Impact of Credit Crisis on International / Global Businesses
Introduction
Following the currently experienced financial crisis of the year 2007 through 2009, the world investors faced a lot challenges in their process of reinstating their previously well performing positions. The shortages and falls of liquidity among the nations across the world affected a lot of multinationals and other international business, as the crisis seemed more eminent in the United States’ banking systems. As a result of the shortfall of credit facilities among the financial institutions, large organizations were closed down due to lack of enough stocks and capital boosters as a result of insufficient funds globally. The great depression resulted into down stream of various stock markets around the globe as well as evictions and lengthy unemployment level resulting low productivity among corporations and social organizations (Berman 71).
The prolonged financial crisis, which started in the year 2007, through the year 2008 can be described to have affected the entire world economies, even those in the Middle East (despite having a lot of oil reserves). It should be noted that, bank reserved were contracted and the entire credit flexibility was weakened; as there were low liquidity ratios among banks and their central banks. As it was reported in the year 2006, house bubbles were collapsing at a very high rate due to the values of real estates being tied actual pricing, destroying the global financial institutions. As credits tightened, international trade was found to decline sharply as a result of contacted financial resources across the world. Central banks revised fiscal and monetary policies regularly in pursuit of enhancing favorable conditions for better businesses performance across the world (Ellingsen 69).
In this case, international investors failed to predict accurately on the risks involved with mortgages as most of the banks had been rendered insolvent; following the decline in liquidity reserves among the financial institutions. More so, credit rating agencies became unable to predict on the financial situations of various markets; central banks and central banks reacted by developing policies and strategies to stimulate fiscal and monetary policies in pursuit of curbing the deficiencies. Economists and analysts argue that, the depression was very acute and unpredictable that; the strategies to deal with it were not easy (Eaton 118).
Research Question
What was the ultimate impact of the 2007-2009 Financial crisis among global businesses and investors?
Significance of the study
As it has been revealed, international coordination impacts a lot on the ultimate performance of various businesses and other investments across the world. More specifically, equity and liquidity reserves in international monetary institutions ought to be involved in the various transactions taking place among businessmen across the world. Such relationships between financial institutions of the world enhance easy and quick facilitation of credit terms and transactions among investors and businesses through a process called clearing-house effect. On this regard therefore, the study of how international institutions interrelate in various economic aspects finds its relevance on various investment plans across the world (Ellingsen 69).
For instance, when the financial institutions in US were experiencing crisis, no body expected that the Middle East countries with huge volumes of oil reserves would be at threat of facing the consequences of such crisis. On this basis therefore, when the effect of the depression in US hit the world’s productivity; is when people saw the significance of its actual impact on the international businesses. As a result of the contraction of credit facilities among the investors from financial institutions, it became a bit harder for the investors to make new investments as well as maintaining the already existing ones was a problem (Berman 72).
On this basis therefore, the necessity of studying on the ultimate impact of credit crisis among financial institutions in US affected the entire international system of businesses and markets, as a result of limited financial resources capable of enhancing continuity of businesses. As a matter of fact, the eminent relationship among nations ought to be considered as the ultimate effect of the impacts of any economic crisis being propelled from one corner of the world to another. In most cases, this comes as a result of foreclosure, which facilitates continuous interactions on countries regardless of the conditions. It should be noted that, financialization, which facilitates the growth of financial systems across the world contributes a lot in the facilitation of eminent world’s interlinkage in terms of business and investment transactions, resulting into fragile nature of the entire system. Generally, it has been quite significant to study the interrelationships among organizations in various countries in order to determine more accurately how the Great Depression in the United States affected the other nations internationally; in terms of financial performance (Beck 36).
Literature Review
Considering the nature of the world‘s banking systems, which is highly interconnected as a result of e-commerce and globalization,; many businesses and investments have been made overseas. Following the growth of housing Bubble between the years 1998 and 2006, America started experiencing subsequent increase in inflation, as commodities continued to soar in prices. As a result, many individuals found themselves unable to afford for most of their investments and other personal requirements. As a result, a lot of money was borrowed from financial institutions to finance such investments. Certainly, the taking or mortgages within the country at such higher rates in pursuit of financing various investments resulted into appreciation of prices for commodities within the country (Ellingsen 63).
The ultimate effect of such increased borrowing and subsequent increases in prices resulted in the country undergoing sharp and unexpected depression due to decline in liquidity ration among various banks and individuals. In the year 2007, the country faced one of its worst, financial crises by having its GDP decline by 17%. Analysts explain that, such a decline in productivity in US as a result of crisis in credit facilities springing from low liquidity within the country was found to impact investment level within the country to a great extent. As it was revealed, the poor performing economic conditions in US in the year 2007 affected the world market by 7%. This shows how interdependent various economies of the world are; resulting from direct overseas investments, as well as online transactions. The great depression resulted into down stream of various stock markets around the globe as well as evictions and lengthy unemployment level resulting low productivity among corporations and social organizations (Eaton 112).
