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1. Political Instability
Political stability has a huge impact on a country’s economy as it effects the economic growth. Politically instable countries lower the investments and economic developments. It is crucial for an international business to establish a business in a politically stable country to reduce the risk of invest in a new business (New Era, 2015). The graph below illustrates the political stability of the United States of America from 1996 to 2017. The political stability index measured by politically-motivated violence and terrorism, where -2,5 is the weakest and 2,5 is the strongest political stability. As the graph depicts below, since the new government won the election in 2017, the political stability was declining to 0,3% in the United States. It is a necessary information for Kala to identify political stability as a high risk. The declining political stability index predicts an economy, where politics is losing its power. It means, that the enormous amount of investment Kala made by expanding to the United States is in stake.
Graph 1 USA - Political stability (The Global Economy, 2019)
2. Inflation
Inflation is an increase in the price of goods and services, which indicates that the value of the money can buy fewer goods and services. It is a major risk for Kala, as consumers’ purchasing power could decline, if the inflation rate is high (Chen, 2019). Low inflation rate (2%) has a positive effect as consumers encouraged to purchase more products and services. High inflation rate above 3 % can cause negative effect on the economy growth, and discourage the country’s central bank of money creation as well as raise the inflation rate (Global-Rates, 2019). The graph below depicts the inflation rate of the United States of America from 2009 to 2019. As it can be seen, the inflation rate in 2009 and 2011 were the highest (2,7%, 3%), and the lowest rate was measured in 2015 (0,7%) (US Inflation Calculator, 2019). The inflation can be caused by many factors, such as increase in demand and supply, increase in the price of goods and services, higher wages and higher taxation (Pettinger, 2017). Despite the fact, that the inflation rate measured low in 2019, it is considered a risk for Kala. As a historical data predicts in the graph, a low inflation rate has been measured in 2010, and it significantly increased the inflation rate high within a year. This historical data draws a conclusion about a rapid change in inflation rate as it can occur anytime and cause an enormous impact on Kala’s business practices, as consumer could lose their buying power.
Graph 2 Chart: United States Annual Inflation Rates (2009 to 2019) (US Inflation Calculator, 2019)
3. Labor Force
Changes in the labor force is most likely to happen and it is a moderate risk for Kala to consider when expanding to the US market. Labor force can be described as the number of employed and unemployed people, who are willing to work. This number excludes students, elderly people and discouraged workers (Amadeo, 2018). Labor force provides information about the quantity and the quality of the labor, which indicates an overall view of the level of production and the rate of economic growth (Dallasfed, 2015). The United States labor force counted 153 million participants in 2017, which was the fourth largest labor force globally. However, the labor force participation rate declines since its peak in 2000, when 67,3% of the total population were available on the job market. As an effect of the great recession in 2001 and the financial crisis in 2008, the number of participant in the labor force fall 62,3% by 2015. Despite the labor force participation rate slowly rose to 62,9% in 2018, the impact of technology innovations, automations, income inequality and outsourced jobs, creates an environment, where employed people discouraged to participate in employment (Amadeo, 2018). It is advisable to Kala to consider labor force as a risk. It predicts the amount of people of an economy, who earn wages and being able to spend it on goods and services. A low labor force rate means, that the population is not fully capable to purchase products, which can cause low purchasing power possessed by the consumers. Moreover, labor force represents the quality of the workforce, which is an important factor for Kala. The people who are employed by the company create value and earn profit by cooperating in the business. An unskilled labor force could have a negative impact on the company’s revenue stream by not being able to correspond to the company’s operations.
References
Amadeo, K. (2018, 12 27). Labor Force and Its Impact on the Economy. Retrieved from The Balance: https://www.thebalance.com/labor-force-definition-how-it-affects-the-economy-4045035
Chen, J. (2019, 03 26). Inflation. Retrieved from Investopedia: https://www.investopedia.com/terms/i/inflation.asp
Dallasfed. (2015, 05). Labor, the Economy and Monetary Policy. Retrieved from Dallasfed: https://www.dallasfed.org/~/media/documents/educate/everyday/labor.pdf
Global-Rates. (2019). Inflation, detailed information about inflation. Retrieved from Global-Rates: https://www.global-rates.com/economic-indicators/inflation/inflation-information.aspx
New Era. (2015, 03 13). Political Stability vs Economic Development. Retrieved from New Era: https://neweralive.na/posts/political-stability-economic-development
Pettinger, T. (2017, 06 07). Causes of inflation. Retrieved from Economics Help: https://www.economicshelp.org/macroeconomics/inflation/causes-inflation/
The Global Economy. (2019). USA: Political stability. Retrieved from The Global Economy: https://www.theglobaleconomy.com/USA/wb_political_stability/
US Inflation Calculator. (2019). Current US Inflation Rates: 2009-2019. Retrieved from US Inflation Calculator: https://www.usinflationcalculator.com/inflation/current-inflation-rates/
