1. Strategic Market Management 7th Edition – David Aaker
Economic Factors By
Dr. Ravindra Pratap Gupta

2. ISSUED IN PUBLIC INTEREST
Advisable “All material in slides need not be understood. Use your current working environment and experience to relate to situations. Errors and omissions regrettable. Subject to corrections on Being brought to notice.”

3. Quote-1
The Future
Success of an MNC lies in resolving Political Risk Factors with understanding Economic Risk Factors
Ravindra Pratap Gupta

4. The Economic Environment (Economic Factors)
Economic Environment refers to the nature and direction of the economy within which business organisation are to operate.
Economic Environment is important to external factors of business. (PEST)
With Economic Factors we can gauze the Purchasing power of the individual as
Current income
Price
Savings
Circulation of money
Debt
Credit availability.
People income distribution pattern for analysing the market possibilities and impacts on enterprise

5. Economic Factors an MNC needs to gauze
Economic Environment constitutes of
Economic system
Economic conditions
Economic policies
Economic System of the country can be of following types-Capitalist, Socialist, Mixed.
Economic Conditions in resource markets like
Money
Material
Market raw material components
Services
Supply markets

6. Economic Factors an MNC needs to gauze....
Economic Policies as budget, monitory policy, health policy, human resource policy, cultural policy, education policy gives an idea how government in a particular country looks and resolves concerns of individuals and society.
Conditions in resource markets influence the supply of inputs to the organisation by the way of
Costs
Quality
Availability
Reliability of supply of products and services.
Conditions in resource markets determines the economic strength and weakness in the market.
MNC’s from economic environment standpoint need to look at
Development process of the country.
Availability of economic resources of the country.
The level of the economic income of the country.
The distribution of income and assets of the country.
Public finance of the country.

7. Major Economic Factors for MNC
Interest rates
Exchange rates
National income
Inflation
Unemployment
Stock Market

8. Interest Rates
Interest rate risk is the risk that is relative value of security means if the interest rate of the security increases it will adversely affect the value of securities portfolio .
For e .g . Banks that lend short term can hedge against the risk of an increase in interest rates by taking an offsetting short position in financial futures .
Multi National Corporations are affected by multiple of factors which are directly related to interest rate risk such as
Exchange rates
Differential rate of inflation
National exchange controls
Taxation code etc 

9. Interest Rates….
There are various methods for protection against variation in interest rates risks such as by way of
Hedging
Futures and forward markets
By adopting floating rates facilities
Using risk management such as swaps and options.
Due to the growth of financial market of there has been noticed excess volatility in the instruments traded in these markets and interest rates .
Financial markets are the gateway through which these Multi National Companies shall enter into any economy so they are vastly affected .
Companies can reduce the interest risk by adopting hedging strategies with interest rate swaps and derivatives
Risk Protection from start as earlier companies used to bear high risk at the cost of doing business but at present they don 't accept risk only to initiate the business because various protections is also provided to companies. The banks and financial institutions assist.

10. Exchange rate
Most International Business results in the exchange of one currency for another to make payment.
Exchange rate fluctuations affect cash flows and foreign demand. Since Exchange rate fluctuates over time, the cash outflows required making payment change accordingly.

11. National Income
Increase in national income: MNCs produce goods & services at large scale of standard quality.
The products are sold all over the world even in the local market. Consequently, they can earn lot of profit and also pay different taxes like excise duty, income tax, sales tax, etc. which helps to contribute national income.
Payments of tax are also helpful to increase the national income.

12. Inflation Inflation affects all aspects of the economy from
Consumer spending
Business investment
Employment rates
Tax policies
Interest rates
Inflation play a crucial role in front of MNC 's because it increases the risk in form of reduction in value of investment returns.

13. Unemployment
Employment opportunities: MNCs establish their subsidiary company in host country.
They need manpower to work. So they give preference to the local people for employment and also select people having managerial ability from abroad.
Various host countries are suffering from unemployment problem so MNCs are also helpful to provide employment opportunity in host countries.

14. Stock Market
The trading of financial assets such as stocks & bonds buy investors in International Financial Markets has a major impact on MNC’s.
Firstly this type of trading can influence the level of interest rates in a specific country (and therefore the cost of debt to an MNC) because it affects the amount of funds available there.
Second it can effect the price of an MNC’s stock (and therefore the cost of equity to an MNC) because it influences the demand for the MNC’s stock.
Third it enables MNC’s to sell securities in foreign markets. So even though international investing in financial assets is not the most crucial activity of MNC’s
International investing by individual and institutional investors can indirectly affect the actions and performance of an MNC.

15. Dr Ravindra Pratap Gupta
Quote-2
“"The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is not asking the right questions."
Dr Ravindra Pratap Gupta

16. Question
Q 8. What economic factors an MNC needs to gauze? Discuss Major Economic Factors for MNC?

17. Thanks