One of the most significant characteristics of most businesses in the contemporary society is that, they are performed online. Basically, the act of devising e-commerce strategy of marketing by organizations and firms over the internet has seen many businesses high in performance. This has been one of the most potential channels meant to reach a wider customer base since firms and organizations wishes to reach all parts of the world. As opposed to the advertising using television and radio, which are restricted within certain regions, the use of internet will make organizations and firms; thus making them to be known in many other parts of the world; expanding its clients catchments. As a result, the organizations would be making huge volumes of sales due the increased number of clients. As a result, the failure of market condition in US attributed to the failure of other businesses online (Eaton 107).
As it was revealed the status of having many business operations overseas being done online resulted into various businesses throughout the world decline, as a result of the global impact. It is important to note that, the internet strategy of marketing commodities would be more accurate since the customers would be able to view a variety of the commodities offered online. Due to the fact that, the organizations would be quite dynamic in terms of their commodities, more clients from the entire world are expected to purchase a variety of commodities since the higher the number of commodities varieties will enhance a variety of commodities since each customer has his/her own unique tastes and preferences. In addition, the internet strategy would ensure the displaying of the commodities with very attractive graphics resulting into more clients ordering the commodities (Beck 86).
Being a globalized world, e-commerce strategy is anticipated to create a lot social networks resulting into more sales for the organizations and firms. Many business transactions were to be made online through financial institutions which have been well connected over the world; resulting into the depression affecting other country’s performance greatly. Various social networks have been available on the internet like the face book and other social bogs which have enhanced a more interactive business environment. Basically, the use of internet as a means and channel of promoting and advertising the company’s commodities would greatly enhance the achievement of the company’s goals and objectives. Generally, the organizations’ and firms’ aim of reaching the global market would be cherished through the use of the internet strategy as this would ensure the reaching of many people all over the world; which resulted into the impact in US affecting the entire businesses over the world (Berman 75).
The future of the emerging technologies has been a major challenge among managers in various organizations. In order to enhance better and easier management of data, it would be more advisable to adopt cloud computing. This technology has unified all the business processes and allowed them to be performed from a central point. More specifically, computing has helped many businesses in making them perform their processes at an easier and cost effective manner. As a result, this technology has enhanced better performance among organizations as it has been quite reliable and efficient. Cloud computing is a case where all the services of a computer are downloaded from the internet and hence internet is used in storage and communication of information in an organization. This technology is better than the others since it is more flexible and can enhance economies of scale where a variety of operations can be centrally controlled by one computer and an operator. On this basis therefore, the connectivity of individuals and organizations within various parts of the world enhanced interconnected world environment, resulting into impacting on all sides once one side was affected (Moyer 21)
International businesses have been entirely reliable on globalization. Perhaps, Betts (2001) describes globalization as a term used to denote the intermediary flow of thoughts, languages or traditions through a process of acculturation. In this regard, globalization can be described to have led to development of economy and technology among various countries as a result of cultural integrations. More so, globalization plays a major role in eliminating archaic leadership regimes by introducing a common form of leadership among nations. In addition, modern economics has been introduced in such countries to control various economic crises. Certainly, the study of modern classical economics has found its significance and relevance in the currently integrating world economies (Tsay 63).
A case study to demonstrate the impact of the Credit Crisis in General Motors Co
The General Motors Company is a manufacturing corporation for automobiles which has manufacturing centers in 36 countries across the world. Having employed more than 244,500 employees which are also from various parts of the world, the GM had a lot of expenses to cover. In the year 2008, the General Motors was ranked as the largest automobile manufacturing company in America and the second in the whole world. More so, this company has the third largest universal revenues among the automobile manufacturing companies as indicated in a report that was released in the year 2008 (Jones 10).
As was reported, the financial performance of the General Motors worsened from the year 2007 and reached its peak in the year 2009. Particularly, this is the time this company was declared bankrupt, due it running out of liquidity to enhance its performance. A lot of investors withdrew from this company it could not pay them adequately. On this basis, this company lost its reputation during this time and hence it experienced a lot of loss. On the other hand, the US government has tried to reconstruct the financial status of the General Motors Company and to some extent there are a great number of investors who are currently resuming to buying shares in this company. The sales of the GM have been changing over the past five years indicating its financially unhealthy status (Littman, 29).
