How Does the Global Market Impact Businesses?

How does the global market impact businesses? 

There are a variety of factors that affect how well a business performs, some of which will be outside the control of the company.  

One major influence that heavily impacts businesses across all sectors is the overall global market, especially that of the forex market. This is especially true if a business is trading internationally. In the UK, the value of goods exported overseas reached more than £95.7 billion in the third quarter of 2023. This equates to hundreds of thousands of UK businesses trading abroad.  

When trading commodities internationally, there are various aspects to consider relating to wider market conditions:  

Exchange rates 

The forex market and exchange rates fluctuate regularly and are dependent on various factors. A more favourable GBP exchange rate will see UK businesses benefit whereas a weaker pound will impact profits when trading overseas.  

It’s also important to remember that exchange rates can be influenced by various external factors such as political events, inflation and interest rates.  

Supply and demand 

Supply and demand are at the root of the value of most commodities. If supply outweighs demand then the price falls whereas if demand outstrips supply then the value rises. A recent example of this is the supply chain issues and shortages due to the pandemic and post-Brexit issues. 2021 and early 2022 saw extensive food and fuel shortages which resulted in price increases.  

The shortage of semiconductors also affected various industries and had a particular knock-on effect on the car industry. This caused car prices to increase significantly, even across the used vehicle market.  

Currency values can also be affected by supply and demand. When there is a trade deficit, the value of the currency falls due to the decrease in demand. A weak economy also contributes to a weaker pound.  

Every day, investors trade the market via specialist trading platforms which enables them to take advantage of these market fluctuations and changes in supply and demand. 

Preparing and protecting your business 

While you can’t prepare for every scenario, as a business owner it’s a good idea to make a plan so you’re able to combat the effects of market influences. This might include:  

• Forecasting: although it’s impossible to predict every price increase, it’s wise to take into account market conditions, the economy, market sentiment and business demands to prepare your business for the future. 
• Creating an emergency fund: every business should have an emergency fund that can be used for unexpected expenses such as equipment repairs and higher supply prices. 
• Increasing your own prices: this is often a last resort for businesses but is necessary if you’re likely to end up operating at a loss.  
• Cutting costs: this might be difficult in times where every other business is increasing costs but there are a few ways to do this, depending on the nature of your company. You could shop around for cheaper suppliers, find alternate utility providers or downsize your premises.  

Operating a business means being able to handle the downs as well as the ups and being aware of the factors that can influence costs, market sentiment and exchange rates.