What can businesses do to prevent unexpected problems in dealing with sociocultural, economic and financial forces in global markets?  

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In a sense, if a problem is truly "unexpected," one cannot prepare for it. Instead, to prepare for problems, one must learn to expect them. The first step in doing so is to have a firm grasp of history and assume that things which have happened in the past may...

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In a sense, if a problem is truly "unexpected," one cannot prepare for it. Instead, to prepare for problems, one must learn to expect them. The first step in doing so is to have a firm grasp of history and assume that things which have happened in the past may well happen again in the future.

For example, waves of populism, xenophobia, and civic unrest are common sociocultural phenomena which have happened in the past. They can lead to such things as protectionism, including high tariffs and other barriers to trade, and nationalization of industries. While one cannot predict precisely when such events will occur, one can hire political scientists and other experts to monitor trends and have contingency plans in place. For example, the United States in 2018 is a place which is in the middle of a wave of populism with an uncertain regulatory environment and in the midst of imposing various tariffs and other forms of protectionism. Global companies might want to reduce exposure to the US market in response.

For financial forces, one should look at historic trends. For example, if stock markets are overvalued and frothy compared to historic levels of price-earnings ratios, one should be careful about investing and IPOs. If interest rates are at an historic low or a particular currency is overvalued, one should anticipate that these will change. The same is true of prices of commodities and other inputs to many businesses. Many companies hedge against such imbalances with options, currency hedges, and futures contracts which lessen the impact of volatility.

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The question asks what businesses can do to prevent unexpected problems in dealing with sociocultural, economic and financial forces in global markets. There are fundamentally two approaches to this issue. The first approach is to predict future events and analyze their impact on operations. The other is to structure their organization and train their personnel so as to be flexible and adaptive to changes in their market environment. Properly applied, these approaches are synergistic rather than mutually exclusive. Rigorous analysis and predictive methodologies provide a profound knowledge of the environment in which a business operates, but, as the military adage goes, “no plan survives contact with the enemy.” A business must have staff trained to think creatively about new situations, to solve problems as they arise due to factors which simply could not be fully foreseen. 

Predictive techniques are myriad, and combine quantitative/statistical forecasting tools with strategy development techniques. The latter techniques can be identified by various acronyms (e.g. SWOT for Strengths – Weaknesses – Opportunities – Threats). Another model useful in this area is Michael Porter’s Five Forces model, which provides an easily applied framework for organizing and understanding the forces affecting a firm’s marketplace.

Adaptive business structure is a more challenging area. Businesses are constantly trying to strike the right balance between the efficiency of well-defined and rigorously followed procedures on the one hand, and flexible, creative solutions to situations on the other. Modern business practices tend to apply a “team” concept. That is, when a new problem is encountered, a team is assembled representing the various functions of the company. All relevant points of view are brought together, open communication processes are allowed, and solutions developed. Once these solutions are tested in the marketplace and found to be adequate, they become “SOP” and are communicated and enforced throughout the organization. The team in question is often disbanded at this point.

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The only thing that companies can really do to prevent such problems is to make sure that they are not unexpected.  Firms cannot prevent potential problems from arising in the global market.  However, they can make themselves aware of the kinds of problems that are likely to arise and they can plan their responses to such problems.

Companies cannot, for example, prevent the rise of political risk (a sociocultural force) in various markets.  There is nothing a firm can do to prevent China's government from acting in certain ways as it transitions from one leadership to another later this year.  All a firm can do is to anticipate and plan for such risk.  The most likely way to do this is to hire consultants who specialize in predicting the sorts of problems that might arise.  Once this is done, the firm can develop contingency plans for various likely scenarios.

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