Management Economic Environment of Saudi Arabia - Assignment Example

Management Economic Environment of Saudi Arabia The development of Saudi Arabia economy has developed through the establishment and expansion of the Saudi nation over the past fifty years. The process of developing the state and the oil revenues distributed in the nation have together exemplified the economic prospects of the country. The influence of the young institutions has few residues from old economy, which endures unaffected. The viability of economic development depends on the manager’s dilemma. It is noted that countries that experience high-income are the logical regions that business develops based on the quality of resources and the stability of political and legal environments. However, the high share of consumption occurs in the high-income countries (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 23). An estimate of 1 billion residents are accounted for more than 80% of the global consumption. In Saudi Arabia, an estimate of 4.5 percent of the global population benefits, although it accounts for more than 30% of the global consumption. It is worth noting that developing countries, exhibit accelerating growth and excellent market potentials. In sheer sizes, the developing countries home 80% for the entire world’s population. Based on the needs, 5.5 billion of the national citizens usually aspire to live improved lives. However, the consumptions increase drastically in developing countries, than in the already developed countries. This means that the consumption rate of Saudi Arabia has outpaced high and low income countries in many products groups. Their motor fuel, meat consumption has doubled, and fish consumption has increased drastically since the year 1990. The global credit crisis usually improves the differences ranges. The economies of the huge and low indebted developing nations such as China, and India in contrast to Saudi Arabia and they are improving strongly while developed countries usually struggle with a slow growth of their economic (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 33). The gap between the emerging growth of Asian markets and Saudi Arabia has never increased. However, basing the experience from below the pyramid, the trend signals the developing opportunity for fulfilling the requirements and basic wants of many low-income consumers in the entire world. However, the economy of the Arabian Peninsula has been determined through various contributions of individuals living near the wells and oases. However, through such prospects, it is evident that the slight development is usually presented by the bottom region of the pyramid since it is minimal to be sufficiently profitable for most of the MNEs. The profits are usually constrained considering the need to design and develop low-cost products. These products usually require innovations that blend the old and new technology. The poor countries are the high developing, and they share global consumption that results to the countries occupying the small base. The country's economy dilemma is imposed on how accurately managers estimate the countries potential. The definite resources require that the companies’ invest markets with high potential for profitable performances. Understanding the risk-return tension of global investment option encourages the managers to refine the analysis of economic environments. Managers usually shift analysis from individual level to a collective involvement within the systematic context of the country’s economic environment. In this case, attention is averted from studying the features of individuals understanding of their configuration in terms of overall forest. The managers engage in diverse perspectives, and the first focuses on the level of economic systems of Saudi Arabia. This also emphasizes on current policies and practices shape activity (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 38). The second perspective usually entails of dynamic changes that usually assess the procedures that move a certain country from one type of economic system to the other. These insights are focused on the current character of the market and the evolution path that enables managers to identify where investments should be situated, and where they are not due to perform well. Types of Economic Systems An economic system has various structures and processes that usually guide the allocation of resources and defines the manner in which business activities are conducted. It has been determined through analysis that, in Saudi Arabia, the economic systems are developed by the idea of capitalism while others rely on communism. The differences between the ideas are relevant in consideration to the implications of economic aspects such as ownership and the production control and the freedom of price to balance the supply and demand. Capitalism This is determined as a free market system that has an inbuilt doctrine of private ownership and control. This aspect determines that capital owners usually possess inalienable property rights that are legitimate to earn profits, in return to their efforts, risks and investments in the businesses. The main factor of capitalism is to ensure that resources are allocated following the consumers exercises and that producers respond according to the aggregated demands. However, this means that capitalism is the key factor towards any nation’s prosperity and peace (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 41). Communism This factor is usually centrally based on the factors of production and control of diverse economic activities. However, the socioeconomic structures and political aspects in Saudi Arabia develop the egalitarian and steles society that focuses on the command given by the government, to control their economy. In this case, ideology is defined in an ideal sense that is rarely put into practice. However, managers utilize endpoints set by the doctrines, to analyze the type of economic systems that prevail in the entire world. These features include market economy and mixed economies. Market economy This is a system has implications of individuals rather than that of the Saudi Arabia government. The market economy ensures that individuals have the freedom of deciding their position to decide where they work and for how long, and how their money is saved and utilized. This view is anchored in the laissez-faire, and there is a notion that a market performs well when they are left to cater for their internal dynamics. Based on the government regulations, a free market is effective since it determines the relationship of the price, demand, supply, and quantities. Adam smith has been accredited for the principle, whereby the producers make products that consumers get the urge to produce. This means that consumers ensure that the producers put capital and labor to their possible utilities. Private ownership of resources Individuals have been termed to initiate economic decisions, whereby the Saudi Arabia market economy usually depends on individuals and companies. Private ownership of goods and resources means that a market economy is allocated to various factors of production. The sovereignty of the consumers influences the allocation of resources through the demands of the products, and they act as the cornerstone for economy development. According to the multinational companies, it has been determined that political risk refers to a risk that host countries encounter when making their political decisions. This aims at proving their adverse effects on the multinational profits and goals. However, adverse political actions in Saudi Arabia usually range from very detrimental aspects, such as massive destruction based on the revolution of the finances and this result to the creation of laws, which hinder capital movement (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 48). There are two types of political risks; these include macro risk and micro risk. Macro risks usually refer to the actions taken, and they usually affect the international firms, these actions include expropriation. However, the micro risk refers to adverse actions that affect various industrial sectors; these are corruption and prejudice actions against companies in foreign countries. Despite the political risks that multinational corporations encounter, it is evident that the companies usually end up losing a lot of money if they are unprepared for adverse situations. Various measures are developed in cases where multinational companies can initiate to minimize political risks even before investments commence. The simplest solution is the fact that they are expected to conduct research based on the risks either encountered by a company, through reports from their business advisers or researching on the measures in the internet. This ensures that they have the knowledge of not starting operations in countries that are considered as political risk hotspots. However, although the policies are usually effective, for some companies in Saudi Arabia, it is important that they prospect the amount of risk that ensures that a country is not lucrative in consideration to the calculated risks. In such cases, companies usually negotiate compensation terms, with their host countries so that there is the legal basis for recourse. However, at times this has been noted to disrupt the organizations operations. One of the challenges of the program is that the legal system of Saudi Arabia may not be as effective and foreign countries fail to win cases against the host countries. However, when revolutions develop, a new government fails to honor the actions of the prior government rules. In conclusion, the capital movements rather than trade has become a driving force for the world’s economy; however, both goods and services have not been coupled although the link has developed to be loose and unpredictable. However, the changes in Saudi Arabia economy have been described as cyclical. It is worth noting that the results of the economic changes are simple, and most of the economic theories focus on their results. It has been noted that the demand basic resources such as water, food, and shelter have affected the population development of Saudi Arabia (Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, 52). With an increase in capita income and urbanization, the consumer patterns of Saudi Arabia have been adjusted to converge with the industrialized worlds. Economic growth, contributes to the consumption of energy, and it is usually affected by the structural changes of the economy. References Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises. Washington, D. C: World Bank, 2013. Print. Read More