorable interest rates. For nations whose annual inflation rates are low (0 to 15 percent), these policies usually work well. But what about countries such as Zimbabwe, which saw inflation peak at an annual rate of 98 percent per day in November 2008? Or Venezuela, which is battling inflation rates of 62.5 percent at the end of 2014? The least desirable scenario is for subsidiaries in these countries to have cash or foreign currency-denominated loans, so the policy for markets with high inflation rates will be just the reverse of what it is for countries with low inflation rates. Besides monitoring foreign environments, analysts must stay informed of the actions taken by trading blocs (European Union, Mercosur, the Association of Southeast Asian Nations) and international organizations (United Nations, International Monetary Fund, World Trade Organization). International economic analyses should provide economic data on both actual and prospective markets. As part of the competitive forces assessment, many companies monitor the economic conditions of nations in which their major competitors are located, because changing conditions may strengthen or weaken their competitors' ability to compete in world markets. The collection of data and the preparation of reports are usually the responsibility of the home office. However, foreign subsidiaries and field representatives are expected to contribute heavily to studies of their markets. Data from areas where the firm has no local representation can usually be less detailed and are generally available from national and international agencies.