|Categories:||Globalization Unemployment Inflation International business|
The most dramatic and significant trends in the world have been those associated with global business. This aspect has been a result of the opening of borders, which has facilitated the ease of flow of goods and services. In this regard, businesses have been encouraged to venture into international markets in line with the associated demand and supply of the type of goods or services available.
Hamilton and Webster (2012) define international business as that which occurs across national borders. This paper will analyze the scope, activities, and influences of international business based on the study of Banyan Tree, which aims to expand operations in markets such as Europe and America. In addition, the discussion will also focus on the influences of macroeconomic factors that impact the business decision to venture into the above mentioned markets.
In order to analyze the macroeconomic factors that influence Banyan Trees operations, it is imperative to discuss the companys business and industry. Banyan Tree is a luxury operator of spas and resorts. The company has grown tremendously over the years differentiating itself as a personalized provider of high-end accommodation in the form of private villas and resorts. The company has expanded its offerings across borders, with hotels and spas in Thailand, Mexico, and Seychelles. Although the companys predominant market is Asia, it aims at diversifying its services to other markets such as Europe and America. The analysis of macroeconomic factors affecting the business will provide adequate information regarding the intention of the company to expand to these markets.
International businesses are heavily influenced by macroeconomic factors as they operate in markets beyond national borders, where these aspects are at their most impacting level. In this regard, macroeconomic factors according to Hall and Lieberman (2010), are those which impact aggregate demand as opposed to individual markets. Therefore, such factors influence the economy of a country on a broader level, impacting large groups of individuals on a regional or national level. Keillor (2013) identifies the major macroeconomic factors as inflation, unemployment, economic growth, and interest rates. These are further expounded below in the context of Banyan Holdings and its intentions to expand to the above mentioned markets.
According to Keillor (2013), inflation is defined as the increase in the price of goods or services a country produces. As such, the associated increase in the prices of goods or services, leads to the inability of consumers to pay for the subsequent increase. Therefore, with time, the demand for the affected products and services will decline, leading to businesses making price adjustments to encourage consumers to purchase the goods. The most affected goods are those which are considered wants such as cars, consumer electronics, and furniture, amongst others.
The inflation levels differ from one market to another as a result of varying market dynamics and economics. According to Skolimowski (2016), the inflation levels in Europe are largely expected to increase during the last quarter of the year to 0.2%. However, this rate is expected to rise in the coming years as a result of resurging oil prices and the Brexit event.
The companys decision to invest in Southern Europe is strategic given the emerging trends in Arab countries as a result of the Arabic Spring. In this regard, Spain, Greece, and Mexico are suitable markets given their close proximity to the troubled Arabic regions. According to Statbureau (2016) Spain has registered a deflation trend with the month of August 2016 registering a 0.6% drop in consumer prices. This event has been guided by the fall in housing and transportation costs and the increase in consumer spending in leisure activities and products. This provides a great opportunity for Banyan Holdings to proceed with its plans in Southern Spain.
On the other hand, the American market has experienced a rise in inflation at 1.83% on a Year to Date (YTD) basis. This trend has increased over the years, with August registering 0.09% Month on Month (MOM) basis, which is higher than the previous year by 0.25%. This indicates that if the company were to establish its operations in the United States, it would have to spend considerably higher in operation costs. However, this market is expected to improve in future as it is already recovering from the recession that hit its markets in the recent past (Statbureau 2016)
Keillor (2013) explains this concept as the increase in goods and services produced in the economy at one time compared to a different period of time. In this regard, the market witnesses improved economic activity as a result of various reasons such as changes in level of income, political activity, natural events such as occurrence of disasters, and changes in stock markets. Economic activities are measured by Gross Domestic Product (GDP).
In this case, businesses are significantly affected by economic activities. For instance, a decline in GDP means that the level of goods and services in the market has also fallen. As such, the demand for such products and services declines, leading to a subsequent reduction in a business revenues and profit margins.
Economic growth can be analyzed in the two markets, Europe and America, which Banyana Holdings aim to venture into. Over the recent past, Europe has gone through trying times as a result of the global financial crisis, with Spain being one of the hardest-hit countries in Europe as a result of the near-collapse in its banking system. Furthermore, recent events such as Brexit, have threatened stability of the economy, and consequently, dimmed positive economic growth prospects.
