Question

Economic systems across the globe are unique, and businesses need to adapt to fit in to the economic system in which they operate. Consider the types of economic systems: planned, market, and mixed. How are businesses that operate internationally affected by each of these three economic systems? How might this be different for a large business versus a small business?

Answer 1

1) Planned economics system: under this system government have control over the allocation and distribution of all the resources in the economy and decide production and consumption through a planning. So, no private entity exist in this system and hence the businesses that operate internationally cannot enter in such economy in terms of production and selling of goods and services. it is the highest level of government control. Internation businesses have no scope in such system. only a few countries (notably North Korea and Cuba) operate under this system.

2)  Free Market System; In a free market, competition dictates what to produce, how to produce and when to produce. Business is conducted with only limited government involvement. international businesses can easily operate according to market principles. they can analyse the market condition and competition scenario to make itself efficient and decides their profit maximising objective. they can take advantage of good opportunities to invest and expand their business. they have to take decisions on all kind of business activity without external control though there is some regulatory mechanism to check unfair practices. it has minimal government intervention.

Mixed system: it the mixture of above planned and free market system in which some of the key area of production activities and kept under government control while some sectors are free for market and private sectors. this system overcomes the disadvantage of above both system. Businesses that operate internationally can only enter in the areas that are left for private players and market forces decide the production and consumption level. All business activities are regulated by government to ensure smooth functioning of the market. international business has to follow some rules and regulation for investment and production.

Businesses have to consider the types of economic system which is more suitable for them as per their appetite and business areas.

economic system may give more advantage to large businesses to compete and small business may suffer from market competition. in a free market due to economies of scale, leads to exit or merger of small business in the larger business houses. under mixed system government usually supports small business and they grow and have the incentive to do business in the market. The opportunities and area of investment, they have are different from larger business.