The Ruritanian Project Essay Example | Topics and Well Written Essays - 2000 words

The Ruritanian Project - Essay Example Organizations can choose to conduct environmental scanning of varying level such as, multinational, regional and national. In case of multinational, a wide range of aspects are assessed to identify, forecast and monitor the trends. These trends include the political and economic trends of the countries (Deresky, 2006; Lall and Sahai, 2008). In this case, the company, which is headquartered at United Kingdom, is planning to open its new manufacturing unit in Ruritania. Ruritania is a developing Eastern European country with a stable political and economic condition. This report focuses on providing an analysis of the impact on financial aspect of the organization owing to its operation in this country. The analysis is based on the data provided in the case. Figure 1: Environmental forces affecting the organization (Source: Kerin, Hartley and Rudelius, 2010) Market growth For Foreign Direct Investment, decision making of the multinational enterprise in the host country, market size, pe r capita income, degree of development and changes of market growth, play an important role. The host countries with higher degree of economic development, increasing market size and rapid economic growth are seen to provide better opportunities to the MNEs to exploit the ownership advantages and accomplish economies of scale. It has been suggested that market growth and market size are some of the driving forces that helps the foreign firms with location specific decision making. The market growth plays a leading role in the developing economies to decide on the development of the country from two perspectives such as, increasing domestic market and higher amount of industrial growth. Per capita income, market growth and market size are the traditional economic variables that attract the FDI. From the perspective of the company, they are more likely to invest in the countries with larger market size, higher purchasing power and higher growth potential, rather than the countries wit h smaller market size, lower purchasing power and dawdling economic growth. Market related variables such as, GDP growth, GDP per capita and GDP are also used by the FDIs as important determinants. The level of GDP is seen to capture prospective economies of large scale production and specifically helps in measuring the size of the market. FDI is nothing but a unit of the foreign organization that is trying to establish one of its units in the host country. The absolute and relative sizes of the market are used for estimation. The absolute size of the market is captured by the level of GDP, whereas the growth rate of the GDP is represented by the relative size. A higher amount of GDP per capita generates similar results as the lower balance of payment deficit. The FDIs are seen to be attracted to the host country if they have greater size of potential market and higher amount of GDP (Buxheli, 2011). In the Ruritanian case, the GDP of the country has shown an average growth of 6 perc ent for the past five years, but in the current year, it has shown growth rate of only 0.07 percent, which is poor. This clearly indicates that the GDP growth rate has decreased and the economy is not in a healthy state. A higher growth rate of the GDP implies a robust economy, thereby simultaneously suggesting that the level of unemployment is low and wage increases. On the contrary, if the GDP growth rate is low or negative, then it implies that the economy is in an