Impact of Global Economic Crisis on International Businesses

Impact of the Global Economic Crisis on International Businesses

As the global economic crisis rocked the world in the autumn of 2008, there very few sectors and industries that were not affected by the crisis. In particular, the global economic crisis affected the international businesses or the global multinationals as they were unable to match the growth of the period from 2001-08 in the countries in which they were operating after the crisis struck.

Indeed, the situation was so bad that many international businesses put on hold the expansion plans and their forays into other markets.

Since international businesses rely on global trade to sustain themselves the shrinking of the global economy with exports falling and imports replaced by domestic consumption meant that the international businesses were left in the lurch.

The Global Baltic Dry Index, which measures shipping activity, went into the negative territory, which means that shipping (a measure of growth of trade between countries) actually decreased and shrank when compared to the previous years.

Double Whammy of Stagnant Growth Back Home and Protectionism in Emerging Markets

The other aspect of the global economic crisis was that many international businesses were faced with the double whammy of stagnant growth in the emerging markets and a negative statistic of growth in their home countries. This meant that they could not make up for the lack of growth in their home countries by expanding into emerging markets.

Further, the international businesses had to contend with protectionism and raising of the tariff barriers in many countries, which goes counter to the spirit of globalization.

In other words, when economies decide to restrict imports by raising tariffs and when they place more importance to domestic industry as opposed to foreign businesses, then the implication is that the international businesses are no longer welcome.

Some Strategies employed by International Businesses to beat the Downturn

To combat these negative trends, international businesses used their accumulated cash reserves to acquire local companies so that they would control the economy indirectly. Since they were not as welcome as earlier in many emerging markets, they bought stakes in domestic companies so that they would still get returns in the process. Examples of this are the Chinese companies buying stakes in African and Middle Eastern companies and Western Multinationals acquiring leading companies in Europe and elsewhere.

Even the recent moves of the foreign airlines to acquire stakes in Indian airlines are a move in the direction of entering the domestic market by proxy. What this means is that having adequate cash reserves is the key to surviving an economic downturn.

Closing Thoughts

Finally, as things are looking up after three gloomy years, those international businesses that kept their heads down and focused on their core competencies are faring better than those that hastily pulled out of emerging economies or those who resorted to fire sales of their operations. This also means that eventually when the economies and the markets pick up, those companies that had solid fundamentals are the ones who would survive the downturn.

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International Business