Many business owners think that what goes on in the wider world has little to do with them, especially if they only interact with customers in their local area. In fact, every business is impacted by global events and by related changes in the global marketplace. Understanding how this works can make it much easier to predict potential problems and to be properly prepared for taking advantage of opportunities. This article sets out to provide a grounding in it.
No business is an island
All businesses are affected by global forces, no matter how obscure their effects may seem. Interest and inflation rates, for instance, depend in large part on the position of the UK in relation to other countries. The availability of labour and what people expect to be paid depends on what other opportunities they have, both here and across the EU. The availability of investment capital depends on international traders’ expectations of how each sector will perform in the coming months and years.
The global recession
One example of global influence that everybody can recognise was the 2008 recession. Beginning with the collapse of the housing market in the southern United States, it spiralled outward as stockholders and investors around the world lost confidence, across multiple market sectors. This meant there was less money available to businesses in need of loans, and it meant that ordinary people, who were losing their jobs or facing wage cuts, could no longer afford to buy things. Because of this, a lot more businesses went under, including ones that had never traded internationally.
Values and prices
In the global marketplace, everything has a value, with some values fluctuating (for instance, the need for iridium increased dramatically after mobile phone technologies took off) and some staying fairly static (people always need a certain minimum quantity of basic foodstuffs). Prices, however, can vary and don’t always remain consistent with value, which is how market bubbles develop, when products are sold for increasingly high amounts based on shared illusions about their true value. When a bubble is big enough, even people who can see through the illusion are often unable to do much about it. What they can do is aim to get out of the way. Similarly, if they sense that prices are about to go up in a particular area, they can buy in early so as to sell when it reaches its peak.
Because of the scale of the international marketplace, distortions like this are far more common on the global scale. Anticipating them is one of the ways that large corporations work out how to balance different areas of their business interests to ensure maximum success. Even small businesses, however, can adjust to take account of them and can plan expansions and phases of cautiously holding on to capital and managing accounts receivable accordingly.
The global supply chain
One of the reasons businesses are so dependent on each other is that very few produce things from scratch, and even farmers, fishermen and miners generally need other people’s products in order to do their jobs. This means that if something goes wrong at one point in the chain, everybody further along that chain is affected. Likewise, when something goes unexpectedly right—as, for instance, when a new source of oil is discovered—the effects often benefit businesses far removed from the original point of gain.
These days, it’s so common for products to be traded internationally that hardly any country can claim to be self-sufficient. Each has different assets and different weaknesses, and trade deals are made accordingly, with tariffs sometimes imposed as a means of trying to protect local markets. Being part of an arrangement like the Common Market means some trading arrangements are more straightforward over time, providing greater stability for businesses.
Trading blocs
Being a member of the European Union means the UK is automatically covered by a number of trade agreements, giving it effectively guaranteed markets for some of its products as long as people in other EU countries have enough money to buy them. It also means that UK businesses can buy in materials from elsewhere in Europe for lower prices than they might have to pay otherwise.
Predicting and responding to global changes
Trying to keep track of such a large system as the global marketplace can seem daunting, but many people manage it well enough to enjoy success most of the time. These days, the internet makes it easier than ever, as it’s possible to find market commentary online as well as keeping track of the markets themselves. Simply reading the financial news will alert you to big changes outside your sector, and if you adjust your spending and buying accordingly, you’ll soon understand the advantages this can give you.
