Components of the Domestic and Foreign Environment of Simon Property Group - Case Study Example

Simon Property Group: Environment Analysis of Introduction Simon Property Group is an American commercial real estate organization that is listed in the New York Stock Exchange. According to the company’s fact sheet, it owns, manages and develops retail real estate properties such as malls, community centers, lifestyle outlets and others. The paper mainly focuses on analyzing the various components of domestic and foreign environment of the company and their impacts (Simon, 2014). Identify the company’s domestic environment and discuss how the government regulations affect its domestic environment The most appropriate tool for analyzing domestic environment of a business is PESTLE analysis, which stands for Political Economic, Social, Technological, Legal and Environmental aspects of the analysis. Political environment The political environment comprises government regulations and policies that affect the business environment of an organization. Simon Property Group is the largest real-estate company with a global presence. Being based in the United States (U.S.), the firm’s domestic environment will be influenced by regulations and government policies prevalent therein. Since the organization deals in properties, the major developments in property related regulations will affect the business. Economic environment The economic environment of the company mainly constitutes the country’s gross domestic product, economic growth, unemployment rate, taxation rate and purchasing power of the consumers. Presently, the United States is facing turbulence in its GDP, but personal income of the individuals is slowly growing. Different states in the U.S. have separate taxation rates and purchasing power of consumer, which can prove either favorable or unfavorable depending upon circumstances. Social environment The social aspect of a business environment is way in which projects of an organization affect the society. Currently, consumers show concern not only about product quality, but also its impact on the surrounding. Simon Property ensures that high quality is maintained in their products (projects). They undertake genuine efforts to retain consumers with better service. Keeping in view the growing demand for malls and other entertainment zones, the company continues to invest in a large number of properties to facilitate greater satisfaction of consumers. Technological environment Technological intervention in present market has become unavoidable for every organization. Companies are increasingly ensuring that they undertake technological integration in their activities. The technological environment of the U.S. as well as that of Simon Property Group is highly developed and the company has incorporated technological development in its activities as a part of the growth strategy. Presently, there are a number of federal laws that every organization needs to abide by in the U.S. These laws are mainly practiced to protect organizations from cyber threats and crimes. Legal environment The legal environment of the United States is agile yet strict. Quality of the legal system is one of the major strengths of the United States. There are a number of favorable laws that support flourishing of business therein. However, the legal system ensures that no unlawful practices are employed by an organization such as, bribing and child labor, for expanding its business (The International Bank for Reconstruction and Development, 2013). Environmental aspect With growing environmental concern across the globe, every organization is implementing sustainability factors in their business practices. Simon Property is no exception to this. The company has incorporated a number of sustainable practices in its activities. The organization is recognized worldwide for its sustainability reporting and energy conservation practices. The other activities include waste management and recycling and water management (Simon, 2013). Identify a global environment for the company and discuss how the government regulations affect its global environment. The company has a global presence and currently has properties in countries such as, Austria, Canada, Malaysia, Mexico, Netherlands, Italy, United Kingdom, Korea and Japan. The global environment factors mainly consist of foreign market, foreign regulations and policy, scope of foreign investment, export-import policies and local environment of the foreign country (Simon Property Group, 2014). In context of the given question, the business environment of Simon Property Group in Malaysia along with various regulations will be discussed in the paper. Malaysia is an Asian country with a population comprising mostly upper middle class income groups. The Gross National Income per annum of the country is US$9800. The business freedom, according to the World Bank, has improved from the previous year and growth has also been observed in the property registration indicator (World Bank, 2013). However, certain drawbacks were observed in the country such as tax administration, quality of education among workforce and duration for obtaining business permits and licenses. A number of laws related to credit facilities, bankruptcy, purchase and registration of properties, companies and commercial activities, labor protection and security market govern the legal environment of Malaysia. Malaysian market is growing rapidly due to its low cost and value added business environment. Large number of multinationals is targeting the country for expansion of their business; hence, it is a great opportunity for Simon to invest in properties therein. Furthermore, abundant availability of renewable resources in the country also supports sustainability agenda of the company. The other favorable factors related to Malaysia are its business friendly policies, political stability, moderate tax rate and low inflation. Malaysia is regarded as a melting pot of a variety of cultures (The Asia foundation, 2012). Identify the hard and soft technology and interpret the characteristics, the company should have/use to be successful in its domestic and global environment The business world is currently observing major technological changes across various industries. The distinguishing line between hard and soft technology is dissolving slowly and technologies are being combined for achieving optimum purpose. Any technology that involves human touch is a soft technology, while those that can function without human assistance is referred to as hard technology. The level of productivity is higher in case of hard technology compared to soft technology. Even so, the hard technologies are cost intensive and involve