However, the region has continued witnessing a rebound from the global crisis leading to positive readings of economic growth. For instance, according to the World Economic Forum (2016), Spain has been voted as one of the most promising and fastest growing markets in Europe with a growth rate of 2.8% based on its GDP. Therefore, the decision by Banyan Holdings to run properties located in Southern Spain is well-deserving. However, a potential threat to this market is the Brexit effect, which has a potentially negative influence on the countrys financial and trading industry in the coming years. However, the full implications of this development are yet to be experienced.
According to Keillor (2013) unemployment refers to the inability of an individual to get a job irrespective of their willingness and ability to perform the roles expected. This trend has devastating impacts on both individuals and the society in general. In this regard, as a result of high unemployment levels, the demand for goods and services reduces. This is because a large number of unemployed individuals have less disposable income. As such, consumer consumption is regulated and kept at a minimum, in an attempt to weather the difficult financial times an individual is likely to experience. As such, premium and luxury goods and services are often the hardest hit in such economic developments, a challenge for Banyans range of services.
According to European Central Bank (2016), approximately 21.1 million (8.6%) individuals in the European Union region were unemployed as of July 2016. This figure is actually a decline compared to the previous month by 69,000 people. More specifically, in Greece, the number of people unemployed was averaged at 23.4% compared to 23.6% in the previous month, indicating a decline in unemployment. Similarly, Spain also experienced a decline in the month of June 2016 at 20%, compared to the previous month at 21%.
In this regard, these trends illustrate a positive indicator for Banyans decision to move into this market. Following significant improvements after the recession period, the decline in unemployment rates as indicated above, presents a great opportunity for Banyan to diversify its interests in Spain and Greece, in accordance with its plans.
According to the Bureau of Labor Statistics (2016), the average rate of those unemployed in the United States in the month of August 2016 stood at 4.5% or 7.8 million individuals, a rate that has remained constant in the three preceding months. In this regard, the figures indicate that the American job market is relatively stable and has a lower unemployment rate than compared to Europe as illustrated above.
Therefore, the intention to run and manage luxury hotels and spas in the U.S is a good call for Banyan Holdings. This is because the market is in a good position to support the services managed by Banyan as differentiated for top-end consumers. Given that unemployment rates are relatively low and that the country has made significant progress post-recession, the company stands a good chance for venturing into the American market.
According to Hall and Lieberman (2010), interest rate is the amount charged to an individual by a lender after borrowing a principal sum. The official interest rates charged to consumers by banks is often guided by the central bank of the respective country. In this regard, interest rates are adopted to spur economic growth and also control inflation levels.
An increase in interest rates by the central bank mean that borrowers have to pay more for any loans accorded to them. As a result, the available of money to purchase goods and services is reduced. On the other hand, if interest rates decline, the amount of money payable by individuals is similarly reduced. As such, more money is available to purchase goods and services, thereby spurring growth.
According to the European Central Bank (2016), the recognized central bank for the Eurozone, the current interest rate in European banks is 0.000%. The low interest rates are an attempt to spur economic growth. In this regard, low interest rates, as explained above, will encourage consumers to spend more on goods and services. Therefore, with services such as those provided by Banyan Holdings, the environment is conducive for consumers to spend on their acquisition.
A similar trend has also been witnessed in the United States, where the Federal Reserve System (FED) has for the longest time, until most recently, maintained low interest rates of 0.25% in a bid to spur economic growth. However, following observance of the stability of unemployment rates and positive economic activities, the FED has proposed the increase of interest rates to 0.5% (Kasperkevic 2016). in this case, a central banks decision to increase interest rates is often seen as a rejoinder to positive economic indicators. Therefore, the stability of the U.S economy provides a conducive environment for Banyan Holdings portfolio of hospitality services.
In light of the above discussion, the focus of diversifying Banyan Holdings services to the European and American markets is well-founded. This strategy is supported by strong market indicators such as positive economic growth, low interest rates, low inflation, and declining rates of unemployment. As a result, Banyan Holdings is on its way to making substantial gains in these markets, achieving its mission of becoming the leading luxury spa and resort market in the world.
Bureau of Labor Statistics, 2016, Employment situation summary, viewed 28 September 2016, retrieved from http://www.bls.gov/news.release/empsit.nr0.htm
European Central Bank, 2016, statistics, viewed 28 September 2016, retrieved from https://www.ecb.europa.eu/stats/html/index.en.html
Galvan, C., 2015, The top 10 most competitive economies in Europe, World Economic For...
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