high degree of sophistication and specialization in comparison with soft technology. Selecting any one of these two can result in either high cost or low level of productivity. Considering all these aspects, Simon Group requires combining both soft and hard technologies in their activities. They can incorporate moderate level of specialized technologies that has soft skills as well, thereby balancing cost and productivity of the company (Zhouying, 2003). Identify the political-legal barriers for the company in both the domestic and global environments In the domestic environment, the company can face legal problems associated with taxation and heavy interference by the administration. The company can also encounter possible restriction on ownership of excessive properties. The government often prevents real estate firms from acquiring large number of properties so as to protect small local firms. Such measures can restrict business expansion of the firm. In the developed nations, strong legal steps are taken so as to deter market monopoly. Large companies often have to pay higher amount of direct and indirect taxes, which de-motivate them to operate in the domestic market. In the United States, the degree of legal strictness and tax related costs varies from one location to another. As far as the foreign environment is concerned, the barriers can be tariff and non-tariff in nature. Some countries also apply residence principle that discriminates between local and foreign companies. Political environment affect the domestic and international businesses to a great extent. The governing political party may intervene in the flow of capital from foreign investment in the real estate sector. The company may face tax and other restrictions while operating in a foreign country. Political instability often impacts a firm’s business and hinders organizational growth in domestic and international fronts (The International Bank for Reconstruction and Development, 2013). Identify, compare, and contrast socio-cultural factors of the domestic and global environments of the company The socio-cultural elements of domestic environment for Simon Group include demographic factors such as, age, income and education, life style, local culture, attitude and perceived values. The socio-cultural factors influence consumption pattern and buying behavior of the consumers. Simon Group, being one of the well-known companies of the United States, has been able to earn great extent of brand reputation as well as popularity among consumers. The consumers are able to relate with the brand and purchasing from the same enhances their self-esteem. The socio-cultural environment of the company’s global market is quite different from that of its local market. The socio-cultural aspects of the global market comprise acculturation, workforce diversity, semantic differences and difference in life style and taste. In the global market, the company needs to function in an environment where multiple cultures blend together and each of them has different expectations. An individual’s perception is greatly influenced by his culture and so is their purchasing behavior. In the global market, the company must manage consumers as well as workforce who have different cultures, languages and aspirations. Compared to domestic market, the socio-cultural aspects of global market are more complicated (The International Bank for Reconstruction and Development, 2013). Compare and contrast two economic theories for both the domestic and global environments of the company In this section, two important theories have been discussed in order to compare domestic and foreign environments of the company, namely Theory of Comparative Advantage and Market Imperfections Theory. According to the theory of comparative advantage, no company can have absolute advantage related to its product and hence, they pursue foreign countries or market to gain comparative advantage. Simon Group will have a comparative advantage in term of cost and production, if it purchases properties in countries where the cost is less than that in home country. As a result, the company will sell properties at a standardized cost in the home country, but will earn better profit from the foreign market by exploring the opportunity cost. As per the market imperfection theory, the imperfect market helps organizations to earn profit from the price or opportunity difference in foreign market. Simon Group being a global leader can invest in various overseas properties so as to exploit and capitalize upon those capabilities, which are beyond competitors’ reach in the foreign country while maintaining a standardized price in the domestic market (Krugman, 2009). Strategy development Simon Group needs to critically analyze the domestic as well as various international markets in order to access better opportunities. Domestically, the company should invest in locations, where consumers are willing to purchase, tax rate is low and future prospect is high. The company should fully utilize its brand reputation to promote the product offerings. Being a global leader, the organization has an advantage over its competitors in terms of loyal consumers. In the global front, the company should invest in those markets, where political and economic risks are low, freedom to trade is high and trade barriers to foreign companies are low. Besides these, the company should also take technological developments into consideration and maintain a balance between soft and hard technologies. References Krugman, P. R. (2009). International economics: Theory and policy, 8/E. India: Pearson Education. Simon Property Group. (2014). Businesses. Retrieved from http://business.simon.com/. Simon, D. (2013). Business roundtable 2013 sustainability report. Retrieved from http://businessroundtable.org/sites/default/files/legacy/sustainability/simon.pdf. Simon. (2014). 2014 First Quarter — Fact sheet. Retrieved from: http://f2d62a308d3c313ac136-fe453cfe00977a743e98d480a2f68fee.r14.cf1.rackcdn.com/Q1-2014-SPG-Fact-Sheet.pdf. The Asia foundation. (2012). Malaysia business environment index 2012. Retrieved from http://asiafoundation.org/resources/pdfs/BEIFinalReportcovers.pdf. The International Bank for Reconstruction and Development. (2013). Doing Business 2014: United States. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/united-states/~/media/giawb/doing%20business/documents/profiles/country/USA.pdf. World Bank. (2013). GDP growth (annual %). Retrieved from http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG. Zhouying, J. I. N. (2003). Global Technological Change. Retrieved from http://it.mesce.ac.in/downloads/CriticalPerspectives/booksforreview%20CPT%20S7/9781841501246-1841501247.pdf. Read More